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<P ALIGN="CENTER"><FONT SIZE=2><B>As filed with the Securities and Exchange Commission on April&nbsp;23, 2003  </B></FONT></P>

<P ALIGN="RIGHT"><FONT SIZE=2><B> Registration No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>SECURITIES AND EXCHANGE COMMISSION<BR>  </B></FONT><FONT SIZE=2><B>WASHINGTON, D.C. 20549  </B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>FORM S-1<BR>  </B></FONT><FONT SIZE=2><B>REGISTRATION STATEMENT<BR>
UNDER<BR>
THE SECURITIES ACT OF 1933  </B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>PHOTOGEN TECHNOLOGIES,&nbsp;INC.<BR>  </B></FONT><FONT SIZE=2>(Exact name of registrant as specified in its charter) </FONT></P>

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<TD WIDTH="32%" ALIGN="CENTER"><FONT SIZE=1><B>NEVADA</B></FONT><FONT SIZE=1><BR>
(State or other jurisdiction of<BR>
incorporation or organization)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="32%" ALIGN="CENTER"><FONT SIZE=1><B>2834</B></FONT><FONT SIZE=1><BR>
(Primary Standard Industrial<BR>
Classification Code Number)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="32%" ALIGN="CENTER"><FONT SIZE=1><B>62-1742885</B></FONT><FONT SIZE=1><BR>
(I.R.S. Employer Identification No.)</FONT></TD>
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<P ALIGN="CENTER"><FONT SIZE=1><B>140 Union Square Drive<BR>
New Hope, Pennsylvania 18938<BR>
215/862-6860<BR>  </B></FONT><FONT SIZE=1>(Address, including zip code, and telephone number,<BR>
including area code, of registrant's principal executive offices) </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=1><B>Taffy J. Williams, Ph.D.<BR>
President and Chief Executive Officer<BR>
Photogen Technologies,&nbsp;Inc.<BR>
140 Union Square Drive<BR>
New Hope, Pennsylvania 18938<BR>
215/862-6860<BR>  </B></FONT><FONT SIZE=1>(Name, address, including zip code, and telephone number,<BR>
including area code, of agent for service) </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=1><I>Copies to:  </I></FONT></P>

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<TD WIDTH="46%" ALIGN="CENTER"><FONT SIZE=1><B>Theodore W. Grippo<BR>
Grippo &amp; Elden<BR>
227 West Monroe, Ste. 3600<BR>
Chicago, Illinois 60606<BR>
(312) 704-7700</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=1>and</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="46%" ALIGN="CENTER"><FONT SIZE=1><B>Dana C. Blakslee<BR>
Duane Morris LLP<BR>
470 Atlantic Avenue, Suite 500<BR>
Boston, MA 02210<BR>
(617) 289-9200</B></FONT></TD>
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<P><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=1><B>Approximate date of proposed sale to the public:</B></FONT><FONT SIZE=1> From time to time after this registration statement becomes effective. </FONT></P>

<P><FONT SIZE=1>If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule&nbsp;415 under the Securities Act of 1933, other than securities offered
only in connection with dividend or interest reinvestment plans, check the following box. / X / </FONT></P>

<P><FONT SIZE=1>If
this Form is filed to register additional securities for an offering pursuant to Rule&nbsp;462(b) under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. / / </FONT></P>

<P><FONT SIZE=1>If
this Form is a post-effective amendment filed pursuant to Rule&nbsp;462(c) under the Securities Act, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering. / / </FONT></P>

<P><FONT SIZE=1>If
this Form is a post-effective amendment filed pursuant to Rule&nbsp;462(d) under the Securities Act, check the following box and list the Securities Act registration statement for the
same offering. / / </FONT></P>

<P><FONT SIZE=1>If
delivery of the prospectus is expected to be made pursuant to Rule&nbsp;434, please check the following box. / / </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=1><B>CALCULATION OF REGISTRATION FEE  </B></FONT></P>

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<TD WIDTH="38%" ALIGN="CENTER"><FONT SIZE=1><B>Title of Each Class of<BR>
Securities to be Registered</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="CENTER"><FONT SIZE=1><B>Amount to<BR>
be Registered</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="CENTER"><FONT SIZE=1><B>Proposed Maximum<BR>
Aggregate Offering Price(1)</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="CENTER"><FONT SIZE=1><B>Amount of<BR>
Registration Fee(1)</B></FONT></TD>
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<TD WIDTH="38%"><FONT SIZE=1>Common Stock issuable upon exercise of Options</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="CENTER"><FONT SIZE=1>390,556</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="CENTER"><FONT SIZE=1>$683,473</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="CENTER"><FONT SIZE=1>$55.29</FONT></TD>
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<DT style='margin-bottom:-11pt;'><FONT SIZE=1>(1)</FONT></DT><DD><FONT SIZE=1>Estimated
pursuant to Rule&nbsp;457(c) solely for purposes of calculating the registration fee, based upon the average of the high and low prices on April&nbsp;17, 2003, as
reported on the NASDAQ SmallCap Market. </FONT></DD></DL>
<BR>

<P><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=1><B>The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall
file&nbsp;a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section&nbsp;8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section&nbsp;8(a), may determine.</B></FONT></P>

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<BR></FONT><FONT SIZE=2><B>TABLE OF CONTENTS    <BR>  </B></FONT></P>

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<TD WIDTH="93%"><FONT SIZE=2>PROSPECTUS SUMMARY</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="93%"><FONT SIZE=2>RISK FACTORS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>FORWARD-LOOKING STATEMENTS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>DIVIDEND POLICY</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>MARKET FOR SECURITIES</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>SELECTED CONSOLIDATED FINANCIAL DATA</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>12</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>BUSINESS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>27</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>MANAGEMENT</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>35</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>37</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>SELLING STOCKHOLDER</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>45</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>USE OF PROCEEDS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>46</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>PLAN OF DISTRIBUTION</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>46</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>DESCRIPTION OF SECURITIES</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>47</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>WHERE YOU CAN FIND MORE INFORMATION</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>49</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>ABOUT THIS PROSPECTUS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>49</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>LEGAL MATTERS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>49</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>EXPERTS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>49</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>INDEX TO FINANCIAL STATEMENTS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>F-1</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>II-1</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>II-1</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>II-1</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>ITEM 16. EXHIBITS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>II-2</FONT></TD>
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<TD WIDTH="93%"><FONT SIZE=2>ITEM 17. UNDERTAKINGS</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>II-6</FONT></TD>
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<P ALIGN="CENTER"><FONT SIZE=2>i</FONT></P>

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<P ALIGN="CENTER"><FONT COLOR="#FF4040" SIZE=2><B>Subject to completion, dated April 22, 2003</B></FONT></P>

<P><FONT COLOR="#FF4040" SIZE=2><B>The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and
Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not
permitted. </B></FONT></P>

<P><FONT SIZE=2><B>PROSPECTUS  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=5><B>PHOTOGEN TECHNOLOGIES,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=4><B>390,556 Shares  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=4><B> COMMON STOCK  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gerald L. Wolf, Ph.D.,M.D., the selling stockholder, is offering up to 390,556 shares of our common stock. See "Selling Stockholder" beginning on
page 45 and "Plan of Distribution" beginning on page 47 of this Prospectus for more information regarding the sale of shares of common stock by Dr.&nbsp;Wolf. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
will not receive any proceeds from the sale of the shares by the selling stockholder. See "Use of Proceeds" beginning on page 47 of this Prospectus for more information regarding the
use of proceeds. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
common stock is listed on the NASDAQ SmallCap Market under the symbol "PHGN". On March&nbsp;28, 2003, the last reported sale price for the common stock was $2.40 per share. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SEE
"RISK FACTORS" BEGINNING AT PAGE 4 TO READ ABOUT CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK. </FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>The date of this Prospectus is&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2003.  </B></FONT></P>

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<BR></FONT><FONT SIZE=2><B>PROSPECTUS SUMMARY    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This summary does not contain all the information that may be important to you. You should carefully read the entire prospectus, including the "Risk Factors"
beginning on page 4 and the financial statements and notes to those financial statements that appear elsewhere in this prospectus, before you decide whether to invest in our common stock. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November, 2002, we effected a one-for-four reverse split of our common stock and split off our therapeutic line of business. Unless otherwise indicated, all
data (including historical numbers) in this prospectus reflect the impact of the reverse split and split off of our therapeutic line of business. </FONT></P>

<P><FONT SIZE=2><B>Our Company  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Photogen Technologies,&nbsp;Inc. and its 80.1% owned subsidiary Sentigen,&nbsp;Ltd. are collectively referred to as "Photogen," the "Company," "we," or "us."
In November, 2002, we effected a one-for-four reverse split of our common stock. Unless otherwise indicated, all data in this prospectus reflect the impact of the reverse
split. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the past two years, we have refocused our efforts on the development of medical imaging agents, including cardiovascular and lymphography contrast imaging agents. We accomplished
this shift in focus by splitting off our therapeutic line of business, as more fully described in "Recent Developments" below. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are currently an emerging, development-stage biopharmaceutical company focused on developing a novel contrast agent with potential applications (1)&nbsp;as a blood pool agent, to
diagnose diseased tissue in the cardiovascular system and other organs, and (2)&nbsp;to diagnose cancer metastasizing into the lymphatic system. We are the exclusive licensee of a group of
proprietary materials, the lead compound of which is a contrast agent we refer to as PH-50 or N1177. We established the two names to distinguish commercialization rights between
cardiovascular imaging (and all other indications) (PH-50) to which we retain rights, and the field of lymphography (N1177), which we licensed to our joint venture (Sentigen,&nbsp;Ltd.)
with affiliates of Elan Corporation, plc ("Elan"). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pharmaceutical
imaging agents are used with computed tomography ("CT"), nuclear medicine, echocardiography and magnetic resonance imaging ("MRI") equipment in order to increase the
diagnostic capabilities of these techniques. By enhancing the contrast between different types of tissues, these intravenously administered contrast agents provide critical anatomical and disease
state information that is not obtainable using the equipment alone. There are numerous potential applications for a contrast agent used in imaging parts or all of the cardiovascular system as well as
other organs. Our proposed products have the potential to enhance a physician's ability to diagnose certain cardiovascular abnormalities and the spread of cancer in the lymphatic system. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have no approved diagnostic products or operating revenues at this time; however, we have entered into a term sheet relating to a transaction with Alliance Pharmaceutical Corp.
("Alliance"). The term sheet gives us an exclusive option until April&nbsp;19, 2003 to acquire all of the assets of Alliance related to medical imaging, including all manufacturing and marketing
rights to </FONT><FONT SIZE=2><I>Imagent</I></FONT><FONT SIZE=2>&reg; (formerly </FONT><FONT SIZE=2><I>Imavist</I></FONT><FONT SIZE=2>&#153;), Alliance's ultrasound imaging contrast
agent that was approved by the FDA for marketing in the United States in June, 2002 (the "</FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> business"). We are currently negotiating
an extension of our exclusive option. It is anticipated that </FONT><FONT SIZE=2><I>Imagent</I></FONT><FONT SIZE=2>&reg; will be ready to market in the third quarter of 2003. Our acquisition
of the </FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2>business is subject to certain contingencies, including our ability to raise the funds to finance the acquisition. See
"Recent Developments" below. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have 6 full-time employees. A majority of our employees hold Ph.D.'s or other advanced degrees. Our senior executive and clinical development team is based at our
corporate headquarters in New Hope, Pennsylvania, a suburb of Philadelphia. We have personnel with expertise in clinical </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

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<P><FONT SIZE=2>
development, clinical trial design and regulatory approval processes. We also work closely with consultants experienced in drug development and regulatory requirements. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
principal executive offices are located at 140 Union Square Drive, New Hope, Pennsylvania. Our telephone number is (215)&nbsp;862-6860. Our web site is located at </FONT> <FONT SIZE=2><I>www.photogen.com</I></FONT><FONT SIZE=2>. Information on our
web site is not part of this prospectus. </FONT></P>

<P><FONT SIZE=2><B>The Offering  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus covers up to 390,556 shares of the company's common stock, $0.001 par value per share, to be sold by Gerald L. Wolf, Ph.D.,M.D. the company's
former medical director and senior scientist. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Wolf
has options to acquire an aggregate of 390,556 shares of our common stock. Upon exercise of such options, Dr.&nbsp;Wolf may offer to sell such shares of common stock. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March&nbsp;5, 2003 there were 17,114,868 shares of our common stock outstanding. Assuming that Dr.&nbsp;Wolf exercises his options to acquire 390,556 shares of our common
stock, there will be an aggregate of 17,505,424 shares of our common stock issued and outstanding. </FONT></P>

<P><FONT SIZE=2><B>Our History  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May, 1997, Photogen Technologies,&nbsp;Inc. (formerly known as M T Financial Group,&nbsp;Inc. ("M T Financial")) acquired Photogen,&nbsp;Inc. through a
subsidiary merger. As a result, Photogen,&nbsp;Inc. became a wholly-owned subsidiary of M T Financial and then M T Financial changed its name to Photogen Technologies,&nbsp;Inc. In November, 2002,
we effected the split off of Photogen,&nbsp;Inc. and substantially all of the assets and all of the liabilities related to our therapeutic line of business, including a compound known as
PH-10, to our five founding stockholders (Drs. Wachter, Dees, Fisher and Scott and Mr.&nbsp;Smolik, who are collectively referred to as the "Tennessee Stockholders") in exchange for and
cancellation of all of their stock in Photogen Technologies,&nbsp;Inc. (5,137,109 shares). At that time, we also sold $9.0&nbsp;million of our common stock to a group of institutional investors at
a price of $1.08 per share and effected a one-for-four reverse split of our common stock. In December, 2002 and the beginning of January, 2003, we sold an additional
approximately $3.0&nbsp;million of our common stock at $1.08 per share to certain institutional investors and accredited individual investors. See "Recent Developments" below. In this offering, we
received $6,500,000 in cash and Tannebaum, LLC's $2,500,000 credit facility was eliminated and converted into 2,314,815 shares of common stock at $1.08 per share. </FONT></P>

<P><FONT SIZE=2><B>Available Information  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our website (</FONT><FONT SIZE=2><I>www.photogen.com</I></FONT><FONT SIZE=2>) is under development and at this time you cannot obtain copies of our SEC filings
on our website; however, you can obtain, free of charge, a copy of our filed annual reports on Form&nbsp;10-K, our quarterly reports on Form&nbsp;10-Q, our current reports
on Form&nbsp;8-K, and any amendments to those reports, our proxy statements and information statements by sending a request for such documents to our corporate secretary, Brooks
Boveroux, at 140 Union Square Drive, New Hope, PA 18938, or calling (215)&nbsp;862-6860. Our filings are also available to the public from the SEC's website at </FONT> <FONT SIZE=2><I>(www.sec.gov)</I></FONT><FONT SIZE=2> or at the SEC's Public
Reference Rooms in Washington D.C., New York, N.Y. and Chicago, IL. The Public Reference Room in Washington, D.C.
is located at 450 Fifth Street N.W. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

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<BR></FONT><FONT SIZE=2><B>RISK FACTORS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should carefully read the risks described below, together with all of the other information included in this prospectus, before you decide to buy any of our
common stock. The following are some of the key risk factors that may affect our future results: </FONT></P>

<P><FONT SIZE=2><B>We are a development stage company, we have conducted only limited studies on our products in development and we do not have any revenues from sales.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
company and our technologies are in early stages of development. We began our business as a biopharmaceutical company in 1997. We have not generated revenues from sales or
operations, and we do not expect to generate sufficient revenues to enable us to be profitable for at least several years, if at all. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
drug products we currently contemplate developing will require costly and time-consuming research and development, preclinical and clinical testing and regulatory
approval before they can be commercially sold. We may not be able to develop our technology into marketable products or develop our technology so it is effective for diagnosis or treatment of human
diseases. As a result of changing economic considerations, market, clinical or regulatory conditions, or clinical trial results, we may shift our focus or determine not to continue one or more of the
projects we are currently pursuing. </FONT></P>

<P><FONT SIZE=2><B>We have a history of losses and we may not achieve or maintain profitability in the future or pay cash dividends.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have incurred losses since the beginning of our operations. As of December&nbsp;31, 2002, we have incurred cumulative net losses (before dividends on preferred stock) of
approximately $28,745,194. We expect our losses to increase in the future as our financial resources are used for research and development, preclinical and clinical testing, regulatory activities,
manufacturing, marketing and other related expenses. We may not be able to achieve or maintain profitability in the future. We have never declared or paid any cash dividends to stockholders and do not
expect to do so in the foreseeable future. </FONT></P>

<P><FONT SIZE=2><B>We must raise additional financing in the future and our inability to do so will prevent us from implementing our business development plan.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2002, we sold $12,028,902 of our common stock to certain institutional investors and a group of individual accredited investors at a price per share of $1.08 ($2,500,000 of which
was from the conversion of our outstanding note payable to Tannebaum, LLC). Our cash and securities on hand at December&nbsp;31, 2002, following the repayment of certain liabilities, was
approximately $6.1&nbsp;million. We expect to have sufficient cash resources for our current commitments through the third quarter of 2003 (depending on the pace of our spending for preclinical and
clinical testing and other commitments, which, to an extent, we can adjust to preserve cash). We will need substantial additional financing for our research, clinical testing, product development and
marketing programs. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
March&nbsp;20, 2003, we have provided bridge financing to Alliance of an aggregate of $2,458,000 evidenced by 8% convertible secured promissory notes (the "Alliance Notes")
issued pursuant to the Convertible Secured Note Purchase Agreement dated as of October&nbsp;4, 2002 (the "Note Purchase Agreement"). Together with any other holders of notes issued pursuant to the
Note Purchase Agreement, we have liens on certain of the assets of Alliance. Our lien on the </FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2>-related assets is subordinate in
priority to liens held by Xmark Fund, L.P. and Xmark Fund,&nbsp;Ltd. (collectively, "Xmark"). As of March&nbsp;31, 2003, there was approximately $4,750,000 of debt outstanding subject to the Xmark
liens. Our lien related to Alliance's Oxygent product is subordinate to a lien held by PFC Therapeutics, LLC ("PFC"). PFC is a joint venture between Alliance and Baxter Healthcare Corporation. Our
other liens on the assets of Alliance are first priority liens and give us a security interest in collateral not covered by the Xmark and PFC prior liens. Alliance has the right to make </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

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<P><FONT SIZE=2>
payments of interest under the Alliance Notes in shares of its common stock. We have the right to convert the outstanding principal and interest under the Alliance Notes into shares of Alliance
common stock at the conversion price of $0.35 per share. Any shares of Alliance common stock we receive in lieu of cash interest payments may have a value less than the cash that we would otherwise be
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 financing we provided to Alliance. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
cannot accurately estimate the amount of additional financing required to develop our products; however, the amount could be an additional $30&nbsp;million or more over the next
several years. In particular, we are currently seeking to raise $15 to $20&nbsp;million to acquire the </FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> business from Alliance
through a private placement to accredited investors. Additional funds may not be available on acceptable terms, if at all, and existing stockholders may be diluted as a result of those offerings. The
pricing of our common stock, or other securities convertible into common stock, in any such transaction may also result in an increase in the number of shares of common stock issuable upon exercise of
warrants in accordance with the anti-dilution provisions in the instruments governing those securities. </FONT></P>

<P><FONT SIZE=2><B>Our proposed products are subject to extensive testing and government approval, and we may not obtain or maintain the approvals necessary to sell our proposed
products.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None
of our proposed imaging products has received the FDA's approval. An extensive series of clinical trials and other associated requirements must be completed before our proposed
products can be approved and sold in the U.S. or other countries. Requirements for FDA approval of a product include preclinical and clinical testing for effective use and safety in animals and
humans, which can be extremely costly. The time frame necessary to perform these tasks for any individual product is long and uncertain, and we may encounter problems or delays that we cannot predict
at this time. Even if testing is successful, our proposed products may not demonstrate sufficient effectiveness or safety to warrant approval by the FDA or other regulatory authorities. Any regulatory
approval may not cover the clinical symptoms or indications that we may seek. We must also obtain regulatory approvals comparable to those required in the U.S. to market our products in other
countries. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
proposed technologies and products generally must complete preclinical tests in animals and three phases of tests (also called clinical trials) in humans before we can market them
for use. Use of our technology has been limited primarily to laboratory experiments and animal testing, only N1177 has completed Phase 1 human clinical trials. We have not yet conducted substantive
studies on the effectiveness of our compounds on human subjects. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
results from early clinical trials may not predict results that we will obtain in large scale clinical trials, as a number of companies have suffered significant setbacks in advanced
clinical trials, even after promising results in early trials. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may not conduct additional Phase 2 or Phase 3 clinical trials for our products and such trials, if begun, may not demonstrate any efficacy or may not be completed successfully in a
timely manner, if at all. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
rate of completion of our clinical trials depends upon, among other things, the rate of patient enrollment. Patient enrollment is a function of many factors, including the size of
the patient population for a particular indication, the nature of the clinical protocol under which our products will be studied, the proximity of the patient to a clinical site and the eligibility
criteria for the study. Delays in planned patient enrollment may result in increased costs, regulatory filing delays, or both. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
we, the FDA or other regulatory authorities may alter, suspend or terminate clinical trials at any time. If we do not successfully complete clinical trials and obtain
regulatory approval for a product, we will not be able to market that product. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

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<P><FONT SIZE=2><B>Any products approved by the FDA will be subject to postmarket requirements of the FDA.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approved
products are subject to numerous postmarket requirements by regulatory authorities. We will be subject to inspection and marketing surveillance by the FDA to determine our
compliance with regulatory requirements with respect to any approved products. If the FDA finds that we have failed to comply, it can institute a wide variety of enforcement actions, ranging from a
public warning letter to more severe sanctions such as: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>fines,
injunctions and civil penalties;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>recall
or seizure of our products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>operating
restrictions, partial suspension or total shutdown of production; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>criminal
prosecution. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>Any
enforcement action by the FDA may also affect our ability to commercially distribute our products in the U.S. </FONT></P>

<P><FONT SIZE=2><B>Product liability claims could increase our costs and adversely effect our results of operations.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
clinical testing, manufacturing and marketing of our product candidates may expose us to product liability claims, and we may experience material product liability losses in the
future. We maintain certain levels of product liability insurance for the use of our product candidates in clinical research, but our coverage may not continue to be available on terms acceptable to
us or adequate for liabilities we actually incur. A successful claim brought against us in excess of available insurance coverage, or any claim or product recall that results in significant adverse
publicity against us, may have a material adverse effect on our business and results of operations. </FONT></P>

<P><FONT SIZE=2><B>If we do not obtain and maintain patent or other protection of our core technologies (namely PH-50 for cardiovascular imaging and N1177 for our other lymphography
materials and methods), we may have difficulty commercializing products using these technologies.</B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
success depends in part on our ability to obtain, assert and defend our patents, protect trade secrets and operate without infringing the intellectual property of others. Among the
important risks in this area are that: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Our
patent applications may not result in issued patents. Moreover, any issued patents may not provide us with adequate protection of our intellectual
property or competitive advantages, and the law on the scope of patent coverage is continually changing.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Various
countries limit the subject matter that can be patented and limit the ability of a patent owner to enforce patents in the medical field. This may
limit our ability to obtain or utilize those patents internationally.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Existing
or future patents or patent applications (and the products or methods they cover) of our competitors (or others, such as research institutions or
universities) may interfere, invalidate, conflict with or infringe our patents or patent applications. Similarly, the use of the methods or technologies contained in our patents, patent applications
and other intellectual property may conflict with or infringe the rights of others.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>If
an advance is made that qualifies as a joint invention, the joint inventor or his or her employer may have rights in the invention. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that these rights are covered by valid and enforceable patents or effectively
maintained as trade secrets. We own two patents in the U.S., and sixteen other patents in foreign countries including Australia, Canada, Japan and Germany. These patents relate to methods for
performing lymphography. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

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We have filed patent applications in the U.S. and under the PCT covering a number of foreign countries. These patent applications relate to the use of nanoparticulates, including PH-50,
as cardiovascular imaging agents and to deliver pharmacologically active substances for treatment of various diseases. We are also the exclusive licensee of a group of patented proprietary compounds
known as "nanoparticulates," including N1177 and PH-50 from Nycomed Imaging AS. We are the exclusive licensee of U.S. and foreign patent applications from Massachusetts General Hospital
which relate to diagnostic imaging agents and methods for using the diagnostic imaging agents for medical location, treatment and diagnosis of tumors and other diseased tissues. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional
patents may never be issued on any of the patent applications we own or license from third parties. Furthermore, even if such patents are issued, the validity of the patents
might successfully be challenged by a third party. The patents might not provide protection against competitive products or otherwise be commercially valuable, or the applications filed by others
might result in patents that would be infringed by the manufacture, use or sale of our products. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
patent position of biopharmaceutical companies involves complex legal and factual questions and therefore we cannot assure the enforceability of these patents. Litigation over
patents and other intellectual property rights occurs frequently in our industry and there is a risk that we may not prevail in disputes over the ownership of intellectual property. Further, an
interference proceeding with the Patent and Trademark Office may be instituted over the rights to certain inventions and there is a risk that we may not prevail in such an interference proceeding.
Those disputes can be expensive and time consuming, even if we prevail. Intellectual property disputes are often settled through licensing arrangements that could be costly to us. In any intellectual
property litigation, it is possible that licenses necessary to settle the dispute would not be available on commercially reasonable terms or that we would not be able to redesign our technologies to
avoid any claimed infringement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Confidentiality
agreements covering our intellectual property may be violated and we may not have adequate remedies for any violation. Third parties may challenge our existing patents
and seek to hold them invalid or unenforceable. Also, our intellectual property may in other ways become known or be independently discovered by competitors. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
the extent we use intellectual property through licenses or sub-licenses (as is the case for some of our lymphography technology), our rights are subject to us performing
the terms of the license or sub-license agreement with third parties. Our rights are also subject to the actions of third parties we may not be able to control, such as our
sub-licensor complying with the terms of its license with the patent owner and the patent owner maintaining the patent. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Where
intellectual property results from a research project supported by Government funding, the Government has limited rights to use the intellectual property without paying us a
royalty. </FONT></P>

<P><FONT SIZE=2><B>We are highly dependent upon a small number of employees and consultants who provide management expertise, and it may be difficult to implement our business development plans
without this expertise.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
individuals have entered into employment or consulting agreements, confidentiality and/or non-competition agreements with us. We could suffer competitive disadvantage,
loss of intellectual property or other material adverse effects on our business and results of operations if any employee or consultant violates or terminates these agreements or terminates his or her
association with us. Our growth and future success also depends upon the continued involvement and contribution from these individuals, as well as our ability to attract and retain highly qualified
personnel now and in the future. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently employ three senior executive officers, including Dr.&nbsp;Williams (our Chief Executive Officer), Mr.&nbsp;Boveroux (our Chief Financial Officer) and
Dr.&nbsp;Reinhard Koenig (Senior Vice President of Medical and Regulatory Affairs). We also have retained consultants to advise us in regulatory affairs and product development matters. If we lost
the services of our executive officers or outside consultants, we could experience a delay in the implementation of our business plan until we arranged for another individual or firm to fulfill the
role. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

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<P><FONT SIZE=2><B>The raw materials necessary for the manufacture of PH-50 and N1177 are supplied by one supplier and an interruption in availability of those materials may impair
our ability to test and market those products.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently rely on Nanosystems, a division of Elan, as the sole supplier of the raw nanoparticulates used to manufacture PH-50 and N1177. There can be no assurance that
Nanosystems will continue to supply us with the raw materials that we need in a timely manner on conditions that are acceptable to us. </FONT></P>


<P><FONT SIZE=2><B>We have to rely on third parties and collaborative relationships for the manufacture, clinical testing and marketing of our proposed products, and it may be difficult to
implement our business development plans without these collaborations.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have had and expect to continue in the future to have a variety of research agreements with universities and other research institutions to investigate specific protocols. We also
contract and expect to continue to contract with research organizations and other third parties to manage clinical trials of our proposed products in development. We must continue to enter into
collaborative relationships with third parties for additional research and development, preclinical and clinical testing, marketing and distribution of our proposed products. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are currently involved in a joint venture with affiliates of Elan, called Sentigen,&nbsp;Ltd., to develop and commercialize materials in the field of lymphography. Collaborative
relationships may limit or restrict our operations or may not result in an adequate supply of necessary resources. Our collaborative partner could also pursue alternative technologies as a means of
developing or marketing products for the diseases targeted by our collaborative program. If a third party we are collaborating with fails to perform under its agreement or fails to meet regulatory
standards, this could delay or prematurely terminate clinical testing of our proposed products. </FONT></P>

<P><FONT SIZE=2><B>Our potential markets are extremely competitive, and many of our competitors have greater resources and have products that are in more advanced stages of
development.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
face substantial competition from competitors with greater financial, technical and human resources and with greater experience in developing products, conducting preclinical or
clinical testing, obtaining regulatory approvals, manufacturing and marketing. We understand that the existing market for radiopaque contrast agents is estimated to be approximately
$3.4&nbsp;billion worldwide. The dominant uses of media are those employed in conjunction with CT/x-ray scans. Approximately half of the usage is in the U.S. Omnipaque&reg;,
marketed by a unit of Amersham and is estimated to be the leading agent utilized in coronary angiography. Other companies marketing contrast agents include Mallinckrodt,&nbsp;Inc. (a unit of Tyco
International&nbsp;Ltd.), Berlex Laboratories,&nbsp;Inc.(a subsidiary of Schering) and Bracco. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some
of these firms have drugs or devices that have completed or are in advanced stages of clinical trials and regulatory approvals. Others may develop technologies and obtain patent
protection that could render our technologies or products obsolete or less competitive or our patents invalid or unenforceable. Due to the inherent risk of failure associated with the testing,
development and production of new and innovative technologies, our technologies and products may be found to be ineffective, have unanticipated limitations or otherwise be unsuccessful in the
marketplace. Also, although we believe our estimates of the possible size of markets for our potential products are based on information we consider reliable (including data from the American Heart
Association, American Cancer Society and similar sources in the public domain), that data or our analysis of the data could prove incorrect. </FONT></P>

<P><FONT SIZE=2><B>Our products may not be fully accepted by physicians, laboratories and health insurance providers which would reduce our revenue and limit our ability to raise
capital.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
growth and success will depend upon market acceptance by physicians, laboratories and health insurance providers of our products. This requires acceptance of our products as
clinically useful and cost-effective alternatives to other medical imaging methods. In addition, physicians may utilize imaging </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

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<P><FONT SIZE=2>
techniques other than those for which our products are being developed (such as MRIs) to image internal vasculature and organs and therefor, our products may not be utilized. </FONT></P>

<P><FONT SIZE=2><B>Changes in health care reimbursement policies or legislation may make it difficult for patients to use or receive reimbursement for using our products, which could reduce our
revenues.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
success will depend, in part, on the extent to which health insurers, managed care entities and similar organizations provide coverage or reimbursement for using the medical
procedures and devices we plan to develop. These third-party payers are increasingly challenging the price of medical procedures and services and establishing guidelines that may limit physicians'
selections of innovative products and procedures. We also cannot predict the effect of any current or future legislation or regulations relating to third-party coverage or reimbursement on our
business. We may not be able to achieve market acceptance of our proposed products or maintain price levels sufficient to achieve or maintain any profits on our proposed products if adequate
reimbursement coverage is not available. Failure by physicians, hospitals and other users of our products to obtain sufficient reimbursement from third-party payors for the procedures in which our
products would be used or adverse changes in
governmental and private third-party payors' policies toward reimbursement for such procedures would have a material adverse effect on our business. </FONT></P>

<P><FONT SIZE=2><B>A small group of stockholders controls Photogen, which may make it difficult for stockholders who are not in that group to influence management.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2002, a small group of stockholders control approximately 70.4% of our outstanding common stock. Several of our principal stockholders are also parties to a
Voting, Drag-Along and Right of First Refusal Agreement (the "Voting Agreement") concerning the election of certain designees to the Board of Directors. The Voting Agreement requires these
stockholders to vote their shares for the election of certain individuals nominated by parties to the Voting Agreement. This concentration of ownership and control may delay or prevent a change in
control of Photogen, and may also result in a small supply of shares available for purchase in the public securities markets. These factors may affect the market and the market price for our common
stock in ways that do not reflect the intrinsic value of the stock. </FONT></P>

<P><FONT SIZE=2><B>The price and trading volume of our common stock fluctuates significantly, like that of many biopharmaceutical companies, which may make it difficult for us or a stockholder to
sell our common stock at a suitable price and may cause dilution for existing stockholders when we issue additional shares.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the period from January&nbsp;1, 2002 through December&nbsp;31, 2002 the trading price of our common stock ranged from $8.38 to $1.00 per share. Daily trading volume ranged
from 0 (zero) shares to approximately 41,000 shares during that period. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
market prices for securities of biopharmaceutical companies in general have been highly volatile and may continue to be highly volatile in the future. The following factors may have
an impact on the price of our common stock: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Announcements
by us or others regarding scientific discoveries, technological innovations, commercial products, patents or proprietary rights;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Announcements
by us concerning the licensing or other transactions of our products or technologies;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Private
sale of a significant block of our common stock at a price below the then current market price of our common stock and the subsequent registration
and sale of those shares;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
progress of preclinical or clinical testing;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Developments
or outcome of litigation concerning proprietary rights, including patents;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Changes
in government regulation; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

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<A NAME="page_dg2778_1_10"> </A>
<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Public
concern about the safety of devices or drugs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Limited
coverage by securities analysts;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
occurrence of any of the risk factors described in this section;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Sales
of large blocks of stock by an individual or institution;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Changes
in our financial performance from period to period, securities analysts' reports, and general market conditions; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Economic
and other external factors or a disaster or crisis. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>Our common stock could be delisted from the NASDAQ SmallCap Market, which would make trading in our stock more difficult.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
November, 1999, our common stock has been quoted in the Nasdaq SmallCap Market. We received a letter dated September&nbsp;25, 2002 from Nasdaq notifying us that our stock had
traded at less than $1 for a period of 30 consecutive trading days and that we had until March&nbsp;4, 2003 to regain compliance with Marketplace Rule&nbsp;4310(c)(4). On December&nbsp;12, 2002,
we received notice from Nasdaq that we are again in compliance with the Marketplace Rule. Our shares could be delisted if we fail to meet the listing requirements of the Nasdaq SmallCap Market, which
would force us to list our shares on the OTC Bulletin Board or some other quotation medium, such as pink sheets, depending upon our ability to meet the specific listing requirements of those quotation
systems. As a result, an investor might find it more difficult to dispose of, or to obtain accurate price quotations for, our shares. Delisting might also reduce the visibility, liquidity and price of
our common stock. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
our common stock were delisted from the Nasdaq SmallCap Market and were not traded on another national securities exchange, we could become subject to penny stock regulations that
impose additional sales practice disclosure and market making requirements on broker/dealers who sell or make a market in our stock. The rules of the SEC generally define "penny stock" to be common
stock that has a market price of less than $5.00 per share and is not traded on a national exchange. If our stock became subject to penny stock regulations, it could adversely affect the ability and
willingness of broker/dealers who sell or make a market in our common stock and of investors to purchase or sell our stock in the secondary market. </FONT></P>

<P><FONT SIZE=2><B>If stockholders holding substantial amounts of our common stock should sell their stock in the public market, the price of our stock could fall and it may be more costly for us
to raise capital.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2002: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
had reserved approximately 7,062,401 shares of common stock for future issuance upon grants of options, or exercise or conversion of outstanding options
and warrants and convertible securities.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
had approximately 2,343,366 shares eligible for sale in the public market free of restriction under Rule&nbsp;144 of the Securities Act.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Approximately
11,912,779 shares of common stock are subject to agreements requiring us to permit the holders of the shares, under certain circumstances, to
join in a public offering of our stock or to demand that we register their shares for resale. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>If
our options and warrants are all issued and exercised, investors may experience significant dilution in the voting power of their common stock. The sale of these shares could place downward
pressure on the overall market price of our stock. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

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NAME="page_di2778_1_11"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="di2778_forward-looking_statements"> </A>
<A NAME="toc_di2778_1"> </A>
<BR></FONT><FONT SIZE=2><B>FORWARD-LOOKING STATEMENTS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus contains certain forward-looking statements. Forward-looking statements deal with our current plans, intentions, beliefs and expectations and
statements of future economic performance. Statements containing terms such as "believes," "does not believe," "plans," "expects," "intends," "estimates," "anticipates" and other phrases of similar
meaning are considered to imply uncertainty and are forward-looking statements. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward
looking statements involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from what is currently anticipated.
We make cautionary statements in certain sections of this prospectus, including under "Risk Factors." You should read these cautionary statements as being applicable to all related forward-looking
statements wherever they appear in this prospectus, in the materials referred to in this prospectus, in the materials incorporated by reference into this prospectus, or in our press releases. We
undertake no obligation to publicly update or revise any forward-looking statement for any reason, even if new information becomes available or other events occur in the future. In light of these
risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus, prospectus supplement or other documents incorporated by reference might not occur. No forward-looking
statement is a guarantee of future performance and you should not place undue reliance on any forward-looking statement. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="di2778_dividend_policy"> </A>
<A NAME="toc_di2778_2"> </A>
<BR></FONT><FONT SIZE=2><B>DIVIDEND POLICY    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have never declared or paid cash dividends on our common stock. We currently intend to retain all future earnings to fund the operation of our business and,
therefore, we do not anticipate paying dividends on our common stock in the foreseeable future. Future cash dividends, if any, will be determined by our Board of Directors. We do however pay an
in-kind dividend on our preferred stock as follows: </FONT></P>

<UL>
<UL>

<P><FONT SIZE=2><I>Series&nbsp;A Convertible/Exchangeable Preferred Stock</I></FONT><FONT SIZE=2>:&nbsp;&nbsp;&nbsp;&nbsp;For a period of six years from the date of first issuance of the Series&nbsp;A
Convertible Preferred Stock ("Series&nbsp;A Preferred Stock") (October&nbsp;20, 1999), each share of Series&nbsp;A Preferred is entitled to a mandatory in-kind dividend payable in
additional shares of Series&nbsp;A Preferred Stock at a rate of 7% (</FONT><FONT SIZE=2><I>i.e.</I></FONT><FONT SIZE=2>, 0.07 additional shares of Series&nbsp;A Preferred Stock). The
in-kind dividend is cumulative, compounds on a semi-annual basis and is payable twice a year, beginning April&nbsp;2000. As of March&nbsp;5, 2003 we have accrued
in-kind dividends of 2,301.2 shares of Series&nbsp;A Preferred
Stock to our Series&nbsp;A Preferred stockholder. As of March&nbsp;5, 2003 there were 12,856 shares of Series&nbsp;A Preferred Stock issued and outstanding. </FONT></P>

</UL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="di2778_market_for_securities"> </A>
<A NAME="toc_di2778_3"> </A>
<BR></FONT><FONT SIZE=2><B>MARKET FOR SECURITIES    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock trades on the Nasdaq SmallCap Market under the symbol "PHGN." The following table sets forth the quarterly high and low trading prices for our
common stock as reported by the Nasdaq SmallCap Market for the periods indicated, adjusted to reflect the one-for-four reverse split which was effected in November, 2002, which
prices do not reflect retail mark-up, markdown or commissions and may not represent actual transactions. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31, 2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31, 2002</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=7 ALIGN="CENTER"><FONT SIZE=1><B>(Amounts in Dollars)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>1<SUP>st</SUP> Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>28.50</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>6.00</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6.36</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2.52</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>2<SUP>nd</SUP> Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>8.00</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3.72</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5.20</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3.12</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>3<SUP>rd</SUP> Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>9.40</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>4.00</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.20</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1.32</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>4<SUP>th</SUP> Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6.08</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>4.00</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2.64</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1.00</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

<HR NOSHADE>
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<A NAME="page_di2778_1_12"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the period January&nbsp;1, 2003 through March&nbsp;10, 2003, the high and low trading prices for our common stock were $2.78 and $0.90, respectively.
Aggregate trading volume for the period January&nbsp;1, 2003 through March&nbsp;10, 2003 was approximately 217,210 shares. On April&nbsp;15, 2003 the high and low trading prices were $1.90 and
$1.78, respectively. The foregoing information for 2001, 2002 and 2003 reflects trade prices, and not bid or ask prices. See "Risk Factors&#151;A small group of stockholders control Photogen,
which may make it difficult for stockholders who are not in that group to influence management," and "The price and trading volume of our common stock fluctuates significantly, which may make it
difficult for us or a stockholder to sell our common stock at a suitable price and may cause dilution for existing stockholders when we issue additional shares," above, regarding the possible effects
of the concentrated ownership of our common stock on the market and price of our common stock. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="di2778_selected_financial_data"> </A>
<A NAME="toc_di2778_4"> </A>
<BR></FONT><FONT SIZE=2><B>SELECTED FINANCIAL DATA    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following information is qualified by reference to and should be read in conjunction with our Consolidated Financial Statements and the Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of Operations included below. The selected financial data presented below for the years ended December&nbsp;31, 1998, 1999,
2000, 2001 and 2002 have been derived from our audited financial statements. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="25%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1998</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="25%"><FONT SIZE=2>Net income (loss) from continuing operations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(615,972</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(4,252,841</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(8,144,199</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(6,813,196</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(9,935,203</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="25%"><FONT SIZE=2>Basic and diluted loss per common share from continuing operations (available to common shareholders)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.07</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(0.48</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(1.16</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(1.03</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(1.17</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="25%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8,060,585</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>23,304,829</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>19,652,037</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>14,202,639</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>16,738,414</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="25%"><FONT SIZE=2>Total liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>952,007</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>872,667</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,239,527</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4,379,693</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,672,463</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="25%"><FONT SIZE=2>Total long-term obligations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>35,990</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>18,356</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,554</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,063,165</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>401,664</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

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<A NAME="toc_di2778_5"> </A>
<BR></FONT><FONT SIZE=2><B>BUSINESS    <BR>  </B></FONT></P>

<P><FONT SIZE=2><B>INTRODUCTION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the past two years, we have refocused our efforts on the development of medical imaging agents, including cardiovascular and lymphography contrast imaging
agents. We accomplished this shift in focus by splitting off our therapeutic line of business, as more fully described in "Recent Developments" below. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are currently an emerging, development-stage biopharmaceutical company focused on developing a novel contrast agent with potential applications (1)&nbsp;as a blood pool agent, to
diagnose diseased tissue in the cardiovascular system and other organs, and (2)&nbsp;to diagnose cancer metastasizing into the lymphatic system. We are the exclusive licensee of a group of
proprietary materials, the lead compound of which is a contrast agent we refer to as PH-50 or N1177. We established the two names to distinguish commercialization rights between
cardiovascular imaging (and all other indications) (PH-50) to which we retain rights, and the field of lymphography (N1177), which we licensed to our joint venture (Sentigen,&nbsp;Ltd.)
with affiliates of Elan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pharmaceutical
imaging agents are used with CT, nuclear medicine, echocardiography and MRI equipment in order to increase the diagnostic capabilities of these techniques. By enhancing
the contrast between different types of tissues, these intravenously administered contrast agents provide critical anatomical and disease state information that is not obtainable using the equipment
alone. There are numerous potential applications for a contrast agent used in imaging parts or all of the cardiovascular system as well as other organs. Our proposed products have the potential to
enhance a
physician's ability to diagnose certain cardiovascular abnormalities and the spread of cancer in the lymphatic system. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have no approved diagnostic products or operating revenues at this time; however, we have entered into a term sheet relating to a transaction with Alliance. The term sheet gives us an
exclusive option until March&nbsp;20, 2003 (which was extended by the parties until April&nbsp;19, 2003 and which the further extension of is currently being negotiated) to acquire the </FONT> <FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2>
business. It is anticipated that </FONT><FONT SIZE=2><I>Imagent</I></FONT><FONT SIZE=2>&reg; will be ready to market in
the third quarter of 2003. Our acquisition of the </FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> business is subject to certain contingencies, including our ability to raise the
funds to finance the acquisition. See "Recent Developments" below. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have 6 full-time employees. A majority of our employees hold Ph.D.'s or other advanced degrees. Our senior executive and clinical development team is based at our
corporate headquarters in New Hope, Pennsylvania, a suburb of Philadelphia. We have personnel with expertise in clinical development, clinical trial design and regulatory approval processes. We also
work closely with consultants experienced in drug development and regulatory requirements. </FONT></P>


<P><FONT SIZE=2><B>CORE TECHNOLOGY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1999, we entered into an exclusive license for a group of proprietary materials, the lead compound of which was known as WN67722. At that time, the product was
being developed only for the field of lymphography. We now call this product N1177 (for use in the field of lymphography) or PH-50 (when referring to cardiovascular and all other
indications). The product designations PH-50 and N1177 refer to the same chemical compound. These materials are very small particles designed to travel through the circulatory or lymphatic
system (depending on how they are administered) and are called "nanoparticulates." The compound is covered by patents and patent applications filed in the U.S. and elsewhere. As part of the initial
acquisition of this product we also acquired patented methods for performing minimally invasive lymphography using x-ray, CT or MRI. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

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<P><FONT SIZE=2><B>Cardiac and vascular imaging  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to 1998 statistics of the National Heart, Lung, and Blood Institute, ischemic heart disease is the leading cause of death in the U.S., accounting for
one of every five deaths. The American Heart Association (</FONT><FONT SIZE=2><I>www.americanheart.org</I></FONT><FONT SIZE=2>) estimates that approximately 1.1&nbsp;million Americans suffer a
myocardial infarction ("MI") annually, and over 40&nbsp;percent will not survive the event. Atherosclerotic coronary artery disease ("CAD") is the underlying cause of most ischemic cardiac events
and can result in MI, congestive heart failure, cardiac arrhythmias and sudden cardiac death. Clinically significant CAD is uncommon in men under 40 and pre-menopausal women, but risk
increases with advancing age
and in the presence of risk factors such as smoking, hypertension, diabetes, high cholesterol and family history of heart disease. Angina is the most common presenting symptom of myocardial ischemia
and underlying CAD, but in many persons the first evidence of CAD may be MI or sudden death. The American Heart Association estimates that 1-2&nbsp;million middle-aged men
have asymptomatic but physiologically significant coronary disease, also referred to as silent myocardial ischemia. Over two million angiography procedures are conducted annually in the U.S. Although
mortality from heart disease has declined steadily over the past three decades in the U.S., the total burden of coronary disease is predicted to increase substantially over the next 30&nbsp;years
due to the increasing size of the elderly population. </FONT></P>

<P><FONT SIZE=2><I>Development of PH-50  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are developing PH-50 to extend the clinical utility of x-ray based imaging, chiefly CT. The indications we envision for
PH-50 include: CT angiography (heart and peripheral blood vessels), assessment of whole-body disease burden of atherosclerosis, organ perfusion and cancer staging.
PH-50 is a contrast agent that is not penetrated by x-rays (called "radiopaque"). When injected systemically into the circulatory system (i.e., the blood stream), it remains
within the system mixing with the blood and flowing throughout the circulatory system. As the compound is radiopaque, a physician using a device such as a CT machine along with the contrast agent can
create an image of the desired area. In our preclinical studies we have obtained encouraging results that have been demonstrated by imaging heart, liver and other organs with results that are
comparable or superior to those obtained by currently available products. We believe that PH-50 could allow the imaging of the cardiovascular system (angiography) and other organs as a
non-invasive procedure, at lower cost and with reduced risk and morbidity. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are completing pre-clinical studies of PH-50 for potentially significant new applications in cardiovascular imaging and have filed for additional patent
protection of the use of the compound for vascular and organ imaging applications. We plan to develop PH-50 as a blood pool contrast agent for several indications. Based on considerable
existing preclinical studies and human clinical experience, we believe that we can commence further clinical studies in the near future. Our initial development strategy will be to evaluate
PH-50 in Phase 1 studies for cardiovascular and blood pool imaging using advanced CT and PH-50 as a contrast agent. We plan to conduct Phase 1 trials to assess safety and
patient tolerance of PH-50 as a cardiovascular imaging agent through intravenous administration in the fourth quarter of 2003. As part of the original acquisition and our further research,
we have a substantial body of safety information in both animals and humans. Pre-clinical toxicology and pharmacology data for PH-50/N1177 includes testing in multiple animal
models including studies in several models utilizing intravenous administration, which is the route of administration to be utilized in the cardiovascular indications. In animal experiments, our
investigators have shown that PH-50 can be used as an effective imaging agent to visualize cardiac structures after a single, low-dose intravenous injection/infusion. We have
an open investigational new drug application ("IND") with the FDA for the product in the lymphography indication. We intend to file an amendment to this application for the intravenous administration
of PH-50 for use as a blood pool agent. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Scaled-up
manufacturing of PH-50/N1177 is currently being performed for us by Elan through its Nanosystems division. Over the past two years, Nanosystems has
undertaken substantial work to manufacture PH-50 in compliance with the FDA's current Good Manufacturing Procedures ("GMP") regulations and in a scalable process sufficient to support
commercial quantities. Currently, Nanosystems is our sole supplier of the raw materials necessary to produce PH-50 and N1177. There can be no assurance that Nanosystems will continue to
supply us with the raw materials we need on terms that are acceptable to us. </FONT></P>


<P><FONT SIZE=2><I>Competition for PH-50  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The existing market for radiopaque contrast agents is estimated to be approximately $3.4&nbsp;billion worldwide. The dominant uses of media, totaling
86&nbsp;percent, are those employed in conjunction with CT or x-ray scans. Approximately half of the usage is in the U.S. We believe that Omnipaque&reg;, marketed by a unit of
Amersham, is the leading agent utilized in coronary angiography. Other companies marketing contrast agents include Mallinckrodt,&nbsp;Inc. (a unit of Tyco International&nbsp;Ltd.), Berlex
Laboratories,&nbsp;Inc. (a subsidiary of Schering), Abbott Laboratories and Bracco. Physicians also use other modalities, such as MRI and ultrasound, are also used by physicians to image internal
vasculature and organs. These modalities, including CT imaging, each have particular attributes that may make their use applicable to any particular situation. </FONT></P>

<P><FONT SIZE=2><B>Lymphography  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lymphography is a procedure used to determine if a patient's cancer has spread to the lymph nodes. The presence or absence of cancer in the lymph nodes is an
important indication of whether the disease has spread from the original tumor and the seriousness of the disease. It also provides oncologists with critical information to help determine the stage of
the disease and the appropriate course of treatment. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It
is generally accepted that breast cancer and melanoma are spread by way of the lymph system as do cancers of the lung, prostate and many other cancers. Clinical studies have
demonstrated that patients with cervical cancer have an increased survival rate if lymph nodes with cancerous tissue are removed. Effective treatment of these cancers can be aided by an early
assessment of the presence or absence of disease (micro-metastases) in the lymph nodes. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Patients
believed to have cancer currently are subjected to injections of blue dye or radioactive particles that track the materials to the general area of the lymph node. In some of
these diseases, the location of the lymph node is difficult to access. In the case of breast cancer, oncologists may remove 15-30 underarm lymph nodes for biopsy. Additional treatment will
be required if cancer is discovered. Approximately 80% of the patients diagnosed with breast cancer or melanoma who undergo these painful procedures are found to have no sign of disease in their
nodes. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
particular properties of N1177 enable it to travel through the lymph system to the lymph nodes most likely to be affected if the cancer has spread. It is recognized by the body's
immune system as being a foreign body and thus is normally ingested by macrophage (cells that engulph foreign material in the body for eventual elimination). It is a particular characteristic of
tumors that they contain no or a minimal number of macrophage. N1177 is radiopaque and is seen on a CT scan as white areas. Tumors within a node, as they would not have retained N1177, are seen as
dark areas. The difference in contrast created by the presence or absence of the imaging agent serves as the basis to determine the presence or absence of disease. We expect that N1177 would remain in
the node to allow for an effective imaging procedure with a good safety profile and acceptable clearance times. A further benefit of these minimally invasive procedures is that they could be used
multiple times and therefore provide a means to monitor the results of cancer treatment and detect recurrence. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

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<P><FONT SIZE=2><I>Development of N1177  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are developing N1177 through a joint venture with affiliates of Elan. Our goal is to demonstrate that the use of N1177 will enable physicians to precisely
locate tumorous nodes by first injecting the material in the vicinity of the tumor and then taking an image (picture) using a CT device. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Considerable
preclinical testing of N1177 has been conducted in multiple animal models. The results of these studies suggest a favorable safety and efficacy profile for N1177. Phase I
clinical studies to evaluate the safety of N1177 in a total of 65 patients have been completed. The results of the Phase I study involving 45 subjects indicate the safety and pharmacokinetic data are
consistent with safety, pharmacokinetic and metabolic data obtained in previous nonclinical safety and disposition studies. In addition, the number of nodes visualized showed a statistically
significant dose effect (an increase in the number of nodes visualized as the dose increased). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
plan to commence Phase 2 clinical studies for detection of cancer metastasis in lymph nodes in patients with cervical cancer in 2003, subject to the availability of sufficient
capital. In this patient population, studies document an increase in survival when lymph nodes containing cancer are removed. Tumor identification by CT imaging will be correlated to the results of
biopsy results from patients undergoing surgery to demonstrate effectiveness in locating nodes and identifying those with cancer in them. </FONT></P>

<P><FONT SIZE=2><I>Competition for N1177  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As with PH-50, N1177 will be subject to competition with other companies marketing contrast agents such as Amersham, Mallinckrodt,&nbsp;Inc. (a unit
of Tyco International&nbsp;Ltd.), Berlex Laboratories,&nbsp;Inc. (a subsidiary of Schering), and Bracco and with other methods of imaging, such as MRI and ultrasound. </FONT></P>


