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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM 10–Q**

| ý                                                  | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                    |                                                                                          |
| **FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001**        |
|                                                    |
| **OR**                                                  |
|                                                    |
| o                                                       | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                    |                                                                                          |
| **for the transition period ended ___________________** |
|                                                    |
| **Commission File Number 0–23553**                 |

** **

**PHOTOGEN TECHNOLOGIES, INC.**(Exact name ofregistrant as specified in its charter)

| **NEVADA**                           | **36-4010347**                        |
|--------------------------------------|---------------------------------------|
| (State  or other jurisdiction of     | (I.R.S.  Employer Identification No.) |
|  incorporation or organization) |                                  |

**140 Union Square DriveNew Hope, Pennsylvania    18938**(Address ofprincipal executive offices)(Zip Code)

**215/862-6860**(Registrant'stelephone number including area code)

             Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days:

YES:  ý       NO:  o

             Indicate the number of sharesoutstanding of each of the issuer's classes of common equity, as of the latestpracticable date: 38,078,872 SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE,ISSUED AND OUTSTANDING AS OF August 1, 2001

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**INDEX**

| Part I. | Financial Information |                                                                                        |
|---------|-----------------------|---------------------------------------------------------------------------------------------|
|    |                  |                                                                                        |
|    | Item 1                | Financial  Statements                                                                       |   |
|    | Item  2               | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|    | Item  3.              |  Quantitative and Qualitative Disclosures  about Market Risk                           |   |
|    |                  |                                                                                        |   |
| Part II | Other Information     |                                                                                        |
|    |                  |                                                                                        |
|    | Item 1                | Legal Proceedings                                                                           |   |
|    | Item  4.         | Submission  of Matters to a Vote of Security Holders                                        |   |
|    | Item 5.               | Other Information                                                                           |   |
|    | Item  6.         | Exhibits  and Reports on Form 8-K                                                           |   |

PARTI. FINANCIAL INFORMATION

ITEM1.            FINANCIAL STATEMENTS

Photogen Technologies, Inc.(A Development Stage Company)Consolidated Condensed Balance SheetsAll amounts in $

|                                                                                                             | June 30,  2001 (Unaudited)                                                                                                                                                                                                     |        | December 31, 2000  (Audited) |        |
|------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|------------------------------|-------------|
|                                                                                                             | ****                                                                                                                                                                                                                           | ** **  | ****                         | ** **  |
| **Assets**                                                                                                       |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Current  Assets**                                                                                              |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
|                                                                                                             | Cash  and cash equivalents                                                                                                                                                                                                     | $           | 1,684,923                    |        | $ | 622,795 |   |
|                                                                                                             | United  States Treasury Notes, total face value $1,500,000 and $4,945,000,  respectively                                                                                                                                       | 1,500,802   |                         | 4,943,971   |   |
|                                                                                                             | Interest  receivable                                                                                                                                                                                                           | 37,460      |                         | 93,219      |   |
|                                                                                                             | Prepaid  consulting expense                                                                                                                                                                                                    | 143,476     |                         | 760,363     |   |
|                                                                                                             | Prepaid  expenses                                                                                                                                                                                                              | -           |                         | 182,115     |   |
|                                                                                                             | Deposit                                                                                                                                                                                                                        | 100,000     |                         | 100,000     |   |
|                                                                                                             | ****                                                                                                                                                                                                                           | ** **  | ****                         | ** **  |
|                                                                                                             |                                                                                                                                                                                                                           |        |                         |        |
| **Total  Current Assets**                                                                                        | 3,466,661                                                                                                                                                                                                                      |        | 6,702,463                    |        |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Equipment  and Leasehold Improvements,** less accumulated depreciation of $885,618 and  $761,425, respectively | 1,110,297                                                                                                                                                                                                                      |        | 1,377,741                    |        |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Patent  Costs,**  net of amortization of $79,860 and $59,027, respectively                                     | 420,140                                                                                                                                                                                                                        |        | 440,973                      |        |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Deposits**                                                                                                     | 443,753                                                                                                                                                                                                                        |        | 429,370                      |        |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Investment  in and Advances to Affiliate**                                                                     | 10,332,248                                                                                                                                                                                                                     |        | 10,701,490                   |        |
|                                                                                                             | ****                                                                                                                                                                                                                           | ** **  | ****                         | ** **  |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
|                                                                                                             | **Total  Assets**                                                                                                                                                                                                              | $           | 15,773,099                   |        | $ | 19,652,037 |   |
|                                                                                                             | ****                                                                                                                                                                                                                           | ** **  | ****                         | ** **  |
| **Liabilities and Stockholders’ Equity**                                                                    |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Current  Liabilities**                                                                                         |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
|                                                                                                             | Accounts  payable                                                                                                                                                                                                              | $           | 528,033                      |        | $ | 891,171 |   |
|                                                                                                             | Accrued  restructuring                                                                                                                                                                                                         | 174,448     |                         | 330,000     |   |
|                                                                                                             | Accrued  equipment lease                                                                                                                                                                                                       | 187,290     |                         | -           |   |
|                                                                                                             | Current  portion of obligation under capital leases                                                                                                                                                                            | 8,883       |                         | 16,802      |   |
|                                                                                                             | ****                                                                                                                                                                                                                           | ** **  | ****                         | ** **  |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Total  Current Liabilities**                                                                                   | 898,654                                                                                                                                                                                                                        |        | 1,237,973                    |        |
|                                                                                                             | ****                                                                                                                                                                                                                           | ** **  | ****                         | ** **  |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Obligation  Under Capital Leases**                                                                             | -                                                                                                                                                                                                                              |        | 1,554                        |        |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Accrued  Equipment Lease**                                                                                     | 461,957                                                                                                                                                                                                                        |        | -                            |        |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **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 at June  30, 2001, liquidation preference $1,000 per share (in aggregate $12,856,000)                                                              | 128         |                         | 128         |   |
|                                                                                                             |                                                                                                                                                                                                                           |        |                         |        |   |
|                                                                                                             | Series  B Preferred Stock; 402,000 shares authorized; 357,279 and 337,056 shares  issued and outstanding, respectively, liquidation preference $16.88 per share  (in aggregate $6,030,870 and   $5,689,505, respectively) | 3,572       |                         | 3,370       |   |
|                                                                                                             | Common  stock; par value $.001 per share; 150,000,000 shares authorized;                                                                                                                                                       |        |                         |        |   |
|                                                                                                             | 38,078,872  and 37,383,386 shares issued and outstanding, respectively                                                                                                                                                         | 38,080      |                         | 37,384      |   |
|                                                                                                             | Additional  paid-in capital                                                                                                                                                                                                    | 38,842,114  |                         | 37,741,925  |   |
|                                                                                                             | Deficit  accumulated during the development stage                                                                                                                                                                              | (24,471,406 | )                            | (19,370,297 | ) |
|                                                                                                             | ****                                                                                                                                                                                                                           | ** **  | ****                         | ** **  |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Total  Shareholders’ Equity**                                                                             | 14,412,488                                                                                                                                                                                                                     |        | 18,412,510                   |        |
|                                                                                                             | ****                                                                                                                                                                                                                           | ** **  | ****                         | ** **  |
|                                                                                                             |                                                                                                                                                                                                                           | ** **  |                         | ** **  |
| **Total  Liabilities and Shareholders’ Equity**                                                             | $                                                                                                                                                                                                                              | 15,773,099  |                         | $           | 19,652,037 |   |
|                                                                                                             |                                                                                                                                                                                                                                |        |                              |        |
|                                                                                                                  |                                                                                                                                                                                                                                |             |                              |             |  |  |  |  |  |

 

