<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 10-Q

(Mark One)

     _X_          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 1999

                                       or

     ___         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the transition period from ____ to ___

                         Commission File Number 0-12950

                          ALLIANCE PHARMACEUTICAL CORP.
             (Exact name of Registrant as specified in its charter)

New York                                                  14-1644018 
---------------------------------------            ----------------------
(State or other jurisdiction                       (I.R.S. Employer
of incorporation or organization)                  Identification Number)

3040 Science Park Road
San Diego, California                              92121            
---------------------------------------            ----------------------
(Address of principal executive offices)           Zip Code

Registrant's telephone number,
including area code:                               619/558-4300         
                                                   ------------------------

Indicate by a check 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 
filing requirements for the past 90 days.

                  Yes     ___X___                No _____

As of May 10, 1999, Registrant had 33,242,830 shares of its Common Stock, $.01
par value, outstanding.

<PAGE>

ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
-----------------------------------------------

<TABLE>
<CAPTION>
INDEX                                                                                 Page No.
-----                                                                                ---------
<S>                                                                                   <C>
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

     Condensed Consolidated Balance Sheets                                                 3

     Condensed Consolidated Statements of Operations                                       4

     Condensed Consolidated Statements of Cash Flows                                       5

     Notes to Condensed Consolidated Financial Statements                                  6

Item 2. Management's Discussion and Analysis of

 Financial Condition and Results of Operations                                             8

PART II - OTHER INFORMATION

Item 1. Legal Proceedings                                                                 14

Item 6. Exhibits and Reports on Form 8-K                                                  15
</TABLE>

                                                               2


<PAGE>

PART I  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------------------------------------------------

                                                                                  MARCH 31,                   JUNE 30,
                                                                                    1999                       1998
                                                                            -----------------------    -----------------------
                                                                                (UNAUDITED)                   (NOTE)
<S>                                                                         <C>                        <C>
ASSETS
CURRENT ASSETS:
      Cash and cash equivalents                                             $          15,789,000       $          11,809,000
      Short-term investments                                                            2,989,000                  38,046,000
      Research revenue receivable                                                       3,875,000                   6,847,000
      Other current assets                                                                379,000                     694,000
                                                                            -----------------------    -----------------------
                Total current assets                                                   23,032,000                  57,396,000

PROPERTY, PLANT AND EQUIPMENT - NET                                                    23,817,000                  23,087,000
PURCHASED TECHNOLOGY - NET                                                             11,740,000                  12,880,000
OTHER ASSETS - NET                                                                        646,000                     314,000
                                                                            -----------------------    -----------------------
                                                                            $          59,235,000       $          93,677,000
                                                                            -----------------------    -----------------------
                                                                            -----------------------    -----------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:

      Accounts payable                                                      $           2,557,000       $           2,191,000
      Accrued expenses                                                                  1,533,000                   3,121,000
      Deferred revenue                                                                  2,286,000                   2,286,000
      Current portion of long-term debt                                                14,120,000                   1,068,000
                                                                            -----------------------    -----------------------
                Total current liabilities                                              20,496,000                   8,666,000

LONG-TERM DEBT                                                                                 -                    8,882,000
OTHER                                                                                      24,000                      39,000

STOCKHOLDERS' EQUITY:
      Preferred stock - $.01 par value; 5,000,000 shares authorized; 500,000
          shares of Series D issued and outstanding at
           March 31, 1999 and June 30, 1998                                                 5,000                       5,000
           52,163 and 0 shares of Series E-1 issued and outstanding at
           March 31, 1999 and June 30, 1998, respectively                                   1,000                          -
      Common stock - $.01 par value; 75,000,000 shares authorized; 33,181,593
          and 31,994,338 shares issued and outstanding at
          March 31, 1999 and June 30, 1998, respectively                                  332,000                     320,000
      Additional paid-in capital                                                      346,048,000                 340,016,000
      Accumulated deficit                                                            (307,671,000)               (264,251,000)
                                                                            -----------------------    -----------------------
                Total stockholders' equity                                             38,715,000                  76,090,000
                                                                            -----------------------    -----------------------
                                                                            $          59,235,000      $           93,677,000
                                                                            -----------------------    -----------------------
                                                                            -----------------------    -----------------------
</TABLE>

Note: The balance sheet at June 30, 1998 has been derived from the audited
      financial statements at that date but does not include all of the
      information and footnotes required by generally accepted accounting
      principles for complete financial statements.

