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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____________ to _____________
Commission File No. 0-23553
PHOTOGEN TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 36-4010347
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7327 OAK RIDGE HIGHWAY, SUITE B
KNOXVILLE, TN 37931
(Address of principal executive offices) (Zip Code)
(423) 769-4012
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 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
----- -----
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
-----
Issuer's revenues for its most recent fiscal year: $107,133.
The aggregate market value of voting common equity held by non-affiliates
computed as of March 13, 1998 was approximately $38,833,423 (computed on the
basis of the average of the closing bid and ask price of a share of Common
Stock as reported in the over-the-counter bulletin board market).
The number of shares outstanding of each of the Issuer's classes of common
equity, as of March 13, 1998,: 36,875,000
Documents Incorporated By Reference: Portions of the registrant's definitive
proxy statement for its 1998 annual
meeting of stockholders are incorporated
by reference into Part III.
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
COMPANY HISTORY. The Company, through its wholly-owned subsidiary
Photogen, Inc., is a development stage company focused on creating
photodynamic-related health care products based on its proprietary simultaneous
two photon excitation technology. The Company has discovered new methods for
using laser-generated light to activate photoactive agents within deep tissue
sufficient to produce a range of beneficial therapeutic and diagnostic outcomes.
These technologies involve methods, materials and devices that may be used to
produce light and photoactive agents that will destroy diseased cells, remove
tissue or identify and diagnose disease. The Company and its business are
subject to certain Risk Factors summarized below.
The Company is the successor by merger to Bemax Corporation ("Bemax").
Bemax was a California corporation organized on June 25, 1984 to develop and
market computer printer products. Bemax completed a public offering in April
1985 of 1,000,000 Units (consisting of one share of common stock and one warrant
to acquire an additional share of common stock) at a price of $1.00 per Unit.
None of the warrants were exercised and all have since expired. Bemax remained
in the development stage and, due to lack of capital, it ceased operations in
November 1988. From 1988 through May 1997, the Company (and its predecessors)
remained inactive while seeking and evaluating possible acquisition candidates.
In October 1994, Bemax issued 21,595,704 shares (all share amounts in this
paragraph are adjusted to reflect a subsequent two-for-one reverse stock split)
of common stock to Theodore Tannebaum, resulting in Mr. Tannebaum owning 95% of
Bemax's outstanding common stock. In December 1994, Bemax issued an aggregate
of 6,478,700 shares of common stock to Robert J. Weinstein, M.D. and another
investor. In March 1995, Bemax merged into its wholly-owned Nevada subsidiary
named M T Financial Group, Inc. ("M T Financial") which was organized on
December 28, 1994. M T Financial was the surviving corporation and Bemax
thereby changed its state of incorporation from California to Nevada. As part
of that merger, each two shares of Bemax common stock were converted into one
share of M T Financial common stock.
M T Financial learned of the possibility of acquiring Photogen in
February of 1997. At that time, Photogen was organized as a Tennessee
limited liability company. As part of the acquisition, the limited liability
company dissolved and transferred its assets to its five members, who in turn
transferred those assets to Photogen, Inc. (a newly organized Tennessee
corporation) and the five members of the limited liability company became
equal shareholders of Photogen, Inc. Photogen, Inc. then merged with a
subsidiary of M T Financial and became M T Financial's wholly-owned
subsidiary. In connection with M T Financial's acquisition of Photogen, the
following occurred (in addition to certain other material events discussed in
the Company's filings with the Securities and Exchange Commission):
- M T Financial changed its name to "Photogen Technologies, Inc."
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- In exchange for their interest in Photogen, Inc., the Company issued
shares to the five Photogen principals, resulting in their ownership
of 67% of the Company's outstanding common stock; Mr. Tannebaum, Dr.
Weinstein and two other investors retained beneficial ownership of 30%
of the outstanding common stock; and the public (approximately 450
stockholders) retained 3% of the outstanding common stock.
- Drs. Wachter, Fisher, Dees, Weinstein and Mr. Smolik were elected to
the Board of Directors of the Company and Photogen, Inc.; Drs. Wachter
and Weinstein and Mr. Smolik were elected to the Executive Committee;
and Mr. Smolik became Chief Executive Officer of both entities.
- The Company's Articles of Incorporation and By-laws were amended to
implement unanimous voting requirements by the Board of Directors and
Executive Committee regarding certain extraordinary events.
- Dr. Weinstein and two other investors purchased additional shares of
common stock for an aggregate of $1,803,450 and, with Mr. Tannebaum,
made a capital contribution to the Company so that its cash and cash
equivalents equaled $3,000,000.
Since May 1997, the Company has obtained laboratory space, commenced animal
research studies and engaged in the other activities described below. The
Company currently has six employees, all of whom work on a full-time basis
primarily on matters for Photogen, Inc.
PHOTODYNAMIC THERAPY. The photodynamic therapeutic process combines a
photoactive agent (a drug) with light at a specific wavelength in a manner that
produces a therapeutic effect. The photodynamic process is designed to destroy
undesirable or diseased cells, bacteria, viruses and other pathogens.
Photodynamic therapy is of great interest because it offers the potential for
non-invasive treatment of diseases like cancer while avoiding chemotherapy,
radiation therapy, surgery and the discomfort and hazards associated with these
treatments.
In the early 1900's, scientists began to explore the phenomenon that
certain compounds produced tissue irritation after being exposed to sunlight.
These early observations resulted in two important medical applications of light
and photoactive agents: laser surgery and photodynamic treatment of disease.
Subsequently, light delivered by a laser has been used in "bloodless" surgery
and other applications ranging from removing tattoos to removing wrinkles. The
first application of photodynamic therapy was the use of the photoactive agent
Psoralen and ultraviolet light to treat severe cases of psoriasis.
PHOTOFRIN-Registered Trademark- is a recently approved photoactive agent used
with red light to treat esophageal cancer and non-small cell lung cancer.
Psoralen and PHOTOFRIN-Registered Trademark-, both of which were developed and
are owned by others, are the only therapeutic photoactive agents currently
approved by the United States Food and Drug Administration (the "FDA").
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Photodynamic therapies may be delivered without surgery, chemotherapy, or
radiation therapy. The Company believes that photodynamic treatments may be
administered multiple times without creating a resistant or more virulent form
of the disease, may be easily administered, cost less than conventional
treatments, and may avoid or postpone the pain and complications of conventional
therapy.
Each photoactive agent has unique chemical and biological
characteristics, and requires light of a specific wavelength to produce a
therapeutic effect. The activated agent has a short life and impacts only
those cells containing the agent that are exposed to the required light
energy. For example, Psoralen is inactive in the absence of light. However,
ultraviolet light at 350-400 nm (nanometers) transforms Psoralen into a
highly toxic compound that binds with DNA, making it impossible for the cell
to survive. PHOTOFRIN-Registered Trademark- has a different chemical
structure and therefore requires light of a different wavelength to produce
its therapeutic effect. PHOTOFRIN-Registered Trademark- activated with light
at 400-630 nm, reacts with oxygen in the cell to produce a short-lived
compound called singlet oxygen. Singlet oxygen is extremely toxic and
destroys all cellular components that it contacts.
Photoactive agents used by the Company's competitors are activated when the
agent absorbs a single unit of light energy (a photon) at the required
wavelength. This process of activation is called "single photon absorption."
Lasers or high-intensity lamps are commonly used to provide light with the
necessary energy. Single photon absorption is a linear process, activating
photoactive agents present in any tissue or cell in the path of the light beam.
Since the beam -- and therefore the site of activation -- cannot be limited to
diseased cells or tissues, any control of the activation site must be achieved
by physically restricting where the light is directed. Furthermore, damage can
occur in surrounding, healthy tissue which is in the line of the laser's light
beam. For these reasons, competitors' applications have been limited to topical
treatments or to treatments in which the diseased tissue is reached through
invasive endoscopes, catheters or similar devices.
The ability to non-invasively treat diseased cells deep within tissue is
further limited by the natural tendency of tissue components to absorb and
scatter light. Tissue components such as water, blood, proteins and melanin all
absorb and scatter light energy at different wavelengths. In essence, scatter
occurs when light (photons) bounces off various tissue components. Both
absorption and scatter reduce energy in the light beam available to activate
photoactive agents. This reduction can be so significant as to limit the
effective treatment depth to a few millimeters or less.
The amount of light energy lost to absorption and scatter varies with the
wavelength of the light: the longer the wavelength, the less the absorption and
scatter. The depth of treatment achieved with light at 1000 nm will be many
times greater than that achieved with light at 500 nm. The Company's tests
suggest that natural absorption and scatter for light used to activate Psoralen
and PHOTOFRIN-Registered Trademark- (at wavelengths up to 630 nm) is still
significant and limits depth of treatment to a few millimeters. This limitation
is especially important in the treatment of large tumors where the light may not
be able to penetrate the entire tumor mass or where diseased cells are located
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centimeters deep within the body. Photodynamic processes that use longer
wavelength light hold the promise of deeper penetration without requiring
invasive treatment.