Photogen Technologies, Inc.(A Development Stage Company)Consolidated Condensed Statements of Operations(Unaudited)All amounts in $

|                                                                               | Three  Months  Ended June  30, 2001  |       | Three  Months  Ended June  30, 2000 |      | Six Months Ended June  30, 2001 |      | Six Months Ended June  30, 2000 |       | Cumulative Amounts  From  November 3, 1996  (Inception) |       |       |
|------------------------------------------------------------------------------------|--------------------------------------|------------|-------------------------------------|-----------|---------------------------------|-----------|---------------------------------|------------|---------------------------------------------------------|------------|------------|
|                                                                               |                                      |       |                                     |      |                                 |      |                                 |       |                                                         |       |       |
| **Operating  Expenses**                                                            |                                 |       |                                |      |                            |      |                            |       |                                                    |       |       |
|                                                                               | Research  and development            | $          | 455,667                             |      | $                               | 692,362   |                            | $          | 1,245,455                                               |       | $          | 1,449,859 |   | $ | 10,209,088 |   |
|                                                                               | General  and administrative          | 956,753    |                                | 1,396,736 |                            | 2,081,655 |                            | 2,711,985  |                                                    | 11,478,510 |       |   |
|                                                                               | Restructuring  charges               | -          |                                | -         |                            | -         |                            | -          |                                                    | 597,025    |       |   |
|                                                                               | Provision  for future lease payments | -          |                                | -         |                            | 696,070   |                            | -          |                                                    | 696,070    |       |   |
|                                                                               |                                      |       |                                     |      |                                 |      |                                 |       |                                                         |       |       |
|                                                                               |                                 |       |                                |      |                            |      |                            |       |                                                    |       |       |
| **Total Operating Expenses**                                                       | 1,412,420                            |       | 2,089,098                           |      | 4,023,180                       |      | 4,161,844                       |       | 22,980,693                                              |       |       |
|                                                                               |                                 |       |                                |      |                            |      |                            |       |                                                    |       |       |
| **Loss  from Joint Venture**                                                       | (689,291                             | )          | (609,105                            | )         | (1,161,844                      | )         | (1,068,109                      | )          | (2,671,265                                              | )          |       |
|                                                                               |                                 |       |                                |      |                            |      |                            |       |                                                    |       |       |
| **Investment  Income**                                                             | 27,714                               |       | 141,022                             |      | 83,915                          |      | 242,808                         |       | 1,180,552                                               |       |       |
|                                                                               |                                 |       |                                |      |                            |      |                            |       |                                                    |       |       |
| **Net  Loss**                                                                      | $                                    | (2,073,997 | )                                   | $         | (2,557,181                      | )         | $                               | (5,101,109 | )                                                       | $          | (4,987,145 | ) | $ | (24,471,406 | ) |
|                                                                               |                                 |       |                                |      |                            |      |                            |       |                                                         |       |       |
|                                                                               |                                 |       |                                |      |                            |      |                            |       |                                                    |       |       |
| **Dividends  on Preferred Stock**                                                  | (753,637                             | )          | (793,597                            | )         | (1,485,339                      | )         | (1,097,571                      | )          |                                                    |       |       |
|                                                                               |                                      |       |                                     |      |                                 |      |                                 |       |                                                    |       |       |
|                                                                               |                                 |       |                                |      |                            |      |                            |       |                                                    |       |       |
| **Net  Loss Applicable to Common Shareholders**                                    | $                                    | (2,827,634 | )                                   | $         | (3,350,778                      | )         | $                               | (6,586,448 | )                                                       | $          | (6,084,716 | ) |   |   |   |
|                                                                               |                                      |       |                                     |      |                                 |      |                                 |       |                                                    |       |       |
|                                                                               |                                 |       |                                |      |                            |      |                            |       |                                                    |       |       |
| **Basic  and Diluted Loss per Common Share**                                       | $                                    | (.08       | )                                   | $         | (.09                            | )         | $                               | (.18       | )                                                       | $          | (.16       | ) |   |   |   |
|                                                                               |                                      |       |                                     |      |                                 |      |                                 |       |                                                    |       |       |
|                                                                               |                                 |       |                                |      |                            |      |                            |       |                                                    |       |       |
| **Weighted  Average Number of Common Shares Outstanding – Basic and Diluted** | 37,633,713                           |       | 37,383,386                          |      | 37,582,282                      |      | 37,383,386                      |       |                                                    |       |       |
|                                                                               |                                      |       |                                     |      |                                 |      |                                 |       |                                                    |       |       |
|                                                                                    |                                      |            |                                     |           |                                 |           |                                 |            |                                                         |            |            |  |  |  |  |  |  |  |

 

Photogen Technologies, Inc.(A Development Stage Company)Consolidated Condensed Statements of Shareholders’ Equity(Unaudited)All amounts in $

|                                             | Preferred Stock Series A                                                           | Preferred Stock Series B | Common Stock | Members’  Capital   | Additional Paid-in Capital |       | Deficit Accumulated During the  Development Stage | Total   |       |
|--------------------------------------------------|------------------------------------------------------------------------------------|--------------------------|--------------|-------------------------------|----------------------------|------------|---------------------------------------------------|---------|------------|
|                                             |                                                                               |
|                                             |                                                                               |
|                                             |                                                                               |
| Shares                                           | Amount                                                                             | Shares                   | Amount       | Shares                        | Amount                     |       |                                              |    |       |   |   |   |
|                                             |                                                                                    |                          |              |                               |                            |            |                                                   |    |            |   |  |   |  |   |
|                                             |                                                                               |                     |         |                          |                       |       |                                              |    |       |   |   |   |   |   |
| Contribution  of capital                         | -                                                                                  | $                        | -            | -                             | $                          | -          | -                                                 | $       | -          | $ | 7,268 |   | $ | - |   | $ | - |   | $ | 7,268 |   |
| Net  loss for the period ended December 31, 1996 | -                                                                                  | -                        | -            | -                             | -                          | -          | (1,779                                            | )       | -          |   | - |   | (1,779 | ) |
|                                             |                                                                               |                     |         |                          |                       |       |                                              |    |       |   |   |   |   |   |
| **Balance,** at December 31, 1996                | -                                                                                  | -                        | -            | -                             | -                          | -          | 5,489                                             |    | -          |   | - |   | 5,489 |   |
|                                             |                                                                               |                     |         |                          |                       |       |                                              |    |       |   |   |   |   |   |
|                                             | Net  loss and capital contributions for the period January 1, 1997 to May 15, 1997 | -                        | -            | -                             | -                          | -          | -                                                 | -       |       | - |   | (3,511 | ) | (3,511 | ) |
|                                             | Capital  contribution                                                              | -                        | -            | -                             | -                          | -          | -                                                 | 3,511   |       | - |   | - |   | 3,511 |   |
|                                             |                                                                               |                     |         |                          |                       |       |                                              |    |       |   |   |   |   |   |
| **Balance,** at May 15, 1997                     | -                                                                                  | -                        | -            | -                             | -                          | -          | 9,000                                             |    | -          |   | (3,511 | ) | 5,489 |   |
|                                             |                                                                               |                     |         |                          |                       |       |                                              |    |       |   |   |   |   |   |
|                                             | Issuance  of common stock                                                          | -                        | -            | -                             | -                          | 6,312,833  | 6,313                                             | -       |       | 1,797,137 |   | - |   | 1,803,450 |   |
|                                             | Effect  of recapitalization and merger                                             | -                        | -            | -                             | -                          | 29,687,167 | 29,687                                            | (9,000  | )          | 1,181,500 |   | 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                | -                                                                                  | -                        | -            | -                             | 36,000,000                 | 36,000     | -                                                 |    | 2,607,526  |   | (556,481 | ) | 2,087,045 |   |
|                                             |                                                                               |                     |         |                          |                       |       |                                              |    |       |   |   |   |   |   |
|                                             | Issuance  of common stock                                                          | -                        | -            | -                             | -                          | 875,020    | 875                                               | -       |       | 6,999,125 |   | - |   | 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                | -                                                                                  | $                        | -            | -                             | $                          | -          | 36,875,020                                        | $       | 36,875     |   | - |   | $ | 9,602,097 |   | $ | (2,530,394 | ) | $ | 7,108,578 |   |
|                                             |                                                                               |                     |         |                          |                       |       |                                              |    |       |   |   |   |   |   |
|                                             | Exercise  of stock options                                                         | -                        | -            | -                             | -                          | 4,500      | 5                                                 |  - |       | 50,058 |   | - |   | 50,063 |   |
|                                             | Issuance  of warrants and options                                                  | -                        | -            | -                             | -                          | -          | -                                                 |  - |       | 3,664,749 |   | - |   | 3,664,749 |   |
|                                             | Issuance  of common stock                                                          | -                        | -            | -                             | -                          | 503,866    | 504                                               |  - |       | 6,082,150 |   | - |   | 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                      | -            | -                             | 37,383,386                 | 37,384     |  -                                           |    | 30,977,893 |   | (8,583,235 | ) | 22,432,162 |   |
|                                             |                                                                               |                     |         |                          |                       |       |                                              |    |       |   |   |   |   |   |
|                                             | Stock  option compensation                                                         | -                        | -            | -                             | -                          | -          | -                                                 |  - |       | 125,020 |   | - |   | 125,020 |   |
|                                             | Issuance  of warrants and options                                                  | -                        | -            | -                             | -                          | -          | -                                                 |  - |       | 1,366,050 |   | - |   | 1,366,050 |   |
|                                             | Issuance  of preferred stock dividend                                              | 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                         | 37,383,386                 | 37,384     |  -                                           |    | 37,741,925 |   | (19,370,297 | ) | 18,412,510 | ** ** |
|                                             |                                                                               |                     |         |                          |                       |       | ** **                                        |    |       | ** ** |   | ** ** |   | ** ** |
|                                             | Stock  option compensation                                                         | -                        | -            | -                             | -                          | -          | -                                                 |  - |       | 32,364 |   | - |   | 32,364 | ** ** |
|                                             | Issuance  of common stock                                                          |                     |         |                          |                       | 695,486    | 696                                               | -       |       | 1,068,027 | ** ** | - | ** ** | 1,068,723 | ** ** |
|                                             | Issuance  of preferred stock dividend                                              | -                        | -            | 20,223                        | 202                        | -          | -                                                 |  - |       | (202 | ) | - |   | - | ** ** |
|                                             | Net  loss for the six months ended June 30, 2001                                   | -                        | -            | -                             | -                          | -          | -                                                 |  - |       | - |   | (5,101,109 | ) | (5,101,109 | **)** |
|                                             |                                                                               |                     |         |                          |                       |       | ** **                                        |    |       | ** ** |   | ** ** |   | ** ** |
| **Balance,** at June 30, 2001                    | 12,856                                                                             | $                        | 128          | 357,279                       | $                          | 3,572      | 38,078,872                                        | $       | 38,080     |   | - |   | $ | 38,842,114 |   | $ | (24,471,406 | ) | $ | 14,412,488 | ** ** |
|                                                  |                                                                                    |                          |              |                               |                            |            |                                                   |         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Photogen Technologies, Inc.(A Development Stage Company)Consolidated Condensed Statements of Operations(Unaudited)All amounts in $

