<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the quarterly period
ended September 30, 1997
Commission File Number 0-95440
PHOTOGEN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 36-4010347
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7327 OAK RIDGE HIGHWAY, SUITE B
KNOXVILLE, TN 37931
(Address of principal executive offices) (Zip Code)
(423) 769-4012
(Registrant's telephone number including area code)
Check whether the issuer (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
YES: /X/ NO: / /
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
36,000,000 SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE,
ISSUED AND OUTSTANDING AS OF SEPTEMBER 30, 1997. NO SHARES OF
PREFERRED STOCK, $.01 PAR VALUE PER SHARE, WERE ISSUED OR
OUTSTANDING AS OF THAT DATE.
Transitional Small Business Disclosure Format:
YES: / / NO: /X/
<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) . . . . . . . 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION . . . . . . . . . . . . 7
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1997
(Unaudited) DECEMBER 31, 1996
------------------ -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 74,545 $ -
Interest receivable 47,697 -
Prepaid expenses 11,329 -
Marketable securities 977,456 -
---------- ------
TOTAL CURRENT ASSETS 1,111,027 -
UNITED STATES TREASURY NOTES, TOTAL
FACE VALUE $1,283,000 1,246,055
EQUIPMENT AND LEASEHOLD IMPROVEMENTS 69,440 -
PATENTS' COSTS 19,889 5,489
---------- ------
TOTAL ASSETS $2,446,411 $5,489
========== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES-ACCOUNTS PAYABLE $ 29,944 $ -
---------- ------
SHAREHOLDERS' EQUITY
Preferred stock; par value $.01
per share; 5,000,000 shares
authorized; none issued - -
Common stock; par value $.001 per
share; 150,000,000 shares
authorized; 36,000,000 shares
issued and outstanding 36,000 -
Additional paid-in capital 2,607,526 5,489
Deficit accumulated during the
development stage after
recapitalization (227,059) -
---------- ------
TOTAL SHAREHOLDERS' EQUITY 2,416,467 5,489
---------- ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,446,411 $5,489
========== ======
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
CUMULATIVE
THREE MONTHS NINE MONTHS AMOUNTS
ENDED ENDED FROM
SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 3,
1997 1997 1996
------------- ------------- -----------
REVENUES
Investment Income $ 48,292 $ 84,395 $ 84,395
EXPENSES
General and administrative and
state income taxes 237,938 309,675 311,454
---------- ---------- ---------
NET INCOME (LOSS) $(189,646) $(225,280) $(227,059)
========== ========== =========
NET INCOME (LOSS) PER COMMON SHARE $ - $ (.01)
========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 36,000,000 32,878,269
========== ==========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
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PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS CUMULATIVE
ENDED ENDED AMOUNTS FROM
SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 3,
1997 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (189,646) $ (225,280) $ (227,059)
Depreciation 2,605 2,605 2,605
Amortization of discount on
United States Treasury Notes - (1,080) (1,080)
Realized gain on United States
Treasury Notes - (17,519) (17,519)
Loss on securities 1,048 1,048 1,048
Changes in operating assets and
liabilities:
Prepaid Expense 5,000 (11,329) (11,329)
Interest receivable 6,552 (47,697) (47,697)
Accounts payable 29,720 29,944 29,944
----------- ----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (144,721) (269,308) (271,087)
----------- ----------- -----------
INVESTING ACTIVITIES
Sale of marketable securities 1,204,464 1,204,464 1,204,464
Purchase of marketable securities - (2,222,247) (2,222,247)
Purchase of United States
Treasury Notes (1,406,212) (1,406,212) (1,406,212)
Sale of United States
Treasury Notes 199,437 1,300,780 1,300,780
Purchase of capital assets (63,065) (72,046) (72,046)
Patents' costs (4,836) (14,400) (19,889)
----------- ----------- -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (70,212) (1,209,661) (1,215,150)
FINANCING ACTIVITIES
Proceeds from issuance of
common stock - 6,313 6,313
Proceeds from capital
contributions by stockholders - 1,918,312 1,925,580
Cost of recapitalization - (371,111) (371,111)
----------- -----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES - 1,553,514 1,560,782