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                                                     3

<PAGE>

   ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED                          NINE MONTHS ENDED
                                                          MARCH 31,                                  MARCH 31,
                                                  1999                1998                  1999                 1998
                                             ------------------  ------------------    -------------------  ------------------
                                                           (UNAUDITED)                                (UNAUDITED)
<S>                                            <C>              <C>                     <C>                  <C>

   REVENUES:

      License and research revenue           $       1,021,000    $      4,331,000      $       7,169,000    $     16,144,000
                                                     
   OPERATING EXPENSES:
      Research and development                      14,771,000          13,414,000             44,735,000          37,238,000
      General and administrative                     2,101,000           2,285,000              6,276,000           5,965,000
                                             ------------------  ------------------    -------------------  ------------------
                                                    16,872,000          15,699,000             51,011,000          43,203,000
                                             ------------------  ------------------    -------------------  ------------------
   LOSS FROM OPERATIONS                            (15,851,000)        (11,368,000)           (43,842,000)        (27,059,000)

   INVESTMENT INCOME AND OTHER - NET                   176,000           1,207,000                905,000           3,084,000
                                             ------------------  ------------------    -------------------  ------------------
   NET LOSS                                        (15,675,000)        (10,161,000)           (42,937,000)        (23,975,000)
   IMPUTED DIVIDEND ON
      SERIES E-1 PREFERRED STOCK                             -                   -              (483,000)                   -
                                             ------------------  ------------------    -------------------  ------------------
   NET LOSS APPLICABLE TO COMMON SHARES      $    (15,675,000)   $    (10,161,000)     $     (43,420,000)   $    (23,975,000)
                                             ------------------  ------------------    -------------------  ------------------
                                             ------------------  ------------------    -------------------  ------------------
   NET LOSS PER COMMON SHARE:
      BASIC AND DILUTED                      $          (0.48)   $          (0.32)     $           (1.35)   $          (0.76)
                                             ------------------  ------------------    -------------------  ------------------
                                             ------------------  ------------------    -------------------  ------------------
   WEIGHTED AVERAGE SHARES OUTSTANDING:
      BASIC AND DILUTED                             32,550,000          31,946,000             32,202,000          31,657,000
                                             ------------------  ------------------    -------------------  ------------------
                                             ------------------  ------------------    -------------------  ------------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                               4


<PAGE>

     ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED
                                                                                               MARCH 31,
                                                                                       1999                         1998
                                                                           ----------------------       ----------------------
                                                                                                (UNAUDITED)
<S>                                                                         <C>                           <C>
     OPERATING ACTIVITIES:
        Net loss                                                                 $   (42,937,000)              $  (23,975,000)
        Adjustments to reconcile net loss to net cash used in operations:
           Depreciation and amortization                                               4,495,000                    3,737,000
           Non-cash compensation - net                                                         -                      320,000
           Changes in operating assets and liabilities:
              Research revenue receivable                                              2,972,000                    1,073,000
              Deferred revenue                                                                 -                     (214,000)
              Other assets                                                               (17,000)                    (158,000)
              Accounts payable and accrued expenses and other                         (1,237,000)                  (1,821,000)
                                                                           ----------------------       ----------------------
     Net cash used in operating activities                                           (36,724,000)                 (21,038,000)
                                                                           ----------------------       ----------------------
     INVESTING ACTIVITIES:
        Purchases of short-term investments                                          (23,711,000)                 (86,726,000)
        Sales and maturities of short-term investments                                58,747,000                  100,398,000
        Property, plant and equipment                                                 (4,085,000)                  (6,430,000)
        Payment for acquired in-process technology                                             -                      (57,000)
                                                                           ----------------------       ----------------------
     Net cash provided by investing activities                                        30,951,000                    7,185,000
                                                                           ----------------------       ----------------------
     FINANCING ACTIVITIES:
        Issuance of common stock                                                           1,000                      526,000
        Issuance of convertible preferred stock                                        5,582,000                    9,600,000
        Proceeds from long-term debt                                                   5,050,000                    6,800,000
        Principal payments on long-term debt                                            (880,000)                    (750,000)
                                                                           ----------------------       ----------------------
     Net cash provided by financing activities                                         9,753,000                   16,176,000
                                                                           ----------------------       ----------------------
     INCREASE IN CASH AND CASH EQUIVALENTS                                             3,980,000                    2,323,000
     CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                 11,809,000                   15,368,000
                                                                           ----------------------       ----------------------
     CASH AND CASH EQUIVALENTS AT END OF PERIOD                            $          15,789,000        $          17,691,000
                                                                           ----------------------       ----------------------
                                                                           ----------------------       ----------------------
     SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
       AND FINANCING ACTIVITIES:
     Issuance of common stock in connection with
        acquired in-process technology                                     $                   -        $           7,500,000
</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                     5