The Company has discovered methods for using light energy to activate
photoactive agents that address many of the limitations of current
photodynamic therapy processes based on single photon absorption. The
Company's technologies produce and use a special beam of light to activate
photoactive agents, thus offering improvements in the areas of photodynamic
therapy and photodynamic imaging. Each of the Company's technologies are in
the experimental or development stage; and the description of these
technologies involves forward looking statements that are subject to the Risk
Factors described below. The Company's technologies contained within its
patent applications currently filed or expected to be filed with the United
States Patent and Trademark Office are:
- Simultaneous two photon excitation
- Fast pulsed delivery of light energy
- Cellular targeting
- Photoactive agents
- Imaging and signal processing
1. SIMULTANEOUS TWO PHOTON EXCITATION. The Company's light beam is
special in that it contains photons at approximately one half the energy of the
photons conventionally used to activate photoactive agents in single photon
absorption processes. The Company's technology is based on "simultaneous two
photon excitation:" a beam that uses two photons of longer wavelength light to
activate photoactive agents so that absorption and scatter are significantly
reduced. The Company expects simultaneous two photon excitation to accomplish
non-invasive treatment at depths greater than those achieved by the current
single photon absorption processes used by its competitors.
For example, Psoralen, when activated with single photon absorption,
requires light energy (one photon) at 350-400 nm. Psoralen can be activated
using simultaneous two photon excitation with two photons each at 700-800 nm.
PHOTOFRIN-Registered Trademark-, activated with single photon absorption,
requires one 350-630 nm photon; but when activated with simultaneous two photon
excitation, it requires two photons each at 700-1260 nm. In both cases,
excitation occurs through absorption of two photons to reach the same activated
state reached with one photon at shorter wavelengths. The Company's alternative
procedure is designed to achieve the same level of activation and the same level
of therapeutic effectiveness as single photon activation.
Simultaneous two photon excitation provides the potential to control or
limit the site of agent activation. Single photon absorption is a linear
process, activating photoactive agents all along the light beam path.
Because simultaneous two photon excitation requires two photons to activate
the photoactive agent, it is a nonlinear process. The rate at which the
photoactive agent is activated is a function of the square of photon
concentration and can be substantially limited to the focus of a beam where
the power is high. This feature, together with the use of optics to focus
the beam, enables three
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dimensional control over the activation site without incidental activation or
destruction of healthy cells outside the target area. The ability to limit
activation of a photoactive agent to a defined three dimensional space may
improve the overall safety and efficacy of photodynamic therapy.
Activating photoactive agents with two lower energy, longer wavelength
photons should allow the safe use of many previously unacceptable photoactive
agents. These agents, when activated using single photon absorption
processes, require light between 350-550 nm. Light at these wavelengths
falls in the ultraviolet or visible range and may increase the chance of
developing skin cancer. For example, Psoralen, presently activated with
350-400 nm light, can be activated using simultaneous two photon excitation
at 700-800 nm without exposing the patient to ultraviolet light. The Company
believes this new ability will expand the applications for Psoralen beyond
treating psoriasis. Like Psoralen, other photoactive compounds activated with
ultraviolet or visible light may also become candidates for simultaneous two
photon activation, yielding useful new photoactive agents.
The human body also contains its own mixture of photoactive agents that
can be used to produce a desirable therapeutic effect. These photoactive
agents are used in laser surgery, skin resurfacing, hair removal and delicate
eye surgery. Typically, a laser is used to provide light energy at a certain
wavelength. Water, blood, proteins and other compounds absorb this light and
convert the energy to highly localized heat. The targeted tissue's
temperature quickly rises, causing cells to explode or burn at the point of
illumination. These same photoactive agents within the body can be activated
with simultaneous two photon excitation, allowing the Company's process to
also be useful for surgical applications. The Company has not completed
demonstration of this technology in animal or human models, but expects to do
so in animal trials it is currently conducting (see "Animal Studies," below).
2. FAST PULSED DELIVERY OF LIGHT ENERGY. The method by which the
light energy is packaged and delivered contributes to the safety and efficacy
of simultaneous two photon excitation. The Company uses fast pulsed, high
peak power laser light to activate photoactive agents. This capability is
most significant when used in laser surgery. Despite the current success of
lasers for surgery, the Company believes there is a need for devices that
offer reduced damage to adjacent tissue, better spatial control and improved
treatment margins. The Company believes that the use of fast pulsed, high
peak power lasers may provide valuable enhancements to current procedures.
For example, fast pulsed laser light can be used to activate water in cells
to quickly destroy cells. This capability is especially useful in surgery and
in the removal of surface cells. The expected advantage of this approach is
that there may be much less damage to adjacent tissue, less post-procedure
swelling and faster healing. The Company has not yet completed demonstration
of this technology in animal or human models, but expects to do so in animal
trials it is currently conducting (see "Animal Studies," below).
3. CELLULAR TARGETING. The Company has demonstrated, IN VITRO (in other
words, "outside the body," as in a test tube, petri dish or similar medium), the
ability to add a targeting molecule to a photoactive agent, use the targeting
molecule to deliver the photoactive agent to a specific cellular target, and
then activate the photoactive agent to destroy the cell. Increasing the
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specificity of the photoactive agent is another way to enhance overall treatment
specificity. Company scientists are continuing to pursue development of
targeted photoactive agents that will allow cell-specific delivery and
treatment. The Company has not demonstrated this technology in animal or human
clinical trials.
4. PHOTOACTIVE AGENTS. Company scientists are exploring development of
new photoactive agents that are preferentially absorbed in diseased cells and
may be activated with the Company's simultaneous two photon excitation
technology at wavelengths that should increase tissue treatment depth. This
technology is in the experimental stage and has not been demonstrated in animal
or human clinical trials.
5. IMAGING AND SIGNAL PROCESSING. Simultaneous two photon excitation,
fast pulsed lasers and cellular targeting, when combined with signal
processing technology described in one of the Company's patent applications,
may enable the development of a safe, sensitive diagnostic imaging procedure.
Such a laser-based procedure would avoid exposing a patient to harmful
x-rays and enable improved early detection of diseases such as breast cancer.
To date, x-rays have been the most popular tool for discovering many forms
of cancer and other diseases. The danger and limitations of x-rays are well
known; unfortunately, no other imaging technique has so far been able to replace
x-rays. A safe and improved alternative to x-rays for soft tissue imaging is
important because it can provide the early detection of disease. In the case of
breast cancer, x-ray mammography can only detect suspicious masses at sizes
greater than 0.5 cm, and it cannot distinguish between a benign calcification or
a malignant tumor.
There are a number of alternative techniques being developed, but none the
Company is aware of offers the potential sensitivity of a laser-based imaging
system. A laser imaging system, coupled with targeted flourescent imaging
agents, has the potential to identify suspicious masses and provide a diagnosis
at the same time. The Company's imaging process will require the use of a
cell-specific, fluorescent imaging agent. When the agent is administered to the
patient, it should travel to and concentrate in the diseased tissue. Laser
light is used to activate the imaging agent, causing it to fluoresce and produce
a detectable signal used to produce a three-dimensional image of the tissue. If
the imaging agent is specific for a certain type of cancer, for example, and a
mass is found, the diagnostician may conclude that the mass must be cancerous
because the imaging agent would attach only to cancerous tissue. Therefore,
detection and diagnosis are possible in one procedure. Problems faced by
developers of competing laser imaging systems result from detecting light
emitted by tissue and converting the detected signals into two or three
dimensional images. While there are many software processes that convert
signals to images (a process called tomography) the Company believes these laser
processes have so far been unable to produce images that meet the requirements
for sensitivity and early detection. The Company is not aware of any laser
mammography devices currently approved by the FDA.
The Company's two photon imaging technology has been demonstrated only on a
small IN VITRO basis, and has not been demonstrated in animal or clinical
trials.
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ANIMAL STUDIES. The Company is currently conducting animal studies to
test and evaluate the application of certain aspects of its technologies in
animals. The objectives of the animal studies are to test the two photon
excitation process with respect to safety, tumor reduction, activation of
photoactive agents and treatment depth. The studies are being conducted
under a contract with the University of Tennessee School of Veterinary
Medicine (which terminates on September 30, 1998) and another contract with
the Thompson Cancer Survival Center (terminating on October 30, 1998).
Preliminary results of these studies demonstrate controlled, simultaneous
two-photon activation of PHOTOFRIN-Registered Trademark-
(PHOTOFRIN-Registered Trademark- is a photoactive agent produced by QLT
PhotoTherapeutics, Inc.) using light at 730 nm, in the livers of laboratory
mice. The Company believes this is the first demonstration of in vivo
activation of a photoactive agent using a two photon activation process.
Results obtained to date confirm the noninvasive activation of
PHOTOFRIN-Registered Trademark- by observation of lesions formed on the livers
of PHOTOFRIN-Registered Trademark- treated laboratory mice. Lesions were formed
by focusing a 730 nm beam through the skin of the mouse, onto the mouse liver.
