** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-QSB**

** **

| **ý**                         | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                    |
|------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |                                                                                                                                                                                      |
|                               | **FOR THE QUARTERLY PERIOD ENDED MARCH 31,  2003**                                                                                                                                        |
|                               |                                                                                                                                                                                      |
| **OR**                             |
|                               |                                                                                                                                                                                      |
| **o**                              | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**                                                                                             |
|                               |                                                                                                                                                                                      |
|                               | **FOR THE TRANSITION PERIOD FROM               TO              ** |
|                               |                                                                                                                                                                                      |
| **Commission File Number 0-23553** |

** **

**PHOTOGEN TECHNOLOGIES, INC.**

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

 

| **NEVADA**                                                      |   | **62-1742885**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer Identification No.) |
|                                                            |   |                                 |
| **140 Union Square Drive  New Hope, Pennsylvania  18938**  |
| (Address of principal executive  offices)(Zip Code)             |
|                                                            |   |                                 |
| **215/862-6860**                                                |
| (Issuer’s telephone number, including area  code)          |

 

State the number of shares outstanding of each of the issuer’s classesof common equity, as of the latest practicable date: 17,114,868 shares ofcommon stock, $.001 par value per share, issued and outstanding at May 14,2003.

 

Transitional Small Business Disclosure Format (check one):

 

Yes   o    No   ý

 

 

----

 

**INDEX**

 
| Part I.  | Financial Information |
|----------|-----------------------|
|     |                  |
|     | Item 1.               | Financial Statements |
|     | Item 2.               | Management’s Discussion and Analysis or  Plan of Operation |
|     | Item 3.               | Controls  and Procedures |
|     |                  |   |
| Part II. | Other Information     |
|     |                  |
|     | Item 5.               | Other  Information |
|     | Item 6.               | Exhibits and Reports on Form 8-K |

 

i

----

 

**PARTI. FINANCIAL INFORMATION**

 

**ITEM1.                  FINANCIAL STATEMENTS**

** **
|                                                                                                                                             |   | **March 31,  2003** |             | **December 31,  2002** |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------------|------------------------|------------|
|                                                                                                                                             |   | **(Unaudited)**     |             | **(Audited)**          | ** ** |
|                                                                                                                                             |   |                |             |                   |       |
| **Assets**                                                                                                                                       |   |                | ** **       |                   | ** ** |
|                                                                                                                                             |   |                |             |                   |       |
| **Current Assets**                                                                                                                               |   |                |             |                   |       |
| Cash and cash equivalents                                                                                                                        |   | $                   | 2,393,058        |                   | $          | 6,090,904 |   |
| Deposits                                                                                                                                         |   | 108,721             |             | 98,721                 |       |
| Prepaid expenses                                                                                                                                 |   | 500,230             |             | 693,313                |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Total Current  Assets**                                                                                                                        |   | 3,002,009           |             | 6,882,938              |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Equipment and Leasehold Improvements,**  less accumulated depreciation of $16,124 and $14,651                                                  |   | 34,527              |             | 36,000                 |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Patent Costs,** net  of amortization of $152,775 and $142,359, respectively                                                                    |   | 347,225             |             | 357,641                |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Deposits**                                                                                                                                     |   | 14,383              |             | 14,383                 |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Notes Receivable,**less  allowance for doubtful collection of $1,491,500 and $0, respectively                                                  |   | 1,491,500           |             | 1,255,000              |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Investment in and  Advances to Affiliate**                                                                                                     |   | 7,996,555           |             | 8,192,452              |       |
|                                                                                                                                             |   |                |             |                   |       |
| Total Assets                                                                                                                                     |   | $                   | 12,886,199       |                   | $          | 16,738,414 |   |
|                                                                                                                                             |   |                |             |                   |       |
| **Liabilities and  Shareholders’ Equity**                                                                                                   |   |                |             |                   |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Current Liabilities**                                                                                                                          |   |                |             |                   |       |
| Accounts payable                                                                                                                                 |   | $                   | 632,508          |                   | $          | 835,003 |   |
| Accrued expenses                                                                                                                                 |   | —              |             | 34,132                 |       |
| Accrued equipment lease                                                                                                                          |   | 401,664             |             | 401,664                |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Total Current  Liabilities**                                                                                                                   |   | 1,034,172           |             | 1,270,799              |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Accrued Equipment  Lease**                                                                                                                     |   | 334,720             |             | 401,664                |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Shares Subject to  Rescission**                                                                                                                |   | 650,000             |             | 650,000                |       |
|                                                                                                                                             |   |                |             |                   |       |
| **Shareholders’ Equity**                                                                                                                    |   |                |             |                   |       |
| Preferred stock; par value $.01 per share;  5,000,000 shares authorized including:                                                               |   |                |             |                   |       |
| Series A Preferred Stock; 12,856 shares  authorized, issued and outstanding, liquidation preference $1,000 per share  (in aggregate $12,856,000) |   | 128                 |             | 128                    |       |
| Common stock; par value $.001 per share;  150,000,000 shares authorized; 16,915,243 and 16,137,465 shares issued and  outstanding, respectively  |   | 16,915              |             | 16,137                 |       |
| Additional paid-in capital                                                                                                                       |   | 44,536,354          |             | 43,144,880             |       |
| Deficit accumulated during the development  stage                                                                                                |   | (33,686,090         | )                | (28,745,194            | )          |
|                                                                                                                                             |   |                |             |                   |       |
| **Total Shareholders’  Equity**                                                                                                             |   | 10,867,307          |             | 14,415,951             |       |
|                                                                                                                                             |   |                |             |                   |       |
|                                                                                                                                             |   | $                   |  12,886,199 |                   | $          |  16,738,414 |   |

 

*See accompanying notes to financialstatements.*

 

1

----

 
|                                                                               |   | **Three  Months  Ended March 31,  2003** |       | **Three Months  Ended March 31,  2002** |       | **Cumulative  Amounts  From  November 3,  1996 (Inception) to  March 31,  2003** |        |
|------------------------------------------------------------------------------------|--------|------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------------------------------------------------|-------------|
|                                                                               |   | **(Unaudited)**                          |       | **(Unaudited)**                         |       | **(Unaudited)**                                                                  |        |
|                                                                               |   |                                     | ** ** |                                    | ** ** |                                                                             | ** **  |
| **Operating Expenses**                                                             |   |                                     |       |                                    |       |                                                                             |        |
| Research and development                                                           |   | $                                        | 554,163    |                                    | $          | 186,664                                                                          |        | $ | 4,910,800 |   |
| General and administrative                                                         |   | 4,195,358                                |       | 570,553                                 |       | 20,842,880                                                                       |        |
| Restructuring charges                                                              |   | —                                   |       | 451,068                                 |       | 1,404,508                                                                        |        |
| Provision for future lease payments                                                |   | —                                   |       | —                                  |       | 1,264,208                                                                        |        |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| Total operating expenses                                                           |   | 4,749,521                                |       | 1,208,285                               |       | 28,422,396                                                                       |        |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| Loss From Joint Venture                                                            |   | (195,897                                 | )          | (560,114                                | )          | (7,110,913                                                                       | )           |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| **Investment Income**                                                              |   | 4,522                                    |       | 1,325                                   |       | 1,213,463                                                                        |        |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| **Interest Expense**                                                               |   | —                                   |       | (46,172                                 | )          | (466,895                                                                         | )           |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| Loss from continuing operations                                                    |   | (4,940,896                               | )          | (1,813,246                              | )          | (34,786,741                                                                      | )           |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| **Discontinued  Operations**                                                       |   |                                     |       |                                    |       |                                                                             |        |
| Loss from operations of discontinued  therapeutic business                         |   | —                                   |       | (502,449                                | )          | (10,679,101                                                                      | )           |
| Gain from split-off of therapeutic business                                        |   | —                                   |       | —                                  |       | 11,779,752                                                                       |        |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| Income (loss) from discontinued operations                                         |   | —                                   |       | (502,449                                | )          | 1,100,651                                                                        |        |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| **Net Loss**                                                                       |   | (4,940,896                               | )          | (2,315,695                              | )          | $                                                                                | (33,686,090 | ) |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| **Dividends on  Preferred Stock**                                                  |   | (258,466                                 | )          | (334,463                                | )          |                                                                             |        |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| **Net Loss Applicable  to Common Shareholders**                                    |   | $                                        | (5,199,362 | )                                       | $          | (2,650,158                                                                       | )           |   |   |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| **Basic and Diluted  Loss Per Common Share from Continuing Operations**            |   | $                                        | (0.31      | )                                       | $          | (0.23                                                                            | )           |   |   |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| **Basic and Diluted  Income (Loss) Per Common Share from Discontinued Operations** |   | $                                        | —     |                                    | $          | (0.05                                                                            | )           |   |   |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| **Basic and Diluted  Loss Per Common Share**                                       |   | $                                        | (0.31      | )                                       | $          | (0.28                                                                            | )           |   |   |
|                                                                               |   |                                     |       |                                    |       |                                                                             |        |
| **Weighted Average  Number of Common Shares Outstanding – Basic and Diluted** |   | 16,670,181                               |       | 9,585,948                               |       |                                                                             |        |

 

*See accompanying notes to financialstatements.*

 

