<PAGE>
=============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period ended _________________
Commission File Number 0-23553
PHOTOGEN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 36-4010347
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7327 OAK RIDGE HIGHWAY, SUITE B
KNOXVILLE, TN 37931
(Address of principal executive offices)(Zip Code)
(865) 769-4012
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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: / /
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 37,383,386 SHARES
OF COMMON STOCK, $.001 PAR VALUE PER SHARE, ISSUED AND OUTSTANDING AS OF
NOVEMBER 10, 2000
=============================================================================
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION............................................... 1
ITEM 1. FINANCIAL STATEMENTS....................................... 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK......................................... 13
PART II. OTHER INFORMATION..................................................13
ITEM 1. LEGAL PROCEEDINGS..........................................13
ITEM 5. OTHER INFORMATION .........................................14
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
All amounts in $
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
(Unaudited) (Audited)
------------------ ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 360,917 $ 1,681,773
Restricted cash -- 100,000
Interest receivable 100,997 84,327
Prepaid consulting expense 1,402,400 1,585,575
Prepaid expenses 136,800 590,710
United States Treasury Notes, Total
Face Value $6,695,000 and
$5,470,000, respectively 6,690,452 5,472,564
------------ -----------
TOTAL CURRENT ASSETS $ 8,691,566 $ 9,514,949
EQUIPMENT AND LEASEHOLD IMPROVEMENTS $ 1,432,704 $ 1,279,441
DEPOSITS 529,370 29,370
INTANGIBLE ASSETS 451,390 482,639
INVESTMENT IN AND ADVANCES TO AFFILIATE 11,231,787 11,998,430
------------ ------------
TOTAL ASSETS $22,336,817 $23,304,829
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $297,654 $ 833,163
Accrued restructuring 202,000
Current portion of obligations under
capital leases 16,144 21,148
---------- -----------
TOTAL CURRENT LIABILITIES $515,798 854,311
-------- -----------
OBLIGATION UNDER CAPITAL LEASES 4,770 $ 18,356
SHAREHOLDERS' EQUITY
Preferred stock; par value
$.01 per share; 5,000,000
shares authorized including: -- --
Series A preferred stock; 12,856 and 12,015 shares authorized at
September 30, 2000 and December 31, 1999 respectively; 12,856 and
12,015 issued and outstanding at September 30, 2000 and December
31, 1999 respectively, liquidation preference $1,000 per share
(in aggregate $12,856,000 at September 30, 2000 and $12,015,000 at
December 31, 1999) 128 120
Series B preferred stock; 402,000 shares authorized; 337,056 issued
and outstanding at September 30, 2000, liquidation preference
$16.88 per share (in aggregate $5,689,505) 3,370 --
Common stock; par value $.001 per share; 150,000,000 shares
authorized; 37,383,386 shares issued and outstanding 37,384 37,384
Additional paid-in capital 38,042,246 30,977,893
Deficit accumulated during development stage after
recapitalization (16,266,879) (8,583,235)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 21,816,249 22,432,162
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $22,336,817 $23,304,829
=========== ===========
</TABLE>
-1-
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
All amounts in $
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Investment Income $ 95,378 $ 37,743 $ 338,186 $ 157,050
EXPENSES
Research and development 1,317,848 1,013,743 3,835,814 2,170,531
General and administrative 1,272,029 633,708 3,984,016 1,448,365
Restructuring charges 202,000 -- 202,000 --
------------ ------------ ------------ ------------
NET LOSS $ (2,696,499) $ (1,609,708) $ (7,683,644) $ (3,461,846)
DIVIDENDS ON PREFERRED STOCK (659,820) -- (1,757,391) --
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS $ (3,356,319) $ (1,609,708) $ (9,441,035) $ (3,461,846)
============ ============ ============ ============
BASIC AND DILUTED NET
LOSS PER COMMON SHARE $ (.09) $ (.04) $ (.25) $ (.09)
============ ============ ============ ============
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 37,383,386 36,982,075 37,383,386 36,877,346
============ ============ ============ ============
<CAPTION>
Cumulative Amounts
From November 3, 1996
(Unaudited)
<S> <C>
REVENUES
Investment Income $ 1,017,713
EXPENSES
Research and development 8,797,162
General and administrative 8,285,430
Restructuring charges 202,000
------------
NET LOSS $(16,266,879)
============
DIVIDENDS ON PREFERRED STOCK
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS
BASIC AND DILUTED NET
LOSS PER COMMON SHARE
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING
</TABLE>
-2-
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
All amounts in $
<TABLE>
<CAPTION>
Nine Months
Nine Months Ended Cumulative
Ended September 30, Amounts From
September 30, 2000 1999 November 3, 1996
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,683,644) $ (3,461,846) $(16,266,879)
Depreciation and Amortization 322,194 154,684 770,077
United States Treasury Notes
Amortization 7,112 24,642 62,164
Loss (gain) on Securities -- -- (18,503)
Stock Option Compensation 68,741 405,778 495,508
Issuance of warrants in exchange
for services rendered 1,905,825 -- 2,949,291
Loss from investment in affiliate 673,095 -- 979,124
Changes in operating assets and liabilities:
Prepaid expense 453,910 (305,892) (136,800)
Interest receivable (16,670) 78,533 (100,997)
Accounts payable (485,509) 233,994 297,654
Accrued restructuring 202,000 -- 202,000
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (4,552,946) (2,870,107) (10,767,361)
------------ ------------ ------------
INVESTING ACTIVITIES
Sale of marketable securities -- -- 2,164,464
Purchase of marketable securities -- -- (2,182,967)
Purchase of United States Treasury Notes (11,045,000) (1,058,353) (33,082,003)
Sale of United States Treasury Notes 9,820,000 4,502,048 27,463,548
Purchase of capital assets (444,208) (204,875) (1,825,637)
Patent cost (50,000) (100,000) (237,335)
Investment in and advances to affiliate 93,548 -- (12,210,911)
Decrease in restricted cash 100,000 -- --
Increase in deposits (500,000) -- (529,370)
------------ ------------ -------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (2,025,660) 3,138,820 (20,440,211)
------------ ------------ ------------
FINANCING ACTIVITIES
Net proceeds from issuance of equity 5,276,340 -- 30,298,716
Proceeds from capital contributions by --
shareholders -- -- 1,911,674
Cost of recapitalization -- (371,111)
Principal payments on capital lease
obligations (18,590) (103,876) (270,790)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 5,257,750 (103,876) 31,568,489
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,320,856) 164,837 360,917
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,681,773 652,226 --
------------ ------------ ------------
CASH AND CASH
EQUIVALENTS AT END OF PERIOD $ 360,917 $ 817,063 $ 360,917
============ ============ ============
</TABLE>
Supplemental Schedule of Noncash Financing Activities.
Warrants issued in exchange for consulting services of $1,722,650 in 2000.