|                                                    | Six Months  Ended  June 30, 2001                                 |       | Six Months  Ended  June 30, 2000 |       | Cumulative  Amounts  From  November 3, 1996 (Inception) |        |
|---------------------------------------------------------|------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------------------------------|-------------|
|                                                    |                                                                  |       |                                  |       |                                                         |        |
|                                                    |                                                             |       |                             |       |                                                    |        |
| **Cash  Flows From Operating Activities**               |                                                             |       |                             |       |                                                    |        |
|                                                    | Net  loss                                                        | $          | (5,101,109                       | )          | $                                                       | (4,987,145  | ) | $ | (24,471,406 | ) |
|                                                    | Depreciation  and amortization                                   | 229,130    |                             | 206,803    |                                                    | 1,093,524   |   |
|                                                    | (Gain)  loss on disposal of equipment and leasehold improvements | (5,092     | )                                | -          |                                                    | 37,949      |   |
|                                                    | Loss  (gain) on sale of marketable securities                    | -          |                             | -          |                                                    | (18,503     | ) |
|                                                    | United  States Treasury Notes amortization                       | (1,831     | )                                | 6,532      |                                                    | 11,784      |   |
|                                                    | Provision  for future lease payments                             | 649,247    |                             | -          |                                                    | 649,247     |   |
|                                                    | Stock  option compensation                                       | 32,364     |                             | 45,827     |                                                    | 584,151     |   |
|                                                    | Issuance  of warrants in exchange for services rendered          | 616,887    |                             | 1,364,438  |                                                    | 3,851,615   |   |
|                                                    | Loss  from investment in affiliate                               | 1,161,844  |                             | 1,068,108  |                                                    | 2,671,265   |   |
|                                                    | Changes  in operating assets and liabilities:                    |       |                             |       |                                                    |        |   |
|                                                    | Prepaid  expenses                                                | 182,115    |                             | 511,947    |                                                    | -           |   |
|                                                    | Interest  receivable                                             | 55,759     |                             | (15,432    | )                                                       | (37,460     | ) |
|                                                    | Accounts  payable                                                | (363,138   | )                                | (411,686   | )                                                       | 528,033     |   |
|                                                    | Accrued  restructuring                                           | (155,552   | )                                | -          |                                                    | 174,448     |   |
|                                                    |                                                                  |       |                                  |       |                                                         |        |
|                                                    |                                                             |       |                             |       |                                                    |        |
| Net  cash used in operating activities                  | (2,699,376                                                       | )          | (2,210,608                       | )          | (14,925,353                                             | )           |
|                                                    |                                                                  |       |                                  |       |                                                         |        |
|                                                    |                                                             |       |                             |       |                                                    |        |
| **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                       | (3,320,000 | )                                | (9,070,000 | )                                                       | (37,106,973 | ) |
|                                                    | Sales  of United States Treasury Notes                           | 6,765,000  |                             | 6,820,000  |                                                    | 36,728,548  |   |
|                                                    | Purchase  of equipment and leasehold improvements                | (45,938    | )                                | (438,530   | )                                                       | (1,943,553  | ) |
|                                                    | Proceeds  from sale of equipment                                 | 110,177    |                             | -          |                                                    | 110,177     |   |
|                                                    | Costs  to acquire patent                                         | -          |                             | -          |                                                    | (237,335    | ) |
|                                                    | Investment  in and advances to affiliate                         | (792,602   | )                                | (715,475   | )                                                       | (13,003,513 | ) |
|                                                    | Decrease  in restricted cash                                     | -          |                             | 100,000    |                                                    | -           |   |
|                                                    | Increase  in deposit                                             | (14,383    | )                                | (500,000   | )                                                       | (543,753    | ) |
|                                                    |                                                                  |       |                                  |       |                                                         |        |
|                                                    |                                                             |       |                             |       |                                                    |        |
| Net  cash provided by (used in) investing activities    | 2,702,254                                                        |       | (3,804,005                       | )          | (16,014,905                                             | )           |
|                                                    | ****                                                             | ** ** | ****                             | ** ** | ****                                                    | ** **  |
|                                                    |                                                             |       |                             |       |                                                    |        |
| **Cash  Flows From Financing Activities**               |                                                             | ** ** |                             | ** ** |                                                    | ** **  |
|                                                    | Principal  payments on capital leases                            | $          | (9,473                           | )          | $                                                       | (11,472     | ) | $ | (282,821 | ) |
|                                                    | Net  proceeds from issuance of equity                            | 1,068,723  |                             | 5,276,340  |                                                    | 31,367,439  |   |
|                                                    | Proceeds  from capital contributions by shareholders             | -          |                             | -          |                                                    | 1,911,674   |   |
|                                                    | Cost  of recapitalization                                        | -          |                             | -          |                                                    | (371,111    | ) |
|                                                    | ****                                                             | ** ** | ****                             | ** ** | ****                                                    | ** **  |
|                                                    |                                                             |       |                             |       |                                                    |        |
| Net  cash provided by financing activities              | 1,059,250                                                        |       | 5,264,868                        |       | 32,625,181                                              |        |
|                                                    |                                                                  |       |                                  |       |                                                         |        |
| **Increase (decrease) in Cash  and Cash Equivalents**   | 1,062,128                                                        |       | (749,745                         | )          | 1,684,923                                               |        |
|                                                    |                                                             | ** ** |                             | ** ** |                                                    | ** **  |
| **Cash  and Cash Equivalents,**  at beginning of period | 622,795                                                          |       | 1,681,773                        | ** ** | **-**                                                   | ** **  |
|                                                    |                                                                  |       |                                  |       | ****                                                    |        |
|                                                    |                                                             | ** ** |                             | ** ** |                                                    | ** **  |
| **Cash  and Cash Equivalents,**  at end of period       | $                                                                | 1,684,923  |                             | $          | 932,028                                                 |        | $ | 1,684,923 |   |
|                                                    |                                                                  |       |                                  |       |                                                         |        |
|                                                         |                                                                  |            |                                  |            |                                                         |             |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Photogen Technologies,Inc.(A Development Stage Company)Notes To Condensed Financial Statements(Unaudited)