2

----

 
|                                                                                        |   | **Preferred  Stock  Series A** |       | **Preferred  Stock  Series B** |       | **Common  Stock** |       | **Members’** |       | **Additional  Paid-in** |       | **Deficit  Accumulated  During the  Development** |       |        |       |
|---------------------------------------------------------------------------------------------|--------|--------------------------------|------------|--------------------------------|------------|-------------------|------------|-------------------|------------|-------------------------|------------|---------------------------------------------------|------------|-------------|------------|
|                                                                                        |   | **Shares**                     |       | **Amount**                     | ** ** | **Shares**        | ** ** | **Amount**        | ** ** | **Shares**              | ** ** | **Amount**                                        | ** ** | **Capital** | ** ** | **Capital** | ** ** | **Stage** | ** ** | **Total** | ** ** |
|                                                                                        |   |                           | ** ** |                           | ** ** |              | ** ** |              | ** ** |                    | ** ** |                                              | ** ** |        | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Contribution of capital                                                                     |   | —                         |       | $                              | —     |              | —     |              | $          | —                  |       | —                                            |       | $           | —     |   | $ | 7,268 |   | $ | — |   | $ | — |   | $ | 7,268 |   |
| Net loss for the period ended December 31, 1996                                             |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | (1,779      | )          | — |   | — |   | (1,779 | ) |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| **Balance,** at May 15, 1997                                                                |   | —                         |       | $                              | —     |              | —     |              | $          | —                  |       | —                                            |       | $           | —     |   | $ | 9,000 |   | $ | — |   | $ | (3,511 | ) | $ | 5,489 |   |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| Issuance of common stock                                                                    |   | —                         |       | —                         |       | —            |       | —            |       | 1,578,208               |       | 1,578                                             |       | —      |       | 1,801,872 |   | — |   | 1,803,450 |   |
| Effect of recapitalization and merger                                                       |   | —                         |       | —                         |       | —            |       | —            |       | 7,421,792               |       | 7,422                                             |       | (9,000      | )          | 1,203,765 |   | 1,732 |   | 1,203,919 |   |
| Cost associated with recapitalization and merger                                            |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | (371,111 | ) | — |   | (371,111 | ) |
| Net loss for the period May 16, 1997 to December  31, 1997                                  |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | — |   | (554,702 | ) | (554,702 | ) |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| **Balance,** at December 31, 1997                                                           |   | —                         |       | —                         |       | —            |       | —            |       | 9,000,000               |       | 9,000                                             |       | —      |       | 2,634,526 |   | (556,481 | ) | 2,087,045 |   |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| Issuance of common stock                                                                    |   | —                         |       | —                         |       | —            |       | —            |       | 218,755                 |       | 219                                               |       | —      |       | 6,999,781 |   | — |   | 7,000,000 |   |
| Costs associated with common stock issuance                                                 |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | (50,000 | ) | — |   | (50,000 | ) |
| Options issued to consultants                                                               |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 45,446 |   | — |   | 45,446 |   |
| Net loss for the year ended December 31, 1998                                               |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | — |   | (1,973,913 | ) | (1,973,913 | ) |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| **Balance,** at December 31, 1998                                                           |   | —                         |       | —                         |       | —            |       | —            |       | 9,218,755               |       | 9,219                                             |       | —      |       | 9,629,753 |   | (2,530,394 | ) | 7,108,578 |   |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| Exercise of stock options                                                                   |   | —                         |       | —                         |       | —            |       | —            |       | 1,125                   |       | 1                                                 |       | —      |       | 50,062 |   | — |   | 50,063 |   |
| Issuance of warrants and options                                                            |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 3,664,749 |   | — |   | 3,664,749 |   |
| Issuance of common stock                                                                    |   | —                         |       | —                         |       | —            |       | —            |       | 125,967                 |       | 126                                               |       | —      |       | 6,082,528 |   | — |   | 6,082,654 |   |
| Issuance of preferred stock                                                                 |   | 12,015                         |       | 120                            |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 11,578,839 |   | — |   | 11,578,959 |   |
| Net loss for the year ended December 31, 1999                                               |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | — |   | (6,052,841 | ) | (6,052,841 | ) |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| **Balance,** at December 31, 1999                                                           |   | 12,015                         |       | $                              | 120        |              | —     |              | $          | —                  |       | 9,345,847                                         |       | $           | 9,346      |   | $ | — |   | $ | 31,005,931 |   | $ | (8,583,235 | ) | $ | 22,432,162 |   |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| Stock option compensation                                                                   |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 125,020 |   | — |   | 125,020 |   |
| Issuance of warrants and options                                                            |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 1,366,050 |   | — |   | 1,366,050 |   |
| Issuance of preferred stock dividend                                                        |   | 841                            |       | 8                              |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | (8 | ) | — |   | — |   |
| Issuance of preferred stock                                                                 |   | —                         |       | —                         |       | 337,056           |       | 3,370             |       | —                  |       | —                                            |       | —      |       | 5,272,970 |   | — |   | 5,276,340 |   |
| Net loss for the year ended December 31, 2000                                               |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | — |   | (10,787,062 | ) | (10,787,062 | ) |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| **Balance,** at December 31, 2000                                                           |   | 12,856                         |       | 128                            |       | 337,056           |       | 3,370             |       | 9,345,847               |       | 9,346                                             |       | —      |       | 37,769,963 |   | (19,370,297 | ) | 18,412,510 |   |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| Stock option compensation                                                                   |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 64,729 |   | — |   | 64,729 |   |
| Issuance of common stock for cash                                                           |   | —                         |       | —                         |       | —            |       | —            |       | 49,245                  |       | 49                                                |       | —      |       | 418,674 |   | — |   | 418,723 |   |
| Issuance of common stock in satisfaction  of anti-dilution provision                   |   | —                         |       | —                         |       | —            |       | —            |       | 190,856                 |       | 191                                               |       | —      |       | (191 | ) | — |   | — |   |
| Issuance of preferred stock dividend                                                        |   | —                         |       | —                         |       | 20,224            |       | 202               |       | —                  |       | —                                            |       | —      |       | (202 | ) | — |   | — |   |
| Net loss for the year ended December 31, 2001                                               |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | — |   | (9,723,016 | ) | (9,723,016 | ) |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| **Balance,** at December 31, 2001                                                           |   | 12,856                         |       | 128                            |       | 357,280           |       | 3,572             |       | 9,585,948               |       | 9,586                                             |       | —      |       | 38,252,973 |   | (29,093,313 | ) | 9,172,946 |   |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| Stock option compensation                                                                   |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 73,870 |   | — |   | 73,870 |   |
| Issuance of warrants for services                                                           |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 322,000 |   | — |   | 322,000 |   |
| Issuance of options in settlement of lawsuit                                                |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 806,415 |   | — |   | 806,415 |   |
| Employee compensation from stock options                                                    |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 988,184 |   | — |   | 988,184 |   |
| Issuance of preferred stock dividend                                                        |   | —                         |       | —                         |       | 40,194            |       | 402               |       | —                  |       | —                                            |       | —      |       | (402 | ) | — |   | — |   |
| Conversion of Series B to common stock                                                      |   | —                         |       | —                         |       | (397,474          | )          | (3,974            | )          | 422,316                 |       | 422                                               |       | —      |       | 3,552 |   | — |   | — |   |
| Beneficial inducement costs for convertible  debt  converted                           |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 206,348 |   | — |   | 206,348 |   |
| Conversion of line of credit with Elan to common  stock                                     |   | —                         |       | —                         |       | —            |       | —            |       | 128,437                 |       | 128                                               |       | —      |       | 3,082,359 |   | — |   | 3,082,487 |   |
| Conversion of line of credit with entity controlled  by director of company to common stock |   | —                         |       | —                         |       | —            |       | —            |       | 2,314,815               |       | 2,315                                             |       | —      |       | 2,497,685 |   | — |   | 2,500,000 |   |
| Retirement of common stock returned in  shareholder  transaction (Note 6(f))           |   | —                         |       | —                         |       | —            |       | —            |       | (5,137,109              | )          | (5,137                                            | )          | —      |       | (12,221,182 | ) | — |   | (12,226,319 | ) |
| Issuance of common stock for cash                                                           |   | —                         |       | —                         |       | —            |       | —            |       | 8,823,058               |       | 8,823                                             |       | —      |       | 9,133,078 |   | — |   | 9,141,901 |   |
| Net income for the year ended December 31, 2002                                             |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | — |   | 348,119 |   | 348,119 |   |
|                                                                                        |   |                           |       |                           |       |              |       |              |       |                    |       |                                              |       |        |       |   |   |   |   |   |   |
| **Balance,** at December 31, 2002                                                           |   | 12,856                         |       | $                              | 128        |              | —     |              | $          | —                  |       | 16,137,465                                        |       | $           | 16,137     |   | $ | — |   | $ | 43,144,880 |   | $ | (28,745,194 | ) | $ | 14,415,951 |   |
|                                                                                        |   |                           | ** ** |                           | ** ** |              | ** ** |              | ** ** |                    | ** ** |                                              | ** ** |        | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Issuance of common stock  for cash                                                          |   | —                         |       | —                         |       | —            |       | —            |       | 27,778                  |       | 28                                                |       | —      |       | 29,972 |   | — |   | 30,000 |   |
| Issuance of common stock  for standstill agreement                                          |   | —                         |       | —                         |       | —            |       | —            |       | 750,000                 |       | 750                                               |       | —      |       | 1,173,000 |   | — |   | 1,173,750 |   |
| Options issued to  consultants for services                                                 |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 9,200 |   | — |   | 9,200 |   |
| Shares to be issued to  consultants for services                                            |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 28,125 |   | — |   | 28,125 |   |
| Employee compensation  from stock options                                                   |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | 151,177 |   | — |   | 151,177 |   |
| Net loss for the three  months ended March 31, 2003                                         |   | —                         |       | —                         |       | —            |       | —            |       | —                  |       | —                                            |       | —      |       | — |   | (4,940,896 | ) | (4,940,896 | ) |
|                                                                                        |   |                           | ** ** |                           | ** ** |              | ** ** |              | ** ** |                    | ** ** |                                              | ** ** |        | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Balance,** at March 31, 2003                                                              |   | 12,856                         |       | $                              | 128        |              | —     |              | $          | —                  |       | 16,915,243                                        |       | $           | 16,915     |   | $ | — |   | $ | 44,536,354 |   | $ | (33,686,090 | ) | $ | 10,867,307 |   |

 

*See accompanying notes to financialstatements.*

 