</TABLE>
3
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<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS CUMULATIVE
ENDED ENDED AMOUNTS FROM
SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 3,
1997 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (214,933) 74,545 74,545
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 289,478 - -
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 74,545 $ 74,545 $ 74,545
=========== =========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
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PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional During The
Common Stock Members' Paid-In Development
Shares Amount Capital Capital Stage Total
---------- -------- ------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1997 - $ - $ 5,489 $ - $ - $ 5,489
NET LOSS AND CAPITAL
CONTRIBUTIONS FOR
THE PERIOD JANUARY 1,
1997 TO MAY 15, 1997 - - 3,511 - (3,511) -
---------- -------- ------- ----------- ---------- -----------
BALANCE AT
MAY 15, 1997 - - 9,000 - (3,511) 5,489
ISSUANCE OF STOCK FOR
CASH 6,312,833 6,313 - 1,808,072 - 1,814,385
EFFECT OF
RECAPITALIZATION
AND MERGER 29,687,167 29,687 (9,000) 1,170,565 (1,779) 1,189,473
COST ASSOCIATED WITH
RECAPITALIZATION
AND MERGER - - - (371,111) - (371,111)
NET LOSS FOR THE
PERIOD MAY 16, 1997
TO SEPTEMBER 30, 1997 - - - - (221,769) (221,769)
---------- -------- ------- ----------- ---------- -----------
BALANCE, AT
SEPTEMBER 30, 1997 36,000,000 $ 36,000 $ - $ 2,607,526 $ (227,059) $ 2,416,467
========== ======== ======= =========== ========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
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PHOTOGEN TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information pursuant to Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
2. RECAPITALIZATION AND MERGER
On May 16, 1997, M T Financial Group, Inc. (an inactive public company)
through its wholly-owned subsidiary effected a reverse merger with Photogen,
Inc., successor to Photogen, L.L.C. ("Photogen"). Legally, Photogen is a
wholly-owned subsidiary of Photogen Technologies, Inc. (formerly known as M T
Financial Group, Inc.).
For financial reporting purposes, Photogen is 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
1 stock split and change in par value) and (2) an issuance of shares by
Photogen in exchange for all of the outstanding shares of M T Financial
Group, Inc.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Since Photogen Technologies, Inc. (the "Company" or "Photogen") (formerly
known as M T Financial Group, Inc.) acquired Photogen, Inc., the Company has
been principally engaged in the research and development of drugs and medical
device products for use in photodynamic therapy. The Company has not
completed development of any product at this time. The Company has not
generated revenues from the sale of any proposed products or other
operations, and has continued to experience losses. The Company's income for
the nine months ended September 30, 1997 was $84,395 and resulted primarily
from investment income on the proceeds from the sale of common stock in the
Company's recent restructuring. The Company's net loss for the nine months
ended September 30, 1997 was $225,280. The losses are attributable primarily
to expenses related to pursuing patent protection for the Company's
technology, acquiring equipment and commencing animal studies, and other
general and administrative costs (including taxes). The Company expects to
continue to incur losses for at least the next several years as it engages in
research and development, clinical testing, regulatory approval activities
and the manufacture and sale of any products that the Company may develop.
The Company is preparing a Registration Statement on Form 10-SB to
register its common stock under Section 12(g) of the Securities Exchange Act
of 1934. The Company expects to file the Form 10-SB during the fourth quarter
of 1997 or the first quarter of 1998. The Company is exploring the
possibility of obtaining additional interim financing, in the range of $5
million, through a private placement of common stock. However, these plans
are in the preliminary stages and the Company has not identified any
potential investor or price for its shares if it were to proceed with such an
offering.