 

June 30, 2001

 

1.          BASISOF PRESENTATION

             Theaccompanying unaudited condensed 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)considered necessary for a fair presentation have been included.  Operating results for the six months endedJune 30, 2001 are not necessarily indicative of the results that may beexpected for the year ended December 31, 2001.

2.          JOINT VENTURE/INVESTMENT INAFFILIATE

|   | The following is summarized financial  information for the joint venture Sentigen at June 30, 2001 and 2000. |
|--------|--------------------------------------------------------------------------------------------------------------|
|   |                                                                                                         |   |   |   |   |
|   | *June  30,*                                                                                                  | 2001 |   | 2000 |   |
|   | ****                                                                                                         | **** |   | **** |   |
|   | License  purchased from Elan, net of amortization of $733,697 in 2001                                        | $ | 14,266,303 |   | $ | 15,000,000 |   |
|   | ****                                                                                                         | **** |   | **** |   |
|   | Total  assets                                                                                                | $ | 14,266,303 |   | $ | 15,000,000 |   |
|   | ****                                                                                                         | **** |   | **** |   |
|   | Due  to affiliates                                                                                           | $ | 2,601,215 |   | $ | 1,715,526 |   |
|   |                                                                                                         |   | ** ** |   |   |
|   | Total  shareholders’ equity                                                                             | 11,665,088 |   | 13,284,474 |   |
|   | ****                                                                                                         | **** | ** ** | **** |   |
|   | Total  liabilities and equity                                                                                | $ | 14,266,303 |   | $ | 15,000,000 |   |
|   | ****                                                                                                         | **** |   | **** |   |
|   | Research  and development expense                                                                            | $ | 1,450,492 |   | $ | 1,333,486 |   |
|   | ****                                                                                                         | **** |   | **** |   |
|   | Net  loss                                                                                                    | $ | 1,450,492 |   | $ | 1,333,486 |   |
|   | ****                                                                                                         | **** |   | **** |   |

3.          BASIC AND DILUTED LOSS PER COMMONSHARE

             Basic and diluted loss per commonshare is computed based on the weighted average number of common sharesoutstanding.  Loss per share excludesthe impact of outstanding options and warrants and preferred stock, as they areantidilutive.  Potential common sharesexcluded from the calculation at June 30, 2001 are 6,294,000 options, 1,149,724warrants and 1,037,630 shares issuable upon the conversion of Series A and BPreferred Stock.

4.          EQUITY

|   | (a)    | On February 9, 2001, the Company’s shelf  registration on Form S-3 was declared effective.  Under the shelf registration, the Company may issue up to  $40,000,000 of common stock.  As of  June 30, 2001, 695,486 shares have been issued under the shelf registration  for cash proceeds, net of related expenses, of $1,068,723.                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | (b)    | During the first quarter 2001, the Company  issued 400,000 stock options to an employee under the 2000 Long Term  Incentive Compensation Plan and 250,000 stock options to employees under the  1998 Long Term Incentive Compensation Plan.   The options were issued at exercise prices ranging from $1.91 to $5.31  per share.  The exercise price was the  closing price quoted on the NASDAQ SmallCap Market on the date of the grant.                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | (c)    | The Series B Preferred contains beneficial  conversion features.  Emerging Issues  Task Force Issue 98-5, “Accounting for Convertible Securities with Beneficial  Conversion Features or Contingently Adjustable Conversion Ratios,” requires  the issuer to assume that the holder will not convert the instrument until  the time of the most beneficial conversion. Using the conversion ratio at  January 1, 2002 and the stock price at the date of issuance, the maximum  beneficial conversion amount is $2,412,350.   This amount will be recorded as additional preferred stock dividends  over the period from issuance until January 1, 2002.  Through June 30, 2001, $1,691,002 has been  recorded as additional dividends. |

5.          RESTRUCTURING

             In 2000, the Company recorded arestructuring charge of $597,025, included in operating expenses, relating tothe closure of its operations in Westborough, Massachusetts. The restructuringcharge includes accruals related to estimated lease termination costs andaccruals related to employee severance and related expenses in connection withtheir termination.  All employees at theWestborough facility were terminated. The activities previously performed atthe Westborough facility will continue at other company locations or withoutside consultants.  The restructuringcharge is summarized as follows:

|            | Charged in 2000 |   | Utilized in  2000 |   | Balance at December 31, 2000 |   | Utilized in  2001 |   | Balance at  June 30,2001 |   |
|-----------------|-----------------|--------|-------------------|--------|------------------------------|--------|-------------------|--------|--------------------------|--------|
|                 |                 |        |                   |        |                              |        |                   |        |                          |        |
|            |            |   |              |   |                         |   |              |   |                     |   |
| Employee  costs | 395,233         |   | 65,223            |   | 330,000                      |   | 155,552           |   | 174,448                  |   |
| Lease costs     | 201,802         |   | 201,802           |   | -                            |   | -                 |   | -                        |   |
|                 |                 |        |                   |        |                              |        |                   |        |                          |        |
| Total           | 597,025         |   | 267,025           |   | 330,000                      |   | 155,552           |   | 174,448                  |   |
|                 |                 |        |                   |        |                              |        |                   |        |                          |        |

6.          PROVISION FOR FUTURE LEASE PAYMENTS

             During the first quarter of 2001,the Company determined that equipment leased by the Company under an operatinglease will no longer be used by the Company in its research.  As a result, at June 30, 2001, the Companyrecorded a provision for future lease payments of $649,247.  This provision represents the future leasepayments less any costs the Company believes it can recover from third partiesfor use of the equipment.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS

             We are an emerging,development-stage biotechnology company focused on developing minimallyinvasive products for the treatment and/or diagnosis of psoriasis and othertopical diseases, cancer, pre-cancerous conditions and other diseases.  We have assembled a platform of coretechnologies that we believe will support multiple products and applications.In April, 2001 we commenced a Phase 1 clinical trial to evaluate the safety ofPH-10 activated with green light as a treatment for psoriasis.  This trial is ongoing.  In the coming months, we expect to commencean additional Phase 1 clinical trial of PH-10 and green light to treat actinickeratosis and to begin a Phase 2 clinical study of N-1177 in lymphography.

             We have discovered new methods andapparatus for using energy from lasers, X-rays or other sources to activateenergy-sensitive compounds within tissue to produce a range of beneficialtherapeutic and diagnostic outcomes. These discoveries include methods, materials and devices that are usedto produce light or other energy, and development of compounds that react withenergy all for the purpose of destroying diseased cells, removing tissue oridentifying and diagnosing disease. Compounds that react with light energy are called "photoactiveagents," those that react with ionizing radiation (which we genericallyrefer to as X-rays) are called "radiosensitizers."