-3-
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
All amounts (except shares) in $
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Common Stock
-------------------------------------------------------------------------------------------------------
Series A Series B
----------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contribution of Capital - $ - - $ - - $ -
Net loss for the period ended - - - - - -
December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1996 - - - - - -
Net loss for the period - - - - - -
January 1, 1997 to
May 15, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at May 15, 1997 - - - - - -
Issuance of common stock - - - - 6,312,833 6,313
Effect of recapitalization and merger - - - - 29,687,167 29,687
Cost associated with recapitalization
and merger - - - - - -
Net loss for the period May 16, 1997 to - - - - - -
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1997 - - - - 36,000,000 36,000
Issuance of common stock - - - - 875,020 875
Costs associated with common - - - - - -
stock issuance
Options issued to consultants - - - - - -
Net loss for the year ended - - - - - -
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1998 - - - - 36,875,020 36,875
Exercise of stock options - - - - 4,500 5
Issuance of warrants and options - - - - - -
Issuance of common stock - - - - 503,866 504
Issuance of preferred stock 12,015 120 - - - -
Net loss for the year ended - - - - - -
December 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1999 12,015 120 - - 37,383,386 37,384
Amortization of unearned consulting
expense - - - - - -
Stock option compensation - - - - - -
Issuance of warrants - - - - - -
Issuance of preferred stock dividend -
Series A 841 8 - - - -
Issuance of preferred stock-Series B - - 337,056 3,370 - -
Net loss for nine months ended - - - - - -
September 30, 2000
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, at September 30, 2000 12,856 128 337,056 3,370 37,383,386 37,384
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Members' Paid-in Development
Capital Capital Stage Total
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contribution of Capital 7,268 $ - $ - $ 7,268
Net loss for the period ended (1,779) - - (1,779)
December 31, 1996
- ------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1996 5,489 - - 5,489
Net loss for the period - - (3,511) (3,511)
January 1, 1997 to May 15, 1997
Capital contribution 3,511 - - 3,511
- ------------------------------------------------------------------------------------------------------
BALANCE, at May 15, 1997 9,000 - (3,511) 5,489
Issuance of common stock - 1,797,137 - 1,803,450
Effect of recapitalization and merger (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 - - (554,702) (554,702)
May 16, 1997 to December 31, 1997
- ------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1997 - 2,607,526 (556,481) 2,087,045
Issuance of common stock - 6,999,125 - 7,000,000
Costs associated with common - (50,000) - (50,000)
stock issuance
Options issued to consultants - 45,446 - 45,446
Net loss for the year ended
December 31, 1998 - - (1,973,913) (1,973,913)
- ------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1998 - 9,602,097 (2,530,394) 7,108,578
Exercise of stock options - 50,058 - 50,063
Issuance of warrants and options - 3,664,749 - 3,664,749
Issuance of common stock - 6,082,150 - 6,082,654
Issuance of preferred stock - 11,578,839 - 11,578,959
Net loss for the year ended - - (6,052,841) (6,052,841)
December 31, 1999
- ------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1999 - 30,977,893 (8,583,235) 22,432,162
Stock option compensation - 68,741 - 68,741
Issuance of warrants 1,722,650 - 1,722,650
Issuance of preferred stock dividend -
Series A - (8) - -
Issuance of preferred stock-Series B - 5,272,970 - 5,276,340
Net loss for nine months ended - - (7,683,644) (7,683,644)
September 30, 2000
- ------------------------------------------------------------------------------------------------------
Balance, at September 30, 2000 - 38,042,246 (16,266,879) 21,816,249
- ------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information pursuant to Regulation S-K. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
nine months ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
2. LONG-TERM DEPOSIT
The Company entered into an operating lease for laboratory equipment
beginning January 1, 2000. The Company was required to provide cash collateral
of $500,000 for future lease payments. The $500,000 will be invested in United
States treasury notes and will be under the control of the lessor. The Company
has recorded the $500,000 as a long-term deposit at June 30, 2000.
3. EQUITY TRANSACTIONS
Common Stock. The Company is subject to six sets of registration
rights agreements covering 2,204,174 shares of the Company's Common Stock,
warrants that have vested covering the Company's Common Stock and Common
Stock issuable upon conversion of the Company's Series A Preferred. All of
the agreements contain piggyback registration rights and two contain demand
registration rights upon the occurrence of certain events and subject to
various terms and conditions. Of the 2,204,174 shares 629,780 shares are
entitled to piggyback registration only and 1,574,394 are entitled to both
demand and piggyback registration. Warrants that have vested covering
1,015,000 shares of the Company's Common Stock have weighted average
anti-dilution rights.
Series B Preferred. In February 2000, the Company completed a private
placement of its Series B convertible preferred stock ("Series B"). The
Company received cash proceeds, net of related expenses, of $5,276,340 in
exchange for 337,056 shares of the Series B stock. The Series B has an annual
dividend rate of 6%. Such dividends are to be cumulative, shall compound on
an annual basis and are payable annually by the issuance of additional
preferred Series B stock. The Company has a deficit. As a result, the
dividends have been recorded against paid-in capital. The Series B is
subordinate to the Series A preferred stock.
Subject to the senior liquidation preference of the Series A Preferred
stockholder, and the liquidation preference of any senior or PARI PASSU
securities created by the Company in the future with the requisite consent of
the holders of Series B Preferred, each share of Series B Preferred is entitled
to a liquidation preference equal to $16.88 per share, before any amounts are
paid on the Common Stock on liquidation. If the Company is acquired by another
entity or sells all or substantially all of its assets, and if they pay an
amount equal to the liquidation preference of the Series A Preferred and any
other senior security, holders of Series B Preferred will be entitled to receive
the liquidation preference unless the stockholders prior to the transaction hold
at least 50% of the voting power of the surviving or acquiring entity or if the
holders of a majority of Series B Preferred agree by vote or written consent to
exclude the acquisition or sale from this provision.
Each share of Series B Preferred has the number of votes equal to the
number of shares of Common Stock into which the share of Series B Preferred
would be convertible, and is entitled to vote together with the Common Stock.
Certain matters, such as an amendment to the terms of the Series B Preferred
Certificate of Designation or a change in the preferences or any relative or
other rights of the Series B Preferred (except for issuance of a special senior
security), may have to be approved by a majority of the holders of Series B
Preferred voting as a separate class. This right is subject to the Company's
ability to require mandatory conversion of Series B Preferred if a "special
senior security" (discussed below) is not approved.
Holders of Series B Preferred may convert shares of Series B Preferred
into Common Stock at any time, according to the following formula:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
IF THE CONVERSION TAKES EACH SHARE OF SERIES B PREFERRED CONVERTS
PLACE: INTO:
<S> <C>
--------------------------------------------------------------------------------
On or before 12/31/00 1.0 shares of Common Stock
--------------------------------------------------------------------------------
1/1/01 - 12/31/01 1.2 shares of Common Stock
--------------------------------------------------------------------------------
1/1/02 and thereafter 1.4 shares of Common Stock
--------------------------------------------------------------------------------
</TABLE>
The conversion ratio is subject to adjustment for certain dilutive events,
including issuance of Common Stock or equivalent securities at less than $16.88
per share.