The Company is continuing to pursue patent protection for its therapy and
imaging technology with the U. S. Patent and Trademark Office, and in India
and under the Patent Cooperation Treaty (covering countries in Europe, Japan,
Korea, China, Brazil and others). The Company's treatment patent application
was the subject of an office action from the U.S. Patent and Trademark
Office.
7
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The Company met with the patent examiner and has been able to file
additional claims. The Company is awaiting further action from the U.S.
Patent and Trademark Office. The Company is proceeding to file two divisional
applications under its original treatment patent application. The Company is
not aware of any developments with respect to the U.S. Patent and Trademark
Office's consideration of its imaging patent application.
The Company executed a contract to conduct animal studies which seek to
demonstrate the efficacy of the Company's technology in animal models,
including with respect to the spatial control, safety, multiple agent
activation and depth of penetration of the laser. The animal studies are
expected to begin during the fourth quarter of 1997. The total cost of the
work under the animal studies contract is $178,100.
The Company is occupying approximately 3,000 square feet of office and
laboratory space in Knoxville, Tennessee. The Company pays a monthly rental
of $4,680 for the facility (including certain equipment) plus charges for
utilities and similar items. The Company is proceeding to equip its laser
research and development laboratory through the loan of certain laser
equipment systems from a large laser manufacturer. The Company intends to
purchase or lease certain additional facilities and equipment for
approximately $175,000.
The Company anticipates expenditures for additional employees and
equipment to be minimal until the results of the animal testing are known.
The animal studies contract includes the Company's use of personnel employed
by the testing facility. For that reason, the Company believes it has enough
cash resources for its currently anticipated needs during the next twelve
months and will not have to raise additional funds; however, as noted below,
complete development and commercialization of the Company's technology will
require substantial additional funds.
The Company cannot provide assurances that it will successfully achieve
its goals or the commercial development of its technology in the foreseeable
future. The Company's success in this regard must at this time be deemed
speculative. This Item 2 to Photogen's Form 10-QSB contains forward-looking
statements which involve risks, uncertainties and other factors that may
cause the Company's actual results or performance to differ materially from
any results or performance expressed or implied by such forward-looking
statements. Factors that could cause or contribute to those differences
include the following:
DEVELOPMENT STAGE COMPANY; NO PRODUCTS. The Company and its technology
are in an early stage of development. The Company does not have any products
for sale and has not generated revenues from sales. The Company does not
expect to achieve revenues for at least several years. The products currently
contemplated for
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development by the Company will require significant additional research and
development, preclinical and clinical testing and regulatory approval prior
to commercialization. There can be no assurances that the Company's research
or product development efforts will be successfully completed, or that any
resulting products will be successfully transformed into marketable products,
that required regulatory approvals can be obtained, that products can be
manufactured at an acceptable cost and with appropriate quality, that any
approved products can be successfully marketed, or that any products will be
favorably accepted in the market.
HISTORY OF LOSSES; NO ASSURANCE OF FUTURE PROFITS; NO DIVIDENDS. The
Company and its predecessors have not declared or paid any cash dividends to
stockholders, and the Company does not expect to do so in the foreseeable
future. The Company expects to incur substantial and increasing losses for at
least the next several years as its financial resources are used for research
and development, preclinical and clinical testing and regulatory activities,
manufacturing, marketing and related expenses. There can be no assurances
that the Company will be able to achieve profitability in the future.
UNPROVEN SAFETY AND EFFICACY; CLINICAL TRIALS. None of the Company's
proposed drug and device products have completed the extensive preclinical
and clinical testing for efficacy and safety in animals and humans required
for regulatory approval prior to commercial use. This process may take at
least several years, and the Company may encounter problems or delays. If
clinical trials are successful, there can be no assurances that the Company's
proposed products will demonstrate sufficient safety or efficacy to warrant
approval by the United States Food and Drug Administration or other domestic
or foreign regulatory authorities or that any approvals will cover the
clinical indications for which the Company may seek approval.