<P><FONT SIZE=2><B>Sentigen&nbsp;Ltd.&#151;Joint Venture with Elan Corporation  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October, 1999, we entered into a joint venture with affiliates of Elan. The joint venture company, Sentigen&nbsp;Ltd., is developing N1177, a nanoparticulate
agent used to image lymph nodes to detect cancer. We own 80.1&nbsp;percent of Sentigen with the balance being owned by affiliates of Elan. We licensed to Sentigen certain methods and other
proprietary technology for use in lymphography, and we sub-licensed to Sentigen proprietary compounds we had obtained by license from Massachusetts General Hospital and Nycomed Imaging AS.
Elan, through its drug delivery division, Elan Pharmaceutical Technologies, licensed to Sentigen its NanoCrystal&#153; stabilized nanoparticulate formulation technology to develop the
diagnostic imaging agents. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
finance the initial capital requirements of Sentigen, including the licensing by Sentigen of certain technology, we sold to a unit of Elan $12,015,000 of our Series&nbsp;A Preferred
Stock. Elan may exchange the Series&nbsp;A Preferred Stock for a number of shares of Sentigen stock that will enable Elan to increase its ownership of Sentigen up to 50&nbsp;percent.
Alternatively, Elan may convert the Series&nbsp;A Preferred Stock into Photogen common stock at a conversion price of $84.68 per share. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of the joint venture agreement, Elan provided us with a $4.8&nbsp;million credit facility to fund our share of the then anticipated development costs of the joint venture. On
November&nbsp;12, 2002, all of the then outstanding principal and interest ($3,082,487) was converted at a price of $24.00 per share into 128,437 shares of our common stock and the line of credit
was cancelled. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
agreement with Elan provides that Elan has the right to nominate a member to our Board of Directors until October, 2004 or as long as Elan owns 10% of our common stock (Elan
currently owns less than 10% of our common stock). Elan also has a preemptive right to participate in our future equity offerings to maintain its pro rata interest in Photogen. Elan agreed not to
exercise this </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

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<P><FONT SIZE=2>
preemptive right in connection with our recent sale of common stock to certain institutional and accredited investors. </FONT></P>

<P><FONT SIZE=2><B>RECENT DEVELOPMENTS  </B></FONT></P>

<P><FONT SIZE=2><B>Split Off Transaction  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From our inception, we were involved in two lines of business: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Diagnosis
of diseased tissue
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Treatment
of diseased tissue </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the past, our research and development efforts followed this dual focus. We worked to develop therapies to treat cancer, pre-cancerous conditions, psoriasis and other
dermatological conditions, using our proprietary multi-photon laser technologies, or using an agent called PH-10 with a variety of energy sources in a regimen called photodynamic therapy,
or the activation of a substance by an energy source to achieve a therapeutic effect. We have also been developing products, N1177 and PH-50, to diagnose the spread of cancer to a
patient's lymph nodes and to diagnose cardiovascular disease, respectively. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
pursuit of both diagnostic and therapeutic lines of businesses led to a number of challenges. We found it increasingly difficult to raise capital with such a diverse product pipeline
and to concentrate our efforts on a particular application from inception through development. In order to attract capital investment and to take advantage of what we perceived to be the best market
opportunities for our proposed products, we concluded that it was necessary to devote our efforts and resources to the development of our medical imaging diagnostic technologies rather than the
therapeutic technologies. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe the medical need and economic potential of both PH-50 (for cardiovascular diagnostics) and N1177 (for lymphography) is of such significance that we decided to
focus substantially all of our development efforts and resources in this area for the foreseeable future. We entered into a Separation Agreement with the Tennessee Stockholders in order to enhance our
ability to secure additional financing and pursue market opportunities, to enable the Tennessee Stockholders to focus on the development of therapeutic technologies arising from their inventions, and
to resolve any differences of opinion with them as to how to allocate financial and management resources. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
separated the therapeutic and diagnostic lines of business by first transferring substantially all assets and liabilities associated with the diagnostic business to Photogen
Technologies,&nbsp;Inc. and retaining substantially all assets and liabilities associated with the therapeutic business in Photogen,&nbsp;Inc. Then,
Photogen Technologies,&nbsp;Inc., Photogen,&nbsp;Inc. and the Tennessee Stockholders engaged in a split off transaction in which the Tennessee Stockholders transferred all of their common stock of
Photogen Technologies,&nbsp;Inc. to the company for redemption in exchange for all of the common stock of Photogen,&nbsp;Inc. The Tennessee Stockholders beneficially owned 5,137,109 shares of
Photogen Technologies,&nbsp;Inc. common stock (approximately 52.9% of the outstanding shares), and those shares were subsequently cancelled by Photogen Technologies,&nbsp;Inc. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Aidan
King, who was previously appointed to our Board of Directors by Elan, declined to serve on our Board of Directors in November, 2002. Dr.&nbsp;Wachter, one of the Tennessee
Stockholders, resigned as a director and officer of Photogen upon the effectiveness of the split off transaction. Dr.&nbsp;Scott, also a Tennessee stockholder, resigned as an officer of Photogen
upon the effectiveness of the split off transaction. </FONT></P>

<P><FONT SIZE=2><B>Financing Transaction  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November, 2002, we sold $9,000,000 of our common stock at a price of $1.08 per share to a group of institutional investors which included Mi3, L.P. ("Mi3"),
Oxford BioScience Partners IV L.P. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>

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<P><FONT SIZE=2>
and MRNA Fund II L.P. (collectively, the "Institutional Investors"). In this offering, we received $6,500,000 in cash and Tannebaum, LLC's $2,500,000 credit facility was eliminated and converted into
2,314,815 shares of common stock at $1.08 per share. Tannebaum, LLC was at that time controlled in part by Dr.&nbsp;Weinstein, one of our directors. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December, 2002, we consummated a second closing of the financing transaction and sold an additional 2,804,539 shares of our common stock at $1.08 per share for an aggregate of
$3,028,902 to a group of institutional investors and individual accredited investors. The final closing of the financing took place in January, 2003 at which time we sold an additional 27,778 shares
of our common stock at $1.08 per share for an aggregate of $30,000 to two individual accredited investors. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of the financing transaction, we entered into a Registration Rights Agreement requiring us to file&nbsp;a registration statement with the SEC within 45&nbsp;days of the
closing of the financing transaction to cover the Institutional Investors' sales of the shares. The Institutional Investors in the financing transaction have deferred the implementation of this
requirement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of the financing transaction, the Institutional Investors entered into the Voting Agreement with Dr.&nbsp;Weinstein, Stuart Levine (individually and as co-trustees
of the Theodore Tannebaum Trust) and Tannebaum, LLC (collectively, the "Chicago Stockholders"). The Voting Agreement provides, among other things, that each of its parties will vote all shares of
which it is the beneficial owner as follows: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
maintain the total number of directors at seven.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
amend our Articles of Incorporation or Bylaws in accordance with the recommendation of five of the seven directors.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>For
the election of the following directors:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>One
person nominated by Mi3 (William D. McPhee);
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>One
person nominated by the holders of 80% of the shares owned by the Institutional Investors (Alan Watson, Ph.D.);
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>One
person nominated by the holders of 80% of the shares owned by the Chicago Stockholders (Dr.&nbsp;Weinstein);
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>One
person appointed by our Board of Directors as the Chief Executive Officer (Taffy Williams, Ph.D.)
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>One
person nominated by Elan International Services,&nbsp;Ltd. ("EIS") in accordance with and subject to our October&nbsp;20, 1999 Securities Purchase
Agreement with EIS (this position is currently vacant); and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Two
persons (or three if EIS's right to nominate a director expires) with industry experience in the healthcare, biotech or pharmaceutical industries, as
nominated by our Board of Directors and approved by the holders of 80% of the shares beneficially owned by the Institutional Investors (Gene Golub and Lester McKeever, Jr.). </FONT></DD></DL>
</DD></DL>
<UL>
<BR>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
maintain an Audit Committee and Compensation Committee of the Board, each with three members, and to appoint one director to serve on each Committee
nominated by the holders of 80% of the shares owned by the Institutional Investors (Mr.&nbsp;McPhee). </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>The
Voting Agreement also provides that none of its parties will sell, transfer, pledge, grant any option for, or otherwise dispose of any of their shares of company stock except in compliance with
the Voting Agreement. Following the closing of the financing, Mr.&nbsp;McPhee was appointed to the Photogen Board of Directors in accordance with our bylaws. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>18</FONT></P>

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<P><FONT SIZE=2><A
NAME="page_dk2778_1_19"> </A> </FONT> <FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a condition to the closing of the financing transaction: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>All
of our Series&nbsp;B Convertible Preferred Stock (the "Series&nbsp;B Preferred Stock") was converted into common stock at the initial closing of the
financing transaction. In exchange for this conversion we agreed that the conversion ratio of the Series&nbsp;B Preferred Stock would change from 1.44703 (the conversion ratio after taking into
consideration all issuances of common stock before the institutional financing) to 4.25. The result was that all of the Series&nbsp;B Preferred Stock was converted into a total of approximately
422,316 shares of common stock; the Series&nbsp;B Preferred Stock is no longer outstanding, nor is there any liquidation preference associated with the Series&nbsp;B Preferred Stock.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>All
of the outstanding principal and accrued interest under the Elan line of credit was converted into a total of 128,437 shares of our common stock. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>One-for-Four Reverse Stock Split  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the closing of the financing transaction, we were required to make a one-for-four reverse stock split of our
outstanding common stock. The reverse split was accomplished by amending our Articles of Incorporation. The reverse split was effective in November, 2002. </FONT></P>

<P><FONT SIZE=2><B>Amendment of the 2000 Long Term Incentive Compensation Plan  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We adopted the 2000 Long Term Incentive Compensation Plan (the "2000 Plan") at our annual meeting of stockholders held in May, 2000. As of July&nbsp;15, 2002,
500,000 shares were reserved for issuance under the 2000 Plan and options covering 133,750 of these shares of common stock had been granted. Our Board of Directors believed that the availability of
additional options to purchase common stock was necessary to enable us to continue to provide our key employees with equity ownership as an incentive to contribute to our success. Also, increasing the
number of shares subject to the 2000 Plan was a condition to the closing of the institutional financing required by the Institutional Investors. Thus, our Compensation Committee voted to amend the
2000 Plan to increase the shares covered by the 2000 Plan by 4,068,750 shares from 500,000 to 4,568,750; and to modify the definition of "cause" in the 2000 Plan to coordinate with employment
agreements. The stockholders approved the amendment of the 2000 Plan to increase the aggregate number of shares of common stock issuable
under the 2000 Plan from 500,000 to 4,568,750 and approved the amendment of the definition of the term "cause" at our annual meeting of the stockholders held on October&nbsp;31, 2002. In addition,
the Compensation Committee approved a reduction in the shares reserved under our Senior Executive Long Term Incentive Compensation Plan by 250,000 shares (the total number reserved is now capped at
1,000,000 shares which was effective concurrently with the increase under the 2000&nbsp;Plan). </FONT></P>

<P><FONT SIZE=2><B>Elan Agreement with the Institutional Investors  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are parties to a joint venture with affiliates of Elan to develop lymphography technologies carried out through Sentigen,&nbsp;Ltd. As part of the joint
venture arrangements, among other things, we issued EIS (i)&nbsp;115,385 shares of our common stock and a warrant to acquire additional shares of common stock, (ii)&nbsp;12,015 shares of our
Series&nbsp;A Preferred Stock, and (iii)&nbsp;a convertible note in the original principal amount of $4,806,000. After issuance, the Series&nbsp;A Preferred Stock was transferred to Elan
Pharmaceutical Investments II,&nbsp;Ltd. ("EPI"). The principal and interest outstanding under the promissory note ($3,082,487.30) were converted into 128,437 shares of our common stock in
connection with the November, 2002 financing. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Certificate of Designations, Rights and Preferences (the "Certificate of Designations") of the Series&nbsp;A Preferred A Preferred Stock provides that upon liquidation, dissolution
or winding up of the company (whether voluntary or involuntary), the holder of the Series&nbsp;A Preferred Stock is entitled to a liquidation preference (the "Series&nbsp;A Liquidation
Preference") of cash or other property out of funds </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>19</FONT></P>

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<P><FONT SIZE=2>
legally available for distribution to our stockholders, before any distribution is made to the holders of common stock or other securities ranking junior to the Series&nbsp;A Preferred Stock. The
amount of the Series&nbsp;A Liquidation Preference is $1,000 per share. As of April&nbsp;20, 2003, the total Series&nbsp;A Liquidation Preference (including accrued but unpaid dividends
in-kind) was $15,285,440. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One
of the conditions to the closing of the financing transaction was that the holder of our Series&nbsp;A Preferred Stock amend the Certificate of Designations to eliminate the
Series&nbsp;A Liquidation Preference. In consideration of eliminating the Series&nbsp;A Liquidation Preference, the Series&nbsp;A conversion price would have been lowered to $12.00 from $84.68
per share. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Immediately
before our 2002 annual meeting of stockholders, we were informed that the holder of the Series&nbsp;A Preferred Stock could not proceed with these amendments to the terms
of the Series&nbsp;A Preferred Stock. To induce the Institutional Investors to proceed with the closing of the financing, on November&nbsp;12, 2002, Elan entered into an agreement (the "Elan
Agreement") with the Institutional Investors. The Elan Agreement provides that Elan will pay the Institutional Investors an amount in cash (or the fair market value of other property) distributed to
the holder of the Series&nbsp;A Preferred Stock on account of the Series&nbsp;A Liquidation Preference that, in the absence of the Series&nbsp;A Liquidation Preference would have been paid to
those Institutional Investors in accordance with applicable law, up to a maximum of $16,000,000. Only the Institutional Investors are beneficiaries of the Elan Agreement. The Elan Agreement was
ratified, adopted and approved by the Photogen common stockholders on
January&nbsp;24, 2003. The Series&nbsp;A Liquidation Preference remains in effect and the conversion price for the Series&nbsp;A Preferred Stock is still $84.68 per share. </FONT></P>


<P><FONT SIZE=2><B>Potential Acquisition of Certain Assets of Alliance Pharmaceutical Corp.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;21, 2002, we executed a term sheet with Alliance giving us an exclusive option to acquire the </FONT> <FONT SIZE=2><I>Imagent</I></FONT><FONT SIZE=2> business.
</FONT><FONT SIZE=2><I>Imagent&reg; </I></FONT><FONT SIZE=2>is Alliance's ultrasound contrast agent that was approved by the
FDA for marketing in the U.S. in June, 2002. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
acquisition is subject to completion of due diligence, negotiation of definitive agreements and other contingencies, including our obtaining financing for the acquisition. Under
certain circumstances, if the acquisition does not occur, Alliance may be required to pay a break-up fee to us. The financing structure contemplated by the term sheet includes our
providing bridge financing for </FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> activities prior to the acquisition, our payment to Alliance of a cash payment and Photogen common
stock at closing and future royalty payments based upon product sales. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> is an intravenous contrast agent for use with ultrasound imaging equipment to improve visualization of blood vessels
for better diagnosis of disease and assessment of organ function. </FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> consists of perfluorochemical-based "microbubbles" that reflect
ultrasound signals strongly in the bloodstream and thereby enhance ultrasound images). The initial indication is for use in patients with suboptimal echocardiograms to opacify the left ventricular
chamber and to improve the delineation of the left ventricular endocardial border. Follow-on indications, if approved by the FDA, potentially include use for body imaging for detection of
cancer in solid organs (liver, kidney, prostate, etc.), as well as for perfusion (i.e., the measurement of blood flow). Additional clinical studies are planned by Alliance to support these additional
indications. Currently, </FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> qualifies for reimbursement by the Centers for Medicare and Medicaid Services in all medical settings for
cardiology at rates ranging from $95-$150 per vial. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
March&nbsp;20, 2003, we have provided bridge financing to Alliance of an aggregate of $2,458,000 evidenced by the Alliance Notes issued pursuant to the Note Purchase Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Together
with any other holders of notes issued pursuant to the Note Purchase Agreement, we have liens on certain of the assets of Alliance. Our lien on the </FONT> <FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2>-related assets is subordinate in priority
to liens held by Xmark Fund, L.P. and Xmark Fund,&nbsp;Ltd. As of March&nbsp;31,
2003, there was </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>20</FONT></P>

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<P><FONT SIZE=2>
approximately $4,750,000 of debt outstanding subject to the Xmark liens. The collateral covered by the prior Xmark liens includes: intellectual property, license rights, accounts, contract rights and
general intangibles arising under or relating to license rights and certain other contracts, all equipment located at Alliance's San Diego manufacturing facility, the approved new drug application
relating to the </FONT><FONT SIZE=2><I>Imagent&reg; </I></FONT><FONT SIZE=2>business, all cash held as cash collateral, and all inventory related to the </FONT> <FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> business. Our
lien on the assets related to Alliance's Oxygent product is subordinate to a lien held by PFC Therapeutics, LLC ("PFC"). PFC is a joint venture between Alliance and Baxter Healthcare Corporation. The
collateral covered by the prior PFC lien includes: intellectual property, income, royalties and payments related to Alliance's Oxygent product. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
other liens on the assets of Alliance are first priority liens and give us, together with any other noteholders under the Note Purchase Agreement, a security interest in all
equipment, inventory, goods, accounts, general intangibles, fixtures, documents, deposit accounts, instruments and investment properties, proceeds not covered by the Xmark and PFC prior liens. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Alliance
has the right to make payments of interest under the Alliance Notes in shares of its common stock. We have the right to convert the outstanding principal and interest under the
Alliance Notes into shares of Alliance common stock at the conversion price of $0.35 per share. Any shares of Alliance common stock we receive in lieu of cash interest payments may have a value less
than the cash that we would otherwise be owed. Any shares of Alliance common stock that we receive from Alliance will be restricted securities and subject to Rule&nbsp;144 trading restrictions. We
have certain demand and piggyback registration rights with respect to any shares of Alliance common stock that we receive under the terms of the Note Purchase Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
</FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> business of Alliance we may acquire includes: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2>, an FDA-approved product with an expected launch in the third quarter of
2003;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>an
FDA-approved manufacturing facility;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>$2&nbsp;million,
in sales value, of inventory;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
right to hire a 45-person operating organization; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>a
portfolio of intellectual property in imaging technology and ultrasound imaging contrast agents, including over 30 patents. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Alliance
has a worldwide development and commercialization agreement for </FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> with Schering that was amended in February,
2002 to give Alliance exclusive rights to market the product in the U.S. until February, 2007, with Schering to be paid a nominal royalty on such sales. Alliance may also obtain exclusive rights to
market the product internationally in exchange for the payment of additional
royalties to Schering. At the expiration of the period, Alliance has the right to pay all of any remaining royalty obligation to Schering and thus retain all rights to the product on a worldwide
basis, or alternatively, to allow Schering the opportunity to obtain co-promotion rights along with Alliance. It is anticipated that the Schering agreement would be assigned to us if we
consummate the acquisition of the </FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> business. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
ability to consummate the acquisition of the Alliance assets is subject, among other conditions, to our ability to raise funds for the acquisition. We are seeking to raise $15 to
$20&nbsp;million through the sale of our common stock or other securities in a private placement to fund the closing date cash payment for the acquisition of the </FONT> <FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> business and to provide
working capital for future operating expenses. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
exclusive option to acquire the medical imaging assets of Alliance expired on April&nbsp;19, 2003 and the extension thereof is currently being negotiated. If we obtain the
necessary financing prior to the expiration of the exclusive option we intend to proceed to close the transaction, subject to </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>21</FONT></P>

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<P><FONT SIZE=2>
Photogen shareholder approval of the issuance of additional shares of our common stock in connection with the financing and other conditions. We are in active discussions with several financing
sources, but we cannot give assurances that we will obtain the necessary financing. There can be no assurance that: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>we
will be able to obtain an extension of our exclusive option on acceptable terms;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Alliance
will be in a financial position to repay us in full the outstanding amounts due under the terms of the Alliance Note if we do not consummate a
transaction; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Alliance's
employees will agree to become employees of Photogen if we consummate a transaction with Alliance and offer employment to those employees or that
the </FONT><FONT SIZE=2><I>Imagent&reg;</I></FONT><FONT SIZE=2> business will be profitable to us. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>DEVELOPMENT AND COMMERCIALIZATION STRATEGY  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our overall strategy is to leverage our proprietary technologies through contractual collaborations with third parties. In particular, we plan to: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Utilize
the company as a platform for the acquisition and/or licensing of technologies in related fields.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Conduct
preclinical research studies of our products using third party laboratories and/or clinicians to conduct preclinical trials. We intend to use the
expertise of these third party clinicians to collect data necessary to obtain IND's (an Investigational New Drug application with the FDA) required to begin human trials.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Utilize
our clinical development team and contractual collaborative arrangements with third parties to access the skills and resources required to design,
test, obtain regulatory approval and manufacture our potential products.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Market
potential products through the use of an internal sales force or strategic or distribution collaborations as determined by the specific
characteristics of each product application. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently do not generate any revenues from operations. If we develop a saleable product, we expect to generate revenues from product sales or licensing fees and royalties. Currently,
we have not developed any products that are available to manufacture or sell to the public nor do we have a pricing structure for any potential products; however, we have an exclusive option to
acquire </FONT><FONT SIZE=2><I>Imagent</I></FONT><FONT SIZE=2>&reg; from Alliance, which is expected to be ready to launch for sale to the public in the third quarter of 2003 and we may
generate revenues from those sales. See "Risk Factor&#151;We are a development stage company, we have conducted only limited studies on our products in development and we do not have any
revenues from sales," above. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
ability to develop and manufacture any product successfully is subject to numerous contingencies and uncertainties, including certain "Risk Factors" described below. Our objectives,
business strategy and product development efforts are subject to change based on numerous factors, including the results of preclinical and clinical testing, the availability of suitable collaborative
relationships, the nature of competition, regulatory requirements and the availability of capital. The description of our business and business strategy contains forward-looking statements that should
be read in conjunction with the "Risk Factors" described above. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>22</FONT></P>

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<P><FONT SIZE=2><A
NAME="page_dm2778_1_23"> </A> </FONT> <FONT SIZE=2><B>PATENTS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are continuing to pursue patent protection for our proprietary technologies with the U.S. Patent and Trademark Office and in various foreign jurisdictions. We
plan to prosecute, assert and defend our patent rights whenever appropriate. However, securing patent protection does not necessarily assure us of competitive success. See "Risk Factors&#151;If
we do not obtain and maintain patent or other protection of our core technologies (namely PH-50 for cardiovascular imaging and N1177 for our lymphography materials and methods), we may
have difficulty commercializing products using these technologies," above. We currently own two patents issued by the U.S. Patent and Trademark Office and sixteen patents issued in various foreign
jurisdiction and that are summarized generally below: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Method
of diagnosing disease of the lymph nodes through indirect lymphography (U.S. Patent No.&nbsp;5,114,703)
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Method
of diagnosing disease of the lymph nodes through indirect lymphography using ultrasound or MRI (U.S. Patent No.&nbsp;5,496,536) </FONT></DD></DL>
<UL>

<P><FONT SIZE=2>These
patents expire on May&nbsp;30, 2009 and March&nbsp;15, 2013, respectively. </FONT></P>

</UL>
</UL>

<P><FONT SIZE=2>We
currently have two patent applications pending in the U.S. and one application filed under the Patent Cooperation Treaty ("PCT") which are directed to the use of nanoparticulates including
PH-50 for cardiovascular imaging and for delivery of pharmacologically active substances. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have an exclusive license (subject to certain limitations) from Massachusetts General Hospital and Nycomed Imaging AS for the exclusive world-wide right to make, market,
distribute and sell products using (i)&nbsp;the subject matter covered in pending U.S. and foreign patent applications relating to the research, development, manufacture and commercialization of
diagnostic imaging agents for medical location, treatment and diagnosis of tumors and other diseased tissues or other material and (ii)&nbsp;the patent rights related to N1177 in the research,
development, manufacture and commercialization of human ethical pharmaceutical products containing the diagnostic imaging compound N1177. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, through our joint venture with affiliates of Elan, we have granted Sentigen a license of certain methods we had previously acquired from Alliance and a sublicense of our
MGH/Nycomed license for use in the research, development, manufacture and commercialization of nanoparticulate x-ray, CT and/or MRI diagnostic imaging agents using radio-opaque molecules
containing iodine that passively target lymph nodes involved in a diseased state following parenteral administration to a mammal to locate, diagnose and/or treat cancer and/or other diseases. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are continuing to pursue patent protection for our other proprietary technologies with the U.S. Patent and Trademark Office, under the Patent Cooperation Treaty and in various foreign
jurisdictions. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some
of our patented or licensed technology arose from research that was partially funded by the U.S. Government ("Government"). As with other entities whose research is sponsored in any
manner by the Government, certain patents that we own or license are subject to Confirmatory Licenses in favor of the Government, as required by applicable federal regulations. These regulations
require us or the patent owner to agree to convey to the Government, upon the Government's request, rights in the technology if we decide not to continue prosecution of the patent applications or if
the patent owner does not wish to retain title to the inventions covered in the patents. The Government also retains certain "march in rights" that permit the Government to use the technology under
certain circumstances, including if that action is necessary because we or the patent owner have not taken or are not expected to take effective steps to achieve practical application of the
inventions; it is necessary to alleviate health or safety needs not being met by us or the patent owner; or to meet the requirements for public use specified in certain federal regulations and those
requirements are not </FONT></P>

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being met by us or the patent owner. We intend to prosecute patent applications and in other respects develop patents we own so that the Government will not exercise its rights under these
Confirmatory Licenses. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"Photogen"
is a trademark of Photogen. We have filed an application for registration of the mark Photogen in the U.S. This application is pending. All other trademarks or trade names
used in this Registration Statement are trademarks or trade names of their respective owners. </FONT></P>


<P><FONT SIZE=2><B>GOVERNMENT REGULATIONS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the products we currently contemplate developing require approval by the FDA prior to sales being made within the U.S. and by comparable foreign agencies
prior to sales being made outside the U.S. The FDA and comparable regulatory agencies impose substantial requirements on the manufacturing and marketing of pharmaceutical products and medical devices.
These agencies and other entities extensively regulate, among other things, research and development activities and the testing, manufacturing, quality control, safety, effectiveness, labeling,
storage, record keeping, approval, advertising and promotion of our proposed products. See "Risk Factors&#151;Our proposed products are
subject to extensive testing and government approval, and we may not obtain the approvals necessary to sell our proposed products," above. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
regulatory process required by the FDA through which our products must successfully pass before they may be marketed in the U.S. generally involves the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Preclinical
laboratory and animal testing;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Submission
of an application that must become effective before clinical trials may begin;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Adequate
and well-controlled human clinical trials to establish the safety and efficacy of the product for its intended indication; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>FDA
approval of the application to market a given product for a given indication. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
imaging and pharmaceutical products, preclinical tests include laboratory evaluation of the product, its chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. Where appropriate (for example, for human disease indications for which there exist inadequate animal models), we will attempt to obtain preliminary data
concerning safety and efficacy of proposed products using carefully designed human pilot studies. We will require sponsored work to be conducted in compliance with pertinent local and international
regulatory requirements, including those providing for Institutional Review Board approval, national governing agency approval and patient informed consent, using protocols consistent with ethical
principles stated in the Declaration of Helsinki and other internationally recognized standards. We expect any pilot studies to be conducted outside the U.S.; but if any are conducted in the U.S.,
they will comply with applicable FDA regulations. Data obtained through pilot studies will allow us to make more informed decisions concerning possible expansion into traditional
FDA-regulated clinical trials. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the FDA is satisfied with the results and data from preclinical tests, it will authorize human clinical trials. Human clinical trials are typically conducted in three sequential
phases, which may overlap. Each of the three phases involves testing and studying specific aspects of the effects of the pharmaceutical on human subjects, including testing for safety, dosage
tolerance, side effects, absorption, metabolism, distribution, excretion and clinical efficacy. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Data
from preclinical and clinical trials are submitted to the FDA in an NDA for marketing approval and to foreign regulatory authorities under applicable requirements. Preparing an NDA
or foreign application involves considerable data collection, verification, analyses and expense, and there can be
no assurance that the applicable regulatory authority will accept the application or grant an approval on a timely basis, if at all. The marketing of pharmaceuticals in the U.S. may not begin </FONT></P>

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without FDA approval. The approval process is affected by a number of factors, including primarily the safety and efficacy demonstrated in clinical trials and the severity of the disease. Regulatory
authorities may deny an application in their sole discretion, if they determine that applicable regulatory criteria have not been satisfied or if additional testing or information is required. One of
the conditions for initial marketing approval, as well as continued post-approval marketing, is that a prospective manufacturer's quality control and manufacturing procedures conform to
the GMP regulations of the regulatory authority. In complying with these regulations, a manufacturer must continue to expend time, money and effort in the area of production, quality control and
quality assurance to ensure full compliance. Manufacturing establishments, both foreign and domestic, also are subject to inspections by or under the authority of the FDA and by other federal, state,
local or foreign agencies. Discovery of previously unknown problems with a product or manufacturer may result in restrictions on such product or manufacturer, including withdrawal of the product from
the market. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have established a core clinical development team and have been working with outside regulatory consultants to assist us in developing product-specific development and approval
strategies, preparing the required submittals, guiding us through the regulatory process, and providing input to the design and site selection of human clinical studies. The testing and approval
process requires substantial time, effort and financial resources, and we may not obtain FDA approval on a timely basis, if at all. Success in preclinical or early-stage clinical trials does not
assure success in later stage clinical trials. The FDA or the research institution sponsoring the trials may suspend clinical trials or may not permit trials to advance from one phase to another at
any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Once issued, the FDA may withdraw a product approval if we do not
comply with pertinent regulatory requirements and standards or if problems occur after the product reaches the market. If the FDA grants approval of a product, the approval may impose limitations,
including limits on the indicated uses for which we may market a product. In addition, the FDA may require additional testing and surveillance programs to monitor the safety and/or effectiveness of
approved products that have been commercialized, and the agency has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.
Further, later discovery of previously unknown problems with a product may result in restrictions on the product, including its withdrawal from the market. Marketing our products abroad will require
similar regulatory approvals by equivalent national authorities and is subject to similar risks. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the ordinary course of business, we must also comply with a variety of other federal and state governmental regulations. These regulations impose, among other things, standards of
conduct, record keeping, labeling and reporting. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Specific
regulations affecting our current and proposed operations include: environmental-type discharge requirements, good laboratory practices governing animal testing,
good manufacturing practices regarding the manufacture of drugs and other FDA-regulated products, animal care and use regulations, laws and regulations relating to labor, and required
general business practices. We do not currently anticipate that the cost of compliance in these areas, other than obtaining FDA approval, will present a major obstacle to achieving our goals. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Another
area of regulation that will impact our business is the recent developments in health care reimbursement and delivery practices as a means to better control health care costs.
See "Risk Factors&#151;Changes in health care reimbursement policies or legislation may make it difficult for patients to use or receive reimbursement for using our products, which could reduce
our revenues," above. </FONT></P>

<P><FONT SIZE=2><B>COMPETITION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The industry in which we operate is intensely competitive, and subject to significant change with respect to technology for the diagnosis and treatment of
disease. Existing or future pharmaceutical and </FONT></P>

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device companies, government entities and universities may create developments that accomplish similar functions to our technologies in ways that are less expensive, receive faster regulatory
approval or receive greater market acceptance than our potential products. See "Risk Factors&#151;Our potential markets are extremely competitive, and many of our competitors have greater
resources and have products that are in more advanced stages of development," above. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
competitors have, in general, been in existence for considerably longer than we have, and may have greater capital resources and access to capital; greater internal resources for
activities in research and development, clinical testing and trials, production and distribution; existing collaborative relationships with third parties. See "Risk Factors&#151;We have to rely
on third parties and collaborative relationships for the manufacture, clinical testing and marketing for our proposed products, and it may be difficult to implement our business development plans
without these collaborations," above. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
existing market for radiopaque contrast agents is estimated by Frost&nbsp;&amp; Sullivan to be approximately $3.4&nbsp;billion worldwide. The dominant uses of media, totaling
86&nbsp;percent, are those employed in conjunction with CT or x-ray scans. Approximately half of the usage is in the U.S. Omnipaque&reg;, marketed by a unit of Amersham, is
believed to be the leading agent utilized in coronary angiography. Other companies marketing contrast agents include Mallinckrodt,&nbsp;Inc. (a unit of Tyco International&nbsp;Ltd.), Berlex
Laboratories,&nbsp;Inc. (a subsidiary of Schering) and Bracco. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to CT or x-ray scans, other modalities, such as MRI and ultrasound, are also used by physicians to image internal vasculature and organs. These modalities,
including CT imaging, each have particular attributes that may make their use applicable to any particular situation. </FONT></P>

<P><FONT SIZE=2><B>PROPERTIES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a three-year lease agreement for approximately 6,164 square feet of office space located in New Hope, Pennsylvania. The initial term expires
in August, 2004. The lease also permits us to extend the lease for two additional three-year terms. This space is being used for our executive officer headquarters and for our clinical
development group. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
our knowledge, the property and equipment in our New Hope location are in good condition. In the opinion of management, our interest in this facility is adequately covered by
insurance. </FONT></P>

<P><FONT SIZE=2><B>LEGAL PROCEEDINGS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are not involved in any material pending legal proceedings. </FONT></P>

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<BR></FONT><FONT SIZE=2><B>MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND<BR>  RESULTS OF OPERATIONS    <BR>  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Portions of the discussion in this item contain forward-looking statements and are subject to the Risk Factors described above. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying financial statements have been prepared assuming we are a going concern. Management believes it lacks sufficient working capital to fund operations for the entire fiscal
year ending December&nbsp;31, 2003 without additional debt or equity financing. The 2002 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 this uncertainty. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are an emerging, development-stage biopharmaceutical company focused on developing a novel contrast agent with potential applications (1)&nbsp;as a blood pool agent, to diagnose
diseased tissue in the cardiovascular system and other organs, and (2)&nbsp;to diagnose cancer metastasizing into the lymphatic system. We are the exclusive licensee of a group of proprietary
materials, the lead compound of which is a contrast agent we refer to as PH-50 or N1177. The product designations PH-50 and N1177 refer to the same chemical entity. We
established the two names to distinguish commercialization rights between cardiovascular imaging (and all other indications) (PH-50) to which we retain rights, and the field of
lymphography (N1177), which we licensed to our joint venture (Sentigen,&nbsp;Ltd.) with affiliates of Elan. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December&nbsp;2001, we announced positive preclinical results of PH-50. Based on these studies, the extensive preclinical toxicology and other study work, including the
product's use in approximately 65 patients for lymphography, we shifted the strategic direction of Photogen to focus on the cardiovascular and lymphography applications. We plan to focus our efforts
on these high value opportunities. We have not completed development of any diagnostic product or process at this time and have no revenue from operations. We have entered into a term sheet with
Alliance which gives us the exclusive option to acquire all of the medical imaging assets of Alliance, including </FONT><FONT SIZE=2><I>Imagent</I></FONT><FONT SIZE=2>&reg;, an FDA approved
intravenous contrast agent for use with ultrasound imaging equipment. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of April&nbsp;8, 2002, we entered into a credit facility that provided us with a $2,500,000 revolving line of credit, bearing interest at 4.65%, for a period of five years. The loan
was secured by a lien on all of our assets. The amount outstanding under the credit facility ($2,500,000) was converted into our
common stock at $1.08 per share on November&nbsp;12, 2002. In aggregate, from November&nbsp;12, 2002 through January&nbsp;2, 2003, we consummated the closings of a financing in which we sold
11,165,651 shares of our common stock to a group of institutional investors and individual accredited investors at $1.08 per share, for an aggregate of $12,058,902, including the above conversion of
$2.5&nbsp;million of debt outstanding under the revolving credit line. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Without
additional financing we may not have sufficient cash resources for our current commitments beyond the third quarter of 2003 (depending on the pace of our spending for preclinical
and clinical testing and other commitments, which, to an extent, we can adjust to preserve cash). We will need substantial additional financing for our research, clinical testing, product development
and marketing programs. We cannot accurately estimate the amount of additional financing required; however, the amount could be an additional $30&nbsp;million or more over the next several years. In
particular, we are currently seeking to raise $15 to $20&nbsp;million to acquire assets from Alliance through the sale of stock to accredited investors. See "Risk Factors&#151;We must raise
additional financing in the future and our inability to do so will prevent us from implementing our business plan," above. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, through March&nbsp;20, 2003, we have loaned Alliance an aggregate of $2,458,000 evidenced by the Alliance Notes. Together with any other holders of notes issued pursuant
to the Note Purchase Agreement, we have liens on certain of the assets of Alliance. Our lien on the </FONT></P>

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<P><FONT SIZE=2><I> Imagent&reg;</I></FONT><FONT SIZE=2>-related assets is subordinate in priority to liens held by Xmark Fund, L.P. and Xmark Fund,&nbsp;Ltd. As of March&nbsp;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 by PFC. Our other liens on the assets of Alliance are first
priority liens. Alliance has the right to make payments of interest under the Alliance Notes in shares of its common stock. We have the right to convert the outstanding principal and interest under
the Alliance Notes into shares of Alliance common stock at the conversion price of $0.35 per share. Any shares of Alliance common stock we receive in lieu of cash interest payments may have a value
less than the cash that we would otherwise be owed. Any shares of Alliance common stock that we receive from Alliance will be restricted securities and subject to Rule&nbsp;144 trading restrictions.
We have certain demand and piggyback registration rights with respect to any shares of Alliance common stock that we receive under the terms of the Note Purchase Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2002, we recorded $1,255,000 of notes receivable in connection with advances that we made to Alliance in exchange for the Alliance Notes. As described above,
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,&nbsp;Ltd. and PFC. Based upon our security interest in the
Alliance assets and the estimated value of those assets, management believes that a reserve for the value of the notes receivable is not currently necessary. However, 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. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
operate with a small staff of managers to oversee and direct third party contractors and perform administrative functions. We contract with third party consultants having expertise in
clinical development and regulatory matters to supplement our internal capabilities. We also contract with third
party research laboratories, contract research organizations and manufacturers for clinical material supplies and the management of clinical trials. We also contract with academic and other
institutions to conduct specified research projects. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect that our quarterly and annual results of operations will fluctuate based on several factors including, the timing and amount of expenses involved in conducting our research
programs, particularly the conduct of clinical trials, the cost of clinical material used in those trials and required for compliance with FDA regulations and the amount, if any, of fees, milestone
payments and research support payments received from potential strategic partners. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
consider our investment in the joint venture with affiliates of Elan to be subject to a significant estimate. The carrying value of our 80.1% equity interest in Sentigen,&nbsp;Ltd.,
the joint venture entity, plus advances to Sentigen,&nbsp;Ltd., at December&nbsp;31, 2002 totaled $8,192,452. Sentigen's management reviewed its financial projections and has concluded that given
delays in the development of N1177, resulting from capital constraints, the carrying value of the intangible assets in the joint venture should be reduced by $2,500,000. The assumptions underlying the
financial forecasts were based on currently available information, including estimates of development costs, pricing, operating expenses and market sizes and penetration. These estimates may change
and any such changes may impact future estimates of appropriate carrying values. Currently, we do not believe any further impairment to our investment is necessary. </FONT></P>

<P><FONT SIZE=2><B>Results of Operations  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our efforts have been focused on the development and clinical testing of diagnostic products. To date, we have not generated revenues from the sale of any
proposed diagnostic products or other operations. Net loss applicable to common shareholders (after preferred dividends) was $13,491,813, $12,666,771 and $1,649,604 for the years ended
December&nbsp;31, 2000, 2001 and 2002, respectively, and </FONT></P>

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our cumulative losses since inception, including "in-kind" preferred stock and beneficial conversion dividends totaling $7,646,229, are approximately $36,391,423. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
inception, Photogen had been developing products for both therapeutic and medical imaging applications. As one of a series of transactions on November&nbsp;12, 2002, we split off
our therapeutic business to certain founding shareholders. Accordingly, the expenses associated with that business have been reclassified as discontinued operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
and development expenses for the years ended December&nbsp;31, 2000, 2001 and 2002 were $1,665,450, $437,958 and $1,227,897, respectively. These expenses include personnel
costs, fees and other compensation paid to outside consultants, and costs associated with conducting preclinical studies and manufacturing product to be used in these studies. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
expenses in 2001 decreased by $1,227,492 to $437,958. The reduction was due principally to lower expense levels following the closing of our Westborough, MA facility in
October&nbsp;2000, including the one-time credit in 2000 of $810,000 to Sentigen. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
expenses in 2002 increased by $789,939 to $1,227,897 primarily due to the shift in research spending to the development of PH-50, a product having greater market
potential than N1177. Expenses associated with the development of PH-50 are borne completely by Photogen, whereas expenses associated with the development of N1177 are charged to our joint
venture. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General
and administrative expenses were $5,095,442, $3,220,584 and $4,030,083 for the years ended December&nbsp;31, 2000, 2001, and 2002, respectively. These expenses include costs
associated with obtaining patent protection for our intellectual property, costs associated with administrative personnel and corporate management, the amortization of warrants granted to a service
provider, legal and related expenses and facilities expenses. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2001, general and administrative expenses were reduced by $1,874,858 primarily due to the completion of the amortization of warrants granted to a service provider. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2002, expenses increased by $809,499 to $4,030,083. As part of the November, 2002 restructuring and financing, stock options were granted to the remaining employees of Photogen with
an exercise price equal to the price at which common stock was sold to the new institutional investors. As the exercise price was below the closing price of the company's common stock at the date of
grant, we recorded an expense of approximately $988,000 reflecting the differential between those two prices. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September, 2000, we initiated a restructuring of our clinical development operations. We closed our Westborough, Massachusetts office and delivered notices of material breaches and/or
dissatisfaction pursuant to the employment agreements with three employees who worked there at that time. Clinical development activities formerly carried on in Westborough were assumed by outside
consultants and other Company employees. We initially took a charge against earnings of $597,025 for termination of our office lease and associated expenses and termination costs associated with the
employees at that location. During 2002, we recorded an additional charge of $807,483 all of which was related to the valuation of certain stock options granted to one of the Westborough employees as
part of a settlement of certain litigation. At December&nbsp;31, 2002, none of this charge was remaining. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the fourth quarter of 1999, we entered into a joint venture with affiliates of Elan for the development of N1177, a potential product to identify and diagnose lymph nodes for the
presence of cancer. We own 80.1% of the joint venture entity, Sentigen,&nbsp;Ltd., with the balance owned by Elan. During 2000, 2001, and 2002 we recorded losses from the joint venture of
$1,203,392, $1,952,758 and $3,452,837 respectively. These losses resulted from our share of development expenses incurred in the joint venture by the two participants, including personnel expenses and
costs associated with developing
a manufacturing process, including the purchase of drug substance and other materials. As there have been delays, principally due to capital constraints, on the development of N1177, Sentigen recorded
in </FONT></P>

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2002 a $2.5&nbsp;million charge, of which our 80.1% share is approximately $2.0&nbsp;million, as an impairment to the carrying value of the Sentigen license. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with the joint venture agreement between Photogen and Elan, we charged certain research and development work performed at the Westborough facility to Sentigen. As part of
the restructuring of our clinical development operations, we conducted an internal review of the activities conducted at Westborough during 2000 and concluded that the joint venture should not be
charged for those activities. Accordingly, in the third quarter of 2000, we reversed the billings previously made to Sentigen and recorded the entire amount of research and development costs on our
financial statements. The effect on us was an increase in research and development costs for 2000 of $810,000 less a decrease in the loss from Sentigen of $649,000. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment
income for the years ended December&nbsp;31, 2000, 2001 and 2002 was $417,110, $110,741 and $1,563, respectively. Investment income is generated by the amount of capital in
our investment portfolio prior to it being used to fund our operations and the rate of interest earned on that capital. We invest funds in the investment portfolio in U.S. Government obligations. In
the first quarter of 2000, we raised a total of $5,276,340 from the issuance of Series&nbsp;B Preferred Stock to qualified investors. In the first half of 2001, we received a total of $1,068,723 in
net proceeds of common stock sold under our shelf registration statement that was declared effective in February, 2001. Investment income declined in 2001 due primarily to the decline in the average
balances of our investment portfolio as funds were used to support operations and, to a lesser extent, the general decline in short term interest rates. In 2002, investment income declined to $1,563
as the entire portfolio was used to support operating expenses</FONT><FONT SIZE=2><B>.</B></FONT><FONT SIZE=2> We expect investment income to continue to fluctuate both as the size of the investment
portfolio decreases or increases and as the rate of interest earned by the portfolio varies due to shifts in short term interest rates. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
one of a series of transactions on November&nbsp;12, 2002, we split off our therapeutic business to certain founding shareholders. Accordingly, the expenses associated with that
business have been reclassified as discontinued operations. Our therapeutic business had been focused on the development of certain photodynamic therapy products, in particular a compound we call
PH-10. In the years ended December&nbsp;31, 2000, 2001 and 2002, we incurred losses related to these operations of $2,642,863, $2,909,820 and $1,496,430, respectively. On
November&nbsp;12, 2002 this business was split off to certain founding shareholders in exchange for all of their 52.9% ownership interest in Photogen resulting in a gain from the split off of
$11,779,752 based upon the market value of our common stock on that date, net of the net assets that were split off. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases
of equipment and leasehold improvements for the years ended December&nbsp;31, 2000, 2001 and 2002 were $516,186, $45,938 and $0, respectively. These purchases were primarily
for the acquisition of laboratory and other equipment necessary to conduct pre-clinical and clinical studies and leasehold improvements in the Knoxville and Westborough offices. During the
next twelve months we expect capital expenditures for equipment to be insignificant. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2001, as a result of the closing of the Westborough facility and the shift in the research priorities, we determined that certain equipment we were leasing would no longer be
useful in our research. Accordingly, we recorded provisions for future lease payments totaling $1,264,208 representing the remaining lease obligations. While we will pursue opportunities to sublease
or otherwise mitigate these obligations, there can be no assurance of any success in this regard. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
had two series of convertible preferred stock outstanding: Series&nbsp;A, issued in October&nbsp;1999 and Series&nbsp;B Preferred Stock, issued in February&nbsp;2000. The
holder of Series&nbsp;A Preferred Stock is entitled to a mandatory, cumulative, semi-annual payment-in-kind dividend of 7% (i.e., 0.07 additional shares of
Series&nbsp;A Preferred Stock). On November&nbsp;12, 2002, the holders of Series&nbsp;B Preferred Stock converted all of their issued and outstanding shares (including accrued and unpaid
dividends) for shares of our common stock at an exchange rate of 4.25 (pre-reverse split) shares of common for each share of </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>30</FONT></P>

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<P><FONT SIZE=2>
Series&nbsp;B Preferred Stock. Additionally, the terms of the Series&nbsp;A Preferred Stock and the Series&nbsp;B Preferred Stock create additional preferred returns for the holders. The
Series&nbsp;A Preferred Stock was issued with detachable warrants. The value allocated to those warrants caused the preferred shareholders to receive an additional return. That additional return has
been amortized over the period from issuance through October&nbsp;2001, when the stock was first convertible. The additional return related to the Series&nbsp;A Preferred Stock recorded was
$480,928 in 2000 and $345,199 in 2001. The Series&nbsp;B Preferred contained beneficial conversion features. Emerging Issues Task Force Issue 98-5, "Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios," requires the issuer to assume that the holder will not convert the instrument until the time of the most beneficial
conversion which would occur after January&nbsp;1, 2002. Using the conversion ratio at January&nbsp;1, 2002 of 1.4 shares of common stock and the stock price at the date of issuance, the maximum
beneficial conversion amount was $2,322,316. This amount was recorded as additional preferred stock dividends over the period from issuance until January&nbsp;1, 2002. As a result of the combination
of the mandatory dividends, the preferential value amortization and, in 2002, deemed dividends for our Series&nbsp;B Preferred Stock associated with the beneficial conversion rates offered to
holders of these instruments as part of our November&nbsp;12, 2002 financing, we recorded preferred stock dividends of $2,704,751, $2,943,755 and $1,997,723 in 2000, 2001 and 2002 for
Series&nbsp;A Preferred Stock and Series&nbsp;B Preferred Stock. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of the above factors, the net loss applicable to common stockholders (after preferred dividends) was $13,491,813, $12,666,771 and $1,649,604 for the years ended
December&nbsp;31, 2000, 2001 and 2002 respectively. Basic and diluted loss per common share was $1.44, $1.33 and $0.16, respectively, for these periods. </FONT></P>


<P><FONT SIZE=2><B>Liquidity; Capital Resources  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, we had cash and cash equivalents totaling approximately $6,090,904. Until November&nbsp;12, 2002 we had $2.0&nbsp;million
available under a $4.8&nbsp;million credit line from Elan under which we could borrow to fund our portion of the losses incurred by the joint venture. Borrowings under this
facility bore interest at 8% per annum, and were either repayable in 2005 or convertible, at Elan's election, into our common stock. On April&nbsp;8, 2002, we entered into a credit facility that
provided us with a $2,500,000 revolving line of credit, bearing interest at 4.65%, for a period of five years. The loan was secured by a lien on all of our assets. In connection with our agreement to
sell shares of our common stock to a group of institutional investors, both the amount outstanding, including accrued and unpaid interest, under the Elan credit line ($3,082,487.30) (at a conversion
rate of $24.00 per share) and the $2,500,000 credit facility (at a conversion rate of $1.08 per share) were converted into shares of our common stock on November&nbsp;12, 2002 and the credit
facilities were cancelled. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
the proceeds of the financing we closed in November and December&nbsp;2002 and January&nbsp;2003, we believe we have sufficient capital to carry out planned activities into the
third quarter of 2003. Our ability to conduct operations beyond that date is entirely dependent on our ability to obtain additional capital. If we raise additional funds by issuing equity securities,
substantial dilution to existing stockholders may result. However, there can be no assurance that such capital will be available under acceptable terms, if at all. See "Risk Factors&#151;We
must raise additional financing in the future and our inability to do so will prevent us from implementing our business development plan," above. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have used, and expect over the next 12&nbsp;months to use the capital available from sales of common stock, for general corporate purposes, including activities related to preparing
for and conducting clinical trials, purchase and preparation of clinical material, conduct of preclinical studies, administrative expenses to support our research and development activities, capital
expenditures and to meet working capital needs. Proceeds from the sale of our common stock to the institutional investors </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>31</FONT></P>

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<P><FONT SIZE=2>
in 2002 must be used for the following purposes (including related general and administrative costs) in the following order or priority, unless otherwise authorized by a majority of our Board: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
seek FDA approval for the use of PH-50 (our cardiovascular diagnostic technology) as a CT contrast agent.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
seek FDA approval for the use of N1177 (being developed through our joint venture with Elan) as a lymphography contrast agent.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
perform pre-clinical exploration of the use of PH-50 to identify vulnerable plaque.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>To
acquire or license compounds to build a product pipeline for the company. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>$1,500,000
of the proceeds raised in our sale of common stock in 2002 will be used in connection with the possible acquisition of certain assets of Alliance. The remaining $1,558,902 raised from
individual
accredited investors in December&nbsp;2002 and January&nbsp;2003 will be used for general corporate purposes, including loans and additional bridge financing to Alliance. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
plan to raise $15 to $20&nbsp;million of capital in order to acquire certain assets of Alliance, including </FONT><FONT SIZE=2><I>Imagent</I></FONT><FONT SIZE=2>&reg; and
to provide the working capital necessary to launch </FONT><FONT SIZE=2><I>Imagent</I></FONT><FONT SIZE=2>&reg; and finance our operations. We engaged Thomas Weisel Partners LLC to assist us
in our efforts to privately place our securities to raise such funds. In addition, we expect to evaluate from time to time the acquisition or license of businesses, technologies or products. The
purchase of any such licenses or technologies would be funded by a portion of any net proceeds of future offerings or the issuance of debt or equity securities specifically for that purpose. We also
expect our use of capital to increase as we conduct further clinical trials. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
only long-term commitment that is not recorded on our financial statements is for our office space in Pennsylvania. Annual rent for this lease, which expires in 2004, is
approximately $190,765. </FONT></P>

<P><FONT SIZE=2><B>Plan of Operation  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes it lacks sufficient working capital to fund operations for the entire fiscal year ending December&nbsp;31, 2003. Therefore, substantial
additional capital resources will be required to fund the ongoing operations related to our research and business development activities. As noted in the report of our independent auditors, the report
includes a paragraph that notes that the company's financial condition raises substantial doubt about its ability to continue as a going concern. We believe there are a number of potential
alternatives available to meet the continuing capital requirements such as public or private financings or collaborative agreements. We are taking continuing actions to reduce our ongoing expenses. If
adequate funds are not available, we will be required to significantly curtail our operating plans and may have to sell or license out significant portions of our technology or potential products. The
2002 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. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the next twelve months, depending on the availability of sufficient capital, we will focus our efforts primarily on the development of PH-50 and N1177 and the possible
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
regulatory bodies and acquire quantities of clinical grade drug formulations of these products. We expect to continue to incur increasing losses for at least the next three years as we intensify
research and development, preclinical and clinical testing and associated regulatory approval activities and engage in or provide for the manufacture and/or sale of any products that we may develop.
If we acquire the medical imaging assets of Alliance, including </FONT><FONT SIZE=2><I>Imagent</I></FONT><FONT SIZE=2>&reg;, we would devote a substantial portion of our efforts to the
marketing, sale and manufacturing of </FONT><FONT SIZE=2><I>Imagent</I></FONT><FONT SIZE=2>&reg;. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>32</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Greater
capital resources would enable us to quicken and expand our research and development activities, and our failure to raise additional capital will (absent a suitable collaborative
agreement providing for a third party to take over these functions) significantly impair or curtail our ability to conduct further research and development activities and our ability to seek
regulatory approval for any possible product resulting from that research. In any event, complete development and commercialization of our technology will require substantial additional funds. See
"Risk Factors&#151;We must raise additional financing in the future and our inability to do so will prevent us from implementing our business plan," above. We are actively seeking to raise $15
to $20&nbsp;million through the sale of our common stock or other securities in a private placement to fund the acquisition of Alliance's medical imaging assets and to provide working capital
necessary to fund our operations. </FONT></P>

<P><FONT SIZE=2><B>Recent Accounting Pronouncements  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2001, the Financial Accounting Standards Board issued SFAS No.&nbsp;144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No.&nbsp;121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," and the accounting and reporting provisions of APB Opinion No.&nbsp;30, "Reporting the Results
of Operations, Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business.
The provisions of SFAS&nbsp;144 are effective for fiscal years beginning after December&nbsp;15, 2001. The company has recorded the split-off of its therapeutic business as a
discontinued operation in accordance with SFAS&nbsp;144. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June&nbsp;2002, the FASB issued Statement No.&nbsp;146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. Examples of costs covered by the standard include lease
termination cost and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance
provided by EITF Issue No.&nbsp;94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) is replaced by this Statement. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December&nbsp;31, 2002. Management does not anticipate that
the adoption of this Statement will have a significant effect on the company's financial statements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November&nbsp;2002, the FASB issued Interpretation No.&nbsp;45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness
of Others" ("Interpretation"). This Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also
clarifies that at the time a Company issues a guarantee, the company must recognize an initial liability for the fair market value of the obligations it assumes under that guarantee and must disclose
that information in its interim and annual financial statements. The initial recognition and measurement provisions of the Interpretation apply on a prospective basis to guarantees issued or modified
after December&nbsp;31, 2002. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January&nbsp;2003, the FASB issued FASB Interpretation No.&nbsp;46, "Consolidation of Variable Interest Entities." The objective of this interpretation is to provide guidance on
how to identify a variable interest entity ("VIE") and determine when the assets, liabilities, noncontrolling interests and results of operations of a VIE need to be included in a company's
consolidated financial statements. A company that holds variable interests in an entity may need to consolidate the entity if the company's interest in the VIE is such that the company will absorb a
majority of the VIE's expected losses and/or receive a majority of the entity's expected residual returns, if they occur. Interpretation No.&nbsp;46 also requires additional disclosures by primary
beneficiaries and other significant variable interest holders. The </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>33</FONT></P>