3

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|                                                              |   | **Three  Months  Ended March  31, 2003** |       | **Three  Months  Ended March  31, 2002** |   | **Cumulative  Amounts  From  November 3,  1996  (Inception)** |       |
|-------------------------------------------------------------------|--------|------------------------------------------|------------|------------------------------------------|--------|---------------------------------------------------------------|------------|
|                                                              |   | **(Unaudited)**                          |       | **(Unaudited)**                          |   | **(Unaudited)**                                               | ** ** |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| **Cash Flows From  Operating Activities**                         |   |                                     |       |                                     |   |                                                          |       |
| Net loss                                                          |   | $                                        | (4,940,896 | )                                        | $      | (2,315,695                                                    | )          | $ | (33,686,090 | ) |
| Loss from discontinued operations                                 |   | —                                   |       | 502,449                                  |   | 10,679,101                                                    |       |
| Depreciation and amortization                                     |   | 11,889                                   |       | 105,841                                  |   | 1,689,793                                                     |       |
| Loss (gain) on disposal of equipment and  leasehold improvements  |   | —                                   |       | —                                   |   | 38,424                                                        |       |
| Gain on sale of marketable securities                             |   | —                                   |       | —                                   |   | (18,503                                                       | )          |
| United States Treasury Notes amortization                         |   | —                                   |       | —                                   |   | 12,586                                                        |       |
| Gain on sale of therapeutic business                              |   | —                                   |       | —                                   |   | (11,779,752                                                   | )          |
| Allowance on notes receivable                                     |   | 1,491,500                                |       | —                                   |   | 1,491,500                                                     |       |
| Stock option compensation                                         |   | 160,377                                  |       | 14,567                                   |   | 1,838,947                                                     |       |
| Beneficial inducement costs for convertible  notes                |   | —                                   |       | —                                   |   | 206,348                                                       |       |
| Issuance of warrants in exchange for  services rendered           |   | —                                   |       | —                                   |   | 4,317,091                                                     |       |
| Issuance of stock options in settlement of  lawsuit               |   | —                                   |       | —                                   |   | 806,415                                                       |       |
| Issuance of stock for standstill agreement                        |   | 1,173,750                                |       | —                                   |   | 1,173,750                                                     |       |
| Issuance of stock for services rendered                           |   | 28,125                                   |       | —                                   |   | 28,125                                                        |       |
| Loss from investment in affiliate                                 |   | 195,897                                  |       | 560,114                                  |   | 7,110,913                                                     |       |
| Changes in operating assets and liabilities                       |   |                                     |       |                                     |   |                                                          |       |
| Prepaid expenses                                                  |   | 193,083                                  |       | 14,888                                   |   | (500,230                                                      | )          |
| Accounts payable                                                  |   | (202,495                                 | )          | 97,191                                   |   | 702,508                                                       |       |
| Accrued expenses                                                  |   | (34,132                                  | )          | 162,802                                  |   | 235,577                                                       |       |
| Accrued restructuring                                             |   | —                                   |       | 451,068                                  |   | —                                                        |       |
| Accrued equipment lease                                           |   | (66,944                                  | )          | (9,391                                   | )      | 1,067,033                                                     |       |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| Net cash used in operating activities  (continuing operations)    |   | (1,989,846                               | )          | (416,166                                 | )      | (14,586,464                                                   | )          |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| Net cash used in discontinued operations                          |   | —                                   |       | (502,449                                 | )      | (10,679,101                                                   | )          |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| **Cash Flows From  Investing Activities**                         |   |                                     |       |                                     |   |                                                          |       |
| Sale of marketable securities                                     |   | —                                   |       | —                                   |   | 2,164,464                                                     |       |
| Purchases of marketable securities                                |   | —                                   |       | —                                   |   | (2,182,967                                                    | )          |
| Purchases of United States Treasury Notes                         |   | —                                   |       | —                                   |   | (38,656,973                                                   | )          |
| Sales of United States Treasury Notes                             |   | —                                   |       | —                                   |   | 39,778,548                                                    |       |
| Purchase of equipment and leasehold  improvements                 |   | —                                   |       | —                                   |   | (636,877                                                      | )          |
| Proceeds from sale of equipment                                   |   | —                                   |       | —                                   |   | 145,551                                                       |       |
| Costs to acquire patent                                           |   | —                                   |       | —                                   |   | (237,335                                                      | )          |
| Investment in and advances to affiliate                           |   | —                                   |       | (168,011                                 | )      | (15,107,468                                                   | )          |
| Increase in notes receivable                                      |   | (1,728,000                               | )          | —                                   |   | (2,983,000                                                    | )          |
| Decrease in restricted cash                                       |   | —                                   |       | (150,000                                 | )      | —                                                        |       |
| Decrease (increase) in deposit                                    |   | (10,000                                  | )          | 200,523                                  |   | (453,753                                                      | )          |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| Net cash used in investing activities  (continuing operations)    |   | (1,738,000                               | )          | (117,488                                 | )      | (18,169,810                                                   | )          |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| Net cash used in investing activities of  discontinued operations |   | —                                   |       | —                                   |   | (1,306,676                                                    | )          |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| **Cash Flows From  Financing Activities**                         |   |                                     |       |                                     |   |                                                          |       |
| Principal payments on capital leases                              |   | $                                        | —     |                                     | $      | —                                                        |       | $ | (291,704 | ) |
| Net proceeds from issuance of equity                              |   | 30,000                                   |       | —                                   |   | 40,539,340                                                    |       |
| Proceeds from capital contributions by  shareholders              |   | —                                   |       | —                                   |   | 1,911,674                                                     |       |
| Proceeds from issuance of debt                                    |   | —                                   |       | —                                   |   | 5,346,910                                                     |       |
| Cost of recapitalization                                          |   | —                                   |       | —                                   |   | (371,111                                                      | )          |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| Net cash provided by financing activities                         |   | 30,000                                   |       | —                                   |   | 47,135,109                                                    |       |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| **Net Increase  (Decrease) in Cash and Cash****Equivalents**      |   | (3,697,846                               | )          | (1,036,103                               | )      | 2,393,058                                                     |       |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| **Cash and Cash Equivalents,**  at beginning of period            |   | 6,090,904                                |       | 1,352,904                                |   | —                                                        |       |
|                                                              |   |                                     |       |                                     |   |                                                          |       |
| **Cash and Cash Equivalents,**  at end of period                  |   | $                                        | 2,393,058  |                                     | $      | 316,801                                                       |       | $ | 2,393,058 |   |

 

*See accompanying notes to financial statements.*

 

4

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| **1.** | **Basis of  Presentation**                    |   | The accompanying unaudited financial statements have been prepared in  accordance with generally accepted accounting principles for interim  financial information pursuant to Regulation SB.  Accordingly, they do not include all of the information and  footnotes required by generally accepted accounting principles for complete financial  statements.  In the opinion of  management, all adjustments (consisting of normal recurring accruals)  considered necessary for a fair presentation have been included.  Operating results for the three months  ended March 31, 2003 are not necessarily indicative of the results that may  be expected for the year ended December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|-----------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **2.** | **Going Concern**                             |   | The accompanying financial statements are prepared assuming the  Company is a going concern.  The  Company believes it lacks sufficient working capital to fund operations for  the entire fiscal year ending December 31, 2003 without additional debt or  equity financing.  Therefore,  substantial additional capital resources will be required to fund the ongoing  operations related to the Company’s research and business development  activities.  Management believes there  are a number of potential alternatives available to meet the continuing  capital requirements such as public or private financings or collaborative  agreements.  The Company is taking  continuing actions to reduce its ongoing expenses.  If adequate funds are not available, the Company will be  required to significantly curtail its operating plans and may have to sell or  license out significant portions of the Company’s technology or potential  products.  The financial statements do  not include any adjustment to reflect the possible future effects on the  recoverability and classification of assets or the amount and classification  of liabilities that may result from the outcome of this uncertainty. |
|   |                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **3.** | **Basic and Diluted  Loss  Per Common Share** |   | Basic and diluted loss per common share is computed based on the  weighted average number of common shares outstanding.  Loss per share excludes the impact of  outstanding options, warrants and convertible preferred stock as they are  antidilutive.  Potential common shares  excluded from the calculation at March 31, 2003 are 4,575,481 options,  237,431 warrants and 151,819 shares issuable upon the conversion of Series A  Preferred Stock.  Basic and diluted  loss per common share includes 124,627 shares of common stock subject to  rescission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **4.** | **Stock Options**                             |   | The Company has adopted the disclosure-only provisions of Statement  of Financial Accounting Standards No. 123, “Accounting for Stock Based  Compensation” (SFAS No. 123), but applies the intrinsic value method set  forth in Accounting Principles Board Opinion No. 25 for stock options granted  to employees and directors.  The  Company expenses the fair value of stock options granted to  nonemployees.  In 2002, the Company  issued stock options to employees with an exercise price less than the market  price on the date of grant that vest over five years.  Accordingly, compensation expense of  $151,177 has been recorded in the first quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

5

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|   |   |   | For stock options granted to employees and directors during the first  quarter of 2003, the Company has estimated the fair value of each option  granted using the Black-Scholes option pricing model with the following  assumptions: |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** **
|   |   |   |                                             |   | **2003** |       |
|--------|--------|--------|--------------------------------------------------|--------|----------|------------|
|   |   |   |                                             |   |     | ** ** |
|   |   |   | Weighted average fair value per options  granted |   | $        | 0.93       |   |
|   |   |   |                                             |   |     | ** ** |
|   |   |   | Significant assumptions (weighted average)       |   |     | ** ** |
|   |   |   | Risk-free interest rate at grant date            |   | 3.0      | %          |
|   |   |   | Expected stock price volatility                  |   | 99       | %          |
|   |   |   | Expected option life (years)                     |   | 5        |       |
|        |        |        |                                                  |        |          |            |  |

 
|   |   |   | If the Company had elected to recognize compensation expense based on  the fair value at the grant dates, consistent with the method prescribed by  SFAS No. 123, net loss per share would have been changed to the pro forma  amount indicated below: |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|   |   |   |                                                                                                               |   | **2003** |       |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------|--------|----------|------------|
|   |   |   |                                                                                                               |   |     | ** ** |
|   |   |   | Net income (loss), as reported                                                                                     |   | $        | (5,199,362 | ) |
|   |   |   |                                                                                                               |   |     |       |
|   |   |   | Add stock based employee compensation  expense included in reported net income                                     |   | 151,177  |       |
|   |   |   |                                                                                                               |   |     |       |
|   |   |   | Less total stock-based employee  compensation expense determined under the fair value based method for all  awards |   | (559,222 | )          |
|   |   |   |                                                                                                               |   |     |       |
|   |   |   | Pro forma net loss                                                                                                 |   | $        | (5,607,407 | ) |
|   |   |   |                                                                                                               |   |     |       |
|   |   |   | Basic and diluted loss per common share, as  reported                                                              |   | $        | (0.31      | ) |
|   |   |   |                                                                                                               |   |     |       |
|   |   |   | Basis and diluted loss per common share,  pro forma                                                                |   | $        | (0.34      | ) |

 
| **5.** | **Joint Venture/**  **Investment in**  **Affiliate** |   | Following is summarized financial information for Sentigen at March  31, 2003 and 2002: |
|--------|----------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|