RELIANCE ON THIRD PARTIES AND COLLABORATIVE RELATIONSHIPS. The Company
does not have manufacturing or clinical testing facilities for its proposed
products. The Company intends to enter into collaborative relationships with
third parties in connection with the research and development, preclinical
and clinical testing, manufacturing, marketing and distribution of its
proposed products.
9
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The Company initially will also be dependent on third parties for supply of
laser products and for supplies of photodynamic drugs. There can be no
assurances that the Company will be able to negotiate acceptable
collaborative and supply arrangements or that collaborative arrangements
will result in marketable products. In addition, there can be no assurances
that collaborative relationships will not limit or restrict the Company or
give the Company an adequate supply of necessary resources. Further, there
can be no assurance that the Company's collaborative partners will not
develop or pursue alternative technologies either on their own or with
others, including the Company's competitors, as a means of developing or
marketing products for the diseases targeted by the collaborative programs
and the Company's proposed products.
SUBSTANTIAL ADDITIONAL FINANCING REQUIRED. The Company has incurred
negative cash flows from operations since its inception and will expend
substantial funds in connection with its research and development programs.
The Company will require substantial additional funding (the amount of which
cannot be accurately estimated at this time; however, the amount could be at
least $50 million) to continue or undertake its research and development
activities, clinical testing and manufacturing, marketing, sales,
distribution and administrative activities. Depending on market conditions,
the Company will attempt to raise additional capital through equity and debt
offerings, collaborative relationships and other available sources. No
assurances can be given that additional funds will be available on acceptable
terms (if at all) or the extent of dilution to existing stockholders that may
result from such offerings.
COMPETITION. Many of the Company's competitors have substantially
greater financial, technical and human resources than the Company and, alone
or through collaborative relationships, have substantially greater experience
in developing products, conducting preclinical or clinical testing, obtaining
regulatory approvals and manufacturing and marketing.
UNCERTAINTIES REGARDING REIMBURSEMENT AND HEALTH CARE REFORM. Third party
payors (including health insurers, managed care entities and similar
organizations) are increasingly challenging the price of medical procedures
and services and establishing protocols which may limit physicians' selection
of products and
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procedures. The extent to which third party payors will provide reimbursement
for health care procedures and services (especially those using innovative
technologies) is uncertain, and there can be no assurances that adequate
reimbursement coverage will be available to enable the Company to achieve
market acceptance of its proposed products or to maintain price levels
sufficient for realization of an appropriate return on its proposed products.
UNCERTAINTY REGARDING PATENT MATTERS. The Company's success will depend,
in part, on its ability to obtain, assert and defend its patents, protect
trade secrets and operate without infringing the proprietary rights of
others. There is a risk that the Company's patent applications will not
result in issued patents; and there is a risk that any issued patents will
not provide the Company with proprietary protection or competitive
advantages, will be infringed upon or designed around by others, will be
challenged by others and held to be invalid or unenforceable or that the
patents of others will have a material adverse effect on the Company.
Photogen's current technology and any related patents are subject to two
Confirmatory Licenses in favor of the United States Government as required by
applicable regulations, in which Photogen granted an irrevocable license to
the Government to use the technology under certain circumstances and granted
certain "march-in rights" (permitting the Department of Energy to make use of
the technology under certain circumstances). The Company also seeks to
protect its proprietary technology and processes in part by
confidentiality agreements; however, there can be no assurances that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or be independently discovered by competitors.
CONTROL BY EXISTING STOCKHOLDERS. As of October 31, 1997, the Company's
officers, directors and principal stockholders beneficially owned
approximately 97% of the outstanding common stock. The Company's principal
stockholders are also parties to a Voting Agreement concerning the election of
certain designees to the Board of Directors of the Company and Photogen, Inc.