             We are pursuing development ofthree core technologies:

|   | • | **Photodynamic Therapy -**We are developing proprietary compounds and  technologies to treat diseased tissue on the surface of the body and to treat  tumors confined to specific areas within the body (solid tumors).  One of these compounds, named PH-10,  accumulates in diseased tissue (while clearing rapidly from normal tissue)  and, because of its unique chemical composition, absorbs light energy and  X-rays thus acting as either a photoactive agent or radiosensitizer.  When energy is applied, PH-10 becomes  activated, thereby destroying the tissue.                                             |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | **Diagnostic Imaging -**We are the exclusive licensee to a special  group of proprietary materials, the lead compound of which is named N-1177,  that precisely locate and diagnose the spread of cancer (micro-metastases)  when the materials are administered into a patient's lymphatic system.  These materials, called  “nanoparticulates,” are very small particles designed to travel through the  lymphatic system.  Evaluating lymph  nodes and the lymph system by using devices such as computed tomography  scanners that create an image of the lymph nodes is called  "lymphography." |
|   | • | **Multiphoton Technology -**Our proprietary laser technology uses  ultrashort, pulsed bursts of long wavelength light to activate photoactive  agents and other compounds that react with light to destroy diseased  tissue.  This technology can also be  used to create images of tissue for diagnostic purposes.                                                                                                                                                                                                                                                                                                           |

             Our proposed products have thepotential to replace numerous surgical and similar invasive treatments anddiagnostics, reduce side effects (such as those resulting from chemotherapy),improve treatment efficacy, and lower the overall cost of care for oncology andother applications.
             Our senior executive and clinicaldevelopment organization operates from our corporate headquarters in New Hope,Pennsylvania. We have recently hired additional personnel with expertise inclinical development, clinical trial design and regulatory approvalprocesses.  Our scientific research teamis located in Knoxville, Tennessee.  Ourteam of scientists includes specialists in molecular biology, non–linearlaser physics, interventional radiology, spectroscopy, bioengineering andphotochemistry.  We also work closelywith consultants experienced in drug development and regulatory requirements.

FINANCIALCONDITION AND RESULTS OF OPERATIONS

             We have not generated revenues fromthe sale of any proposed therapeutic or diagnostic products or otheroperations.  For the six months endedJune 30, 2001, our investment income decreased to $83,915 from $242,808 for thesix months ended June 30, 2000.  Thedecrease in investment income resulted primarily from lower average balances ofsecurities in our investment portfolio. We expect our investment income to fluctuate both as our capitaldecreases or increases and as the rates of interest earned by our portfoliovary due to shifts in short term interest rates.  Our investment portfolio is composed primarily of United StatesGovernment obligations.

             Research and development costs forthe six-month period ended June 30, 2001, decreased 14 percent to $1,245,455from $1,449,859 for the comparable six-month period ended June 30, 2000.   The decline was due principally to lowerexpense levels following the closing of our Westborough, MA facility, partiallyoffset by increases in salaries, clinical trial expenses and other costsincurred as our products enter stages of human clinical testing.

             General and administrative expensesdeclined 23 percent to $2,081,655 in the six months ended June 30, 2001 from$2,711,985 in the comparable 2000 period. The decline is primarily attributable to a significant reduction in theamortization of the cost of certain warrants that had been granted to a consultant.

             Photogen’s share of losses associatedwith its joint venture with a division of Elan increased to $1,161,844 in thefirst half of 2001 from $1,068,109 in the prior year period.  These losses are due to expenditures made bythe partners in the development of N-1177 and amortization, in the 2001 period,of patents acquired by the joint venture at its inception.

             During the six months ended June30, 2001, we spent approximately $45,938 for leasehold improvements and officeequipment.  During the next twelvemonths we expect such capital expenditures to be less than $100,000.  During the first quarter, we determined thatcertain equipment we were leasing would no longer be useful in ourresearch.  Accordingly, at June 30,2001, we have recorded a provision of $649,247 representing future lease paymentsless any costs that we believe can be recovered from third parties for use ofthe equipment.

             We recorded dividends on preferredstock of $1,485,339 in the first half of 2001 compared to $1,097,571 for thecomparable period in 2000.  Thisincrease is due to the impact of dividends payable under Series B PreferredStock originally issued in February, 2000. Under the applicable Certificate of Designations the holder of Series APreferred is entitled to a mandatory payment-in-kind dividend equal to 7%(i.e., 0.07 additional shares of Series A Preferred) which is cumulative,compounds on a semi-annual basis and is payable twice a year.  Similarly, under the applicable Certificateof Designation the holders of Series B Preferred are entitled to a payment-in-kinddividend equal to 6% (i.e., 0.06 additional shares of Series B Preferred),which is cumulative and payable annually commencing in January, 2001.  On January 15, 2001, we issued 20,223.36additional shares of Series B Preferred to Series B Stockholders of record asof January 15, 2001.
             As a result of the above factorsand the effect of the beneficial conversion feature of our Preferred Stock, ournet loss attributable to common shareholders for the six months ended June 30,2001, increased to $6,586,448, or $0.18 per share from $6,084,716, or $0.16 pershare for the six months ended June 30, 2000.

LIQUIDITY;CAPITAL RESOURCES

             We have used, andexpect over the next 12 months to use, the capital available in our investmentportfolio as well as proceeds and potential proceeds from any sales of commonstock under the registration statement declared effective in February, 2001 forup to $40 million of common stock, for general corporate purposes, includingactivities related to preparing for and conducting clinical trials, purchaseand preparation of clinical material, conduct of preclinical studies,administrative expenses to support our research and development activities,capital expenditures and to meet other working capital needs.  Weexpect to evaluate from time to time the acquisition or license of businesses,technologies or products for which a portion of the net proceeds may be used;however we have no present plan or commitments for any acquisition or license.  We expect our use of capitalto increase as we move toward initiating Phase 2 clinical trials.

             We have a $4.8 millioncredit facility from Elan to fund a portion of the operations of the Sentigenjoint venture.  Our borrowings underthis facility would bear interest at 8% per annum, be repayable in 2005 or beconvertible at Elan's election into our common stock at a conversion price of$18.15 per share.

             On September 22, 2000, we filed ashelf registration statement with the SEC to enable us to issue up to $40million of our common stock.  This shelfregistration was declared effective by the SEC in February, 2001 and willpermit us to issue common stock from time to time at our option.  Through June 30, 2001, we sold 695,486shares of common stock pursuant to this registration statement to aninstitutional investor for gross proceeds of $1,125,000 at prices ranging fromapproximately $4.89 to $1.12.

             As of June 30, 2001 we had U.S.Treasury notes available for sale, cash and interest receivable totalingapproximately $3,223,185.  Maturitydates of these securities range from July 1, 2001 to August 31, 2001.  Yields range from 5.5% to 5.75%.  At the current rate of spending, we willexhaust these particular resources by approximately January, 2002.  We have access to additional capital throughborrowing funds from our credit line with Elan for development costs ofN-1177.  In addition, at our option, theremaining capacity in our registration statement gives us the ability to sellfrom time to time up to approximately $39 million of additional commonstock.  We believe that through the useof our cash, U.S. Treasury notes, line of credit and anticipated sales of ourcommon stock we will have sufficient cash resources for our current commitmentsthrough the next twelve months.  Ifnecessary we can adjust our use of cash and capital by modifying the timing ofand related financial commitments for our development programs for PH-10,N-1177 and other programs.  See"Risk Factors — We must raise additional financing in the future and ourinability to do so could prevent us from implementing our business plan,"below.
PLAN OFOPERATION

             Duringthe foreseeable future, we will focus our efforts on conducting human clinicalstudies on selected indications, acquiring quantities of clinical grade drug formulationsof our proposed products, completing preclinical studies, preparing requiredfilings to the FDA and foreign regulatory bodies and preparing for the designand assembly of laser treatment devices. We intend to devote a significant majority of our financial and otherresources to preparing for and conducting clinical trials of PH-10 for thetreatment of psoriasis and other topical diseases and the treatment of focaltumors (a tumor that is confined to a specific area of the body), andcontinuing the clinical development of N-1177. We will continue Phase 1 human clinical studies on PH-10, as atopical treatment for psoriasis and plan to commence clinical trials forcertain other topical indications in the coming months.  We alsoplan to begin Phase 2 clinical trials of N-1177 later this year.