Lesions were well defined, with cell necrosis limited to the focal region of the
activation beam. Microscopic examination of tissues confirmed localization of
necrosis to the beam focus, and a notable absence of collateral damage. In
contrast, substantial collateral damage was clearly observed in control animals
treated with PHOTOFRIN-Registered Trademark- and activated using a single photon
activation process with light at 630 nm. Additional experiments, designed to
measure the increase in tissue temperature during exposure to laser irradiation,
showed that light at 730 nm caused substantially less heating than light at 630
nm. Furthermore, tissue treated with 730 nm light alone (without
PHOTOFRIN-Registered Trademark-) showed no detectable adverse effect. These
results were made possible using Photogen's proprietary simultaneous two-photon
activation process, which allows use of activation wavelengths that more easily
penetrate tissue. Photogen's activation process further enables three
dimensional control over the activation site. The results obtained from the
animal studies to date are preliminary in nature, and the Company's technologies
must undergo significant additional testing and regulatory approval before it
can commercialize any of these technologies. See "Risk Factors," below.
PATENTS AND STATUS. In October 1996, Photogen filed two patent
applications with the United States Patent and Trademark Office. The first
patent application relates to therapeutic methods, and the second application
relates to imaging methods. Both patent applications involve the use of
simultaneous two photon excitation, fast-pulsed delivery of light energy and
cellular targeting. The imaging patent application also contains technology
with respect to signal processing. The Patent and Trademark Office notified the
Company that its therapy application should be divided into three applications
and could not proceed as just one application. The Company elected to first
pursue the divisional application covering its method of treating tissue with
simultaneous two photon excitation of photoactive agents. In November, 1997,
the Company received a written notice of allowance from the Patent and Trademark
Office allowing over 60 claims on this first divisional application. The other
inventions are expected to be pursued in other divisional applications. The
Company is not aware of any developments at the Patent and Trademark Office
regarding its imaging technology. See "Risk Factors -- Uncertainties Regarding
Patent Matters," below.
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The Company has also sought patent protection for the technologies
reflected in its therapy and imaging patent applications in India and under the
Patent Cooperation Treaty, which covers countries in Europe and such other
countries as Japan, Korea, China, Brazil and others.
OBJECTIVES. The Company's overall objective is to leverage its knowledge
in photophysics and biochemistry and its proprietary technologies through
contractual collaborations with third parties to thereby produce products and
generate revenues.
The Company's business strategy to achieve this goal is summarized below:
1. Utilize contractual collaborations with third parties to access the
skills and resources required to design, test, obtain regulatory
approval, manufacture, sell and support light delivery and imaging
systems and surgical laser devices that incorporate two photon
excitation and the Company's other technologies.
2. Focus initial product development on surgical laser devices and laser
activation systems that can be used to activate existing photoactive
agents. Follow development of these activation systems with future
development of the Company's photoactive agents, targeting agents and
deep tissue applications.
3. Focus the Company's internal efforts on demonstrating the Company's
technology in appropriate animal and human models, developing
activation procedures for existing photoactive agents, cellular
targeting and imaging agents, and demonstrating the efficacy of the
Company's imaging technology.
The Company does not expect to achieve revenues from operations in the near
future. During the last fiscal year, substantially all of the Company's
operating expenses have been devoted to research and development activities.
None of these costs have been borne directly by customers and the Company will
not be able to pass on any such costs to customers unless and until it has a
marketable product. The Company's first revenues, if any, are expected to
derive from licensing fees and royalties from collaborative relationships.
Thereafter, if and when the Company develops a saleable product, the Company
expects to generate revenues from product sales.
The Company's objectives and business strategy 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
Company's ability to implement its business strategy and achieve revenues is
subject to certain Risk Factors, described below.
POTENTIAL PRODUCT APPLICATIONS. Currently, the Company has not developed
any products, and the Company's ability to do so is subject to certain Risk
Factors described below. The Company believes its technologies have potential
applications in the following three market areas:
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- Photodynamic treatment of diseases
- Diagnostic imaging
- Surgical laser devices
Potential products that service these markets are identified in Table I below:
TABLE I
POTENTIAL MARKETS AND PRODUCTS
<TABLE>
<CAPTION>
MARKET POTENTIAL PRODUCTS
- --------------------------------------------------------------------------------
<S> <C>
Photodynamic treatment of diseases Photoactive agents
Light delivery systems
Disease-specific targeting agents
Delivery of treatment services to
patients
Diagnostic imaging Laser based imaging systems
Imaging agents
Disease-specific targeting agents
Delivery of treatment services to
patients
Surgical laser devices Surgical laser devices
Treatment tools
Delivery of treatment services to
patients
</TABLE>
Table II provides a partial listing of the types of diseases that may be
treated with photodynamic therapies.
TABLE II
EXAMPLES OF APPLICATIONS FOR PHOTODYNAMIC THERAPY
<TABLE>
<CAPTION>
GENERAL DISEASE CATEGORY SPECIFIC CONDITION
- --------------------------------------------------------------------------------
<S> <C>
Cancer Barrett's Esophagus
Non-small cell lung cancer
Non melanoma skin cancer
Melanoma
Breast cancer
Prostate cancer
Colorectal cancer
</TABLE>
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<TABLE>
<CAPTION>
GENERAL DISEASE CATEGORY SPECIFIC CONDITION
- --------------------------------------------------------------------------------
<S> <C>
Skin disease Psoriasis
Actinic keratosis
Ophthalmology Age related macular degeneration
Cardiovascular Plaque removal
Restenosis
AIDS Kaposis sarcoma
Infectious Disease Contained bacterial infections
Fungal infections
Viral infections
Parasitic infections
</TABLE>
GOVERNMENT REGULATIONS. All of the products the Company presently
contemplates developing will require approval of the United States Food and Drug
Administration ("FDA") for sales and use within the United States and of
comparable foreign agencies for sales outside the United States. 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 regulate, among other things, research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of the Company's proposed products. At present the Company has made
no submissions to the FDA regarding any of its proposed products. See "Risk
Factors -- Unproven Safety and Efficacy; No Clinical Trials," below.
The process required by the FDA before the Company's products may be
marketed in the U.S. generally involves the following: (i) preclinical
laboratory and animal tests; (ii) submission of an application which must become
effective before clinical trials may begin; (iii) adequate and well-controlled
human clinical trials to establish the safety and efficacy of the product in its
intended indication; and (iv) FDA approval of the application.
For 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. If
the FDA is satisfied with the results and data from preclinical tests, it will
authorize human trials. Human clinical trials are typically conducted in three
sequential phases which may overlap. Each of the three phases involves testing
and study of 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. The FDA
recently
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announced a new policy intended to accelerate the approval process for cancer
therapies, and the Company intends to explore ways to take advantage of that
accelerated process.
Historically, obtaining FDA approval for photodynamic therapies has been a
significant challenge. Not only must the photoactive agent be approved as a
drug, but the laser activation system must also be approved as a medical device.
The FDA has dealt with this "combination product" by delegating authority for
overall approval to the drug side of the agency. Accordingly, when a
photodynamic therapy agent is approved as a drug, it is approved for a specific
indication under its specific labeling. Only one laser is approved to deliver
the treatment, and currently PHOTOFRIN-Registered Trademark- has been approved
for use in treating esophageal cancer and non-small cell lung cancer. The
Company's competitors have reported progress with the FDA regarding the new
drugs SnET2 and ALA (aminolevuline acid). Both drugs are in Phase II/III
clinical trials.
The FDA is also gaining experience with lasers through the many 510(k) and
premarket approval submissions for non-photodynamic therapy laser applications.
Medical devices can be cleared for commercial distribution through a
notification to the FDA under Section 510(k) of the applicable statute. The
510(k) notification must demonstrate to the FDA that the device is as safe and
effective or substantially equivalent to a legally marketed device that was or
is currently on the United States market and therefore does not require
premarket approval. Certain devices that sustain human life, are of substantial
importance in preventing impairment of human health, or which present a
potential unreasonable risk of illness or injury, are subject to special
controls through a premarket approval ("PMA") process in order to obtain
marketing clearance.
The Company plans to capitalize on existing knowledge about photoactive
drugs and medical lasers by developing initial treatments based on existing
photoactive agents. The Company hopes that combining its techniques with the
body of information already in existence will reduce product approval times.
The testing and approval process requires substantial time, effort, and
financial resources, and there can be no assurance that any approval will be
granted 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, a product approval may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. If regulatory approval of
a product is granted, such approval may impose limitations on the indicated uses
for which a product may be marketed. In addition, the FDA may require testing
and surveillance programs to monitor the 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,
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including its withdrawal from the market. Marketing the Company's products
abroad will require similar regulatory approvals and is subject to similar
risks.
The Company, in the ordinary course of business, must also comply with a
variety of other governmental regulations. These regulations impose, among
other things, standards of conduct, recordkeeping, labeling and reporting.
Specific regulations affecting the Company's current and proposed operations
are environmental discharge requirements, good laboratory practices governing
use of biological substances, good manufacturing practices regarding the
manufacture of drugs and other products, animal care and use regulations,
labor and general business practices laws and regulations for the use of
lasers. The Company does not presently anticipate the cost of compliance in
these areas to present a major obstacle to the Company achieving its goals.