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<P><FONT SIZE=2>
provisions of this interpretation became effective upon issuance. The company believes that Sentigen will be considered a VIE; however, the company does not expect its accounting for its interest in
Sentigen to change. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December&nbsp;2002, the FASB issued SFAS No.&nbsp;148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS No.&nbsp;148 amends SFAS No.&nbsp;123,
"Accounting for Stock-Based Compensation." SFAS No.&nbsp;148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation and
requires pro forma disclosures of the effect on net income and earnings per share had the fair value method been used to be included in annual and interim reports and disclosure of the effect of the
transition method used if the accounting method was changed, among other things. SFAS No.&nbsp;148 is effective for annual reports of fiscal years beginning after December&nbsp;15, 2002 and
interim reports ending after December&nbsp;15, 2002. The Company plans to continue using the intrinsic value method of accounting for stock-based compensation and, therefore, the new rule will have
no effect on the company's financial condition or results of operations. The Company adopted the new standard related to disclosure effective December&nbsp;15, 2002. </FONT></P>

<P><FONT SIZE=2><B>Quantitative and Qualitative Disclosures about Market Risk  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary market risk that could impact us is the fluctuation in interest rates related to our investments in Government bonds. As our investments all have
short-term maturities, the investment return reflects the current market rates. To date, we have not engaged in any derivative or hedging activities. </FONT></P>

<P><FONT SIZE=2><B>Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been no changes in or disagreements with our accountants regarding accounting and financial disclosure. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>34</FONT></P>

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<BR></FONT><FONT SIZE=2><B>MANAGEMENT    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information as of March&nbsp;30, 2003, regarding our directors and executive officers: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="39%" ALIGN="LEFT"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER"><FONT SIZE=1><B>Age</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="50%" ALIGN="CENTER"><FONT SIZE=1><B>Position</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Taffy J. Williams, Ph.D.(1)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>53</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><FONT SIZE=2>Director, President and Chief Executive Officer</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Robert J. Weinstein, M.D.(1)(3)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>57</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Lester H. McKeever, Jr.(2)(3)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>68</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><FONT SIZE=2>Director, Chairman of the Audit Committee</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Gene Golub(2)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>72</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Alan D. Watson</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>William D. McPhee(1)(2)(3)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>49</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><FONT SIZE=2>Director</FONT></TD>
</TR>
</TABLE></DIV>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Member
of the Executive Committee
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Member
of the Audit Committee
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Member
of the Compensation Committee </FONT></DD></DL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
brief discussion of the business experience of each director during the past five years is set forth below. </FONT></P>

<UL>

<P><FONT SIZE=2><B> Taffy J. Williams, Ph.D.&#151;President, Chief Executive Officer and Director  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Williams has served as President, Chief Executive Officer and a Director of the company since May&nbsp;17, 2000. Prior to joining the company,
Dr.&nbsp;Williams served as CEO and President of PANAX Pharmaceuticals for two and half years and President of InKine Pharmaceuticals for two years. He received his Bachelor of Science in Chemistry
from the University of Notre Dame and his Ph.D. in Chemistry from the University of South Carolina. </FONT></P>

<UL>

<P><FONT SIZE=2><B> Robert J. Weinstein, M.D.&#151;Director  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Weinstein has served as a Director of the company since May&nbsp;16, 1997. He is currently a private investor. During the last five years,
Dr.&nbsp;Weinstein served as Chief Executive Officer of HMO America,&nbsp;Inc. and subsequently held the same position in United HealthCare of Illinois when United HealthCare acquired HMO America
in 1993. On January&nbsp;1, 1996 he became a consultant to United HealthCare Corporation. He received his medical degree from Chicago Medical School and received a B.A. from Hunter College in New
York. </FONT></P>

<UL>

<P><FONT SIZE=2><B> Lester H. McKeever, Jr.&#151;Director  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;McKeever has served as a Director of the company since June&nbsp;17, 1998. Mr.&nbsp;McKeever is Managing Principal of the firm of Washington,
Pittman&nbsp;&amp; McKeever, LLC, a Chicago, Illinois firm of certified public accountants and consultants providing a broad range of professional services, and has held a similar position with that
firm since 1976. Mr.&nbsp;McKeever is a former Chairman of the Federal Reserve Bank of Chicago, a position Mr.&nbsp;McKeever held for three years ending December&nbsp;31, 1999, and he serves as
a director of MBIA Insurance Corp. of Illinois, Worldwide Broadcasting,&nbsp;Inc., People's Energy Corporation, and Printing Specialties,&nbsp;Inc. Mr.&nbsp;McKeever also serves on several
not-for-profit boards and
councils, including the Chicago Urban League (formerly Chairman of the Board), Business Advisory Counsel University of Illinois College of Commerce at Urbana-Champaign, and the Chicago Symphony
Orchestra Association. Mr.&nbsp;McKeever received his B.S. degree in accounting from the University of Illinois at Urbana-Champaign and his J.D. with distinction from the IIT-Chicago
Kent College of Law. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>35</FONT></P>

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<P><FONT SIZE=2><B> Gene Golub&#151;Director  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Golub has served as a Director of the company since May&nbsp;17, 2000. Mr.&nbsp;Golub has also served as Chairman of Golub&nbsp;&amp; Company, a
company he founded in 1961, which with its affiliates has been involved in more than $2&nbsp;billion in real estate transactions. Under Mr.&nbsp;Golub's leadership, the Golub companies have owned,
developed or operated more than 25&nbsp;million square feet of office, residential and mixed-use properties in the United States and abroad. Mr.&nbsp;Golub is active in numerous
Chicago based charitable organizations and was inducted into the Chicago Association of Realtors Hall of Fame in 1999. </FONT></P>

<UL>

<P><FONT SIZE=2><B> William D. McPhee&#151;Director  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;McPhee has served as a Director of the company since November&nbsp;12, 2002. Mr.&nbsp;McPhee received his B.S. degree in pre-med and an
L.L.B. degree in law, both from McGill University. Since 1998, he has been Managing General Partner of Mi3, L.P. where he has been responsible for managing the venture fund. Prior to that, he was
Chief Executive Officer of Praxis Advisors,&nbsp;Inc., a strategy consulting firm. </FONT></P>

<UL>

<P><FONT SIZE=2><B> Alan D. Watson, Ph.D.&#151;Director  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Watson has served as a Director of the company since November&nbsp;12, 2002. Mr.&nbsp;Watson received his B.S. from the University of N.S.W., his
Ph.D. in Chemistry from Australian National University, and his M.B.A. from Northeastern University. Since 2002, Mr.&nbsp;Watson has served as Executive Vice President and Chief Business Officer of
Elixir Pharmaceuticals,&nbsp;Inc. Prior to that, he was the Senior Vice President, Corporate Development of Cubist Pharmaceuticals,&nbsp;Inc. from 1999 to 2002. From 1997 to 1999, he was Senior
Vice President, Licensing and Intellectual Property of Nycomed Amersham plc. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is a seventh directorship which is currently vacant and will remain so until filled by the Board in accordance with the Voting Agreement described in "Recent Transactions-
Financing" above.
Specifically, as part of the institutional financing transaction that closed on November&nbsp;12, 2002, the holders of over 61.9% (on a fully diluted basis) of our common stock entered into the
Voting Agreement. The Voting Agreement requires the parties to vote for certain director nominees. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
recent business experience of our other executive officers and significant employees follows. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Brooks Boveroux</B></FONT><FONT SIZE=2>, age 59, has served as the company's Senior Vice President&#151;Finance, Chief Financial Officer and Treasurer
since August&nbsp;1, 2000. He has served as the company's Secretary since November&nbsp;12, 2002. For the five years prior to joining the company, Mr.&nbsp;Boveroux served as Chief Financial
Officer and Vice President of Investor Relations for The Liposome Company,&nbsp;Inc., Chief Financial Officer of Synergy Pharmaceuticals,&nbsp;Inc. and as a consultant advising corporations in the
area of corporate finance. He is a graduate of Hamilton College and received his Masters of Business Administration in Finance from the Wharton School of the University of Pennsylvania. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Reinhard Koenig, Ph.D., M.D., RAC</B></FONT><FONT SIZE=2>, age 42, has served as the company's Senior Vice President of Medical and Regulatory Affairs since
January&nbsp;4, 2001. He is primarily responsible for regulatory affairs and clinical development activities. From 1996 through 1999, Dr.&nbsp;Koenig held various positions at Collagen
Aesthetics,&nbsp;Inc. including Vice President&#151;Medical Affairs, Vice President&#151;Medical and Regulatory Affairs and Chief Scientific Officer. From 1999 until he joined the
company, Dr.&nbsp;Koenig was a principal in Biosciences Corporation where he provided consulting services in Phase 2 though Phase 4 product development for pharmaceutical drugs, biological and
medical devices. Dr.&nbsp;Koenig received his bachelor and doctorate degrees in Toxicology and Pharmacology at Philipps University in Marburg, Germany. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>36</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
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<A NAME="toc_ds2778_1"> </A>
<BR></FONT><FONT SIZE=2><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT    <BR>  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the approximate beneficial ownership of our Common Stock as of March&nbsp;30, 2003 by directors and executive officers of the
company who have held such position at any time during the 2002 fiscal year, and any person or group known to us to be the owner of more than five percent of our Common Stock. Shares beneficially
owned by the individuals below through family partnerships or other entities they control are included in the number of shares listed in the table below for that individual. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Name and Address<BR>
of Beneficial Owner(1)<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="18%" ALIGN="CENTER"><FONT SIZE=1><B>Shares of Common Stock<BR>
Beneficially Owned(2)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="4%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="16%" ALIGN="CENTER"><FONT SIZE=1><B>Percent of Class<BR>
Outstanding(3)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP"><FONT SIZE=2><B>EXECUTIVE OFFICERS AND DIRECTORS:</B></FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2>Brooks Boveroux</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2>363,180</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2>(4)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2>1.9</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Gene Golub<BR>
625 North Michigan Ave., Ste 2000<BR>
Chicago, IL 60611</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
123,015</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(5)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Reinhard Koenig, Ph.D., M.D.</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
199,844</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(6)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Lester H. McKeever, Jr.<BR>
819 South Wabash Avenue<BR>
Chicago, IL 60605</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
36,250</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(7)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
William D. McPhee<BR>
One Hollis Street, Suite 232<BR>
Wellesley, MA 02482</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
462,963</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(8)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
2.4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Timothy Scott, Ph.D.<BR>
7327 Oak Ridge Highway<BR>
Knoxville, TN 37931</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
0</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(9)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Eric A. Wachter, Ph.D.<BR>
7327 Oak Ridge Highway<BR>
Knoxville, TN 37931</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
0</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(9)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Alan D. Watson, Ph.D.<BR>
One Kendall Square<BR>
Building 1000, Fifth Floor<BR>
Cambridge, MA 02139</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
25,000</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(10)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Robert J. Weinstein, M.D. and Lois Weinstein<BR>
500 Lake Cook Road, Suite 130<BR>
Deerfield, IL 60015</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
4,145,401</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(11)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
21.7</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Taffy J. Williams, Ph.D.</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
1,274,285</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(12)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
6.7</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
All directors and executive officers<BR>
as a group (10 persons)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2><BR>
6,629,937</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><BR>
34.7</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP"><BR><FONT SIZE=2><B>OTHER SHAREHOLDERS:</B></FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Stuart P. Levine<BR>
500 Lake Cook Road, Suite 130<BR>
Deerfield, IL 60015</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
4,098,950</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(11)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
21.4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER"><FONT SIZE=2>37</FONT></P>

<HR NOSHADE>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Mi3 L.P.<BR>
One Hollis Street, Suite 232<BR>
Wellesley, MA 02482</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
462,963</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(13)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
2.4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
MRNA Fund II L.P.<BR>
225 Berkeley Street, Suite 1650<BR>
Boston, MA 02216</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
64,385</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(14)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Oxford Bioscience Partners IV L.P.<BR>
225 Berkeley Street, Suite 1650<BR>
Boston, MA 02216</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
6,481,482</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(15)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
33.9</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Tannebaum, LLC<BR>
875 N. Michigan Avenue<BR>
Suite 2930<BR>
Chicago, IL 60611-1901</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
3,344,045</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"><FONT SIZE=2><BR>(16)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" VALIGN="TOP"><FONT SIZE=2><BR>
17.5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%" VALIGN="TOP"><FONT SIZE=2><BR>
Parties to Voting Agreement(17)<BR>
(6 persons)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2><BR>
11,881,451</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><BR>(17)</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><BR>
62.2</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>Constitutes
one percent or less of the percent of class outstanding.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Unless
otherwise indicated, the address of each person named in the table is c/o: Photogen Technologies,&nbsp;Inc., 140 Union Square Drive, New Hope,
PA 18938.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>With
respect to directors and executive officers, based on information furnished by the director or executive officer listed.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>The
percent of class outstanding includes Common Stock outstanding as of March&nbsp;30, 2003 and the shares subject to options exercisable within
60&nbsp;days of March&nbsp;30, 2003.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD><FONT SIZE=2>Includes
363,180 options exercisable within 60 days of March30, 2003.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD><FONT SIZE=2>Includes
108,015 shares of Common Stock and 15,000 options exercisable within 60 days of March&nbsp;30, 2003.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD><FONT SIZE=2>Includes
21,500 shares of Common Stock and 178,344 options exercisable within 60 days of March&nbsp;30, 2003.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD><FONT SIZE=2>Includes
16,250 shares of Common Stock and 20,000 options exercisable within 60 days of March&nbsp;30, 2003.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(8)</FONT></DT><DD><FONT SIZE=2>Includes
462,963 shares held by Mi3, L.P., which Mr. McPhee may be deemed to control. Mr. McPhee disclaims beneficial ownership of Mi3's shares for all
other purposes.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(9)</FONT></DT><DD><FONT SIZE=2>Pursuant
to the corporate separation which closed on November 12, 2002, the shares held by the Tennessee Stockholders were redeemed by the company and
cancelled. Also, Dr.&nbsp;Wachter resigned as an officer and director of the company and Dr.&nbsp;Scott resigned as an officer on November&nbsp;12, 2002.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(10)</FONT></DT><DD><FONT SIZE=2>Includes
25,000 shares of Common Stock.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(11)</FONT></DT><DD><FONT SIZE=2>Includes
3,344,045 shares held by Tannebaum, LLC, which Dr. Weinstein and Mr. Levine may be deemed to control. Dr. Weinstein and Mr. Levine disclaim
beneficial ownership of Tannebaum, LLC's shares for all other purposes. As of March 31, 2003, Tannebaum Ventures, LLC will be the manager of Tannebaum, LLC and Dr. Weinstein and Mr. Levine will no
longer be deemed to control the shares held by Tannebaum, LLC. Dr. Weinstein and Mr. Levine are parties to the </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>38</FONT></P>

<HR NOSHADE>
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<A NAME="page_ds2778_1_39"> </A>
<UL>

<P><FONT SIZE=2>Voting
Agreement described in footnote 17 below. The shares held by the other parties to the Voting Agreement are not included here </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(12)</FONT></DT><DD><FONT SIZE=2>Includes
4,250 shares of Common Stock and 1,270,035 options exercisable within 60 days of March&nbsp;30, 2003.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(13)</FONT></DT><DD><FONT SIZE=2>Includes
462,963 shares of Common Stock. Note that Mr. McPhee is the President of Mi3 Services L.L.C. which is the general partner of Mi3, L.P. Mi3,
L.P. is a party to the Voting Agreement described in footnote 17 below. The shares held by the other parties to the Voting Agreement are not included here.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(14)</FONT></DT><DD><FONT SIZE=2>Includes
64,385 shares of Common Stock. MRNA Fund II L.P. is a party to the Voting Agreement described in footnote 17 below. The shares held by the
other parties to the Voting Agreement are not included here.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(15)</FONT></DT><DD><FONT SIZE=2>Includes
64,385 shares held by MRNA Fund II L.P., which Oxford Bioscience Partners IV L.P. may be deemed to control. Oxford disclaims beneficial
ownership of such shares for all other purposes. Oxford Bioscience Partners IV L.P. is a party to the Voting Agreement described in footnote 17 below. The shares held by the other parties to the
Voting Agreement are not included here.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(16)</FONT></DT><DD><FONT SIZE=2>Includes
3,344,045 shares of Common Stock. Tannebaum, LLC is a party to the Voting Agreement described in footnote 17 below. The shares held by the
other parties to the Voting Agreement are not included here.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(17)</FONT></DT><DD><FONT SIZE=2>Dr.
Weinstein, Mr. Levine, Mi3, L.P., MRNA Fund II, L.P., Oxford Bioscience Partners IV L.P., and Tannebaum, LLC are parties to the Voting Agreement
described above at page 8. The parties to the Voting Agreement may be deemed to be a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. The provisions
of the Voting Agreement include an agreement by the parties to vote their shares for the election of certain directors nominated by the parties to the Voting Agreement. </FONT></DD></DL>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Compensation Committee Interlocks and Insider Participation.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During the 2002 fiscal year, executive compensation was
administered by the Compensation Committee comprised of three outside directors, Messrs.&nbsp;McKeever and McPhee and Dr.&nbsp;Weinstein. </FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain Relationships and Related Transactions.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We are involved in a joint venture transaction with affiliates of Elan
Corporation, plc ("Elan"). Aidan King (one of our former directors who served during the 2002 fiscal year) is employed as Vice President, Business Development for Elan. That joint venture, called
Sentigen&nbsp;Ltd., is involved in the development of lymphography diagnostic products and is described above under the heading "Sentigen&nbsp;Ltd.&#151;Joint Venture with Elan
Corporation," and in Note&nbsp;3 to our Financial Statements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the 2002 fiscal year, Dr.&nbsp;Weinstein (one of our current directors) was deemed to control Tannebaum, LLC (after March&nbsp;30, 2003, Dr.&nbsp;Weinstein no longer
controls such shares). William McPhee (another one of our current directors) is President of Mi3 Services L.L.C. which is the general partner of Mi3, L.P. Mi3, L.P. purchased shares in the
institutional financing which closed on November&nbsp;12, 2002 and is one of the investors that may receive a benefit under the Agreement (the "Elan Agreement") dated November&nbsp;12, 2002.
Pursuant to the Elan Agreement, Elan will pay the amounts that certain investors otherwise would have received on liquidation of the company if the liquidation preference of the Series&nbsp;A
Preferred Stock had been eliminated. Tannebaum, LLC also acquired shares of our
common stock in the financing which closed on November, 12, 2002 through the conversion of outstanding debt into shares of our common stock. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>39</FONT></P>

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<A NAME="page_ds2778_1_40"> </A>
<BR>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive Compensation.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth compensation we paid to our executive officers (the "Named Officers")
for services rendered us in all capacities during the year ended December&nbsp;31, 2002. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ds2778_summary_compensation_table"> </A>
<A NAME="toc_ds2778_2"> </A>
<BR></FONT><FONT SIZE=2><B>SUMMARY COMPENSATION TABLE    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="105%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="25%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>Annual Compensation</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Long Term Compensation</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="25%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Awards</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Payouts</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="25%" ALIGN="LEFT"><FONT SIZE=1><B>Name and<BR>
Principal Position<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER"><FONT SIZE=1><B>Year</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Salary<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Bonus<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Other<BR>
Annual<BR>
Compen-<BR>
sation<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>Restricted<BR>
Stock<BR>
Award(s)<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Securities<BR>
Underlying<BR>
Options<BR>
(#)(4)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>LTIP<BR>
Payouts<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>All<BR>
Other<BR>
Compen-<BR>
sation<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Taffy J. Williams, Ph.D.(1)<BR>
Director, President and<BR>
Chief Executive Officer</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>2002<BR>
2001<BR>
2000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$<BR>$<BR>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>265,000<BR>
260,000<BR>
265,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$<BR>$<BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>60,000<BR>
30,000<BR>
66,250</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$<BR><BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,233,450<BR>
&#151;<BR>
1,050,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$<BR><BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2><BR>
Brooks Boveroux(1)<BR>
Senior Vice President&#151;<BR>
Finance, Chief Financial<BR>
Officer, Treasurer and<BR>
Secretary</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
2002<BR>
2001<BR>
2000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR>$<BR>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
216,250<BR>
215,000<BR>
215,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR>$<BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
32,250<BR>
32,250<BR>
32,250</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR><BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><BR>
550,875<BR>
&#151;<BR>
312,500</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR><BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2><BR>
Reinhard Koenig, Ph.D., M.D.(1)<BR>
Senior Vice President&#151;<BR>
Medical and Regulatory Affairs</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
2002<BR>
2001<BR>
2000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR>$<BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
280,625<BR>
200,020<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR><BR></FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR><BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><BR>
513,375<BR>
100,000<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR><BR>$<BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
50,000<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR><BR>(2)<BR></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2><BR>
Timothy Scott, Ph.D.(3)<BR>
Senior Scientist,<BR>
Vice President&#151;<BR>
Chief Operating Officer</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
2002<BR>
2001<BR>
2000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR>$<BR>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
86,300<BR>
100,000<BR>
100,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR>$<BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
0<BR>
17,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR><BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR><BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2><BR>
Eric A. Wachter, Ph.D.(3)<BR>
Director, Vice President,<BR>
Secretary, Senior Scientist</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
2002<BR>
2001<BR>
2000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR>$<BR>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
86,300<BR>
100,000<BR>
100,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR>$<BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
0<BR>
11,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR><BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$<BR><BR></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
0<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Drs.
Williams and Koenig and Mr. Boveroux are entitled to severance if their employment is terminated without cause, as discussed below.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Reimbursement
of moving expenses.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Drs.
Scott and Wachter resigned as officers and directors of the company in November, 2002 in connection with the corporate separation transaction.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD><FONT SIZE=2>Reflects
a one-for-four reverse split which occurred in November, 2002. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>40</FONT></P>

<HR NOSHADE>
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<A NAME="page_ds2778_1_41"> </A>

<P><FONT SIZE=2><B>Stock Options.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table contains information concerning the grant of stock options during the 2002 fiscal year under our 1998 and 2000 Long Term Incentive
Compensation Plans to the Named Officers. To date, none of these options have been exercised. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>2002 Stock Option Grants  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER"><FONT SIZE=1><B>Individual Grants</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER"><FONT SIZE=1><B>Number of<BR>
Securities<BR>
Underlying<BR>
Options<BR>
Granted (#)(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>% of Total<BR>
Options<BR>
Granted to<BR>
Employees<BR>
in 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Exercise<BR>
Price<BR>
($/Sh)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Expiration<BR>
Date</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Grant Date<BR>
Present<BR>
Value<BR>
($)(2)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=2>Taffy J. Williams, Ph.D.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,233,450</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>11/12/2012</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,615,820</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=2>Brooks Boveroux</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>550,875</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>22</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>11/12/2012</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>721,646</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=2>Timothy Scott, Ph.D.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>N/A</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>N/A</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>N/A</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=2>Eric Wachter, Ph.D.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>N/A</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>N/A</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>N/A</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="33%"><FONT SIZE=2>Reinhard Koenig, Ph.D., M.D.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>513,375</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>21</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>11/12/2012</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>672,521</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>The
options were granted at an exercise price equal to the purchase price paid by the institutional investors in the institutional financing which closed on November 12, 2002. The
market price of our common stock on the date of the option grants was $2.52. A portion of the options becomes exercisable on various dates in accordance with the terms of the respective Award
Agreements covering the options.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>In
accordance with SEC rules, grant date present value is determined using the Black-Scholes Model. The Black-Scholes Model is a complicated mathematical formula widely used to value
exchange-traded options. However, stock options granted by the company are long-term, non-transferable and subject to vesting restrictions, while exchange-traded options are short-term and can be
exercised or sold immediately in a liquid market. The Black-Scholes Model relies on several key assumptions to estimate the present value of options, including the market price, volatility of, and
dividend yield on, the security underlying the option, the risk-free rate of return on the date of grant and the estimated time period until exercise of the option. The shares subject to the options
granted are identical to the publicly-traded securities of the company except for restrictions on trading. Due to these restrictions the shares subject to the options granted are worth less than their
publicly-traded counterparts. The actual value, if any, that an executive officer may realize will depend on his continued employment through the options vesting period, and the excess of the market
price over the exercise price on the date the option is exercised so that there is no assurance that the value realized by an executive officer will be at or near the value estimated by the
Black-Scholes Model. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>41</FONT></P>

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<P><FONT SIZE=2><A
NAME="page_du2778_1_42"> </A> </FONT></P>

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<P><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information about the Named Officers concerning the exercise of options during the last fiscal year and unexercised options held as of the end of the 2002
fiscal year. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>2002 Option Exercises and Year-End Values  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Number of Securities<BR>
Underlying Unexercised<BR>
Options at<BR>
Year End 2002 (#)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Shares<BR>
Acquired<BR>
On<BR>
Exercise<BR>
(#)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Fair Value of Unexercised<BR>
In-the-Money Options at Year<BR>
End 2002 ($)(1)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="26%" ROWSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Value<BR>
Realized<BR>
($)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>Exercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Unexercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Exercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Unexercisable</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>Taffy J. Williams, Ph.D.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,020,035</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,263,415</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>Brooks Boveroux</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>363,180</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>500,195</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>Timothy Scott, Ph.D.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>Eric A. Wachter, Ph.D.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2>Reinhard Koenig, Ph.D., M.D.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>178,344</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>435,031</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>For
purposes of this table, the "value" of stock options was determined by the difference between the exercise price and $0.99, the closing price for Common Stock on the last business
day of the fiscal year. Shares acquired on exercise of these options are not registered under the Securities Act of 1933 and are not freely saleable except in compliance with exemptions from
registration, including the holding period and other requirements of Rule 144 thereunder. Consequently, the values set forth in the table are only theoretical values and may not accurately represent
actual market value. </FONT></DD></DL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have employment agreements with Drs. Williams and Koenig and with Mr.&nbsp;Boveroux (the employment agreements with Drs. Scott and Wachter were terminated in November, 2002 in
connection with the corporate separation transaction). Each of these employment agreements is terminable at-will and can be terminated by either party at any time with or without cause. In
addition, Drs. Williams and Koenig and Mr.&nbsp;Boveroux are bound by their respective Employee Confidentiality, Inventions and Noncompetition Agreements, as amended (each of these agreements is
referred to as a "Confidentiality Agreement"). Each Confidentiality Agreement provides that while we employ the respective individual and for a period of two years after termination he will not engage
in activities that compete with our business. Each Confidentiality Agreement also requires the respective employee to disclose to our Board of Directors all inventions or other intellectual property
discovered or made by the employee during his employment and twelve months thereafter, if those inventions are related to or useful in our business, or result from duties assigned to that individual
or from the use of any of our assets or facilities. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Drs.
Williams and Koenig and Mr.&nbsp;Boveroux each receive typical health, life and disability insurance benefits that are available to our other salaried employees. These individuals
are also eligible to defer a portion of their salary through our 401(k) plan, but the company did not match or make any contributions to the 401(k) plan during the 2002 fiscal year nor does the
company maintain a pension plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have a consulting agreement with Dr.&nbsp;Watson pursuant to which he provides business and product development services to us. The consulting agreement commenced in November, 2002
and continues on a month-to-month basis (unless terminated earlier by notice or cause). The consulting agreement provides that Dr.&nbsp;Watson will be paid $175 per hour of
service, be reimbursed for all reasonable out-of-pocket expenses, and receive non-qualified stock options to purchase up to ten </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>42</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>
thousand (10,000) shares of the company's Common Stock on February&nbsp;3, 2003 and on January&nbsp;1 of each year so long as the consulting agreement is in effect. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Officers
generally serve at the discretion of the Board of Directors. We do not have any compensatory plans or arrangements resulting from resignation, retirement or any other
termination of an executive officer's employment with us. However, the employment agreements for Drs. Williams and Koenig and Mr.&nbsp;Boveroux each provide for severance in the event we terminate
their employment without cause. Upon termination without cause, Dr.&nbsp;Williams would be entitled to a severance payment equal to one year's salary. If terminated without cause,
Mr.&nbsp;Boveroux and Dr.&nbsp;Koenig would each be entitled to receive six month's salary. </FONT></P>


<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Compliance with Section&nbsp;16(a) of the Exchange Act.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;16(a) of the Securities Exchange Act of 1934, as
amended, requires our executive officers, directors and persons who beneficially own more than 10% of our Common Stock to file initial reports of ownership and changes in ownership with the SEC. Those
persons are required by SEC regulations to furnish us with copies of all Section&nbsp;16(a) forms that they file. To our knowledge, based solely on a review of the copies of those reports furnished
to us during the fiscal year ended December&nbsp;31, 2002, we believe that our executive officers, directors and beneficial owners of more than 10% of our Common Stock complied with all
Section&nbsp;16(a) filing requirements, except as follows: Dr.&nbsp;Weinstein, one of our directors, and Mr.&nbsp;Levine inadvertently failed to timely file Form&nbsp;4s reporting a transfer
of shares from the Theodore Tannebaum Trust (of which they were co-trustees) to Tannebaum, LLC (of which they were co-managers) due to an oversight by company counsel; they
filed Form&nbsp;4s for this transaction on October&nbsp;18, 2002 and the company has modified its reporting compliance procedures to avoid such oversights in the future. </FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in Control Agreements.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In the event of a change in control (as defined in each of the 1998 and 2000 Long Term
Incentive Compensation Plans and the Senior Executive Long Term Incentive Compensation Plan), options granted under those plans accelerate and become fully vested. We have no other arrangements with
the Named Officers concerning compensation payable upon a change of control. Dr.&nbsp;Williams and Mr.&nbsp;Boveroux waived their right to receive a special bonus in connection with
the corporate separation and the institutional financing transactions which closed on November&nbsp;12, 2002 and executed new employment agreements which do not contain a special bonus provision. </FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Director Compensation.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our directors received no specified compensation for serving as directors in 2002. In January, 2003,
our Compensation Committee established new policies for the compensation of Messrs.&nbsp;McKeever and Golub and Dr.&nbsp;Watson. Such policies provided for the award of non-qualified
options to acquire 10,000 shares of Common Stock under our 2000 Plan for each full year of service as a director of the company and for the payment of $1,000 to each of Golub, McKeever and Watson for
each regular or special meeting of the Board held in accordance with the Bylaws of the company that such director attends. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January, 2003, Messrs.&nbsp;McKeever and Golub and Dr.&nbsp;Watson each received an award of non-qualified options to acquire 10,000 shares of Common Stock under our
2000 Plan at an exercise price of $0.93 per share. These options are exercisable on January&nbsp;3, 2004. Dr.&nbsp;Watson also received an additional award of non-qualified options to
acquire 10,000 shares of Common Stock under our 2000 Plan at an exercise price of $2.05 per share in exchange for his consulting services. Currently, Mr.&nbsp;McKeever may exercise options to
acquire 20,000 shares and Mr.&nbsp;Golub may exercise options to acquire 15,000 shares. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January, 2003, our Compensation Committee established new policies for the compensation of Messrs.&nbsp;McKeever and Golub and Dr.&nbsp;Watson. Such policies provided for the
award of non-qualified options to acquire 10,000 shares of Common Stock under our 2000 Plan for each full year of service as </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>43</FONT></P>

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<P><FONT SIZE=2>
a director of the company and for the payment of $1,000 to each of Golub, McKeever and Watson for each regular or special meeting of the Board held in accordance with the Bylaws of the company that
such director attends. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity Compensation Plan Information.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following table gives information about or Common Stock that may be issued upon the
exercise of options under all of our existing equity compensation plans as of December&nbsp;31, 2002. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="34%" ALIGN="LEFT"><FONT SIZE=1><B>Plan Category<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER"><FONT SIZE=1><B>Number of securities<BR>
to be issued upon exercise of outstanding options, warrants and rights<BR>
(a)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted-average exercise price of outstanding options, warrants and rights<BR>
(b)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="23%" ALIGN="CENTER"><FONT SIZE=1><B>Number of securities remaining<BR>
available for future issuance under equity compensation plans (excluding securities reflected in column&nbsp;(a))<BR>
(c)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="34%"><FONT SIZE=2>Equity compensation plans approved by security holders:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>4,144,925</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>14.05</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT"><FONT SIZE=2>1,922,700</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="34%"><FONT SIZE=2>Equity compensation plans not approved by security holders</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>427,431</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>7.94</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have options outstanding under three plans, our 1998 Long Term Incentive Compensation Plan, our Senior Executive Long Term Compensation Plan and the 2000 Plan.
Each of these Plans was approved by the stockholders. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to shares we may issue under the plans approved by the stockholders, we have granted options and warrants to consultants and the placement agent for our Series&nbsp;B
Preferred Stock pursuant to arrangements that were not submitted to stockholders for approval. Each of these grants is on different terms under specific agreements negotiated with each recipient.
Exercise prices range from $1.08 to $84.68 per share, with terms expiring between 2004 and 2010. Each agreement contains anti-dilution features. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;78.7502
of the Nevada General Corporation Law authorizes a corporation to indemnify its directors, officers, employees or other agents in terms sufficiently broad to
permit indemnification (including reimbursement for expenses incurred) under certain circumstances for liabilities arising under the Securities Act. Our articles of incorporation and bylaws provide
indemnification of directors, officers and individuals who serve at the request of the company as a director of another enterprise, to the maximum extent permitted by the Corporation Law. In addition,
we have entered into indemnification agreements with our directors. </FONT></P>

<P><FONT SIZE=2><B>Anti-Takeover Effects of our Articles of Incorporation, Bylaws and the Nevada General Corporation Law.  </B></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restrictions in our Articles of Incorporation and Bylaws.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;A number of provisions of our articles of incorporation and our
bylaws deal with matters of corporate governance and certain rights of our stockholders. The following discussion is a general summary of certain provisions of our articles of incorporation and bylaws
which might be deemed to have a potential anti-takeover effect. Reference should be made in each case to our articles of incorporation and bylaws. </FONT></P>


<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Board of Directors.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our articles of incorporation and bylaws contain provisions relating to the board of directors and
provide, among other things, that the board of directors shall consist of 7 members. We do not permit cumulative voting in the election of directors. Directors may be removed pursuant to the
Corporation Law by a vote of at least two-thirds of our stockholders. Any vacancy occurring in the board of directors for any reason, including an increase in the number of authorized
directors, other than removal of a director by a vote of the stockholders, may be filled by the concurring vote of a majority of the directors remaining in office, regardless of whether there is a </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>44</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>
quorum of the board of directors, or by the stockholders. A director appointed to fill a vacancy serves for the remainder of the term to which the director has been elected, and until his or her
successor has been elected and qualified. If one or more directors is removed by a vote of the stockholders, the term of such director or directors terminates and a vacancy is created in the board of
directors to be filled by a vote of the stockholders. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Limitation of Liability.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our articles of incorporation provide that the personal liability of our stockholders or directors
is eliminated to the fullest extent permitted by the Corporation Law. Section&nbsp;78.138 of the Corporation Law provides that no director or officer shall be individually liable for any damages as
a result of any act or the failure to act in his capacity as a director or officer unless it is proven that: (a)&nbsp;his failure to act constituted a breach of his fiduciary duties as a director or
officer; and (b)&nbsp;his breach of those duties involved intentional misconduct, fraud or a knowing violation of law. Section&nbsp;78.747 of the Corporation Law provides that no stockholder,
director or officer of a corporation is individually liable for the corporation's debts unless the stockholder, director or officer acted as the alter ego of the corporation. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="du2778_selling_stockholder"> </A>
<A NAME="toc_du2778_1"> </A>
<BR></FONT><FONT SIZE=2><B>SELLING STOCKHOLDER    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We entered into a Settlement Agreement and Mutual Release of Claims dated as of June&nbsp;13, 2002, as amended pursuant to that certain Agreement to Modify
Settlement Agreement and Certain Ancillary Agreements dated as of February&nbsp;28, 2003 (collectively, the "Settlement Agreement") with Dr.&nbsp;Wolf, our former medical director and senior
scientist, relating to certain claims made by us and counterclaims made by Dr.&nbsp;Wolf in connection with his employment and certain inventions. Pursuant to the terms of the Settlement Agreement,
among other things, Dr.&nbsp;Wolf was granted two options to acquire an aggregate of 390,556 shares of our common stock. Pursuant to the terms of one option Dr.&nbsp;Wolf may acquire up to 287,037
shares of our common stock (after giving effect to the cashless exercise procedure mandated by the option, which provides for a reduction of the number of shares available upon exercise of the option
in payment of the exercise price for shares purchased pursuant to the option based on a formula set forth in the option agreement). The other option provides that Dr.&nbsp;Wolf
may acquire up to 37,500 shares at an exercise price of $4.20 per share; provided, however, that this option requires that the exercise price for shares purchased upon exercise of the option be paid
using a cashless exercise procedure providing for a reduction in the number of shares available upon exercise of the option based on the fair market value of the Company's common stock on the date of
exercise, so the actual number of shares issued to Dr.&nbsp;Wolf shall be reduced by the number of shares used to effect the cashless exercise procedure. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also entered into a Share Registration Agreement dated as of June&nbsp;13, 2002, as amended by that certain Agreement to Modify Settlement Agreement and Certain Ancillary Agreements
dated as of February&nbsp;28, 2003, with Dr.&nbsp;Wolf pursuant to which we agreed to register the shares of our common stock covered by the options granted to Dr.&nbsp;Wolf. The shares of our
common stock to be issued if and when Dr.&nbsp;Wolf exercises the options granted to him are being registered pursuant to this Registration Statement. Based upon the information provided to us, the
selling stockholder is not, nor is he affiliated with, any broker-dealer in the United States. See "Plan of Distribution" below. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is: the number of shares beneficially owned by Gerald L. Wolf, Ph.D., M.D., the selling stockholder, prior to this offering, assuming that Dr.&nbsp;Wolf exercises all of
his options to acquire shares of our common stock; the number of shares to be offered for Dr.&nbsp;Wolf's account, assuming he offers all of the shares of common stock; and the number of shares to
be owned and the percentage of </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>45</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>
the common stock to be held by Dr.&nbsp;Wolf following completion of the offering, assuming that all shares owned by Dr.&nbsp;Wolf are sold: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="14%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares<BR>
Owned Before<BR>
Offering</B></FONT><HR NOSHADE></TH>
<TH WIDTH="11%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="17%" ALIGN="CENTER"><FONT SIZE=1><B>Number of<BR>
Shares Offered</B></FONT><HR NOSHADE></TH>
<TH WIDTH="11%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="20%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares<BR>
Owned After<BR>
Offering</B></FONT><HR NOSHADE></TH>
<TH WIDTH="11%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER"><FONT SIZE=1><B>% of Shares<BR>
Owned After<BR>
Offering</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>390,556</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>390,556</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>0%</FONT></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="du2778_use_of_proceeds"> </A>
<A NAME="toc_du2778_2"> </A>
<BR></FONT><FONT SIZE=2><B>USE OF PROCEEDS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus is part of a registration statement that permits the selling stockholder to sell shares of our common stock that he acquires upon exercise of
certain options. The Company will not receive any proceeds from the sale of common stock by Dr.&nbsp;Wolf, nor will we receive any cash upon the exercise of the options by Dr.&nbsp;Wolf because
the options require Dr.&nbsp;Wolf to utilize "cashless" exercise mechanisms. Pursuant to the cashless exercise provisions in the options Dr.&nbsp;Wolf will pay the option exercise price with
shares of our common stock that he would otherwise have been able to obtain upon the exercise of the options. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="du2778_plan_of_distribution"> </A>
<A NAME="toc_du2778_3"> </A>
<BR></FONT><FONT SIZE=2><B>PLAN OF DISTRIBUTION    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are registering the shares of common stock on behalf of Dr.&nbsp;Wolf, the selling stockholder. All costs, expenses and fees in connection with the
registration of the shares offered by this prospectus will be borne by us, other than brokerage commissions and similar selling expenses, if any, attributable to the sale of shares of common stock,
which will be borne by the selling stockholder. Sales of shares of common stock may be effected by the selling stockholder from time to time in one or more types of transactions (which may include
block transactions) on the Nasdaq SmallCap Market, in the over-the-counter market or in negotiated transactions, or a combination of such methods of sale, at market prices
prevailing at the time of sale, or at negotiated prices. Such transactions may or may not involve brokers or dealers. Certain transactions may require sales through broker/dealers appropriately
registered under securities laws and regulations. The selling stockholder has advised us that he has not entered into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an underwriter or coordinated broker acting in connection with the proposed sale of shares of common stock by the selling
stockholder. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
selling stockholder may make these transactions by selling shares of common stock directly to purchasers or to or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions or commissions from selling stockholders and/or the purchasers of shares of common stock for whom these broker-dealers may
act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
selling stockholder and any broker-dealers that act in connection with the sale of shares of common stock may be deemed "underwriters" within the meaning of Section&nbsp;2(11) of
the Securities Act, and any commissions received by these broker-dealers or any profit on the resale of the shares of common stock sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act. The selling stockholder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of
the shares of common stock against certain liabilities, including liabilities arising under the Securities Act. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
the selling stockholder may be deemed an "underwriter" within the meaning of Section&nbsp;2(11) of the Securities Act, the selling stockholder will be subject to the prospectus
delivery requirements of the Securities Act. We have informed the selling stockholder that the anti-manipulative provisions of Regulation&nbsp;M promulgated under the Exchange Act may
apply to his sales in the market. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>46</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
our being notified by the selling stockholder that a material arrangement has been entered into with a broker-dealer for the sale of shares of common stock through a block trade,
special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule&nbsp;424(b) under
the Securities Act, disclosing: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
name of the selling stockholder and of the participating broker-dealer(s);
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
number of shares of common stock involved;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
initial price at which shares of common stock were sold;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
commissions paid or discounts or concessions allowed to the broker-dealer(s), where applicable;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>that
the broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>other
facts material to the transactions. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
soon as Dr.&nbsp;Wolf, the selling stockholder, is eligible to sell his shares pursuant to Rule&nbsp;144(k) this Registration Statement shall be terminated and any of
Dr.&nbsp;Wolf's unsold shares will be deregistered. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="du2778_description_of_securities"> </A>
<A NAME="toc_du2778_4"> </A>
<BR></FONT><FONT SIZE=2><B>DESCRIPTION OF SECURITIES    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our authorized capital stock consists of 150,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.01
per share. The following summary of our securities and certain provisions of our charter and bylaws is not intended to be complete and is qualified by reference to the provisions of our charter and
bylaws and applicable law. Our charter and bylaws are filed as exhibits to this registration statement. </FONT></P>

<P><FONT SIZE=2><B>Common Stock  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;5, 2003, there were approximately 17,114,868 shares of our common stock issued and outstanding held by 412 recordholders, 4,612,356 shares of
common stock issuable upon the exercise of outstanding stock options and warrants and 178,993 shares of common stock issuable upon the conversion of Series&nbsp;A Preferred Stock. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders
of common stock are entitled to one vote per share for each share held of record on all matters submitted to a vote of stockholders. The holders of common stock are entitled to
receive ratably lawful dividends as may be declared by our board of directors. Such dividends are, however, subject to preferences that may be applicable to the holders of any outstanding shares of
our preferred stock. In the event of a liquidation, dissolution or winding up of the business of Photogen, whether voluntary or involuntary, the holders of common stock, together with the holders of
Series&nbsp;A Preferred Stock, will be entitled to receive pro rata all of our remaining assets available for distribution to stockholders. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
common stock has no preemptive, redemption, conversion or subscription rights. The rights, powers, preferences and privileges associated with our common stock are subject to, and may
be adversely affected by, the rights of the holders of our outstanding shares of Series&nbsp;A Preferred Stock, which are discussed below, and the rights of the holders of shares of any other series
of preferred stock that we may designate and issue in the future. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>47</FONT></P>

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<P><FONT SIZE=2><B>Series&nbsp;A Convertible Preferred Stock  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;20, 1999, we issued 12,015 shares of Series&nbsp;A Preferred Stock to EIS, an affiliate of Elan, in conjunction with the formation of
Sentigen&nbsp;Ltd., our joint venture with Elan. After issuance, the Series&nbsp;A Preferred Stock was transferred to EPI. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Certificate of Designations, the holder of Series&nbsp;A Preferred Stock has a Series&nbsp;A Liquidation Preference entitling it to the first $12,015,000 of funds available
for distribution to stockholders upon liquidation of the company and has the right to convert shares of Series&nbsp;A Preferred Stock into common stock at any time after October&nbsp;20, 2001 at a
conversion price of $84.68 per share. The conversion price is subject to adjustment for certain dilutive events. Alternatively, the holder of Series&nbsp;A Preferred Stock may exchange shares of
Series&nbsp;A Preferred Stock for common shares of Sentigen so that the holder of Series&nbsp;A Preferred Stock owns 50% of the equity of Sentigen. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Elan
entered into an Agreement dated November&nbsp;12, 2002 with the Institutional Investors in the financing which closed on November&nbsp;12, 2002 which provides that Elan will pay
the Institutional Investors an amount in cash (or the fair market value of other property) distributed to the holder of the Series&nbsp;A Preferred Stock on account of the Series&nbsp;A
Liquidation Preference that, in the absence of the Series&nbsp;A Liquidation Preference would have been paid to those Institutional Investors in accordance with applicable law, up to a maximum of
$16,000,000. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
share of Series&nbsp;A Preferred Stock will be paid a mandatory payment-in-kind dividend equal to 7% (i.e., 0.07 additional shares of Series&nbsp;A
Preferred Stock). The payment-in-kind dividend is cumulative, compounds on a semi-annual basis and is payable twice a year, beginning April&nbsp;2000. Pursuant to
this dividend requirement, we accrued 928.03 shares of Series&nbsp;A Preferred Stock in 2002 and as of March&nbsp;31, 2003, there were approximately 12,856 shares of Series&nbsp;A Preferred
Stock issued and outstanding and an aggregate of 1,914 shares accrued as dividends to be issued. The holder of Series&nbsp;A Preferred Stock is only entitled to vote on matters that adversely affect
or change the rights of holders of Series&nbsp;A Preferred Stock. The holder of Series&nbsp;A Preferred Stock does not have the right to vote on the election of directors of the company. </FONT></P>

<P><FONT SIZE=2><B>Registration Rights Agreements  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to six sets of registration rights agreements. In the aggregate, these agreements cover approximately 11,912,779 shares of common stock (including
the 390,556 shares covered by this registration statement) and require us to register those shares under various terms and subject to specific conditions in the agreements. </FONT></P>


<P><FONT SIZE=2><B>Options to Purchase Common Stock  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;5, 2003, we have granted qualified and non-qualified stock options pursuant to our 1998 Long Term Incentive Plan to purchase an
aggregate of 503,625 shares of common stock. As of March&nbsp;5, 2003, pursuant to our Senior Executive Long Term Incentive Compensation Plan we have granted qualified options to purchase an
aggregate of 1,000,000 shares of common stock. As of March&nbsp;5, 2003, pursuant to our 2000 Plan we have granted qualified and non-qualified options to purchase an aggregated of
2,591,300 shares of common stock. The options vest at various times up to five years from the date of grant and have exercise prices which range from $60.25 to $1.08. To date, options to acquire 1,125
shares have been exercised. </FONT></P>

<P><FONT SIZE=2><B>Warrants  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have issued warrants to purchase shares of our common stock to consultants and a placement agent for services rendered. The number of shares of Common Stock
subject to warrants as of March&nbsp;5, 2003 and the exercise prices at which the warrants may be exercised and set forth below and </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>48</FONT></P>

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<BR>

<P><FONT SIZE=2>
have been adjusted to reflect the one-for-four reverse split of our Common Stock which was effected in November, 2002. </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>190,000
shares at an exercise price of $2.52 per share
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>150,000
shares at an exercise price of $1.08 per share
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>50,000
shares at an exercise price of $1.08 per share
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>25,000
shares at an exercise price of $84.68 per share
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>3,750
shares at an exercise price of $44.23 per share
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>8,181
shares at an exercise price of $44.78 per share
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>500
shares at an exercise price of $47.04 per share </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="du2778_where_you_can_find_more_information"> </A>
<A NAME="toc_du2778_5"> </A>
<BR></FONT><FONT SIZE=2><B>WHERE YOU CAN FIND MORE INFORMATION    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We file annual, quarterly and special reports, proxy statements and other information with the SEC. Our filings are available to the public over the Internet at
the SEC's web site at http://www.sec.gov. You may also read and copy any document we file at the SEC's Public Reference Rooms in Washington, D.C., New York, New York and Chicago, Illinois. The Public
Reference Room in Washington D.C. is located at 450 Fifth Street, N.W. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Rooms. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should rely only on the information provided in this prospectus or any prospectus supplement. We have not authorized anyone else to provide you with different information. We are not
making an offer of the common stock in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date
other than the date on the front page of those documents. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="du2778_about_this_prospectus"> </A>
<A NAME="toc_du2778_6"> </A>
<BR></FONT><FONT SIZE=2><B>ABOUT THIS PROSPECTUS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission. We may also add, update or change information
contained in this prospectus through a supplement to this prospectus. Any statement that we make in this prospectus will be modified or superseded by any inconsistent statement made by us in a
prospectus supplement. You should read both this prospectus and any prospectus supplement together with additional information described under the heading "Where You Can Find More Information." </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="du2778_legal_matters"> </A>
<A NAME="toc_du2778_7"> </A>
<BR></FONT><FONT SIZE=2><B>LEGAL MATTERS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The validity of the issuance of common stock will be passed upon for the company by Grippo&nbsp;&amp; Elden, 227 West Monroe, Suite 3600, Chicago, Illinois 60606.
As of the date of this prospectus, partners of Grippo&nbsp;&amp; Elden, who are representing us in this offering, beneficially own 45,648 shares of common stock. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="du2778_experts"> </A>
<A NAME="toc_du2778_8"> </A>
<BR></FONT><FONT SIZE=2><B>EXPERTS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements of Photogen Technologies,&nbsp;Inc. and the financial statements of Sentigen,&nbsp;Ltd. included in this Prospectus and
in the Registration Statement have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their reports appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such reports given upon the authority of said firm as experts in auditing and accounting. The report of Photogen
Technologies,&nbsp;Inc. contains an explanatory paragraph regarding the company's ability to continue as a going concern. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>49</FONT></P>

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<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS
PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR SEEK AN OFFER TO BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THE SHARES. </FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">

<P><FONT
SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;,
all dealers that effect transaction in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or
subscriptions. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>50</FONT></P>

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<BR>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fa2778_1_1"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fa2778_index_to_financial_statements"> </A>
<A NAME="toc_fa2778_1"> </A>
<BR></FONT><FONT SIZE=2><B>Index to Financial Statements    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B>Report of Independent Certified Public Accountant</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>F-2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Financial Statements</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="83%"><FONT SIZE=2><BR>
Consolidated Balance Sheets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
F-3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="83%"><FONT SIZE=2><BR>
Consolidated Statements of Operations</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
F-5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="83%"><FONT SIZE=2><BR>
Consolidated Statements of Shareholders' Equity</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
F-6-7</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="83%"><FONT SIZE=2><BR>
Consolidated Statements of Cash Flows</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
F-8-9</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="83%"><FONT SIZE=2><BR>
Notes to Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
F-10-23</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>F-1</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=53,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=614285,FOLIO='F-1',FILE='DISK016:[03CHI8.03CHI2778]FA2778A.;11',USER='EYOUNG',CD='22-APR-2003;18:06' -->
<A NAME="page_fa2778_1_2"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fa2778_report_of_independent_certified_public_accountant"> </A>
<A NAME="toc_fa2778_2"> </A>
<BR></FONT><FONT SIZE=2><B>Report of Independent Certified Public Accountant    <BR>  </B></FONT></P>

<P><FONT SIZE=2>Board
of Directors<BR>
Photogen Technologies,&nbsp;Inc.<BR>
New Hope, Pennsylvania </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying consolidated balance sheets of Photogen Technologies,&nbsp;Inc., a development stage company, as of December&nbsp;31, 2001 and 2002, and the related
consolidated statements of operations, shareholders' equity and cash flows for the period from November&nbsp;3, 1996 (inception) to December&nbsp;31, 2002 and for each of the three years in the
period ended December&nbsp;31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on
our audits. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Photogen Technologies,&nbsp;Inc. at
December&nbsp;31, 2001 and 2002, and the results of its operations and its cash flows for the period from November&nbsp;3, 1996 (inception) to December&nbsp;31, 2002 and for each of the three
years in the period ended December&nbsp;31, 2002, in conformity with accounting principles generally accepted in the United States. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note&nbsp;1 to the financial statements, the
Company has reported accumulated losses of $28,745,194, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in
Note&nbsp;1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. </FONT></P>