As we progress further into human clinical trials, our use of capitalwill increase.  We expect to continue toincur increasing losses for at least the next several 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 expandour research and development activities, and our failure to raise additionalcapital will (absent a suitable collaborative agreement providing for a thirdparty to take over or finance the development of these programs) significantlyimpair our ability to conduct further research and development activitiesbeyond those currently contracted for and our ability to seek regulatoryapproval for any possible product resulting from that research.  In any event, complete development and commercializationof our technology will require substantial additional funds.  See "Risk Factors — We must raiseadditional financing in the future and our inability to do so could prevent usfrom implementing our business plan," below.  Accordingly, we are continuously evaluating capital formationactivities and opportunities, either as part of collaborative arrangements withthird parties or through other offerings of equity or debt.

**ITEM3.            QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK.**

             Theprimary market risk that could impact us is the fluctuation in interest ratesrelated to our investments in Government bonds.  As our investments all have short-term maturities, the investmentreturn will reflect the current market rates. To date, we have not engaged in any derivative or hedging activities.

**PART II.  OTHER INFORMATION**

**ITEM 1.**            **LEGALPROCEEDINGS**

             In conjunction with therestructuring of our clinical development office in Westborough, Massachusetts,we filed a lawsuit captioned Photogen, Inc. v. Gerald L. Wolf  (Case No. 00C 5841), in the United StatesDistrict Court for the Northern District of Illinois.  That litigation is described in our Form 10-K for the year endedDecember 31, 2000.

**ITEM 4.**            **SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

             None.

**ITEM 5.            OTHERINFORMATION******RISKFACTORS**

             This Form 10-Q contains"forward-looking statements" within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties and otherfactors that may cause our actual results or performance to differ materiallyfrom any results or performance expressed or implied by those statements.  Examples of forward-looking statementsinclude predictive statements, statements that depend on or refer to futureevents or conditions, and which may include words such as "expects,""anticipates," "intends," "plans,""believes," "estimates," "should,""may," or similar expressions, or statements that involve hypotheticalevents.

             The following are some of the keyrisk factors that may affect our future results:

**WE ARE A DEVELOPMENT STAGECOMPANY, WE HAVE CONDUCTED ONLY LIMITED STUDIES ON OUR TECHNOLOGIES AND WE DONOT HAVE ANY PRODUCTS OR REVENUES FROM SALES.**

             Our company and our technologiesare in early stages of development.  Webegan our business as a biotechnology company in 1997.  We have not generated revenues from sales oroperations, and we do not expect to generate sufficient revenues to enable usto be profitable for at least several years.

             Our proposed technologies andproducts generally must complete preclinical tests in animals and three phasesof tests (also called clinical trials) in humans before we can market them foruse.  Use of our technology has beenlimited primarily to laboratory experiments, animal testing or human pilotstudies and only one compound has completed Phase 1 clinical trials inhumans.  We have therefore not yetconducted substantive studies on the effectiveness of our compounds or deviceson human subjects.  The drug and deviceproducts we currently contemplate developing will require costly andtime-consuming research and development, preclinical and clinical testing andregulatory 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 ANDWE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE OR PAY CASHDIVIDENDS.**

             We have incurred losses since thebeginning of our operations.  As of June30, 2001, we have incurred cumulative losses of approximately $24,471,406.  We expect our losses to increase in thefuture as our financial resources are used for research and development,preclinical and clinical testing, regulatory activities, manufacturing,marketing and other related expenses. We may not be able to achieve or maintain profitability in thefuture.  We have never declared or paidany cash dividends to stockholders, and do not expect to do so in theforeseeable future.

**WE MUST RAISE ADDITIONALFINANCING IN THE FUTURE AND OUR INABILITY TO DO SO COULD PREVENT US FROMIMPLEMENTING OUR BUSINESS PLAN.**
             We believe that through the use ofour cash, U.S. Treasury notes, line of credit and anticipated sales of ourcommon stock, we will have sufficient cash resources for our currentcommitments through the next twelve months (depending on the pace of ourspending for preclinical and clinical testing and other commitments, which, toan extent, we can adjust to preserve cash). We will need substantial additional financing for our research, clinicaltesting, product development and marketing programs.  We cannot accurately estimate the amount of additional financingrequired; however, the amount could be an additional $30 – 50 million ormore.  Depending on market conditions,we will attempt to raise additional capital through stock and debt offerings,collaborative relationships and other available sources.  Additional funds may not be available onacceptable terms, if at all, and existing stockholders may be diluted as a resultof those offerings.  The pricing of ourcommon stock in our recent shelf registration will also result in an increasein the number of shares of common stock issuable upon conversion of Series Aand Series B preferred stock in accordance with the anti-dilution provisions inthe respective Certificates of Designation for those series.

**WE MAY HAVE TO ISSUE ADDITIONALSHARES OF OUR COMMON STOCK TO ELAN, WHICH WOULD DILUTE SHAREHOLDERS' OWNERSHIP.**

             We may be required to issueadditional shares to an affiliate of Elan Corporation plc, with whom we areengaged in a joint venture, so that the weighted average price for common stockElan purchased (at $13 per share) equals the effective price in our firstoffering after Elan’s purchase.  Sincewe have begun to issue common stock in our most recent shelf registration onForm S-3 declared effective February 9, 2001 at less than $13 per share, wemust issue additional shares of common stock to Elan so that the average priceper share paid by Elan for its aggregate ownership of our common stock willequal the effective price in that offering. Based on the per share sale price in our first transaction under theshelf registration (in which we sold 15,312 shares at $4.8981 per share), wewould issue 763,427 additional shares of our common stock to Elan at noadditional cost representing approximately two percent of our outstandingcommon stock.  We are in negotiationswith Elan regarding the precise terms of its anti-dilution rights with respectto our shelf registration, which may result in greater or less dilution of ourcommon stock.  The pricing of our commonstock in the shelf registration will also result in an increase in the numberof shares of common stock issuable upon conversion of Series A Preferred and SeriesB Preferred stock in accordance with the anti-dilution provisions in therespective Certificates of Designation for those series.

**OUR PROPOSED PRODUCTS ARESUBJECT TO EXTENSIVE TESTING AND GOVERNMENT APPROVAL, AND WE MAY NOT OBTAIN THEAPPROVALS NECESSARY TO SELL OUR PROPOSED PRODUCTS.**

             None of our proposed drug anddevice products has received the Food and Drug Administration's approval.  An extensive series of clinical trials andother associated requirements must be completed before our proposed productscan be approved and sold in the United States. Requirements for FDA approval of a product include preclinical andclinical testing for effective use and safety in animals and humans, and thattesting can be extremely costly. The time frame necessary to perform thesetasks for any individual product is long and uncertain, and we may encounterproblems or delays that we cannot predict 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 orindications that we may seek.  Marketingour products in other countries will require seeking and obtaining regulatoryapprovals comparable to those required in the United States.****IF WE DO NOT OBTAIN ANDMAINTAIN PATENT OR OTHER PROTECTION OF OUR CORE TECHNOLOGIES (NAMELY PH-10, OURLYMPHOGRAPHY MATERIALS AND METHODS, AND OUR LASER TECHNOLOGIES), WE MAY HAVEDIFFICULTY COMMERCIALIZING PRODUCTS USING THESE TECHNOLOGIES.**