Another form of regulation that will impact the Company's business are the
recent developments in health care reimbursement and delivery practices as a
means to better control health care costs. See "Risk Factors -- Uncertainties
Regarding Reimbursement and Health Care Reform," below. The Company views these
changes as a potential benefit to its business. Photodynamic therapy and laser
based procedures are usually less complicated and costly than traditional
surgery and radiation and can be applied in an outpatient setting. For these
reasons, it is possible that photodynamic therapy may become a preferred
procedure by health insurers and other third party payors.
COMPETITION. The industry in which the Company operates is intensely
competitive, and there is rapid change with respect to technology for the
diagnosis and treatment of diseases. Existing or future pharmaceutical and
laser companies, government entities and universities may create developments
that accomplish similar functions to the Company's technologies in ways that
are less expensive, receive faster regulatory approval, or receive greater
market acceptance than the Company's products. See "Risk Factors --
Substantial Competition," below.
The Company's competitors generally 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; and have made greater progress
in the preclinical and clinical testing of their products. In addition, the
Company's competitors may be disinclined to form collaborative relationships
with the Company directly, or to permit their collaborative partners to work
with the Company. See "Risk Factors -- Reliance on Third Parties, Collaborative
Relationships and Employees," below. The Company is aware of one competitor,
QLT PhotoTherapeutics, that has already received FDA approval for use of its
proprietary photoactive agent, PHOTOFRIN-Registered Trademark-, in treatment of
esophageal cancer and non-small cell lung cancer. Other competitors, namely
Miravant, Inc. and Dusa Pharmaceuticals, have advanced their proprietary
photoactive agents to Phase II/III clinical trials.
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<PAGE>
The Company believes that its unique technologies may offset to an extent
the disadvantages from its competitive position. The Company's technology,
based on the two photon excitation model, may change the traditional emphasis in
photodynamic therapy from the drug to the light delivery source. The Company
believes this may enable it to add value to existing and future products of drug
manufacturers. In addition, the unique properties of the Company's laser
activation process may give it a competitive advantage over other light delivery
methods that require invasive procedures.
RISK FACTORS
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 Form 10-KSB and other announcements and documents of the Company contain
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. The statements under the caption "Risk Factors" are intended to
serve as cautionary statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and should be read in conjunction with the
forward-looking statements in this Report and statements presented elsewhere by
management of the Company. 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 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
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<PAGE>
related expenses. The Company cannot provide assurances that it will be able to
achieve profitability in the future.
UNPROVEN SAFETY AND EFFICACY; NO 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 FDA or other domestic or foreign regulatory authorities or that any
approvals will cover the clinical indications for which the Company may seek
approval. See "Government Regulations," above.
RELIANCE ON THIRD PARTIES, COLLABORATIVE RELATIONSHIPS AND EMPLOYEES. 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. 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 assurances 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. The Company is also highly dependent upon six
employees for scientific and management expertise.
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. See "Management's Discussion and Analysis of
Financial Condition or Plan of Operation," below.
SUBSTANTIAL COMPETITION. Many of the Company's competitors have
substantially greater financial, technical and human resources than the Company
and, alone or with collaborative
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<PAGE>
partnerships, have substantially greater experience in developing products,
conducting preclinical or clinical testing, obtaining regulatory approvals and
manufacturing and marketing. See "Competition," above.
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' selections of
products and 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.
See "Government Regulations," above.
UNCERTAINTIES 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 some of 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 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. The Company'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 the Company 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. See "Patents and Status," above.
CONTROL BY EXISTING STOCKHOLDERS. As of December 31, 1997, the Company's
officers, directors and principal stockholders beneficially owned approximately
95% 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 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. See "Security Ownership of
Certain Beneficial Owners and
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<PAGE>
Management" in the Company's definitive proxy statement for the 1998 annual
meeting of stockholders and "Management's Discussion and Analysis of Financial
Condition or Plan of Operation," below.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices and laboratory consists of approximately
4,000 square feet in Knoxville, Tennessee. Approximately 1,000 square feet of
the facility are subject to a Lease Agreement between Photogen, Inc. and the
landlord. The Company leases the balance of space in this facility under a
Consent and Assignment of Lease from Genase, L.L.C. and, therefore, is
subject to Genase, L.L.C.'s Master Lease with P.C. Powell and Wilma Powell
(several directors of the Company are associated with Genase, L.L.C. -- see
"Certain Relationships and Related Transactions," below). The Company's
lease also entitles it to use certain scientific equipment located in this
facility. The property and equipment are in good condition. In the opinion of
management, the Company's interest in the facility is adequately covered by
insurance. The Company pays a monthly rental of $4,680 for the facility
(including certain equipment) plus charges for utilities and similar items.
The leases expire in 1999 and 2000 respectively, and the Company has two
options to renew the leases for additional terms of three years each. The
Company also has an option to purchase the facility at any time during the
term of the lease or any renewal period. There are no present plans for
further improvement or development of the leased space, although the Company
may acquire or lease additional facilities or equipment as needed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any material litigation or
proceeding and is not aware of any material litigation or proceeding threatened
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the stockholders of the Company for a
vote during the fourth quarter of the 1997 fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION FOR COMPANY COMMON STOCK. The Company maintains no
active trading market for its common stock, however, the Common Stock has been
traded in the over-the-counter "bulletin board" market from time to time under
the symbol "PHGN."
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<PAGE>
The high and low trading prices for the Company's common stock (including M
T Financial during 1996; see "Overview of Company," above) during each quarter
of the last two fiscal years are set forth below.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1997
(Amounts in $)
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter .50 .50 .625 .625
2nd Quarter .625 .625 --- ---
3rd Quarter .625 .625 5.00 2.00
4th Quarter .625 .625 12.00 4.375
</TABLE>
For the period January 1, 1998 through March 13, 1998, the low and high
prices for the Company's common stock were $10.75 and $18.75, respectively.
Volume for the period January 1, 1998 through March 13, 1998 was
approximately 211,335 shares.
The foregoing information was obtained from the National Association of
Securities Dealers as reported in the over-the-counter "bulletin board." The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The foregoing
information for 1996 and 1997 reflects trade prices, and not bid or ask
prices, because the small number of trades through market makers for the
Company's stock historically has not yielded meaningful bid and ask prices
(however, in the fourth quarter of 1997, volume was 390,723 shares). See
"Risk Factors -- Control by Existing Stockholders," above, regarding the
possible effects of the concentrated ownership of the Company's stock on the
market and price of the stock.
There are no shares of common stock subject to outstanding options or
warrants to purchase, or securities convertible into, common stock that have
been created, agreed to or authorized by the Company (certain stockholders,
however, have granted warrants covering an aggregate of 960,000 of
their shares; see "Security Ownership of Certain Beneficial Owners and
Management," below).
The Company has no agreements to register under the Securities Act of 1933
any shares held by its stockholders.
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<PAGE>
Approximately 35,569,878 shares of common stock are "restricted stock"
or are beneficially owned by persons who are currently, or during the last 12
months were, affiliates of the Company as defined in Rule 144 under the
Securities Act. A portion of those shares would be eligible for resale by
Company affiliates and others who have satisfied the requisite holding
periods, subject to the volume limitations and other provisions of Rule 144
and applicable law.
As of December 31, 1997, the Company's common stock was held by
approximately 482 shareholders, including brokers holding stock in "street
name."
Holders of the Company's common stock are entitled to receive such
dividends as may be declared by its Board of Directors. The Company has not
declared or paid dividends on its common stock, and the Company does not
anticipate paying any dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES. During the last three years,
the Company (including M T Financial; see "Description of Business -- Company
History," above) made the following sales of its common stock without
registration under the Securities Act of 1933 (the "Securities Act"). In each
case where the purchase price was paid in cash, the Company used the proceeds of
the sales for working capital purposes. All share amounts in this section have
been adjusted for a two-for-one reverse stock split that occurred in March of
1995.
1. On October 7, 1994, the Company sold 21,595,704 shares of common stock
to Theodore Tannebaum. The total purchase price was $1,000,002 ($.0231528 per
pre-split share), and the entire proceeds of the sale were paid to the Company
in cash. The Company did not use any underwriters or brokers and there were no
commissions or underwriting discounts. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) of that Act, on
the basis of the following factors: the Company made the offer and sale to only
one person without any public advertising or solicitation; the investor had
access to material information about the Company and the opportunity to inquire
of the Company's officers with respect to any further information he sought; the
investor was an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act and acquired the shares for investment and
not with a view to the resale or distribution thereof; and the certificates
representing the shares bear a legend restricting their transfer except in
compliance with applicable securities laws.
2. On December 9, 1994, the Company sold 3,239,350 shares of common stock
to Robert Weinstein, M.D. and 3,239,350 shares of common stock to Stuart Levine.
At that time, Mr.
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<PAGE>
Levine was a director and officer of the Company. The total purchase price for
the two sales was $300,000 ($.0231528 per pre-split share), and the entire
proceeds of the sale were paid to the Company in cash. The Company did not use
any underwriters or brokers and there were no commissions or underwriting
discounts. These transactions were exempt from registration under the
Securities Act pursuant to Section 4(2) of that Act, on the basis of the
following factors: the Company made the offer and sale to only two persons
without any public advertising or solicitation; each investor had access to
material information about the Company and the opportunity to inquire of the
Company's officers with respect to any further information he sought; each
investor was an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act and acquired the shares for investment and
not with a view to the resale or distribution thereof; and the certificates
representing the shares bear a legend restricting their transfer except in
compliance with applicable securities laws.