<P><FONT SIZE=2>/s/
BDO Seidman, LLP </FONT></P>

<P><FONT SIZE=2>Chicago,
Illinois<BR>
March&nbsp;7, 2003 </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-2</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=54,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=541136,FOLIO='F-2',FILE='DISK016:[03CHI8.03CHI2778]FA2778B.;3',USER='EYOUNG',CD='22-APR-2003;18:06' -->
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fc2778_1_3"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fc2778_consolidated_#160;balance_#160;sheets"> </A>
<A NAME="fc2778_photogen_technologies,_inc._consolidated_balance_sheets"> </A>
<A NAME="toc_fc2778_1"> </A>
<BR></FONT><FONT SIZE=2><B>Photogen Technologies,&nbsp;Inc.    <BR>    <BR>    Consolidated Balance Sheets    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December&nbsp;31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><B>Assets</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Current Assets</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><B><BR>
&nbsp;</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="63%"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,352,904</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>6,090,904</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="63%"><FONT SIZE=2>Deposits (Note&nbsp;5(a))</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>474,580</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>98,721</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="63%"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>29,775</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>693,313</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Total Current Assets</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
1,857,259</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
6,882,938</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Equipment and Leasehold Improvements</B></FONT><FONT SIZE=2>, less accumulated depreciation of $1,059,997 and $12,739 (Note&nbsp;13)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
882,220</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
36,000</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Patent Costs</B></FONT><FONT SIZE=2>, net of amortization of $100,693 and $142,359, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
399,307</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
357,641</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Deposits</B></FONT><FONT SIZE=2> (Note&nbsp;5(a))</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
69,173</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
14,383</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Notes Receivable</B></FONT><FONT SIZE=2> (Note&nbsp;11)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
1,255,000</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Investment in and Advances to Affiliates</B></FONT><FONT SIZE=2> (Note&nbsp;3)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
10,994,680</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
8,192,452</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
14,202,639</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>$</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
16,738,414</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>F-3</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=55,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=354177,FOLIO='F-3',FILE='DISK016:[03CHI8.03CHI2778]FC2778A.;3',USER='ABLIJDE',CD='22-APR-2003;15:36' -->
<A NAME="page_fc2778_1_4"> </A>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2><B>Liabilities and Shareholders' Equity</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2><B>Current Liabilities</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>373,774</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>835,003</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accrued expenses (Note&nbsp;4)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>568,174</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>34,132</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accrued equipment lease (Note&nbsp;5(a))</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>374,580</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>401,664</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><BR><FONT SIZE=2><B>Total Current Liabilities</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
1,316,528</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
1,270,799</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><BR><FONT SIZE=2><B>Accrued Equipment Lease</B></FONT><FONT SIZE=2> (Note&nbsp;5(a))</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
749,160</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
401,664</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><BR><FONT SIZE=2><B>Long-Term Debt</B></FONT><FONT SIZE=2> (Note&nbsp;3)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
2,314,005</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><BR><FONT SIZE=2><B>Shares Subject to Rescission</B></FONT><FONT SIZE=2> (Note&nbsp;6(f))</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
650,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
650,000</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><BR><FONT SIZE=2><B>Shareholders' Equity</B></FONT><FONT SIZE=2> (Notes&nbsp;1, 2, 3, 6 and 7)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><B><BR>
&nbsp;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Preferred stock; par value $.01 per share; 5,000,000&nbsp;shares authorized including:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="58%"><FONT SIZE=2>Series&nbsp;A Preferred Stock; 12,856&nbsp;shares authorized, issued and outstanding, liquidation preference $1,000 per share (in aggregate $12,856,000)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>128</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>128</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="58%"><FONT SIZE=2>Series&nbsp;B Preferred Stock; 402,000&nbsp;shares authorized; 357,280 issued and outstanding at December&nbsp;31, 2001, liquidation preference $16.88 per share (in aggregate $6,030,886 at December&nbsp;31,
2001)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,572</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Common stock; par value $.001 per share; 150,000,000&nbsp;shares authorized; 9,585,948 and 16,137,465&nbsp;shares issued and outstanding, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,586</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>16,137</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>38,252,973</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>43,144,880</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Deficit accumulated during the development stage</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(29,093,313</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>(28,745,194</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><BR><FONT SIZE=2><B>Total Shareholders' Equity</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
9,172,946</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
14,415,951</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
14,202,639</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>$</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
16,738,414</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-4</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=56,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=733263,FOLIO='F-4',FILE='DISK016:[03CHI8.03CHI2778]FC2778B.;2',USER='ABLIJDE',CD='22-APR-2003;15:36' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fe2778_1_5"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fe2778_consolidated_#160;statements_#160;of_#160;operations"> </A>
<A NAME="fe2778_photogen_technologies,_inc._co__pho02575"> </A>
<A NAME="toc_fe2778_1"> </A>
<BR></FONT><FONT SIZE=2><B>Photogen Technologies,&nbsp;Inc.    <BR>    <BR>    Consolidated Statements of Operations    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December&nbsp;31, 2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December&nbsp;31, 2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December&nbsp;31, 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Cumulative Amounts From November&nbsp;3, 1996 (Inception) to December&nbsp;31, 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><B>Operating Expenses</B></FONT><FONT SIZE=2> (Notes&nbsp;5, 6 and 9)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,665,450</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>437,958</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>1,227,897</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>4,356,637</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>General and administrative</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,095,442</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,220,584</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>4,030,083</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>16,647,522</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>Restructuring charges</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>597,025</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>807,483</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,404,508</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>Provision for future lease payments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,264,208</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,264,208</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Total operating expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
7,357,917</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
4,922,750</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
6,065,463</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
23,672,875</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Loss From Joint Venture (Note&nbsp;3)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(1,203,392</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(1,952,758</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
(3,452,837</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(6,915,016</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Investment Income</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
417,110</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
110,741</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
1,563</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
1,208,941</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Interest Expense</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(48,429</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
(418,466</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(466,895</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Loss from continuing operations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(8,144,199</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(6,813,196</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
(9,935,203</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(29,845,845</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Discontinued Operations</B></FONT><FONT SIZE=2> (Note&nbsp;13)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><B><BR>
&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>Loss from operations of discontinued therapeutic business</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(2,642,863</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(2,909,820</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>(1,496,430</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(10,679,101</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>Gain from split-off of therapeutic business</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B>11,779,752</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>11,779,752</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Income (loss) from discontinued operations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(2,642,863</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(2,909,820</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
10,283,322</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
1,100,651</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Net Income (Loss)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(10,787,062</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(9,723,016</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
348,119</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(28,745,194</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><B><BR>
&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Dividends on Preferred Stock</B></FONT><FONT SIZE=2> (Notes&nbsp;3, 6 and 8)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(2,704,751</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(2,943,755</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
(1,997,723</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Net Loss Applicable to Common Shareholders</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(13,491,813</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(12,666,771</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>$</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
(1,649,604</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Basic and Diluted Loss Per Common Share from Continuing Operations</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(1.16</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(1.03</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>$</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
(1.17</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Basic and Diluted Income (Loss) Per Common Share from Discontinued Operations</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(0.28</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(0.30</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>$</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
1.01</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Basic and Diluted Loss Per Common Share</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(1.44</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(1.33</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>$</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
(0.16</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Weighted Average Number of Common Shares Outstanding&#151;Basic and Diluted</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
9,345,847</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
9,507,693</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
10,187,619</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><BR><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-5</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=57,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=719867,FOLIO='F-5',FILE='DISK016:[03CHI8.03CHI2778]FE2778A.;2',USER='ABLIJDE',CD='22-APR-2003;15:36' -->
<A NAME="page_fe2778_1_6"> </A>
<A NAME="fe2778_consolidated_stateme_1ank"> </A>
<A NAME="fe2778_consolidated_statements_of_shareholders_#146;_equity"> </A>
<A NAME="toc_fe2778_2"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><B>Photogen Technologies,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B> Consolidated Statements of Shareholders' Equity  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="110%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Preferred Stock Series&nbsp;B</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Preferred Stock Series&nbsp;A</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Members' Capital</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Additional Paid-in Capital</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Deficit Accumulated During the Development Stage</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Contribution of capital</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>7,268</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>7,268</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net loss for the period ended December&nbsp;31, 1996</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(1,779</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(1,779</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><B>Balance</B></FONT><FONT SIZE=2>, at May&nbsp;15, 1997</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>9,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(3,511</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5,489</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Issuance of common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1,578,208</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>1,578</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,801,872</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,803,450</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Effect of recapitalization and merger</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7,421,792</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>7,422</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(9,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,203,765</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,732</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,203,919</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Cost associated with recapitalization and merger</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(371,111</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(371,111</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Net loss for the period May&nbsp;16, 1997 to December&nbsp;31, 1997</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(554,702</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(554,702</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Balance</B></FONT><FONT SIZE=2>, at December&nbsp;31, 1997</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
9,000,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
9,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
2,634,526</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(556,481</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
2,087,045</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Issuance of common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>218,755</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>219</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6,999,781</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>7,000,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Costs associated with common stockissuance</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(50,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(50,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Options issued to consultants</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>45,446</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>45,446</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Net loss for the year ended December&nbsp;31, 1998</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(1,973,913</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(1,973,913</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><BR><FONT SIZE=2><B>Balance</B></FONT><FONT SIZE=2>, at December&nbsp;31, 1998</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
9,218,755</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
9,219</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
9,629,753</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(2,530,394</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
7,108,578</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Exercise of stock options</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1,125</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>50,062</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>50,063</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Issuance of warrants and options</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3,664,749</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3,664,749</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Issuance of common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>125,967</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>126</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6,082,528</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6,082,654</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Issuance of preferred stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>12,015</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>120</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11,578,839</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11,578,959</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="19%"><FONT SIZE=2>Net loss for the year ended December&nbsp;31, 1999</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(6,052,841</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(6,052,841</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>F-6</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=58,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=334404,FOLIO='F-6',FILE='DISK016:[03CHI8.03CHI2778]FE2778B.;1',USER='ABLIJDE',CD='22-APR-2003;15:36' -->
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fg2778_1_7"> </A> </FONT> <FONT SIZE=2><B>Photogen Technologies,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B> Consolidated Statements of Shareholders' Equity  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Preferred Stock<BR>
Series A</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Preferred Stock<BR>
Series B</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=4><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>Deficit<BR>
Accumulated<BR>
During the<BR>
Development<BR>
Stage</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Members'<BR>
Capital</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Additional<BR>
Paid-in<BR>
Capital</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1><B>Balance,</B></FONT><FONT SIZE=1> at December 31, 1999</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>12,015</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>120</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>9,345,847</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>9,346</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>31,005,931</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(8,583,235</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>22,432,162</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Stock option compensation</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>125,020</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>125,020</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Issuance of warrants and options</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>1,366,050</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>1,366,050</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Issuance of preferred stock dividend</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>841</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Issuance of preferred stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>337,056</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>3,370</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>5,272,970</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>5,276,340</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Net loss for the year ended December&nbsp;31, 2000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(10,787,062</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(10,787,062</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1><B>Balance,</B></FONT><FONT SIZE=1> at December 31, 2000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>12,856</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>128</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>337,056</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>3,370</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>9,345,847</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>9,346</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>37,769,963</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(19,370,297</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>18,412,510</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Stock option compensation</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>64,729</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>64,729</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Issuance of common stock for cash</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>49,245</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>49</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>418,674</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>418,723</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Issuance of common stock in satisfaction of anti-dilution provision</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>190,856</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>191</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(191</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Issuance of preferred stock dividend</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>20,224</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>202</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(202</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Net loss for the year ended December&nbsp;31, 2001</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(9,723,016</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(9,723,016</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1><B>Balance,</B></FONT><FONT SIZE=1> at December 31, 2001</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>12,856</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>128</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>357,280</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>3,572</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>9,585,948</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>9,586</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>38,252,973</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(29,093,313</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>9,172,946</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Stock option compensation</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>73,870</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>73,870</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Issuance of warrants for services</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>322,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>322,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Issuance of options in settlement of lawsuit</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>806,415</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>806,415</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Employee compensation from stock options</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>988,184</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>988,184</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Issuance of preferred stock dividend</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>40,194</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>402</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(402</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Conversion of Series B to common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(397,474</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>(3,974</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>422,316</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>422</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>3,552</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Beneficial inducement costs for convertible debt converted</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>206,348</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>206,348</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Conversion of line of credit with Elan to common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>128,437</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>128</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>3,082,359</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>3,082,487</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Conversion of line of credit with entity controlled by director of company to common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>2,314,815</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>2,315</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>2,497,685</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>2,500,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Retirement of common stock returned in shareholder transaction (Note&nbsp;6(f))</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(5,137,109</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>(5,137</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(12,221,182</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(12,226,319</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Issuance of common stock for cash</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>8,823,058</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>8,823</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>9,133,078</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>9,141,901</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%">&nbsp;</TD>
<TD WIDTH="17%"><FONT SIZE=1>Net income for the year ended December&nbsp;31, 2002</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>348,119</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>348,119</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1><B>Balance,</B></FONT><FONT SIZE=1> at December 31, 2002</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1><B>12,856</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1><B>$</B></FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1><B>128</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1><B>$</B></FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1><B>16,137,465</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1><B>$</B></FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1><B>16,137</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1><B>$</B></FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1><B>$</B></FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1><B>43,144,880</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1><B>$</B></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1><B>(28,745,194</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1><B>$</B></FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1><B>14,415,951</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-7</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=59,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=905719,FOLIO='F-7',FILE='DISK016:[03CHI8.03CHI2778]FG2778A.;10',USER='JKANTOR',CD='22-APR-2003;14:32' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fh2778_1_8"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fh2778_photogen_technologies,_inc._co__pho02548"> </A>
<A NAME="toc_fh2778_1"> </A>
<BR></FONT><FONT SIZE=2><B>Photogen Technologies, Inc.<BR>  <BR>    Consolidated Statements of Cash Flows    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31, 2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31, 2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31, 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Cumulative Amounts From<BR>
November 3, 1996<BR>
(Inception) to<BR>
December 31, 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2><B>Cash Flows From Operating Activities</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(10,787,062</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(9,723,016</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>348,119</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(28,745,194</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Loss from discontinued operations</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>2,642,863</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>2,909,820</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>1,496,430</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>10,679,101</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Depreciation and amortization</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>416,511</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>442,191</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>371,319</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,677,904</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Loss (gain) on disposal of equipment and leasehold improvements</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>43,041</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(4,617</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>38,424</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Gain on sale of marketable securities</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(18,503</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>United States Treasury Notes amortization</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(41,437</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(1,029</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>12,586</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Gain on sale of therapeutic business</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>(11,779,752</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(11,779,752</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Stock option compensation</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>125,020</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>64,729</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>1,062,054</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,678,570</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Beneficial inducement costs for convertible notes</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>206,348</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>206,348</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Issuance of warrants in exchange for services rendered</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>2,191,262</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>760,363</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>322,000</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>4,317,091</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Issuance of stock options in settlement of lawsuit</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>806,415</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>806,415</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Loss from investment in affiliate</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>1,203,392</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>1,952,758</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>3,452,837</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>6,915,016</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Changes in operating assets and liabilities</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>408,595</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>152,340</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>(663,538</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(693,313</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>Interest receivable</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(8,892</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>93,219</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(141,444</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(267,945</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>531,229</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>905,003</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>Accrued expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>579,452</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(11,278</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>(298,465</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>269,709</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="25%"><FONT SIZE=2>Accrued equipment lease</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>1,123,740</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>10,237</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,133,977</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Net cash used in operating activities (continuing operations)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(3,368,699</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(2,508,725</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>(4,134,767</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(12,596,618</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Net cash used in discontinued operations</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(2,642,863</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(2,909,820</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>(1,496,430</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(10,679,101</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2><B>Cash Flows From Investing Activities</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Sale of marketable securities</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,164,464</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Purchases of marketable securities</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(2,182,967</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Purchases of United States Treasury Notes</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(11,749,970</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(4,870,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(38,656,973</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Sales of United States Treasury Notes</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>12,320,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>9,815,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>39,778,548</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Purchase of equipment and leasehold improvements</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(516,186</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(45,938</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(636,877</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Proceeds from sale of equipment</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>145,551</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>145,551</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Costs to acquire patent</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(50,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(237,335</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Investment in and advances to affiliate</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>93,548</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(2,245,948</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>(650,609</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(15,107,468</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Increase in note receivable</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>(1,255,000</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,255,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Decrease in restricted cash</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>100,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Decrease (increase) in deposit</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(500,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(14,383</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>100,000</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(443,753</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Net cash (used in) provided by investing activities</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>(302,608</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>2,784,282</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>(1,805,609</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(16,431,810</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Net cash used in investing activities of discontinued operations</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,306,676</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>F-8</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=60,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=32484,FOLIO='F-8',FILE='DISK016:[03CHI8.03CHI2778]FH2778A.;6',USER='JKANTOR',CD='22-APR-2003;14:33' -->
<A NAME="page_fh2778_1_9"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><B>Photogen Technologies,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B> Consolidated Statements of Cash Flows  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31,<BR>
2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31,<BR>
2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31,<BR>
2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Cumulative<BR>
Amounts<BR>
From<BR>
November 3,<BR>
1996<BR>
(Inception) to<BR>
December 31,<BR>
2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><B>Cash Flows From Financing Activities</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="38%"><FONT SIZE=2>Principal payments on capital leases</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(21,148</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(18,356</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(291,704</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="38%"><FONT SIZE=2>Net proceeds from issuance of equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>5,276,340</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,068,723</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>9,141,901</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>40,509,340</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="38%"><FONT SIZE=2>Proceeds from capital contributions by shareholders</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,911,674</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="38%"><FONT SIZE=2>Proceeds from issuance of debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,314,005</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>3,032,905</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>5,346,910</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="38%"><FONT SIZE=2>Cost of recapitalization</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(371,111</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net cash provided by financing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>5,255,192</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,364,372</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>12,174,806</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>47,105,109</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><B>Net Increase (Decrease) in Cash and Cash Equivalents</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(1,058,978</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>730,109</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>4,738,000</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,090,904</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><B>Cash and Cash Equivalents,</B></FONT><FONT SIZE=2> at beginning of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,681,773</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>622,795</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>1,352,904</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><B>Cash and Cash Equivalents,</B></FONT><FONT SIZE=2> at end of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>622,795</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,352,904</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>6,090,904</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,090,904</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>Supplemental Schedule of Noncash Investing and Financing Activities<BR>  </B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2002 </FONT></P>

<UL>
<UL>

<P><FONT SIZE=2>Payments
due on the accrued equipment lease were made through a reduction in deposits due to the Company in the amount of $330,649. </FONT></P>

<P><FONT SIZE=2>Debt
of $5,346,910 and accrued interest of $235,577 were converted to common stock. </FONT></P>

<P><FONT SIZE=2>Split-off
of the therapeutic business which included equipment and leasehold improvements of $516,567 and accounts payable of $70,000 in exchange for the Company's common stock valued at $12,226,319. </FONT></P>

</UL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-9</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fi2778_1_10"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fi2778_photogen_technologies,_inc._no__pho02703"> </A>
<A NAME="toc_fi2778_1"> </A>
<BR></FONT><FONT SIZE=2><B>Photogen Technologies, Inc.    <BR>    <BR>    Notes to Consolidated Financial Statement    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;Organization and Significant Accounting Policies  </B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Nature of Operations  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Photogen Technologies, Inc. (the "Company"), through its subsidiary Photogen, Inc., successor to Photogen, L.L.C., is a development stage biopharmaceutical
company that is focusing on developing a novel contrast agent with potential applications (1) as a blood pool agent to diagnose diseased tissue in the cardiovascular system and other organs and (2) to
diagnose cancer metastasizing into the lymphatic system. The Company also has in development certain minimally invasive products for the treatment of psoriasis and other topical diseases and cancer
and certain laser device technology (the therapeutic business). The Company also has an investment in a joint venture (Note 3). In November 2002, the Company split off the therapeutic business to its
original shareholders (see Note 13). </FONT></P>

<UL>

<P><FONT SIZE=2><I> Principles of Consolidation  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intercompany balances and transactions have been eliminated in consolidation. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Liquidity and Basis of Presentation  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. 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 2002 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. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Estimates  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial statements include estimated amounts and disclosures based on management's assumptions about future events. Actual results may differ from those
estimates. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Cash Equivalents  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Highly liquid investments with a maturity of three months or less when purchased are classified as cash equivalents. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Equipment and Leasehold Improvements  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equipment and leasehold improvements are stated at cost. Depreciation and amortization of equipment are provided for using the straight-line method over the
estimated useful lives of the assets. Computers and laboratory equipment are being depreciated over five years, furniture and fixtures are being depreciated over seven years and leasehold improvements
are being amortized over five years. Leasehold improvements are being amortized on a straight-line basis over the lives of the respective leases or the service lives of the improvements, whichever is
shorter. Depreciation expense was </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-10</FONT></P>

<HR NOSHADE>
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<A NAME="page_fi2778_1_11"> </A>

<P><FONT SIZE=2>
$374,845, $400,525 and $329,653 for 2000, 2001 and 2002, respectively. All equipment and leasehold improvements, except a net amount of $36,000, were transferred in the split-off of the therapeutic
business. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Long-Lived Assets  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company reviews the carrying values of its long-lived assets for possible impairment whenever an event or change in circumstances indicates that the carrying
amount of the assets may not be recoverable. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less cost to sell. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Patent Costs  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Internal patent costs are expensed in the period incurred. Patents purchased are capitalized and amortized over the life of the patent. Amortization expense was
$41,666 for 2000, 2001 and 2002. Amortization of patent costs is expected to be $41,666 over the remaining life of the patent. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Research and Development  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development costs are charged to expense when incurred. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Income Taxes  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax basis and financial
reporting basis of certain assets and liabilities based upon currently enacted tax rates expected to be in effect when such amounts are realized or settled. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Basic and Diluted Loss Per Common Share  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 December 31, 2002 are 4,535,481 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 (Note 6(f)). </FONT></P>

<UL>

<P><FONT SIZE=2><I> Financial Instruments  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying amounts reported in the consolidated balance sheets for cash, accounts payable and accrued expenses approximate fair value because of the short-term
nature of these amounts. The Company's note receivable approximates fair value based on instruments with similar terms. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Stock Options  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-11</FONT></P>

<HR NOSHADE>
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<A NAME="page_fi2778_1_12"> </A>

<P><FONT SIZE=2>
the market price on the date of grant. Accordingly, compensation expense of $988,184 has been recorded. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
stock options granted to employees and directors, the Company has estimated the fair value of each option granted using the Black-Scholes option pricing model with the following
assumptions: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Weighted average fair value per options granted</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>18.68</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3.64</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2><B>1.31</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Significant assumptions (weighted average)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="63%"><FONT SIZE=2>Risk-free interest rate at grant date</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>6.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>4.8</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2><B>2.8</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>%</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="63%"><FONT SIZE=2>Expected stock price volatility</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>94.3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>95.5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2><B>98.0</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>%</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="63%"><FONT SIZE=2>Expected option life (years)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2><B>5</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="47%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2>Net income (loss), as reported</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(13,491,813</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(12,666,771</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>(1,649,604</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>)</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2><BR>
Add stock based employee compensation expense included in reported net income</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
988,184</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2><BR>
Less total stock-based employee compensation expense determined under the fair value based method for all awards</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(8,356,534</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(11,314,458</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
(6,084,842</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>)</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2>Pro forma net loss</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(21,848,347</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(23,981,229</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>(6,746,262</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>)</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2><BR>
Basic and diluted loss per common share, as reported</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(1.44</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(1.33</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B><BR>$</B></FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
(0.16</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>)</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2><BR>
Basis and diluted loss per common share, pro forma</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(2.34</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(2.52</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B><BR>$</B></FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B><BR>
(0.66</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B><BR>)</B></FONT></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER"><FONT SIZE=2>F-12</FONT></P>

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<P><FONT SIZE=2><A
NAME="page_fk2778_1_13"> </A> </FONT></P>

<UL>

<P><FONT SIZE=2><I> Reclassification  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain 2001 amounts have been reclassified to conform with the 2002 presentation. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Recent Accounting Pronouncements  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement
addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a
Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. The provisions of SFAS 144 are effective for fiscal years
beginning after December 15, 2001. The Company has recorded the split-off of its therapeutic business as a discontinued operation in accordance with SFAS 144. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination cost and
certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance provided by EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" is replaced by this
Statement. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Management does not anticipate that the adoption of this Statement will have a
significant effect on the Company's financial statements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others"
("Interpretation"). This Interpretation elaborates on the existing disclosure requirements for most
guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair
market value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions of
the Interpretation apply on a prospective basis to guarantees issued or modified after December 31, 2002. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." The objective of this interpretation is to provide guidance on how to identify
a variable interest entity ("VIE") and determine when the assets, liabilities, noncontrolling interests and results of operations of a VIE need to be included in a company's consolidated financial
statements. A company that holds variable interests in an entity may need to consolidate the entity if the Company's interest in the VIE is such that the Company will absorb a majority of the VIE's
expected losses and/or receive a majority of the entity's expected residual returns, if they occur. Interpretation No. 46 also requires additional disclosures by primary beneficiaries and other
significant variable interest holders. The provisions of this interpretation became effective upon issuance. The Company believes that Sentigen will be considered a VIE; however, the Company does not
expect its accounting for its interest in Sentigen to change. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation and requires pro forma disclosures of </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-13</FONT></P>

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<A NAME="page_fk2778_1_14"> </A>
<BR>

<P><FONT SIZE=2>
the effect on net income and earnings per share had the fair value method been used to be included in annual and interim reports and disclosure of the effect of the transition method used if the
accounting method was changed, among other things. SFAS No. 148 is effective for annual reports of fiscal years ending after December 15, 2002 and interim reports beginning after December 15, 2002.
The Company plans to continue using the intrinsic value method of accounting for stock-based compensation and, therefore, the new rule will have no effect on the Company's financial condition or
results of operations. The Company adopted the disclosure requirements effective December 15, 2002. </FONT></P>

<P><FONT SIZE=2><B>2.&nbsp;&nbsp;&nbsp;&nbsp;Recapitalization and Merger  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May 16, 1997, MT Financial Group, Inc. (an inactive public company), through its wholly owned subsidiary, effected a reverse merger with Photogen, Inc.
("Photogen"), successor to Photogen, L.L.C. Photogen, L.L.C. was formed on September 10, 1996 and commenced operations November 3, 1996. Photogen, L.L.C. was formed to develop proprietary laser-based
technologies related to photodynamic therapy. Legally, Photogen was a wholly owned subsidiary of Photogen Technologies, Inc. (formerly known as MT Financial Group, Inc.). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
financial reporting purposes, Photogen was deemed to be the acquiring entity. The transaction has been reflected in the accompanying financial statements as (1) a recapitalization of
Photogen
(consisting of a 48,000-for-one stock split and change in par value) and (2) an issuance of shares by Photogen in exchange for all of the outstanding shares of MT Financial Group, Inc. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of the recapitalization, the Company sold 1,578,208 shares of common stock for a total purchase price of approximately $1,803,450. Legal and brokerage fees of approximately
$371,000 were charged to additional paid-in capital as costs of the recapitalization and merger. Included in the paid-in capital is the net cash of approximately $109,000 from MT Financial Group, Inc. </FONT></P>

<P><FONT SIZE=2><B>3.&nbsp;&nbsp;&nbsp;&nbsp;Joint Venture/ Investment in Affiliate  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October 7, 1999, the Company formed a joint venture with Elan International Services, Ltd. ("Elan") to develop and commercialize nanoparticulate diagnostic
imaging agents for the detection and treatment of cancer through lymphography. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sentigen
Ltd. ("Sentigen") was formed to hold the operations, assets and liabilities of the joint venture. Elan purchased 2,980 shares of Sentigen nonvoting convertible preferred stock
for $2,985,000 representing a 19.9% ownership interest. Elan also purchased 12,015 shares of the Company's Series A convertible exchangeable preferred stock for $12,015,000. In connection with the
issuance of the preferred stock to Elan, the Company granted warrants to Elan to purchase 100,000 shares of the Company's common stock at $84.68 per share which was valued at $678,000. As a result, a
preferred stock dividend of $436,041 was recorded for the accretion of the preferred stock to its face value of $12,015,000 over the period until it is first convertible. Beginning in 2000, in
accordance with EITF 00-27, the Company recorded an additional preferred stock dividend to represent the beneficial conversion feature associated with the intrinsic value of the Series A Preferred
conversion option. As a result, an additional preferred stock dividend of $436,041 was recorded over the period until it is first convertible. As of December 31, 2001, the beneficial conversion
feature was fully recorded. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company purchased 12,000 shares of Sentigen's common stock for $12,015,000 representing an 80.1% ownership interest. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sentigen
used the $15,000,000 received from the Company and Elan to purchase from Elan a worldwide license to certain patented Elan technology related to the joint venture. Expenses
incurred by the Company and Elan, which relate to the development of the diagnostic imaging agents, are charged to Sentigen. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-14</FONT></P>

<HR NOSHADE>
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<A NAME="page_fk2778_1_15"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Elan
granted the Company a line of credit of $4,806,000 to be used by the Company to fund their portion of Sentigen's research and development. Principal and interest under the line of
credit, if any, become due and payable in 2005 or, at the option of Elan, can be converted into the Company's common stock at $72.60 per share. Any borrowings under the line of credit would bear
interest at 8%. At December 31, 2001, borrowings on this line of credit were $2,314,005 and accrued interest was $48,429. During 2002, the Company borrowed an additional $532,905 and incurred
additional accrued interest of $187,148. On November 12, 2002, the total borrowings of $2,846,910 and accrued interest of $235,577 were converted to common stock at a conversion price of $24 per
share. A beneficial conversion amount of $206,348 was recorded as a result of the decrease in the original conversion price. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the joint venture agreement, Elan also purchased 115,385 shares of the Company's common stock for $6,000,000. If, in the Company's next third-party offering after the
issuance of the Series A Preferred, it sells common stock at a price less than $52 per share, the Company must issue additional shares to Elan so that Elan's overall price for its common stock equals
the effective price in that third-party offering. During 2001, the Company issued 190,857 shares of common stock to satisfy this requirement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
total cash proceeds from the equity issuance to Elan of $18,015,000 were allocated to the common stock, preferred stock and the warrants. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Elan
has substantive participating rights in Sentigen, including the requirement for approval of the business plan and budgets and equal representation on the management committee which
decides all day-to-day functions. As a result, the Company's investment in Sentigen is recorded under the equity method. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following
is summarized financial information for Sentigen at December 31, 2001 and 2002: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="77%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>Cash</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,345</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>410</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>License purchased from Elan, net of amortization of $1,222,829 and $2,201,093, respectively</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,777,171</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>10,298,907</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,786,516</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>10,299,317</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>Due to affiliates</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>210,596</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>378,099</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>Total shareholders' equity</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,575,920</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>9,921,218</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>Total liabilities and equity</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,786,516</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>10,299,317</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>Research and development expense</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,450,291</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>823,409</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>General and administrative expense</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>18,329</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>Amortization of license</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>978,264</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>978,264</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>Impairment of license</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>2,500,000</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="64%"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(2,428,555</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>(4,320,002</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>)</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="64%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER"><FONT SIZE=2>F-15</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2><A
NAME="page_fm2778_1_16"> </A> </FONT> <FONT SIZE=2><B>4.&nbsp;&nbsp;&nbsp;&nbsp;Accruals  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses consist of the following: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="71%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="71%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Accrued salaries</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>93,963</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Accrued bonuses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>251,850</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Accrued interest (Note 3)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>48,429</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Accrued restructuring (Note 9)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>173,932</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>Payroll liabilities</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>34,132</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>568,174</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>34,132</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="71%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>5.&nbsp;&nbsp;&nbsp;&nbsp;Commitments  </B></FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>At
December 31, 2002, the Company has a lease for office space in New Hope, Pennsylvania, expiring in August 2004. </FONT></DD></DL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company also has an operating lease for laboratory equipment expiring in 2004. During 2001, the Company determined that equipment leased by the Company under this operating lease
would no longer be used by the Company in its research. As a result, in 2001, the Company recorded a provision for all future lease payments of $1,264,208. $568,138 of this provision was recorded in
the fourth quarter. At December 31, 2002, $803,328 remains to be paid. In conjunction with this operating lease, the Company provided $500,000 as cash collateral to be refunded over the term of the
lease. In 2002, $100,000 was refunded and, accordingly, this amount was recorded as a current deposit at December 31, 2001. The Company and the lessor agreed to offset certain remaining lease payments
with the remaining $400,000 deposit. In 2002, lease payments of approximately $331,000 were offset with the deposit. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
rental expense charged to operations for the years ended December 31, 2000, 2001 and 2002 aggregated approximately $352,000, $358,000 and $227,000, respectively. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minimum
future rental payments under these leases are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="81%" ALIGN="LEFT"><FONT SIZE=1><B>Year ending December 31,<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Operating<BR>
Leases</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%"><FONT SIZE=2>2003</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>574,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%"><FONT SIZE=2>2004</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>502,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="81%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,076,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="81%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>The
Company has entered into employment agreements with certain officers and employees. The officers and employees are each entitled to severance ranging from six months to one year
of their annual salary if terminated without cause. Total severance commitments are $500,000 under these agreements. </FONT></DD></DL>

<P><FONT SIZE=2><B>6.&nbsp;&nbsp;&nbsp;&nbsp;Equity Transactions  </B></FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>The
Company applies the recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," in accounting for stock options issued to nonemployees. The Company has
issued options and warrants in exchange for consulting services rendered. The Company issued 10,000 options in 1998, 2,500 options and 125,500 warrants in 1999, 5,250 options and 128,750 warrants in
2000, 7,500 options in 2001 and 200,000 warrants in 2002. In addition, there were 190,000 </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>F-16</FONT></P>

<HR NOSHADE>
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<A NAME="page_fm2778_1_17"> </A>
<UL>

<P><FONT SIZE=2>contingent
warrants issued for which no expense has been recognized as of December 31, 2002. As the fair market value of these services was not readily determinable, these services were valued based
on the fair market value, determined using the Black-Scholes option pricing model. Fair market value for options and warrants ranged from $5.36 to $38.04 in 2000, $3.08 in 2001 and $1.01 to $1.81 in
2002. Consulting costs charged to operations were $2,316,282 in 2000, $825,092 in 2001 and $395,870 in 2002. In 2002, the Company also issued 390,556 options in settlement of a lawsuit associated with
restructuring costs (Note 9). The value of these options was $806,415 which was recorded as restructuring charges in 2002. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>In
August 1999, the Company purchased patents for $500,000 which were satisfied by the issuance of 10,832 shares of the Company's common stock valued at $300,000 and cash of $200,000.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>In
1999, the Company issued 185,000 variable stock options to employees which would vest upon completion of performance milestones. Exercise prices ranged from $37.52 to $72.52 and
expired in 10 years. As of December 31, 1999, 18,750 of these shares had vested. Compensation charged to operations was $225,000 in 1999. In 2000, all of these variable stock options were cancelled.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>Series
A Preferred Stock&#151;The Company originally designated 12,015 shares of preferred stock as Series A Preferred Stock ("Series A Preferred"). For the first six years
from issuance, the preferred stock has a mandatory dividend of 7%. Such dividends are cumulative and compound on a semiannual basis and are payable semiannually solely by the issuance of additional
preferred Series A stock. The Company has a deficit and, as a result, the dividends have been recorded against paid-in capital. In accordance with the provisions of the agreement, the Company issued
additional preferred shares of 841 in 2000 in settlement of dividend requirements. Therefore, at December 31, 2002, there were 12,856 shares of Series A Preferred outstanding. The Company has accrued
and will issue 1,914 preferred shares in fulfillment of the 2001 and 2002 dividend requirement. The Series A Preferred shall rank senior to any future series of preferred stock unless the majority of
the Series A shareholders agree to rank </FONT><FONT SIZE=2><I>pari passu</I></FONT><FONT SIZE=2> with any future issuances. The liquidation preference is $1,000 per share. The Series A Preferred is
convertible, after two years but before six years from issuance, into common stock of the Company with an initial conversion price of $84.68. The conversion price is subject to adjustment for certain
dilutive events. Alternatively, the holder of the Series A Preferred can elect to exchange the Series A preferred shares for the number of shares in Sentigen which would allow the
Series A holder to then own a total of 50% of Sentigen. The Series A holder is currently the minority shareholder in Sentigen. The exchange right is not available for any shares which have been
converted to common stock. The exchange right terminates six years from the issuance of the Series A Preferred. The Series A Preferred was issued in October 1999. </FONT></DD></DL>
<UL>

<P><FONT SIZE=2>The
holder of Series A Preferred is only entitled to vote on matters that adversely affect or change the rights of holders of Series A Preferred and does not have the right to vote on the election of
directors of the Company. The holder of Series A Preferred also has a preemptive right until October 2003 to participate in any offering of the Company. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(e)</FONT></DT><DD><FONT SIZE=2>Series
B Preferred Stock&#151;In February 2000, the Company completed a private placement of its Series B Convertible Preferred Stock ("Series B Preferred"). The Company
received cash proceeds, net of related expenses, of $5,276,340 in exchange for 337,056 shares of the Series B Preferred. The Series B Preferred has an annual dividend rate of 6%. Such dividends are
cumulative, shall compound on an annual basis and are payable annually by the issuance of additional preferred Series B stock. The Company has a deficit and, as a result, the dividends will be
recorded against paid-in capital. In accordance with the provisions of the agreement, the Company issued additional preferred shares of 20,224 in 2001 and 40,194 in 2002 in settlement of dividend
requirements. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>F-17</FONT></P>

<HR NOSHADE>
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<A NAME="page_fm2778_1_18"> </A>
<UL>

<P><FONT SIZE=2>Subject
to the senior liquidation preference of the Series A Preferred stockholder, and the liquidation preference of any senior or pari passu securities created by the Company in the future with the
requisite consent of the holders of Series B Preferred, each share of Series B Preferred is entitled to a liquidation preference equal to $16.88 per share, before any amounts are paid on the common
stock on liquidation. If the Company is acquired by another entity or sells all or substantially all of its assets, and if it pays an amount equal to the liquidation preference of the Series A
Preferred and any other senior security, holders of Series B Preferred will be entitled to receive the liquidation preference unless the stockholders prior to the transaction hold at least 50% of the
voting power of the surviving or acquiring entity or if the holders of a majority of Series B Preferred agree by vote or written consent to exclude the acquisition or sale from this provision. </FONT></P>

<P><FONT SIZE=2>Each
share of Series B Preferred has the number of votes equal to the number of shares of common stock into which the share of Series B Preferred would be convertible, and is entitled to vote together
with the common stock. Certain matters, such as an amendment to the terms of the Series B Preferred Certificate of Designation or a change in the preferences or any relative or other rights of the
Series B Preferred (except for issuance of a special senior security), may have to be approved by a majority of the holders of Series B Preferred voting as a separate class. This right is subject to
the Company's ability to require mandatory conversion of Series B Preferred if a special senior security (discussed below) is not approved. </FONT></P>

<P><FONT SIZE=2>Holders
of Series B Preferred may convert shares of Series B Preferred into 0.36 shares of common stock at any time. </FONT></P>

<P><FONT SIZE=2>The
Series B Preferred contains beneficial conversion features. Emerging Issues Task Force Issue 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios," requires the issuer to assume that the holder will not convert the instrument until the time of the most beneficial conversion, which would occur after January 1, 2002.
Using the conversion ratio at January 1, 2002 of 0.36 shares of common stock and the stock price at the date of issuance, the maximum beneficial conversion amount is $2,322,316. This amount was
recorded as additional preferred stock dividends over the period from issuance until January 1, 2002. Through December 31, 2001, this full amount has been recorded as additional dividends. </FONT></P>

<P><FONT SIZE=2>The
conversion ratio is subject to adjustment for certain dilutive events, including issuance of common stock or equivalent securities at less than $16.88 per share. In 2001, the Company issued common
stock at less than $16.88. As a result, the revised conversion ratio for the number of shares of common stock issuable upon conversion of Series B Preferred is 0.36175. </FONT></P>

<P><FONT SIZE=2>The
Company may require holders of Series B Preferred to convert their shares into common stock (at the same ratios that would apply for a voluntary conversion, except as described in the second and
third bullet points below) in connection with any of the following events: </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#150;</FONT></DT><DD><FONT SIZE=2>If
the holders of a majority of the Series B Preferred approve a mandatory conversion;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#150;</FONT></DT><DD><FONT SIZE=2>Immediately
prior to a firm commitment, underwritten public offering of the Company's common stock in which they receive $20 million or more in gross
proceeds;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#150;</FONT></DT><DD><FONT SIZE=2>If
the holders of a majority of Series B Preferred do not approve any transaction to issue a security senior or pari passu to the Series B Preferred in a
transaction involving any vendor, licensor or joint venturer or other commercial transaction (a "special senior security"), the purpose of which is not solely to provide financing, and which the Board
has approved and recommended; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#150;</FONT></DT><DD><FONT SIZE=2>At
any time after January 1, 2005. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>F-18</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=3,SEQ=70,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=571627,FOLIO='F-18',FILE='DISK016:[03CHI8.03CHI2778]FM2778A.;8',USER='ABLIJDE',CD='22-APR-2003;15:36' -->
<A NAME="page_fm2778_1_19"> </A>
<UL>
<UL>
</UL>

<P><FONT SIZE=2>In
conjunction with the financing on November 12, 2002 (see Note 6(f)), all of the Series B Preferred was converted into common stock. In exchange for this conversion, the conversion ratio of 0.36175
was changed to 1.0625. As a result, the Series B Preferred was converted into 422,316 shares of common stock and a beneficial conversion amount of $668,464 has been recorded. The Series B Preferred is
no longer outstanding, nor is there any liquidation preference associated with the Series B Preferred. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(f)</FONT></DT><DD><FONT SIZE=2>Common
Stock&#151;The Company is subject to six sets of registration rights agreements covering an aggregate of 11,912,779 shares of the Company's common stock, warrants that
have vested covering the Company's common stock and common stock issuable upon conversion of the Company's Series A Preferred. All of the agreements contain piggyback registration rights and two
contain demand registration rights upon the occurrence of certain events and subject to various terms and conditions. Of the 11,912,779 shares, 1,000,000 shares are entitled to piggyback registration
only, 50,000 shares are entitled to both demand and piggyback registration and 10,862,779 shares will be registered by the Company within the time frames set forth in the respective registration
agreements. Warrants that have vested covering 237,431 shares of the Company's common stock have weighted average anti-dilution rights. </FONT></DD></DL>
<UL>

<P><FONT SIZE=2>On
March 13, 1998, the Company completed a private placement of 218,755 shares of common stock for $32 per share to a number of accredited investors. The Company received $7,000,000 in gross proceeds
from this offering. </FONT></P>

<P><FONT SIZE=2>On
February 9, 2001, the Company's shelf registration on Form S-3 was declared effective. Under the shelf registration, the Company could have issued up to $40,000,000 of common stock. As of December
31, 2002, 173,872 shares have been issued under the shelf registration for cash proceeds of $1,068,723, net of related expenses of $56,252. The Company's registration statement is no longer effective. </FONT></P>


<P><FONT SIZE=2>As
of April 2, 2001, the Company no longer met the eligibility requirements to continue selling shares under the S-3. Prior to realizing it was ineligible to continue using the S-3, the Company sold
124,627 shares of common stock for $650,000. This amount has been reclassified from permanent equity to mezzanine equity as the Company could be required to repay a portion of this amount to the
purchaser. </FONT></P>

<P><FONT SIZE=2>On
November 12, 2002, the Company completed a private placement of 8,333,334 shares of common stock for $1.08 per share to a number of accredited investors. The Company received proceeds of
$8,613,000, net of related expenses of $387,000. Proceeds included cash of $6,113,000 and the conversion of a credit facility with an entity controlled by a director of the Company with borrowings of
$2,500,000 which converted into 2,314,815 shares of common stock. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 2002, the Company completed a second closing of the November 12, 2002 private placement in which 2,804,539 shares of common stock were sold for $1.08 per share for proceeds
of $3,028,902. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November 12, 2002, the Company also effected the split-off of Photogen, Inc. and the assets and liabilities related to the Company's therapeutic line of business to the five founding
stockholders of the Company (the "Tennessee Stockholders") in exchange for all of their common stock in the Company. The Tennessee Stockholders owned 5,137,109 shares of the Company and those shares
were cancelled prior to December 31, 2002. The market value of the 5,137,109 shares on the date of the split-off was $12,226,319. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
conjunction with the November 12, 2002 transactions, the Company implemented a one-for-four reverse split of its common stock. All amounts have been retroactively stated to reflect
this reverse stock split. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-19</FONT></P>

<HR NOSHADE>
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<BR>
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_fo2778_1_20"> </A> </FONT> <FONT SIZE=2><B>7.&nbsp;&nbsp;&nbsp;&nbsp;Stock Incentive Plans and Warrants  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains three long-term incentive compensation plans, which are described as follows: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#150;</FONT></DT><DD><FONT SIZE=2>The
1998 Long-Term Incentive Compensation Plan, which provides for the granting of up to 500,000 stock options to key employees, directors and consultants;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#150;</FONT></DT><DD><FONT SIZE=2>The
2000 Long-Term Incentive Compensation Plan, which provides for the granting of up to 4,568,750 stock options to key employees, directors and consultants;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#150;</FONT></DT><DD><FONT SIZE=2>The
2000 Senior Executive Long-Term Incentive Compensation Plan, which provides for the granting of up to 1,000,000 stock options to senior executives. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options
granted under these plans may be either "incentive stock options" within the meaning of Section 422A of the Internal Revenue Code, or nonqualified options. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
stock options are exercisable over a period determined by the Board of Directors (through its Compensation Committee), but generally no longer than 10 years after the date they are
granted. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information
with respect to the plans follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>Year ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Options outstanding at beginning of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>301,375</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,411,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>1,629,750</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Options granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,386,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>218,750</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>2,914,356</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Options forfeited</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(276,875</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>(8,625</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Options outstanding at end of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,411,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,629,750</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>4,535,481</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Option prices per share granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>11.00&nbsp;-&nbsp;60.00</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.56&nbsp;-&nbsp;21.24</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>1.08&nbsp;-&nbsp;4.20</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Weighted average exercise price</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Options granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>41.52</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8.12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>1.14</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Options granted at less than market price</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>1.08</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Options granted at the market price</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>41.52</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8.12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>1.55</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Options forfeited</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>47.28</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>18.41</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Options outstanding at end of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>41.88</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>37.16</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>14.05</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Options exercisable at end of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>25.48</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>43.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>19.85</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Number of shares exercisable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>28,125</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>458,333</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2><B>2,057,208</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>F-20</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=72,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=254975,FOLIO='F-20',FILE='DISK016:[03CHI8.03CHI2778]FO2778A.;4',USER='ABLIJDE',CD='22-APR-2003;16:04' -->
<A NAME="page_fo2778_1_21"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, all stock options granted, except for 390,556 options granted in settlement of a lawsuit, were granted to employees at an exercise price less than the
market value at grant date. The weighted average fair value of the options issued below market is $1.31. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>Options Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>Options Exercisable</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="14%" ALIGN="CENTER"><FONT SIZE=1><B>Range of Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Number Outstanding at December&nbsp;31, 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average Remaining Contractual Life (Years)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Number Outstanding at December&nbsp;31, 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$1.08</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,876,856</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1.08</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9.5</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,044,416</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1.08</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$4.20&nbsp;-&nbsp;4.56</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>81,250</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4.39</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>7.8</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>71,875</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4.37</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$6.80&nbsp;-&nbsp;8.52</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>157,500</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>8.15</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8.1</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>45,000</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>7.98</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$11.00</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>381,625</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>11.00</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>7.9</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>200,375</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>11.00</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$21.25&nbsp;-&nbsp;27.50</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>16,250</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>22.69</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8.1</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>6,875</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>24.66</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$33.00&nbsp;-&nbsp;44.50</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>259,500</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>33.42</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>7.6</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>176,167</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>33.62</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$51.00&nbsp;-&nbsp;53.00</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10,000</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>52.50</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5.8</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10,000</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>52.50</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$60.00&nbsp;-&nbsp;60.25</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>752,500</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>60.00</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>7.5</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>502,500</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>60.00</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information with respect to warrants follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>Year ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Warrants outstanding at beginning of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>150,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>287,431</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>287,431</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Warrants granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>136,931</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>390,000</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Warrants forfeited</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>(250,000</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Warrants outstanding at end of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>287,431</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>287,431</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>427,431</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Warrant prices per share outstanding</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>37.80&nbsp;-&nbsp;84.68</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>37.80&nbsp;-&nbsp;84.68</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>1.08&nbsp;-&nbsp;84.68</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Weighted average exercise price</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="46%"><FONT SIZE=2>Warrants granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>40.24</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>1.78</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="46%"><FONT SIZE=2>Warrants forfeited</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>37.80</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="46%"><FONT SIZE=2>Warrants outstanding at end of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>43.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>43.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>7.94</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="46%"><FONT SIZE=2>Warrants exercisable at end of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>43.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>43.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>12.27</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="46%"><FONT SIZE=2>Number of warrants exercisable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>287,431</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>287,431</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2><B>237,431</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B><BR>
Warrants Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1><B><BR>&nbsp;</B></FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B><BR>
Warrants Exercisable</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="14%" ALIGN="CENTER"><FONT SIZE=1><B>Range of Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Number Outstanding at December&nbsp;31, 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average Remaining Contractual Life (Years)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Number Outstanding at December&nbsp;31, 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$1.08&nbsp;-&nbsp;2.52</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>390,000</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1.78</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4.5</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>200,000</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1.08</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$44.20&nbsp;-&nbsp;47.78</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>12,431</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>46.67</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3.8</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>12,431</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>46.67</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="14%"><FONT SIZE=2>$84.68</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>25,000</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>84.68</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1.7</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>25,000</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>84.68</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>F-21</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=73,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=394894,FOLIO='F-21',FILE='DISK016:[03CHI8.03CHI2778]FO2778A.;4',USER='ABLIJDE',CD='22-APR-2003;16:04' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_fq2778_1_22"> </A> </FONT> <FONT SIZE=2><B>8.&nbsp;&nbsp;&nbsp;&nbsp;Dividends  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends are comprised of the following: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>Year ended December 31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="62%"><FONT SIZE=2>Accrual of dividend on Series A Convertible Preferred</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>868,248</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>930,090</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>996,335</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="62%"><FONT SIZE=2>Deemed dividend associated with beneficial conversion feature of Series A Convertible Preferred</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>480,928</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>391,154</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="62%"><FONT SIZE=2>Accrual of dividend on Series B Convertible Preferred</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>296,478</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>359,292</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>332,924</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="62%"><FONT SIZE=2>Deemed dividend associated with beneficial conversion feature of Series B Convertible Preferred</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,059,097</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,263,219</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="62%"><FONT SIZE=2>Deemed dividend associated with beneficial conversion of Series B Convertible Preferred to Common Stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>668,464</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="62%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2,704,751</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2,943,755</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><B>1,997,723</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;Restructuring  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, the Company recorded a restructuring charge of $597,025, included in operating expenses, relating to the closure of its operations in Westborough,
Massachusetts. The restructuring charge includes accruals related to estimated lease termination costs and accruals related to employee severance and related expenses in connection with their
termination. All employees at the Westborough facility were terminated. The activities previously performed at the Westborough facility were continued at other company locations or with outside
consultants. In 2002, the Company recorded an additional restructuring charge related to additional termination costs for one of the Westborough employees. As of December 31, 2002, all restructuring
costs have been settled. The restructuring charge is summarized as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="105%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="19%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Charged in<BR>
2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Utilized in<BR>
2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Balance<BR>
at<BR>
December 31,<BR>
2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Utilized in<BR>
2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Balance<BR>
at<BR>
December 31,<BR>
2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Charged in<BR>
2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Utilized in<BR>
2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Balance<BR>
at<BR>
December 31,<BR>
2002</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>Employee costs</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>395,223</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>65,223</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>330,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>156,068</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>173,932</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>807,483</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>981,415</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>Lease costs</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>201,802</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>201,802</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>597,025</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>267,025</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>330,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>156,068</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>173,932</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>807,483</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>981,415</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><B>&#151;</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>10.&nbsp;&nbsp;Income Taxes  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, the Company had taxable income due to the gain from the split-off of the therapeutic business (Note 13). This resulted in current income tax expense of
approximately $2,300,000 which was completely off-set by net operating losses. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has not recorded an income tax benefit for net operating losses remaining of approximately $14,000,000, primarily expiring in 2018 through 2021, or for equity losses in
affiliate of approximately $7,000,000. The Company is in the development stage and realization of the losses is not considered more likely than not. An income tax valuation allowance has been provided
for the deferred tax assets related to the net operating loss carryforwards and the losses in affiliate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
portion of the net operating loss carryforwards will not remain with the Company as a result of the split-off of the therapeutic business. However, the amount of these net operating
losses is not known. </FONT></P>

<P><FONT SIZE=2><B>11.&nbsp;&nbsp;Notes Receivable  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has executed a term sheet with Alliance Pharmaceutical Corp. ("Alliance") to buy certain assets of Alliance. As of December 31, 2002, the Company has
loaned to Alliance $1,255,000 for Alliance's working capital purposes. These loans are evidenced by 8% convertible secured promissory notes which are secured by certain assets of Alliance. Based on
the nature of the Company's security interest in the collateral and the estimated value of the collateral, management has determined that a reserve for doubtful collection of the notes receivable is
not necessary at December 31, 2002. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-22</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=74,EFW="2109014",CP="PHOTOGEN TECHNOLOGIES, INC.",DN="1",CHK=226475,FOLIO='F-22',FILE='DISK016:[03CHI8.03CHI2778]FQ2778A.;11',USER='ABLIJDE',CD='22-APR-2003;15:36' -->
<A NAME="page_fq2778_1_23"> </A>
<BR>

<P><FONT SIZE=2><B>12.&nbsp;&nbsp;Selected Quarterly Financial Data (Unaudited)  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized quarterly financial data for 2002 and 2001 is as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="105%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="48%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER"><FONT SIZE=1><B>Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="48%" ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>First</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Second</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Third</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Fourth</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="48%"><FONT SIZE=2>Operating expenses (a)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>1,208,285</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>906,957</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>1,218,083</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><B>$</B></FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>2,732,138</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="48%"><FONT SIZE=2>Loss from continuing operations (b)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(1,813,246</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(1,341,652</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(1,594,897</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(5,185,408</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="48%"><FONT SIZE=2>Income (loss) from discontinued operations (c)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(502,449</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(544,657</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(244,719</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>11,575,147</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="48%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(2,315,695</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(1,886,309</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(1,839,616</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>6,389,739</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="48%"><FONT SIZE=2>Basic and diluted loss per share from continuing operations</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(0.23</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(0.17</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(0.20</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(0.51</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="48%"><FONT SIZE=2>Basic and diluted income (loss) per share from discontinued operations</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(0.05</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(0.06</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(0.03</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>0.96</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="48%"><FONT SIZE=2>Basic and diluted income (loss) per share</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(0.28</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(0.23</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>(0.23</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><B>)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><B>0.45</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="105%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="48%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER"><FONT SIZE=1><B>Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="48%" ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>First</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Second</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Third</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Fourth</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Operating expenses</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,930,626</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>714,271</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>931,288</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,346,565</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Loss from continuing operations</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(2,346,978</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(1,375,848</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(1,264,813</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(1,825,557</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Loss from discontinued operations</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(680,134</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(698,149</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(738,562</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(792,975</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(3,027,112</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(2,073,997</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(2,003,375</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(2,618,532</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Basic and diluted loss per share from continuing operations</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.33</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.23</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.31</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.26</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Basic and diluted loss per share from discontinued operations</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.07</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.07</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.08</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.08</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>Basic and diluted loss per share</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.40</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.30</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.29</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.34</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="48%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>Operating
expenses for the fourth quarter 2002 includes a charge of $988,184 from the issuance of stock options to employees.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Loss
from continuing operations for the fourth quarter 2002 includes an increase in loss from joint venture of $2,000,000 resulting from the impairment of the joint venture's licensed
technology.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>Income
(loss) from discontinued operations for the fourth quarter 2002 includes a gain of $11,779,752 from the sale of the therapeutic business.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>Earnings
per share calculations for each of the quarters are based on the weighted average shares outstanding for each period. The sum of the quarters may not necessarily be equal to
the full year earnings per share amounts. </FONT></DD></DL>