 

6

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|   |   |   | **March  31,**                                                                               |   | **2003**   |       | **2002**   |   |
|--------|--------|--------|----------------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
|   |   |   |                                                                                         |   |       | ** ** |       |   |
|   |   |   | Cash                                                                                         |   | $          | 410        |       | $      | — |   |
|   |   |   | License purchased from Elan, net of  amortization of $2,445,659 and $1,467,395, respectively |   | 10,054,341 |       | 13,532,605 |   |
|   |   |   |                                                                                         |   |       |       |       |   |
|   |   |   | Total assets                                                                                 |   | $          | 10,054,751 |       | $      | 13,532,605 |   |
|   |   |   |                                                                                         |   |       |       |       |   |
|   |   |   | Due to affiliates                                                                            |   | $          | 378,099    |       | $      | 665,299 |   |
|   |   |   |                                                                                         |   |       |       |       |   |
|   |   |   | Total shareholders’ equity                                                              |   | 9,676,652  |       | 12,867,306 |   |
|   |   |   |                                                                                         |   |       |       |       |   |
|   |   |   | Total liabilities and equity                                                                 |   | $          | 10,054,751 |       | $      | 13,532,605 |   |
|   |   |   |                                                                                         |   |       |       |       |   |
|   |   |   | Research and development expense                                                             |   | $          | —     |       | $      | 445,310 |   |
|   |   |   | General and administrative expense                                                           |   | —     |       | 18,739     |   |
|   |   |   | Amortization of license                                                                      |   | 244,566    |       | 244,566    |   |
|   |   |   | Impairment of license                                                                        |   | —     |       | —     |   |
|   |   |   |                                                                                         |   |       |       |       |   |
|   |   |   | Net loss                                                                                     |   | $          | (244,566   | )          | $      | (708,615 | ) |

 
| **6.** | **Equity  Transactions**                      |   | During the first  quarter, pursuant to a standstill agreement with a secured creditor of  Alliance Pharmaceutical Corp. (“Alliance”), the Company issued a total of  750,000 shares to the creditor and the creditor agreed to not exercise any rights against  Alliance as a creditor.  The value of  these shares has been treated as an expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|-----------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **7.** | **Advances to Alliance Pharmaceutical Corp.** |   | Through March 31, 2003, the Company has provided bridge financing to  Alliance of an aggregate of $2,983,000 evidenced by 8% convertible secured  promissory notes (the “Alliance Notes”) issued pursuant to a Convertible  Secured Note Purchase Agreement dated as of October 4, 2002 (the “Note  Purchase Agreement”).  The Notes are collateralized by certain assets of  Alliance, some of which are subject to prior liens held by Xmark Fund, L.P.,  Xmark Fund, Ltd. and PFC (a joint venture between Alliance and Baxter  Healthcare Corporation).  Based upon the Company’s security interest in  the Alliance assets and the potential value of those assets should the  Company not acquire the *Imagent*® business, management established a reserve of $1,491,500 for  the value of the notes receivable.  This is a significant estimate and  it is subject to change based on Alliance’s activity and its ability to  continue operations or its ability to liquidate the underlying collateral. |
|   |                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **8.** | **Subsequent  Events**                        |   | On May 1, 2003, the Company executed a Going Forward Agreement with  Xmark Fund, L.P. and Xmark Fund, Ltd. (collectively, “Xmark”).  Xmark holds secured debt of Alliance  Pharmaceutical Corp..  The Going                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

7

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|   |   |   | Forward Agreement provides, among other things, that the Company will  use commercially reasonable efforts to purchase by June 30, 2003 the assets  related to Alliance’s imaging and diagnostics business, including Alliance’s *Imagent*® product.  Separately, Alliance and the Company  agreed to amend their term sheet to extend the Company’s exclusive option to  acquire the *Imagent*® business  until July 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |   | On May 1, 2003, the Company also executed a Participation Agreement  with Xmark pursuant to which the Company agreed to purchase a one-third  undivided interest in Xmark’s loan to Alliance.  The Company paid $1,250,000 for this participation.  As a result, the Company will have an  undivided one-third interest in amounts Xmark collects from Alliance in  connection with this loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |   | To obtain funds for acquiring the participation in Xmark’s loan to  Alliance, the Company issued a Revolving Convertible Senior Secured  Promissory Note to Oxford BioScience Partners IV L.P. in the principal amount  of up to $1,500,000.  This Note is  secured by a first priority security interest on all of the Company’s assets,  bears interest at 7.25% per annum and is due on the earlier of August 5, 2003  or upon the occurrence of an “acceleration event.”  All principal and interest under the Note will convert into the  Company’s common stock upon completion of a qualified financing that closes  before August 5, 2003 at the same price and on the same terms as are in  effect for the other investors in the qualified financing; and Oxford BioScience  will have the same rights, benefits and obligations as other investors in  that financing.  The acceleration  events include a breach of the Company’s obligations or representations under  a Security Agreement in favor of Oxford BioScience Partners; if the Company  files for bankruptcy protection or similar events occur indicating  insolvency; if the Company liquidates; or if the Company incurs any debt  senior or *pari passu* to the  debt to Oxford BioScience. |

 

8

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**ITEM 2.**                                                     **MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OFOPERATION**

 

Portions of the discussionin this item contain forward-looking statements and are subject to the RiskFactors described below.

 

Theaccompanying financial statements have been prepared assuming we are a goingconcern.  Management believes it lackssufficient working capital to fund operations for the entire fiscal year endingDecember 31, 2003 without additional debt or equity financing.  The financial statements for the quarterended March 31, 2003 do not include any adjustment to reflect the possiblefuture effects on the recoverability and classification of assets or the amountand classification of liabilities that may result from this uncertainty.

 

Weare an emerging, development-stage biopharmaceutical company focused ondeveloping a novel contrast agent with potential applications (1) as a bloodpool agent, to diagnose diseased tissue in the cardiovascular system and otherorgans, and (2) to diagnose cancer metastasizing into the lymphaticsystem.  We are the exclusive licensee of a group of proprietarymaterials, the lead compound of which is a contrast agent we refer to as PH-50or N1177.  The product designations PH-50 and N1177 refer to the samechemical entity.  We established the two names to distinguishcommercialization rights between cardiovascular imaging (and all otherindications) (PH-50) to which we retain rights, and the field of lymphography(N1177), which we licensed to our joint venture (Sentigen, Ltd.) with affiliatesof Elan Corporation, plc (“Elan”).

 

InDecember 2001, we announced positive preclinical results of PH-50.  Basedon these studies, the extensive preclinical toxicology and other study workalready performed, including the product’s use in approximately 65 patients forlymphography, we shifted our strategic direction to focus on the cardiovascularand lymphography applications.  We have not completed development of anydiagnostic product or process at this time and have no revenue from operations.

 

Wehave also entered into a term sheet with Alliance Pharmaceutical Corp.(“Alliance”) which gives us the exclusive option until July 15, 2003 to acquireall of the medical imaging assets of Alliance, including *Imagent*®, an FDA approved intravenouscontrast agent for use with ultrasound imaging equipment.

 

On May 1, 2003, we executed a Going Forward Agreement with Xmark Fund,Ltd. and Xmark Fund, L.P. (collectively, “Xmark”).  Xmark holds secured debt of Alliance.  The Going Forward Agreement provides, among other things, that wewill use commercially reasonable efforts to purchase by June 30, 2003 theassets related to Alliance’s imaging and diagnostics business, includingAlliance’s *Imagent*® product (the“*Imagent*® business”).  Separately, Alliance agreed to amend theterm sheet to extend our exclusive option to acquire the *Imagent*® business until July 15, 2003.

 

We also agreed to file a registration statement with the Securities andExchange Commission (“SEC”), within 60 days, to allow Xmark’s resale of sharesPhotogen has and will issue to Xmark. If the closing of the acquisition of the *Imagent*® business occurs, we will disclose in our SECfilings additional terms concerning our additional obligations to Xmark as a

 

9

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result of the acquisition. Xmark agreed not to exercise any rights against Alliance as a creditoruntil June 30, 2003.

 

On May 1, 2003, we also executed a Participation Agreement with Xmarkpursuant to which we agreed to purchase a one-third undivided interest inXmark’s loan to Alliance.  We paid$1,250,000 for this participation.  As aresult, we will have an undivided one-third interest in amounts Xmark collectsfrom Alliance in connection with this loan. We do not have any interest in Alliance’s assets that are collateral forthe Xmark loan by virtue of the Participation Agreement; however, we currentlyhave a lien subordinate to Xmark relating to the *Imagent*®business.

 

To obtain funds for acquiring the participation in Xmark’s loan toAlliance, we issued a Revolving Convertible Senior Secured Promissory Note (the“Note”) to Oxford BioScience Partners IV L.P. (“Oxford Bioscience”) in theprincipal amount of up to $1,500,000. The Note is secured by a first priority security interest on all of ourassets, bears interest at 7.25% per annum and is due on the earlier of August5, 2003 or upon the occurrence of an “acceleration event.”  All principal and interest under the Notewill convert into our common stock upon completion of a qualified financing thatcloses before August 5, 2003.  The Notewill be converted into the number of shares of our common stock at the sameprice and on the same terms as are in effect for the other investors in thequalified financing; and Oxford BioScience will have the same rights, benefitsand obligations as other investors in that financing.  The acceleration events include a breach of our obligations orrepresentations under a Security Agreement in favor of Oxford BioScience; if wefile for bankruptcy protection or similar events occur indicating insolvency;if we liquidate; or if we incur any debt senior or *pari passu* to the debt to Oxford BioScience.

 

Inaddition, through March 31, 2003, we loaned Alliance an aggregate of $2,983,000evidenced by 8% convertible secured promissory notes (the “AllianceNotes”).  Together with any other holders of notes issued pursuant tothe Convertible Secured Note Purchase Agreement dated as of October 4, 2002(the “Note Purchase Agreement”), we have liens on certain of the assets ofAlliance.  Our lien on the *Imagent®*-relatedassets is subordinate in priority to liens held by Xmark.  As of March 31,2003, there was approximately $4,750,000 of debt subject to the Xmarkliens.  Our lien related to Alliance’s Oxygent product is subordinate to alien held by PFC Therapeutics, LLC (“PFC”).  Our other liens on the assetsof Alliance are first priority liens.  Alliance has the right to makepayments of interest under the Alliance Notes in shares of its commonstock.  We have the right to convert the outstanding principal andinterest under the Alliance Notes into shares of Alliance common stock at theconversion price of $0.35 per share.  Any shares of Alliance common stockwe receive in lieu of cash interest payments may have a value less than thecash that we would otherwise be owed.  Any shares of Alliance common stockthat we receive from Alliance will be restricted securities and subject to Rule144 trading restrictions.  We have certain demand and piggybackregistration rights with respect to any shares of Alliance common stock that wereceive under the terms of the Note Purchase Agreement.