These stockholders will be able to elect the Company's directors and will
have the ability to influence significantly the Company and the direction of
its business and affairs. Such concentration of
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ownership may delay or prevent a change in control of the Company, and may
also result in the scarcity of outstanding shares currently available for
purchase on the open markets. These factors may affect the market and the
market price for the common stock in ways that do not reflect the intrinsic
value of the Company's stock.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are furnished with this Form 10-QSB:
Exhibit Description
------- -----------
3.1 Restated Articles of Incorporation of Photogen
Technologies, Inc. (attached as Exhibit 3(i) to the
Registrant's Current Report on Form 8-K dated May 16,
1997 and incorporated herein by reference).
3.2 Bylaws of Photogen Technologies, Inc. (Amended and Restated
as of May 16, 1997) (attached as Exhibit 3(ii) to the
Registrant's Current Report on Form 8-K dated May 16,
1997 and incorporated herein by reference).
10.1 Research Contract entered into by the Company and the
University of Tennessee, College of Veterinary Medicine
dated as of October 1, 1997.
27 Financial Data Schedule of Photogen Technologies, Inc.
(b) Reports on Form 8-K.
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Photogen Technologies, Inc.
/s/ John Smolik
--------------------------------
Date: November 14, 1997 John Smolik, President
13
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EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3.1 Restated Articles of Incorporation of Photogen Technologies,
Inc. (attached as Exhibit 3(i) to the Registrant's
Current Report on Form 8-K dated May 16, 1997 and
incorporated herein by reference).
3.2 Bylaws of Photogen Technologies, Inc. (Amended and Restated
as of May 16, 1997) (attached as Exhibit 3(ii) to the
Registrant's Current Report on Form 8-K dated May 16,
1997 and incorporated herein by reference).
10.1 Research Contract entered into by the Company and the
University of Tennessee, College of Veterinary Medicine
dated as of October 1, 1997.
27 Financial Data Schedule of Photogen Technologies, Inc.
<PAGE>
RESEARCH CONTRACT
AGREEMENT
THIS AGREEMENT is made effective as of October 1, 1997 by and between
PHOTOGEN, INC., a Tennessee corporation with offices in Knoxville, Tennessee
(hereinafter referred to as "SPONSOR"), and the University of Tennessee, a
public higher educational institution of the State of Tennessee with
principal offices in Knoxville, Tennessee (hereinafter referred to as
"UNIVERSITY").
WITNESSETH:
WHEREAS, the research project contemplated by this Agreement is of mutual
interest and benefit to the SPONSOR and the UNIVERSITY and will further the
instructional and research objectives of the UNIVERSITY in a manner
consistent with its status as a wholly-owned, educational corporate agency of
the State of Tennessee.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. STATEMENT OF WORK. The UNIVERSITY agrees to use its best efforts to
perform the research project entitled, "FAST PULSED TWO PHOTON LASER
PHOTODYNAMIC THERAPY: IN VIVO EVALUATION" under the direction of Mark G.
Petersen, DVM ("Principal Investigator") pursuant to the terms of the
protocol dated August 13, 1997 between the SPONSOR and the UNIVERSITY
attached hereto as Exhibit A. The UNIVERSITY shall provide personnel,
facilities, and resources as required to accomplish the work necessary to
complete the project.
2. PERIOD OF PERFORMANCE. The period for the performance of the work shall be
from October 1, 1997 to September 30, 1998.
3. PAYMENT. Total cost to the SPONSOR will be $178,100. Payments shall be
made to the UNIVERSITY by the SPONSOR according to the following schedule:
$29,684 upon execution of this Agreement; and $49,472 each on February 1,
1998, May 1, 1998 and August 1, 1998. Checks shall be made payable to THE
UNIVERSITY OF TENNESSEE and shall be mailed to the following address:
1
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University of Tennessee
c/o Ms. Tonya C. Cromwell
Morgan Hall, Rm. 107
College of Veterinary Medicine
PO BOX 1071
Knoxville, TN 37901-1071
All funds provided by SPONSOR under this Agreement may be used at the
discretion of the UNIVERSITY in support of the work to be carried out under
this Agreement.