<P><FONT SIZE=2><B>13.&nbsp;&nbsp;Discontinued Operations  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November 12, 2002, the Company split off its therapeutic business to the Tennessee Stockholders in exchange for all of the Tennessee Stockholders' stock in the
Company which totaled 5,137,109 shares. Net assets transferred in the split-off included fixed assets with net book value of $516,567 and accounts payable of $70,000. At December 31, 2001, the net
book value of the fixed assets transferred was $882,220 and the related payable was $70,000. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has reviewed the provisions of SFAS 144 and has determined that the sale of therapeutic business meets the two conditions necessary for presentation as discontinued
operations. Those conditions are (a) the operations and cash flow of the component have been or will be eliminated from the ongoing operations of the entity as a result of the disposal transaction and
(b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
split-off of the therapeutic business was effective on November 12, 2002 and, as such, the consolidated balance sheet of the Company at December 31, 2002 does not include the assets
or liabilities of the therapeutic business. The Company recorded a loss from operations of the therapeutic business of $1,454,430 and a gain on the sale of the therapeutic business of $11,779,752 for
the year ended December 31, 2002. There were no revenues from the therapeutic business since its inception. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-23</FONT></P>

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<BR>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_ja2778_1_1"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ja2778_part_ii_information_not_required_in_prospectus"> </A>
<A NAME="toc_ja2778_1"> </A>
<BR></FONT><FONT SIZE=2><B>PART II<BR>  INFORMATION NOT REQUIRED IN PROSPECTUS    <BR>  </B></FONT></P>

<P><FONT SIZE=2><A
NAME="ja2778_item_13._other_expenses_of_issuance_and_distribution."> </A>
<A NAME="toc_ja2778_2"> </A></FONT> <FONT SIZE=2><B>ITEM 13.&nbsp;&nbsp;&nbsp;&nbsp;OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth expenses payable by the Registrant in connection with this Prospectus
dated&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2003. All of the amounts shown are
estimates except the SEC registration fee. </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>SEC Registration Fee</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>55.29</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Printing expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Legal fees and expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>25,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Accounting fees and expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>10,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Blue Sky qualification fees and expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>3,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Miscellaneous fees</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>1,945</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="77%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>45,000.29</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2><A
NAME="ja2778_item_14._indemnification_of_directors_and_officers"> </A>
<A NAME="toc_ja2778_3"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 14.&nbsp;&nbsp;&nbsp;&nbsp;INDEMNIFICATION OF DIRECTORS AND OFFICERS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;78.7502 of the Corporation Law authorizes a corporation to indemnify its directors, officers, employees or other agents in terms sufficiently broad
to permit indemnification (including reimbursement for expenses incurred) under certain circumstances for liabilities arising under the Securities Act. Our articles of incorporation and bylaws provide
indemnification of directors and officers to the maximum extent permitted by the Nevada General Corporation Law. In addition, we have entered into Indemnification Agreements with our directors. Our
bylaws also permit us to purchase and maintain insurance on behalf of directors, officers, employees and agents of the company for any liability and expenses incurred in his capacity as such, whether
or not the company has the authority to indemnify him against such liability and expenses. We maintain directors and officers insurance for our directors and officers. </FONT></P>

<P><FONT SIZE=2><A
NAME="ja2778_item_15._recent_sales_of_unregistered_securities"> </A>
<A NAME="toc_ja2778_4"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 15.&nbsp;&nbsp;&nbsp;&nbsp;RECENT SALES OF UNREGISTERED SECURITIES    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the three year period preceding the date of filing of this registration statement, we have issued securities in the transactions described below without
registration under the Securities Act. These securities were offered and sold by us in reliance upon exemptions from the registration requirements provided by Section&nbsp;4(2) of the Securities Act
and Regulation&nbsp;D under the Securities Act relating to sales not involving any public offering, and/or Rule&nbsp;701 under the Securities Act relating to transactions occurring under
compensatory benefit plans. The share numbers and prices set forth below have been adjusted to reflect the one-for-four reverse split of our common stock effected in November,
2002. </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>On
January&nbsp;24, 2000, we issued warrants covering 3,750 shares of our common stock to a consultant. The warrants are exercisable at any time before
January&nbsp;24, 2010 for an exercise price of $44.23.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>On
February&nbsp;18, 2000, we issued 327,240 shares of Series&nbsp;B Preferred Stock to 32 accredited investors in a private placement, for a purchase
price of $16.88 per share and 9,816 shares of Series&nbsp;B Preferred Stock and warrants to acquire 32,724 shares of our common stock at an exercise price of $16.88 per share to the placement agent
in connection with services rendered in our private placement of Series&nbsp;B Preferred Stock. All of the issued and outstanding shares of Series&nbsp;B Preferred Stock were converted into an
aggregate of 422,316 shares of common stock at the conversion ratio of 4.25 shares of common for each share of Series&nbsp;B Preferred Stock on </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>II-1</FONT></P>

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<UL>
<UL>

<P><FONT SIZE=2>November&nbsp;12,
2002. Upon effecting the one-for-four reverse split the number of shares subject to the warrants was adjusted to 8.181 and the exercise price was adjusted
to $47.78 per share. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>On
August&nbsp;9, 2000, we issued warrants to acquire a total of 500,000 shares of common stock to Farcap Group, LLC as consideration for consulting
services Farcap agreed to perform for us. The warrants are exercisable at any time before August&nbsp;9, 2004 for an exercise price of $9.45 per share. In connection with our sale of 8,333,334
shares of common stock to a group of institutional investors in November, 2002, Farcap agreed to adjust the number of shares subject to the warrants to 50,000 post-reverse split shares and
to adjust the exercise price to $1.08 per share.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>During
2000, we also awarded 383,565 options to acquire our common stock pursuant to our 1998 Long Term Incentive Compensation Plan and 1,000,000 options to
acquire common stock pursuant to our Senior Executive Long Term Incentive Compensation Plan. Those options are exercisable at prices ranging from $11.00 to $60.25 and are subject to various vesting
criteria.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>During
2001, we awarded 86,250 options to acquire our common stock pursuant to our 1998 Long Term Incentive Plan and 127,500 options to acquire our common
stock pursuant to our 2000 Plan.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Pursuant
to the terms of a Settlement Agreement dated June&nbsp;13, 2002, and as amended on February&nbsp;28, 2003, we issued options to acquire an
aggregate of 390,556 shares of our common stock to Dr.&nbsp;Wolf.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
a series of closings occurring in November and December, 2002, and January, 2003, we sold and issued 11,165,551 shares of our common stock to a group of
institutional and individual accredited investors at $1.08 per share.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
each of December, 2002 and January and February, 2003, we issued 250,000 shares (an aggregate of 750,000 shares) to Xmark Fund, L.P. and Xmark
Fund,&nbsp;Ltd. in connection with the Standstill and Make Whole Agreement dated as of December&nbsp;30, 2002.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>During
2002, we awarded 2,523,800 options to acquire our common stock under the 2000 Plan.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Pursuant
to the terms of a Consulting Agreement dated as of January&nbsp;30, 2003, we issued 75,000 shares of our common stock to a consultant, subject to
certain forfeiture provisions.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>During
January and February, 2003 we awarded 40,000 options to acquire common stock pursuant to our 2000 Plan. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
each of the transactions described above: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
did not use any underwriters or brokers and we paid no commissions or underwriting discounts, except for a commission of 9,816 shares of Series&nbsp;B
Preferred Stock, warrants in the amount of 8,181 shares of our common stock and $25,000 expense reimbursement we paid to the placement agent for our Series&nbsp;B Preferred Stock.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Wherever
we received cash consideration, we used the proceeds for working capital, the possible acquisition of the medical imaging assets of Alliance and
other general corporate purposes. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><A
NAME="ja2778_item_16._exhibits"> </A>
<A NAME="toc_ja2778_5"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 16.&nbsp;&nbsp;&nbsp;&nbsp;EXHIBITS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following exhibits are filed as part of this Registration Statement: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>EXHIBIT NO.</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="86%" ALIGN="LEFT"><FONT SIZE=1><B>DESCRIPTION<BR> </B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>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.)</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>II-2</FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=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.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3.4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>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.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>5.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Opinion of Grippo &amp; Elden</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>9.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Voting, Drag-Along and Right of First Refusal Agreement entered into as of November 12, 2002 by and among Robert J. Weinstein, M.D., Stuart P. Levine, Tannebaum, LLC, Mi3 L.P., Oxford Bioscience Partners IV L.P. and MRNA
Fund II L.P. (Filed as Exhibit G to the company's Proxy Statement on Form DEFM 14A dated September 12, 2002 and incorporated herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Common Stock Purchase Agreement dated as of August 2, 2002 by and among Photogen Technologies, Inc., Mi3 L.P., Oxford Bioscience Partners IV L.P., MRNA Fund II L.P., New England Partners Capital, L.P. and Tannebaum LLC.
(Filed as Exhibit C to the company's DEFM 14A dated September 12, 2002 and incorporated herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Amendment No. 1 to the Common Stock Purchase Agreement dated as of August 2, 2002 by and among Photogen Technologies, Inc., Mi3 L.P., Oxford Bioscience Partners IV L.P., MRNA Fund II L.P., New England Partners Capital,
L.P. and Tannebaum LLC. (Filed as Exhibit A to the company's DEFR 14A Proxy Supplement dated October 18, 2002 and incorporated herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Separation Agreement dated as of July 29, 2002 by and among the following: Craig Dees, Ph.D. and Dees Family Foundation, Eric A. Wachter, Ph.D. and Eric A. Wachter 1998 Charitable Remainder Unitrust, Timothy D. Scott,
Ph.D. and Scott Family Investment Limited Partnership, Walter Fisher, Ph.D., Fisher Family Investment Limited Partnership, and Walt Fisher 1998 Charitable Remainder Unitrust, and John A. Smolik and Smolik Family LLP, Photogen Technologies, Inc.,
Photogen, Inc., Robert J. Weinstein, M.D., Stuart P. Levine and Tannebaum, LLC (Filed as Exhibit A to the company's DEFM 14A dated September 12, 2002 and incorporate herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Registration Rights Agreement entered into as of November 12, 2002 by and among Photogen Technologies, Inc., Mi3 L.P., Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and Tannebaum, LLC (Filed as Exhibit D to the
company's Proxy Statement on Form DEFM 14A dated September 12, 2002 and incorporated herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Letter Agreement entered into as of August 29, 2002 by and between Photogen Technologies, Inc. and Clinical Regulatory Strategies, LLC (Filed as Exhibit 10.2 to the company's quarterly report on Form 10-Q for the quarter
ended September 30, 2002 and incorporated herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Office Lease dated February 19, 2001 by and between Photogen, Inc. and Union Square, Limited Partnership. (Filed as Exhibit 10.5 to the company's Annual Report on Form 10-K for the year ended December 31, 2000 and
incorporated herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.7</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Form of Registration Rights Agreement dated as of December 30, 2002 entered into by and between Photogen Technologies, Inc. and each of Oxford Bioscience Partners IV L.P., MRNA Fund II L.P., DMG Legacy Institutional Fund
LLC, DMG Legacy Fund LLC, and DMG Legacy International Ltd. (Filed as Exhibit 10.7 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.)</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>II-3</FONT></P>

<HR NOSHADE>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.8</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Employment Agreement entered into by the company and Taffy J. Williams, Ph.D., dated October 28, 2002. (Filed as Exhibit 10.8 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated by reference herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.9</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Employment Agreement entered into by the company and Brooks Boveroux, dated October 28, 2002. (Filed as Exhibit 10.9 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated by
reference herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Employment Agreement with Reinhard Koenig, Ph.D., M.D., RAC dated October 28, 2002. (Filed as Exhibit 10.10 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated by reference
herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.11</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Incentive Stock Option Award Agreement entered into by and between the company and Taffy J. Williams, Ph.D. dated May 17, 2000. (Filed as Exhibit 10.4 to the company's Current Report on Form 8-K dated May 17, 2001 and
incorporated herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.12</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Incentive Stock Option Award Agreement entered into by the company and Brooks Boveroux dated August 1, 2000. (Filed as Exhibit 10.13 to the company's Annual Report on Form 10-K dated December 31, 2000 and incorporated
herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.13</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Form of Indemnification Agreement entered into by and between the company and each Director and Senior Vice President of the company. (Filed as Exhibit 10.13 to the company's Annual Report on Form 10-K to for the year
ended December 31, 2002 and incorporated by reference herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Tufts University Sponsored Research Agreement dated August 1, 1999 by and between Photogen, Inc. and Tufts University, a/k/a Trustees of Tufts College. (Filed as Exhibit 10.3 to the company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.15</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Amended Warrant Certificates between Photogen Technologies, Inc. and Farcap Group LLC dated as of January 31, 2003. (Filed as Exhibit 10.15 to the company's Annual Report on Form 10-K for the year ended December 31, 2002
and incorporated by reference herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.16</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>License Agreement effective as of September 30, 1999 between The General Hospital Corporation and Photogen, Inc. (Filed as Exhibit 10.7 to the company's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.17</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Securities Purchase Agreement dated as of October 20, 1999, among Photogen Technologies, Inc. and Elan International Services, Ltd. (Filed as Exhibit 10.8 to the company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.18</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Warrant to Purchase Shares of Common Stock dated October 20, 1999 between Photogen Technologies, Inc. and Elan International Services, Ltd. (Filed as Exhibit 10.9 to the company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.19</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>License Agreement dated October 20, 1999 between Photogen Technologies, Inc, Photogen Newco Ltd. and Elan Pharma International Limited. (Filed as Exhibit 10.13 to the company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>II-4</FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.20</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>License Agreement dated October 20, 1999 between Elan Pharma International Limited, Photogen Newco Ltd. and Photogen Technologies, Inc. (Filed as Exhibit 10.14 to the company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Subscription, Joint Development and Operating Agreement dated October 20, 1999 between Elan Pharma International Limited, Elan International Services, Ltd., Photogen Technologies, Inc. and Photogen Newco Ltd. (Filed as
Exhibit 10.15 to the company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.22</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Equipment Lease between Picker Financial Group, L.L.C. and Photogen, Inc. dated October 25, 1999. (Filed as Exhibit 10.37 to the company's Annual Report on Form 10-KSB for the year ended December 31, 1999 and incorporated
herein by reference.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.23</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Standstill and Make-Whole Agreement dated as of December 30, 2002 among Xmark Fund, L.P., Xmark Fund, Ltd., Alliance Pharmaceutical Corp. and Photogen Technologies. (Filed as Exhibit 10.23 to the company's Annual Report
on Form 10-K for the year ended December 31, 2002 and incorporated by reference herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.24</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Convertible Secured Note Purchase Agreement dated as of October 4, 2002 by and between Alliance Pharmaceutical Corp. and Photogen Technologies, Inc. (Filed as Exhibit 10.24 to the company's Annual Report on Form 10-K for
the year ended December 31, 2002 and incorporated by reference herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.25</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Form of 8% Convertible Secured Promissory Note by Alliance Pharmaceutical Corp. for the benefit of Photogen Technologies, Inc. (Filed as Exhibit 10.25 to the company's Annual Report on Form 10-K for the year ended
December 31, 2002 and incorporated by reference herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.26</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Amendment to the 8% Convertible Secured Note Purchase Agreement, 8% Convertible Secured Notes and Related Security Agreements dated as of February 26, 2003 by and among Alliance Pharmaceutical Corp., Photogen Technologies,
 Inc. and the other noteholders. (Filed as Exhibit 10.26 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated by reference herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10.27</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Warrant Agreement dated as of November 12, 2002 between Broadmark Capital LLC and Photogen Technologies, Inc. (Filed as Exhibit 10.27 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated by reference herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Subsidiaries of Registrant (Filed as Exhibit 21 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated by reference herein.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>23.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Consent of BDO Seidman, LLP, Independent Auditors (Photogen Technologies, Inc.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>23.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Consent of BDO Seidman, LLP, Independent Auditors (Sentigen, Ltd.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>23.3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>*</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Consent of Counsel (included in Exhibit 5.1)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>24.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%"><FONT SIZE=2>Power of Attorney (included on page&nbsp;S-2).</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>To
be filed by amendment. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>II-5</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2><A
NAME="ja2778_item_17._undertakings"> </A>
<A NAME="toc_ja2778_6"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 17.&nbsp;&nbsp;&nbsp;&nbsp;UNDERTAKINGS    <BR>  </B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>The
undersigned Registrant hereby undertakes:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2>To
include any prospectus required by Section&nbsp;10(a)(3) of the Securities Act of 1933;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD><FONT SIZE=2>To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to Rule&nbsp;424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(iii)</FONT></DT><DD><FONT SIZE=2>To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the
registration statement; </FONT></DD></DL>
</DD></DL>
</DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PROVIDED,
HOWEVER, that paragraphs (a)(1)(i)&nbsp;and (a)(1)(ii)&nbsp;do not apply if the registration statement is on Form&nbsp;S-3, Form&nbsp;S-8 or
Form&nbsp;F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant
to Section&nbsp;13 or Section&nbsp;15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. </FONT></P>

<UL>
<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. </FONT></DD></DL>
<BR>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>The
undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section&nbsp;13(a) or Section&nbsp;15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section&nbsp;15(d)
of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the successful </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>II-6</FONT></P>

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<UL>
<UL>

<P><FONT SIZE=2>defense
of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>The
undersigned Registrant hereby undertakes that:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>For
purposes of determining liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance
upon Rule&nbsp;430A and contained in a form of prospectus filed by the Registrant pursuant to Rule&nbsp;424(b)(1) or (4)&nbsp;or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>For
the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. </FONT></DD></DL>
</DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>II-7</FONT></P>

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<UL>
<UL>
</UL>
</UL>
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NAME="page_jc2778_1_1"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="jc2778_signatures"> </A>
<A NAME="toc_jc2778_1"> </A>
<BR></FONT><FONT SIZE=2><B>Signatures    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Act of 1933, Registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New Hope, State of Pennsylvania, on April&nbsp;22, 2003. </FONT></P>

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<TD WIDTH="39%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2><B>Photogen Technologies,&nbsp;Inc.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2><B><BR>
&nbsp;</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="4%"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%" ALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>TAFFY J. WILLIAMS</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Taffy J. Williams, Ph.D., President and<BR>
Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>S-1</FONT></P>

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<A NAME="page_jc2778_1_2"> </A>

<P><FONT SIZE=2><B>Power of Attorney  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We, the undersigned officers and directors of Photogen Technologies,&nbsp;Inc. hereby constitute Taffy J. Williams and Brooks Boveroux, each acting alone, our
true and lawful attorney-in-fact and agent (with full power of substitution) with full power to sign for us in our names in the capacities indicated below the registration
statement filed herewith and any and all amendments to said registration statement, to file the same, and generally to do all such things in our name and behalf in our capacities as officers and
directors to enable Photogen Technologies,&nbsp;Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, hereby
ratifying
and confirming our signatures as they may be signed by our said attorney-in-fact and agent to said registration statement and any and all amendments thereto. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the requirements of the Securities Act of 1933, this registration statement and Power of Attorney has been signed below by the following persons in the capacities and on the
dates indicated. </FONT></P>

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<TH WIDTH="39%" ALIGN="CENTER"><FONT SIZE=1><B>Signature</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="36%" ALIGN="CENTER"><FONT SIZE=1><B>Title</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER"><FONT SIZE=1><B>Date</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>TAFFY J. WILLIAMS</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Taffy J. Williams, Ph.D.</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
President, Chief Executive<BR>
Officer and Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
April 22, 2003</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>ROBERT J. WEINSTEIN</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Robert J. Weinstein, M.D.</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
April 22, 2003</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>LESTER H. MCKEEVER, JR.</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Lester H. McKeever, Jr.</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
April 22, 2003</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>GENE GOLUB</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Gene Golub</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
April 22, 2003</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>WILLIAM D. MCPHEE</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> William D. McPhee</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
April 22, 2003</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>ALAN D. WATSON</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Alan D. Watson</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
April 22, 2003</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>BROOKS BOVEROUX</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Brooks Boveroux</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Chief Financial Officer, Senior Vice President-Finance and Treasurer</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
April 22, 2003</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>S-2</FONT></P>