<PAGE>

ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION

     Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the 
"Company" or "Alliance") are engaged in identifying, designing, and 
developing novel medical products.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Alliance 
Pharmaceutical Corp., the accounts of its wholly owned subsidiary Astral, 
Inc., its wholly owned subsidiary MDV Technologies, Inc. ("MDV") from the 
acquisition date of November 1996, and its majority-owned subsidiaries, Talco 
Pharmaceutical, Inc. and Applications et Transferts de Technologies Avancees 
("ATTA"). ATTA was dissolved in 1997. All significant intercompany accounts 
and transactions have been eliminated. Certain amounts in fiscal 1998 have 
been reclassified to conform to the current year's presentation.

INTERIM CONDENSED FINANCIAL STATEMENTS

     The condensed consolidated balance sheet as of March 31, 1999, the 
condensed consolidated statements of operations for the three and nine months 
ended March 31, 1999 and 1998, and the condensed consolidated statements of 
cash flows for the nine months ended March 31, 1999 and 1998 are unaudited. 
In the opinion of management, such unaudited financial statements include all 
adjustments, consisting only of normal recurring accruals, necessary for a 
fair presentation of the results for the periods presented. Interim results 
are not necessarily indicative of the results to be expected for the full 
year. The financial statements should be read in conjunction with the 
Company's consolidated financial statements and footnotes thereto included in 
the Company's annual report on Form 10-K/A for the year ended June 30, 1998.

PURCHASED TECHNOLOGY

     The purchased technology was primarily acquired as a result of the 
merger of Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in 
fiscal 1989. The technology acquired is the Company's core perfluorochemical 
("PFC") technology and was valued based on an analysis of the present value 
of future earnings anticipated from this technology at that time. The Company 
identified alternative future uses for the PFC technology, including the 
OXYGENT-TM- (temporary blood substitute) and LIQUIVENT-Registered Trademark- 
(intrapulmonary oxygen carrier) products. Purchased technology also includes 
$2 million for technology capitalized as a result of the acquisition of 
BioPulmonics, Inc. ("BioPulmonics") in December 1991. Since the acquisition, 
an alternative future use of the acquired technology has been pursued by the 
Company. An intrapulmonary drug delivery system using the PFC-based liquid as 
a carrier (or dispersing agent) is being developed by Alliance from the 
liquid ventilation technology.

     The PFC technology is the basis for the Company's main drug development 
programs and is being amortized over a 20-year life. The PFC technology has a 
book value of $11.5 million and $12.4 million, net of accumulated 
amortization of $11.7 million and


                                           6

<PAGE>

$10.8 million at March 31, 1999 and June 30, 1998, respectively. The 
technology acquired from BioPulmonics has a book value of approximately 
$214,000 and $471,000, and is being amortized over five to seven years and is 
net of accumulated amortization of $1.8 million and $1.5 million at March 31, 
1999 and June 30, 1998, respectively.

     The carrying value of purchased technology is reviewed periodically 
based on the projected cash flows to be received from license fees, milestone 
payments, royalties and other product revenues. If such cash flows are less 
than the carrying value of the purchased technology, the difference will be 
charged to expense.

NEW ACCOUNTING STANDARDS

     Effective July 1, 1998, the Company adopted the Financial Accounting 
Standards Board's Statement No. 130, "Comprehensive Income" ("SFAS No. 130"), 
and Statement No. 131, "Disclosures about Segments of an Enterprise and 
Related Information" ("SFAS No. 131"). SFAS No. 130 establishes new rules for 
the reporting and display of comprehensive income and its components; 
however, the adoption of SFAS No. 130 had no impact on the Company's net loss 
or stockholders' equity. SFAS No. 130 requires unrealized gains and losses on 
the Company's available-for-sale securities to be included in comprehensive 
income. During the three months ended March 31, 1999 and 1998, the total 
comprehensive loss, which includes the unrealized loss on available-for-sale 
securities, was $15,673,000 and $10,289,000, respectively. During the nine 
months ended March 31, 1999 and 1998, the total comprehensive loss was 
$42,959,000 and $24,192,000, respectively. SFAS No. 131 amends the 
requirements for public enterprises to report financial and descriptive 
information about its reportable operating segments. Operating segments, as 
defined in SFAS No. 131, are components of an enterprise for which separate 
financial information is available regularly by the Company in deciding how 
to allocate resources in assessing performance. The financial information is 
required to be reported on the basis that is used internally for evaluating 
the segment performance. The Company believes it operates in one business and 
operating segment. The adoption of SFAS No. 131 did not affect results of 
operations or financial position of the Company.