3. On March 31, 1995, the Company issued shares of common stock to its
existing stockholders as a result of the merger of the Company's predecessor,
Bemax Corporation, into its wholly-owned subsidiary M T Financial Group, Inc.
The purpose of this merger was to change the issuer's domicile from California
to Nevada. As a result of the merger, each Bemax stockholder was entitled to
receive one share of M T Financial common stock for every two shares of Bemax
common stock. A total of 29,211,019 M T Financial shares were issued. The
Company did not use an underwriter or broker in this transaction and did not
receive any proceeds. This transaction was exempt from registration under the
Securities Act pursuant to Rule 145(a)(2), which provides that there is no offer
or sale of securities in a statutory merger the sole purpose of which is to
change the issuer's domicile within the United States.
4. On May 16, 1997, the Company issued shares of common stock in a
restructuring and merger in connection with the acquisition of Photogen, Inc.:
(a) As part of its restructuring, the Company sold 2,975,359 shares to Dr.
Weinstein, 2,975,359 shares to Mr. Levine and 362,115 shares to Thomas
Rosenberg, for a total purchase price of $1,803,450 ($.28568 per share). The
entire proceeds of the sales were paid to the Company in cash. The purpose of
the restructuring was, among other things, to provide the Company with
sufficient funds so that (together with its existing capital) it had $3 million
of cash items at the time it acquired Photogen, Inc. The Company did not use
any underwriters or brokers and there were no commissions or underwriting
discounts. These transactions were exempt from registration under the
Securities Act pursuant to Section 4(2) of that Act, on the basis of the
following factors: the Company made the offer and sale to only three persons
without any public advertising or solicitation; each investor had access to
material information about the Company and the opportunity to inquire of the
Company's officers with respect to any further information he sought; each
investor was an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act and acquired the shares for investment and
not with a view to the resale or distribution thereof;
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<PAGE>
and the certificates representing the shares bear a legend restricting their
transfer except in compliance with applicable securities laws.
(b) As consideration for the acquisition of Photogen, Inc., the Company
issued 4,800,000 shares to each of Eric A. Wachter, Ph.D., Craig Dees, Ph.D.,
Walter G. Fisher, Ph.D., Timothy Scott, Ph.D. and John Smolik (for a total of
24,000,000 shares). Drs. Wachter, Dees, Fisher and Scott and Mr. Smolik were
the shareholders and directors of Photogen, Inc. The Company issued its common
stock to these individuals in connection with the merger of Photogen, Inc. with
a subsidiary of the Company. The sale of these securities to each of the five
Photogen principals was exempt from registration under the Securities Act
pursuant to Section 4(2) of that Act, on the basis of the following factors: the
Company made the offer and sale to only five persons without any public
advertising or solicitation; each investor had access to material information
about the Company and the opportunity to inquire of the Company's officers with
respect to any further information he sought; each investor was an officer or
director of Photogen, Inc. and four of them would, upon issuance of the
Company's shares, become directors of the Company; each investor acquired the
shares for investment and not with a view to the resale or distribution thereof;
and the certificates representing the shares bear a legend restricting their
transfer except in compliance with applicable securities laws. The Company did
not use any underwriters and there were no underwriting discounts; however,
Photogen, Inc. had engaged Aurora Capital Corp. as its broker for the
transaction between the Company and Photogen, Inc. After the closing, three
principals of Aurora Capital Corp. received an aggregate of $180,000 from the
Company for their services and the five Photogen, Inc. shareholders granted the
Aurora Capital Corp. principals warrants to acquire an aggregate of 960,000 of
their shares of Company common stock. The shares subject to the warrants are
being held in escrow and are subject to restrictions on transfer. None of the
warrants have been exercised at this time; and any stock certificates issued
upon exercise of the warrants will bear legends restricting their transfer
except in compliance with applicable securities laws.
5. On March 13, 1998, the Company completed the sale of an aggregate
of 875,000 shares to approximately 42 accredited investors. The total
purchase price was $7,000,000 ($8.00 per share), and the entire proceeds of
the sales were paid to the Company in cash. The Company did not use any
underwriters or brokers and there were no commissions or underwriting
discounts. These transactions were exempt from registration under the
Securities Act pursuant to Section 4(2) and/or Rule 506 of Regulation D of
that Act, on the basis of the following factors: the Company made the offer
and sale to a limited number of prospective investors without any public
advertising or solicitation; each investor had access to material information
about the Company and the opportunity to inquire of the Company's officers
with respect to any further information he sought; each investor was an
"accredited investor" within the meaning of Rule 501 of Regulation D under
the Securities Act and acquired the shares for investment and not with a view
to the resale or distribution thereof; and the certificates representing the
shares bear a legend restricting their transfer except in compliance with
applicable securities laws.
20
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION.
UNCERTAINTIES RELATING TO COMPANY. Since the Company 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. Portions of
the discussion in this Item contain forward looking statements and are subject
to the Risk Factors described above.
RESULTS OF OPERATIONS. 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 net loss for the year ended December 31,
1997 was $554,702. 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. The Company expects to continue to incur increasing losses for at
least the next several years as it intensifies its research and development,
clinical testing, regulatory approval activities and engages the manufacture
and/or sale of any products that the Company may develop. The Company's
revenue for the year ended December 31, 1997 was $107,133 and resulted
primarily from investment income on the proceeds from the sale of common
stock in the Company's recent restructuring. The proceeds of the sales of
the Company's common stock are invested primarily in United States Government
obligations. Because the Company has no revenues from operations at this
time, investment of such funds in that manner is necessary to enable the
Company to avoid becoming subject to the Investment Company Act of 1940.
LIQUIDITY; CAPITAL RESOURCES. On March 13, 1998, the Company completed
a private placement of 875,000 shares of common stock for $8.00 a share to a
number of accredited investors. The Company received $7,000,000 in gross
proceeds from this offering.
The 875,000 shares sold in the private placement were not registered
under applicable securities laws and are considered "restricted stock."
These shares cannot be sold by their holders in the absence of a registration
statement except pursuant to an exemption from registration (including in
compliance with SEC Rule 144 after the shares have been held for at least one
year). The Company expects to use the proceeds from the sale of the common
stock (net of legal, accounting and other expenses related to the offering
estimated to be approximately $50,000), over the next 18 to 24 months, for
corporate overhead and operating expenses, animal and clinical trials, the
purchase or lease of scientific and laboratory equipment, legal and
regulatory consulting fees and for other working capital purposes, assuming
the Company has no revenues during that period.
21
<PAGE>
The Company expects to consider additional financing transactions in the
future. See "Risk Factors -- Substantial Additional Financing Required."
The Company filed in December 1997 a Registration Statement on Form
10-SB with the Securities and Exchange Commission to register its common
stock under Section 12(g) of the Exchange Act. The Form 10-SB became
automatically effective 60 days after its filing, on February 23, 1998. The
Company is exploring the possibility of listing its common stock with the
NASDAQ (Small Cap Market) or with the American Stock Exchange. The Company
recently submitted information and listing applications, but has not heard
any formal response from either exchange. The listing process typically
takes many months to complete.
PATENT AND OPERATIONAL MATTERS. The Company has received a formal written
notice of allowance on the first of three divisional patent applications. This
first divisional application covers the area of simultaneous two photon
excitation in a variety of applications. The Company believes this establishes
the beginning of a strong proprietary position in an exciting new technology.
The Company recently filed the second and third divisional applications. The
Company is continuing to pursue patent protection for its 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 is not aware of any developments with respect to the
U.S. Patent and Trademark Office's consideration of its imaging patent
application or its foreign patent applications. See "Risk Factors --
Uncertainties Regarding Patent Matters," above.
The Company has executed two contracts to conduct animal studies which seek
to demonstrate the efficacy of the Company's technology in animal models,
including the spatial control, safety, multiple agent activation and depth of
penetration. The total cost of these contracts is $214,816. The animal
studies began during the fourth quarter of 1997. The animal studies are
described in Item 1 above.
The Company is occupying approximately 4,000 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 with certain laser equipment systems made
available by a large laser manufacturer. The Company has received, installed
and started-up two laser systems required for conduct of animal studies. To
date, $212,000 has been invested in office and laboratory equipment. The
Company expects to spend an additional $250,000 to acquire the instruments
necessary to support animal clinical trials, and development of its
proprietary photoactive agent and targeting systems.
22
<PAGE>
PLAN OF OPERATION. During the next twelve months, the Company will
continue with animal trials and evaluation of its proprietary photoactive
agent candidates, pursuing patent protection and seeking potential
collaboration candidates. The Company anticipates expenditures for
additional employees and equipment to be minimal until the final results of
the animal testing are known. The animal studies contract includes the
Company's use of personnel employed by the testing facility. In addition,
the Company raised $7,000,000 in a private placement that was completed on
March 13, 1998. For these reasons, 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 above,
complete development and commercialization of the Company's technology will
require substantial additional funds. See "Risk Factors," above.