4. TERMINATION. In the event that either the UNIVERSITY or SPONSOR defaults
in the due performance of its respective obligations under this Agreement,
or in the event that any representation or warranty by either of them
proves to be false or incorrect and such default or breach is not cured
within thirty (30) days of written notice by the other party, then the
other party may elect to terminate this Agreement by giving written notice
to the defaulting party, and this Agreement shall terminate upon the
defaulting party's receipt of said notice. The parties recognize that the
results of any particular research project cannot be guaranteed even
through the use of the UNIVERSITY's best efforts; therefore, it is
specifically agreed that the failure of the UNIVERSITY to achieve specific
research results shall not constitute a default or breach of this Agreement.
5. EQUIPMENT. Title to any equipment purchased or manufactured by UNIVERSITY
in the course of the research conducted under this Agreement or with the
use of funds provided by SPONSOR shall vest in the UNIVERSITY.
6. PROPRIETARY INFORMATION OF THE PARTIES. The UNIVERSITY and SPONSOR
recognize that the conduct of a research project may require the exchange
of proprietary information between the parties. Accordingly, it is agreed
that each party shall retain in confidence the proprietary information of
the other party and shall not disclose such information to any other
person, nor use such information, without the written permission of the
other party, except in accordance with the terms of this Agreement.
a. The term "proprietary information" as used herein shall not include
any information which the recipient clearly shows by appropriate
documentation:
(1) Was at the time of receipt both legally and independently known to
the receiving party, its agents, or employees;
(2) Without breach of this Agreement by the receiving party has been
published or is otherwise within the public knowledge or is
generally known to the public at the time of disclosure;
2
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(3) Becomes known or available to the receiving party without
restriction from a source other than the disclosing party,
provided that such source has an unqualified right to disclose
such information without restriction;
(4) Becomes a part of the public domain after disclosure without
breach of this Agreement by the receiving party; or
(5) Is required by law, including the Tennessee Public Records Act, to
be disclosed in which case UNIVERSITY will give SPONSOR prompt
written notice of the required disclosure. SPONSOR may, in good
faith and at its own expense, contest disclosure or seek
confidential treatment.
7. PUBLICATION. The UNIVERSITY shall publish interim and/or final results of
the investigation/research described in Article 1 of this Agreement, upon
receipt of written approval from the SPONSOR, and the results to be
published do not contain or divulge proprietary information as determined
by the SPONSOR. The SPONSOR shall have 30 days from receipt of publication
manuscripts to review the same for content. If SPONSOR fails to respond
within 30 days, and the UNIVERSITY has obtained written approval from the
SPONSOR to publish, the UNIVERSITY has the right to publish, and the
UNIVERSITY shall incur no liability to the SPONSOR therefor.
8. INDEPENDENT CONTRACTOR. The UNIVERSITY's relationship to the SPONSOR in
the performance of this Agreement is that of an independent contractor.
9. INDEMNIFICATION BY SPONSOR. The SPONSOR shall indemnify, defend and hold
UNIVERSITY harmless from any and all claims and suits which are based on
any injury or damage arising out of the research conducted hereunder
(including, but not limited to, the clinical evaluation or testing of any
drug or device included in this study if applicable) for any act or
omission of the SPONSOR involving the use, manufacture or distribution of
any product or process arising out of or involved with this Agreement.
10. LIMITATION OF LIABILITY ON BEHALF OF THE UNIVERSITY. The UNIVERSITY is
self-insured under the provisions of the Tennessee Claims Commission Act,
T.C.A. sections 9-8-301, ET SEQ., and its liability to SPONSOR and to third
parties for the negligence of the UNIVERSITY and its employees is subject
to the provisions of the Act. Accordingly, any liability of the UNIVERSITY
for any damages, losses, or costs arising out of or related to acts
performed by the UNIVERSITY under this Agreement is governed by the
provisions of said Act.