NET INCOME (LOSS) PER SHARE

     In February 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" 
("SFAS No. 128"). SFAS No. 128 requires the presentation of basic and diluted 
earnings per share amounts. Basic earnings per share is calculated based upon 
the weighted average number of common shares outstanding during the period 
while diluted earnings per share also gives effect to all potential dilutive 
common shares outstanding during the period such as options, warrants, 
convertible securities, and contingently issuable shares. SFAS No. 128 is 
effective for periods ending after December 15, 1997. All potential dilutive 
common shares have been excluded from the calculation of diluted earnings per 
share as their inclusion would be anti-dilutive.

2.   LONG-TERM DEBT

     As of March 31, 1999, the Company had not satisfied its financial 
covenant as required by the loan and security agreement. The Company has 
reclassified $12 million from long-term debt to the current liabilities 
section of the Balance Sheet.


                                 7

<PAGE>

3.   PREFERRED STOCK

     In August 1998, the Company sold 100,000 shares of its convertible 
Series E-1 Preferred Stock to certain investors for $6 million and obtained 
the right to sell similar preferred stock periodically through early 1999 in 
an amount not to exceed an additional $14 million. The right to sell 
additional preferred stock to these investors has terminated. The preferred 
shares are convertible at the option of the holder into common stock at $6 
per share through January 3, 1999, and thereafter certain adjustments may 
apply based on the market price. These adjustments to the market price could 
potentially result in a conversion price below the then trading market price 
of the stock. As a result of this beneficial conversion feature, the Company 
has recognized an imputed dividend of $483,000 on these preferred shares. At 
the option of the Company, beginning in 2003, the Company can either force 
the conversion of any remaining unconverted shares into common stock or can 
redeem the stock at the then prevailing conversion price. The Company may be 
liable for penalties if certain conditions are not met. The Series E-1 
Preferred Stock has ten votes per share and votes with the holders of common 
stock, except where otherwise required by law. The Series E-1 Preferred Stock 
has a liquidation preference of $60 per share. As of March 31, 1999, the 
liquidation preference was $3.1 million. No dividends will accrue to the 
holders of the preferred stock; however, the investors obtained a right to 
receive a royalty on future sales of one of the Company's products under 
development, provided that the product is approved by the U.S. Food and Drug 
Administration ("FDA") by December 2003. The royalty amount will be between 
0.4% and 1.6%, subject to adjustments downward, of net sales of the product 
for a period of three years. The Company has certain rights to repurchase the 
royalty right. On January 4, 1999, 47,837 shares of preferred stock were 
converted into 1,091,338 shares of common stock at an average price of $2.63 
per share.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS (References to years are to the Company's fiscal years 
ended June 30.)

     Alliance has devoted substantial resources to research and development 
related to its medical products. The Company has been unprofitable since 
inception and expects to incur operating losses for at least the next several 
years due to substantial spending on research and development, preclinical 
testing, clinical trials, regulatory activities, and commercial manufacturing 
start-up. The Company has collaborative research and development agreements 
with Schering AG, Germany ("Schering") for IMAGENT-Registered Trademark- and 
VIA Medical Corporation ("VIA") for RODA-TM-. Under the arrangement for 
IMAGENT, Schering has agreed to reimburse the Company for some of its 
development expenses. Schering will also make milestone payments to the 
Company upon the achievement of certain product development events, followed 
by royalties on sales at commercialization. As of December 30, 1998, Schering 
and the Company modified the Schering license agreement (the "Schering 
License Agreement") to reduce the quarterly reimbursements, to increase the 
milestone payments, and to revise the method of calculating royalties. With 
respect to RODA, the Company has agreed to reimburse VIA for substantially 
all of its development expenses and to share revenues from the sale of 
products. Due to the termination of the license agreement (the "HMRI License 
Agreement") with Hoechst Marion Roussel, Inc. ("HMRI") in December 1997, the 
restructuring of the license agreement (the "Ortho License Agreement") with 
Ortho Biotech, Inc. and The R.W. Johnson Pharmaceutical Research Institute, a 
division of Ortho Pharmaceutical Corporation, both affiliates of Johnson & 
Johnson 