YEAR 2000 COMPLIANCE. The Company believes that as it develops its
computer system, all hardware/software will be year-2000 compliant. The
Company does not presently expect the costs of year-2000 compliance to be
material.
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Photogen Technologies, Inc.
Knoxville, Tennessee
We have audited the accompanying consolidated balance sheets of Photogen
Technologies, Inc. (including Photogen, Inc., formerly Photogen, L.L.C.), a
development stage company, as of December 31, 1996 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the period from November 3, 1996 (inception) to December 31, 1996 and the year
ended December 31, 1997. 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 generally accepted auditing
standards. 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. (including Photogen, Inc., formerly Photogen, L.L.C.) at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the period from November 3, 1996 (inception) to December 31, 1996 and the
year ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
Chicago, Illinois
February 25, 1998
24
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FINANCIAL STATEMENTS
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- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ - $ 82,631
Interest receivable - 21,402
Prepaid expenses - 8,164
Marketable securities - 409,238
- -----------------------------------------------------------------------------
TOTAL CURRENT ASSETS - 521,435
UNITED STATES TREASURY NOTES, total face value
$1,538,000 - 1,531,413
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less
accumulated depreciation of $17,454 - 194,252
PATENT COSTS 5,489 37,273
- -----------------------------------------------------------------------------
$ 5,489 $ 2,284,373
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
<PAGE>
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ - $ 118,233
Current portion of obligations under capital leases (Note 3) - 18,626
- ------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES - 136,859
OBLIGATIONS UNDER CAPITAL LEASES (Note 3) - 60,469
- ------------------------------------------------------------------------------------------------------
COMMITMENTS (Note 4)
SHAREHOLDERS' EQUITY (Notes 2 and 5)
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
Members' capital 5,489 -
Deficit accumulated during the development stage - (556,481)
- ------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 5,489 2,087,045
- ------------------------------------------------------------------------------------------------------
$ 5,489 $ 2,284,373
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period From CUMULATIVE
November 3, YEAR AMOUNTS
1996 to ENDED FROM
December 31, DECEMBER 31, NOVEMBER 3,
1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Investment income $ - $ 107,133 $ 107,133
EXPENSES
General and administrative 1,779 661,835 663,614
- ----------------------------------------------------------------------------------------------------------
NET LOSS $ (1,779) $ (554,702) $ (556,481)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER COMMON SHARE $ - $ (.02)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - 33,665,117
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Additional During the
------------------- Members' Paid-in Development
Shares Amount Capital Capital Stage Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contribution of capital - $ - $ 7,268 $ - $ - $ 7,268
Net loss for the period ended December 31,
1996 - - (1,779) - - (1,779)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1996 - - 5,489 - - 5,489
Net loss and capital contributions for the
period January 1, 1997 to May 15, 1997 - - 3,511 - (3,511) -
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at May 15, 1997 - - 9,000 - (3,511) 5,489
Issuance of stock for cash 6,312,833 6,313 - 1,797,137 - 1,803,450
Effect of recapitalization and merger 29,687,167 29,687 (9,000) 1,181,500 1,732 1,203,919
Cost associated with recapitalization and
merger - - - (371,111) - (371,111)
Net loss for the period May 16, 1997 to
December 31, 1997 - - - - (554,702) (554,702)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1997 36,000,000 $ 36,000 $ - $ 2,607,526 $ (556,481) $ 2,087,045
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period From CUMULATIVE
November 3, YEAR AMOUNTS
1996 to ENDED FROM
December 31, DECEMBER 31, NOVEMBER 3,
1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,779) $ (554,702) $ (556,481)
Depreciation 62 17,454 17,516
Gain on sale of marketable securities - (29,737) (29,737)
Loss on sale of United States Treasury Notes - 9,265 9,265
Changes in operating assets and liabilities
Prepaid expenses - (8,164) (8,164)
Interest receivable - (21,402) (21,402)
Accounts payable - 118,233 118,233
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,717) (469,053) (470,770)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of marketable securities - 1,764,464 1,764,464
Purchase of marketable securities - (2,182,967) (2,182,967)
Purchase of United States Treasury Notes - (2,044,876) (2,044,876)
Sale of United States Treasury Notes - 1,639,850 1,639,850
Purchase of equipment - (129,167) (129,167)
Patent costs (5,551) (31,784) (37,335)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,551) (984,480) (990,031)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on capital lease obligations - (3,444) (3,444)
Proceeds from issuance of common stock - 6,313 6,313
Proceeds from capital contributions by shareholders
(Note 2) 7,268 1,904,406 1,911,674
Cost of recapitalization - (371,111) (371,111)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 7,268 1,536,164 1,543,432
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
<TABLE>
<CAPTION>
Period From CUMULATIVE
November 3, YEAR AMOUNTS
1996 to ENDED FROM
December 31, DECEMBER 31, NOVEMBER 3,
1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS $ - $ 82,631 $ 82,631
CASH AND CASH EQUIVALENTS, at beginning of period - - -
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, at end of period $ - $ 82,631 $ 82,631
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES FOR 1997
U.S. Treasuries in the amount of $1,096,650 were
received in recapitalization.
Equipment purchased under capital lease amounted
to $82,539.
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1. ORGANIZATION AND
SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF Photogen Technologies, Inc. (the "Company"),
OPERATIONS through its subsidiary Photogen, Inc.,
successor to Photogen, L.L.C., is a development
stage company that is attempting to develop
proprietary laser-based technologies to enhance
the safety and efficacy of photodynamic therapy
("PDT") and photodynamic imaging for the
diagnosis and treatment of cancer and
infectious diseases.
Photogen, L.L.C. was organized as a limited
liability company ("LLC") and was treated as a
partnership for federal income tax purposes.
The 1996 financial statements do not reflect
assets the members may have outside their
interests in the LLC, nor any obligations,
including income taxes, of the individual
members.
PRINCIPLES OF Intercompany balances and transactions have
CONSOLIDATION been eliminated in consolidation.
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. The carrying
amount approximates fair value because of the
short maturity of those investments.
MARKETABLE Marketable securities consisting of marketable
SECURITIES debt securities are classified as
available-for-sale securities. Fair value
approximates cost at December 31, 1997.
INVESTMENT IN UNITED The Company considers its investment in United
STATES TREASURY NOTES States Treasury Notes to be available-for-sale
securities and all investments mature within
one year. Unrealized holding gains and losses
are excluded from earnings (fair value
approximates cost) and are reported as a
separate component of shareholders' equity
until realized.
EQUIPMENT AND Equipment and leasehold improvements are stated
LEASEHOLD at cost. Depreciation and amortization are
IMPROVEMENTS being provided, on accelerated and
straight-line methods, over the estimated
useful lives of the assets. 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.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
PATENT COSTS Patent costs are amortized over the lesser of
the estimated useful life or the statutory life
of the patent perfection costs on the
straight-line method. At December 31, 1997
patent costs have not been amortized as the
patents have not yet been issued. The Company
reviews the carrying values of its patents and
other 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.
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.
The Company has not recorded an income tax
benefit for losses incurred of approximately
$556,000 which expire in 2012. The Company is
in the development stage and realization of the
losses is not likely. An income tax valuation
allowance has been provided for the losses
realized to date.
BASIC AND DILUTED LOSS Basic and diluted loss per common share is
PER COMMON SHARE computed based on the weighted average number
of common shares outstanding.
In March 1997, the FASB issued SFAS 128,
"Earnings Per Share". The new standard
simplifies earnings per share and requires
presentation of two new amounts, basic and
diluted earnings per share. The Company
adopted this standard for the year ended
December 31, 1997.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
2. RECAPITALIZATION On May 16, 1997, MT Financial Group, Inc. (an
AND MERGER 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 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 6,312,833 shares of common stock for a
total purchase price of approximately
$1,814,000. Further, as consideration for the
acquisition of Photogen, Inc., 24,000,000
shares of common stock were issued.
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 by MT
Financial Group, Inc.
3. OBLIGATIONS UNDER The following is a schedule of future minimum
CAPITAL LEASES payments under the capital leases as of
December 31, 1997, together with the present
value of net minimum lease payments:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, Amount
------------------------------------------------
<S> <C>
1998 $ 28,834
1999 28,834
2000 25,407
2001 13,915
------------------------------------------------
Net minimum lease payments 96,990
Less amount representing interest 17,895
------------------------------------------------
Present value of net minimum
lease payments $ 79,095
------------------------------------------------
------------------------------------------------
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
The equipment which is leased under the
capitalized lease agreement and classified as
equipment has a cost of $82,539 and accumulated
amortization of $4,200.
4. COMMITMENTS The Company is leasing offices and a
laboratory. The leases expire in 1999 and 2000
and include two options for renewal for additional
terms of three years each. Total rental
expense charged to operations for the year
ended December 31, 1997 aggregated
approximately $32,000. There was no rental
expense for the period ended December 31, 1996.