<HR NOSHADE>
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<BR>
<P><br><A NAME="03CHI2778_1">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_bg2778_1">TABLE OF CONTENTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_de2778_1">PROSPECTUS SUMMARY</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dg2778_1">RISK FACTORS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_di2778_1">FORWARD-LOOKING STATEMENTS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_di2778_2">DIVIDEND POLICY</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_di2778_3">MARKET FOR SECURITIES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_di2778_4">SELECTED FINANCIAL DATA</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_di2778_5">BUSINESS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_do2778_1">MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dq2778_1">MANAGEMENT</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ds2778_1">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ds2778_2">SUMMARY COMPENSATION TABLE</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_du2778_1">SELLING STOCKHOLDER</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2778_2">USE OF PROCEEDS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2778_3">PLAN OF DISTRIBUTION</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2778_4">DESCRIPTION OF SECURITIES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2778_5">WHERE YOU CAN FIND MORE INFORMATION</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2778_6">ABOUT THIS PROSPECTUS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2778_7">LEGAL MATTERS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2778_8">EXPERTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fa2778_1">Index to Financial Statements</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_fa2778_2">Report of Independent Certified Public Accountant</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fc2778_1">Consolidated&#160;Balance&#160;Sheets</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fe2778_1">Consolidated&#160;Statements&#160;of&#160;Operations</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_fe2778_2">Consolidated Statements of Shareholders&#146; Equity</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fh2778_1">Photogen Technologies, Inc. Consolidated Statements of Cash Flows</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fi2778_1">Photogen Technologies, Inc. Notes to Consolidated Financial Statement</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ja2778_1">PART II INFORMATION NOT REQUIRED IN PROSPECTUS</A></FONT><BR>
<UL>
<FONT SIZE=2><A HREF="#toc_ja2778_2">ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ja2778_3">ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ja2778_4">ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ja2778_5">ITEM 16. EXHIBITS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ja2778_6">ITEM 17. UNDERTAKINGS</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_jc2778_1">Signatures</A></FONT><BR>
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QuickLinks
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As filed with the Securities and Exchange Commission on April 23, 2003
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PHOTOGEN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of
incorporation or organization)
2834
(Primary Standard Industrial
Classification Code Number)
62-1742885
(I.R.S. Employer Identification No.)
140 Union Square Drive
New Hope, Pennsylvania 18938
215/862-6860
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Taffy J. Williams, Ph.D.
President and Chief Executive Officer
Photogen Technologies, Inc.
140 Union Square Drive
New Hope, Pennsylvania 18938
215/862-6860
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Theodore W. Grippo
Grippo & Elden
227 West Monroe, Ste. 3600
Chicago, Illinois 60606
(312) 704-7700
and
Dana C. Blakslee
Duane Morris LLP
470 Atlantic Avenue, Suite 500
Boston, MA 02210
(617) 289-9200
Approximate date of proposed sale to the public:
From time to time after this registration statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered
only in connection with dividend or interest reinvestment plans, check the following box. / X /
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. / /
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering. / /
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement for the
same offering. / /
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
Amount to
be Registered
Proposed Maximum
Aggregate Offering Price(1)
Amount of
Registration Fee(1)
Common Stock issuable upon exercise of Options
390,556
$683,473
$55.29
(1)
Estimated
pursuant to Rule 457(c) solely for purposes of calculating the registration fee, based upon the average of the high and low prices on April 17, 2003, as
reported on the NASDAQ SmallCap Market.
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
TABLE OF CONTENTS
PROSPECTUS SUMMARY
2
RISK FACTORS
4
FORWARD-LOOKING STATEMENTS
11
DIVIDEND POLICY
11
MARKET FOR SECURITIES
11
SELECTED CONSOLIDATED FINANCIAL DATA
12
BUSINESS
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
27
MANAGEMENT
35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
37
SELLING STOCKHOLDER
45
USE OF PROCEEDS
46
PLAN OF DISTRIBUTION
46
DESCRIPTION OF SECURITIES
47
WHERE YOU CAN FIND MORE INFORMATION
49
ABOUT THIS PROSPECTUS
49
LEGAL MATTERS
49
EXPERTS
49
INDEX TO FINANCIAL STATEMENTS
F-1
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
II-1
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
II-1
ITEM 16. EXHIBITS
II-2
ITEM 17. UNDERTAKINGS
II-6
i
Subject to completion, dated April 22, 2003
The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and
Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS
PHOTOGEN TECHNOLOGIES, INC.
390,556 Shares
COMMON STOCK
Gerald L. Wolf, Ph.D.,M.D., the selling stockholder, is offering up to 390,556 shares of our common stock. See "Selling Stockholder" beginning on
page 45 and "Plan of Distribution" beginning on page 47 of this Prospectus for more information regarding the sale of shares of common stock by Dr. Wolf.
We
will not receive any proceeds from the sale of the shares by the selling stockholder. See "Use of Proceeds" beginning on page 47 of this Prospectus for more information regarding the
use of proceeds.
Our
common stock is listed on the NASDAQ SmallCap Market under the symbol "PHGN". On March 28, 2003, the last reported sale price for the common stock was $2.40 per share.
SEE
"RISK FACTORS" BEGINNING AT PAGE 4 TO READ ABOUT CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is                    , 2003.
PROSPECTUS SUMMARY
This summary does not contain all the information that may be important to you. You should carefully read the entire prospectus, including the "Risk Factors"
beginning on page 4 and the financial statements and notes to those financial statements that appear elsewhere in this prospectus, before you decide whether to invest in our common stock.
In
November, 2002, we effected a one-for-four reverse split of our common stock and split off our therapeutic line of business. Unless otherwise indicated, all
data (including historical numbers) in this prospectus reflect the impact of the reverse split and split off of our therapeutic line of business.
Our Company
Photogen Technologies, Inc. and its 80.1% owned subsidiary Sentigen, Ltd. are collectively referred to as "Photogen," the "Company," "we," or "us."
In November, 2002, we effected a one-for-four reverse split of our common stock. Unless otherwise indicated, all data in this prospectus reflect the impact of the reverse
split.
During
the past two years, we have refocused our efforts on the development of medical imaging agents, including cardiovascular and lymphography contrast imaging agents. We accomplished
this shift in focus by splitting off our therapeutic line of business, as more fully described in "Recent Developments" below.
We
are currently an emerging, development-stage biopharmaceutical company focused on developing a novel contrast agent with potential applications (1) as a blood pool agent, to
diagnose diseased tissue in the cardiovascular system and other organs, and (2) to diagnose cancer metastasizing into the lymphatic system. We are the exclusive licensee of a group of
proprietary materials, the lead compound of which is a contrast agent we refer to as PH-50 or N1177. We established the two names to distinguish commercialization rights between
cardiovascular imaging (and all other indications) (PH-50) to which we retain rights, and the field of lymphography (N1177), which we licensed to our joint venture (Sentigen, Ltd.)
with affiliates of Elan Corporation, plc ("Elan").
Pharmaceutical
imaging agents are used with computed tomography ("CT"), nuclear medicine, echocardiography and magnetic resonance imaging ("MRI") equipment in order to increase the
diagnostic capabilities of these techniques. By enhancing the contrast between different types of tissues, these intravenously administered contrast agents provide critical anatomical and disease
state information that is not obtainable using the equipment alone. There are numerous potential applications for a contrast agent used in imaging parts or all of the cardiovascular system as well as
other organs. Our proposed products have the potential to enhance a physician's ability to diagnose certain cardiovascular abnormalities and the spread of cancer in the lymphatic system.
We
have no approved diagnostic products or operating revenues at this time; however, we have entered into a term sheet relating to a transaction with Alliance Pharmaceutical Corp.
("Alliance"). The term sheet gives us an exclusive option until April 19, 2003 to acquire all of the assets of Alliance related to medical imaging, including all manufacturing and marketing
rights to
Imagent
® (formerly
Imavist
™), Alliance's ultrasound imaging contrast
agent that was approved by the FDA for marketing in the United States in June, 2002 (the "
Imagent®
business"). We are currently negotiating
an extension of our exclusive option. It is anticipated that
Imagent
® will be ready to market in the third quarter of 2003. Our acquisition
of the
Imagent®
business is subject to certain contingencies, including our ability to raise the funds to finance the acquisition. See
"Recent Developments" below.
We
have 6 full-time employees. A majority of our employees hold Ph.D.'s or other advanced degrees. Our senior executive and clinical development team is based at our
corporate headquarters in New Hope, Pennsylvania, a suburb of Philadelphia. We have personnel with expertise in clinical
2
development, clinical trial design and regulatory approval processes. We also work closely with consultants experienced in drug development and regulatory requirements.
Our
principal executive offices are located at 140 Union Square Drive, New Hope, Pennsylvania. Our telephone number is (215) 862-6860. Our web site is located at
www.photogen.com
. Information on our
web site is not part of this prospectus.
The Offering
This prospectus covers up to 390,556 shares of the company's common stock, $0.001 par value per share, to be sold by Gerald L. Wolf, Ph.D.,M.D. the company's
former medical director and senior scientist.
Dr. Wolf
has options to acquire an aggregate of 390,556 shares of our common stock. Upon exercise of such options, Dr. Wolf may offer to sell such shares of common stock.
As
of March 5, 2003 there were 17,114,868 shares of our common stock outstanding. Assuming that Dr. Wolf exercises his options to acquire 390,556 shares of our common
stock, there will be an aggregate of 17,505,424 shares of our common stock issued and outstanding.
Our History
In May, 1997, Photogen Technologies, Inc. (formerly known as M T Financial Group, Inc. ("M T Financial")) acquired Photogen, Inc. through a
subsidiary merger. As a result, Photogen, Inc. became a wholly-owned subsidiary of M T Financial and then M T Financial changed its name to Photogen Technologies, Inc. In November, 2002,
we effected the split off of Photogen, Inc. and substantially all of the assets and all of the liabilities related to our therapeutic line of business, including a compound known as
PH-10, to our five founding stockholders (Drs. Wachter, Dees, Fisher and Scott and Mr. Smolik, who are collectively referred to as the "Tennessee Stockholders") in exchange for and
cancellation of all of their stock in Photogen Technologies, Inc. (5,137,109 shares). At that time, we also sold $9.0 million of our common stock to a group of institutional investors at
a price of $1.08 per share and effected a one-for-four reverse split of our common stock. In December, 2002 and the beginning of January, 2003, we sold an additional
approximately $3.0 million of our common stock at $1.08 per share to certain institutional investors and accredited individual investors. See "Recent Developments" below. In this offering, we
received $6,500,000 in cash and Tannebaum, LLC's $2,500,000 credit facility was eliminated and converted into 2,314,815 shares of common stock at $1.08 per share.
Available Information
Our website (
www.photogen.com
) is under development and at this time you cannot obtain copies of our SEC filings
on our website; however, you can obtain, free of charge, a copy of our filed annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports
on Form 8-K, and any amendments to those reports, our proxy statements and information statements by sending a request for such documents to our corporate secretary, Brooks
Boveroux, at 140 Union Square Drive, New Hope, PA 18938, or calling (215) 862-6860. Our filings are also available to the public from the SEC's website at
(www.sec.gov)
or at the SEC's Public
Reference Rooms in Washington D.C., New York, N.Y. and Chicago, IL. The Public Reference Room in Washington, D.C.
is located at 450 Fifth Street N.W. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room.
3
RISK FACTORS
You should carefully read the risks described below, together with all of the other information included in this prospectus, before you decide to buy any of our
common stock. The following are some of the key risk factors that may affect our future results:
We are a development stage company, we have conducted only limited studies on our products in development and we do not have any revenues from sales.
Our
company and our technologies are in early stages of development. We began our business as a biopharmaceutical company in 1997. We have not generated revenues from sales or
operations, and we do not expect to generate sufficient revenues to enable us to be profitable for at least several years, if at all.
The
drug products we currently contemplate developing will require costly and time-consuming research and development, preclinical and clinical testing and regulatory
approval before they can be commercially sold. We may not be able to develop our technology into marketable products or develop our technology so it is effective for diagnosis or treatment of human
diseases. As a result of changing economic considerations, market, clinical or regulatory conditions, or clinical trial results, we may shift our focus or determine not to continue one or more of the
projects we are currently pursuing.
We have a history of losses and we may not achieve or maintain profitability in the future or pay cash dividends.
We
have incurred losses since the beginning of our operations. As of December 31, 2002, we have incurred cumulative net losses (before dividends on preferred stock) of
approximately $28,745,194. We expect our losses to increase in the future as our financial resources are used for research and development, preclinical and clinical testing, regulatory activities,
manufacturing, marketing and other related expenses. We may not be able to achieve or maintain profitability in the future. We have never declared or paid any cash dividends to stockholders and do not
expect to do so in the foreseeable future.
We must raise additional financing in the future and our inability to do so will prevent us from implementing our business development plan.
During
2002, we sold $12,028,902 of our common stock to certain institutional investors and a group of individual accredited investors at a price per share of $1.08 ($2,500,000 of which
was from the conversion of our outstanding note payable to Tannebaum, LLC). Our cash and securities on hand at December 31, 2002, following the repayment of certain liabilities, was
approximately $6.1 million. We expect to have sufficient cash resources for our current commitments through the third quarter of 2003 (depending on the pace of our spending for preclinical and
clinical testing and other commitments, which, to an extent, we can adjust to preserve cash). We will need substantial additional financing for our research, clinical testing, product development and
marketing programs.
Through
March 20, 2003, we have provided bridge financing to Alliance of an aggregate of $2,458,000 evidenced by 8% convertible secured promissory notes (the "Alliance Notes")
issued pursuant to the Convertible Secured Note Purchase Agreement dated as of October 4, 2002 (the "Note Purchase Agreement"). Together with any other holders of notes issued pursuant to the
Note Purchase Agreement, we have liens on certain of the assets of Alliance. Our lien on the
Imagent®
-related assets is subordinate in
priority to liens held by Xmark Fund, L.P. and Xmark Fund, Ltd. (collectively, "Xmark"). As of March 31, 2003, there was approximately $4,750,000 of debt outstanding subject to the Xmark
liens. Our lien related to Alliance's Oxygent product is subordinate to a lien held by PFC Therapeutics, LLC ("PFC"). PFC is a joint venture between Alliance and Baxter Healthcare Corporation. Our
other liens on the assets of Alliance are first priority liens and give us a security interest in collateral not covered by the Xmark and PFC prior liens. Alliance has the right to make
4
payments of interest under the Alliance Notes in shares of its common stock. We have the right to convert the outstanding principal and interest under the Alliance Notes into shares of Alliance
common stock at the conversion price of $0.35 per share. Any shares of Alliance common stock we receive in lieu of cash interest payments may have a value less than the cash that we would otherwise be
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 financing we provided to Alliance.
We
cannot accurately estimate the amount of additional financing required to develop our products; however, the amount could be an additional $30 million or more over the next
several years. In particular, we are currently seeking to raise $15 to $20 million to acquire the
Imagent®
business from Alliance
through a private placement to accredited investors. Additional funds may not be available on acceptable terms, if at all, and existing stockholders may be diluted as a result of those offerings. The
pricing of our common stock, or other securities convertible into common stock, in any such transaction may also result in an increase in the number of shares of common stock issuable upon exercise of
warrants in accordance with the anti-dilution provisions in the instruments governing those securities.
Our proposed products are subject to extensive testing and government approval, and we may not obtain or maintain the approvals necessary to sell our proposed
products.
None
of our proposed imaging products has received the FDA's approval. An extensive series of clinical trials and other associated requirements must be completed before our proposed
products can be approved and sold in the U.S. or other countries. Requirements for FDA approval of a product include preclinical and clinical testing for effective use and safety in animals and
humans, which can be extremely costly. The time frame necessary to perform these tasks for any individual product is long and uncertain, and we may encounter problems or delays that we cannot predict
at this time. Even if testing is successful, our proposed products may not demonstrate sufficient effectiveness or safety to warrant approval by the FDA or other regulatory authorities. Any regulatory
approval may not cover the clinical symptoms or indications that we may seek. We must also obtain regulatory approvals comparable to those required in the U.S. to market our products in other
countries.
Our
proposed technologies and products generally must complete preclinical tests in animals and three phases of tests (also called clinical trials) in humans before we can market them
for use. Use of our technology has been limited primarily to laboratory experiments and animal testing, only N1177 has completed Phase 1 human clinical trials. We have not yet conducted substantive
studies on the effectiveness of our compounds on human subjects.
Our
results from early clinical trials may not predict results that we will obtain in large scale clinical trials, as a number of companies have suffered significant setbacks in advanced
clinical trials, even after promising results in early trials.
We
may not conduct additional Phase 2 or Phase 3 clinical trials for our products and such trials, if begun, may not demonstrate any efficacy or may not be completed successfully in a
timely manner, if at all.
The
rate of completion of our clinical trials depends upon, among other things, the rate of patient enrollment. Patient enrollment is a function of many factors, including the size of
the patient population for a particular indication, the nature of the clinical protocol under which our products will be studied, the proximity of the patient to a clinical site and the eligibility
criteria for the study. Delays in planned patient enrollment may result in increased costs, regulatory filing delays, or both.
Furthermore,
we, the FDA or other regulatory authorities may alter, suspend or terminate clinical trials at any time. If we do not successfully complete clinical trials and obtain
regulatory approval for a product, we will not be able to market that product.
5
Any products approved by the FDA will be subject to postmarket requirements of the FDA.
Approved
products are subject to numerous postmarket requirements by regulatory authorities. We will be subject to inspection and marketing surveillance by the FDA to determine our
compliance with regulatory requirements with respect to any approved products. If the FDA finds that we have failed 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;
•
recall
or seizure of our products;
•
operating
restrictions, partial suspension or total shutdown of production; and
•
criminal
prosecution.
Any
enforcement action by the FDA may also affect our ability to commercially distribute our products in the U.S.
Product liability claims could increase our costs and adversely effect our results of operations.
The
clinical testing, manufacturing and marketing of our product candidates may expose us to product liability claims, and we may experience material product liability losses in the
future. We maintain certain levels of product liability insurance for the use of our product candidates in clinical research, but our coverage may not continue to be available on terms acceptable to
us or adequate for liabilities we actually incur. A successful claim brought against us in excess of available insurance coverage, or any claim or product recall that results in significant adverse
publicity against us, may have a material adverse effect on our business and results of operations.
If we do not obtain and maintain patent or other protection of our core technologies (namely PH-50 for cardiovascular imaging and N1177 for our other lymphography
materials and methods), we may have difficulty commercializing products using these technologies.
Our
success depends in part on our ability to obtain, assert and defend our patents, protect trade secrets and operate without infringing the intellectual property of others. Among the
important risks in this area are that:
•
Our
patent applications may not result in issued patents. Moreover, any issued patents may not provide us with adequate protection of our intellectual
property or competitive advantages, and the law on the scope of patent coverage is continually changing.
•
Various
countries limit the subject matter that can be patented and limit the ability of a patent owner to enforce patents in the medical field. This may
limit our ability to obtain or utilize those patents internationally.
•
Existing
or future patents or patent applications (and the products or methods they cover) of our competitors (or others, such as research institutions or
universities) may interfere, invalidate, conflict with or infringe our patents or patent applications. Similarly, the use of the methods or technologies contained in our patents, patent applications
and other intellectual property may conflict with or infringe the rights of others.
•
If
an advance is made that qualifies as a joint invention, the joint inventor or his or her employer may have rights in the invention.
We
will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that these rights are covered by valid and enforceable patents or effectively
maintained as trade secrets. We own two patents in the U.S., and sixteen other patents in foreign countries including Australia, Canada, Japan and Germany. These patents relate to methods for
performing lymphography.
6
We have filed patent applications in the U.S. and under the PCT covering a number of foreign countries. These patent applications relate to the use of nanoparticulates, including PH-50,
as cardiovascular imaging agents and to deliver pharmacologically active substances for treatment of various diseases. We are also the exclusive licensee of a group of patented proprietary compounds
known as "nanoparticulates," including N1177 and PH-50 from Nycomed Imaging AS. We are the exclusive licensee of U.S. and foreign patent applications from Massachusetts General Hospital
which relate to diagnostic imaging agents and methods for using the diagnostic imaging agents for medical location, treatment and diagnosis of tumors and other diseased tissues.
Additional
patents may never be issued on any of the patent applications we own or license from third parties. Furthermore, even if such patents are issued, the validity of the patents
might successfully be challenged by a third party. The patents might not provide protection against competitive products or otherwise be commercially valuable, or the applications filed by others
might result in patents that would be infringed by the manufacture, use or sale of our products.
The
patent position of biopharmaceutical companies involves complex legal and factual questions and therefore we cannot assure the enforceability of these patents. Litigation over
patents and other intellectual property rights occurs frequently in our industry and there is a risk that we may not prevail in disputes over the ownership of intellectual property. Further, an
interference proceeding with the Patent and Trademark Office may be instituted over the rights to certain inventions and there is a risk that we may not prevail in such an interference proceeding.
Those disputes can be expensive and time consuming, even if we prevail. Intellectual property disputes are often settled through licensing arrangements that could be costly to us. In any intellectual
property litigation, it is possible that licenses necessary to settle the dispute would not be available on commercially reasonable terms or that we would not be able to redesign our technologies to
avoid any claimed infringement.
Confidentiality
agreements covering our intellectual property may be violated and we may not have adequate remedies for any violation. Third parties may challenge our existing patents
and seek to hold them invalid or unenforceable. Also, our intellectual property may in other ways become known or be independently discovered by competitors.
To
the extent we use intellectual property through licenses or sub-licenses (as is the case for some of our lymphography technology), our rights are subject to us performing
the terms of the license or sub-license agreement with third parties. Our rights are also subject to the actions of third parties we may not be able to control, such as our
sub-licensor complying with the terms of its license with the patent owner and the patent owner maintaining the patent.
Where
intellectual property results from a research project supported by Government funding, the Government has limited rights to use the intellectual property without paying us a
royalty.
We are highly dependent upon a small number of employees and consultants who provide management expertise, and it may be difficult to implement our business development plans
without this expertise.
These
individuals have entered into employment or consulting agreements, confidentiality and/or non-competition agreements with us. We could suffer competitive disadvantage,
loss of intellectual property or other material adverse effects on our business and results of operations if any employee or consultant violates or terminates these agreements or terminates his or her
association with us. Our growth and future success also depends upon the continued involvement and contribution from these individuals, as well as our ability to attract and retain highly qualified
personnel now and in the future.
We
currently employ three senior executive officers, including Dr. Williams (our Chief Executive Officer), Mr. Boveroux (our Chief Financial Officer) and
Dr. Reinhard Koenig (Senior Vice President of Medical and Regulatory Affairs). We also have retained consultants to advise us in regulatory affairs and product development matters. If we lost
the services of our executive officers or outside consultants, we could experience a delay in the implementation of our business plan until we arranged for another individual or firm to fulfill the
role.
7
The raw materials necessary for the manufacture of PH-50 and N1177 are supplied by one supplier and an interruption in availability of those materials may impair
our ability to test and market those products.
We
currently rely on Nanosystems, a division of Elan, as the sole supplier of the raw nanoparticulates used to manufacture PH-50 and N1177. There can be no assurance that
Nanosystems will continue to supply us with the raw materials that we need in a timely manner on conditions that are acceptable to us.
We have to rely on third parties and collaborative relationships for the manufacture, clinical testing and marketing of our proposed products, and it may be difficult to
implement our business development plans without these collaborations.
We
have had and expect to continue in the future to have a variety of research agreements with universities and other research institutions to investigate specific protocols. We also
contract and expect to continue to contract with research organizations and other third parties to manage clinical trials of our proposed products in development. We must continue to enter into
collaborative relationships with third parties for additional research and development, preclinical and clinical testing, marketing and distribution 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 of lymphography. Collaborative
relationships may limit or restrict our operations or may not result in an adequate supply of necessary resources. Our collaborative partner could also pursue alternative technologies as a means of
developing or marketing products for the diseases targeted by our collaborative program. If a third party we are collaborating with fails to perform under its agreement or fails to meet regulatory
standards, this could delay or prematurely terminate clinical testing of our proposed products.
Our potential markets are extremely competitive, and many of our competitors have greater resources and have products that are in more advanced stages of
development.
We
face substantial competition from competitors with greater financial, technical and human resources and with greater experience in developing products, conducting preclinical or
clinical testing, obtaining regulatory approvals, manufacturing and marketing. We understand that the existing market for radiopaque contrast agents is estimated to be approximately
$3.4 billion worldwide. The dominant uses of media are those employed in conjunction with CT/x-ray scans. Approximately half of the usage is in the U.S. Omnipaque®,
marketed by a unit of Amersham and is estimated to be the leading agent utilized in coronary angiography. Other companies marketing contrast agents include Mallinckrodt, Inc. (a unit of Tyco
International Ltd.), Berlex Laboratories, Inc.(a subsidiary of Schering) and Bracco.
Some
of these firms have drugs or devices that have completed or are in advanced stages of clinical trials and regulatory approvals. Others may develop technologies and obtain patent
protection that could render our technologies or products obsolete or less competitive or our patents invalid or unenforceable. Due to the inherent risk of failure associated with the testing,
development and production of new and innovative technologies, our technologies and products may be found to be ineffective, have unanticipated limitations or otherwise be unsuccessful in the
marketplace. Also, although we believe our estimates of the possible size of markets for our potential products are based on information we consider reliable (including data from the American Heart
Association, American Cancer Society and similar sources in the public domain), that data or our analysis of the data could prove incorrect.
Our products may not be fully accepted by physicians, laboratories and health insurance providers which would reduce our revenue and limit our ability to raise
capital.
Our
growth and success will depend upon market acceptance by physicians, laboratories and health insurance providers of our products. This requires acceptance of our products as
clinically useful and cost-effective alternatives to other medical imaging methods. In addition, physicians may utilize imaging
8
techniques other than those for which our products are being developed (such as MRIs) to image internal vasculature and organs and therefor, our products may not be utilized.
Changes in health care reimbursement policies or legislation may make it difficult for patients to use or receive reimbursement for using our products, which could reduce our
revenues.
Our
success will depend, in part, on the extent to which health insurers, managed care entities and similar organizations provide coverage or reimbursement for using the medical
procedures and devices we plan to develop. These third-party payers are increasingly challenging the price of medical procedures and services and establishing guidelines that may limit physicians'
selections of innovative products and procedures. We also cannot predict the effect of any current or future legislation or regulations relating to third-party coverage or reimbursement on our
business. We may not be able to achieve market acceptance of our proposed products or maintain price levels sufficient to achieve or maintain any profits on our proposed products if adequate
reimbursement coverage is not available. Failure by physicians, hospitals and other users of our products to obtain sufficient reimbursement from third-party payors for the procedures in which our
products would be used or adverse changes in
governmental and private third-party payors' policies toward reimbursement for such procedures would have a material adverse effect on our business.
A small group of stockholders controls Photogen, which may make it difficult for stockholders who are not in that group to influence management.
As
of December 31, 2002, a small group of stockholders control approximately 70.4% of our outstanding common stock. Several of our principal stockholders are also parties to a
Voting, Drag-Along and Right of First Refusal Agreement (the "Voting Agreement") concerning the election of certain designees to the Board of Directors. The Voting Agreement requires these
stockholders to vote their shares for the election of certain individuals nominated by parties to the Voting Agreement. This concentration of ownership and control may delay or prevent a change in
control of Photogen, and may also result in a small supply of shares available for purchase in the public securities markets. These factors may affect the market and the market price for our common
stock in ways that do not reflect the intrinsic value of the stock.
The price and trading volume of our common stock fluctuates significantly, like that of many biopharmaceutical companies, which may make it difficult for us or a stockholder to
sell our common stock at a suitable price and may cause dilution for existing stockholders when we issue additional shares.
During
the period from January 1, 2002 through December 31, 2002 the trading price of our common stock ranged from $8.38 to $1.00 per share. Daily trading volume ranged
from 0 (zero) shares to approximately 41,000 shares during that period.
The
market prices for securities of biopharmaceutical companies in general have been highly volatile and may continue to be highly volatile in the future. The following factors may have
an impact on the price of our common stock:
•
Announcements
by us or others regarding scientific discoveries, technological innovations, commercial products, patents or proprietary rights;
•
Announcements
by us concerning the licensing or other transactions of our products or technologies;
•
Private
sale of a significant block of our common stock at a price below the then current market price of our common stock and the subsequent registration
and sale of those shares;
•
The
progress of preclinical or clinical testing;
•
Developments
or outcome of litigation concerning proprietary rights, including patents;
•
Changes
in government regulation;
9
•
Public
concern about the safety of devices or drugs;
•
Limited
coverage by securities analysts;
•
The
occurrence of any of the risk factors described in this section;
•
Sales
of large blocks of stock by an individual or institution;
•
Changes
in our financial performance from period to period, securities analysts' reports, and general market conditions; and
•
Economic
and other external factors or a disaster or crisis.
Our common stock could be delisted from the NASDAQ SmallCap Market, which would make trading in our stock more difficult.
Since
November, 1999, our common stock has been quoted in the Nasdaq SmallCap Market. We received a letter dated September 25, 2002 from Nasdaq notifying us that our stock had
traded at less than $1 for a period of 30 consecutive trading days and that we had until March 4, 2003 to regain compliance with Marketplace Rule 4310(c)(4). On December 12, 2002,
we received notice from Nasdaq that we are again in compliance with the Marketplace Rule. Our shares could be delisted if we fail to meet the listing requirements of the Nasdaq SmallCap Market, which
would force us to list our shares on the OTC Bulletin Board or some other quotation medium, such as pink sheets, depending upon our ability to meet the specific listing requirements of those quotation
systems. As a result, an investor might find it more difficult to dispose of, or to obtain accurate price quotations for, our shares. Delisting might also reduce the visibility, liquidity and price of
our common stock.
If
our common stock were delisted from the Nasdaq SmallCap Market and were not traded on another national securities exchange, we could become subject to penny stock regulations that
impose additional sales practice disclosure and market making requirements on broker/dealers who sell or make a market in our stock. The rules of the SEC generally define "penny stock" to be common
stock that has a market price of less than $5.00 per share and is not traded on a national exchange. If our stock became subject to penny stock regulations, it could adversely affect the ability and
willingness of broker/dealers who sell or make a market in our common stock and of investors to purchase or sell our stock in the secondary market.
If stockholders holding substantial amounts of our common stock should sell their stock in the public market, the price of our stock could fall and it may be more costly for us
to raise capital.
As
of December 31, 2002:
•
We
had reserved approximately 7,062,401 shares of common stock for future issuance upon grants of options, or exercise or conversion of outstanding options
and warrants and convertible securities.
•
We
had approximately 2,343,366 shares eligible for sale in the public market free of restriction under Rule 144 of the Securities Act.
•
Approximately
11,912,779 shares of common stock are subject to agreements requiring us to permit the holders of the shares, under certain circumstances, to
join in a public offering of our stock or to demand that we register their shares for resale.
If
our options and warrants are all issued and exercised, investors may experience significant dilution in the voting power of their common stock. The sale of these shares could place downward
pressure on the overall market price of our stock.
10
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements. Forward-looking statements deal with our current plans, intentions, beliefs and expectations and
statements of future economic performance. Statements containing terms such as "believes," "does not believe," "plans," "expects," "intends," "estimates," "anticipates" and other phrases of similar
meaning are considered to imply uncertainty and are forward-looking statements.
Forward
looking statements involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from what is currently anticipated.
We make cautionary statements in certain sections of this prospectus, including under "Risk Factors." You should read these cautionary statements as being applicable to all related forward-looking
statements wherever they appear in this prospectus, in the materials referred to in this prospectus, in the materials incorporated by reference into this prospectus, or in our press releases. We
undertake no obligation to publicly update or revise any forward-looking statement for any reason, even if new information becomes available or other events occur in the future. In light of these
risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus, prospectus supplement or other documents incorporated by reference might not occur. No forward-looking
statement is a guarantee of future performance and you should not place undue reliance on any forward-looking statement.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We currently intend to retain all future earnings to fund the operation of our business and,
therefore, we do not anticipate paying dividends on our common stock in the foreseeable future. Future cash dividends, if any, will be determined by our Board of Directors. We do however pay an
in-kind dividend on our preferred stock as follows:
Series A Convertible/Exchangeable Preferred Stock
:    For a period of six years from the date of first issuance of the Series A
Convertible Preferred Stock ("Series A Preferred Stock") (October 20, 1999), each share of Series A Preferred is entitled to a mandatory in-kind dividend payable in
additional shares of Series A Preferred Stock at a rate of 7% (
i.e.
, 0.07 additional shares of Series A Preferred Stock). The
in-kind dividend is cumulative, compounds on a semi-annual basis and is payable twice a year, beginning April 2000. As of March 5, 2003 we have accrued
in-kind dividends of 2,301.2 shares of Series A Preferred
Stock to our Series A Preferred stockholder. As of March 5, 2003 there were 12,856 shares of Series A Preferred Stock issued and outstanding.
MARKET FOR SECURITIES
Our common stock trades on the Nasdaq SmallCap Market under the symbol "PHGN." The following table sets forth the quarterly high and low trading prices for our
common stock as reported by the Nasdaq SmallCap Market for the periods indicated, adjusted to reflect the one-for-four reverse split which was effected in November, 2002, which
prices do not reflect retail mark-up, markdown or commissions and may not represent actual transactions.
Year Ended
December 31, 2001
Year Ended
December 31, 2002
(Amounts in Dollars)
High
Low
High
Low
1
st
Quarter
28.50
6.00
6.36
2.52
2
nd
Quarter
8.00
3.72
5.20
3.12
3
rd
Quarter
9.40
4.00
1.20
1.32
4
th
Quarter
6.08
4.00
2.64
1.00
11
For the period January 1, 2003 through March 10, 2003, the high and low trading prices for our common stock were $2.78 and $0.90, respectively.
Aggregate trading volume for the period January 1, 2003 through March 10, 2003 was approximately 217,210 shares. On April 15, 2003 the high and low trading prices were $1.90 and
$1.78, respectively. The foregoing information for 2001, 2002 and 2003 reflects trade prices, and not bid or ask prices. See "Risk Factors—A small group of stockholders control Photogen,
which may make it difficult for stockholders who are not in that group to influence management," and "The price and trading volume of our common stock fluctuates significantly, which may make it
difficult for us or a stockholder to sell our common stock at a suitable price and may cause dilution for existing stockholders when we issue additional shares," above, regarding the possible effects
of the concentrated ownership of our common stock on the market and price of our common stock.
SELECTED FINANCIAL DATA
The following information is qualified by reference to and should be read in conjunction with our Consolidated Financial Statements and the Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of Operations included below. The selected financial data presented below for the years ended December 31, 1998, 1999,
2000, 2001 and 2002 have been derived from our audited financial statements.
1998
1999
2000
2001
2002
Net income (loss) from continuing operations
$
(615,972
)
$
(4,252,841
)
$
(8,144,199
)
$
(6,813,196
)
$
(9,935,203
)
Basic and diluted loss per common share from continuing operations (available to common shareholders)
$
(0.07
)
$
(0.48
)
$
(1.16
)
$
(1.03
)
$
(1.17
)
Total assets
$
8,060,585
$
23,304,829
$
19,652,037
$
14,202,639
$
16,738,414
Total liabilities
$
952,007
$
872,667
$
1,239,527
$
4,379,693
$
1,672,463
Total long-term obligations
$
35,990
$
18,356
$
1,554
$
3,063,165
$
401,664
12
BUSINESS
INTRODUCTION
During the past two years, we have refocused our efforts on the development of medical imaging agents, including cardiovascular and lymphography contrast imaging
agents. We accomplished this shift in focus by splitting off our therapeutic line of business, as more fully described in "Recent Developments" below.
We
are currently an emerging, development-stage biopharmaceutical company focused on developing a novel contrast agent with potential applications (1) as a blood pool agent, to
diagnose diseased tissue in the cardiovascular system and other organs, and (2) to diagnose cancer metastasizing into the lymphatic system. We are the exclusive licensee of a group of
proprietary materials, the lead compound of which is a contrast agent we refer to as PH-50 or N1177. We established the two names to distinguish commercialization rights between
cardiovascular imaging (and all other indications) (PH-50) to which we retain rights, and the field of lymphography (N1177), which we licensed to our joint venture (Sentigen, Ltd.)
with affiliates of Elan.
Pharmaceutical
imaging agents are used with CT, nuclear medicine, echocardiography and MRI equipment in order to increase the diagnostic capabilities of these techniques. By enhancing
the contrast between different types of tissues, these intravenously administered contrast agents provide critical anatomical and disease state information that is not obtainable using the equipment
alone. There are numerous potential applications for a contrast agent used in imaging parts or all of the cardiovascular system as well as other organs. Our proposed products have the potential to
enhance a
physician's ability to diagnose certain cardiovascular abnormalities and the spread of cancer in the lymphatic system.
We
have no approved diagnostic products or operating revenues at this time; however, we have entered into a term sheet relating to a transaction with Alliance. The term sheet gives us an
exclusive option until March 20, 2003 (which was extended by the parties until April 19, 2003 and which the further extension of is currently being negotiated) to acquire the
Imagent®
business. It is anticipated that
Imagent
® will be ready to market in
the third quarter of 2003. Our acquisition of the
Imagent®
business is subject to certain contingencies, including our ability to raise the
funds to finance the acquisition. See "Recent Developments" below.
We
have 6 full-time employees. A majority of our employees hold Ph.D.'s or other advanced degrees. Our senior executive and clinical development team is based at our
corporate headquarters in New Hope, Pennsylvania, a suburb of Philadelphia. We have personnel with expertise in clinical development, clinical trial design and regulatory approval processes. We also
work closely with consultants experienced in drug development and regulatory requirements.
CORE TECHNOLOGY
In 1999, we entered into an exclusive license for a group of proprietary materials, the lead compound of which was known as WN67722. At that time, the product was
being developed only for the field of lymphography. We now call this product N1177 (for use in the field of lymphography) or PH-50 (when referring to cardiovascular and all other
indications). The product designations PH-50 and N1177 refer to the same chemical compound. These materials are very small particles designed to travel through the circulatory or lymphatic
system (depending on how they are administered) and are called "nanoparticulates." The compound is covered by patents and patent applications filed in the U.S. and elsewhere. As part of the initial
acquisition of this product we also acquired patented methods for performing minimally invasive lymphography using x-ray, CT or MRI.
13
Cardiac and vascular imaging
According to 1998 statistics of the National Heart, Lung, and Blood Institute, ischemic heart disease is the leading cause of death in the U.S., accounting for
one of every five deaths. The American Heart Association (
www.americanheart.org
) estimates that approximately 1.1 million Americans suffer a
myocardial infarction ("MI") annually, and over 40 percent will not survive the event. Atherosclerotic coronary artery disease ("CAD") is the underlying cause of most ischemic cardiac events
and can result in MI, congestive heart failure, cardiac arrhythmias and sudden cardiac death. Clinically significant CAD is uncommon in men under 40 and pre-menopausal women, but risk
increases with advancing age
and in the presence of risk factors such as smoking, hypertension, diabetes, high cholesterol and family history of heart disease. Angina is the most common presenting symptom of myocardial ischemia
and underlying CAD, but in many persons the first evidence of CAD may be MI or sudden death. The American Heart Association estimates that 1-2 million middle-aged men
have asymptomatic but physiologically significant coronary disease, also referred to as silent myocardial ischemia. Over two million angiography procedures are conducted annually in the U.S. Although
mortality from heart disease has declined steadily over the past three decades in the U.S., the total burden of coronary disease is predicted to increase substantially over the next 30 years
due to the increasing size of the elderly population.
Development of PH-50
We are developing PH-50 to extend the clinical utility of x-ray based imaging, chiefly CT. The indications we envision for
PH-50 include: CT angiography (heart and peripheral blood vessels), assessment of whole-body disease burden of atherosclerosis, organ perfusion and cancer staging.
PH-50 is a contrast agent that is not penetrated by x-rays (called "radiopaque"). When injected systemically into the circulatory system (i.e., the blood stream), it remains
within the system mixing with the blood and flowing throughout the circulatory system. As the compound is radiopaque, a physician using a device such as a CT machine along with the contrast agent can
create an image of the desired area. In our preclinical studies we have obtained encouraging results that have been demonstrated by imaging heart, liver and other organs with results that are
comparable or superior to those obtained by currently available products. We believe that PH-50 could allow the imaging of the cardiovascular system (angiography) and other organs as a
non-invasive procedure, at lower cost and with reduced risk and morbidity.
We
are completing pre-clinical studies of PH-50 for potentially significant new applications in cardiovascular imaging and have filed for additional patent
protection of the use of the compound for vascular and organ imaging applications. We plan to develop PH-50 as a blood pool contrast agent for several indications. Based on considerable
existing preclinical studies and human clinical experience, we believe that we can commence further clinical studies in the near future. Our initial development strategy will be to evaluate
PH-50 in Phase 1 studies for cardiovascular and blood pool imaging using advanced CT and PH-50 as a contrast agent. We plan to conduct Phase 1 trials to assess safety and
patient tolerance of PH-50 as a cardiovascular imaging agent through intravenous administration in the fourth quarter of 2003. As part of the original acquisition and our further research,
we have a substantial body of safety information in both animals and humans. Pre-clinical toxicology and pharmacology data for PH-50/N1177 includes testing in multiple animal
models including studies in several models utilizing intravenous administration, which is the route of administration to be utilized in the cardiovascular indications. In animal experiments, our
investigators have shown that PH-50 can be used as an effective imaging agent to visualize cardiac structures after a single, low-dose intravenous injection/infusion. We have
an open investigational new drug application ("IND") with the FDA for the product in the lymphography indication. We intend to file an amendment to this application for the intravenous administration
of PH-50 for use as a blood pool agent.
14
Scaled-up
manufacturing of PH-50/N1177 is currently being performed for us by Elan through its Nanosystems division. Over the past two years, Nanosystems has
undertaken substantial work to manufacture PH-50 in compliance with the FDA's current Good Manufacturing Procedures ("GMP") regulations and in a scalable process sufficient to support
commercial quantities. Currently, Nanosystems is our sole supplier of the raw materials necessary to produce PH-50 and N1177. There can be no assurance that Nanosystems will continue to
supply us with the raw materials we need on terms that are acceptable to us.
Competition for PH-50
The existing market for radiopaque contrast agents is estimated to be approximately $3.4 billion worldwide. The dominant uses of media, totaling
86 percent, are those employed in conjunction with CT or x-ray scans. Approximately half of the usage is in the U.S. We believe that Omnipaque®, marketed by a unit of
Amersham, is the leading agent utilized in coronary angiography. Other companies marketing contrast agents include Mallinckrodt, Inc. (a unit of Tyco International Ltd.), Berlex
Laboratories, Inc. (a subsidiary of Schering), Abbott Laboratories and Bracco. Physicians also use other modalities, such as MRI and ultrasound, are also used by physicians to image internal
vasculature and organs. These modalities, including CT imaging, each have particular attributes that may make their use applicable to any particular situation.
Lymphography
Lymphography is a procedure used to determine if a patient's cancer has spread to the lymph nodes. The presence or absence of cancer in the lymph nodes is an
important indication of whether the disease has spread from the original tumor and the seriousness of the disease. It also provides oncologists with critical information to help determine the stage of
the disease and the appropriate course of treatment.
It
is generally accepted that breast cancer and melanoma are spread by way of the lymph system as do cancers of the lung, prostate and many other cancers. Clinical studies have
demonstrated that patients with cervical cancer have an increased survival rate if lymph nodes with cancerous tissue are removed. Effective treatment of these cancers can be aided by an early
assessment of the presence or absence of disease (micro-metastases) in the lymph nodes.
Patients
believed to have cancer currently are subjected to injections of blue dye or radioactive particles that track the materials to the general area of the lymph node. In some of
these diseases, the location of the lymph node is difficult to access. In the case of breast cancer, oncologists may remove 15-30 underarm lymph nodes for biopsy. Additional treatment will
be required if cancer is discovered. Approximately 80% of the patients diagnosed with breast cancer or melanoma who undergo these painful procedures are found to have no sign of disease in their
nodes.
The
particular properties of N1177 enable it to travel through the lymph system to the lymph nodes most likely to be affected if the cancer has spread. It is recognized by the body's
immune system as being a foreign body and thus is normally ingested by macrophage (cells that engulph foreign material in the body for eventual elimination). It is a particular characteristic of
tumors that they contain no or a minimal number of macrophage. N1177 is radiopaque and is seen on a CT scan as white areas. Tumors within a node, as they would not have retained N1177, are seen as
dark areas. The difference in contrast created by the presence or absence of the imaging agent serves as the basis to determine the presence or absence of disease. We expect that N1177 would remain in
the node to allow for an effective imaging procedure with a good safety profile and acceptable clearance times. A further benefit of these minimally invasive procedures is that they could be used
multiple times and therefore provide a means to monitor the results of cancer treatment and detect recurrence.
15
Development of N1177
We are developing N1177 through a joint venture with affiliates of Elan. Our goal is to demonstrate that the use of N1177 will enable physicians to precisely
locate tumorous nodes by first injecting the material in the vicinity of the tumor and then taking an image (picture) using a CT device.
Considerable
preclinical testing of N1177 has been conducted in multiple animal models. The results of these studies suggest a favorable safety and efficacy profile for N1177. Phase I
clinical studies to evaluate the safety of N1177 in a total of 65 patients have been completed. The results of the Phase I study involving 45 subjects indicate the safety and pharmacokinetic data are
consistent with safety, pharmacokinetic and metabolic data obtained in previous nonclinical safety and disposition studies. In addition, the number of nodes visualized showed a statistically
significant dose effect (an increase in the number of nodes visualized as the dose increased).
We
plan to commence Phase 2 clinical studies for detection of cancer metastasis in lymph nodes in patients with cervical cancer in 2003, subject to the availability of sufficient
capital. In this patient population, studies document an increase in survival when lymph nodes containing cancer are removed. Tumor identification by CT imaging will be correlated to the results of
biopsy results from patients undergoing surgery to demonstrate effectiveness in locating nodes and identifying those with cancer in them.
Competition for N1177
As with PH-50, N1177 will be subject to competition with other companies marketing contrast agents such as Amersham, Mallinckrodt, Inc. (a unit
of Tyco International Ltd.), Berlex Laboratories, Inc. (a subsidiary of Schering), and Bracco and with other methods of imaging, such as MRI and ultrasound.
Sentigen Ltd.—Joint Venture with Elan Corporation
In October, 1999, we entered into a joint venture with affiliates of Elan. The joint venture company, Sentigen Ltd., is developing N1177, a nanoparticulate
agent used to image lymph nodes to detect cancer. We own 80.1 percent of Sentigen with the balance being owned by affiliates of Elan. We licensed to Sentigen certain methods and other
proprietary technology for use in lymphography, and we sub-licensed to Sentigen proprietary compounds we had obtained by license from Massachusetts General Hospital and Nycomed Imaging AS.
Elan, through its drug delivery division, Elan Pharmaceutical Technologies, licensed to Sentigen its NanoCrystal™ stabilized nanoparticulate formulation technology to develop the
diagnostic imaging agents.
To
finance the initial capital requirements of Sentigen, including the licensing by Sentigen of certain technology, we sold to a unit of Elan $12,015,000 of our Series A Preferred
Stock. Elan may exchange the Series A Preferred Stock for a number of shares of Sentigen stock that will enable Elan to increase its ownership of Sentigen up to 50 percent.
Alternatively, Elan may convert the Series A Preferred Stock into Photogen common stock at a conversion price of $84.68 per share.
As
part of the joint venture agreement, Elan provided us with a $4.8 million credit facility to fund our share of the then anticipated development costs of the joint venture. On
November 12, 2002, all of the then outstanding principal and interest ($3,082,487) was converted at a price of $24.00 per share into 128,437 shares of our common stock and the line of credit
was cancelled.
Our
agreement with Elan provides that Elan has the right to nominate a member to our Board of Directors until October, 2004 or as long as Elan owns 10% of our common stock (Elan
currently owns less than 10% of our common stock). Elan also has a preemptive right to participate in our future equity offerings to maintain its pro rata interest in Photogen. Elan agreed not to
exercise this
16
preemptive right in connection with our recent sale of common stock to certain institutional and accredited investors.
RECENT DEVELOPMENTS
Split Off Transaction
From our inception, we were involved in two lines of business:
•
Diagnosis
of diseased tissue
•
Treatment
of diseased tissue
In
the past, our research and development efforts followed this dual focus. We worked to develop therapies to treat cancer, pre-cancerous conditions, psoriasis and other
dermatological conditions, using our proprietary multi-photon laser technologies, or using an agent called PH-10 with a variety of energy sources in a regimen called photodynamic therapy,
or the activation of a substance by an energy source to achieve a therapeutic effect. We have also been developing products, N1177 and PH-50, to diagnose the spread of cancer to a
patient's lymph nodes and to diagnose cardiovascular disease, respectively.
Our
pursuit of both diagnostic and therapeutic lines of businesses led to a number of challenges. We found it increasingly difficult to raise capital with such a diverse product pipeline
and to concentrate our efforts on a particular application from inception through development. In order to attract capital investment and to take advantage of what we perceived to be the best market
opportunities for our proposed products, we concluded that it was necessary to devote our efforts and resources to the development of our medical imaging diagnostic technologies rather than the
therapeutic technologies.
We
believe the medical need and economic potential of both PH-50 (for cardiovascular diagnostics) and N1177 (for lymphography) is of such significance that we decided to
focus substantially all of our development efforts and resources in this area for the foreseeable future. We entered into a Separation Agreement with the Tennessee Stockholders in order to enhance our
ability to secure additional financing and pursue market opportunities, to enable the Tennessee Stockholders to focus on the development of therapeutic technologies arising from their inventions, and
to resolve any differences of opinion with them as to how to allocate financial and management resources.
We
separated the therapeutic and diagnostic lines of business by first transferring substantially all assets and liabilities associated with the diagnostic business to Photogen
Technologies, Inc. and retaining substantially all assets and liabilities associated with the therapeutic business in Photogen, Inc. Then,
Photogen Technologies, Inc., Photogen, Inc. and the Tennessee Stockholders engaged in a split off transaction in which the Tennessee Stockholders transferred all of their common stock of
Photogen Technologies, Inc. to the company for redemption in exchange for all of the common stock of Photogen, Inc. The Tennessee Stockholders beneficially owned 5,137,109 shares of
Photogen Technologies, Inc. common stock (approximately 52.9% of the outstanding shares), and those shares were subsequently cancelled by Photogen Technologies, Inc.
Aidan
King, who was previously appointed to our Board of Directors by Elan, declined to serve on our Board of Directors in November, 2002. Dr. Wachter, one of the Tennessee
Stockholders, resigned as a director and officer of Photogen upon the effectiveness of the split off transaction. Dr. Scott, also a Tennessee stockholder, resigned as an officer of Photogen
upon the effectiveness of the split off transaction.
Financing Transaction
In November, 2002, we sold $9,000,000 of our common stock at a price of $1.08 per share to a group of institutional investors which included Mi3, L.P. ("Mi3"),
Oxford BioScience Partners IV L.P.
17
and MRNA Fund II L.P. (collectively, the "Institutional Investors"). In this offering, we received $6,500,000 in cash and Tannebaum, LLC's $2,500,000 credit facility was eliminated and converted into
2,314,815 shares of common stock at $1.08 per share. Tannebaum, LLC was at that time controlled in part by Dr. Weinstein, one of our directors.
In
December, 2002, we consummated a second closing of the financing transaction and sold an additional 2,804,539 shares of our common stock at $1.08 per share for an aggregate of
$3,028,902 to a group of institutional investors and individual accredited investors. The final closing of the financing took place in January, 2003 at which time we sold an additional 27,778 shares
of our common stock at $1.08 per share for an aggregate of $30,000 to two individual accredited investors.
As
part of the financing transaction, we entered into a Registration Rights Agreement requiring us to file a registration statement with the SEC within 45 days of the
closing of the financing transaction to cover the Institutional Investors' sales of the shares. The Institutional Investors in the financing transaction have deferred the implementation of this
requirement.
As
part of the financing transaction, the Institutional Investors entered into the Voting Agreement with Dr. Weinstein, Stuart Levine (individually and as co-trustees
of the Theodore Tannebaum Trust) and Tannebaum, LLC (collectively, the "Chicago Stockholders"). The Voting Agreement provides, among other things, that each of its parties will vote all shares of
which it is the beneficial owner as follows:
•
To
maintain the total number of directors at seven.
•
To
amend our Articles of Incorporation or Bylaws in accordance with the recommendation of five of the seven directors.
•
For
the election of the following directors:
•
One
person nominated by Mi3 (William D. McPhee);
•
One
person nominated by the holders of 80% of the shares owned by the Institutional Investors (Alan Watson, Ph.D.);
•
One
person nominated by the holders of 80% of the shares owned by the Chicago Stockholders (Dr. Weinstein);
•
One
person appointed by our Board of Directors as the Chief Executive Officer (Taffy Williams, Ph.D.)
•
One
person nominated by Elan International Services, Ltd. ("EIS") in accordance with and subject to our October 20, 1999 Securities Purchase
Agreement with EIS (this position is currently vacant); and
•
Two
persons (or three if EIS's right to nominate a director expires) with industry experience in the healthcare, biotech or pharmaceutical industries, as
nominated by our Board of Directors and approved by the holders of 80% of the shares beneficially owned by the Institutional Investors (Gene Golub and Lester McKeever, Jr.).
•
To
maintain an Audit Committee and Compensation Committee of the Board, each with three members, and to appoint one director to serve on each Committee
nominated by the holders of 80% of the shares owned by the Institutional Investors (Mr. McPhee).
The
Voting Agreement also provides that none of its parties will sell, transfer, pledge, grant any option for, or otherwise dispose of any of their shares of company stock except in compliance with
the Voting Agreement. Following the closing of the financing, Mr. McPhee was appointed to the Photogen Board of Directors in accordance with our bylaws.
18
As a condition to the closing of the financing transaction:
•
All
of our Series B Convertible Preferred Stock (the "Series B Preferred Stock") was converted into common stock at the initial closing of the
financing transaction. In exchange for this conversion we agreed that the conversion ratio of the Series B Preferred Stock would change from 1.44703 (the conversion ratio after taking into
consideration all issuances of common stock before the institutional financing) to 4.25. The result was that all of the Series B Preferred Stock was converted into a total of approximately
422,316 shares of common stock; the Series B Preferred Stock is no longer outstanding, nor is there any liquidation preference associated with the Series B Preferred Stock.
•
All
of the outstanding principal and accrued interest under the Elan line of credit was converted into a total of 128,437 shares of our common stock.
One-for-Four Reverse Stock Split
In connection with the closing of the financing transaction, we were required to make a one-for-four reverse stock split of our
outstanding common stock. The reverse split was accomplished by amending our Articles of Incorporation. The reverse split was effective in November, 2002.
Amendment of the 2000 Long Term Incentive Compensation Plan
We adopted the 2000 Long Term Incentive Compensation Plan (the "2000 Plan") at our annual meeting of stockholders held in May, 2000. As of July 15, 2002,
500,000 shares were reserved for issuance under the 2000 Plan and options covering 133,750 of these shares of common stock had been granted. Our Board of Directors believed that the availability of
additional options to purchase common stock was necessary to enable us to continue to provide our key employees with equity ownership as an incentive to contribute to our success. Also, increasing the
number of shares subject to the 2000 Plan was a condition to the closing of the institutional financing required by the Institutional Investors. Thus, our Compensation Committee voted to amend the
2000 Plan to increase the shares covered by the 2000 Plan by 4,068,750 shares from 500,000 to 4,568,750; and to modify the definition of "cause" in the 2000 Plan to coordinate with employment
agreements. The stockholders approved the amendment of the 2000 Plan to increase the aggregate number of shares of common stock issuable
under the 2000 Plan from 500,000 to 4,568,750 and approved the amendment of the definition of the term "cause" at our annual meeting of the stockholders held on October 31, 2002. In addition,
the Compensation Committee approved a reduction in the shares reserved under our Senior Executive Long Term Incentive Compensation Plan by 250,000 shares (the total number reserved is now capped at
1,000,000 shares which was effective concurrently with the increase under the 2000 Plan).
Elan Agreement with the Institutional Investors
We are parties to a joint venture with affiliates of Elan to develop lymphography technologies carried out through Sentigen, Ltd. As part of the joint
venture arrangements, among other things, we issued EIS (i) 115,385 shares of our common stock and a warrant to acquire additional shares of common stock, (ii) 12,015 shares of our
Series A Preferred Stock, and (iii) a convertible note in the original principal amount of $4,806,000. After issuance, the Series A Preferred Stock was transferred to Elan
Pharmaceutical Investments II, Ltd. ("EPI"). The principal and interest outstanding under the promissory note ($3,082,487.30) were converted into 128,437 shares of our common stock in
connection with the November, 2002 financing.
The
Certificate of Designations, Rights and Preferences (the "Certificate of Designations") of the Series A Preferred A Preferred Stock provides that upon liquidation, dissolution
or winding up of the company (whether voluntary or involuntary), the holder of the Series A Preferred Stock is entitled to a liquidation preference (the "Series A Liquidation
Preference") of cash or other property out of funds
19
legally available for distribution to our stockholders, before any distribution is made to the holders of common stock or other securities ranking junior to the Series A Preferred Stock. The
amount of the Series A Liquidation Preference is $1,000 per share. As of April 20, 2003, the total Series A Liquidation Preference (including accrued but unpaid dividends
in-kind) was $15,285,440.
One
of the conditions to the closing of the financing transaction was that the holder of our Series A Preferred Stock amend the Certificate of Designations to eliminate the
Series A Liquidation Preference. In consideration of eliminating the Series A Liquidation Preference, the Series A conversion price would have been lowered to $12.00 from $84.68
per share.
Immediately
before our 2002 annual meeting of stockholders, we were informed that the holder of the Series A Preferred Stock could not proceed with these amendments to the terms
of the Series A Preferred Stock. To induce the Institutional Investors to proceed with the closing of the financing, on November 12, 2002, Elan entered into an agreement (the "Elan
Agreement") with the Institutional Investors. The Elan Agreement provides that Elan will pay the Institutional Investors an amount in cash (or the fair market value of other property) distributed to
the holder of the Series A Preferred Stock on account of the Series A Liquidation Preference that, in the absence of the Series A Liquidation Preference would have been paid to
those Institutional Investors in accordance with applicable law, up to a maximum of $16,000,000. Only the Institutional Investors are beneficiaries of the Elan Agreement. The Elan Agreement was
ratified, adopted and approved by the Photogen common stockholders on
January 24, 2003. The Series A Liquidation Preference remains in effect and the conversion price for the Series A Preferred Stock is still $84.68 per share.
Potential Acquisition of Certain Assets of Alliance Pharmaceutical Corp.
On November 21, 2002, we executed a term sheet with Alliance giving us an exclusive option to acquire the
Imagent
business.
Imagent®
is Alliance's ultrasound contrast agent that was approved by the
FDA for marketing in the U.S. in June, 2002.
The
acquisition is subject to completion of due diligence, negotiation of definitive agreements and other contingencies, including our obtaining financing for the acquisition. Under
certain circumstances, if the acquisition does not occur, Alliance may be required to pay a break-up fee to us. The financing structure contemplated by the term sheet includes our
providing bridge financing for
Imagent®
activities prior to the acquisition, our payment to Alliance of a cash payment and Photogen common
stock at closing and future royalty payments based upon product sales.
Imagent®
is an intravenous contrast agent for use with ultrasound imaging equipment to improve visualization of blood vessels
for better diagnosis of disease and assessment of organ function.
Imagent®
consists of perfluorochemical-based "microbubbles" that reflect
ultrasound signals strongly in the bloodstream and thereby enhance ultrasound images). The initial indication is for use in patients with suboptimal echocardiograms to opacify the left ventricular
chamber and to improve the delineation of the left ventricular endocardial border. Follow-on indications, if approved by the FDA, potentially include use for body imaging for detection of
cancer in solid organs (liver, kidney, prostate, etc.), as well as for perfusion (i.e., the measurement of blood flow). Additional clinical studies are planned by Alliance to support these additional
indications. Currently,
Imagent®
qualifies for reimbursement by the Centers for Medicare and Medicaid Services in all medical settings for
cardiology at rates ranging from $95-$150 per vial.
Through
March 20, 2003, we have provided bridge financing to Alliance of an aggregate of $2,458,000 evidenced by the Alliance Notes issued pursuant to the Note Purchase Agreement.
Together
with any other holders of notes issued pursuant to the Note Purchase Agreement, we have liens on certain of the assets of Alliance. Our lien on the
Imagent®
-related assets is subordinate in priority
to liens held by Xmark Fund, L.P. and Xmark Fund, Ltd. As of March 31,
2003, there was
20
approximately $4,750,000 of debt outstanding subject to the Xmark liens. The collateral covered by the prior Xmark liens includes: intellectual property, license rights, accounts, contract rights and
general intangibles arising under or relating to license rights and certain other contracts, all equipment located at Alliance's San Diego manufacturing facility, the approved new drug application
relating to the
Imagent®
business, all cash held as cash collateral, and all inventory related to the
Imagent®
business. Our
lien on the assets related to Alliance's Oxygent product is subordinate to a lien held by PFC Therapeutics, LLC ("PFC"). PFC is a joint venture between Alliance and Baxter Healthcare Corporation. The
collateral covered by the prior PFC lien includes: intellectual property, income, royalties and payments related to Alliance's Oxygent product.
Our
other liens on the assets of Alliance are first priority liens and give us, together with any other noteholders under the Note Purchase Agreement, a security interest in all
equipment, inventory, goods, accounts, general intangibles, fixtures, documents, deposit accounts, instruments and investment properties, proceeds not covered by the Xmark and PFC prior liens.
Alliance
has the right to make payments of interest under the Alliance Notes in shares of its common stock. We have the right to convert the outstanding principal and interest under the
Alliance Notes into shares of Alliance common stock at the conversion price of $0.35 per share. Any shares of Alliance common stock we receive in lieu of cash interest payments may have a value less
than the cash that we would otherwise be owed. Any shares of Alliance common stock that we receive from Alliance will be restricted securities and subject to Rule 144 trading restrictions. We
have certain demand and piggyback registration rights with respect to any shares of Alliance common stock that we receive under the terms of the Note Purchase Agreement.
The
Imagent®
business of Alliance we may acquire includes:
•
Imagent®
, an FDA-approved product with an expected launch in the third quarter of
2003;
•
an
FDA-approved manufacturing facility;
•
$2 million,
in sales value, of inventory;
•
the
right to hire a 45-person operating organization; and
•
a
portfolio of intellectual property in imaging technology and ultrasound imaging contrast agents, including over 30 patents.
Alliance
has a worldwide development and commercialization agreement for
Imagent®
with Schering that was amended in February,
2002 to give Alliance exclusive rights to market the product in the U.S. until February, 2007, with Schering to be paid a nominal royalty on such sales. Alliance may also obtain exclusive rights to
market the product internationally in exchange for the payment of additional
royalties to Schering. At the expiration of the period, Alliance has the right to pay all of any remaining royalty obligation to Schering and thus retain all rights to the product on a worldwide