                                        8

<PAGE>

(collectively referred to as "Ortho") in May 1998, and the reduction in the 
on-going reimbursements from Schering, Alliance has incurred a substantial 
increase in development expenses and a substantial decrease in related 
research revenue relative to prior years and expects to continue to do so. 
There can be no assurance that the Company will be able to achieve 
profitability at all or on a sustained basis.

LIQUIDITY AND CAPITAL RESOURCES

     Through March 1999, the Company financed its activities primarily from 
public and private sales of equity and funding from collaborations with 
corporate partners. To date, the Company's revenue from the sale of products 
has not been significant. The Company has financed substantially all of its 
office and research facilities and related leasehold improvements under 
operating lease arrangements and loan and security agreements. The Company 
has a $1.5 million line of credit available with a bank which is primarily 
available to cover letters of credit securing the leased premises 
obligations. In January 1997, the Company entered into a loan and security 
agreement with another bank under which the Company received $3.5 million 
and, in December 1997, the amount available under the loan was increased to 
$15.2 million. In June 1998, the Company restructured the loan to provide for 
$15 million. Amounts borrowed are secured by assets, including equipment and 
machinery, and are to be repaid over 4.5 years. As of May 10, 1999, the 
outstanding bank loan balance had been reduced to $13.9 million. The loan 
agreement requires the Company to have at all times cash, cash equivalents 
and receivables of at least $25 million. As of March 1999, the Company's 
cash, cash equivalents and receivables were below $25 million and it is in 
violation of its agreement with the bank. Under the loan agreement, the bank 
may demand that the Company pay all of its loan in full or the bank may take 
possession of the assets that secure the loan. If the Company is forced to 
pay off the loan with existing cash, it would not be able to continue current 
development operations and would be forced to sell assets, including 
technology, to raise capital. The bank has indicated that if the Company 
raises $18 million in capital, it will reduce the cash covenant to $10 
million ($5 million of which will be held by the bank as collateral), take a 
lien on some of the Company's patents and otherwise restructure the loan 
payments to increase principal payments.

     The Company is currently conducting a public offering to raise up to $20 
million. The Company is also looking at other opportunities to raise capital. 
Additionally, the Company is in the process of taking several actions to 
reduce its on-going expenses, including on-going reductions in workforce, 
attempting to sublease certain of its facilities to third parties, reducing 
certain experimental research, and winding down certain development 
activities. However, no assurances can be given that the Company will be able 
to raise the necessary capital, restructure the bank debt, or reduce the 
on-going expenses sufficiently to allow continued operations of the Company.

     In September 1997, the Company entered into the Schering License 
Agreement, which provides Schering with worldwide exclusive marketing and 
manufacturing rights to Alliance's drug compounds, drug compositions, and 
medical devices and systems related to perfluorocarbon ultrasound imaging 
products, including IMAGENT. In conjunction with the Schering License 
Agreement, Schering Berlin Venture Corp., an affiliate of Schering, purchased 
500,000 shares of the Company's convertible Series D Preferred Stock for $10 
million. The product is being 


                                  9

<PAGE>

developed jointly by Alliance and Schering. Under the Schering License 
Agreement, Schering paid to Alliance in 1998 an initial license fee of $4 
million, and agreed to pay further milestone payments and royalties on 
product sales. Schering is also providing funding to Alliance for some of its 
development expenses related to IMAGENT. Because of changes in the 
development of the field of ultrasound contrast agents and in the parties' 
development plans, Alliance and Schering amended the Schering License 
Agreement as of December 30, 1998. Under the original arrangement, royalty 
rates were based upon the development of specific medical uses for IMAGENT, 
which placed limitations on the development effort. The parties elected to 
revise the royalty calculation which is now based on sales of IMAGENT, a more 
traditional method of determining royalties. This modification permits the 
parties to be flexible in developing IMAGENT. Although the method of 
calculating royalties has been changed, the Company believes that there will 
be no material difference in the amount of royalties to be earned by the 
Company under the Schering License Agreement. Additionally, the parties 
reduced ongoing development reimbursements and added new milestone payments.