Future minimum lease payments under operating
leases with initial or remaining terms of one
year or more are approximately $25,000 for
1998; $16,000 for 1999; and $3,000 for 2000.
The Company has entered into employment
agreements with certain officers and employees
for an initial term of five years. Under the
terms of these agreements, the officers and
employees are each entitled to an annual salary
of $85,000 plus fringe benefits.
5. SUBSEQUENT EVENT In March 1998, the Company completed a private
placement offering for 875,000 shares of common
stock. The Company received gross proceeds of
$7,000,000.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by Item 9 is incorporated by reference to
the information under the caption "Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section 16(a) of the Exchange Act" in
the Company's definitive proxy statement for the 1998 annual meeting of
stockholders.
34
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 10 is incorporated by reference to the
information under the caption "Executive Compensation" in the Company's
definitive proxy statement for the 1998 annual meeting of stockholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 11 is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement for the
1998 annual meeting of stockholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 12 is incorporated by reference to the
information under the caption "Certain Relationships and Related Transactions"
in the Company's definitive proxy statement for the 1998 annual meeting of
stockholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS. The following is a list of exhibits filed as part of this
Form 10-KSB. Exhibits that were previously filed are incorporated by
reference. For exhibits incorporated by reference, the location of the
exhibit in the previous filings is indicated in parenthesis.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
3.1 Restated Articles of Incorporation of Photogen Technologies, Inc.
(Filed as exhibit 3.1 to the Company's Registration Statement on
Form 10-SB dated December 24, 1997.)
3.2 Bylaws of Photogen Technologies, Inc. (Filed as exhibit 3.2 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
3.3 Charter of Photogen, Inc. (Filed as exhibit 3.3 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
3.4 Bylaws of Photogen, Inc. (Filed as exhibit 3.4 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
35
<PAGE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
9.1 Voting Agreement dated May 16, 1997 entered into by Eric A.
Wachter, Ph.D., Craig Dees, Ph.D., Walter G. Fisher, Ph.D., Tim
Scott, Ph.D., John Smolik, Theodore Tannebaum, Robert J.
Weinstein, M.D., Stuart P. Levine, and Thomas B. Rosenberg, and
joined into by the Company. (Filed as exhibit 9.1 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
10.1 Consent and Assignment to Lease entered into by the Company,
Genase, L.L.C. and P.C. Powell and Wilma Powell dated November 13,
1997. (Filed as exhibit 10.1 to the Company's Registration
Statement on Form 10-SB dated December 24, 1997.)
10.2 Lease Agreement entered into by the Company, P.C. Powell and Wilma
Powell dated June 1, 1997. (Filed as exhibit 10.2 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
10.3 Research Contract entered into by the Company and the University
of Tennessee, College of Veterinary Medicine dated as of October
1, 1997 (Filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1997.)
10.4 Confirmatory License in favor of the U.S. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation and Detection of Molecular Diagnostic Agents
(Serial No. 08/741,370) dated February 4, 1997. (Filed as
exhibit 10.4 to the Company's Registration Statement on Form 10-SB
dated December 24, 1997.)
10.5 Confirmatory License in favor of the U.S. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation of Molecular Agents (Serial No. 08/739,801) dated
February 4, 1997. (Filed as exhibit 10.5 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
36
<PAGE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
10.6 Form of Employment Agreements entered into by the Company and each
of John Smolik, Eric A. Wachter, Ph.D., Walter G. Fisher, Ph.D.,
and Craig Dees, Ph.D. dated May 16, 1997 (Filed as exhibit 10.6 to
the Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
10.7 Form of Non-competition/Non-disclosure Agreements entered into by
the Company and each of John Smolik, Eric A. Wachter, Ph.D.,
Walter G. Fisher, Ph.D., Craig Dees, Ph.D. and Timothy C. Scott
dated May 16, 1997. (Filed as exhibit 10.7 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
10.8 Form of Warrant Agreement entered into by the Company and
certain other parties dated May 16, 1997. (Filed as exhibit 10.8
to the Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
10.9 Escrow Agreement entered into by the Company, American National
Bank and Trust Company of Chicago, Photogen Technologies, Inc.,
Eric A. Wachter, Ph.D., Walter G. Fisher, Ph.D., John Smolik,
Craig Dees, Ph.D., Timothy C. Scott, Ph.D., Stuart Fuchs, Jeff
Elliot Margolis, and Stephen L. Ross, dated May 16, 1997. (Filed
as exhibit 10.9 to the Company's Registration Statement on Form 10-
SB dated December 24, 1997.)
10.10 Research Agreement entered into by the Company, the Thompson
Cancer Survival Center, and Masoud Panjehpour, Ph.D., dated as
of November 1, 1997.
21 Subsidiaries of the registrant. (Filed as exhibit 21 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
27 Financial Data Schedule.
</TABLE>
REPORTS ON FORM 8-K. The Company filed a report on Form 8-K on December 8,
1997 regarding the Company's press release stating that it had received a
written notice of allowance from the United States Patent and Trademark office
on a portion of the claims in the Company's therapeutic patent application.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 30, 1998 Photogen Technologies, Inc.
By: /s/ John Smolik
--------------------------------
John Smolik, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John Smokik Chairman of the Board, March 30, 1998
---------------------------------- President, Chief
John Smolik Executive Officer and
Chief Financial Officer
(Principal executive and
financial and accounting
officer)
/s/ Eric A. Wachter
---------------------------------- Director, Secretary March 30, 1998
Eric A. Wachter, Ph.D. and Treasurer
/s/ Craig Dees
---------------------------------- Director March 30, 1998
Craig Dees, Ph.D.
/s/ Walter G. Fisher
---------------------------------- Director March 30, 1998
Walter G. Fisher, Ph.D.
/s/ Robert J. Weinstein
---------------------------------- Director March 30, 1998
Robert J. Weinstein, M.D.
</TABLE>
38
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
+3.1 Restated Articles of Incorporation of Photogen Technologies, Inc.
(Filed as exhibit 3.1 to the Company's Registration Statement on
Form 10-SB dated December 24, 1997.)
+3.2 Bylaws of Photogen Technologies, Inc. (Filed as exhibit 3.2 to
the Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
+3.3 Charter of Photogen, Inc. (Filed as exhibit 3.3 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
+3.4 Bylaws of Photogen, Inc. (Filed as exhibit 3.4 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
+9.1 Voting Agreement dated May 16, 1997 entered into by Eric A.
Wachter, Ph.D., Craig Dees, Ph.D., Walter G. Fisher, Ph.D., Tim
Scott, Ph.D., John Smolik, Theodore Tannebaum, Robert J.
Weinstein, M.D., Stuart P. Levine, and Thomas B. Rosenberg, and
joined into by the Company. (Filed as exhibit 9.1 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
+10.1 Consent and Assignment to Lease entered into by the Company,
Genase, L.L.C. and P.C. Powell and Wilma Powell dated November
13, 1997. (Filed as exhibit 10.1 to the Company's Registration
Statement on Form 10-SB dated December 24, 1997.)
+10.2 Lease Agreement entered into by the Company, P.C. Powell and
Wilma Powell dated June 1, 1997. (Filed as exhibit 10.2 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
+10.3 Research Contract entered into by the Company and the University
of Tennessee, College of Veterinary Medicine dated as of October
1, 1997 (Filed as exhibit 10.1 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1997).
+10.4 Confirmatory License in favor of the U.S. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation and Detection of Molecular Diagnostic Agents
(Serial No. 08/741,370) dated February 4, 1997. (Filed as
exhibit 10.4 to the Company's Registration Statement on Form 10-
SB dated December 24, 1997.)
+10.5 Confirmatory License in favor of the U.S. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation of Molecular Agents (Serial No. 08/739,801)
dated February 4, 1997. (Filed as exhibit 10.5 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
<PAGE>
EXHIBIT NO. DESCRIPTION
+10.6 Form of Employment Agreements entered into by the Company and
each of John Smolik, Eric A. Wachter, Ph.D., Walter G. Fisher,
Ph.D., and Craig Dees, Ph.D. dated May 16, 1997. (Filed as
exhibit 10.6 to the Company's Registration Statement on Form 10-
SB dated December 24, 1997.)
+10.7 Form of Non-competition/Non-disclosure Agreements entered into by
the Company and each of John Smolik, Eric A. Wachter, Ph.D.,
Walter G. Fisher, Ph.D., Craig Dees, Ph.D. and Timothy C. Scott
dated May 16, 1997. (Filed as exhibit 10.7 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
+10.8 Form of Warrant Agreement entered into by the Company and certain
other parties dated May 6, 1997. (Filed as exhibit 10.8 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
+10.9 Escrow Agreement entered into by the Company, American National
Bank and Trust Company of Chicago, Photogen Technologies, Inc.,
Eric A. Wachter, Ph.D., Walter G. Fisher, Ph.D., John Smolik,
Craig Dees, Ph.D., Timothy C. Scott, Ph.D., Stuart Fuchs, Jeff
Elliot Margolis, and Stephen L. Ross, dated May 16, 1997. (Filed
as exhibit 10.9 to the Company's Registration Statement on Form
10-SB dated December 24, 1997.)