 

Asof March 31, 2003, we recorded $2,983,000 of notes receivable in connectionwith advances that we made to Alliance in exchange for the AllianceNotes.  As described above, the Alliance Notes are collateralized bycertain assets of Alliance, some of which are subject to prior liens held byXmark and PFC.  Based upon our security interest in the Alliance assetsand the potential value of those assets, management established a reserve of$1,491,500 for the value of the notes receivable.  However, this is asignificant estimate and it is subject to change based on Alliance’s activityand its ability to continue operations or its ability to liquidate the underlyingcollateral.

 

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Weexpect that our quarterly and annual results of operations will fluctuate basedon several factors including, the availability of capital to support ouroperations, the timing and amount of expenses involved in conducting ourresearch programs, particularly the conduct of clinical trials, the cost ofclinical material used in those trials and required for compliance with FDAregulations and the amount, if any, of fees, milestone payments and researchsupport payments received from potential strategic partners.

 

Weconsider our investment in the joint venture with affiliates of Elan to besubject to a significant estimate.  The carrying value of our 80.1% equityinterest in Sentigen, Ltd., the joint venture entity, at March 31, 2003 was$7,996,555. ** **Sentigen’smanagement reviewed its financial projections at year-end 2002 and concludedthat given delays in the development of N1177, resulting from capitalconstraints, the carrying value of the intangible assets in the joint ventureshould be reduced by $2,500,000.  The assumptions underlying the financialforecasts were based on currently available information, including estimates ofdevelopment costs, pricing, operating expenses and market sizes andpenetration.  These estimates may change and any such changes may impactfuture estimates of appropriate carrying values.  Currently, we do notbelieve any further impairment to our investment is necessary.

 

**Results of Operations**

 

Ourefforts have been focused on the development and clinical testing of diagnosticproducts.  To date, we have not generated revenues from the sale of anyproposed diagnostic products or other operations.  Net loss applicable tocommon shareholders (after preferred dividends) was $2,650,158 and $5,199,362for the first quarter ended March 31, 2002 and 2003, respectively, and ourcumulative losses since inception, including “in-kind” preferred stock andbeneficial conversion dividends totaling $7,904,695, are approximately$41,590,785.

 

Weoperate with a small staff of managers to oversee and direct third partycontractors and perform administrative functions.  We contract with thirdparty consultants having expertise in clinical development and regulatorymatters to supplement our internal capabilities.  We also contract withthird party research laboratories, contract research organizations andmanufacturers for clinical material supplies and the management of clinicaltrials.  We also contract with academic and other institutions to conductspecified research projects.

 

Researchand development expenses for the quarters ended March 31, 2002 and 2003 were$186,664 and $554,163, respectively.  These expenses include personnelcosts, fees and other compensation paid to outside consultants, and costsassociated with conducting preclinical studies and manufacturing product to beused in these studies.

 

Substantiallyall of the research expenses in the first quarter of 2003 were oriented to thepreclinical development of PH-50, a product having greater market potentialthan N1177.  Expenses associated with the development of PH-50 are bornecompletely by us, whereas expenses associated with the development of N1177 arecharged to our joint venture.

 

Generaland administrative expenses were $570,553 and $4,195,358 for the quarters endedMarch 31, 2002 and 2003, respectively.  These expenses include costsassociated with our potential acquisition of the *Imagent*® business, obtaining patent protection for ourintellectual property, costs associated with administrative personnel andcorporate management, the amortization of options granted to our employees,legal and related expenses and facilities expenses.

 

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Inthe first quarter of 2003, general and administrative expenses increased by$3,624,805 to $4,195,358.  The primaryreasons for the increase were related to our potential acquisition of the *Imagent*® business from Alliance including,(i) provisions we have taken against advances we had made to Alliance andshares of our common stock we had issued to a secured creditor of Alliancepursuant to a standstill agreement with that creditor and (ii) costs ofconducting due diligence activities related to the potential acquisition of the*Imagent*® business.  As part of the November, 2002 restructuringand financing, stock options were granted to our remaining employees with anexercise price equal to the price at which common stock was sold to the newinstitutional investors.  As the exercise price was below the closingprice of the company’s common stock at the date of grant, we recorded anexpense of approximately $151,177 in the first quarter of 2003 reflecting thedifferential between those two prices.

 

Inthe fourth quarter of 1999, we entered into a joint venture with affiliates ofElan for the development of N1177, a potential product to identify and diagnoselymph nodes for the presence of cancer. We own 80.1% of the joint ventureentity, Sentigen, Ltd., with the balance owned by Elan.  During the firstquarter of 2002 and 2003 we recorded losses from the joint venture of  $560,114 and $195,897, respectively. In 2002, these losses resulted from our share of development expenses incurredin the joint venture by the two participants, including personnel expenses andcosts associated with developing a manufacturing process, and the purchase ofdrug substance and other materials.  In 2003, these losses weresubstantially the result of the amortization of the license purchased from Elan.  As there have been delays, principally dueto capital constraints, on the development of N1177, Sentigen recorded in 2002a $2.5 million charge, of which our 80.1% share is approximately $2.0 million,as an impairment to the carrying value of the Sentigen license.  Currently, we do not believe any furtherimpairment to our investment is necessary.

 

Investmentincome for the quarters ended March 31, 2002 and 2003 was $1,325 and $4,522,respectively.  Investment income is generated by the amount of capital inour investment portfolio prior to it being used to fund our operations and therate of interest earned on that capital.  We invest funds in theinvestment portfolio in U.S. government obligations.  We expect investmentincome to continue to fluctuate both as the size of the investment portfoliodecreases or increases and as the rate of interest earned by the portfoliovaries due to shifts in short term interest rates.

 

Sinceinception, we had been developing products for both therapeutic and medicalimaging applications.  As one of aseries of transactions on November 12, 2002, we split off our therapeuticbusiness to certain founding shareholders.  Accordingly, the expensesassociated with that business have been reclassified as discontinuedoperations.  Our therapeutic business had been focused on the developmentof certain photodynamic therapy products, in particular a compound we callPH-10.  In the first quarter of 2002, we incurred losses related to theseoperations of $502,449.  On November 12, 2002, this business was split offto certain founding shareholders in exchange for all of their 52.9% ownershipinterest in Photogen.

 

Forthe quarters ended March 31, 2002 and 2003 we had no purchases of equipment andleasehold improvements.  During the next twelve months we expect capitalexpenditures for equipment to be insignificant.

 

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**Liquidity; Capital Resources**

 

Withoutadditional financing we may not have sufficient cash resources for our currentcommitments beyond the third quarter of 2003 (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 substantialadditional financing for our research, clinical testing, product developmentand marketing programs.  We cannot accurately estimate the amount ofadditional financing required; however, the amount could be an additional $30million or more over the next several years.  In particular, we are currentlyseeking to raise up to $20 million in one or more transactions to acquireassets from Alliance through the sale of securities to accreditedinvestors.  See “Risk Factors — We must raise additional financing in thefuture and our inability to do so will prevent us from implementing ourbusiness plan,” below.

 

AtMarch 31, 2003, we had cash and cash equivalents totaling approximately$2,393,058.

 

During the first quarter,pursuant to a standstill agreement with a secured creditor of Alliance, weissued a total of 750,000 shares of our common stock to the creditor and thecreditor agreed tonot exercise any rights against Alliance as a creditor.  The value of these shares has been treatedas an expense.

 

On May 1, 2003, we executed a Going Forward Agreement with Xmark.  Xmark holds secured debt of Alliance.  The Going Forward Agreement provides, amongother things, that we will use commercially reasonable efforts to purchase byJune 30, 2003 the assets related to Alliance’s imaging and diagnostics business,including Alliance’s *Imagent*®business.  Separately, Alliance agreedto amend the term sheet to extend our exclusive option to acquire the *Imagent*® business until July 15, 2003.

 

On May 1, 2003, we also executed a Participation Agreement with Xmarkpursuant to which we agreed to purchase a one-third undivided interest inXmark’s loan to Alliance.  We paid$1,250,000 for this participation.  As aresult, we will have an undivided one-third interest in amounts Xmark collectsfrom Alliance in connection with this loan. We do not have any interest in Alliance’s assets that are collateral forthe Xmark loan by virtue of the Participation Agreement; however, we currentlyhave a lien subordinate to Xmark relating to the *Imagent*®business.

 

To obtain funds for acquiring the participation in Xmark’s loan toAlliance, we issued the Note to Oxford BioScience in the principal amount of upto $1,500,000.  The Note is secured by afirst priority security interest on all of our assets, bears interest at 7.25%per annum and is due on the earlier of August 5, 2003 or upon the occurrence ofan “acceleration event.”  All principaland interest under the Note will convert into our common stock upon completionof a qualified financing that closes before August 5, 2003.  The Note will be converted into the numberof shares of our common stock at the same price and on the same terms as are ineffect for the other investors in the qualified financing; and OxfordBioScience will have the same rights, benefits and obligations as otherinvestors in that financing.  Theacceleration events include a breach of our obligations or representationsunder a Security Agreement in favor of Oxford BioScience; if we file forbankruptcy protection or similar events occur indicating insolvency; if weliquidate; or if we incur any debt senior or *paripassu* to the debt to Oxford BioScience.

 

Withthe proceeds of the financing we closed in November and December 2002 andJanuary 2003 and our promissory note from Oxford Bioscience, we believe we havesufficient capital to carry out planned activities into the second quarter of2003.  Our ability to conduct operations beyond that date is entirelydependent on our ability to obtain additional capital.  If we raiseadditional funds by issuing equity securities, substantial dilution to existingstockholders

 

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mayresult.  However, there can be no assurance that such capital will beavailable under acceptable terms, if at all.  See “RiskFactors — We must raise additional financing in the future and ourinability to do so will prevent us from implementing our business developmentplan,” below.