     From February 1996 through June 1997, HMRI was responsible for most of 
the costs of development and marketing of LIQUIVENT. The Company announced in 
June 1997 that the parties agreed in principle to modify the HMRI License 
Agreement to (i) adjust certain milestone payments, (ii) temporarily revise 
the method for reimbursing the expenses for portions of the development work, 
and (iii) provide for the Company to repurchase any unused clinical trial 
supplies if the license agreement was terminated before January 1, 1998. The 
Company sold $2.5 million in clinical trial supplies to HMRI and recorded it 
as deferred revenue. At March 31, 1999, the unused supplies were 
approximately $2.3 million. In December 1997, the HMRI License Agreement was 
terminated. Therefore, Alliance has not been reimbursed for its LIQUIVENT 
development expenses since July 1, 1997, and it is responsible for all future 
LIQUIVENT development expenses worldwide. HMRI has no continuing rights to 
the development or marketing of LIQUIVENT. The parties are considering a 
repurchase by Alliance of clinical trial supplies from HMRI. In May 1998, 
HMRI asserted a claim for an amount up to $7.5 million, payable in 2002 in 
cash or common stock, at the Company's election. In September 1998, HMRI 
increased the demand to $16.8 million, plus interest and punitive damages, 
and filed a demand for arbitration. The Company does not believe that the 
claim is meritorious, intends to vigorously contest such claim, and has filed 
a counterclaim for unspecified damages. The Company believes that the 
ultimate resolution will not have a material adverse effect on the Company's 
financial condition, results of operations or liquidity. However, no 
assurances can be given that the Company will prevail on the claim or that an 
adverse result will not have a material adverse effect on the Company.

     From September 1994 until May 1998, under the Ortho License Agreement, 
Ortho was responsible for substantially all the costs of developing and 
marketing OXYGENT. In May 1998, Ortho and the Company restructured the Ortho 
License Agreement and Alliance assumed responsibility for worldwide 
development of OXYGENT at its expense. Under the restructured agreement, 
Ortho retained certain rights to be the exclusive marketing agent for the 
product, which rights have been re-acquired by the Company. In 1998, Ortho 
reimbursed the Company $10.2 million for research and development expenses. 
As a result of the restructuring, Alliance incurred a substantial increase in 
development expenses related to OXYGENT and a substantial decrease in related 
research revenue over prior years.


                           10

<PAGE>

     The Company had net working capital of $2.5 million at March 31, 1999, 
compared to $48.7 million at June 30, 1998. The Company's cash, cash 
equivalents, and short-term investments decreased to $18.8 million at March 
31, 1999 from $49.9 million at June 30, 1998. The decrease resulted primarily 
from cash used in operations of $36.7 million, and property, plant and 
equipment additions of $4.1 million, partially offset by net proceeds from 
the sale of convertible Series E-1 Preferred Stock of $5.6 million and by 
additional proceeds of $5.1 million from its loan and security agreement. The 
Company's operations to date have consumed substantial amounts of cash and 
are expected to continue to do so for the foreseeable future.

     The Company continually reviews its product development activities in an 
effort to allocate its resources to those product candidates that the Company 
believes have the greatest commercial potential. Factors considered by the 
Company in determining the products to pursue include projected markets and 
need, potential for regulatory approval and reimbursement under the existing 
healthcare system, status of its proprietary rights, technical feasibility, 
expected and known product attributes, and estimated costs to bring the 
product to market. Based on these and other factors, the Company may from 
time to time reallocate its resources among its product development 
activities. Additions to products under development or changes in products 
being pursued can substantially and rapidly change the Company's funding 
requirements.

     The Company expects to incur substantial additional expenditures 
associated with product development as the products proceed in pivotal 
clinical trials. The Company will seek additional collaborative research and 
development relationships with suitable corporate partners for its 
non-licensed products. There can be no assurance that such relationships, if 
any, will successfully reduce the Company's funding requirements. Additional 
equity or debt financing will be required, and there can be no assurance that 
such financing will be available on reasonable terms, if at all. If adequate 
funds are not available, the Company may be required to delay, scale back, or 
eliminate one or more of its product development programs, or obtain funds 
through arrangements with collaborative partners or others that may require 
the Company to relinquish rights to certain of its technologies, product 
candidates, or products that the Company would not otherwise relinquish.