*10.10 Research Agreement entered into by the Company, the Thompson
Cancer Survival Center, and Masoud Panjehpour, Ph.D., dated as of
November 1, 1997.
+21 Subsidiaries of the registrant. (Filed as exhibit 21 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
*27 Financial Data Schedule.
+ Incorporated by reference from the filing indicated.
* Filed herewith.
<PAGE>
AGREEMENT
THIS AGREEMENT is made effective as of November 1, 1997 by and among
PHOTOGEN, INC., a Tennessee corporation with offices in Knoxville, Tennessee
(hereinafter referred to as "Sponsor"), THE THOMPSON CANCER SURVIVAL CENTER, a
Tennessee not for profit corporation with principal offices in Knoxville,
Tennessee (hereinafter referred to as "Thompson") and MASOUD PANJEHPOUR, Ph.D.,
an employee of Thompson ("Panjehpour").
WITNESSETH:
WHEREAS, the research project contemplated by this Agreement is of interest
and benefit to all of the parties.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. STATEMENT OF WORK. Thompson agrees to designate Panjehpour to assist
Sponsor with the research project which is the subject of that certain
Agreement dated as of October 1, 1997 between Sponsor and the University of
Tennessee ("University") (the "Research Contract"), a copy of which is
attached as Exhibit A hereto and made a part hereof. Thompson, Panjehpour
and other Thompson employees have developed substantial experience in laser
implications in medicine and Thompson and Panjehpour have agreed to consult
with and advise Sponsor with regard to the matters set forth herein and in
the Research Contract.
2. PERIOD OF PERFORMANCE. The period for the performance of the work shall be
from November 1, 1997 to October 30, 1998.
3. PAYMENT. Sponsor shall pay Thompson $3,068 per month for the satisfactory
performance of services by Thompson and Panjehpour hereunder, payable on
the first day of each month. Checks shall be made payable to THE THOMPSON
CANCER SURVIVAL CENTER and shall be mailed to the following address:
Laser Center
1915 White Avenue
Knoxville, TN 37916
4. TERMINATION. In the event that Thompson, Panjehpour or Sponsor defaults in
the due performance of its or his respective obligations under this
Agreement, or in the event that any representation or warranty by any of
them proves to be false or incorrect and such default or breach is not
cured within thirty (30) days of written notice thereof, then the
non-defaulting 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; provided, however,
that this Agreement may not be terminated by either Thompson or Panjehpour
upon the breach by or false or incorrect representation or warranty of the
other. The parties recognize that the results of any particular research
project cannot be guaranteed
1
<PAGE>
even through the use of Thompson's and Panjehpour's best efforts;
therefore, it is specifically agreed that the failure of the underlying
research project to achieve specific research results shall not constitute
a default or breach of this Agreement.
5. EQUIPMENT. Thompson will provide certain standard PDT lasers and related
hardware and such equipment shall remain the property of Thompson.
6. PROPRIETARY INFORMATION OF THE PARTIES.
a. Thompson, Panjehpour and Sponsor each recognizes that the conduct
of a research project may require the exchange of proprietary
information among the parties and that each party has ongoing and
prior knowledge and experience and proprietary information in the
areas which are the subject of this Agreement and the Research
Contract. Accordingly, it is agreed that each party shall retain
in confidence the proprietary information of each of the other
parties and shall not disclose any such information to any other
person, nor use such information, without the written permission
of the party disclosing such proprietary information, except in
accordance with the terms of this Agreement. 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;
(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 to be disclosed, in which case the party
required by law to disclose will give the other parties
prompt written notice of the required disclosure. Such other
parties may, in good faith and at its, his or their own
expense, contest disclosure or seek confidential treatment.
b. Thompson and Panjehpour each 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 Thompson and/or
Panjehpour during the term of this Agreement and for a period of
three years thereafter. "Developments" means all copyright, patent,
and trademark rights, and all improvements, inventions,
technologies,
2
<PAGE>
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, which are unique to two photon excitation,
two photon continuous fast pulsed lasers, cellular targeting
involving proprietary compounds that Photogen can demonstrate it
developed during the term of this Agreement, imaging using two
photon lasers, or the interrelationship of two photon lasers and
photophrin. Sponsor recognizes and acknowledges that Thompson has
prior proprietary rights in laser photo-dynamics and related heat
and light applications.
c. Subject only to Thompson's and Panjehpour's respective rights set
forth in this Article 6 and in Articles 7 and 14.a. hereof (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 Thompson and Panjehpour
each hereby transfers and assigns all of its or his respective
right, title and interest in and to the Developments to Sponsor.
Sponsor shall have the right to use and sell any Developments or
any product incorporating any Developments free of any royalty to
Thompson and/or Panjehpour and Thompson and Panjehpour each 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.
d. Thompson and Panjehpour each agrees not to, directly or indirectly,
disclose any proprietary information constituting a Development to
others or to make use of it for any purpose except to perform the
services hereunder, during the term hereof and for a period of
five (5) years after termination or expiration of this Agreement.
e. Upon termination hereof, Thompson and Panjehpour each 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) which are unique to the work and/or
project (including the Developments) requested in writing by
Sponsor, which are in Thompson's or Panjehpour's respective
possession or under its or his respective control. Thompson may
retain one copy of the foregoing for its records, which shall in
all events be subject to the provisions hereof.
f. Except as expressly set forth in this Agreement, each party's
obligations hereunder shall survive the termination or expiration
of this Agreement. This Agreement shall be binding upon the parties
and their respective affiliates, officers, employees and
3
<PAGE>
independent contractors and shall inure to the benefit of the
parties and their respective successors and assigns, heirs and
legal representatives.
g. Each party reserves any available remedies to enforce this
Agreement.
7. PUBLICATION. Thompson or Panjehpour may publish interim and/or final
results of the investigation/research described in Article 1 hereof, upon
receipt of prior written approval from Sponsor, and provided the results
to be published do not contain or divulge proprietary information as
reasonably determined by Sponsor. 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 Thompson and/or Panjehpour has
obtained written approval from Sponsor to publish, it and/or he, as
applicable, has the right to publish and shall incur no liability to
Sponsor therefor.
8. INDEPENDENT CONTRACTOR. Thompson's relationship to Sponsor in the
performance of this Agreement is that of an independent contractor.
Panjehpour's relationship hereunder is that of employee of Thompson.
9. INDEMNIFICATION BY SPONSOR. Sponsor shall indemnify, defend and hold
Thompson and Panjehpour 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 Sponsor involving the use, manufacture or
distribution of any product or process arising out of or involved with
this Agreement.
10. INDEMNIFICATION BY THOMPSON AND PANJEHPOUR. Thompson and Panjehpour,
jointly and severally, shall indemnify, defend and hold Sponsor harmless
from any and all claims and suits which arise out of or are related to any
negligent act or omission or the wilful misconduct of Thompson and/or
Panjehpour.
11. NEGATION OF WARRANTIES BY THOMPSON. Although Thompson and Panjehpour will
use its and his respective best efforts in providing services hereunder,
neither of them makes any warranties, either expressed or implied, as to
the results of the underlying research or the merchantability or fitness
for a particular purpose of such research or any Development arising out
of the research. Thompson and Panjehpour 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. MASOUD PANJEHPOUR, PH.D. is considered to be essential to
the work performed by Thompson 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. None of the
parties claims by virtue of this Agreement any right, title, or interest in
(a) any issued or pending patents or copyrights owned or controlled by
another party or (b) any previous
4
<PAGE>
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 directly resulting from the performance of the work
described herein and in the Research Contract shall be the property
of Sponsor. However, Thompson and Panjehpour shall have the right to
use such Developments for internal education, research and academic
purposes.
b. The original data generated as a result of the performance of the
work described herein and in the Research Contract shall be provided
to Sponsor, and Sponsor may use such data as it deems advisable.
However, this provision shall not be interpreted to restrict
Thompson's and Panjehpour's publication rights under Article 7 of
this Agreement.
15. USE OF PARTIES' NAMES. None of the parties to this Agreement shall use the
name of any other party in any form of publicity without the written
permission of such other party.
16. MODIFICATION. This Agreement constitutes the sole, full, and complete
agreement by and among 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 all of the parties.
17. NOTICES AND OTHER COMMUNICATIONS. With the exception the payments made by
Sponsor under the provision of Paragraph 3, all notices and other
communications between the parties shall be deemed sufficiently given when
hand 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 Thompson:
Phillip B. Johnson
Vice President
The Thompson Cancer Survival Center
1915 White Avenue
Knoxville, TN 37916
5
<PAGE>
c. If to Panjehpour:
Masoud Panjehpour, Ph.D.
_____________________________
_____________________________
A party may change its or his address by written notice given to the other
parties. 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 THOMPSON CANCER SURVIVAL
CENTER
By: /s/ John Smolik By: /s/ Phillip B. Johnson
--------------------------- -----------------------------
John Smolik Phillip B. Johnson
President, CEO Vice President
Date: February 2, 1998 DATE: January 12, 1998
/s/ Masoud Panjehpour
--------------------------------
Masoud Panjehpour, Ph.D.
6
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