The Company may require holders of Series B Preferred to convert their shares
into Common Stock (at the same ratios that would apply for a voluntary
conversion, except as described in the second and third bullet points below) in
connection with any of the following events:
- If the holders of a majority of the Series B Preferred approve a
mandatory conversion;
- Immediately prior to a firm commitment, underwritten public
offering of the Company's Common Stock in which they receive $20
million or more in gross proceeds (however, if a public offering
occurs before December 31, 2000, the conversion ratio will be
the ratio in effect for the year 2001);
- If the holders of a majority of Series B Preferred do not
approve any transaction to issue a security senior or PARI PASSU
to the Series B Preferred in a transaction involving any vendor,
licensor or joint venturer or other commercial transaction (a
"special senior security"), the purpose of which is not solely
to provide financing, and which the Board has approved and
recommended (however, if this occurs before December 31, 2000,
the conversion ratio will be the ratio in effect for the year
2001); or
- At any time after January 1, 2005.
4. STOCK INCENTIVE PLANS
In May 2000, the Board of Directors approved the Senior Executive
Long Term Incentive Compensation Plan, which provides for the granting of
options to acquire up to 3,000,000 shares to employees who are executive
officers. In July 2000, this plan was amended to increase the number of
shares reserved for stock options to 5,000,000. The Company has granted
4,000,000 options under this plan to two senior executives. In May 2000,
the stockholders approved the 2000 Long Term Incentive Compensation Plan,
which provides for the granting of options to acquire up to 2,000,000
shares to employees and consultants of the Company.
-6-
<PAGE>
Options granted under either plan may be either "incentive stock options,"
within the meaning of Section 422A of the Internal Revenue Code, or
nonqualified options. The Company expects to submit the Senior Executive Long
Term Incentive Compensation Plan for ratification in the near future.
The stock options are exercisable over a period determined by the Board
of Directors (through its Compensation Committee), but generally no longer than
10 years after the date they are granted.
5. RESTRUCTURING
In September 2000, the Company recorded a restructuring charge of
$202,000 relating to the closure of its operations in Westborough,
Massachusetts. The restructuring charge includes accruals related to estimated
employee costs and estimated lease termination costs. All employees at the
Westborough facility were terminated. Employee costs were accrued for three
employees pursuant to their termination letters. The restructuring charge is
summarized as follows:
<TABLE>
<CAPTION>
Charge in Third Utilized During To be
Quarter 2000 Third Quarter Utilized
<S> <C> <C> <C>
Employee costs 42,000 - 42,000
Lease costs 160,000 - 160,000
------------------------------------------------------------------------------------------------------------------
Total 202,000 - 202,000
------------------------------------------------------------------------------------------------------------------
</TABLE>
6. JOINT VENTURE/INVESTMENT IN AFFILIATE
The following is summarized financial information for the joint venture
Sentigen Ltd. at September 30, 2000:
<TABLE>
<CAPTION>
September 30, 2000
------------------------------------------------------------------------------------
<S> <C>
License purchased from Elan $ 15,000,000
Total Assets 15,000,000
====================================================================================
Due to affiliates 1,222,377
Total shareholders' equity 13,777,623
------------------------------------------------------------------------------------
Total liabilities and equity 15,000,000
====================================================================================
Research and development expense 840,337
------------------------------------------------------------------------------------
Net loss $ 840,337
=====================================================================================
</TABLE>
7. WARRANTS
In August 2000, the Company issued 500,000 warrants for common stock
in exchange for consulting services rendered. The warrants are immediately
exercisable. As the fair market value of these services was not readily
determinable, these services were valued based on the fair market value for
the warrants. Fair market value of the warrants was $3.16 as determined using
the Black-Scholes option pricing model. $1,402,400 has been classified as
prepaid consulting expense as this amount represents payment for service to
be provided through August 2001.
8. BASIC AND DILUTED LOSS PER COMMON SHARE
Basic and diluted loss per common share is computed based on the
weighted average number of common shares outstanding. Loss per share excludes
the impact of outstanding options, warrants and preferred stock as they are
antidilutive. Potential common shares excluded from the calculation are
5,223,500 options, 1,149,724 warrants and 944,330 shares issuable upon the
conversion of Series A and B Preferred Stock.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Photogen Technologies, Inc., its wholly-owned subsidiary Photogen,
Inc. and its 80.1% owned subsidiary, Sentigen Ltd., are collectively referred
to as "Photogen," the "Company," "we," or "us." Statements in this document
that are not strictly historical are "forward-looking" statements that are
made pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995 and are subject to the Risk Factors described
below in Part II, Item 5 "Other Information." Forward-looking statements
involve known and unknown risks, which may cause our actual results in the
future to differ materially from expected results.
Photogen is an emerging development-stage biotechnology company focused
on developing minimally invasive products for the treatment and diagnosis of
cancer, pre-cancerous conditions and other diseases. We have assembled a
platform of core technologies that we believe will support multiple products and
applications. We have not completed development of any diagnostic or therapeutic
product or process at this time and have no revenue from operations.
We have discovered new methods and apparatus for using energy from
lasers, X-rays or other light sources to selectively activate photoactive agents
within tissue sufficient to produce a range of beneficial therapeutic and
diagnostic outcomes. These discoveries include methods, materials and devices
that are used to produce light or other energy, and development of photoactive
agents, for the purpose of destroying diseased cells, removing tissue or
identifying and diagnosing disease.
We are pursuing development of three core technologies:
- Photochemistry (the interaction of light or X-rays with compounds
-- called photoactive agents -- that are activated when energy is
applied): We are working with PH-10, a photoactive agent, to
develop treatments for localized solid tumors within the body and
for treatment of diseased tissue on the surface of the body. PH-10
is a compound that accumulates in diseased tissue and absorbs
X-rays and light energy, thereby destroying the tissue.
- Lymphography (a method of diagnosing whether cancer has spread into
the lymphatic system): We are the exclusive licensee to a special
group of proprietary nanoparticulates known as N-1177 (and related
methods) used in lymphography. Nanoparticulates are tiny particles
that can be injected into a patient's lymphatic system to precisely
locate and diagnose the spread of cancer. We are developing this
technology through a joint venture with affiliates of Elan
Corporation, plc.
- Multiphoton excitation (generating light energy using multiple
photons to activate photoactive agents): Our proprietary laser
technology uses ultrashort, pulsed bursts of long wavelength light
to activate photoactive agents and other
-8-
<PAGE>
compounds to destroy diseased tissue. Multiphoton excitation also
has applications in imaging for diagnostic purposes.