     Alliance anticipates that its current capital resources, expected 
revenue from the Schering License Agreement and investments will be adequate 
to satisfy its capital requirements through fiscal 1999. The Company's future 
capital requirements will depend on many factors, including, but not limited 
to, continued scientific progress in its research and development programs, 
progress with preclinical testing and clinical trials, the time and cost 
involved in obtaining regulatory approvals, patent costs, competing 
technological and market developments, changes in existing collaborative 
relationships, the ability of the Company to establish additional 
collaborative relationships, and the cost of manufacturing scale-up.

     While the Company believes that it can produce materials for clinical 
trials and the initial market launch for OXYGENT and IMAGENT at its existing 
San Diego facilities and for LIQUIVENT at its Otisville, New York facility, 
it may need to expand its commercial manufacturing capabilities for its 
products in the future. Any expansion for any of its products may occur in 
stages, each of 


                              11

<PAGE>

which would require regulatory approval, and product demand could at times 
exceed supply capacity. The Company has not selected a site for such expanded 
facilities and cannot predict the amount it will expend for the construction 
of such facilities. There can be no assurance as to when or whether the FDA 
will determine that such facilities comply with Good Manufacturing Practices. 
The projected location and construction of such facilities will depend on 
regulatory approvals, product development, and capital resources, among other 
factors. The Company has not obtained any regulatory approvals for its 
production facilities for these products, nor can there be any assurance that 
it will be able to do so. The Schering License Agreement requires the Company 
to manufacture products at its San Diego facility for a period of time after 
market launch at a negotiated price. Schering will be responsible for 
establishing production capacity beyond the maximum capacity of the San Diego 
facility.

YEAR 2000

     Many currently installed computer systems and software products are 
coded to accept only two-digit entries in the date code field. Beginning in 
the year 2000, these date code fields will need to accept four-digit entries 
to distinguish the 21st century dates from 20th century dates. As a result, 
in less than one year, computer systems and/or software used by many 
companies may need to be upgraded to comply with such "Year 2000" 
requirements. Management has a continuing Year 2000 program, which has 
already identified several systems that are not yet Year 2000 compliant. The 
Company has substantially completed an inventory of its systems, software and 
embedded chips, and is in the process of obtaining confirmations from 
critical third parties with respect to their computers, software and systems. 
Many systems have already been replaced over the past two years in the 
ordinary course of Company plans for upgrading its equipment, software and 
systems. The Company has initiated the removal and exchange of other 
non-compliant systems and expects to continue such replacement or other 
remedial programs to assure that its computers, software, and other systems 
will continue to operate in the Year 2000. The Company's cost to date to 
resolve its Year 2000 problems is not material; however, the total amount it 
will spend to remediate such issues remains uncertain. The Company believes 
such costs will not have a material effect on the Company's consolidated 
financial position or results of operations. There can be no assurance, 
however, that the Company's computer systems and applications of other 
companies on which the Company's operations rely, will be timely converted, 
or that any such failure to convert by another company will not have a 
material adverse effect on the Company systems. Moreover, a failure of (i) 
the Company's scientific, manufacturing and other equipment to operate at all 
or operate accurately, (ii) clinical trial site medical equipment to perform 
properly, (iii) necessary materials or supplies to be available to the 
Company when needed, or (iv) other equipment, software, or systems as a 
result of Year 2000 problems, could have a material adverse effect on the 
Company's business or financial condition.

     Except for historical information, the statements made herein and 
elsewhere are forward-looking. The Company wishes to caution readers that 
these statements are only predictions and that the Company's business is 
subject to significant risks. The factors discussed herein and other 
important factors, in some cases have affected, and in the future could 
affect, the Company's actual results and could cause the Company's actual 
consolidated results for 1999, and beyond, to differ materially from those 
expressed in any forward-looking statements made by, or on behalf of, the 
Company. These risks include, but are not limited to, the inability to 