basis, or alternatively, to allow Schering the opportunity to obtain co-promotion rights along with Alliance. It is anticipated that the Schering agreement would be assigned to us if we
consummate the acquisition of the
Imagent®
business.
Our
ability to consummate the acquisition of the Alliance assets is subject, among other conditions, to our ability to raise funds for the acquisition. We are seeking to raise $15 to
$20 million through the sale of our common stock or other securities in a private placement to fund the closing date cash payment for the acquisition of the
Imagent®
business and to provide
working capital for future operating expenses.
Our
exclusive option to acquire the medical imaging assets of Alliance expired on April 19, 2003 and the extension thereof is currently being negotiated. If we obtain the
necessary financing prior to the expiration of the exclusive option we intend to proceed to close the transaction, subject to
21
Photogen shareholder approval of the issuance of additional shares of our common stock in connection with the financing and other conditions. We are in active discussions with several financing
sources, but we cannot give assurances that we will obtain the necessary financing. There can be no assurance that:
•
we
will be able to obtain an extension of our exclusive option on acceptable terms;
•
Alliance
will be in a financial position to repay us in full the outstanding amounts due under the terms of the Alliance Note if we do not consummate a
transaction; and
•
Alliance's
employees will agree to become employees of Photogen if we consummate a transaction with Alliance and offer employment to those employees or that
the
Imagent®
business will be profitable to us.
DEVELOPMENT AND COMMERCIALIZATION STRATEGY
Our overall strategy is to leverage our proprietary technologies through contractual collaborations with third parties. In particular, we plan to:
•
Utilize
the company as a platform for the acquisition and/or licensing of technologies in related fields.
•
Conduct
preclinical research studies of our products using third party laboratories and/or clinicians to conduct preclinical trials. We intend to use the
expertise of these third party clinicians to collect data necessary to obtain IND's (an Investigational New Drug application with the FDA) required to begin human trials.
•
Utilize
our clinical development team and contractual collaborative arrangements with third parties to access the skills and resources required to design,
test, obtain regulatory approval and manufacture our potential products.
•
Market
potential products through the use of an internal sales force or strategic or distribution collaborations as determined by the specific
characteristics of each product application.
We
currently do not generate any revenues from operations. If we develop a saleable product, we expect to generate revenues from product sales or licensing fees and royalties. Currently,
we have not developed any products that are available to manufacture or sell to the public nor do we have a pricing structure for any potential products; however, we have an exclusive option to
acquire
Imagent
® from Alliance, which is expected to be ready to launch for sale to the public in the third quarter of 2003 and we may
generate revenues from those sales. See "Risk Factor—We are a development stage company, we have conducted only limited studies on our products in development and we do not have any
revenues from sales," above.
Our
ability to develop and manufacture any product successfully is subject to numerous contingencies and uncertainties, including certain "Risk Factors" described below. Our objectives,
business strategy and product development efforts are subject to change based on numerous factors, including the results of preclinical and clinical testing, the availability of suitable collaborative
relationships, the nature of competition, regulatory requirements and the availability of capital. The description of our business and business strategy contains forward-looking statements that should
be read in conjunction with the "Risk Factors" described above.
22
PATENTS
We are continuing to pursue patent protection for our proprietary technologies with the U.S. Patent and Trademark Office and in various foreign jurisdictions. We
plan to prosecute, assert and defend our patent rights whenever appropriate. However, securing patent protection does not necessarily assure us of competitive success. See "Risk Factors—If
we do not obtain and maintain patent or other protection of our core technologies (namely PH-50 for cardiovascular imaging and N1177 for our lymphography materials and methods), we may
have difficulty commercializing products using these technologies," above. We currently own two patents issued by the U.S. Patent and Trademark Office and sixteen patents issued in various foreign
jurisdiction and that are summarized generally below:
•
Method
of diagnosing disease of the lymph nodes through indirect lymphography (U.S. Patent No. 5,114,703)
•
Method
of diagnosing disease of the lymph nodes through indirect lymphography using ultrasound or MRI (U.S. Patent No. 5,496,536)
These
patents expire on May 30, 2009 and March 15, 2013, respectively.
We
currently have two patent applications pending in the U.S. and one application filed under the Patent Cooperation Treaty ("PCT") which are directed to the use of nanoparticulates including
PH-50 for cardiovascular imaging and for delivery of pharmacologically active substances.
We
have an exclusive license (subject to certain limitations) from Massachusetts General Hospital and Nycomed Imaging AS for the exclusive world-wide right to make, market,
distribute and sell products using (i) the subject matter covered in pending U.S. and foreign patent applications relating to the research, development, manufacture and commercialization of
diagnostic imaging agents for medical location, treatment and diagnosis of tumors and other diseased tissues or other material and (ii) the patent rights related to N1177 in the research,
development, manufacture and commercialization of human ethical pharmaceutical products containing the diagnostic imaging compound N1177.
In
addition, through our joint venture with affiliates of Elan, we have granted Sentigen a license of certain methods we had previously acquired from Alliance and a sublicense of our
MGH/Nycomed license for use in the research, development, manufacture and commercialization of nanoparticulate x-ray, CT and/or MRI diagnostic imaging agents using radio-opaque molecules
containing iodine that passively target lymph nodes involved in a diseased state following parenteral administration to a mammal to locate, diagnose and/or treat cancer and/or other diseases.
We
are continuing to pursue patent protection for our other proprietary technologies with the U.S. Patent and Trademark Office, under the Patent Cooperation Treaty and in various foreign
jurisdictions.
Some
of our patented or licensed technology arose from research that was partially funded by the U.S. Government ("Government"). As with other entities whose research is sponsored in any
manner by the Government, certain patents that we own or license are subject to Confirmatory Licenses in favor of the Government, as required by applicable federal regulations. These regulations
require us or the patent owner to agree to convey to the Government, upon the Government's request, rights in the technology if we decide not to continue prosecution of the patent applications or if
the patent owner does not wish to retain title to the inventions covered in the patents. The Government also retains certain "march in rights" that permit the Government to use the technology under
certain circumstances, including if that action is necessary because we or the patent owner have not taken or are not expected to take effective steps to achieve practical application of the
inventions; it is necessary to alleviate health or safety needs not being met by us or the patent owner; or to meet the requirements for public use specified in certain federal regulations and those
requirements are not
23
being met by us or the patent owner. We intend to prosecute patent applications and in other respects develop patents we own so that the Government will not exercise its rights under these
Confirmatory Licenses.
"Photogen"
is a trademark of Photogen. We have filed an application for registration of the mark Photogen in the U.S. This application is pending. All other trademarks or trade names
used in this Registration Statement are trademarks or trade names of their respective owners.
GOVERNMENT REGULATIONS
All of the products we currently contemplate developing require approval by the FDA prior to sales being made within the U.S. and by comparable foreign agencies
prior to sales being made outside the U.S. The FDA and comparable regulatory agencies impose substantial requirements on the manufacturing and marketing of pharmaceutical products and medical devices.
These agencies and other entities extensively regulate, among other things, research and development activities and the testing, manufacturing, quality control, safety, effectiveness, labeling,
storage, record keeping, approval, advertising and promotion of our proposed products. See "Risk Factors—Our proposed products are
subject to extensive testing and government approval, and we may not obtain the approvals necessary to sell our proposed products," above.
The
regulatory process required by the FDA through which our products must successfully pass before they may be marketed in the U.S. generally involves the following:
•
Preclinical
laboratory and animal testing;
•
Submission
of an application that must become effective before clinical trials may begin;
•
Adequate
and well-controlled human clinical trials to establish the safety and efficacy of the product for its intended indication; and
•
FDA
approval of the application to market a given product for a given indication.
For
imaging and pharmaceutical products, preclinical tests include laboratory evaluation of the product, its chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. Where appropriate (for example, for human disease indications for which there exist inadequate animal models), we will attempt to obtain preliminary data
concerning safety and efficacy of proposed products using carefully designed human pilot studies. We will require sponsored work to be conducted in compliance with pertinent local and international
regulatory requirements, including those providing for Institutional Review Board approval, national governing agency approval and patient informed consent, using protocols consistent with ethical
principles stated in the Declaration of Helsinki and other internationally recognized standards. We expect any pilot studies to be conducted outside the U.S.; but if any are conducted in the U.S.,
they will comply with applicable FDA regulations. Data obtained through pilot studies will allow us to make more informed decisions concerning possible expansion into traditional
FDA-regulated clinical trials.
If
the FDA is satisfied with the results and data from preclinical tests, it will authorize human clinical trials. Human clinical trials are typically conducted in three sequential
phases, which may overlap. Each of the three phases involves testing and studying specific aspects of the effects of the pharmaceutical on human subjects, including testing for safety, dosage
tolerance, side effects, absorption, metabolism, distribution, excretion and clinical efficacy.
Data
from preclinical and clinical trials are submitted to the FDA in an NDA for marketing approval and to foreign regulatory authorities under applicable requirements. Preparing an NDA
or foreign application involves considerable data collection, verification, analyses and expense, and there can be
no assurance that the applicable regulatory authority will accept the application or grant an approval on a timely basis, if at all. The marketing of pharmaceuticals in the U.S. may not begin
24
without FDA approval. The approval process is affected by a number of factors, including primarily the safety and efficacy demonstrated in clinical trials and the severity of the disease. Regulatory
authorities may deny an application in their sole discretion, if they determine that applicable regulatory criteria have not been satisfied or if additional testing or information is required. One of
the conditions for initial marketing approval, as well as continued post-approval marketing, is that a prospective manufacturer's quality control and manufacturing procedures conform to
the GMP regulations of the regulatory authority. In complying with these regulations, a manufacturer must continue to expend time, money and effort in the area of production, quality control and
quality assurance to ensure full compliance. Manufacturing establishments, both foreign and domestic, also are subject to inspections by or under the authority of the FDA and by other federal, state,
local or foreign agencies. Discovery of previously unknown problems with a product or manufacturer may result in restrictions on such product or manufacturer, including withdrawal of the product from
the market.
We
have established a core clinical development team and have been working with outside regulatory consultants to assist us in developing product-specific development and approval
strategies, preparing the required submittals, guiding us through the regulatory process, and providing input to the design and site selection of human clinical studies. The testing and approval
process requires substantial time, effort and financial resources, and we may not obtain FDA approval on a timely basis, if at all. Success in preclinical or early-stage clinical trials does not
assure success in later stage clinical trials. The FDA or the research institution sponsoring the trials may suspend clinical trials or may not permit trials to advance from one phase to another at
any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Once issued, the FDA may withdraw a product approval if we do not
comply with pertinent regulatory requirements and standards or if problems occur after the product reaches the market. If the FDA grants approval of a product, the approval may impose limitations,
including limits on the indicated uses for which we may market a product. In addition, the FDA may require additional testing and surveillance programs to monitor the safety and/or effectiveness of
approved products that have been commercialized, and the agency has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.
Further, later discovery of previously unknown problems with a product may result in restrictions on the product, including its withdrawal from the market. Marketing our products abroad will require
similar regulatory approvals by equivalent national authorities and is subject to similar risks.
In
the ordinary course of business, we must also comply with a variety of other federal and state governmental regulations. These regulations impose, among other things, standards of
conduct, record keeping, labeling and reporting.
Specific
regulations affecting our current and proposed operations include: environmental-type discharge requirements, good laboratory practices governing animal testing,
good manufacturing practices regarding the manufacture of drugs and other FDA-regulated products, animal care and use regulations, laws and regulations relating to labor, and required
general business practices. We do not currently anticipate that the cost of compliance in these areas, other than obtaining FDA approval, will present a major obstacle to achieving our goals.
Another
area of regulation that will impact our business is the recent developments in health care reimbursement and delivery practices as a means to better control health care costs.
See "Risk Factors—Changes in health care reimbursement policies or legislation may make it difficult for patients to use or receive reimbursement for using our products, which could reduce
our revenues," above.
COMPETITION
The industry in which we operate is intensely competitive, and subject to significant change with respect to technology for the diagnosis and treatment of
disease. Existing or future pharmaceutical and
25
device companies, government entities and universities may create developments that accomplish similar functions to our technologies in ways that are less expensive, receive faster regulatory
approval or receive greater market acceptance than our potential products. See "Risk Factors—Our potential markets are extremely competitive, and many of our competitors have greater
resources and have products that are in more advanced stages of development," above.
Our
competitors have, in general, been in existence for considerably longer than we have, and may have greater capital resources and access to capital; greater internal resources for
activities in research and development, clinical testing and trials, production and distribution; existing collaborative relationships with third parties. See "Risk Factors—We have to rely
on third parties and collaborative relationships for the manufacture, clinical testing and marketing for our proposed products, and it may be difficult to implement our business development plans
without these collaborations," above.
The
existing market for radiopaque contrast agents is estimated by Frost & Sullivan to be approximately $3.4 billion worldwide. The dominant uses of media, totaling
86 percent, are those employed in conjunction with CT or x-ray scans. Approximately half of the usage is in the U.S. Omnipaque®, marketed by a unit of Amersham, is
believed to be the leading agent utilized in coronary angiography. Other companies marketing contrast agents include Mallinckrodt, Inc. (a unit of Tyco International Ltd.), Berlex
Laboratories, Inc. (a subsidiary of Schering) and Bracco.
In
addition to CT or x-ray scans, other modalities, such as MRI and ultrasound, are also used by physicians to image internal vasculature and organs. These modalities,
including CT imaging, each have particular attributes that may make their use applicable to any particular situation.
PROPERTIES
We have a three-year lease agreement for approximately 6,164 square feet of office space located in New Hope, Pennsylvania. The initial term expires
in August, 2004. The lease also permits us to extend the lease for two additional three-year terms. This space is being used for our executive officer headquarters and for our clinical
development group.
To
our knowledge, the property and equipment in our New Hope location are in good condition. In the opinion of management, our interest in this facility is adequately covered by
insurance.
LEGAL PROCEEDINGS
We are not involved in any material pending legal proceedings.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Portions of the discussion in this item contain forward-looking statements and are subject to the Risk Factors described above.
The
accompanying financial statements have been prepared assuming we are a going concern. Management believes it lacks sufficient working capital to fund operations for the entire fiscal
year ending December 31, 2003 without additional debt or equity financing. The 2002 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 this uncertainty.
We
are an emerging, development-stage biopharmaceutical company focused on developing a novel contrast agent with potential applications (1) as a blood pool agent, to diagnose
diseased tissue in the cardiovascular system and other organs, and (2) to diagnose cancer metastasizing into the lymphatic system. We are the exclusive licensee of a group of proprietary
materials, the lead compound of which is a contrast agent we refer to as PH-50 or N1177. The product designations PH-50 and N1177 refer to the same chemical entity. We
established the two names to distinguish commercialization rights between cardiovascular imaging (and all other indications) (PH-50) to which we retain rights, and the field of
lymphography (N1177), which we licensed to our joint venture (Sentigen, Ltd.) with affiliates of Elan.
In
December 2001, we announced positive preclinical results of PH-50. Based on these studies, the extensive preclinical toxicology and other study work, including the
product's use in approximately 65 patients for lymphography, we shifted the strategic direction of Photogen to focus on the cardiovascular and lymphography applications. We plan to focus our efforts
on these high value opportunities. We have not completed development of any diagnostic product or process at this time and have no revenue from operations. We have entered into a term sheet with
Alliance which gives us the exclusive option to acquire all of the medical imaging assets of Alliance, including
Imagent
®, an FDA approved
intravenous contrast agent for use with ultrasound imaging equipment.
As
of April 8, 2002, we entered into a credit facility that provided us with a $2,500,000 revolving line of credit, bearing interest at 4.65%, for a period of five years. The loan
was secured by a lien on all of our assets. The amount outstanding under the credit facility ($2,500,000) was converted into our
common stock at $1.08 per share on November 12, 2002. In aggregate, from November 12, 2002 through January 2, 2003, we consummated the closings of a financing in which we sold
11,165,651 shares of our common stock to a group of institutional investors and individual accredited investors at $1.08 per share, for an aggregate of $12,058,902, including the above conversion of
$2.5 million of debt outstanding under the revolving credit line.
Without
additional financing we may not have sufficient cash resources for our current commitments beyond the third quarter of 2003 (depending on the pace of our spending for preclinical
and clinical testing and other commitments, which, to an extent, we can adjust to preserve cash). We will need substantial additional financing for our research, clinical testing, product development
and marketing programs. We cannot accurately estimate the amount of additional financing required; however, the amount could be an additional $30 million or more over the next several years. In
particular, we are currently seeking to raise $15 to $20 million to acquire assets from Alliance through the sale of stock to accredited investors. See "Risk Factors—We must raise
additional financing in the future and our inability to do so will prevent us from implementing our business plan," above.
In
addition, through March 20, 2003, we have loaned Alliance an aggregate of $2,458,000 evidenced by the Alliance Notes. Together with any other holders of notes issued pursuant
to the Note Purchase Agreement, we have liens on certain of the assets of Alliance. Our lien on the
27
Imagent®
-related assets is subordinate in priority to liens held by Xmark Fund, L.P. and Xmark Fund, Ltd. 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 by PFC. Our other liens on the assets of Alliance are first
priority liens. Alliance has the right to make payments of interest under the Alliance Notes in shares of its common stock. We have the right to convert the outstanding principal and interest under
the Alliance Notes into shares of Alliance common stock at the conversion price of $0.35 per share. Any shares of Alliance common stock we receive in lieu of cash interest payments may have a value
less than the cash that we would otherwise be owed. Any shares of Alliance common stock that we receive from Alliance will be restricted securities and subject to Rule 144 trading restrictions.
We have certain demand and piggyback registration rights with respect to any shares of Alliance common stock that we receive under the terms of the Note Purchase Agreement.
As
of December 31, 2002, we recorded $1,255,000 of notes receivable in connection with advances that we made to Alliance in exchange for the Alliance Notes. As described above,
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. Based upon our security interest in the
Alliance assets and the estimated value of those assets, management believes that a reserve for the value of the notes receivable is not currently necessary. However, 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.
We
operate with a small staff of managers to oversee and direct third party contractors and perform administrative functions. We contract with third party consultants having expertise in
clinical development and regulatory matters to supplement our internal capabilities. We also contract with third
party research laboratories, contract research organizations and manufacturers for clinical material supplies and the management of clinical trials. We also contract with academic and other
institutions to conduct specified research projects.
We
expect that our quarterly and annual results of operations will fluctuate based on several factors including, the timing and amount of expenses involved in conducting our research
programs, particularly the conduct of clinical trials, the cost of clinical material used in those trials and required for compliance with FDA regulations and the amount, if any, of fees, milestone
payments and research support payments received from potential strategic partners.
We
consider our investment in the joint venture with affiliates of Elan to be subject to a significant estimate. The carrying value of our 80.1% equity interest in Sentigen, Ltd.,
the joint venture entity, plus advances to Sentigen, Ltd., at December 31, 2002 totaled $8,192,452. Sentigen's management reviewed its financial projections and has concluded that given
delays in the development of N1177, resulting from capital constraints, the carrying value of the intangible assets in the joint venture should be reduced by $2,500,000. The assumptions underlying the
financial forecasts were based on currently available information, including estimates of development costs, pricing, operating expenses and market sizes and penetration. These estimates may change
and any such changes may impact future estimates of appropriate carrying values. Currently, we do not believe any further impairment to our investment is necessary.
Results of Operations
Our efforts have been focused on the development and clinical testing of diagnostic products. To date, we have not generated revenues from the sale of any
proposed diagnostic products or other operations. Net loss applicable to common shareholders (after preferred dividends) was $13,491,813, $12,666,771 and $1,649,604 for the years ended
December 31, 2000, 2001 and 2002, respectively, and
28
our cumulative losses since inception, including "in-kind" preferred stock and beneficial conversion dividends totaling $7,646,229, are approximately $36,391,423.
Since
inception, Photogen had been developing products for both therapeutic and medical imaging applications. As one of a series of transactions on November 12, 2002, we split off
our therapeutic business to certain founding shareholders. Accordingly, the expenses associated with that business have been reclassified as discontinued operations.
Research
and development expenses for the years ended December 31, 2000, 2001 and 2002 were $1,665,450, $437,958 and $1,227,897, respectively. These expenses include personnel
costs, fees and other compensation paid to outside consultants, and costs associated with conducting preclinical studies and manufacturing product to be used in these studies.
Research
expenses in 2001 decreased by $1,227,492 to $437,958. The reduction was due principally to lower expense levels following the closing of our Westborough, MA facility in
October 2000, including the one-time credit in 2000 of $810,000 to Sentigen.
Research
expenses in 2002 increased by $789,939 to $1,227,897 primarily due to the shift in research spending to the development of PH-50, a product having greater market
potential than N1177. Expenses associated with the development of PH-50 are borne completely by Photogen, whereas expenses associated with the development of N1177 are charged to our joint
venture.
General
and administrative expenses were $5,095,442, $3,220,584 and $4,030,083 for the years ended December 31, 2000, 2001, and 2002, respectively. These expenses include costs
associated with obtaining patent protection for our intellectual property, costs associated with administrative personnel and corporate management, the amortization of warrants granted to a service
provider, legal and related expenses and facilities expenses.
In
2001, general and administrative expenses were reduced by $1,874,858 primarily due to the completion of the amortization of warrants granted to a service provider.
In
2002, expenses increased by $809,499 to $4,030,083. As part of the November, 2002 restructuring and financing, stock options were granted to the remaining employees of Photogen with
an exercise price equal to the price at which common stock was sold to the new institutional investors. As the exercise price was below the closing price of the company's common stock at the date of
grant, we recorded an expense of approximately $988,000 reflecting the differential between those two prices.
In
September, 2000, we initiated a restructuring of our clinical development operations. We closed our Westborough, Massachusetts office and delivered notices of material breaches and/or
dissatisfaction pursuant to the employment agreements with three employees who worked there at that time. Clinical development activities formerly carried on in Westborough were assumed by outside
consultants and other Company employees. We initially took a charge against earnings of $597,025 for termination of our office lease and associated expenses and termination costs associated with the
employees at that location. During 2002, we recorded an additional charge of $807,483 all of which was related to the valuation of certain stock options granted to one of the Westborough employees as
part of a settlement of certain litigation. At December 31, 2002, none of this charge was remaining.
In
the fourth quarter of 1999, we entered into a joint venture with affiliates of Elan for the development of N1177, a potential product to identify and diagnose lymph nodes for the
presence of cancer. We own 80.1% of the joint venture entity, Sentigen, Ltd., with the balance owned by Elan. During 2000, 2001, and 2002 we recorded losses from the joint venture of
$1,203,392, $1,952,758 and $3,452,837 respectively. These losses resulted from our share of development expenses incurred in the joint venture by the two participants, including personnel expenses and
costs associated with developing
a manufacturing process, including the purchase of drug substance and other materials. As there have been delays, principally due to capital constraints, on the development of N1177, Sentigen recorded
in
29
2002 a $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.
In
accordance with the joint venture agreement between Photogen and Elan, we charged certain research and development work performed at the Westborough facility to Sentigen. As part of
the restructuring of our clinical development operations, we conducted an internal review of the activities conducted at Westborough during 2000 and concluded that the joint venture should not be
charged for those activities. Accordingly, in the third quarter of 2000, we reversed the billings previously made to Sentigen and recorded the entire amount of research and development costs on our
financial statements. The effect on us was an increase in research and development costs for 2000 of $810,000 less a decrease in the loss from Sentigen of $649,000.
Investment
income for the years ended December 31, 2000, 2001 and 2002 was $417,110, $110,741 and $1,563, respectively. Investment income is generated by the amount of capital in
our investment portfolio prior to it being used to fund our operations and the rate of interest earned on that capital. We invest funds in the investment portfolio in U.S. Government obligations. In
the first quarter of 2000, we raised a total of $5,276,340 from the issuance of Series B Preferred Stock to qualified investors. In the first half of 2001, we received a total of $1,068,723 in
net proceeds of common stock sold under our shelf registration statement that was declared effective in February, 2001. Investment income declined in 2001 due primarily to the decline in the average
balances of our investment portfolio as funds were used to support operations and, to a lesser extent, the general decline in short term interest rates. In 2002, investment income declined to $1,563
as the entire portfolio was used to support operating expenses
.
We expect investment income to continue to fluctuate both as the size of the investment
portfolio decreases or increases and as the rate of interest earned by the portfolio varies due to shifts in short term interest rates.
As
one of a series of transactions on November 12, 2002, we split off our therapeutic business to certain founding shareholders. Accordingly, the expenses associated with that
business have been reclassified as discontinued operations. Our therapeutic business had been focused on the development of certain photodynamic therapy products, in particular a compound we call
PH-10. In the years ended December 31, 2000, 2001 and 2002, we incurred losses related to these operations of $2,642,863, $2,909,820 and $1,496,430, respectively. On
November 12, 2002 this business was split off to certain founding shareholders in exchange for all of their 52.9% ownership interest in Photogen resulting in a gain from the split off of
$11,779,752 based upon the market value of our common stock on that date, net of the net assets that were split off.
Purchases
of equipment and leasehold improvements for the years ended December 31, 2000, 2001 and 2002 were $516,186, $45,938 and $0, respectively. These purchases were primarily
for the acquisition of laboratory and other equipment necessary to conduct pre-clinical and clinical studies and leasehold improvements in the Knoxville and Westborough offices. During the
next twelve months we expect capital expenditures for equipment to be insignificant.
During
2001, as a result of the closing of the Westborough facility and the shift in the research priorities, we determined that certain equipment we were leasing would no longer be
useful in our research. Accordingly, we recorded provisions for future lease payments totaling $1,264,208 representing the remaining lease obligations. While we will pursue opportunities to sublease
or otherwise mitigate these obligations, there can be no assurance of any success in this regard.
We
had two series of convertible preferred stock outstanding: Series A, issued in October 1999 and Series B Preferred Stock, issued in February 2000. The
holder of Series A Preferred Stock is entitled to a mandatory, cumulative, semi-annual payment-in-kind dividend of 7% (i.e., 0.07 additional shares of
Series A Preferred Stock). On November 12, 2002, the holders of Series B Preferred Stock converted all of their issued and outstanding shares (including accrued and unpaid
dividends) for shares of our common stock at an exchange rate of 4.25 (pre-reverse split) shares of common for each share of
30
Series B Preferred Stock. Additionally, the terms of the Series A Preferred Stock and the Series B Preferred Stock create additional preferred returns for the holders. The
Series A Preferred Stock was issued with detachable warrants. The value allocated to those warrants caused the preferred shareholders to receive an additional return. That additional return has
been amortized over the period from issuance through October 2001, when the stock was first convertible. The additional return related to the Series A Preferred Stock recorded was
$480,928 in 2000 and $345,199 in 2001. The Series B Preferred contained beneficial conversion features. Emerging Issues Task Force Issue 98-5, "Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios," requires the issuer to assume that the holder will not convert the instrument until the time of the most beneficial
conversion which would occur after January 1, 2002. Using the conversion ratio at January 1, 2002 of 1.4 shares of common stock and the stock price at the date of issuance, the maximum
beneficial conversion amount was $2,322,316. This amount was recorded as additional preferred stock dividends over the period from issuance until January 1, 2002. As a result of the combination
of the mandatory dividends, the preferential value amortization and, in 2002, deemed dividends for our Series B Preferred Stock associated with the beneficial conversion rates offered to
holders of these instruments as part of our November 12, 2002 financing, we recorded preferred stock dividends of $2,704,751, $2,943,755 and $1,997,723 in 2000, 2001 and 2002 for
Series A Preferred Stock and Series B Preferred Stock.
As
a result of the above factors, the net loss applicable to common stockholders (after preferred dividends) was $13,491,813, $12,666,771 and $1,649,604 for the years ended
December 31, 2000, 2001 and 2002 respectively. Basic and diluted loss per common share was $1.44, $1.33 and $0.16, respectively, for these periods.
Liquidity; Capital Resources
At December 31, 2002, we had cash and cash equivalents totaling approximately $6,090,904. Until November 12, 2002 we had $2.0 million
available under a $4.8 million credit line from Elan under which we could borrow to fund our portion of the losses incurred by the joint venture. Borrowings under this
facility bore interest at 8% per annum, and were either repayable in 2005 or convertible, at Elan's election, into our common stock. On April 8, 2002, we entered into a credit facility that
provided us with a $2,500,000 revolving line of credit, bearing interest at 4.65%, for a period of five years. The loan was secured by a lien on all of our assets. In connection with our agreement to
sell shares of our common stock to a group of institutional investors, both the amount outstanding, including accrued and unpaid interest, under the Elan credit line ($3,082,487.30) (at a conversion
rate of $24.00 per share) and the $2,500,000 credit facility (at a conversion rate of $1.08 per share) were converted into shares of our common stock on November 12, 2002 and the credit
facilities were cancelled.
With
the proceeds of the financing we closed in November and December 2002 and January 2003, we believe we have sufficient capital to carry out planned activities into the
third quarter of 2003. Our ability to conduct operations beyond that date is entirely dependent on our ability to obtain additional capital. If we raise additional funds by issuing equity securities,
substantial dilution to existing stockholders may result. However, there can be no assurance that such capital will be available under acceptable terms, if at all. See "Risk Factors—We
must raise additional financing in the future and our inability to do so will prevent us from implementing our business development plan," above.
We
have used, and expect over the next 12 months to use the capital available from sales of common stock, for general corporate purposes, including activities related to preparing
for and conducting clinical trials, purchase and preparation of clinical material, conduct of preclinical studies, administrative expenses to support our research and development activities, capital
expenditures and to meet working capital needs. Proceeds from the sale of our common stock to the institutional investors
31
in 2002 must be used for the following purposes (including related general and administrative costs) in the following order or priority, unless otherwise authorized by a majority of our Board:
•
To
seek FDA approval for the use of PH-50 (our cardiovascular diagnostic technology) as a CT contrast agent.
•
To
seek FDA approval for the use of N1177 (being developed through our joint venture with Elan) as a lymphography contrast agent.
•
To
perform pre-clinical exploration of the use of PH-50 to identify vulnerable plaque.
•
To
acquire or license compounds to build a product pipeline for the company.
$1,500,000
of the proceeds raised in our sale of common stock in 2002 will be used in connection with the possible acquisition of certain assets of Alliance. The remaining $1,558,902 raised from
individual
accredited investors in December 2002 and January 2003 will be used for general corporate purposes, including loans and additional bridge financing to Alliance.
We
plan to raise $15 to $20 million of capital in order to acquire certain assets of Alliance, including
Imagent
® and
to provide the working capital necessary to launch
Imagent
® and finance our operations. We engaged Thomas Weisel Partners LLC to assist us
in our efforts to privately place our securities to raise such funds. In addition, we expect to evaluate from time to time the acquisition or license of businesses, technologies or products. The
purchase of any such licenses or technologies would be funded by a portion of any net proceeds of future offerings or the issuance of debt or equity securities specifically for that purpose. We also
expect our use of capital to increase as we conduct further clinical trials.
Our
only long-term commitment that is not recorded on our financial statements is for our office space in Pennsylvania. Annual rent for this lease, which expires in 2004, is
approximately $190,765.
Plan of Operation
Management believes it lacks sufficient working capital to fund operations for the entire fiscal year ending December 31, 2003. Therefore, substantial
additional capital resources will be required to fund the ongoing operations related to our research and business development activities. As noted in the report of our independent auditors, the report
includes a paragraph that notes that the company's financial condition raises substantial doubt about its ability to continue as a going concern. We believe there are a number of potential
alternatives available to meet the continuing capital requirements such as public or private financings or collaborative agreements. We are taking continuing actions to reduce our ongoing expenses. If
adequate funds are not available, we will be required to significantly curtail our operating plans and may have to sell or license out significant portions of our technology or potential products. The
2002 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.
During
the next twelve months, depending on the availability of sufficient capital, we will focus our efforts primarily on the development of PH-50 and N1177 and the possible
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
regulatory bodies and acquire quantities of clinical grade drug formulations of these products. We expect to continue to incur increasing losses for at least the next three years as we intensify
research and development, preclinical and clinical testing and associated regulatory approval activities and engage in or provide for the manufacture and/or sale of any products that we may develop.
If we acquire the medical imaging assets of Alliance, including
Imagent
®, we would devote a substantial portion of our efforts to the
marketing, sale and manufacturing of
Imagent
®.
32
Greater
capital resources would enable us to quicken and expand our research and development activities, and our failure to raise additional capital will (absent a suitable collaborative
agreement providing for a third party to take over these functions) significantly impair or curtail our ability to conduct further research and development activities and our ability to seek
regulatory approval for any possible product resulting from that research. In any event, complete development and commercialization of our technology will require substantial additional funds. See
"Risk Factors—We must raise additional financing in the future and our inability to do so will prevent us from implementing our business plan," above. We are actively seeking to raise $15
to $20 million through the sale of our common stock or other securities in a private placement to fund the acquisition of Alliance's medical imaging assets and to provide working capital
necessary to fund our operations.
Recent Accounting Pronouncements
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results
of Operations, Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business.
The provisions of SFAS 144 are effective for fiscal years beginning after December 15, 2001. The company has recorded the split-off of its therapeutic business as a
discontinued operation in accordance with SFAS 144.
In
June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. Examples of costs covered by the standard include lease
termination cost and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance
provided by EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) is replaced by this Statement. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Management does not anticipate that
the adoption of this Statement will have a significant effect on the company's financial statements.
In
November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness
of Others" ("Interpretation"). This Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also
clarifies that at the time a Company issues a guarantee, the company must recognize an initial liability for the fair market value of the obligations it assumes under that guarantee and must disclose
that information in its interim and annual financial statements. The initial recognition and measurement provisions of the Interpretation apply on a prospective basis to guarantees issued or modified
after December 31, 2002.
In
January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." The objective of this interpretation is to provide guidance on
how to identify a variable interest entity ("VIE") and determine when the assets, liabilities, noncontrolling interests and results of operations of a VIE need to be included in a company's
consolidated financial statements. A company that holds variable interests in an entity may need to consolidate the entity if the company's interest in the VIE is such that the company will absorb a
majority of the VIE's expected losses and/or receive a majority of the entity's expected residual returns, if they occur. Interpretation No. 46 also requires additional disclosures by primary
beneficiaries and other significant variable interest holders. The
33
provisions of this interpretation became effective upon issuance. The company believes that Sentigen will be considered a VIE; however, the company does not expect its accounting for its interest in
Sentigen to change.
In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation and
requires pro forma disclosures of the effect on net income and earnings per share had the fair value method been used to be included in annual and interim reports and disclosure of the effect of the
transition method used if the accounting method was changed, among other things. SFAS No. 148 is effective for annual reports of fiscal years beginning after December 15, 2002 and
interim reports ending after December 15, 2002. The Company plans to continue using the intrinsic value method of accounting for stock-based compensation and, therefore, the new rule will have
no effect on the company's financial condition or results of operations. The Company adopted the new standard related to disclosure effective December 15, 2002.
Quantitative and Qualitative Disclosures about Market Risk
The primary market risk that could impact us is the fluctuation in interest rates related to our investments in Government bonds. As our investments all have
short-term maturities, the investment return reflects the current market rates. To date, we have not engaged in any derivative or hedging activities.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes in or disagreements with our accountants regarding accounting and financial disclosure.
34
MANAGEMENT
The following table sets forth information as of March 30, 2003, regarding our directors and executive officers:
Name
Age
Position
Taffy J. Williams, Ph.D.(1)
53
Director, President and Chief Executive Officer
Robert J. Weinstein, M.D.(1)(3)
57
Director
Lester H. McKeever, Jr.(2)(3)
68
Director, Chairman of the Audit Committee
Gene Golub(2)
72
Director
Alan D. Watson
50
Director
William D. McPhee(1)(2)(3)
49
Director
(1)
Member
of the Executive Committee
(2)
Member
of the Audit Committee
(3)
Member
of the Compensation Committee
A
brief discussion of the business experience of each director during the past five years is set forth below.
Taffy J. Williams, Ph.D.—President, Chief Executive Officer and Director
Dr. Williams has served as President, Chief Executive Officer and a Director of the company since May 17, 2000. Prior to joining the company,
Dr. Williams served as CEO and President of PANAX Pharmaceuticals for two and half years and President of InKine Pharmaceuticals for two years. He received his Bachelor of Science in Chemistry
from the University of Notre Dame and his Ph.D. in Chemistry from the University of South Carolina.
Robert J. Weinstein, M.D.—Director
Dr. Weinstein has served as a Director of the company since May 16, 1997. He is currently a private investor. During the last five years,
Dr. Weinstein served as Chief Executive Officer of HMO America, Inc. and subsequently held the same position in United HealthCare of Illinois when United HealthCare acquired HMO America
in 1993. On January 1, 1996 he became a consultant to United HealthCare Corporation. He received his medical degree from Chicago Medical School and received a B.A. from Hunter College in New
York.
Lester H. McKeever, Jr.—Director
Mr. McKeever has served as a Director of the company since June 17, 1998. Mr. McKeever is Managing Principal of the firm of Washington,
Pittman & McKeever, LLC, a Chicago, Illinois firm of certified public accountants and consultants providing a broad range of professional services, and has held a similar position with that
firm since 1976. Mr. McKeever is a former Chairman of the Federal Reserve Bank of Chicago, a position Mr. McKeever held for three years ending December 31, 1999, and he serves as
a director of MBIA Insurance Corp. of Illinois, Worldwide Broadcasting, Inc., People's Energy Corporation, and Printing Specialties, Inc. Mr. McKeever also serves on several
not-for-profit boards and
councils, including the Chicago Urban League (formerly Chairman of the Board), Business Advisory Counsel University of Illinois College of Commerce at Urbana-Champaign, and the Chicago Symphony
Orchestra Association. Mr. McKeever received his B.S. degree in accounting from the University of Illinois at Urbana-Champaign and his J.D. with distinction from the IIT-Chicago
Kent College of Law.
35
Gene Golub—Director
Mr. Golub has served as a Director of the company since May 17, 2000. Mr. Golub has also served as Chairman of Golub & Company, a
company he founded in 1961, which with its affiliates has been involved in more than $2 billion in real estate transactions. Under Mr. Golub's leadership, the Golub companies have owned,
developed or operated more than 25 million square feet of office, residential and mixed-use properties in the United States and abroad. Mr. Golub is active in numerous
Chicago based charitable organizations and was inducted into the Chicago Association of Realtors Hall of Fame in 1999.
William D. McPhee—Director
Mr. McPhee has served as a Director of the company since November 12, 2002. Mr. McPhee received his B.S. degree in pre-med and an
L.L.B. degree in law, both from McGill University. Since 1998, he has been Managing General Partner of Mi3, L.P. where he has been responsible for managing the venture fund. Prior to that, he was
Chief Executive Officer of Praxis Advisors, Inc., a strategy consulting firm.
Alan D. Watson, Ph.D.—Director
Dr. Watson has served as a Director of the company since November 12, 2002. Mr. Watson received his B.S. from the University of N.S.W., his
Ph.D. in Chemistry from Australian National University, and his M.B.A. from Northeastern University. Since 2002, Mr. Watson has served as Executive Vice President and Chief Business Officer of
Elixir Pharmaceuticals, Inc. Prior to that, he was the Senior Vice President, Corporate Development of Cubist Pharmaceuticals, Inc. from 1999 to 2002. From 1997 to 1999, he was Senior
Vice President, Licensing and Intellectual Property of Nycomed Amersham plc.
There
is a seventh directorship which is currently vacant and will remain so until filled by the Board in accordance with the Voting Agreement described in "Recent Transactions-
Financing" above.
Specifically, as part of the institutional financing transaction that closed on November 12, 2002, the holders of over 61.9% (on a fully diluted basis) of our common stock entered into the
Voting Agreement. The Voting Agreement requires the parties to vote for certain director nominees.
The
recent business experience of our other executive officers and significant employees follows.
Brooks Boveroux
, age 59, has served as the company's Senior Vice President—Finance, Chief Financial Officer and Treasurer
since August 1, 2000. He has served as the company's Secretary since November 12, 2002. For the five years prior to joining the company, Mr. Boveroux served as Chief Financial
Officer and Vice President of Investor Relations for The Liposome Company, Inc., Chief Financial Officer of Synergy Pharmaceuticals, Inc. and as a consultant advising corporations in the
area of corporate finance. He is a graduate of Hamilton College and received his Masters of Business Administration in Finance from the Wharton School of the University of Pennsylvania.
Reinhard Koenig, Ph.D., M.D., RAC
, age 42, has served as the company's Senior Vice President of Medical and Regulatory Affairs since
January 4, 2001. He is primarily responsible for regulatory affairs and clinical development activities. From 1996 through 1999, Dr. Koenig held various positions at Collagen
Aesthetics, Inc. including Vice President—Medical Affairs, Vice President—Medical and Regulatory Affairs and Chief Scientific Officer. From 1999 until he joined the
company, Dr. Koenig was a principal in Biosciences Corporation where he provided consulting services in Phase 2 though Phase 4 product development for pharmaceutical drugs, biological and
medical devices. Dr. Koenig received his bachelor and doctorate degrees in Toxicology and Pharmacology at Philipps University in Marburg, Germany.
36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the approximate beneficial ownership of our Common Stock as of March 30, 2003 by directors and executive officers of the
company who have held such position at any time during the 2002 fiscal year, and any person or group known to us to be the owner of more than five percent of our Common Stock. Shares beneficially
owned by the individuals below through family partnerships or other entities they control are included in the number of shares listed in the table below for that individual.
Name and Address
of Beneficial Owner(1)
Shares of Common Stock
Beneficially Owned(2)
Percent of Class
Outstanding(3)
EXECUTIVE OFFICERS AND DIRECTORS:
Brooks Boveroux
363,180
(4)
1.9
Gene Golub
625 North Michigan Ave., Ste 2000
Chicago, IL 60611
123,015
(5)
*
Reinhard Koenig, Ph.D., M.D.
199,844
(6)
*
Lester H. McKeever, Jr.
819 South Wabash Avenue
Chicago, IL 60605
36,250
(7)
*
William D. McPhee
One Hollis Street, Suite 232
Wellesley, MA 02482
462,963
(8)
2.4
Timothy Scott, Ph.D.
7327 Oak Ridge Highway
Knoxville, TN 37931
0
(9)
*
Eric A. Wachter, Ph.D.
7327 Oak Ridge Highway
Knoxville, TN 37931
0
(9)
*
Alan D. Watson, Ph.D.
One Kendall Square
Building 1000, Fifth Floor
Cambridge, MA 02139
25,000
(10)
*
Robert J. Weinstein, M.D. and Lois Weinstein
500 Lake Cook Road, Suite 130
Deerfield, IL 60015
4,145,401
(11)
21.7
Taffy J. Williams, Ph.D.
1,274,285
(12)
6.7
All directors and executive officers
as a group (10 persons)
6,629,937
34.7
OTHER SHAREHOLDERS:
Stuart P. Levine
500 Lake Cook Road, Suite 130
Deerfield, IL 60015
4,098,950
(11)
21.4
37
Mi3 L.P.
One Hollis Street, Suite 232
Wellesley, MA 02482
462,963
(13)
2.4
MRNA Fund II L.P.
225 Berkeley Street, Suite 1650
Boston, MA 02216
64,385
(14)
*
Oxford Bioscience Partners IV L.P.
225 Berkeley Street, Suite 1650
Boston, MA 02216
6,481,482
(15)
33.9
Tannebaum, LLC
875 N. Michigan Avenue
Suite 2930
Chicago, IL 60611-1901
3,344,045
(16)
17.5
Parties to Voting Agreement(17)
(6 persons)
11,881,451
(17)
62.2
*
Constitutes
one percent or less of the percent of class outstanding.
(1)
Unless
otherwise indicated, the address of each person named in the table is c/o: Photogen Technologies, Inc., 140 Union Square Drive, New Hope,
PA 18938.
(2)
With
respect to directors and executive officers, based on information furnished by the director or executive officer listed.
(3)
The
percent of class outstanding includes Common Stock outstanding as of March 30, 2003 and the shares subject to options exercisable within
60 days of March 30, 2003.
(4)
Includes
363,180 options exercisable within 60 days of March30, 2003.
(5)
Includes
108,015 shares of Common Stock and 15,000 options exercisable within 60 days of March 30, 2003.
(6)
Includes
21,500 shares of Common Stock and 178,344 options exercisable within 60 days of March 30, 2003.
(7)
Includes
16,250 shares of Common Stock and 20,000 options exercisable within 60 days of March 30, 2003.
(8)
Includes
462,963 shares held by Mi3, L.P., which Mr. McPhee may be deemed to control. Mr. McPhee disclaims beneficial ownership of Mi3's shares for all
other purposes.
(9)
Pursuant
to the corporate separation which closed on November 12, 2002, the shares held by the Tennessee Stockholders were redeemed by the company and
cancelled. Also, Dr. Wachter resigned as an officer and director of the company and Dr. Scott resigned as an officer on November 12, 2002.
(10)
Includes
25,000 shares of Common Stock.
(11)
Includes
3,344,045 shares held by Tannebaum, LLC, which Dr. Weinstein and Mr. Levine may be deemed to control. Dr. Weinstein and Mr. Levine disclaim
beneficial ownership of Tannebaum, LLC's shares for all other purposes. As of March 31, 2003, Tannebaum Ventures, LLC will be the manager of Tannebaum, LLC and Dr. Weinstein and Mr. Levine will no
longer be deemed to control the shares held by Tannebaum, LLC. Dr. Weinstein and Mr. Levine are parties to the
38
Voting
Agreement described in footnote 17 below. The shares held by the other parties to the Voting Agreement are not included here
(12)
Includes
4,250 shares of Common Stock and 1,270,035 options exercisable within 60 days of March 30, 2003.
(13)
Includes
462,963 shares of Common Stock. Note that Mr. McPhee is the President of Mi3 Services L.L.C. which is the general partner of Mi3, L.P. Mi3,
L.P. is a party to the Voting Agreement described in footnote 17 below. The shares held by the other parties to the Voting Agreement are not included here.
(14)
Includes
64,385 shares of Common Stock. MRNA Fund II L.P. is a party to the Voting Agreement described in footnote 17 below. The shares held by the
other parties to the Voting Agreement are not included here.
(15)
Includes
64,385 shares held by MRNA Fund II L.P., which Oxford Bioscience Partners IV L.P. may be deemed to control. Oxford disclaims beneficial
ownership of such shares for all other purposes. Oxford Bioscience Partners IV L.P. is a party to the Voting Agreement described in footnote 17 below. The shares held by the other parties to the
Voting Agreement are not included here.
(16)
Includes
3,344,045 shares of Common Stock. Tannebaum, LLC is a party to the Voting Agreement described in footnote 17 below. The shares held by the
other parties to the Voting Agreement are not included here.
(17)
Dr.
Weinstein, Mr. Levine, Mi3, L.P., MRNA Fund II, L.P., Oxford Bioscience Partners IV L.P., and Tannebaum, LLC are parties to the Voting Agreement
described above at page 8. The parties to the Voting Agreement may be deemed to be a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. The provisions
of the Voting Agreement include an agreement by the parties to vote their shares for the election of certain directors nominated by the parties to the Voting Agreement.
Compensation Committee Interlocks and Insider Participation.
During the 2002 fiscal year, executive compensation was
administered by the Compensation Committee comprised of three outside directors, Messrs. McKeever and McPhee and Dr. Weinstein.
Certain Relationships and Related Transactions.
We are involved in a joint venture transaction with affiliates of Elan
Corporation, plc ("Elan"). Aidan King (one of our former directors who served during the 2002 fiscal year) is employed as Vice President, Business Development for Elan. That joint venture, called
Sentigen Ltd., is involved in the development of lymphography diagnostic products and is described above under the heading "Sentigen Ltd.—Joint Venture with Elan
Corporation," and in Note 3 to our Financial Statements.
During
the 2002 fiscal year, Dr. Weinstein (one of our current directors) was deemed to control Tannebaum, LLC (after March 30, 2003, Dr. Weinstein no longer
controls such shares). William McPhee (another one of our current directors) is President of Mi3 Services L.L.C. which is the general partner of Mi3, L.P. Mi3, L.P. purchased shares in the
institutional financing which closed on November 12, 2002 and is one of the investors that may receive a benefit under the Agreement (the "Elan Agreement") dated November 12, 2002.
Pursuant to the Elan Agreement, Elan will pay the amounts that certain investors otherwise would have received on liquidation of the company if the liquidation preference of the Series A
Preferred Stock had been eliminated. Tannebaum, LLC also acquired shares of our
common stock in the financing which closed on November, 12, 2002 through the conversion of outstanding debt into shares of our common stock.
39
Executive Compensation.
The following table sets forth compensation we paid to our executive officers (the "Named Officers")
for services rendered us in all capacities during the year ended December 31, 2002.
SUMMARY COMPENSATION TABLE
Annual Compensation
Long Term Compensation
Awards
Payouts
Name and
Principal Position
Year
Salary
($)
Bonus
($)
Other
Annual
Compen-
sation
($)
Restricted
Stock
Award(s)
($)
Securities
Underlying
Options
(#)(4)
LTIP
Payouts
($)
All
Other
Compen-
sation
($)
Taffy J. Williams, Ph.D.(1)
Director, President and
Chief Executive Officer
2002
2001
2000
$
$
$
265,000
260,000
265,000
$
$
$
60,000
30,000
66,250
$
0
—
—
0
—
—
1,233,450
—
1,050,000
0
—
—
$
0
—
—
Brooks Boveroux(1)
Senior Vice President—
Finance, Chief Financial
Officer, Treasurer and
Secretary
2002
2001
2000
$
$
$
216,250
215,000
215,000
$
$
$
32,250
32,250
32,250
$
0
—
—
0
—
—
550,875
—
312,500
0
—
—
$
0
—
—
Reinhard Koenig, Ph.D., M.D.(1)
Senior Vice President—
Medical and Regulatory Affairs
2002
2001
2000
$
$
280,625
200,020
—
$
0
—
—
$
0
—
—
0
—
—
513,375
100,000
—
0
—
—
$
0
50,000
—
(2)
Timothy Scott, Ph.D.(3)
Senior Scientist,
Vice President—
Chief Operating Officer
2002
2001
2000
$
$
$
86,300
100,000
100,000
$
$
$
0
0
17,000
$
0
—
—
0
—
—
0
—
—
0
—
—
$
0
—
—
Eric A. Wachter, Ph.D.(3)
Director, Vice President,
Secretary, Senior Scientist
2002
2001
2000
$
$
$
86,300
100,000
100,000
$
$
$
0
0
11,000
$
0
—
—
0
—
—
0
—
—
0
—
—
$
0
—
—
(1)
Drs.
Williams and Koenig and Mr. Boveroux are entitled to severance if their employment is terminated without cause, as discussed below.
(2)
Reimbursement
of moving expenses.
(3)
Drs.
Scott and Wachter resigned as officers and directors of the company in November, 2002 in connection with the corporate separation transaction.
(4)
Reflects
a one-for-four reverse split which occurred in November, 2002.
40
Stock Options.
The following table contains information concerning the grant of stock options during the 2002 fiscal year under our 1998 and 2000 Long Term Incentive
Compensation Plans to the Named Officers. To date, none of these options have been exercised.
2002 Stock Option Grants
Individual Grants
Name
Number of
Securities
Underlying
Options
Granted (#)(1)
% of Total
Options
Granted to
Employees
in 2002
Exercise
Price
($/Sh)
Expiration
Date
Grant Date
Present
Value
($)(2)
Taffy J. Williams, Ph.D.
1,233,450
50
%
$
1.08
11/12/2012
$
1,615,820
Brooks Boveroux
550,875
22
%
$
1.08
11/12/2012
$
721,646
Timothy Scott, Ph.D.
0
0
N/A
N/A
N/A
Eric Wachter, Ph.D.
0
0
N/A
N/A
N/A
Reinhard Koenig, Ph.D., M.D.
513,375
21
%
$
1.08
11/12/2012
$
672,521
(1)
The
options were granted at an exercise price equal to the purchase price paid by the institutional investors in the institutional financing which closed on November 12, 2002. The
market price of our common stock on the date of the option grants was $2.52. A portion of the options becomes exercisable on various dates in accordance with the terms of the respective Award
Agreements covering the options.
(2)
In
accordance with SEC rules, grant date present value is determined using the Black-Scholes Model. The Black-Scholes Model is a complicated mathematical formula widely used to value
exchange-traded options. However, stock options granted by the company are long-term, non-transferable and subject to vesting restrictions, while exchange-traded options are short-term and can be
exercised or sold immediately in a liquid market. The Black-Scholes Model relies on several key assumptions to estimate the present value of options, including the market price, volatility of, and
dividend yield on, the security underlying the option, the risk-free rate of return on the date of grant and the estimated time period until exercise of the option. The shares subject to the options
granted are identical to the publicly-traded securities of the company except for restrictions on trading. Due to these restrictions the shares subject to the options granted are worth less than their
publicly-traded counterparts. The actual value, if any, that an executive officer may realize will depend on his continued employment through the options vesting period, and the excess of the market
price over the exercise price on the date the option is exercised so that there is no assurance that the value realized by an executive officer will be at or near the value estimated by the
Black-Scholes Model.
41
The following table sets forth information about the Named Officers concerning the exercise of options during the last fiscal year and unexercised options held as of the end of the 2002
fiscal year.
2002 Option Exercises and Year-End Values
Number of Securities
Underlying Unexercised
Options at
Year End 2002 (#)
Shares
Acquired
On
Exercise
(#)
Fair Value of Unexercised
In-the-Money Options at Year
End 2002 ($)(1)
Name
Value
Realized
($)
Exercisable
Unexercisable
Exercisable
Unexercisable
Taffy J. Williams, Ph.D.
0
0
1,020,035
1,263,415
0
0
Brooks Boveroux
0
0
363,180
500,195
0
0
Timothy Scott, Ph.D.
0
0
0
0
0
0
Eric A. Wachter, Ph.D.
0
0
0
0
0
0
Reinhard Koenig, Ph.D., M.D.
0
0
178,344
435,031
0
0
(1)
For
purposes of this table, the "value" of stock options was determined by the difference between the exercise price and $0.99, the closing price for Common Stock on the last business
day of the fiscal year. Shares acquired on exercise of these options are not registered under the Securities Act of 1933 and are not freely saleable except in compliance with exemptions from
registration, including the holding period and other requirements of Rule 144 thereunder. Consequently, the values set forth in the table are only theoretical values and may not accurately represent
actual market value.
We
have employment agreements with Drs. Williams and Koenig and with Mr. Boveroux (the employment agreements with Drs. Scott and Wachter were terminated in November, 2002 in
connection with the corporate separation transaction). Each of these employment agreements is terminable at-will and can be terminated by either party at any time with or without cause. In
addition, Drs. Williams and Koenig and Mr. Boveroux are bound by their respective Employee Confidentiality, Inventions and Noncompetition Agreements, as amended (each of these agreements is
referred to as a "Confidentiality Agreement"). Each Confidentiality Agreement provides that while we employ the respective individual and for a period of two years after termination he will not engage
in activities that compete with our business. Each Confidentiality Agreement also requires the respective employee to disclose to our Board of Directors all inventions or other intellectual property
discovered or made by the employee during his employment and twelve months thereafter, if those inventions are related to or useful in our business, or result from duties assigned to that individual
or from the use of any of our assets or facilities.
Drs.
Williams and Koenig and Mr. Boveroux each receive typical health, life and disability insurance benefits that are available to our other salaried employees. These individuals
are also eligible to defer a portion of their salary through our 401(k) plan, but the company did not match or make any contributions to the 401(k) plan during the 2002 fiscal year nor does the
company maintain a pension plan.
We
have a consulting agreement with Dr. Watson pursuant to which he provides business and product development services to us. The consulting agreement commenced in November, 2002
and continues on a month-to-month basis (unless terminated earlier by notice or cause). The consulting agreement provides that Dr. Watson will be paid $175 per hour of
service, be reimbursed for all reasonable out-of-pocket expenses, and receive non-qualified stock options to purchase up to ten
42
thousand (10,000) shares of the company's Common Stock on February 3, 2003 and on January 1 of each year so long as the consulting agreement is in effect.
Officers
generally serve at the discretion of the Board of Directors. We do not have any compensatory plans or arrangements resulting from resignation, retirement or any other
termination of an executive officer's employment with us. However, the employment agreements for Drs. Williams and Koenig and Mr. Boveroux each provide for severance in the event we terminate
their employment without cause. Upon termination without cause, Dr. Williams would be entitled to a severance payment equal to one year's salary. If terminated without cause,
Mr. Boveroux and Dr. Koenig would each be entitled to receive six month's salary.
Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires our executive officers, directors and persons who beneficially own more than 10% of our Common Stock to file initial reports of ownership and changes in ownership with the SEC. Those
persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. To our knowledge, based solely on a review of the copies of those reports furnished
to us during the fiscal year ended December 31, 2002, we believe that our executive officers, directors and beneficial owners of more than 10% of our Common Stock complied with all
Section 16(a) filing requirements, except as follows: Dr. Weinstein, one of our directors, and Mr. Levine inadvertently failed to timely file Form 4s reporting a transfer
of shares from the Theodore Tannebaum Trust (of which they were co-trustees) to Tannebaum, LLC (of which they were co-managers) due to an oversight by company counsel; they
filed Form 4s for this transaction on October 18, 2002 and the company has modified its reporting compliance procedures to avoid such oversights in the future.
Change in Control Agreements.
In the event of a change in control (as defined in each of the 1998 and 2000 Long Term
Incentive Compensation Plans and the Senior Executive Long Term Incentive Compensation Plan), options granted under those plans accelerate and become fully vested. We have no other arrangements with
the Named Officers concerning compensation payable upon a change of control. Dr. Williams and Mr. Boveroux waived their right to receive a special bonus in connection with
the corporate separation and the institutional financing transactions which closed on November 12, 2002 and executed new employment agreements which do not contain a special bonus provision.
Director Compensation.
Our directors received no specified compensation for serving as directors in 2002. In January, 2003,
our Compensation Committee established new policies for the compensation of Messrs. McKeever and Golub and Dr. Watson. Such policies provided for the award of non-qualified
options to acquire 10,000 shares of Common Stock under our 2000 Plan for each full year of service as a director of the company and for the payment of $1,000 to each of Golub, McKeever and Watson for
each regular or special meeting of the Board held in accordance with the Bylaws of the company that such director attends.
In
January, 2003, Messrs. McKeever and Golub and Dr. Watson each received an award of non-qualified options to acquire 10,000 shares of Common Stock under our
2000 Plan at an exercise price of $0.93 per share. These options are exercisable on January 3, 2004. Dr. Watson also received an additional award of non-qualified options to
acquire 10,000 shares of Common Stock under our 2000 Plan at an exercise price of $2.05 per share in exchange for his consulting services. Currently, Mr. McKeever may exercise options to
acquire 20,000 shares and Mr. Golub may exercise options to acquire 15,000 shares.
In
January, 2003, our Compensation Committee established new policies for the compensation of Messrs. McKeever and Golub and Dr. Watson. Such policies provided for the
award of non-qualified options to acquire 10,000 shares of Common Stock under our 2000 Plan for each full year of service as
43
a director of the company and for the payment of $1,000 to each of Golub, McKeever and Watson for each regular or special meeting of the Board held in accordance with the Bylaws of the company that
such director attends.
Equity Compensation Plan Information.
The following table gives information about or Common Stock that may be issued upon the
exercise of options under all of our existing equity compensation plans as of December 31, 2002.
Plan Category
Number of securities
to be issued upon exercise of outstanding options, warrants and rights
(a)
Weighted-average exercise price of outstanding options, warrants and rights
(b)
Number of securities remaining
available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
Equity compensation plans approved by security holders:
4,144,925
$
14.05
1,922,700
Equity compensation plans not approved by security holders
427,431
$
7.94
0
We have options outstanding under three plans, our 1998 Long Term Incentive Compensation Plan, our Senior Executive Long Term Compensation Plan and the 2000 Plan.
Each of these Plans was approved by the stockholders.
In
addition to shares we may issue under the plans approved by the stockholders, we have granted options and warrants to consultants and the placement agent for our Series B
Preferred Stock pursuant to arrangements that were not submitted to stockholders for approval. Each of these grants is on different terms under specific agreements negotiated with each recipient.
Exercise prices range from $1.08 to $84.68 per share, with terms expiring between 2004 and 2010. Each agreement contains anti-dilution features.
Section 78.7502
of the Nevada General Corporation Law authorizes a corporation to indemnify its directors, officers, employees or other agents in terms sufficiently broad to
permit indemnification (including reimbursement for expenses incurred) under certain circumstances for liabilities arising under the Securities Act. Our articles of incorporation and bylaws provide
indemnification of directors, officers and individuals who serve at the request of the company as a director of another enterprise, to the maximum extent permitted by the Corporation Law. In addition,
we have entered into indemnification agreements with our directors.
Anti-Takeover Effects of our Articles of Incorporation, Bylaws and the Nevada General Corporation Law.
Restrictions in our Articles of Incorporation and Bylaws.
A number of provisions of our articles of incorporation and our
bylaws deal with matters of corporate governance and certain rights of our stockholders. The following discussion is a general summary of certain provisions of our articles of incorporation and bylaws
which might be deemed to have a potential anti-takeover effect. Reference should be made in each case to our articles of incorporation and bylaws.
Board of Directors.
Our articles of incorporation and bylaws contain provisions relating to the board of directors and
provide, among other things, that the board of directors shall consist of 7 members. We do not permit cumulative voting in the election of directors. Directors may be removed pursuant to the
Corporation Law by a vote of at least two-thirds of our stockholders. Any vacancy occurring in the board of directors for any reason, including an increase in the number of authorized
directors, other than removal of a director by a vote of the stockholders, may be filled by the concurring vote of a majority of the directors remaining in office, regardless of whether there is a
44
quorum of the board of directors, or by the stockholders. A director appointed to fill a vacancy serves for the remainder of the term to which the director has been elected, and until his or her
successor has been elected and qualified. If one or more directors is removed by a vote of the stockholders, the term of such director or directors terminates and a vacancy is created in the board of
directors to be filled by a vote of the stockholders.
Limitation of Liability.
Our articles of incorporation provide that the personal liability of our stockholders or directors
is eliminated to the fullest extent permitted by the Corporation Law. Section 78.138 of the Corporation Law provides that no director or officer shall be individually liable for any damages as
a result of any act or the failure to act in his capacity as a director or officer unless it is proven that: (a) his failure to act constituted a breach of his fiduciary duties as a director or
officer; and (b) his breach of those duties involved intentional misconduct, fraud or a knowing violation of law. Section 78.747 of the Corporation Law provides that no stockholder,
director or officer of a corporation is individually liable for the corporation's debts unless the stockholder, director or officer acted as the alter ego of the corporation.
SELLING STOCKHOLDER
We entered into a Settlement Agreement and Mutual Release of Claims dated as of June 13, 2002, as amended pursuant to that certain Agreement to Modify
Settlement Agreement and Certain Ancillary Agreements dated as of February 28, 2003 (collectively, the "Settlement Agreement") with Dr. Wolf, our former medical director and senior
scientist, relating to certain claims made by us and counterclaims made by Dr. Wolf in connection with his employment and certain inventions. Pursuant to the terms of the Settlement Agreement,
among other things, Dr. Wolf was granted two options to acquire an aggregate of 390,556 shares of our common stock. Pursuant to the terms of one option Dr. Wolf may acquire up to 287,037
shares of our common stock (after giving effect to the cashless exercise procedure mandated by the option, which provides for a reduction of the number of shares available upon exercise of the option
in payment of the exercise price for shares purchased pursuant to the option based on a formula set forth in the option agreement). The other option provides that Dr. Wolf
may acquire up to 37,500 shares at an exercise price of $4.20 per share; provided, however, that this option requires that the exercise price for shares purchased upon exercise of the option be paid
using a cashless exercise procedure providing for a reduction in the number of shares available upon exercise of the option based on the fair market value of the Company's common stock on the date of
exercise, so the actual number of shares issued to Dr. Wolf shall be reduced by the number of shares used to effect the cashless exercise procedure.
We
also entered into a Share Registration Agreement dated as of June 13, 2002, as amended by that certain Agreement to Modify Settlement Agreement and Certain Ancillary Agreements
dated as of February 28, 2003, with Dr. Wolf pursuant to which we agreed to register the shares of our common stock covered by the options granted to Dr. Wolf. The shares of our