Our proposed products have the potential to replace numerous surgical
and similar invasive treatments and diagnostics, reduce side effects (including
those resulting from chemotherapy), improve treatment efficacy, and lower the
overall cost of care for oncology and other applications.
Our core technologies are proprietary, and are either protected by
issued U.S. and foreign patents or are subject to patent applications pending
in the U.S. and foreign jurisdictions. As discussed below (see sections
entitled "Legal Proceedings" and "Risk Factors" in Part II), disputes about
intellectual property are common in our industry, and we are routinely
involved in discussions with others about the ownership of intellectual
property or whether an item of intellectual property interferes with or
infringes the rights of another person or entity.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We have not generated revenues from the sale of any proposed diagnostic
or therapeutic products or other operations. For the three months ended
September 30, 2000, our investment income increased to $95,378, compared to
$37,743 for the three months ended September 30, 1999. The increase in
investment income resulted primarily from investment of the $5,276,340 in net
proceeds we received from the private placement of our Series B Convertible
Preferred Stock ("Series B Preferred") in February 2000. We expect our
investment income to fluctuate both as our capital decreases or increases and as
the rates of interest earned by our portfolio vary due to shifts in short term
interest rates. The proceeds of the sales of our stock are invested primarily in
United States Government obligations. Our investment income for the nine months
ended September 30, 2000 was $338,186, compared to $157,050 of investment income
for the nine month period ended September 30, 1999.
Research and development costs for the three month period ended
September 30, 2000 increased to $1,317,848 from $1,013,743 for the comparable
three month period ended September 30, 1999 as we expanded development
activities for PH-10 and N-1177. The increase is attributable primarily to the
expenses incurred by our clinical development operations in Westborough,
Massachusetts that had been established in the fourth quarter of 1999. See our
discussion of restructuring activities below. This increased expense was
partially offset by a reduction in research contract expense with certain
academic institutions as these contracts reached their conclusion. Research and
development expenses for the nine month period ended September 30, 2000 were
$3,835,814 compared to $2,170,531 for the comparable 1999 period.
General and administrative expenses increased to $1,272,029 in the
quarter ended September 30, 2000 from $633,708 in the comparable 1999 quarter.
The expense increase is due primarily to the amortization of warrants granted to
a service provider in 1999 and to the costs of hiring and compensating
additional senior management of the Company. General and administrative
-9-
<PAGE>
expenses for the nine months ended September 30, 2000 were $3,984,016 compared
to $1,448,365 for the comparable 1999 period.
On September 26, 2000, we initiated a restructuring of our clinical
development operations. We closed our Westborough, Massachusetts office and
delivered notices of material breaches and/or dissatisfaction pursuant to the
employment agreements with the three employees who worked there at that time.
Clinical development activities formerly carried on in Westborough are now being
performed by other company employees and outside consultants. We have taken a
charge against earnings for the quarter ended September 30, 2000 in the amount
of approximately $202,000 for termination of our office lease and associated
expenses and termination costs associated with certain employees at that
location. We cannot estimate at this time additional costs or obligations (if
any) related to closing the Westborough office or relating to any litigation
arising from that closing.
During the nine months ended September 30, 2000, we spent approximately
$444,208 to acquire equipment necessary to support animal preclinical and human
clinical trials. During the next twelve months we expect such capital
expenditures to be less than $100,000.
We recorded dividends on preferred stock of $659,820 in the third
quarter of 2000. In October, 1999 and February, 2000, we issued two series of
preferred stock. Under the applicable Certificate of Designations the holder
of Series A Preferred is entitled to a mandatory payment-in-kind dividend
equal to 7% (i.e., 0.07 additional shares of Series A Preferred) which is
cumulative, compounds on a semi-annual basis and is payable twice a year.
Similarly, under the applicable Certificate of Designation the holders of
Series B Preferred are entitled to a payment-in-kind dividend equal to 6%
(i.e., 0.06 additional shares of Series B Preferred) which is cumulative and
payable annually commencing in January, 2001.
As a result of the above factors and the effect of the beneficial
conversion feature of our Preferred Stock, our net loss attributable to
common shareholders for the three months ended September 30, 2000, increased
to $3,356,319 from $1,609,708 for the three months ended September 30, 1999.
For the nine months ended September 30, 2000 our net loss applicable to
common shareholders was $9,441,035 compared to a loss of $3,461,846 for the
nine month period ended September 30, 1999.
LIQUIDITY; CAPITAL RESOURCES
We have used, and expect over the next 12 months to use, the gross
proceeds from our 1999 sale of common stock to affiliates of Elan Corporation
and the gross proceeds from our February 2000 private placement of Series B
convertible preferred stock for operating expenses, animal trials, the purchase
or lease of scientific and laboratory equipment and related facilities, legal
and regulatory consulting fees and for other working capital purposes. We expect
our use of capital to increase as we move toward initiating clinical trials.
-10-
<PAGE>
We have a $4.8 million credit facility from Elan to fund a portion of
the operations of the Sentigen joint venture we formed with affiliates of Elan
in October 1999. Any borrowings under this facility would bear interest at 8%
per annum and be convertible at Elan's election into our common stock at a
conversion price of $18.15 per share. We have also received a binding commitment
from one of our principal shareholders and directors, Mr. Tannebaum, to make a
$1 million credit facility available to us. If we utilize Mr. Tannebaum's credit
facility, borrowings will bear interest at 6% per year and interest only will be
paid annually, with the principal due in five years. The loan would be secured
by a lien on all of our assets.
On September 22, 2000, we filed a shelf registration statement with
the SEC to enable the issuance of up to $40 million of our common stock. A
shelf registration, if declared effective by the SEC, will permit us to issue
common stock from time to time at the company's option. We would expect to
use any net proceeds from the sale of these securities to continue to fund
our research and development activities and administrative expenses. We may
also use a portion of funds raised from these sales to acquire additional
products and technologies in order to broaden and strengthen our pipeline of
products. This registration statement is currently under review by the SEC
and has not yet been declared effective.
As of September 30, 2000 we had approximately $6,690,000 of
securities available for sale. This portfolio consists substantially of U.S.
government securities in accordance with the Investment Advisors Act of 1940,
as amended. Maturity dates of these securities range from October 2, 2000 to
March 31, 2001. Yields range from 4.0% to 6.4%. Our use of cash and capital
resources for the third quarter of the 2000 fiscal year averaged
approximately $580,000 per month. At the current rate of spending, we will
exhaust these securities by approximately September 30, 2001. We can adjust
our use of cash and capital by not renewing or by seeking to modify research
or other contracts; or by seeking alternative methods of paying for portions
of the research and other contract obligations, such as issuing stock rather
than paying in cash (which may dilute stockholders). We can draw down funds
from our credit line with Elan (the use of which would be restricted to
development costs associated with the N1177) and from the line of credit from
Mr. Tannebaum. In addition, should our registration statement currently under
review by the SEC be declared effective, we could sell up to $40 million of
additional common stock subject to finding investors willing to purchase
these shares. See "Risk Factors -- We must obtain significant additional
financing in the future and our inability to do so could prevent us from
implementing our business plan," below.