 

Wehave used, and expect over the next 12 months to use the capital available fromsales of common stock, for general corporate purposes, including activitiesrelated to preparing for and conducting clinical trials, purchase andpreparation of clinical material, conduct of preclinical studies,administrative expenses to support our research and development activities, capitalexpenditures and to meet working capital needs.  Proceeds from the sale ofour common stock to the institutional investors in 2002 must be used for thefollowing purposes (including related general and administrative costs) in thefollowing order or priority, unless otherwise authorized by a majority of ourBoard:

 

•                  Toseek FDA approval for the use of PH-50 (our cardiovascular diagnostictechnology) as a computed tomography (“CT”) contrast agent.

 

•                  Toseek FDA approval for the use of N1177 (being developed through our jointventure with Elan) as a lymphography contrast agent.

 

•                  Toperform pre-clinical exploration of the use of PH-50 to identify vulnerableplaque.

 

•                  Toacquire or license compounds to build a product pipeline for the company.

 

Weplan to raise up to $20 million of capital in one or more transactions in orderto acquire certain assets of Alliance, including *Imagent*® and to provide the working capital necessary tolaunch *Imagent*® and finance ouroperations.  We engaged Thomas Weisel Partners LLC and SCO Securities LLC****to assist us in our efforts to privatelyplace our securities to raise such funds.  In addition, we expect toevaluate from time to time the acquisition or license of businesses,technologies or products.  The purchase of any such licenses ortechnologies would be funded by a portion of any net proceeds of futureofferings or the issuance of debt or equity securities specifically for thatpurpose.  We also expect our use of capital to increase as we conductfurther clinical trials.

 

Ouronly long-term commitment that is not recorded on our financial statements isfor our office space in Pennsylvania.  Annual rent for this lease, whichexpires in 2004, is approximately $190,765.

 

**Plan of Operation**

 

Managementbelieves it lacks sufficient working capital to fund operations for the entirefiscal year ending December 31, 2003. Therefore, substantial additional capitalresources will be required to fund the ongoing operations related to ourresearch and business development activities.  The audit report of ourindependent auditors for the year ended December 31, 2002, includes a paragraphthat notes that the company’s financial condition raises substantial doubtabout its ability to continue as a going concern.  We believe there are anumber of potential alternatives available to meet the continuing capitalrequirements such as public or private financings or collaborativeagreements.  We are taking continuing actions to reduce our ongoingexpenses.  If adequate funds are not available, we will be required tosignificantly curtail our

 

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operatingplans and may have to sell or license out significant portions of ourtechnology or potential products.  The first quarter 2003 financial statementsdo not include any adjustment to reflect the possible future effects on therecoverability and classification of assets or the amount and classification ofliabilities that may result from the outcome of this uncertainty.

 

Duringthe next twelve months, depending on the availability of sufficient capital, wewill focus our efforts primarily on the development of PH-50 and N1177 and thepossible acquisition of the medical imaging assets of Alliance. Specifically, we expect to conduct preclinical and human clinical studies,prepare required filings to the FDA and as required to foreign regulatorybodies and acquire quantities of clinical grade drug formulations of theseproducts.  We expect to continue to incur increasing losses for at least thenext three years as we intensify research and development, preclinical andclinical testing and associated regulatory approval activities and engage in orprovide for the manufacture and/or sale of any products that we maydevelop.  If we acquire the medical imaging assets of Alliance, including *Imagent*®, we would devote a substantialportion of our efforts to the marketing, sale and manufacturing of *Imagent*®.

 

Greatercapital resources would enable us to quicken and expand our research anddevelopment activities, and our failure to raise additional capital will(absent a suitable collaborative agreement providing for a third party to takeover these functions) significantly impair or curtail our ability to conductfurther research and development activities and our ability to seek regulatoryapproval for any possible product resulting from that research.  In anyevent, complete development and commercialization of our technology willrequire substantial additional funds.  See “Risk Factors — We must raiseadditional financing in the future and our inability to do so will prevent usfrom implementing our business plan,” below.  We are actively seeking toraise up to $20 million in one or more transactions through the sale of ourcommon stock or other securities in a private placement to fund the acquisitionof Alliance’s medical imaging assets and to provide working capital necessaryto fund our operations.

 

**ITEM 3.****  CONTROLS ANDPROCEDURES**

 

The Company maintains a set of disclosure controls and procedures andinternal controls designed to ensure that information required to be disclosedin filings made pursuant to the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in theSEC’s rules and forms. Our principal executive and financial officers haveevaluated our disclosure controls and procedures within 90 days prior to thefiling of this Quarterly Report on Form 10-QSB and have determined that suchdisclosure controls and procedures are effective.

 

Subsequent to our evaluation, there were no significant changes ininternal controls or other factors that could significantly affect internalcontrols, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

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**PART II. OTHER INFORMATION**

 

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

** **

**RISK FACTORS**

 

This Form10-QSB contains (and press releases and other public statements we may issuefrom time to time may contain) a number of forward-looking statements regardingour business and operations.  Statementsin this document that are not historical facts are forward-lookingstatements.  Such forward-looking statementsinclude those relating to:

 

•                  ourcurrent business and product development plans,

 

•                  ourfuture business and product development plans,

 

•                  thetiming and results of regulatory approval for proposed products, and

 

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

 

Examples offorward-looking statements include predictive statements, statements thatdepend on or refer to future events or conditions, and statements that mayinclude words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”“estimates,” “should,” “may,” or similar expressions, or statements that implyuncertainty or involve hypothetical events.

 

Forward-lookingstatements involve known and unknown risks and uncertainties that may cause ouractual results in future periods to differ materially from what is currentlyanticipated.  We make cautionarystatements in certain sections of this Form 10-QSB, including under “RiskFactors.” You should read these cautionary statements as being applicable toall related forward-looking statements wherever they appear in this Form10-QSB, in the materials referred to in this Form 10-QSB, in the materialsincorporated by reference into this Form 10-QSB, or in our press releases orother public statements.  In light ofthese risks, uncertainties and assumptions, the forward-looking eventsdiscussed in this Form 10-QSB or other documents incorporated by referencemight not occur.  No forward-lookingstatement is a guarantee of future performance and you should not place unduereliance on any forward-looking statement.

 

The followingare the key risk factors that may affect our future results:

 

**We are a development stage company, we haveconducted only limited studies on our products in development and we do nothave any revenues from sales.**

 

Our company and our technologies are in early stages ofdevelopment.  We began our business as a biopharmaceutical company in1997.  We have not generated revenues from sales or operations, and we donot expect to generate sufficient revenues to enable us to be profitable for atleast several years, if at all.

 

The drug products we currently contemplate developing will requirecostly and time-consuming research and development, preclinical and clinicaltesting and regulatory approval before they can be commercially sold.  Wemay not be able to develop our technology into marketable products or developour technology so it is effective for diagnosis or treatment of

 

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human diseases.  As a result of changing economic considerations,market, clinical or regulatory conditions, or clinical trial results, we mayshift our focus or determine not to continue one or more of the projects we arecurrently pursuing.

 

**We have a history of losses and we may notachieve or maintain profitability in the future or pay cash dividends.**

 

We have incurred losses since the beginning of our operations.  Asof March 31, 2003, we have incurred cumulative net losses (before dividends onpreferred stock) of approximately $33,686,090.  We expect our losses toincrease in the future as our financial resources are used for research anddevelopment, preclinical and clinical testing, regulatory activities,manufacturing, marketing and other related expenses.  We may not be ableto achieve or maintain profitability in the future.  We have neverdeclared or paid any cash dividends to stockholders and do not expect to do soin the foreseeable future.

 

**We must raise additional financing in thefuture and our inability to do so will prevent us from implementing ourbusiness development plan.**

 

During 2002, we sold $12,028,902 of our common stock to certaininstitutional investors and a group of individual accredited investors at aprice per share of $1.08 ($2,500,000 of which was from the conversion of ouroutstanding note payable to Tannebaum LLC).  Our cash and securities onhand at March 31, 2003 was approximately $2.4 million.  We expect to havesufficient cash resources for our current commitments through the secondquarter of 2003 (depending on the amount of any additional advances to Allianceand the pace of our spending for preclinical and clinical testing and othercommitments, which, to an extent, we can adjust to preserve cash).  Wewill need substantial additional financing for our research, clinical testing,product development and marketing programs.

 

Through March 31, 2003, we have provided bridge financing to Allianceof an aggregate of****$2,983,000.Together with any other holders of notes issued pursuant to the Note PurchaseAgreement, we have liens on certain of the assets of Alliance.  Our lienon the *Imagent®*-related assets issubordinate in priority to liens held by Xmark.  As of March 31, 2003,there was approximately $4,750,000 of debt subject to the Xmark liens. Our lien related to Alliance’s Oxygent product is subordinate to a lien held byPFC.  Our other liens on the assets of Alliance are first priority liensand give us a security interest in collateral not covered by the Xmark and PFCprior liens.  Alliance has the right to make payments of interest under theAlliance Notes in shares of its common stock.  We have the right toconvert the outstanding principal and interest under the Alliance Notes intoshares of Alliance common stock at the conversion price of $0.35 pershare.  Any shares of Alliance common stock we receive in lieu of cashinterest payments may have a value less than the cash that we would otherwisebe owed and those shares may not be readily marketable.  Consequently,there is a risk that we may not be able to be fully repaid the bridge financingwe provided to Alliance.

 

We cannot accurately estimate the amount of additional financingrequired to develop our products; however, the amount could be an additional$30 million or more over the next several years.  In particular, we arecurrently seeking to raise up to $20 million in one or more transactions toacquire the *Imagent®*businessfrom Alliance through a private placement to accredited investors. Additional funds may not be available on acceptable terms, if at all, andexisting stockholders may be diluted as a result of those offerings.  Thepricing of our common stock, or other securities convertible into common stock,in any such transaction may also result

 

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in an increase in the number of shares of common stock issuable uponexercise of warrants in accordance with the anti-dilution provisions in theinstruments governing those securities.

 

**We are in active discussions with several financing sources,but we cannot give assurances that we will obtain the necessary financing toacquire the *Imagent®* businessfrom Alliance.  There also can be no assurance that:**

 

•                  wewill be able to obtain an extension of our exclusive option on acceptable termsif we do not obtain the necessary financing by July 15, 2003;

 

•                  Alliancewill be in a financial position to repay us in full the outstanding amounts dueunder the terms of the Alliance Notes if we do not consummate a transaction;and

 

•                  Alliance’semployees will agree to become employees of Photogen if we consummate atransaction with Alliance and offer employment to those employees or that the *Imagent®* business will be profitable tous.