             Our success depends in part on ourability to obtain, assert and defend our patents, protect trade secrets andoperate without infringing the intellectual property of others.  Among the important risks in this area arethat:
 •Our patent applications may not result in  issued patents.  Moreover, any issued  patents may not provide us with adequate protection of our intellectual  property or competitive advantages, and the law on the scope of patent  coverage is continually changing.    •Various countries limit the subject matter  that can be patented and limit the ability of a patent owner to enforce  patents in the medical field.  This  may limit our ability to obtain or utilize those patent coverage  internationally.    •Existing or future patents or patent  applications (and the products or methods they cover) of our competitors (or  others, such as research institutions or universities) may interfere,  invalidate, conflict with or infringe our patents or patent applications.  Similarly, the use of the methods or  technologies contained in our patents, patent applications and other  intellectual property may conflict with or infringe the rights of others.    •If an advance is made that qualifies as a  joint invention, the joint inventor or his or her employer may have rights in  the invention.  We are currently in  litigation with our former Medical Director and his former employer,  Massachusetts General Hospital, concerning his claims of joint inventorship  of some of our PH-10 inventions.
             We will be able to protect ourproprietary rights from unauthorized use by third parties only to the extentthat these rights are covered by valid and enforceable patents or effectivelymaintained as trade secrets.  We own sixpatents in the U.S., and ten other patents in foreign countries includingTaiwan, Australia, Singapore, Japan and New Zealand. We have filed patentapplications under the Patent Cooperation Treaty covering a number of foreigncountries.  These patents and the patentapplications relate to laser and ionizing radiation technology, photoactiveagents and methods, methods for enhanced cell production and methods forperforming lymphography. We are also the exclusive licensee to a group ofpatented proprietary compounds known as nanoparticulates from MassachusettsGeneral Hospital and Nycomed Imaging AS.

             The patent position ofbiotechnology companies involves complex legal and factual questions, andtherefore we cannot assure the enforceability of 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, interference may occur over the rights to certain inventions,and there is a risk that we may not prevail in an interference.  Those disputes can be expensive and 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, or that we would not beable to redesign our technologies to avoid any claimed infringement.
             Confidentiality agreements coveringour intellectual property may be violated and we may not have adequate remediesfor any violation.  Third parties maychallenge our existing patents 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 intellectualproperty through licenses or sub-licenses (as is the case for some of ourlymphography technology), our rights are subject to us performing the terms ofthe license or sub-license agreement with third parties.  Our rights are also subject to the actionsof third parties we may not be able to control, such as our sub-licensorcomplying with the terms of its license with the patent owner and the patentowner maintaining the patent.

             Where intellectual property resultsfrom a research project supported by U.S. Government funding, the Governmenthas limited rights to use the intellectual property without paying us aroyalty.

**WE ARE HIGHLY DEPENDENT UPON ASMALL NUMBER OF EMPLOYEES AND CONSULTANTS WHO PROVIDE SCIENTIFIC AND MANAGEMENTEXPERTISE, AND IT MAY BE DIFFICULT TO IMPLEMENT OUR BUSINESS DEVELOPMENT PLANSWITHOUT THIS EXPERTISE.**

             These individuals have entered intoemployment or consulting agreements, confidentiality and/or non-competitionagreements with us.  We could suffercompetitive disadvantage, loss of intellectual property or other materialadverse effects on our business and results of operations if any employee orconsultant violates or terminates these agreements or terminates his or herassociation with us.  Our growth andfuture success also depends upon the continued involvement and contributionfrom these individuals, as well as our ability to attract and retain highlyqualified personnel now and in the future.

             We currently employ four seniorscientists (Drs. Dees, Fisher, Scott and Wachter) and three senior executiveofficers, including Dr. Williams (our CEO), Mr. Boveroux (our CFO) and Dr.Reinhard Koenig (Senior Vice President of Medical and Regulatory Affairs).  We also have retained consultants to adviseus in regulatory affairs and product development matters.  If we lost the services of our executiveofficers 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.  The loss ofone of our scientists could cause delay in implementing our business plan andalso jeopardize development of new technologies.

**WE HAVE TO RELY ON THIRDPARTIES AND COLLABORATIVE RELATIONSHIPS FOR THE MANUFACTURE, CLINICAL TESTINGAND MARKETING OF OUR PROPOSED PRODUCTS, AND IT MAY BE DIFFICULT TO IMPLEMENTOUR BUSINESS DEVELOPMENT PLANS WITHOUT THESE COLLABORATIONS.**

We arecurrently involved in a joint venture with affiliates of Elan Corporation, plc.called Sentigen Ltd., to develop and commercialize lymphography materials.  We have had and expect to continue in thefuture to have a variety of research agreements with universities and otherresearch institutions to investigate specific protocols. We also contract andexpect to continue to contract with research organizations and other thirdparties to manage clinical trials of our proposed products in development.  We must continue to enter into collaborativerelationships with third parties for additional research and development,preclinical and clinical testing, marketing and distribution of our proposedproducts.
             We are also dependent on thirdparties for the manufacture of supplies of photoactive agents and nanoparticulatesand for the supply of lasers and radiotherapy devices and similarhardware.  We have several research andsupply agreements with third parties. However, we may not be able to negotiate other acceptable collaborativeand supply arrangements in the future.

             Collaborative relationships maylimit or restrict our operations or may not result in an adequate supply ofnecessary resources.  Our collaborativepartner could also pursue alternative technologies as a means of developing ormarketing products for the diseases targeted by our collaborative program.  If a third party we are collaborating withfails to perform under its agreement or fails to meet regulatory standards,this could delay or prematurely terminate clinical testing of our proposedproducts.

**OUR POTENTIAL MARKETS AREEXTREMELY COMPETITIVE, AND MANY OF OUR COMPETITORS HAVE GREATER RESOURCES ANDHAVE PRODUCTS THAT ARE IN MORE ADVANCED STAGES OF DEVELOPMENT.**

             We face substantial competitionfrom competitors with greater financial, technical and human resources and withgreater experience in developing products, conducting preclinical or clinicaltesting, obtaining regulatory approvals, manufacturing and marketing.  Our competitors include the following firmsin the field of using light energy to treat and diagnose disease: MiravantMedical Technologies, Pharmacyclics, Inc., QLT Inc., Axcan Pharma Inc. DusaPharmaceuticals, Inc. and PhotoCure ASA. There are also numerous companies developing other technologies to treatand/or diagnose psoriasis, actinic keratosis, cancer and other diseases.  Examples of the technologies from thoseother companies are drug or genetic treatments, procedures that use sound wavesand procedures that destroy diseased tissue using heat.  Some of these firms have drugs or devicesthat have completed or are in advanced stages of clinical trials and regulatoryapprovals.

             Others may develop technologies andobtain patent protection that could render our technologies or productsobsolete or less competitive or our patents invalid or unenforceable.  Due to the inherent risk of failureassociated with the testing, development and production of new and innovativetechnologies, our technologies and products may be found to be ineffective,have unanticipated limitations or otherwise be unsuccessful in themarketplace.  Also, although we believeour estimates of the possible size of markets for our potential products arebased on information we consider reliable (including data from the AmericanCancer Society and similar sources in the public domain), that data or ouranalysis of the data could prove incorrect.