PLAN OF OPERATION
During the next twelve months, we will focus our efforts on completing
preclinical studies, beginning human trial and human pilot studies on selected
indications, preparing for the design and assembly of laser and other treatment
devices, preparing to manufacture clinical quantities of our drug formulations
and preparation of required filings to FDA and foreign regulatory bodies. We
expect to continue to incur increasing losses for at least the next several
years as we intensify research and development, preclinical and clinical testing
and associated regulatory approval activities and engage in
-11-
<PAGE>
or provide for the manufacture and/or sale of any products that we may
develop.
We expect that our technologies will be useful in a multitude of
treatment and diagnostic applications. We intend to focus our current efforts on
developing PH-10 and lymphography for the diagnosis and treatment of focal
tumors (a tumor that is confined to a specific area of the body). Over the next
twelve months, we intend to devote a significant majority of our financial and
other resources to preparing for and initiating clinical development of PH-10
for treatment of focal tumors, and clinical development of our lymphography
technology.
In light of the restructuring of our clinical development office, we
are working to revise the time tables for clinical development. It is likely
that the estimates contained in our Form 10-KSB for the year ended December
31, 1999 will be extended. With respect to PH-10, our goal is to file an
Investigational New Drug (IND) application with the FDA which, if approved,
would enable us to begin human clinical trials. We also hope to begin phase
II clinical trials of our lymphography technology -- which is being developed
through our joint venture with affiliates of Elan Corporation -- in 2001,
depending on the availability of a supply of nanoparticulate materials.
We also plan to sponsor one or more grants to conduct human pilot
studies. One such study has commenced in Denmark. The purpose of other pilot
studies would be to develop data to enable us to pursue additional applications
of our technology for treatment of pre-cancerous conditions such as Barretts
esophagus or actinic keratosis. This data should also enable us to determine how
best to work with potential licensees with respect to the use of our
technologies in treatments for psoriasis, hair removal and similar applications.
With the funds we received from financing in 1999 and in the first
quarter of 2000, plus the credit available from Elan (to fund a portion of the
anticipated development costs of Sentigen) and from Mr. Tannebaum, we believe we
will have enough cash resources for our current commitments during the next
twelve months. However, as we progress toward and into human clinical trials,
our use of capital will increase and will continue to do so at an accelerating
pace. Greater capital resources would enable us to quicken and expand our
research and development activities over that 12-month period; and our failure
to raise additional capital will (absent a suitable collaborative agreement
providing for a third party to take over these functions) significantly impair
our ability to conduct further research and development activities beyond those
currently contracted for and our ability to seek regulatory approval for any
possible product resulting from that research. In any event, complete
development and commercialization of our technology will require substantial
additional funds. See the section entitled "Risk Factors -- We must raise
additional financing in the future and our inability to do so could prevent us
from implementing our business plan," below. Accordingly, we are continuously
evaluating capital formation activities and opportunities, either as part of
collaborative arrangements with third parties or through offerings of equity or
debt unrelated to collaborations.
-12-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In conjunction with the restructuring of our clinical development
office in Westborough, Massachusetts, we filed a lawsuit captioned PHOTOGEN,
INC. V. GERALD L. WOLF (Case No. 00C 5841), in the United States District
Court for the Northern District of Illinois. In that litigation, we allege
that Dr. Wolf, our former Medical Director at the Westborough office,
breached his employment agreement and other obligations to us. We also seek a
declaration from the Court that Dr. Wolf is not a co-inventor of certain of
our discoveries relating to PH-10. We have filed a number of patent
applications for multiple inventions involving PH-10; and Dr. Wolf has
asserted that he is a co-inventor of certain of those inventions described in
certain of the patent applications, apparently claiming he conceived them
outside the scope of his role as Principal Investigator under our Research
Agreement with Massachusetts General Hospital (which gives us the right to an
exclusive license to all jointly invented technology) or his Employment
Agreement (which vests in us title to all inventions he develops). We intend
to vigorously defend our proprietary and other rights against Dr. Wolf's
claims. However, if Dr. Wolf's assertion that he co-invented certain of our
PH-10 inventions is correct, he (or his assignee) may be considered a joint
owner of the invention. If Dr. Wolf conceived of the invention outside the
scope of the Research Agreement or his Employment Agreement and we were
unable to obtain an exclusive license to Dr. Wolf's interest in any
allegedly co-invented technology, we could nonetheless practice the
co-invented technology as a joint owner (but we might face possible
competition for any products resulting from that technology if it is not
covered by any other patent of which we are the exclusive owner or licensee),
and our other inventions involving PH-10 should not be affected. It is not
currently possible for us to determine whether or how this would affect our
revenues, financial condition or prospects.
We also terminated the employment of David Shaw and Jay Zimmerman
who had been working at the Westborough office. Dr. Shaw's and Mr.
Zimmerman's respective Employment Agreements provide that their employment
can be terminated if we are dissatisfied in our reasonable judgment with the
performance of their employment services or the results of those services.
We delivered a Notice of Dissatisfaction to each of them to terminate their
employment on that basis on September 26, 2000. On October 31, 2000, Dr.
Shaw and Mr. Zimmerman filed a filed a lawsuit captioned DAVID D. SHAW, PH.D.
AND JAY B. ZIMMERMAN, M.ED. V. PHOTOGEN INC. AND PHOTOGEN TECHNOLOGIES, INC.
(Case No. 00-2144B) in the Worcester Superior Court for the Commonwealth of
Massachusetts. Dr. Shaw and Mr. Zimmerman allege that we breached their
Employment Agreements by terminating them without cause and wrongfully locked
them out of the Westborough office. We intend to vigorously defend our
rights under the Employment Agreements and deny the material allegations of
this complaint.
-13-
<PAGE>
ITEM 5. OTHER INFORMATION
RISK FACTORS
This Form 10-Q contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve risks, uncertainties and other factors that may cause our
actual results or performance to differ materially from any results or
performance expressed or implied by those statements. Examples of
forward-looking statements include predictive statements, statements that depend
on or refer to future events or conditions, which include words such as
"expects," "anticipates," "intends,""plans," "believes," "estimates," "should,"
"may" or similar expressions, or statements that involve hypothetical events.
The following are some of the key risk factors that may affect our
future results:
WE ARE A DEVELOPMENT STAGE COMPANY, WE HAVE CONDUCTED ONLY LIMITED STUDIES ON
OUR TECHNOLOGIES AND WE DO NOT HAVE ANY PRODUCTS OR REVENUES FROM SALES.
Our company and our technology are in an early stage of
development and we began our business as a biotechnology company in
1997. We have not generated revenues from sales or operations, and we
do not expect to generate sufficient revenues to enable us to be
profitable for at least several years.