 

**Our proposed products are subject toextensive testing and government approval, and we may not obtain or maintainthe approvals necessary to sell our proposed products.**

 

None of our proposed imaging products have received the FDA’sapproval.  An extensive series of clinical trials and other associatedrequirements must be completed before our proposed products can be approved andsold in the U.S. or other countries.  Requirements for FDA approval of aproduct include preclinical and clinical testing for effective use and safetyin animals and humans, which can be extremely costly.  The time framenecessary to perform these tasks for any individual product is long anduncertain, and we may encounter problems or delays that we cannot predict atthis time.  Even if testing is successful, our proposed products may notdemonstrate sufficient effectiveness or safety to warrant approval by the FDAor other regulatory authorities.  Any regulatory approval may not coverthe clinical symptoms or indications that we may seek.  We must alsoobtain regulatory approvals comparable to those required in the U.S. to marketour products in other countries.

 

Our proposed technologies and products generally must completepreclinical tests in animals and three phases of tests (also called clinicaltrials) in humans before we can market them for use.  Use of ourtechnology has been limited primarily to laboratory experiments and animaltesting, only N1177 has completed Phase 1 human clinical trials.  We havenot yet conducted substantive studies on the effectiveness of our compounds onhuman subjects.

 

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

 

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

 

The rate of completion of our clinical trials depends upon, among otherthings, the rate of patient enrollment.  Patient enrollment is a functionof many factors, including the size of the patient population for a particularindication, the nature of the clinical protocol under which our products willbe studied, the proximity of the patient to a clinical site and the eligibilitycriteria

 

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for the study.  Delays in planned patient enrollment may result inincreased costs, regulatory filing delays, or both.

 

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

 

**Any products approved by the FDA will be subjectto postmarket requirements of the FDA.**

 

Approved products are subject to numerous postmarket requirements byregulatory authorities.  We will be subject to inspection and marketingsurveillance by the FDA to determine our compliance with regulatory requirementswith respect to any approved products.  If the FDA finds that we havefailed to comply, it can institute a wide variety of enforcement actions,ranging from a public warning letter to more severe sanctions such as:

 

•                   fines,injunctions and civil penalties;

 

•                   recallor seizure of our products;

 

•                   operatingrestrictions, partial suspension or total shutdown of production; and

 

•                   criminalprosecution.

 

Any enforcement action by the FDA may also affect our ability tocommercially distribute our products in the U.S.

 

**Product liability claims could increase ourcosts and adversely affect our results of operations.**

 

The clinical testing, manufacturing and marketing of our productcandidates may expose us to product liability claims, and we may experiencematerial product liability losses in the future.  We maintain certainlevels of product liability insurance for the use of our product candidates inclinical research, but our coverage may not continue to be available on termsacceptable to us or adequate for liabilities we actually incur.  Asuccessful claim brought against us in excess of available insurance coverage,or any claim or product recall that results in significant adverse publicityagainst us, may have a material adverse effect on our business and results ofoperations.

 

If we do not obtain and maintain patent or other protection of our coretechnologies (namely PH-50 for cardiovascular imaging and N1177 for ourlymphography materials and methods), we may have difficulty commercializingproducts using these technologies.

 

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

 

•                  Ourpatent applications may not result in issued patents.  Moreover, anyissued patents may not provide us with adequate protection of our intellectualproperty or competitive advantages, and the law on the scope of patent coverageis continually changing.

 

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•                  Variouscountries limit the subject matter that can be patented and limit the abilityof a patent owner to enforce patents in the medical field.  This may limitour ability to obtain or utilize those patents internationally.

 

•                  Existingor future patents or patent applications (and the products or methods theycover) of our competitors (or others, such as research institutions oruniversities) may interfere, invalidate, conflict with or infringe our patentsor patent applications.  Similarly, the use of the methods or technologiescontained in our patents, patent applications and other intellectual propertymay conflict with or infringe the rights of others.

 

•                  Ifan advance is made that qualifies as a joint invention, the joint inventor orhis or her employer may have rights in the invention.

 

We will be able to protect our proprietary rights from unauthorized useby third parties only to the extent that these rights are covered by valid andenforceable patents or effectively maintained as trade secrets.  We owntwo patents in the U.S., and sixteen other patents in foreign countriesincluding Australia, Canada, Japan and Germany.  These patents relate tomethods for performing lymphography.  We have filed patent applications inthe U.S. and under the Patent Cooperation Treaty covering a number of foreigncountries.  These patent applications relate to the use ofnanoparticulates, including PH-50, as cardiovascular imaging agents and todeliver pharmacologically active substances for treatment of variousdiseases.  We are also the exclusive licensee of a group of patentedproprietary compounds known as “nanoparticulates,” including N1177 and PH-50from Nycomed Imaging AS.  We are the exclusive licensee of U.S. andforeign patent applications from Massachusetts General Hospital which relate todiagnostic imaging agents and methods for using the diagnostic imaging agentsfor medical location, treatment and diagnosis of tumors and other diseasedtissues.

 

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

 

The patent position of biopharmaceutical companies involves complexlegal and factual questions and therefore we cannot assure the enforceabilityof these patents.  Litigation over patents and other intellectual propertyrights occurs frequently in our industry and there is a risk that we may notprevail in disputes over the ownership of intellectual property.  Further,an interference proceeding with the Patent and Trademark Office may beinstituted over the rights to certain inventions and there is a risk that wemay not prevail in such an interference proceeding.  Those disputes can beexpensive and time consuming, even if we prevail.  Intellectual propertydisputes are often settled through licensing arrangements that could be costlyto us.  In any intellectual property litigation, it is possible thatlicenses necessary to settle the dispute would not be available on commerciallyreasonable terms or that we would not be able to redesign our technologies toavoid any claimed infringement.

 

Confidentiality agreements covering our intellectual property may beviolated and we may not have adequate remedies for any violation.  Thirdparties may challenge our existing patents and seek to hold them invalid orunenforceable.  Also, our intellectual property may in other ways become knownor be independently discovered by competitors.

 

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To the extent we use intellectual property through licenses orsub-licenses (as is the case for some of our lymphography technology), ourrights are subject to us performing the terms of the license or sub-licenseagreement with third parties.  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 results from a research project supportedby government funding, the government has limited rights to use theintellectual property without paying us a royalty.

 

**We are highly dependent upon a small numberof employees and consultants who provide management expertise, and it may bedifficult to implement our business development plans without this expertise.**

 

These individuals have entered into employment or consulting agreements,confidentiality and/or non-competition agreements with us.  We couldsuffer competitive disadvantage, loss of intellectual property or othermaterial adverse effects on our business and results of operations if anyemployee or consultant violates or terminates these agreements or terminateshis or her association with us.  Our growth and future success alsodepends upon the continued involvement and contribution from these individuals,as well as our ability to attract and retain highly qualified personnel now andin the future.

 

As of March 31, 2003, we employed three senior executiveofficers.  We also have retained consultants to advise us in regulatoryaffairs and product development matters.  If we lost the services of ourexecutive officers or outside consultants, we could experience a delay in theimplementation of our business plan until we arranged for another individual orfirm to fulfill the role.

 

**The raw materials necessary for themanufacture of PH-50 and N1177 are supplied by one supplier and an interruptionin availability of those materials may impair our ability to test and marketthose products.**

 

We currently rely on Nanosystems, a division of Elan, as the solesupplier of the nanoparticulates used to manufacture PH-50 and N1177. There can be no assurance that Nanosystems will continue to supply us with theraw materials that we need in a timely manner on conditions that are acceptableto us.

 

**We have to rely on third parties andcollaborative relationships for the manufacture, clinical testing and marketingof our proposed products, and it may be difficult to implement our businessdevelopment plans without these collaborations.**

 

We have had and expect to continue in the future to have a variety ofresearch agreements with universities and other research institutions toinvestigate specific protocols.  We also contract and expect to continueto contract with research organizations and other third parties to manageclinical trials of our proposed products in development.  We must continueto enter into collaborative relationships with third parties for additionalresearch and development, preclinical and clinical testing, marketing anddistribution of our proposed products.

 

We are currently involved in a joint venture with affiliates of Elan,called Sentigen, Ltd., to develop and commercialize materials in the field oflymphography.  Collaborative relationships may limit or restrict ouroperations or may not result in an adequate supply of necessary

 

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resources.  Our collaborative partner could also pursuealternative technologies as a means of developing or marketing products for thediseases targeted by our collaborative program.  If a third party we arecollaborating with fails to perform under its agreement or fails to meetregulatory standards, this could delay or prematurely terminate clinicaltesting of our proposed products.

 

**Our potential markets are extremelycompetitive, and many of our competitors have greater resources and have productsthat are in more advanced stages of development.**

 

We face substantial competition from competitors with greaterfinancial, technical and human resources and with greater experience indeveloping products, conducting preclinical or clinical testing, obtainingregulatory approvals, manufacturing and marketing.  We understand that theexisting market for radiopaque contrast agents is estimated to be approximately$3.4 billion worldwide.  The dominant uses of media are those employed inconjunction with CT/x-ray scans.  Approximately half of the usage is inthe U.S. Omnipaque®, marketed by a unit of Amersham and is estimated to be theleading agent utilized in coronary angiography.  Other companies marketingcontrast agents include Mallinckrodt, Inc. (a unit of Tyco International Ltd.),Berlex Laboratories, Inc. (a subsidiary of Schering AG) and Bracco.

 

Some of these firms have drugs or devices that have completed or are inadvanced stages of clinical trials and regulatory approvals.  Others maydevelop technologies and obtain patent protection that could render ourtechnologies or products obsolete or less competitive or our patents invalid orunenforceable.  Due to the inherent risk of failure associated with thetesting, development and production of new and innovative technologies, ourtechnologies and products may be found to be ineffective, have unanticipatedlimitations or otherwise be unsuccessful in the marketplace.  Also,although we believe our estimates of the possible size of markets for our potentialproducts are based on information we consider reliable (including data from theAmerican Heart Association, American Cancer Society and similar sources in thepublic domain), that data or our analysis of the data could prove incorrect.