11. NEGATION OF WARRANTIES BY THE UNIVERSITY. Although the UNIVERSITY will use
its best efforts to perform the research as set forth in Article 1 of this
Agreement, the UNIVERSITY makes no warranties, either expressed or implied,
as to the results of such research or the merchantability or fitness for a
particular purpose of
3
<PAGE>
the research or any Development (as hereinafter defined) arising out of the
research. The UNIVERSITY shall not be liable for any direct,
consequential, or other damages suffered by the SPONSOR or others which may
result from the use of the research result or any Development arising out
of the research.
12. KEY PERSONNEL. MARK G. PETERSEN, DVM, Principal Investigator, is
considered to be essential to the work performed under this Agreement.
Substitutions for or substantial changes in his level of effort will not be
made without the prior written approval of SPONSOR.
13. PRE-EXISTING INTELLECTUAL PROPERTY RIGHTS OF THE PARTIES. Neither party
claims by virtue of this Agreement any right, title, or interest in (a) any
issued or pending patents or copyrights owned or controlled by the other
party or (b) any previous invention, process, software, or product of
another party, whether or not protected under the intellectual property
laws of the United States or any other country.
14. INVENTIONS AND DATA.
a. Developments (as defined in Exhibit B attached hereto and made a part
hereof) directly resulting from the performance of the work described
in Article 1 of this Agreement shall be the property of the SPONSOR.
However, the UNIVERSITY shall retain the right to use such Developments
for internal education, research and academic purposes. UNIVERSITY
agrees to the Covenants attached as Exhibit B to this Agreement.
b. The original data generated as a result of the performance of the work
described in Article 1 of this Agreement shall be provided to SPONSOR,
and SPONSOR may use such data as it deems advisable. However, this
provision shall not be interpreted to restrict the UNIVERSITY's
publication rights under Article 7 of this Agreement.
15. USE OF PARTIES' NAMES. Neither party to this Agreement shall use the name
of the other party in any form of publicity without the written permission
of that party.
16. MODIFICATION. This Agreement constitutes the sole, full, and complete
agreement by and between the parties, and no amendments, changes,
additions, deletions, or modifications to or of this Agreement shall be
valid unless reduced to writing, and signed by the parties.
17. NOTICES AND OTHER COMMUNICATIONS. With the exception of research funds
paid by SPONSOR under the provision of Paragraph 3, all notices and other
communications between the parties shall be deemed sufficiently given when
hand
4
<PAGE>
delivered or sent by prepaid United States mail or other recognized
carrier, addressed as follows:
a. If to SPONSOR:
John Smolik
President, CEO
PHOTOGEN, Inc.
7327 Oak Ridge Highway
Knoxville, TN 37931
b. If to the UNIVERSITY:
Mark G. Petersen, DVM
Department of Small Animal Clinical Sciences
College of Veterinary Medicine
University of Tennessee
P.O. Box 1071
Knoxville, TN 37901-1071
Either party may change its address by written notice given to the other
party. It is specifically provided that this notice provision shall not be
construed in such a manner as to abrogate the provisions of Section 16
regarding modification for this Agreement.
18. GOVERNING LAW. This Agreement is made and entered into in the State of
Tennessee and its validity and interpretation and the legal relations
of the parties to it shall be governed by the law of the State of Tennessee.
THIS AGREEMENT shall not be considered accepted, approved, or otherwise
effective until the signature of each party is affixed in the space provided
below.