Use of our technology has been limited primarily to laboratory
experiments or animal testing and only one compound used in
lymphography has completed Phase I clinical trials in humans. We have
therefore not yet conducted substantive studies on the effectiveness of
any compound or device on human subjects. The drug and device products
we currently contemplate developing will require costly and time
consuming research and development, preclinical and clinical testing
and regulatory approval before they can be manufactured and sold. We
may not be able to develop our technology into marketable products or
develop our technology so it is effective for diagnosis or treatment of
human diseases. As a result of changing economic considerations,
market, clinical or regulatory conditions, or clinical trial results,
we may shift our focus or determine not to continue one or more of the
projects we are currently pursuing.
WE HAVE A HISTORY OF LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN
THE FUTURE OR PAY CASH DIVIDENDS.
We have incurred losses since the beginning of our operations.
As of September 30, 2000, we incurred total losses of approximately
$16,266,879. We expect our losses to increase in the future as our
financial resources are used for research and development, preclinical
and clinical testing, regulatory activities, manufacturing, marketing
and other related expenses. We may not be able to achieve or maintain
-14-
<PAGE>
profitability in the future. We have never declared or paid any cash
dividends to stockholders, and do not expect to do so in the
foreseeable future.
WE MUST RAISE ADDITIONAL FINANCING IN THE FUTURE AND OUR INABILITY TO DO SO
COULD PREVENT US FROM IMPLEMENTING OUR BUSINESS PLAN.
Under the present circumstances, we have sufficient capital to
conduct operations for over twelve months (depending on the pace of our
spending for preclinical and clinical trials and other commitments,
which, to an extent, we can adjust to preserve cash). We will need
substantial additional financing for our research, clinical testing,
product development and marketing programs. We cannot accurately
estimate the amount of additional financing required; however, the
amount could be an additional $30 - 50 million or more. Depending on
market conditions, we will attempt to raise additional capital through
stock and debt offerings, collaborative relationships and other
available sources. Additional funds may not be available on acceptable
terms, if at all, and existing stockholders may be diluted as a result
of those offerings.
WE MAY HAVE TO ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK TO ELAN WHICH WOULD
DILUTE SHAREHOLDERS' OWNERSHIP.
If we sell additional equity, Elan Corporation plc, with
whom we are engaged in a joint venture, has a preemptive right until
October 2003 to participate in that offering. If in our next
third-party offering we sell common stock at a price less than $13
per share, we must issue additional shares to Elan so that Elan's
overall price for its common stock equals the effective price in that
other third-party offering.
OUR PROPOSED PRODUCTS ARE SUBJECT TO EXTENSIVE TESTING AND GOVERNMENT REGULATION
AND APPROVAL, INCLUDING BY THE FOOD AND DRUG ADMINISTRATION, AND WE MAY NOT
OBTAIN THE REGULATORY APPROVALS NECESSARY TO SELL OUR PROPOSED PRODUCTS.
Most of our proposed drug and device products have not begun,
and none has completed, the FDA's extensive approval process. This must
be completed before our proposed products can be sold in interstate
commerce. Requirements for FDA approval of a product include
preclinical and clinical testing for effective use and safety in
animals and humans and that testing can be extremely costly. The time
frame necessary to perform these tasks for any individual product is
long and uncertain, and we may encounter problems or delays which we
cannot predict at this time. Even if clinical trials are successful,
our proposed products may not demonstrate sufficient effectiveness or
safety to warrant approval
-15-
<PAGE>
by the FDA or other regulatory authorities. Any regulatory approval may
not cover the clinical symptoms or indications that we may seek.
Marketing our products in other countries will require seeking and
obtaining regulatory approvals comparable to those required in the
United States.
IF WE DO NOT OBTAIN AND MAINTAIN PATENT PROTECTION OF OUR CORE TECHNOLOGIES
(NAMELY PH-10, OUR LYMPHOGRAPHY MATERIALS AND METHODS, AND OUR LASER
TECHNOLOGIES), OR IF WE ARE UNABLE TO SECURE OTHER APPROPRIATE PROTECTION FOR
OUR INTELLECTUAL PROPERTY, WE MAY HAVE DIFFICULTY DEVELOPING, COMMERCIALIZING
AND GENERATING REVENUE FROM PRODUCTS WHICH MAKE USE OF THESE TECHNOLOGIES.
Our success depends in part on our ability to obtain, assert
and defend our patents, protect trade secrets and operate without
infringing the intellectual property of others. Among the important
risks in this area are that:
- Our patent applications may not result in issued
patents. Moreover, any issued patents may not provide
us with adequate protection of our intellectual
property or competitive advantages.
- Various countries limit the subject matter that can
be patented and limit the ability of a patent owner
to enforce patents in the medical field. This may
limit our ability to obtain or utilize those patents.
- Existing or future patents or patent applications
(and the products or methods they cover) of our
competitors (or others, such as research institutions
or universities) may interfere, invalidate, conflict
with or infringe our patents or patent applications.
Similarly, the use of the methods or technologies
contained in our patents, patent applications and
other intellectual property may conflict with or
infringe the rights of others.
- If an advance is made that qualifies as a joint
invention, the joint inventor or his or her employer
may have rights in the invention. We are currently
in litigation with our former Medical Director
concerning his claims of joint inventorship of some
of our PH-10 inventions (see Part II, Item 1 above
entitled "Legal Proceedings.")
We will be able to protect our proprietary rights from
unauthorized use by third parties only to the extent that these
rights are covered by valid and enforceable patents or effectively
maintained as trade secrets. We own five patents in the U.S., and
five other patents in foreign countries including Australia,
Singapore and New Zealand. We have filed patent applications under
the Patent Cooperation Treaty ("PCT") covering a number of foreign
countries including countries in Europe and South America. The
European Patent Office regional phases of the PCT applications have
been entered into along with the national phases for applications in
Australia, Canada, China, India, Israel, Korea, New Zealand,
Singapore, and certain other countries, including Taiwan. These
patents and the patent applications relate to laser and x-ray
technology, photodynamic agents and methods, and methods for
performing lymphography. We have sub-licensed a group of proprietary
compounds known as nanoparticulates from Massachusetts General
Hospital and Nycomed Imaging AS. The patent position of biotechnology
companies involves complex legal and factual questions, and therefore
we cannot assure the enforceability of these
-16-
<PAGE>
patents. Litigation over patents and other intellectual property rights
occurs frequently in our industry, and there is a risk that we may not
prevail if we become involved in that litigation. Further, interference
may occur over the rights to certain inventions, and there is a risk
that we may not prevail in an interference. Those disputes can be
expensive and time consuming, even if we win. Intellectual property
disputes are often settled through licensing arrangements that could be
costly to us. In any intellectual property litigation, it is possible
that licenses necessary to settle the dispute would not be available,
or that we would not be able to redesign our technologies to avoid any
claimed infringement.