 

**Our products may not be fully accepted byphysicians, laboratories and health insurance providers, which would reduce ourrevenue and limit our ability to raise capital.**

 

Our growth and success will depend upon market acceptance byphysicians, laboratories and health insurance providers of our products. This requires acceptance of our products as clinically useful andcost-effective alternatives to other medical imaging methods.  Inaddition, physicians may utilize imaging techniques other than those for whichour products are being developed (such as magnetic resonance imaging) to imageinternal vasculature and organs and therefore, our products may not beutilized.

 

**Changes in health care reimbursement policiesor legislation may make it difficult for patients to use or receivereimbursement for using our products, which could reduce our revenues.**

 

Our success will depend, in part, on the extent to which healthinsurers, managed care entities and similar organizations provide coverage orreimbursement for using the medical procedures and devices we plan todevelop.  These third-party payers are increasingly challenging the priceof medical procedures and services and establishing guidelines that may limitphysicians’ selections of innovative products and procedures.  We alsocannot predict the effect of any current or future legislation or regulationsrelating to third-party coverage or reimbursement on our business.  We maynot be able to achieve market acceptance of our

 

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proposed products or maintain price levels sufficient to achieve ormaintain any profits on our proposed products if adequate reimbursementcoverage is not available.  Failure by physicians, hospitals and otherusers of our products to obtain sufficient reimbursement from third-partypayors for the procedures in which our products would be used or adversechanges in governmental and private third-party payors’ policies towardreimbursement for such procedures would have a material adverse effect on ourbusiness.

 

**A small group of stockholders controlsPhotogen, which may make it difficult for stockholders who are not in thatgroup to influence management.**

 

As of March 31, 2003, a small group of stockholders controlapproximately 69.4% of our outstanding common stock.  Several of ourprincipal stockholders are also parties to the Voting, Drag-Along and Right ofFirst Refusal Agreement (the “Voting Agreement”) concerning the election ofcertain designees to the Board of Directors.  The Voting Agreement requiresthese stockholders to vote their shares for the election of certain individualsnominated by parties to the Voting Agreement.  This concentration ofownership and control may delay or prevent a change in control of Photogen, andmay also result in a small supply of shares available for purchase in thepublic securities markets.  These factors may affect the market and themarket price for our common stock in ways that do not reflect the intrinsicvalue of the stock.

 

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

 

During the period from January 1, 2003 through March 31, 2003 thetrading price of our common stock ranged from $2.78 to $0.90 per share. Daily trading volume ranged from zero shares to approximately 29,800 sharesduring that period.

 

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

 

•                  Announcementsby us or others regarding scientific discoveries, technological innovations,commercial products, patents or proprietary rights;

 

•                  Announcementsby us concerning the licensing or other transactions of our products ortechnologies;

 

•                  Privatesale of a significant block of our common stock at a price below the thencurrent market price of our common stock and the subsequent registration andsale of those shares;

 

•                  Theprogress of preclinical or clinical testing;

 

•                  Developmentsor outcome of litigation concerning proprietary rights, including patents;

 

•                  Changesin government regulation;

 

•                  Publicconcern about the safety of devices or drugs;

 

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•                  Limitedcoverage by securities analysts;

 

•                  Theoccurrence of any of the risk factors described in this section;

 

•                  Salesof large blocks of stock by an individual or institution;

 

•                  Changesin our financial performance from period to period, securities analysts’reports, and general market conditions; and

 

•                  Economicand other external factors or a disaster or crisis.

 

**Our common stock could be delisted from theNASDAQ SmallCap Market, which would make trading in our stock more difficult.**

 

Since November, 1999, our common stock has been quoted in the NasdaqSmallCap Market.  We received a letter dated September 25, 2002 fromNasdaq notifying us that our stock had traded at less than $1 for a period of30 consecutive trading days and that we had until March 4, 2003 to regaincompliance with Marketplace Rule 4310(c)(4).  On December 12, 2002, wereceived notice from Nasdaq that we are again in compliance with theMarketplace Rule.  Our shares could be delisted if we fail to meet thelisting requirements of the Nasdaq SmallCap Market, which would force us tolist our shares on the OTC Bulletin Board or some other quotation medium, suchas pink sheets, depending upon our ability to meet the specific listingrequirements of those quotation systems.  As a result, an investor mightfind it more difficult to dispose of, or to obtain accurate price quotationsfor, our shares.  Delisting might also reduce the visibility, liquidityand price of our common stock.

 

If our common stock were delisted from the Nasdaq SmallCap Market andwere not traded on another national securities exchange, we could becomesubject to penny stock regulations that impose additional sales practicedisclosure and market making requirements on broker/dealers who sell or make amarket in our stock.  The rules of the SEC generally define “penny stock”to be common stock that has a market price of less than $5.00 per share and isnot traded on a national exchange.  If our stock became subject to pennystock regulations, 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 substantial amountsof our common stock should sell their stock in the public market, the price ofour stock could fall and it may be more costly for us to raise capital.**

 

As of March 31, 2003:

 

•                  Wehad reserved approximately 7,062,401 shares of common stock for future issuanceupon grants of options, or exercise or conversion of outstanding options andwarrants and convertible securities.

 

•                  Wehad approximately 2,343,366 shares eligible for sale in the public market freeof restriction under Rule 144 of the Securities Act.

 

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•                  Approximately11,912,779 shares of common stock are subject to agreements requiring us topermit the holders of the shares, under certain circumstances, to join in apublic offering of our stock or to demand that we register their shares forresale.

 

If our options and warrants are all issued and exercised, investors mayexperience significant dilution in the voting power of their commonstock.  The sale of these shares could place downward pressure on theoverall market price of our stock.

 

## **ITEM 6.**                                                     EXHIBITSAND REPORTS ON FORM 8-K

## ** **

(a)                                   Exhibits.

 

The following is a list of exhibits filed as part of this Form10-QSB.  Exhibits that were previouslyfiled are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit inthe previous filing is indicated in parenthesis.

 
| **EXHIBIT  NO.** |   | **DESCRIPTION** |
|------------------|--------|-----------------|
|             |   |            |
|             | 3.1    |            | Articles  of Incorporation of Photogen Technologies, Inc., as amended  (Filed as  Exhibit E to the company’s Proxy Statement on Form DEFM 14A dated September  12, 2002 and incorporated herein by reference.) |
|             |   |            |   |
|             | 3.2    |            | Amended  and Restated Certificate of Designations, Preferences and Rights of Series A  Preferred Stock.  (Filed as Exhibit 3.5 to the company’s Quarterly  Report on Form 10-QSB for the quarter ended September 30, 1999 and  incorporated herein by reference.) |
|             |   |            |   |
|             | 3.4    |            | Amended  and Restated Bylaws of Photogen Technologies, Inc. (Filed as Exhibit  C  to the company’s Information Statement on Form DEF 14C dated December 23,  2002 and incorporated herein by reference.) |
|             |   |            |   |
|             | 99.1   |            | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|             |   |            |   |
|             | 99.2   |            | Certification  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

(b)                                  Reports on Form 8-K.

 

The following reports on Form 8-K were filed during the three-monthperiod ending March 31, 2003:

 

1.                                       Reporton Form 8-K dated January 2, 2003 disclosing the final closing of its financingwith certain institutional and individual accredited investors.

 

2.                                       Reporton Form 8-K dated January 24, 2003 disclosing the holding of a Special Meetingof Stockholders.

 

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

 

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**Signatures**

 

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

 
| Date:  May 19, 2003 | Photogen Technologies, Inc.                                                                                                            |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------|
|                     |                                                                                                                                   |
|                     |                                                                                                                                   |
|                     |   /s/ Taffy J. Williams, Ph.D.                                                                                               |   |
|                     | Taffy J. Williams, Ph.D., President and Chief  Executive Officer                                                                       |
|                     |                                                                                                                                   |
|                     |                                                                                                                                   |
|                     |   /s/ Brooks Boveroux                                                                                                        |   |
|                     | Brooks Boveroux, Senior Vice President –  Finance and Chief Financial Officer (Principal  Financial and Chief Accounting Officer) |

 

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**CERTIFICATION**

 

I, Taffy J. Williams, Ph.D., President and Chief Executive Officer ofPhotogen Technologies, Inc. (“registrant”), certify that:

 

1.          Ihave reviewed this quarterly report on Form 10-QSB of the registrant;

 

2.          Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.          Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.          Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5.          Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee of registrant’sboard of directors (or persons performing the equivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internal controls;and

 

6.          Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
|   /s/ Taffy J. Williams, Ph.D.                        |   |
|-----------------------------------------------------------------|--------|
| Taffy J. Williams, Ph.D.  Chief Executive Officer  May 19, 2003 |

 

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**CERTIFICATION**

 

I, Brooks Boveroux, Chief Financial Officer of Photogen Technologies,Inc. (“registrant”), certify that:

 

1.          Ihave reviewed this quarterly report on Form 10-QSB of the registrant;

 

2.          Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.          Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.          Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5.          Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internalcontrols; and

 

6.          Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
|   /s/ Brooks Boveroux                        |   |
|--------------------------------------------------------|--------|
| Brooks Boveroux  Chief Financial Officer  May 19, 2003 |

 

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**ExhibitIndex**

 
| **EXHIBIT  NO.** |   | **DESCRIPTION** |
|------------------|--------|-----------------|
|             |   |            |
|             | +3.1   |            | Articles  of Incorporation of Photogen Technologies, Inc., as amended  (Filed as  Exhibit E to the company’s Proxy Statement on Form DEFM 14A dated September  12, 2002 and incorporated herein by reference.) |
|             |   |            |   |
|             | +3.2   |            | Amended  and Restated Certificate of Designations, Preferences and Rights of Series A  Preferred Stock.  (Filed as Exhibit 3.5 to the company’s Quarterly  Report on Form 10-QSB for the quarter ended September 30, 1999 and  incorporated herein by reference.) |
|             |   |            |   |
|             | +3.4   |            | Amended  and Restated Bylaws of Photogen Technologies, Inc. (Filed as Exhibit  C  to the company’s Information Statement on Form DEF 14C dated December 23,  2002 and incorporated herein by reference.) |
|             |   |            |   |
|             | *99.1  |            | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|             |   |            |   |
|             | *99.2  |            | Certification  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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*Filedherewith

+Incorporatedherein by reference

 

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