**CHANGES IN HEALTH CAREREIMBURSEMENT POLICIES OR LEGISLATION MAY MAKE IT DIFFICULT FOR PATIENTS TO USEOR RECEIVE REIMBURSEMENT FOR USING OUR PRODUCTS, WHICH COULD REDUCE OURREVENUES.**

             Our success will depend, in part,on the extent to which health insurers, managed care entities and similarorganizations provide coverage or reimbursement for using the medicalprocedures and devices we plan to develop. These third-party payors are increasingly challenging the price ofmedical procedures and services and establishing guidelines that may limitphysicians' selections of innovative products and procedures.  We also cannot predict the effect of anycurrent or future legislation or regulations relating to third-party coverageor reimbursement on our business.  Wemay not be able to achieve market acceptance of our proposed products ormaintain price levels sufficient to achieve or maintain any profits on ourproposed products if adequate reimbursement coverage is not available.****A SMALL GROUP OF STOCKHOLDERSCONTROLS PHOTOGEN, WHICH MAY MAKE IT DIFFICULT FOR STOCKHOLDERS WHO ARE NOT INTHAT GROUP TO INFLUENCE MANAGEMENT.**

             A small group of our officers,directors and others control approximately 74% of our outstanding commonstock.  Several of our principalstockholders are also parties to a Voting Agreement concerning the election ofcertain designees to the Board of Directors of Photogen Technologies, Inc. andPhotogen, Inc.  This group ofstockholders can significantly influence Photogen and the direction of ourbusiness and affairs.  Thisconcentration of ownership may delay or prevent a change in control ofPhotogen, and may also result in a small supply of shares available for purchasein the public securities markets.  Thesefactors may affect the market and the market price for our common stock in waysthat do not reflect the intrinsic value of the stock.

**THE PRICE AND TRADING VOLUME OFOUR COMMON STOCK FLUCTUATES SIGNIFICANTLY, WHICH MAY MAKE IT DIFFICULT FOR USOR A STOCKHOLDER TO SELL OUR COMMON STOCK AT A SUITABLE PRICE AND MAY CAUSEDILUTION FOR EXISTING STOCKHOLDERS WHEN WE ISSUE ADDITIONAL SHARES.**

             During the period from April 1,2001 through June 30, 2001 our stock price ranged from $0.98 to $2.00 pershare.  Daily trading volume ranged from100 shares to 73,600 shares during that period.

             The following factors may have animpact on the price of our stock:
 •Announcements by us or others regarding  scientific discoveries, technological innovations, commercial products,  patents or proprietary rights; •The progress of preclinical or clinical  testing; •Changes in government regulation; •Public concern about the safety of devices or  drugs; •Limited coverage by securities analysts; •The occurrence of any of the risk factors  described in this section; •Sales of large blocks of stock by an  individual or institution; •Changes in our financial performance from  period to period; securities analysts' reports; and general market  conditions.
**OUR COMMON STOCK COULD BEDELISTED FROM THE NASDAQ SMALLCAP MARKET, WHICH WOULD MAKE TRADING IN OUR STOCKMORE DIFFICULT.**
             Since November 1999, our commonstock has been quoted in the Nasdaq SmallCap Market.  Our shares could be delisted if we fail to meet the listingrequirements of the Nasdaq SmallCap Market, which would force us to list ourshares on the OTC Bulletin Board or some other quotation medium, such as pinksheets, depending upon our ability to meet the specific listing requirements ofthose quotation systems.  As a result,an investor might find it more difficult to dispose of, or to obtain accurateprice quotations for, our shares. Delisting might also reduce the visibility, liquidity, and price of ourcommon stock.  If our common stock weredelisted from the Nasdaq SmallCap Market and were not traded on anothernational securities exchange, we could become subject to penny stockregulations that impose additional sales practice disclosure and market making requirementson broker/dealers who sell or make a market in our stock.  The rules of the SEC generally define"penny stock" to be common stock that has a market price of less than$5.00 per share 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.

**IF STOCKHOLDERS HOLDING SUBSTANTIALAMOUNTS OF OUR COMMON STOCK SHOULD SELL IN THE PUBLIC MARKET, THE PRICE OF OURSTOCK COULD FALL OR IT MAY BE MORE COSTLY FOR US TO RAISE CAPITAL.**

             Asof June 30, 2001 we had 38,509,228 shares of common stock and preferred stockconvertible into common stock outstanding. Approximately 9,773,049 shares were eligible for sale in the publicmarket free of restrictions under the Securities Act of 1933, as amended,including restrictions under Rule 144. Approximately 6,458,236 shares are eligible for sale under Rule144.  Approximately 2,297,474 shares arecurrently subject to agreements requiring us to permit the holders of theshares, under certain circumstances, to join a public offering of our stock orto demand that we register their shares. Our obligation to register 1,037,474 of the shares subject to thoseagreements terminates when they become freely tradable under Rule 144 (thoseshares are included in the total number of shares eligible for sale under Rule144).  On May 9, 2001 our five foundersentered into a lock-up agreement prohibiting them, without the Company’sapproval, from selling in the public markets 20,558,435 shares until May 9,2004 (except for limited sales by each of them of between 42,000 and 78,000shares each year at prices above $5.00 per share).

             As of June 30, 2001 we had reserved10,588,436 shares of common stock for future issuance upon grants of options,or exercise or conversion of outstanding options and warrants and convertiblesecurities.  If these options and warrantsare all issued and exercised, investors may experience significant dilution inthe book value and earnings per share of their common stock.

ITEM6.            EXHIBITS AND REPORTS ON FORM8-K

(a)         Exhibits.

             The following is a list of exhibitsfiled as part of this Form 10–Q. Exhibits that were previously filed are incorporated by reference.  For exhibits incorporated by reference, thelocation of the exhibit in the previous filing is indicated in parenthesis.
**EXHIBIT NO.****DESCRIPTION**3.1Restated  Articles of Incorporation of Photogen Technologies, Inc.  (Filed as Exhibit 3.1 to the Company's  Current Report on Form 8-K dated May 17, 2000 and incorporated herein by  reference.)3.2Amended  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.)3.3Certificate of Designation, Preferences and  Rights of Series B Convertible Preferred Stock.  (Filed as Exhibit 3 to the Company's Current Report on Form 8-K  dated February 18, 2000 and incorporated herein by reference.)3.4Bylaws  of Photogen Technologies, Inc. (Amended and Restated as of May 17, 2000)  (Filed as Exhibit 3.2 to the Company's Current Report on Form 8-K dated May  17, 2000 and incorporated herein by reference.)3.5Charter of Photogen, Inc.  (Filed as Exhibit 3.3 to the Company's  Registration Statement on Form 10-SB dated December 24, 1997 and incorporated  herein by reference.)3.6Amended  and Restated Bylaws of Photogen, Inc. (Filed as Exhibit 3.3 to the Company's  Current Report on Form 8-K dated May 17, 2000 and incorporated herein by  reference.)
             (b)        Reportson Form 8-K.

We did not file any reports on Form 8-K duringthe three-month period ended June 30, 2001.
**Signatures**

             In accordance with the requirementsof the Exchange Act, the registrant has duly caused this report to be signed onits behalf by the undersigned thereunto duly authorized.
Date:   August 13, 2001Photogen 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)
 

**Exhibit Index**
**Exhibit  No.****Description**** **   +3.1Restated Articles of Incorporation of  Photogen Technologies, Inc.  (Filed as  Exhibit 3.1 to the Company's Current Report on Form 8-K dated May 17, 2000.)+3.2Amended and Restated Certificate of  Designations, Preferences and Rights of Series A Preferred Stock.  (Filed as Exhibit 3.5 to the Company's  Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999.)+3.3Certificate  of Designation, Preferences and Rights of Series B Convertible Preferred  Stock.  (Filed as Exhibit 3 to the  Company's Current Report on Form 8-K dated February 18, 2000.)+3.4Bylaws of Photogen Technologies, Inc.  (Amended and Restated as of May 17, 2000 (Filed as Exhibit 3.2 to the  Company's Current Report on Form 8-K dated May 17, 2000. )+3.5Charter  of Photogen, Inc.  (Filed as Exhibit  3.3 to the Company's Registration Statement on Form 10-SB dated December 24,  1997.)+3.6Amended and Restated Bylaws of  Photogen, Inc. (Filed as Exhibit 3.3 to the Company's Current Report on Form  8-K dated May 17, 2000.)
+ Incorporatedby reference from the filing indicated.******