Confidentiality agreements covering our intellectual property
may be violated and we may not have adequate remedies for any
violation. Our inventions may be reverse engineered by our competitors,
and third parties may challenge our existing patents and seek to hold
them invalid or unenforceable. Also, our intellectual property may in
other ways become known or be independently discovered by competitors.
To the extent we use intellectual property through licenses or
sub-licenses (as is the case for some of our lymphography technology),
our rights are subject to us performing the terms of the license or
sub-license agreement with third parties. Our rights are also subject
to the actions of third parties we may not be able to control, such as
our sub-licensor complying with the terms of its license with the
patent owner and the patent owner maintaining the patent.
In some cases where U.S. Government funding was used to
support a project, certain intellectual property is subject to the
Government's "march in" rights which include a royalty-free license
under certain circumstances pursuant to 35 U.S.C. Section 202(c).
WE ARE HIGHLY DEPENDENT UPON A SMALL NUMBER OF EMPLOYEES AND CONSULTANTS WHO
PROVIDE SCIENTIFIC AND MANAGEMENT EXPERTISE, AND IT MAY BE DIFFICULT TO
IMPLEMENT OUR BUSINESS AND PRODUCT DEVELOPMENT PLANS WITHOUT THIS EXPERTISE.
These individuals have entered into employment or consulting
agreements, confidentiality and/or non-competition agreements with us.
We could suffer competitive disadvantage, loss of intellectual property
rights or other material adverse effects on our business and results of
operations if any employee or consultant violates or terminates these
agreements or terminates their association with us. Our growth and
future success also depends upon the continued involvement and
contribution from these individuals, as well as our ability to attract
and retain highly qualified personnel now and in the future.
We currently employ four senior scientists (Drs. Dees, Fisher,
Scott and Wachter) and two senior executive officers (Dr. Williams (our
CEO) and Mr. Boveroux (our CFO)). We also have retained consultants to
advise us in regulatory affairs and product development matters. If we
lost the services of our executive officers or outside consultants, we
-17-
<PAGE>
would experience a delay in the implementation of our business plan
until we arranged for another individual or firm to fulfill the role.
The loss of one of our scientists could cause delay in implementing our
business plan and also jeopardize development of new technologies.
Because our scientists' talents are in some ways unique, it is
impossible to predict whether a suitable replacement could be obtained.
BECAUSE WE DO NOT HAVE, AND MAY NOT DEVELOP, MANUFACTURING OR CLINICAL TESTING
FACILITIES OR MARKETING RESOURCES FOR OUR PROPOSED PRODUCTS, WE WILL HAVE TO
RELY ON THIRD PARTIES AND COLLABORATIVE RELATIONSHIPS. IT MAY BE DIFFICULT TO
IMPLEMENT OUR BUSINESS AND PRODUCT DEVELOPMENT PLANS WITHOUT THESE
COLLABORATIONS.
We are currently involved in the following collaborations or joint
ventures:
- A joint venture with affiliates of Elan Corporation,
plc. called Sentigen Ltd., is working to develop and
commercialize lymphography agents.
- We are involved in an exclusive distribution
agreement with Coherent, Inc. in which Coherent has
agreed to market and sell our first product,
PulseView(TM) software and related computer
interface.
- We have had and expect to continue in the future
to have a variety of research agreements with
universities and other research institutions to
investigate specific protocols.
We must continue to enter into collaborative relationships
with third parties for additional research and development, preclinical
and clinical testing, manufacturing, marketing and distribution of our
proposed products. We will also be dependent on third parties for the
supply of activation hardware (such as lasers and X-ray devices) and
for supplies of photodynamic drugs, nanoparticulates and other
therapeutic and diagnostic agents. We have several research and supply
agreements with third parties. However, we may not be able to negotiate
other acceptable collaborative and supply arrangements in the future.
Collaborative relationships may limit or restrict our
operations or may not result in an adequate supply of necessary
resources. Our collaborative partners could also pursue alternative
technologies as a means of developing or marketing products for the
diseases targeted by our collaborative programs. If a third party we
are collaborating with fails to perform under its agreement or fails to
meet regulatory standards, this could delay or prematurely terminate
clinical testing of our proposed products.
-18-
<PAGE>
OUR POTENTIAL MARKETS ARE EXTREMELY COMPETITIVE, AND MANY OF OUR COMPETITORS
HAVE GREATER RESOURCES AND HAVE PRODUCTS THAT ARE IN MORE ADVANCED STAGES OF
DEVELOPMENT.
We face substantial competition from competitors with greater
financial, technical and human resources and with greater experience in
developing products, conducting preclinical or clinical testing,
obtaining regulatory approvals, manufacturing and marketing. Our
competitors include firms in the field of photodynamic therapy as well
as other fields generally relating to the diagnosis and treatment of
disease using different technologies or scientific and medical
approaches. Examples of those technologies are unique therapies to
treat cancer or other drug treatments, and procedures which use sound
waves known as ultrasound and inducing high fever into a patient known
as a hyperthermic procedure. Some of these firms have drugs or devices
that have completed or are in advanced stages of clinical trials and
regulatory approvals.
Others may develop technologies and obtain patent protection
that could render our technologies or products obsolete or less
competitive or our patents invalid or unenforceable. Due to the
inherent risk of failure associated with the testing, development and
production of new and innovative technologies, our technologies and
products may be found to be ineffective, have unanticipated limitations
or otherwise be unsuccessful in the marketplace. Also, although we
believe our estimates of the possible size of markets for our potential
products are based on information we consider reliable (including data
from the American Cancer Society and similar sources in the public
domain), that data or our analysis of the data could prove incorrect.
CHANGES IN HEALTH CARE REIMBURSEMENT POLICIES AND LEGISLATIVE REFORM MAY MAKE IT
MORE DIFFICULT FOR PHYSICIANS TO RECOMMEND OUR PRODUCTS OR FOR PATIENTS TO
RECEIVE REIMBURSEMENT FOR USING OUR PRODUCTS FROM THEIR HEALTH INSURANCE
CARRIERS, ANY OF WHICH COULD REDUCE OUR REVENUES.
Our success will depend, in part, on the extent to which
health insurers, managed care entities and similar organizations
provide coverage or reimbursement for the medical procedures and
devices we plan to develop. These third-party payors are increasingly
challenging the price of medical procedures and services and
establishing guidelines that may limit physicians' selections of
innovative products and procedures. We also cannot predict the effect
of any current or future legislation or regulations relating to
third-party coverage or reimbursement on our business. We may not be
able to achieve market acceptance of our proposed products or maintain
price levels sufficient to achieve or maintain any profits on our
proposed products if adequate reimbursement coverage is not available.
-19-
<PAGE>
A SMALL GROUP OF STOCKHOLDERS CONTROLS PHOTOGEN, WHICH MAY MAKE IT DIFFICULT FOR
STOCKHOLDERS WHO ARE NOT IN THAT GROUP TO INFLUENCE MANAGEMENT.