common stock to be issued if and when Dr. Wolf exercises the options granted to him are being registered pursuant to this Registration Statement. Based upon the information provided to us, the
selling stockholder is not, nor is he affiliated with, any broker-dealer in the United States. See "Plan of Distribution" below.
The
following is: the number of shares beneficially owned by Gerald L. Wolf, Ph.D., M.D., the selling stockholder, prior to this offering, assuming that Dr. Wolf exercises all of
his options to acquire shares of our common stock; the number of shares to be offered for Dr. Wolf's account, assuming he offers all of the shares of common stock; and the number of shares to
be owned and the percentage of
45
the common stock to be held by Dr. Wolf following completion of the offering, assuming that all shares owned by Dr. Wolf are sold:
Number of Shares
Owned Before
Offering
Number of
Shares Offered
Number of Shares
Owned After
Offering
% of Shares
Owned After
Offering
390,556
390,556
0
0%
USE OF PROCEEDS
This prospectus is part of a registration statement that permits the selling stockholder to sell shares of our common stock that he acquires upon exercise of
certain options. The Company will not receive any proceeds from the sale of common stock by Dr. Wolf, nor will we receive any cash upon the exercise of the options by Dr. Wolf because
the options require Dr. Wolf to utilize "cashless" exercise mechanisms. Pursuant to the cashless exercise provisions in the options Dr. Wolf will pay the option exercise price with
shares of our common stock that he would otherwise have been able to obtain upon the exercise of the options.
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of Dr. Wolf, the selling stockholder. All costs, expenses and fees in connection with the
registration of the shares offered by this prospectus will be borne by us, other than brokerage commissions and similar selling expenses, if any, attributable to the sale of shares of common stock,
which will be borne by the selling stockholder. Sales of shares of common stock may be effected by the selling stockholder from time to time in one or more types of transactions (which may include
block transactions) on the Nasdaq SmallCap Market, in the over-the-counter market or in negotiated transactions, or a combination of such methods of sale, at market prices
prevailing at the time of sale, or at negotiated prices. Such transactions may or may not involve brokers or dealers. Certain transactions may require sales through broker/dealers appropriately
registered under securities laws and regulations. The selling stockholder has advised us that he has not entered into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an underwriter or coordinated broker acting in connection with the proposed sale of shares of common stock by the selling
stockholder.
The
selling stockholder may make these transactions by selling shares of common stock directly to purchasers or to or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions or commissions from selling stockholders and/or the purchasers of shares of common stock for whom these broker-dealers may
act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions).
The
selling stockholder and any broker-dealers that act in connection with the sale of shares of common stock may be deemed "underwriters" within the meaning of Section 2(11) of
the Securities Act, and any commissions received by these broker-dealers or any profit on the resale of the shares of common stock sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act. The selling stockholder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of
the shares of common stock against certain liabilities, including liabilities arising under the Securities Act.
Because
the selling stockholder may be deemed an "underwriter" within the meaning of Section 2(11) of the Securities Act, the selling stockholder will be subject to the prospectus
delivery requirements of the Securities Act. We have informed the selling stockholder that the anti-manipulative provisions of Regulation M promulgated under the Exchange Act may
apply to his sales in the market.
46
Upon
our being notified by the selling stockholder that a material arrangement has been entered into with a broker-dealer for the sale of shares of common stock through a block trade,
special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under
the Securities Act, disclosing:
•
the
name of the selling stockholder and of the participating broker-dealer(s);
•
the
number of shares of common stock involved;
•
the
initial price at which shares of common stock were sold;
•
the
commissions paid or discounts or concessions allowed to the broker-dealer(s), where applicable;
•
that
the broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus; and
•
other
facts material to the transactions.
As
soon as Dr. Wolf, the selling stockholder, is eligible to sell his shares pursuant to Rule 144(k) this Registration Statement shall be terminated and any of
Dr. Wolf's unsold shares will be deregistered.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 150,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.01
per share. The following summary of our securities and certain provisions of our charter and bylaws is not intended to be complete and is qualified by reference to the provisions of our charter and
bylaws and applicable law. Our charter and bylaws are filed as exhibits to this registration statement.
Common Stock
As of March 5, 2003, there were approximately 17,114,868 shares of our common stock issued and outstanding held by 412 recordholders, 4,612,356 shares of
common stock issuable upon the exercise of outstanding stock options and warrants and 178,993 shares of common stock issuable upon the conversion of Series A Preferred Stock.
Holders
of common stock are entitled to one vote per share for each share held of record on all matters submitted to a vote of stockholders. The holders of common stock are entitled to
receive ratably lawful dividends as may be declared by our board of directors. Such dividends are, however, subject to preferences that may be applicable to the holders of any outstanding shares of
our preferred stock. In the event of a liquidation, dissolution or winding up of the business of Photogen, whether voluntary or involuntary, the holders of common stock, together with the holders of
Series A Preferred Stock, will be entitled to receive pro rata all of our remaining assets available for distribution to stockholders.
The
common stock has no preemptive, redemption, conversion or subscription rights. The rights, powers, preferences and privileges associated with our common stock are subject to, and may
be adversely affected by, the rights of the holders of our outstanding shares of Series A Preferred Stock, which are discussed below, and the rights of the holders of shares of any other series
of preferred stock that we may designate and issue in the future.
47
Series A Convertible Preferred Stock
On October 20, 1999, we issued 12,015 shares of Series A Preferred Stock to EIS, an affiliate of Elan, in conjunction with the formation of
Sentigen Ltd., our joint venture with Elan. After issuance, the Series A Preferred Stock was transferred to EPI.
Under
the Certificate of Designations, the holder of Series A Preferred Stock has a Series A Liquidation Preference entitling it to the first $12,015,000 of funds available
for distribution to stockholders upon liquidation of the company and has the right to convert shares of Series A Preferred Stock into common stock at any time after October 20, 2001 at a
conversion price of $84.68 per share. The conversion price is subject to adjustment for certain dilutive events. Alternatively, the holder of Series A Preferred Stock may exchange shares of
Series A Preferred Stock for common shares of Sentigen so that the holder of Series A Preferred Stock owns 50% of the equity of Sentigen.
Elan
entered into an Agreement dated November 12, 2002 with the Institutional Investors in the financing which closed on November 12, 2002 which provides that Elan will pay
the Institutional Investors an amount in cash (or the fair market value of other property) distributed to the holder of the Series A Preferred Stock on account of the Series A
Liquidation Preference that, in the absence of the Series A Liquidation Preference would have been paid to those Institutional Investors in accordance with applicable law, up to a maximum of
$16,000,000.
Each
share of Series A Preferred Stock will be paid a mandatory payment-in-kind dividend equal to 7% (i.e., 0.07 additional shares of Series A
Preferred Stock). The payment-in-kind dividend is cumulative, compounds on a semi-annual basis and is payable twice a year, beginning April 2000. Pursuant to
this dividend requirement, we accrued 928.03 shares of Series A Preferred Stock in 2002 and as of March 31, 2003, there were approximately 12,856 shares of Series A Preferred
Stock issued and outstanding and an aggregate of 1,914 shares accrued as dividends to be issued. The holder of Series A Preferred Stock is only entitled to vote on matters that adversely affect
or change the rights of holders of Series A Preferred Stock. The holder of Series A Preferred Stock does not have the right to vote on the election of directors of the company.
Registration Rights Agreements
We are subject to six sets of registration rights agreements. In the aggregate, these agreements cover approximately 11,912,779 shares of common stock (including
the 390,556 shares covered by this registration statement) and require us to register those shares under various terms and subject to specific conditions in the agreements.
Options to Purchase Common Stock
As of March 5, 2003, we have granted qualified and non-qualified stock options pursuant to our 1998 Long Term Incentive Plan to purchase an
aggregate of 503,625 shares of common stock. As of March 5, 2003, pursuant to our Senior Executive Long Term Incentive Compensation Plan we have granted qualified options to purchase an
aggregate of 1,000,000 shares of common stock. As of March 5, 2003, pursuant to our 2000 Plan we have granted qualified and non-qualified options to purchase an aggregated of
2,591,300 shares of common stock. The options vest at various times up to five years from the date of grant and have exercise prices which range from $60.25 to $1.08. To date, options to acquire 1,125
shares have been exercised.
Warrants
We have issued warrants to purchase shares of our common stock to consultants and a placement agent for services rendered. The number of shares of Common Stock
subject to warrants as of March 5, 2003 and the exercise prices at which the warrants may be exercised and set forth below and
48
have been adjusted to reflect the one-for-four reverse split of our Common Stock which was effected in November, 2002.
•
190,000
shares at an exercise price of $2.52 per share
•
150,000
shares at an exercise price of $1.08 per share
•
50,000
shares at an exercise price of $1.08 per share
•
25,000
shares at an exercise price of $84.68 per share
•
3,750
shares at an exercise price of $44.23 per share
•
8,181
shares at an exercise price of $44.78 per share
•
500
shares at an exercise price of $47.04 per share
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other information with the SEC. Our filings are available to the public over the Internet at
the SEC's web site at http://www.sec.gov. You may also read and copy any document we file at the SEC's Public Reference Rooms in Washington, D.C., New York, New York and Chicago, Illinois. The Public
Reference Room in Washington D.C. is located at 450 Fifth Street, N.W. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Rooms.
You
should rely only on the information provided in this prospectus or any prospectus supplement. We have not authorized anyone else to provide you with different information. We are not
making an offer of the common stock in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date
other than the date on the front page of those documents.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission. We may also add, update or change information
contained in this prospectus through a supplement to this prospectus. Any statement that we make in this prospectus will be modified or superseded by any inconsistent statement made by us in a
prospectus supplement. You should read both this prospectus and any prospectus supplement together with additional information described under the heading "Where You Can Find More Information."
LEGAL MATTERS
The validity of the issuance of common stock will be passed upon for the company by Grippo & Elden, 227 West Monroe, Suite 3600, Chicago, Illinois 60606.
As of the date of this prospectus, partners of Grippo & Elden, who are representing us in this offering, beneficially own 45,648 shares of common stock.
EXPERTS
The consolidated financial statements of Photogen Technologies, Inc. and the financial statements of Sentigen, Ltd. included in this Prospectus and
in the Registration Statement have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their reports appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such reports given upon the authority of said firm as experts in auditing and accounting. The report of Photogen
Technologies, Inc. contains an explanatory paragraph regarding the company's ability to continue as a going concern.
49
WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS
PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR SEEK AN OFFER TO BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THE SHARES.
Until                               
   ,
all dealers that effect transaction in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or
subscriptions.
50
Index to Financial Statements
Report of Independent Certified Public Accountant
F-2
Financial Statements
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-5
Consolidated Statements of Shareholders' Equity
F-6-7
Consolidated Statements of Cash Flows
F-8-9
Notes to Consolidated Financial Statements
F-10-23
F-1
Report of Independent Certified Public Accountant
Board
of Directors
Photogen Technologies, Inc.
New Hope, Pennsylvania
We
have audited the accompanying consolidated balance sheets of Photogen Technologies, Inc., a development stage company, as of December 31, 2001 and 2002, and the related
consolidated statements of operations, shareholders' equity and cash flows for the period from November 3, 1996 (inception) to December 31, 2002 and for each of the three years in the
period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Photogen Technologies, Inc. at
December 31, 2001 and 2002, and the results of its operations and its cash flows for the period from November 3, 1996 (inception) to December 31, 2002 and for each of the three
years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company has reported accumulated losses of $28,745,194, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in
Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/
BDO Seidman, LLP
Chicago,
Illinois
March 7, 2003
F-2
Photogen Technologies, Inc.
Consolidated Balance Sheets
December 31,
2001
2002
Assets
Current Assets
Cash and cash equivalents
$
1,352,904
$
6,090,904
Deposits (Note 5(a))
474,580
98,721
Prepaid expenses
29,775
693,313
Total Current Assets
1,857,259
6,882,938
Equipment and Leasehold Improvements
, less accumulated depreciation of $1,059,997 and $12,739 (Note 13)
882,220
36,000
Patent Costs
, net of amortization of $100,693 and $142,359, respectively
399,307
357,641
Deposits
(Note 5(a))
69,173
14,383
Notes Receivable
(Note 11)
—
1,255,000
Investment in and Advances to Affiliates
(Note 3)
10,994,680
8,192,452
$
14,202,639
$
16,738,414
F-3
December 31,
2001
2002
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable
$
373,774
$
835,003
Accrued expenses (Note 4)
568,174
34,132
Accrued equipment lease (Note 5(a))
374,580
401,664
Total Current Liabilities
1,316,528
1,270,799
Accrued Equipment Lease
(Note 5(a))
749,160
401,664
Long-Term Debt
(Note 3)
2,314,005
—
Shares Subject to Rescission
(Note 6(f))
650,000
650,000
Shareholders' Equity
(Notes 1, 2, 3, 6 and 7)
Preferred stock; par value $.01 per share; 5,000,000 shares authorized including:
Series A Preferred Stock; 12,856 shares authorized, issued and outstanding, liquidation preference $1,000 per share (in aggregate $12,856,000)
128
128
Series B Preferred Stock; 402,000 shares authorized; 357,280 issued and outstanding at December 31, 2001, liquidation preference $16.88 per share (in aggregate $6,030,886 at December 31,
2001)
3,572
—
Common stock; par value $.001 per share; 150,000,000 shares authorized; 9,585,948 and 16,137,465 shares issued and outstanding, respectively
9,586
16,137
Additional paid-in capital
38,252,973
43,144,880
Deficit accumulated during the development stage
(29,093,313
)
(28,745,194
)
Total Shareholders' Equity
9,172,946
14,415,951
$
14,202,639
$
16,738,414
See accompanying notes to consolidated financial statements.
F-4
Photogen Technologies, Inc.
Consolidated Statements of Operations
Year Ended December 31, 2000
Year Ended December 31, 2001
Year Ended December 31, 2002
Cumulative Amounts From November 3, 1996 (Inception) to December 31, 2002
Operating Expenses
(Notes 5, 6 and 9)
Research and development
$
1,665,450
$
437,958
$
1,227,897
$
4,356,637
General and administrative
5,095,442
3,220,584
4,030,083
16,647,522
Restructuring charges
597,025
—
807,483
1,404,508
Provision for future lease payments
—
1,264,208
—
1,264,208
Total operating expenses
7,357,917
4,922,750
6,065,463
23,672,875
Loss From Joint Venture (Note 3)
(1,203,392
)
(1,952,758
)
(3,452,837
)
(6,915,016
)
Investment Income
417,110
110,741
1,563
1,208,941
Interest Expense
—
(48,429
)
(418,466
)
(466,895
)
Loss from continuing operations
(8,144,199
)
(6,813,196
)
(9,935,203
)
(29,845,845
)
Discontinued Operations
(Note 13)
Loss from operations of discontinued therapeutic business
(2,642,863
)
(2,909,820
)
(1,496,430
)
(10,679,101
)
Gain from split-off of therapeutic business
—
—
11,779,752
11,779,752
Income (loss) from discontinued operations
(2,642,863
)
(2,909,820
)
10,283,322
1,100,651
Net Income (Loss)
(10,787,062
)
(9,723,016
)
348,119
$
(28,745,194
)
Dividends on Preferred Stock
(Notes 3, 6 and 8)
(2,704,751
)
(2,943,755
)
(1,997,723
)
Net Loss Applicable to Common Shareholders
$
(13,491,813
)
$
(12,666,771
)
$
(1,649,604
)
Basic and Diluted Loss Per Common Share from Continuing Operations
$
(1.16
)
$
(1.03
)
$
(1.17
)
Basic and Diluted Income (Loss) Per Common Share from Discontinued Operations
$
(0.28
)
$
(0.30
)
$
1.01
Basic and Diluted Loss Per Common Share
$
(1.44
)
$
(1.33
)
$
(0.16
)
Weighted Average Number of Common Shares Outstanding—Basic and Diluted
9,345,847
9,507,693
10,187,619
See accompanying notes to consolidated financial statements.
F-5
Photogen Technologies, Inc.
Consolidated Statements of Shareholders' Equity
Preferred Stock Series B
Preferred Stock Series A
Common Stock
Members' Capital
Additional Paid-in Capital
Deficit Accumulated During the Development Stage
Shares
Amount
Shares
Amount
Shares
Amount
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 stockissuance
—
—
—
—
—
—
—
(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
)
F-6
Photogen Technologies, Inc.
Consolidated Statements of Shareholders' Equity
Preferred Stock
Series A
Preferred Stock
Series B
Deficit
Accumulated
During the
Development
Stage
Common Stock
Members'
Capital
Additional
Paid-in
Capital
Shares
Amount
Shares
Amount
Shares
Amount
Total
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
See accompanying notes to consolidated financial statements.
F-7
Photogen Technologies, Inc.
Consolidated Statements of Cash Flows
Year Ended
December 31, 2000
Year Ended
December 31, 2001
Year Ended
December 31, 2002
Cumulative Amounts From
November 3, 1996
(Inception) to
December 31, 2002
Cash Flows From Operating Activities
Net income (loss)
$
(10,787,062
)
$
(9,723,016
)
$
348,119
$
(28,745,194
)
Loss from discontinued operations
2,642,863
2,909,820
1,496,430
10,679,101
Depreciation and amortization
416,511
442,191
371,319
1,677,904
Loss (gain) on disposal of equipment and leasehold improvements
43,041
(4,617
)
—
38,424
Gain on sale of marketable securities
—
—
—
(18,503
)
United States Treasury Notes amortization
(41,437
)
(1,029
)
—
12,586
Gain on sale of therapeutic business
—
—
(11,779,752
)
(11,779,752
)
Stock option compensation
125,020
64,729
1,062,054
1,678,570
Beneficial inducement costs for convertible notes
—
—
206,348
206,348
Issuance of warrants in exchange for services rendered
2,191,262
760,363
322,000
4,317,091
Issuance of stock options in settlement of lawsuit
—
—
806,415
806,415
Loss from investment in affiliate
1,203,392
1,952,758
3,452,837
6,915,016
Changes in operating assets and liabilities
Prepaid expenses
408,595
152,340
(663,538
)
(693,313
)
Interest receivable
(8,892
)
93,219
—
—
Accounts payable
(141,444
)
(267,945
)
531,229
905,003
Accrued expenses
579,452
(11,278
)
(298,465
)
269,709
Accrued equipment lease
—
1,123,740
10,237
1,133,977
Net cash used in operating activities (continuing operations)
(3,368,699
)
(2,508,725
)
(4,134,767
)
(12,596,618
)
Net cash used in discontinued operations
(2,642,863
)
(2,909,820
)
(1,496,430
)
(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
(11,749,970
)
(4,870,000
)
—
(38,656,973
)
Sales of United States Treasury Notes
12,320,000
9,815,000
—
39,778,548
Purchase of equipment and leasehold improvements
(516,186
)
(45,938
)
—
(636,877
)
Proceeds from sale of equipment
—
145,551
—
145,551
Costs to acquire patent
(50,000
)
—
—
(237,335
)
Investment in and advances to affiliate
93,548
(2,245,948
)
(650,609
)
(15,107,468
)
Increase in note receivable
—
—
(1,255,000
)
(1,255,000
)
Decrease in restricted cash
100,000
—
—
—
Decrease (increase) in deposit
(500,000
)
(14,383
)
100,000
(443,753
)
Net cash (used in) provided by investing activities
(302,608
)
2,784,282
(1,805,609
)
(16,431,810
)
Net cash used in investing activities of discontinued operations
—
—
—
(1,306,676
)
F-8
Photogen Technologies, Inc.
Consolidated Statements of Cash Flows
Year Ended
December 31,
2000
Year Ended
December 31,
2001
Year Ended
December 31,
2002
Cumulative
Amounts
From
November 3,
1996
(Inception) to
December 31,
2002
Cash Flows From Financing Activities
Principal payments on capital leases
$
(21,148
)
$
(18,356
)
$
—
$
(291,704
)
Net proceeds from issuance of equity
5,276,340
1,068,723
9,141,901
40,509,340
Proceeds from capital contributions by shareholders
—
—
—
1,911,674
Proceeds from issuance of debt
—
2,314,005
3,032,905
5,346,910
Cost of recapitalization
—
—
—
(371,111
)
Net cash provided by financing activities
5,255,192
3,364,372
12,174,806
47,105,109
Net Increase (Decrease) in Cash and Cash Equivalents
(1,058,978
)
730,109
4,738,000
6,090,904
Cash and Cash Equivalents,
at beginning of year
1,681,773
622,795
1,352,904
—
Cash and Cash Equivalents,
at end of year
$
622,795
$
1,352,904
$
6,090,904
$
6,090,904
Supplemental Schedule of Noncash Investing and Financing Activities
2002
Payments
due on the accrued equipment lease were made through a reduction in deposits due to the Company in the amount of $330,649.
Debt
of $5,346,910 and accrued interest of $235,577 were converted to common stock.
Split-off
of the therapeutic business which included equipment and leasehold improvements of $516,567 and accounts payable of $70,000 in exchange for the Company's common stock valued at $12,226,319.
See
accompanying notes to consolidated financial statements.
F-9
Photogen Technologies, Inc.
Notes to Consolidated Financial Statement
1.    Organization and Significant Accounting Policies
Nature of Operations
Photogen Technologies, Inc. (the "Company"), through its subsidiary Photogen, Inc., successor to Photogen, L.L.C., is a development stage biopharmaceutical
company that is focusing on developing a novel contrast agent with potential applications (1) as a blood pool agent to diagnose diseased tissue in the cardiovascular system and other organs and (2) to
diagnose cancer metastasizing into the lymphatic system. The Company also has in development certain minimally invasive products for the treatment of psoriasis and other topical diseases and cancer
and certain laser device technology (the therapeutic business). The Company also has an investment in a joint venture (Note 3). In November 2002, the Company split off the therapeutic business to its
original shareholders (see Note 13).
Principles of Consolidation
Intercompany balances and transactions have been eliminated in consolidation.
Liquidity and Basis of Presentation
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. 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 2002 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.
Estimates
The financial statements include estimated amounts and disclosures based on management's assumptions about future events. Actual results may differ from those
estimates.
Cash Equivalents
Highly liquid investments with a maturity of three months or less when purchased are classified as cash equivalents.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation and amortization of equipment are provided for using the straight-line method over the
estimated useful lives of the assets. Computers and laboratory equipment are being depreciated over five years, furniture and fixtures are being depreciated over seven years and leasehold improvements
are being amortized over five years. Leasehold improvements are being amortized on a straight-line basis over the lives of the respective leases or the service lives of the improvements, whichever is
shorter. Depreciation expense was
F-10
$374,845, $400,525 and $329,653 for 2000, 2001 and 2002, respectively. All equipment and leasehold improvements, except a net amount of $36,000, were transferred in the split-off of the therapeutic
business.
Long-Lived Assets
The Company reviews the carrying values of its long-lived assets for possible impairment whenever an event or change in circumstances indicates that the carrying
amount of the assets may not be recoverable. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less cost to sell.
Patent Costs
Internal patent costs are expensed in the period incurred. Patents purchased are capitalized and amortized over the life of the patent. Amortization expense was
$41,666 for 2000, 2001 and 2002. Amortization of patent costs is expected to be $41,666 over the remaining life of the patent.
Research and Development
Research and development costs are charged to expense when incurred.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax basis and financial
reporting basis of certain assets and liabilities based upon currently enacted tax rates expected to be in effect when such amounts are realized or settled.
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 December 31, 2002 are 4,535,481 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 (Note 6(f)).
Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash, accounts payable and accrued expenses approximate fair value because of the short-term
nature of these amounts. The Company's note receivable approximates fair value based on instruments with similar terms.
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
F-11
the market price on the date of grant. Accordingly, compensation expense of $988,184 has been recorded.
For
stock options granted to employees and directors, the Company has estimated the fair value of each option granted using the Black-Scholes option pricing model with the following
assumptions:
2000
2001
2002
Weighted average fair value per options granted
$
18.68
$
3.64
$
1.31
Significant assumptions (weighted average)
Risk-free interest rate at grant date
6.2
%
4.8
%
2.8
%
Expected stock price volatility
94.3
%
95.5
%
98.0
%
Expected option life (years)
5
5
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:
2000
2001
2002
Net income (loss), as reported
$
(13,491,813
)
$
(12,666,771
)
$
(1,649,604
)
Add stock based employee compensation expense included in reported net income
—
—
988,184
Less total stock-based employee compensation expense determined under the fair value based method for all awards
(8,356,534
)
(11,314,458
)
(6,084,842
)
Pro forma net loss
$
(21,848,347
)
$
(23,981,229
)
$
(6,746,262
)
Basic and diluted loss per common share, as reported
$
(1.44
)
$
(1.33
)
$
(0.16
)
Basis and diluted loss per common share, pro forma
$
(2.34
)
$
(2.52
)
$
(0.66
)
F-12
Reclassification
Certain 2001 amounts have been reclassified to conform with the 2002 presentation.
Recent Accounting Pronouncements
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement
addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a
Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. The provisions of SFAS 144 are effective for fiscal years
beginning after December 15, 2001. The Company has recorded the split-off of its therapeutic business as a discontinued operation in accordance with SFAS 144.
In
June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination cost and
certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance provided by EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" is replaced by this
Statement. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Management does not anticipate that the adoption of this Statement will have a
significant effect on the Company's financial statements.
In
November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others"
("Interpretation"). This Interpretation elaborates on the existing disclosure requirements for most
guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair
market value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions of
the Interpretation apply on a prospective basis to guarantees issued or modified after December 31, 2002.
In
January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." The objective of this interpretation is to provide guidance on how to identify
a variable interest entity ("VIE") and determine when the assets, liabilities, noncontrolling interests and results of operations of a VIE need to be included in a company's consolidated financial
statements. A company that holds variable interests in an entity may need to consolidate the entity if the Company's interest in the VIE is such that the Company will absorb a majority of the VIE's
expected losses and/or receive a majority of the entity's expected residual returns, if they occur. Interpretation No. 46 also requires additional disclosures by primary beneficiaries and other
significant variable interest holders. The provisions of this interpretation became effective upon issuance. The Company believes that Sentigen will be considered a VIE; however, the Company does not
expect its accounting for its interest in Sentigen to change.
In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation and requires pro forma disclosures of
F-13
the effect on net income and earnings per share had the fair value method been used to be included in annual and interim reports and disclosure of the effect of the transition method used if the
accounting method was changed, among other things. SFAS No. 148 is effective for annual reports of fiscal years ending after December 15, 2002 and interim reports beginning after December 15, 2002.
The Company plans to continue using the intrinsic value method of accounting for stock-based compensation and, therefore, the new rule will have no effect on the Company's financial condition or
results of operations. The Company adopted the disclosure requirements effective December 15, 2002.
2.    Recapitalization and Merger
On May 16, 1997, MT Financial Group, Inc. (an inactive public company), through its wholly owned subsidiary, effected a reverse merger with Photogen, Inc.
("Photogen"), successor to Photogen, L.L.C. Photogen, L.L.C. was formed on September 10, 1996 and commenced operations November 3, 1996. Photogen, L.L.C. was formed to develop proprietary laser-based
technologies related to photodynamic therapy. Legally, Photogen was a wholly owned subsidiary of Photogen Technologies, Inc. (formerly known as MT Financial Group, Inc.).
For
financial reporting purposes, Photogen was deemed to be the acquiring entity. The transaction has been reflected in the accompanying financial statements as (1) a recapitalization of
Photogen
(consisting of a 48,000-for-one stock split and change in par value) and (2) an issuance of shares by Photogen in exchange for all of the outstanding shares of MT Financial Group, Inc.
As
part of the recapitalization, the Company sold 1,578,208 shares of common stock for a total purchase price of approximately $1,803,450. Legal and brokerage fees of approximately
$371,000 were charged to additional paid-in capital as costs of the recapitalization and merger. Included in the paid-in capital is the net cash of approximately $109,000 from MT Financial Group, Inc.
3.    Joint Venture/ Investment in Affiliate
On October 7, 1999, the Company formed a joint venture with Elan International Services, Ltd. ("Elan") to develop and commercialize nanoparticulate diagnostic
imaging agents for the detection and treatment of cancer through lymphography.
Sentigen
Ltd. ("Sentigen") was formed to hold the operations, assets and liabilities of the joint venture. Elan purchased 2,980 shares of Sentigen nonvoting convertible preferred stock
for $2,985,000 representing a 19.9% ownership interest. Elan also purchased 12,015 shares of the Company's Series A convertible exchangeable preferred stock for $12,015,000. In connection with the
issuance of the preferred stock to Elan, the Company granted warrants to Elan to purchase 100,000 shares of the Company's common stock at $84.68 per share which was valued at $678,000. As a result, a
preferred stock dividend of $436,041 was recorded for the accretion of the preferred stock to its face value of $12,015,000 over the period until it is first convertible. Beginning in 2000, in
accordance with EITF 00-27, the Company recorded an additional preferred stock dividend to represent the beneficial conversion feature associated with the intrinsic value of the Series A Preferred
conversion option. As a result, an additional preferred stock dividend of $436,041 was recorded over the period until it is first convertible. As of December 31, 2001, the beneficial conversion
feature was fully recorded.
The
Company purchased 12,000 shares of Sentigen's common stock for $12,015,000 representing an 80.1% ownership interest.
Sentigen
used the $15,000,000 received from the Company and Elan to purchase from Elan a worldwide license to certain patented Elan technology related to the joint venture. Expenses
incurred by the Company and Elan, which relate to the development of the diagnostic imaging agents, are charged to Sentigen.
F-14
Elan
granted the Company a line of credit of $4,806,000 to be used by the Company to fund their portion of Sentigen's research and development. Principal and interest under the line of
credit, if any, become due and payable in 2005 or, at the option of Elan, can be converted into the Company's common stock at $72.60 per share. Any borrowings under the line of credit would bear
interest at 8%. At December 31, 2001, borrowings on this line of credit were $2,314,005 and accrued interest was $48,429. During 2002, the Company borrowed an additional $532,905 and incurred
additional accrued interest of $187,148. On November 12, 2002, the total borrowings of $2,846,910 and accrued interest of $235,577 were converted to common stock at a conversion price of $24 per
share. A beneficial conversion amount of $206,348 was recorded as a result of the decrease in the original conversion price.
In
connection with the joint venture agreement, Elan also purchased 115,385 shares of the Company's common stock for $6,000,000. If, in the Company's next third-party offering after the
issuance of the Series A Preferred, it sells common stock at a price less than $52 per share, the Company must issue additional shares to Elan so that Elan's overall price for its common stock equals
the effective price in that third-party offering. During 2001, the Company issued 190,857 shares of common stock to satisfy this requirement.
The
total cash proceeds from the equity issuance to Elan of $18,015,000 were allocated to the common stock, preferred stock and the warrants.
Elan
has substantive participating rights in Sentigen, including the requirement for approval of the business plan and budgets and equal representation on the management committee which
decides all day-to-day functions. As a result, the Company's investment in Sentigen is recorded under the equity method.
Following
is summarized financial information for Sentigen at December 31, 2001 and 2002:
2001
2002
Cash
$
9,345
$
410
License purchased from Elan, net of amortization of $1,222,829 and $2,201,093, respectively
13,777,171
10,298,907
Total assets
$
13,786,516
$
10,299,317
Due to affiliates
$
210,596
$
378,099
Total shareholders' equity
13,575,920
9,921,218
Total liabilities and equity
$
13,786,516
$
10,299,317
Research and development expense
$
1,450,291
$
823,409
General and administrative expense
—
18,329
Amortization of license
978,264
978,264
Impairment of license
—
2,500,000
Net loss
$
(2,428,555
)
$
(4,320,002
)
F-15
4.    Accruals
Accrued expenses consist of the following:
December 31,
2001
2002
Accrued salaries
$
93,963
$
—
Accrued bonuses
251,850
—
Accrued interest (Note 3)
48,429
—
Accrued restructuring (Note 9)
173,932
—
Payroll liabilities
—
34,132
$
568,174
$
34,132
5.    Commitments
(a)
At
December 31, 2002, the Company has a lease for office space in New Hope, Pennsylvania, expiring in August 2004.
The
Company also has an operating lease for laboratory equipment expiring in 2004. During 2001, the Company determined that equipment leased by the Company under this operating lease
would no longer be used by the Company in its research. As a result, in 2001, the Company recorded a provision for all future lease payments of $1,264,208. $568,138 of this provision was recorded in
the fourth quarter. At December 31, 2002, $803,328 remains to be paid. In conjunction with this operating lease, the Company provided $500,000 as cash collateral to be refunded over the term of the
lease. In 2002, $100,000 was refunded and, accordingly, this amount was recorded as a current deposit at December 31, 2001. The Company and the lessor agreed to offset certain remaining lease payments
with the remaining $400,000 deposit. In 2002, lease payments of approximately $331,000 were offset with the deposit.
Total
rental expense charged to operations for the years ended December 31, 2000, 2001 and 2002 aggregated approximately $352,000, $358,000 and $227,000, respectively.
Minimum
future rental payments under these leases are as follows:
Year ending December 31,
Operating
Leases
2003
$
574,000
2004
502,000
Total
$
1,076,000
(b)
The
Company has entered into employment agreements with certain officers and employees. The officers and employees are each entitled to severance ranging from six months to one year
of their annual salary if terminated without cause. Total severance commitments are $500,000 under these agreements.
6.    Equity Transactions
(a)
The
Company applies the recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," in accounting for stock options issued to nonemployees. The Company has
issued options and warrants in exchange for consulting services rendered. The Company issued 10,000 options in 1998, 2,500 options and 125,500 warrants in 1999, 5,250 options and 128,750 warrants in
2000, 7,500 options in 2001 and 200,000 warrants in 2002. In addition, there were 190,000
F-16
contingent
warrants issued for which no expense has been recognized as of December 31, 2002. As the fair market value of these services was not readily determinable, these services were valued based
on the fair market value, determined using the Black-Scholes option pricing model. Fair market value for options and warrants ranged from $5.36 to $38.04 in 2000, $3.08 in 2001 and $1.01 to $1.81 in
2002. Consulting costs charged to operations were $2,316,282 in 2000, $825,092 in 2001 and $395,870 in 2002. In 2002, the Company also issued 390,556 options in settlement of a lawsuit associated with
restructuring costs (Note 9). The value of these options was $806,415 which was recorded as restructuring charges in 2002.
(b)
In
August 1999, the Company purchased patents for $500,000 which were satisfied by the issuance of 10,832 shares of the Company's common stock valued at $300,000 and cash of $200,000.
(c)
In
1999, the Company issued 185,000 variable stock options to employees which would vest upon completion of performance milestones. Exercise prices ranged from $37.52 to $72.52 and
expired in 10 years. As of December 31, 1999, 18,750 of these shares had vested. Compensation charged to operations was $225,000 in 1999. In 2000, all of these variable stock options were cancelled.
(d)
Series
A Preferred Stock—The Company originally designated 12,015 shares of preferred stock as Series A Preferred Stock ("Series A Preferred"). For the first six years
from issuance, the preferred stock has a mandatory dividend of 7%. Such dividends are cumulative and compound on a semiannual basis and are payable semiannually solely by the issuance of additional
preferred Series A stock. The Company has a deficit and, as a result, the dividends have been recorded against paid-in capital. In accordance with the provisions of the agreement, the Company issued
additional preferred shares of 841 in 2000 in settlement of dividend requirements. Therefore, at December 31, 2002, there were 12,856 shares of Series A Preferred outstanding. The Company has accrued
and will issue 1,914 preferred shares in fulfillment of the 2001 and 2002 dividend requirement. The Series A Preferred shall rank senior to any future series of preferred stock unless the majority of
the Series A shareholders agree to rank
pari passu
with any future issuances. The liquidation preference is $1,000 per share. The Series A Preferred is
convertible, after two years but before six years from issuance, into common stock of the Company with an initial conversion price of $84.68. The conversion price is subject to adjustment for certain
dilutive events. Alternatively, the holder of the Series A Preferred can elect to exchange the Series A preferred shares for the number of shares in Sentigen which would allow the
Series A holder to then own a total of 50% of Sentigen. The Series A holder is currently the minority shareholder in Sentigen. The exchange right is not available for any shares which have been
converted to common stock. The exchange right terminates six years from the issuance of the Series A Preferred. The Series A Preferred was issued in October 1999.
The
holder of Series A Preferred is only entitled to vote on matters that adversely affect or change the rights of holders of Series A Preferred and does not have the right to vote on the election of
directors of the Company. The holder of Series A Preferred also has a preemptive right until October 2003 to participate in any offering of the Company.
(e)
Series
B Preferred Stock—In February 2000, the Company completed a private placement of its Series B Convertible Preferred Stock ("Series B Preferred"). The Company
received cash proceeds, net of related expenses, of $5,276,340 in exchange for 337,056 shares of the Series B Preferred. The Series B Preferred has an annual dividend rate of 6%. Such dividends are
cumulative, shall compound on an annual basis and are payable annually by the issuance of additional preferred Series B stock. The Company has a deficit and, as a result, the dividends will be
recorded against paid-in capital. In accordance with the provisions of the agreement, the Company issued additional preferred shares of 20,224 in 2001 and 40,194 in 2002 in settlement of dividend
requirements.
F-17
Subject
to the senior liquidation preference of the Series A Preferred stockholder, and the liquidation preference of any senior or pari passu securities created by the Company in the future with the
requisite consent of the holders of Series B Preferred, each share of Series B Preferred is entitled to a liquidation preference equal to $16.88 per share, before any amounts are paid on the common
stock on liquidation. If the Company is acquired by another entity or sells all or substantially all of its assets, and if it pays an amount equal to the liquidation preference of the Series A
Preferred and any other senior security, holders of Series B Preferred will be entitled to receive the liquidation preference unless the stockholders prior to the transaction hold at least 50% of the
voting power of the surviving or acquiring entity or if the holders of a majority of Series B Preferred agree by vote or written consent to exclude the acquisition or sale from this provision.
Each
share of Series B Preferred has the number of votes equal to the number of shares of common stock into which the share of Series B Preferred would be convertible, and is entitled to vote together
with the common stock. Certain matters, such as an amendment to the terms of the Series B Preferred Certificate of Designation or a change in the preferences or any relative or other rights of the
Series B Preferred (except for issuance of a special senior security), may have to be approved by a majority of the holders of Series B Preferred voting as a separate class. This right is subject to
the Company's ability to require mandatory conversion of Series B Preferred if a special senior security (discussed below) is not approved.
Holders
of Series B Preferred may convert shares of Series B Preferred into 0.36 shares of common stock at any time.
The
Series B Preferred contains beneficial conversion features. Emerging Issues Task Force Issue 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios," requires the issuer to assume that the holder will not convert the instrument until the time of the most beneficial conversion, which would occur after January 1, 2002.
Using the conversion ratio at January 1, 2002 of 0.36 shares of common stock and the stock price at the date of issuance, the maximum beneficial conversion amount is $2,322,316. This amount was
recorded as additional preferred stock dividends over the period from issuance until January 1, 2002. Through December 31, 2001, this full amount has been recorded as additional dividends.
The
conversion ratio is subject to adjustment for certain dilutive events, including issuance of common stock or equivalent securities at less than $16.88 per share. In 2001, the Company issued common
stock at less than $16.88. As a result, the revised conversion ratio for the number of shares of common stock issuable upon conversion of Series B Preferred is 0.36175.
The
Company may require holders of Series B Preferred to convert their shares into common stock (at the same ratios that would apply for a voluntary conversion, except as described in the second and
third bullet points below) in connection with any of the following events:
–
If
the holders of a majority of the Series B Preferred approve a mandatory conversion;
–
Immediately
prior to a firm commitment, underwritten public offering of the Company's common stock in which they receive $20 million or more in gross
proceeds;
–
If
the holders of a majority of Series B Preferred do not approve any transaction to issue a security senior or pari passu to the Series B Preferred in a
transaction involving any vendor, licensor or joint venturer or other commercial transaction (a "special senior security"), the purpose of which is not solely to provide financing, and which the Board
has approved and recommended; or
–
At
any time after January 1, 2005.
F-18
In
conjunction with the financing on November 12, 2002 (see Note 6(f)), all of the Series B Preferred was converted into common stock. In exchange for this conversion, the conversion ratio of 0.36175
was changed to 1.0625. As a result, the Series B Preferred was converted into 422,316 shares of common stock and a beneficial conversion amount of $668,464 has been recorded. The Series B Preferred is
no longer outstanding, nor is there any liquidation preference associated with the Series B Preferred.
(f)
Common
Stock—The Company is subject to six sets of registration rights agreements covering an aggregate of 11,912,779 shares of the Company's common stock, warrants that
have vested covering the Company's common stock and common stock issuable upon conversion of the Company's Series A Preferred. All of the agreements contain piggyback registration rights and two
contain demand registration rights upon the occurrence of certain events and subject to various terms and conditions. Of the 11,912,779 shares, 1,000,000 shares are entitled to piggyback registration
only, 50,000 shares are entitled to both demand and piggyback registration and 10,862,779 shares will be registered by the Company within the time frames set forth in the respective registration
agreements. Warrants that have vested covering 237,431 shares of the Company's common stock have weighted average anti-dilution rights.
On
March 13, 1998, the Company completed a private placement of 218,755 shares of common stock for $32 per share to a number of accredited investors. The Company received $7,000,000 in gross proceeds
from this offering.
On
February 9, 2001, the Company's shelf registration on Form S-3 was declared effective. Under the shelf registration, the Company could have issued up to $40,000,000 of common stock. As of December
31, 2002, 173,872 shares have been issued under the shelf registration for cash proceeds of $1,068,723, net of related expenses of $56,252. The Company's registration statement is no longer effective.
As
of April 2, 2001, the Company no longer met the eligibility requirements to continue selling shares under the S-3. Prior to realizing it was ineligible to continue using the S-3, the Company sold
124,627 shares of common stock for $650,000. This amount has been reclassified from permanent equity to mezzanine equity as the Company could be required to repay a portion of this amount to the
purchaser.
On
November 12, 2002, the Company completed a private placement of 8,333,334 shares of common stock for $1.08 per share to a number of accredited investors. The Company received proceeds of
$8,613,000, net of related expenses of $387,000. Proceeds included cash of $6,113,000 and the conversion of a credit facility with an entity controlled by a director of the Company with borrowings of
$2,500,000 which converted into 2,314,815 shares of common stock.
In
December 2002, the Company completed a second closing of the November 12, 2002 private placement in which 2,804,539 shares of common stock were sold for $1.08 per share for proceeds
of $3,028,902.
On
November 12, 2002, the Company also effected the split-off of Photogen, Inc. and the assets and liabilities related to the Company's therapeutic line of business to the five founding
stockholders of the Company (the "Tennessee Stockholders") in exchange for all of their common stock in the Company. The Tennessee Stockholders owned 5,137,109 shares of the Company and those shares
were cancelled prior to December 31, 2002. The market value of the 5,137,109 shares on the date of the split-off was $12,226,319.
In
conjunction with the November 12, 2002 transactions, the Company implemented a one-for-four reverse split of its common stock. All amounts have been retroactively stated to reflect
this reverse stock split.
F-19
7.    Stock Incentive Plans and Warrants
The Company maintains three long-term incentive compensation plans, which are described as follows:
–
The
1998 Long-Term Incentive Compensation Plan, which provides for the granting of up to 500,000 stock options to key employees, directors and consultants;
–
The
2000 Long-Term Incentive Compensation Plan, which provides for the granting of up to 4,568,750 stock options to key employees, directors and consultants;
–
The
2000 Senior Executive Long-Term Incentive Compensation Plan, which provides for the granting of up to 1,000,000 stock options to senior executives.
Options
granted under these plans may be either "incentive stock options" within the meaning of Section 422A of the Internal Revenue Code, or nonqualified options.
The
stock options are exercisable over a period determined by the Board of Directors (through its Compensation Committee), but generally no longer than 10 years after the date they are
granted.
Information
with respect to the plans follows:
Year ended December 31,
2000
2001
2002
Options outstanding at beginning of year
301,375
1,411,000
1,629,750
Options granted
1,386,500
218,750
2,914,356
Options forfeited
(276,875
)
—
(8,625
)
Options outstanding at end of year
1,411,000
1,629,750
4,535,481
Option prices per share granted
$
11.00 - 60.00
$
4.56 - 21.24
$
1.08 - 4.20
Weighted average exercise price
Options granted
$
41.52
$
8.12
$
1.14
Options granted at less than market price
—
—
1.08
Options granted at the market price
41.52
8.12
1.55
Options forfeited
47.28
—
18.41
Options outstanding at end of year
41.88
37.16
14.05
Options exercisable at end of year
25.48
43.04
19.85
Number of shares exercisable
28,125
458,333
2,057,208
F-20
In 2002, all stock options granted, except for 390,556 options granted in settlement of a lawsuit, were granted to employees at an exercise price less than the
market value at grant date. The weighted average fair value of the options issued below market is $1.31.
Options Outstanding
Options Exercisable
Range of Exercise Price
Number Outstanding at December 31, 2002
Weighted Average Exercise Price
Weighted Average Remaining Contractual Life (Years)
Number Outstanding at December 31, 2002
Weighted Average Exercise Price
$1.08
2,876,856
$
1.08
9.5
1,044,416
$
1.08
$4.20 - 4.56
81,250
$
4.39
7.8
71,875
$
4.37
$6.80 - 8.52
157,500
$
8.15
8.1
45,000
$
7.98
$11.00
381,625
$
11.00
7.9
200,375
$
11.00
$21.25 - 27.50
16,250
$
22.69
8.1
6,875
$
24.66
$33.00 - 44.50
259,500
$
33.42
7.6
176,167
$
33.62
$51.00 - 53.00
10,000
$
52.50
5.8
10,000
$
52.50
$60.00 - 60.25
752,500
$
60.00
7.5
502,500
$
60.00
Information with respect to warrants follows:
Year ended December 31,
2000
2001
2002
Warrants outstanding at beginning of year
150,500
287,431
287,431
Warrants granted
136,931
—
390,000
Warrants forfeited
—
—
(250,000
)
Warrants outstanding at end of year
287,431
287,431
427,431
Warrant prices per share outstanding
$
37.80 - 84.68
$
37.80 - 84.68
$
1.08 - 84.68
Weighted average exercise price
Warrants granted
$
40.24
$
—
$
1.78
Warrants forfeited
$
—
$
—
$
37.80
Warrants outstanding at end of year
$
43.08
$
43.08
$
7.94
Warrants exercisable at end of year
$
43.08
$
43.08
$
12.27
Number of warrants exercisable
287,431
287,431
237,431
Warrants Outstanding
Warrants Exercisable
Range of Exercise Price
Number Outstanding at December 31, 2002
Weighted Average Exercise Price
Weighted Average Remaining Contractual Life (Years)
Number Outstanding at December 31, 2002
Weighted Average Exercise Price
$1.08 - 2.52
390,000
$
1.78
4.5
200,000
$
1.08
$44.20 - 47.78
12,431
$
46.67
3.8
12,431
$
46.67
$84.68
25,000
$
84.68
1.7
25,000
$
84.68
F-21
8.    Dividends
Dividends are comprised of the following:
Year ended December 31,
2000
2001
2002
Accrual of dividend on Series A Convertible Preferred
$
868,248
$
930,090
$
996,335
Deemed dividend associated with beneficial conversion feature of Series A Convertible Preferred
480,928
391,154
—
Accrual of dividend on Series B Convertible Preferred
296,478
359,292
332,924
Deemed dividend associated with beneficial conversion feature of Series B Convertible Preferred
1,059,097
1,263,219
—
Deemed dividend associated with beneficial conversion of Series B Convertible Preferred to Common Stock
—
—
668,464
Total
$
2,704,751
$
2,943,755
$
1,997,723
9.    Restructuring
In 2000, the Company recorded a restructuring charge of $597,025, included in operating expenses, relating to the closure of its operations in Westborough,
Massachusetts. The restructuring charge includes accruals related to estimated lease termination costs and accruals related to employee severance and related expenses in connection with their
termination. All employees at the Westborough facility were terminated. The activities previously performed at the Westborough facility were continued at other company locations or with outside
consultants. In 2002, the Company recorded an additional restructuring charge related to additional termination costs for one of the Westborough employees. As of December 31, 2002, all restructuring
costs have been settled. The restructuring charge is summarized as follows:
Charged in
2000
Utilized in
2000
Balance
at
December 31,
2000
Utilized in
2001
Balance
at
December 31,
2001
Charged in
2002
Utilized in
2002
Balance
at
December 31,
2002
Employee costs
$
395,223
$
65,223
$
330,000
$
156,068
$
173,932
$
807,483
$
981,415
$
—
Lease costs
201,802
201,802
—
—
—
—
—
—
Total
$
597,025
$
267,025
$
330,000
$
156,068
$
173,932
$
807,483
$
981,415
$
—
10.  Income Taxes
In 2002, the Company had taxable income due to the gain from the split-off of the therapeutic business (Note 13). This resulted in current income tax expense of
approximately $2,300,000 which was completely off-set by net operating losses.
The
Company has not recorded an income tax benefit for net operating losses remaining of approximately $14,000,000, primarily expiring in 2018 through 2021, or for equity losses in
affiliate of approximately $7,000,000. The Company is in the development stage and realization of the losses is not considered more likely than not. An income tax valuation allowance has been provided
for the deferred tax assets related to the net operating loss carryforwards and the losses in affiliate.
A
portion of the net operating loss carryforwards will not remain with the Company as a result of the split-off of the therapeutic business. However, the amount of these net operating
losses is not known.
11.  Notes Receivable
The Company has executed a term sheet with Alliance Pharmaceutical Corp. ("Alliance") to buy certain assets of Alliance. As of December 31, 2002, the Company has
loaned to Alliance $1,255,000 for Alliance's working capital purposes. These loans are evidenced by 8% convertible secured promissory notes which are secured by certain assets of Alliance. Based on
the nature of the Company's security interest in the collateral and the estimated value of the collateral, management has determined that a reserve for doubtful collection of the notes receivable is
not necessary at December 31, 2002.
F-22
12.  Selected Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 2002 and 2001 is as follows:
Quarter
2002
First
Second
Third
Fourth
Operating expenses (a)
$
1,208,285
$
906,957
$
1,218,083
$
2,732,138
Loss from continuing operations (b)
(1,813,246
)
(1,341,652
)
(1,594,897
)
(5,185,408
)
Income (loss) from discontinued operations (c)
(502,449
)
(544,657
)
(244,719
)
11,575,147
Net income (loss)
(2,315,695
)
(1,886,309
)
(1,839,616
)
6,389,739
Basic and diluted loss per share from continuing operations
(0.23
)
(0.17
)
(0.20
)
(0.51
)
Basic and diluted income (loss) per share from discontinued operations
(0.05
)
(0.06
)
(0.03
)
0.96
Basic and diluted income (loss) per share
(0.28
)
(0.23
)
(0.23
)
0.45
Quarter
2001
First
Second
Third
Fourth
Operating expenses
$
1,930,626
$
714,271
$
931,288
$
1,346,565
Loss from continuing operations
(2,346,978
)
(1,375,848
)
(1,264,813
)
(1,825,557
)
Loss from discontinued operations
(680,134
)
(698,149
)
(738,562
)
(792,975
)
Net loss
(3,027,112
)
(2,073,997
)
(2,003,375
)
(2,618,532
)
Basic and diluted loss per share from continuing operations
(0.33
)
(0.23
)
(0.31
)
(0.26
)
Basic and diluted loss per share from discontinued operations
(0.07
)
(0.07
)
(0.08
)
(0.08
)
Basic and diluted loss per share
(0.40
)
(0.30
)
(0.29
)
(0.34
)
(a)
Operating
expenses for the fourth quarter 2002 includes a charge of $988,184 from the issuance of stock options to employees.
(b)
Loss
from continuing operations for the fourth quarter 2002 includes an increase in loss from joint venture of $2,000,000 resulting from the impairment of the joint venture's licensed
technology.
(c)
Income
(loss) from discontinued operations for the fourth quarter 2002 includes a gain of $11,779,752 from the sale of the therapeutic business.
(d)
Earnings
per share calculations for each of the quarters are based on the weighted average shares outstanding for each period. The sum of the quarters may not necessarily be equal to
the full year earnings per share amounts.
13.  Discontinued Operations
On November 12, 2002, the Company split off its therapeutic business to the Tennessee Stockholders in exchange for all of the Tennessee Stockholders' stock in the
Company which totaled 5,137,109 shares. Net assets transferred in the split-off included fixed assets with net book value of $516,567 and accounts payable of $70,000. At December 31, 2001, the net
book value of the fixed assets transferred was $882,220 and the related payable was $70,000.
The
Company has reviewed the provisions of SFAS 144 and has determined that the sale of therapeutic business meets the two conditions necessary for presentation as discontinued
operations. Those conditions are (a) the operations and cash flow of the component have been or will be eliminated from the ongoing operations of the entity as a result of the disposal transaction and
(b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.
The
split-off of the therapeutic business was effective on November 12, 2002 and, as such, the consolidated balance sheet of the Company at December 31, 2002 does not include the assets
or liabilities of the therapeutic business. The Company recorded a loss from operations of the therapeutic business of $1,454,430 and a gain on the sale of the therapeutic business of $11,779,752 for
the year ended December 31, 2002. There were no revenues from the therapeutic business since its inception.
F-23
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13.    OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth expenses payable by the Registrant in connection with this Prospectus
dated                        , 2003. All of the amounts shown are
estimates except the SEC registration fee.
SEC Registration Fee
$
55.29
Printing expenses
$
5,000
Legal fees and expenses
$
25,000
Accounting fees and expenses
$
10,000
Blue Sky qualification fees and expenses
$
3,000
Miscellaneous fees
$
1,945
Total
$
45,000.29
ITEM 14.    INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.7502 of the Corporation Law authorizes a corporation to indemnify its directors, officers, employees or other agents in terms sufficiently broad
to permit indemnification (including reimbursement for expenses incurred) under certain circumstances for liabilities arising under the Securities Act. Our articles of incorporation and bylaws provide
indemnification of directors and officers to the maximum extent permitted by the Nevada General Corporation Law. In addition, we have entered into Indemnification Agreements with our directors. Our
bylaws also permit us to purchase and maintain insurance on behalf of directors, officers, employees and agents of the company for any liability and expenses incurred in his capacity as such, whether
or not the company has the authority to indemnify him against such liability and expenses. We maintain directors and officers insurance for our directors and officers.
ITEM 15.    RECENT SALES OF UNREGISTERED SECURITIES
During the three year period preceding the date of filing of this registration statement, we have issued securities in the transactions described below without
registration under the Securities Act. These securities were offered and sold by us in reliance upon exemptions from the registration requirements provided by Section 4(2) of the Securities Act
and Regulation D under the Securities Act relating to sales not involving any public offering, and/or Rule 701 under the Securities Act relating to transactions occurring under
compensatory benefit plans. The share numbers and prices set forth below have been adjusted to reflect the one-for-four reverse split of our common stock effected in November,
2002.
•
On
January 24, 2000, we issued warrants covering 3,750 shares of our common stock to a consultant. The warrants are exercisable at any time before
January 24, 2010 for an exercise price of $44.23.
•
On
February 18, 2000, we issued 327,240 shares of Series B Preferred Stock to 32 accredited investors in a private placement, for a purchase
price of $16.88 per share and 9,816 shares of Series B Preferred Stock and warrants to acquire 32,724 shares of our common stock at an exercise price of $16.88 per share to the placement agent
in connection with services rendered in our private placement of Series B Preferred Stock. All of the issued and outstanding shares of Series B Preferred Stock were converted into an
aggregate of 422,316 shares of common stock at the conversion ratio of 4.25 shares of common for each share of Series B Preferred Stock on
II-1
November 12,
2002. Upon effecting the one-for-four reverse split the number of shares subject to the warrants was adjusted to 8.181 and the exercise price was adjusted
to $47.78 per share.
•
On
August 9, 2000, we issued warrants to acquire a total of 500,000 shares of common stock to Farcap Group, LLC as consideration for consulting
services Farcap agreed to perform for us. The warrants are exercisable at any time before August 9, 2004 for an exercise price of $9.45 per share. In connection with our sale of 8,333,334
shares of common stock to a group of institutional investors in November, 2002, Farcap agreed to adjust the number of shares subject to the warrants to 50,000 post-reverse split shares and
to adjust the exercise price to $1.08 per share.
•
During
2000, we also awarded 383,565 options to acquire our common stock pursuant to our 1998 Long Term Incentive Compensation Plan and 1,000,000 options to
acquire common stock pursuant to our Senior Executive Long Term Incentive Compensation Plan. Those options are exercisable at prices ranging from $11.00 to $60.25 and are subject to various vesting
criteria.
•
During
2001, we awarded 86,250 options to acquire our common stock pursuant to our 1998 Long Term Incentive Plan and 127,500 options to acquire our common
stock pursuant to our 2000 Plan.
•
Pursuant
to the terms of a Settlement Agreement dated June 13, 2002, and as amended on February 28, 2003, we issued options to acquire an
aggregate of 390,556 shares of our common stock to Dr. Wolf.
•
In
a series of closings occurring in November and December, 2002, and January, 2003, we sold and issued 11,165,551 shares of our common stock to a group of
institutional and individual accredited investors at $1.08 per share.
•
In
each of December, 2002 and January and February, 2003, we issued 250,000 shares (an aggregate of 750,000 shares) to Xmark Fund, L.P. and Xmark
Fund, Ltd. in connection with the Standstill and Make Whole Agreement dated as of December 30, 2002.
•
During
2002, we awarded 2,523,800 options to acquire our common stock under the 2000 Plan.
•
Pursuant
to the terms of a Consulting Agreement dated as of January 30, 2003, we issued 75,000 shares of our common stock to a consultant, subject to
certain forfeiture provisions.
•
During
January and February, 2003 we awarded 40,000 options to acquire common stock pursuant to our 2000 Plan.
In
each of the transactions described above:
•
We
did not use any underwriters or brokers and we paid no commissions or underwriting discounts, except for a commission of 9,816 shares of Series B
Preferred Stock, warrants in the amount of 8,181 shares of our common stock and $25,000 expense reimbursement we paid to the placement agent for our Series B Preferred Stock.
•
Wherever
we received cash consideration, we used the proceeds for working capital, the possible acquisition of the medical imaging assets of Alliance and
other general corporate purposes.
ITEM 16.    EXHIBITS
The following exhibits are filed as part of this Registration Statement:
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.)
II-2
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.)
5.1
*
Opinion of Grippo & Elden
9.1
Voting, Drag-Along and Right of First Refusal Agreement entered into as of November 12, 2002 by and among Robert J. Weinstein, M.D., Stuart P. Levine, Tannebaum, LLC, Mi3 L.P., Oxford Bioscience Partners IV L.P. and MRNA
Fund II L.P. (Filed as Exhibit G to the company's Proxy Statement on Form DEFM 14A dated September 12, 2002 and incorporated herein by reference.)
10.1
Common Stock Purchase Agreement dated as of August 2, 2002 by and among Photogen Technologies, Inc., Mi3 L.P., Oxford Bioscience Partners IV L.P., MRNA Fund II L.P., New England Partners Capital, L.P. and Tannebaum LLC.
(Filed as Exhibit C to the company's DEFM 14A dated September 12, 2002 and incorporated herein by reference.)
10.2
Amendment No. 1 to the Common Stock Purchase Agreement dated as of August 2, 2002 by and among Photogen Technologies, Inc., Mi3 L.P., Oxford Bioscience Partners IV L.P., MRNA Fund II L.P., New England Partners Capital,
L.P. and Tannebaum LLC. (Filed as Exhibit A to the company's DEFR 14A Proxy Supplement dated October 18, 2002 and incorporated herein by reference.)
10.3
Separation Agreement dated as of July 29, 2002 by and among the following: Craig Dees, Ph.D. and Dees Family Foundation, Eric A. Wachter, Ph.D. and Eric A. Wachter 1998 Charitable Remainder Unitrust, Timothy D. Scott,
Ph.D. and Scott Family Investment Limited Partnership, Walter Fisher, Ph.D., Fisher Family Investment Limited Partnership, and Walt Fisher 1998 Charitable Remainder Unitrust, and John A. Smolik and Smolik Family LLP, Photogen Technologies, Inc.,
Photogen, Inc., Robert J. Weinstein, M.D., Stuart P. Levine and Tannebaum, LLC (Filed as Exhibit A to the company's DEFM 14A dated September 12, 2002 and incorporate herein by reference.)
10.4
Registration Rights Agreement entered into as of November 12, 2002 by and among Photogen Technologies, Inc., Mi3 L.P., Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and Tannebaum, LLC (Filed as Exhibit D to the
company's Proxy Statement on Form DEFM 14A dated September 12, 2002 and incorporated herein by reference.)
10.5
Letter Agreement entered into as of August 29, 2002 by and between Photogen Technologies, Inc. and Clinical Regulatory Strategies, LLC (Filed as Exhibit 10.2 to the company's quarterly report on Form 10-Q for the quarter
ended September 30, 2002 and incorporated herein by reference.)
10.6
Office Lease dated February 19, 2001 by and between Photogen, Inc. and Union Square, Limited Partnership. (Filed as Exhibit 10.5 to the company's Annual Report on Form 10-K for the year ended December 31, 2000 and
incorporated herein by reference.)
10.7
Form of Registration Rights Agreement dated as of December 30, 2002 entered into by and between Photogen Technologies, Inc. and each of Oxford Bioscience Partners IV L.P., MRNA Fund II L.P., DMG Legacy Institutional Fund
LLC, DMG Legacy Fund LLC, and DMG Legacy International Ltd. (Filed as Exhibit 10.7 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.)
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10.8
Employment Agreement entered into by the company and Taffy J. Williams, Ph.D., dated October 28, 2002. (Filed as Exhibit 10.8 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated by reference herein.)
10.9
Employment Agreement entered into by the company and Brooks Boveroux, dated October 28, 2002. (Filed as Exhibit 10.9 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated by
reference herein.)
10.10
Employment Agreement with Reinhard Koenig, Ph.D., M.D., RAC dated October 28, 2002. (Filed as Exhibit 10.10 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated by reference
herein.)
10.11
Incentive Stock Option Award Agreement entered into by and between the company and Taffy J. Williams, Ph.D. dated May 17, 2000. (Filed as Exhibit 10.4 to the company's Current Report on Form 8-K dated May 17, 2001 and
incorporated herein by reference.)
10.12
Incentive Stock Option Award Agreement entered into by the company and Brooks Boveroux dated August 1, 2000. (Filed as Exhibit 10.13 to the company's Annual Report on Form 10-K dated December 31, 2000 and incorporated
herein by reference.)
10.13
Form of Indemnification Agreement entered into by and between the company and each Director and Senior Vice President of the company. (Filed as Exhibit 10.13 to the company's Annual Report on Form 10-K to for the year
ended December 31, 2002 and incorporated by reference herein.)
10.14
Tufts University Sponsored Research Agreement dated August 1, 1999 by and between Photogen, Inc. and Tufts University, a/k/a Trustees of Tufts College. (Filed as Exhibit 10.3 to the company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.
10.15
Amended Warrant Certificates between Photogen Technologies, Inc. and Farcap Group LLC dated as of January 31, 2003. (Filed as Exhibit 10.15 to the company's Annual Report on Form 10-K for the year ended December 31, 2002
and incorporated by reference herein.)
10.16
License Agreement effective as of September 30, 1999 between The General Hospital Corporation and Photogen, Inc. (Filed as Exhibit 10.7 to the company's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.
10.17
Securities Purchase Agreement dated as of October 20, 1999, among Photogen Technologies, Inc. and Elan International Services, Ltd. (Filed as Exhibit 10.8 to the company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.
10.18
Warrant to Purchase Shares of Common Stock dated October 20, 1999 between Photogen Technologies, Inc. and Elan International Services, Ltd. (Filed as Exhibit 10.9 to the company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated herein by reference.)
10.19
License Agreement dated October 20, 1999 between Photogen Technologies, Inc, Photogen Newco Ltd. and Elan Pharma International Limited. (Filed as Exhibit 10.13 to the company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.
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10.20
License Agreement dated October 20, 1999 between Elan Pharma International Limited, Photogen Newco Ltd. and Photogen Technologies, Inc. (Filed as Exhibit 10.14 to the company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.
10.21
Subscription, Joint Development and Operating Agreement dated October 20, 1999 between Elan Pharma International Limited, Elan International Services, Ltd., Photogen Technologies, Inc. and Photogen Newco Ltd. (Filed as
Exhibit 10.15 to the company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999 and incorporated herein by reference.) Confidential portions of this exhibit were redacted.
10.22
Equipment Lease between Picker Financial Group, L.L.C. and Photogen, Inc. dated October 25, 1999. (Filed as Exhibit 10.37 to the company's Annual Report on Form 10-KSB for the year ended December 31, 1999 and incorporated
herein by reference.)
10.23
Standstill and Make-Whole Agreement dated as of December 30, 2002 among Xmark Fund, L.P., Xmark Fund, Ltd., Alliance Pharmaceutical Corp. and Photogen Technologies. (Filed as Exhibit 10.23 to the company's Annual Report
on Form 10-K for the year ended December 31, 2002 and incorporated by reference herein.)
10.24
Convertible Secured Note Purchase Agreement dated as of October 4, 2002 by and between Alliance Pharmaceutical Corp. and Photogen Technologies, Inc. (Filed as Exhibit 10.24 to the company's Annual Report on Form 10-K for
the year ended December 31, 2002 and incorporated by reference herein.)
10.25
Form of 8% Convertible Secured Promissory Note by Alliance Pharmaceutical Corp. for the benefit of Photogen Technologies, Inc. (Filed as Exhibit 10.25 to the company's Annual Report on Form 10-K for the year ended
December 31, 2002 and incorporated by reference herein.)
10.26
Amendment to the 8% Convertible Secured Note Purchase Agreement, 8% Convertible Secured Notes and Related Security Agreements dated as of February 26, 2003 by and among Alliance Pharmaceutical Corp., Photogen Technologies,
 Inc. and the other noteholders. (Filed as Exhibit 10.26 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated by reference herein.)
10.27
Warrant Agreement dated as of November 12, 2002 between Broadmark Capital LLC and Photogen Technologies, Inc. (Filed as Exhibit 10.27 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated by reference herein.)
21
Subsidiaries of Registrant (Filed as Exhibit 21 to the company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated by reference herein.)
23.1
Consent of BDO Seidman, LLP, Independent Auditors (Photogen Technologies, Inc.)
23.2
Consent of BDO Seidman, LLP, Independent Auditors (Sentigen, Ltd.)
23.3
*
Consent of Counsel (included in Exhibit 5.1)
24.1
Power of Attorney (included on page S-2).
*
To
be filed by amendment.
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ITEM 17.    UNDERTAKINGS
(a)
The
undersigned Registrant hereby undertakes:
(1)
To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
To
include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii)
To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement;
(iii)
To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the
registration statement;
PROVIDED,
HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or
Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
(2)
That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)
To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(b)
The
undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c)
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the successful
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defense
of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(d)
The
undersigned Registrant hereby undertakes that:
(1)
For
purposes of determining liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2)
For
the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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Signatures
Pursuant to the requirements of the Securities Act of 1933, Registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New Hope, State of Pennsylvania, on April 22, 2003.
Photogen Technologies, Inc.
/s/
TAFFY J. WILLIAMS
Taffy J. Williams, Ph.D., President and
Chief Executive Officer
S-1
Power of Attorney
We, the undersigned officers and directors of Photogen Technologies, Inc. hereby constitute Taffy J. Williams and Brooks Boveroux, each acting alone, our
true and lawful attorney-in-fact and agent (with full power of substitution) with full power to sign for us in our names in the capacities indicated below the registration
statement filed herewith and any and all amendments to said registration statement, to file the same, and generally to do all such things in our name and behalf in our capacities as officers and
directors to enable Photogen Technologies, Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, hereby
ratifying
and confirming our signatures as they may be signed by our said attorney-in-fact and agent to said registration statement and any and all amendments thereto.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement and Power of Attorney has been signed below by the following persons in the capacities and on the
dates indicated.
Signature
Title
Date
/s/
TAFFY J. WILLIAMS
Taffy J. Williams, Ph.D.
President, Chief Executive
Officer and Director
April 22, 2003
/s/
ROBERT J. WEINSTEIN
Robert J. Weinstein, M.D.
Director
April 22, 2003
/s/
LESTER H. MCKEEVER, JR.
Lester H. McKeever, Jr.
Director
April 22, 2003
/s/
GENE GOLUB
Gene Golub
Director
April 22, 2003
/s/
WILLIAM D. MCPHEE
William D. McPhee
Director
April 22, 2003
/s/
ALAN D. WATSON
Alan D. Watson
Director
April 22, 2003
/s/
BROOKS BOVEROUX
Brooks Boveroux
Chief Financial Officer, Senior Vice President-Finance and Treasurer
April 22, 2003
S-2
QuickLinks
TABLE OF CONTENTS
PROSPECTUS SUMMARY
RISK FACTORS
FORWARD-LOOKING STATEMENTS
DIVIDEND POLICY
MARKET FOR SECURITIES
SELECTED FINANCIAL DATA
BUSINESS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SUMMARY COMPENSATION TABLE
SELLING STOCKHOLDER
USE OF PROCEEDS
PLAN OF DISTRIBUTION
DESCRIPTION OF SECURITIES
WHERE YOU CAN FIND MORE INFORMATION
ABOUT THIS PROSPECTUS
LEGAL MATTERS
EXPERTS
Index to Financial Statements
Report of Independent Certified Public Accountant
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Photogen Technologies, Inc. Consolidated Statements of Cash Flows
Photogen Technologies, Inc. Notes to Consolidated Financial Statement
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
ITEM 16. EXHIBITS
ITEM 17. UNDERTAKINGS
Signatures