IN WITNESS WHEREOF, signifying their acceptance of and agreement to be bound by
the terms and conditions of this Agreement, the signatures of the parties are
affixed hereto:
PHOTOGEN, INC. THE UNIVERSITY OF TENNESSEE
By: /s/ John Smolik By: /s/ J.R. Gissel
-------------------------- --------------------------
John Smolik J.R. Gissel
President, CEO Director
PHOTOGEN, Inc. Institute of Agriculture Business
Date: 10/31/97 Date: 10/30/97
---------------------------- ----------------------------
5
<PAGE>
EXHIBIT A PROTOCOL
Protocol attached to November 13, 1997 letter between SPONSOR and UNIVERSITY.
EXHIBIT B TO RESEARCH CONTRACT
COVENANTS
1. UNIVERSITY will make full and prompt disclosure to SPONSOR of all
"Developments" which are created, made, conceived, or reduced to practice in
whole or in part by UNIVERSITY during the period of UNIVERSITY's engagement
under the Research Contract or for a period of three years thereafter.
"Developments" means all copyright, patent, and trademark rights, and all
improvements, inventions, technologies, methods, applications, discoveries,
drawings, and other know-how and developments resulting from the project
described in Article 1 of the Research Contract, whether or not subject to
U.S. or foreign Patent and Trademark Office, U.S. Copyright Office or other
registration.
2. Subject only to UNIVERSITY's rights in Article 7 and in Article
14(a) of the Research Contract (which remain subject to the confidentiality
provisions hereof), all Developments and all U.S. and foreign copyright,
patent and trademark rights, and any other proprietary rights pertaining to
any Developments, and all renewals and extensions thereof, shall vest in and
be owned exclusively by SPONSOR; and UNIVERSITY hereby transfers and assigns
all of its right, title and interest in and to the foregoing to SPONSOR.
SPONSOR shall have the right to use and sell any Developments or any product
incorporating any Developments free of any royalty to UNIVERSITY and
UNIVERSITY agrees to execute and deliver to SPONSOR any and all assignments,
applications and other instruments that may be necessary to secure such
rights to SPONSOR.
3. For purposes of the Research Contract and subject to Article 6
thereof, the term "proprietary information" means information relating to the
work and/or project and any other information not generally known in the
industry including, but not limited to, the Developments and the design,
production, marketing, sale or distribution of the products and services
marketed or used (or proposed to be marketed or used) by SPONSOR. Subject to
the Research Contract, UNIVERSITY agrees not to, directly or indirectly,
disclose any proprietary information to others or to make use of it for any
purpose except to perform services under the Research Contract, during
UNIVERSITY's engagement hereunder and for a period of five (5) years after
termination or expiration of UNIVERSITY's engagement, whether or not such
proprietary information is produced by UNIVERSITY's own efforts; provided,
however, that at the end of such five years and at the end of each five year
period thereafter, SPONSOR may deliver written notice to UNIVERSITY
identifying information that in SPONSOR's judgment continues to be
proprietary information, in which case the proprietary information so
identified shall continue to be subject to the provisions of this Agreement
for one or more additional five-year periods.
4. Upon termination of the Research Contract, UNIVERSITY shall promptly
deliver all memoranda, books, papers, letters, formulas, drawings, manuals,
notes, reports, computer disks or tapes, all copies of the foregoing, and all
other materials (whether or not reduced to written or tangible form) relating
to the work and/or project (including the Developments) requested in writing
by SPONSOR, which are in UNIVERSITY's possession or under its control.
<PAGE>
UNIVERSITY may retain one copy of the foregoing for its records, which shall
in all events be subject to the provisions hereof.
5. Except as expressly set forth in this Agreement, UNIVERSITY's
obligations hereunder shall survive the termination or expiration of the
Research Contract. This Agreement shall be binding upon the parties and
their respective affiliates, officers, employees and independent contractors
and shall inure to the benefit of the parties and their respective successors
and assigns.
6. SPONSOR reserves any available remedies to enforce the Research
Contract or this Exhibit B.
-2-
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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<SECURITIES> 2,223,511
<RECEIVABLES> 59,026
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<INVENTORY> 0
<CURRENT-ASSETS> 2,357,082
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