A small group of our officers, directors and others control
approximately 75% of our outstanding common stock. Several of our
principal stockholders are also parties to a Voting Agreement
concerning the election of certain designees to the Board of Directors
of Photogen Technologies, Inc. and Photogen, Inc. This group of
stockholders can significantly influence Photogen and the direction of
our business and affairs. This concentration of ownership may delay or
prevent a change in control of Photogen, and may also result in a small
supply of shares available for purchase in the public securities
markets. These factors may affect the market and the market price for
our common stock in ways that do not reflect the intrinsic value of the
stock.
THE PRICE AND TRADING VOLUME OF OUR COMMON STOCK HAS FLUCTUATED AND IS LIKELY TO
CONTINUE TO FLUCTUATE SIGNIFICANTLY FOR REASONS THAT MAY NOT HAVE ANY
RELATIONSHIP TO OUR OPERATING PERFORMANCE OR OTHER FACTORS THAT TRADITIONALLY
DETERMINE A COMPANY'S VALUE. THIS MAY MAKE IT DIFFICULT FOR US OR A
STOCKHOLDER TO SELL OUR COMMON STOCK AT A SUITABLE PRICE.
During the period from January 1, 2000 through September 30,
2000, our stock price ranged from $4.25 to $19.50. Volume ranged
from 100 shares to 300,623 shares during that period.
The following factors may have an impact on the price of our
stock:
- Announcements by us or others regarding scientific
discoveries, technological innovations, commercial
products, patents or proprietary rights;
- The progress of preclinical or clinical trials;
- Changes in government regulation;
- Public concern about the safety of devices or drugs;
- Limited coverage by securities analysts;
- Sales of large blocks of stock by an individual or
institution;
- Changes in our financial performance from period to
period; securities analysts' reports; and general
market conditions.
OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ SMALLCAP MARKET WHICH WOULD
MAKE TRADING IN OUR STOCK MORE DIFFICULT.
Since November 1999, our common stock has been quoted in the
Nasdaq SmallCap Market. Our shares could be delisted if we fail to meet
the listing requirements of the Nasdaq SmallCap Market, which would
force us to list our shares on the OTC Bulletin Board or some other
-20-
<PAGE>
quotation medium, such as pink sheets, depending upon our ability to
meet the specific listing requirements of those quotation systems. As a
result, an investor might find it more difficult to dispose of, or to
obtain accurate price quotations for, our shares. Delisting might also
reduce the visibility, liquidity, and price of our common stock. If our
common stock were delisted from the Nasdaq SmallCap Market and were not
traded on another national securities exchange, we could become subject
to penny stock regulations that impose additional sales practice
disclosure and market making requirements on broker/dealers who sell or
make a market in our stock. The rules of the SEC generally define
"penny stock" to be common stock that has a market price of less than
$5.00 per share. If our stock became subject to penny stock
regulations, it would adversely affect the ability and willingness of
broker/dealers who sell or make a market in our common stock and of
investors to sell our stock in the secondary market.
IF OUR STOCKHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC
MARKET, THE MARKET PRICE OF OUR COMMON STOCK COULD FALL OR MAKE IT MORE
DIFFICULT FOR US TO SELL EQUITY OR EQUITY-RELATED SECURITIES IN THE FUTURE AT A
PRICE WE DEEM APPROPRIATE.
As of September 30, 2000 we had 37,383,386 shares of common
stock outstanding. Of theses shares, approximately 8,347,687 shares
were eligible for sale in the public market free of restrictions under
the Securities Act of 1933, as amended, including restrictions under
Rule 144. Approximately 2,204,174 shares are currently subject to
either piggyback and/or demand registration rights which, subject to
certain conditions, require us to register these shares upon the
occurrence of certain events. Approximately 22,558,435 shares held
by Photogen's five founders are subject to a lock-up agreement with
Theodore Tannebaum (Chairman of the Board), prohibiting sale of those
shares without Mr. Tannebaum's consent until August 9, 2001.
As of September 30, 2000 we had reserved 9,486,780 shares of
common stock for future issuance upon exercise or conversion of
outstanding options and warrants and convertible securities. If these
options and warrants are exercised, you may experience significant
dilution in the book value and earnings per share of your common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following is a list of exhibits filed as part of this Form 10-Q.
Exhibits that were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous filing is
indicated in parenthesis.
-21-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Restated Articles of Incorporation of Photogen Technologies, Inc.
(Filed as exhibit 3.1 to the Company's Current Report on Form 8-K
dated May 17, 2000 and incorporated herein by reference.)
3.2 Amended and Restated Certificate of Designations, Preferences and
Rights of Series A Preferred Stock. (Filed as exhibit 3.5 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1999 and incorporated herein by reference.)
3.3 Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock. (Filed as exhibit 3 to the Company's
Current Report on Form 8-K dated February 18, 2000 and incorporated
herein by reference.)
3.4 Bylaws of Photogen Technologies, Inc. (Filed as exhibit 3.2 to the
Company's Current Report on Form 8-K dated May 17, 2000 and
incorporated herein by reference.)
3.5 Charter of Photogen, Inc. (Filed as exhibit 3.3 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997 and
incorporated herein by reference.)
3.6 Amended and Restated Bylaws of Photogen, Inc. (Filed as exhibit 3.3 to
the Company's Current Report on Form 8-K dated May 17, 2000 and
incorporated herein by reference.)
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
</TABLE>
-22-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
Photogen Technologies, Inc.
/s/ Taffy J. Williams
---------------------------------------
Date: January 8, 2001 Taffy J. Williams, Ph.D.,
President and Chief Executive Officer
/s/ Brooks Boveroux
---------------------------------------
Brooks Boveroux, Senior Vice President -
Finance and Chief Financial Officer
(Principal Financial and Chief Accounting
Officer)
-23-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
+3.1 Restated Articles of Incorporation of Photogen Technologies, Inc.
(Filed as exhibit 3.1 to the Company's Current Report on Form 8-K
dated May 17, 2000.)
+3.2 Amended and Restated Certificate of Designations, Preferences and
Rights of Series A Preferred Stock. (Filed as exhibit 3.5 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1999.)
+3.3 Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock. (Filed as exhibit 3 to the Company's
Current Report on Form 8-K dated February 18, 2000.)
+3.4 Bylaws of Photogen Technologies, Inc. (Filed as exhibit 3.2 to the
Company's Current Report on Form 8-K dated May 17, 2000.)
+3.5 Charter of Photogen, Inc. (Filed as exhibit 3.3 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
+3.6 Amended and Restated Bylaws of Photogen, Inc. (Filed as exhibit 3.3
to the Company's Current Report on Form 8-K dated May 17, 2000.
*27 Financial Data Schedule.
</TABLE>
+ Incorporated by reference from the filing indicated.
* Filed herewith.
-24-