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<PAGE>


obtain adequate financing for the Company's development efforts; the 
inability to enter into collaborative relationships to further develop and 
commercialize the Company's products; changes in any such relationships, or 
the inability of any collaborative partner to adequately commercialize any of 
the Company's products; the uncertainties associated with the lengthy 
regulatory approval process; the uncertainties associated with obtaining and 
enforcing patents important to the Company's business; possible competition 
from other products; and Year 2000 issues. Furthermore, even if the Company's 
products appear promising at an early stage of development, they may not 
reach the market for a number of important reasons. Such reasons include, but 
are not limited to, the possibilities that the potential products will be 
found ineffective during clinical trials; failure to receive necessary 
regulatory approvals; difficulties in manufacturing on a large scale; failure 
to obtain market acceptance; and the inability to commercialize because of 
proprietary rights of third parties. The research, development, and market 
introduction of new products will require the application of considerable 
technical and financial resources, while revenues generated from such 
products, assuming they are developed successfully, may not be realized for 
several years. Other material and unpredictable factors which could affect 
operating results include, without limitation, the uncertainty of the timing 
of product approvals and introductions and of sales growth; the ability to 
obtain necessary raw materials at cost-effective prices or at all; the effect 
of possible technology and/or other business acquisitions or transactions; 
and the increasing emphasis on controlling healthcare costs and potential 
legislation or regulation of healthcare pricing.

RESULTS OF OPERATIONS

     NINE MONTHS ENDED MARCH 31, 1999 AS COMPARED WITH NINE MONTHS ENDED 
MARCH 31, 1998

     The Company's license and research revenue decreased by approximately $9 
million to $7.2 million for the nine months ended March 31, 1999, compared to 
$16.1 million for the nine months ended March 31, 1998. The decrease is 
primarily a result of the decreased research revenue from Ortho under the 
Ortho License Agreement. The Company expects research revenue to 
significantly decrease in 1999 compared to 1998, due to the restructuring of 
the Ortho License Agreement and reduced research reimbursement from the 
Schering License Agreement.

     Research and development expenses increased by 20% to $44.7 million for 
the nine months ended March 31, 1999, compared to $37.2 million for the nine 
months ended March 31, 1998. The increase in expenses was primarily due to a 
$4.6 million increase in payments to outside researchers for clinical trials 
and other product development work, a $1.3 million increase in staffing costs 
for employees primarily engaged in research and development activities, a 
$665,000 increase in rent and lease expense, a $709,000 increase in 
depreciation expense, as well as other increases related to the Company's 
research and development activities. The increase for the nine-month period 
is primarily attributable to increased expenses related to the IMAGENT Phase 
3 clinical trial and the preparation of the IMAGENT manufacturing facilities 
for regulatory approval.

     General and administrative expenses were $6.3 million for the nine 
months ended March 31, 1999, compared to $6 million for the nine months ended 
March 31, 1998. The increase in general and administrative expenses was 
primarily due to a $320,000 increase in professional fees.


                                       13


<PAGE>

     Investment income and other was $905,000 for the nine months ended March 
31, 1999, compared to $3.1 million for the nine months ended March 31, 1998. 
The decrease was primarily a result of lower average cash and short-term 
investment balances.

     THREE MONTHS ENDED MARCH 31, 1999 AS COMPARED WITH THREE MONTHS ENDED 
MARCH 31, 1998

     The Company's license and research revenue decreased by $3.3 million to 
$1 million for the three months ended March 31, 1999, compared to $4.3 
million for the three months ended March 31, 1998. The decrease is primarily 
a result of the decreased research revenue from Ortho under the Ortho License 
Agreement. The Company expects research revenue to significantly decrease in 
1999 compared to 1998, due to the restructuring of the Ortho License 
Agreement and reduced research reimbursement from the Schering License 
Agreement.

     Research and development expenses increased by 10% to $14.8 million for 
the three months ended March 31, 1999, compared to $13.4 million for the 
three months ended March 31, 1998. The increase in expenses was primarily due 
to a $1.4 million increase in payments to outside researchers for clinical 
trials and other product development work, as well as other increases related 
to the company's research and development activities.

     General and administrative expenses were $2.1 million for the three 
months ended March 31, 1999, compared to $2.3 million for the three months 
ended March 31, 1998.

     Investment income and other was $176,000 for the three months ended 
March 31, 1999, compared to $1.2 million for the three months ended March 31, 
1998. The decrease was primarily a result of lower average cash and 
short-term investment balances.

     Alliance expects to continue to incur substantial and increasing 
expenses associated with its research and development programs. Operating 
losses may fluctuate from quarter to quarter as a result of differences in 
the timing of revenues earned and expenses incurred and such fluctuations may 
be substantial. The Company's historical results are not necessarily 
indicative of future results.

PART II  OTHER INFORMATION:

ITEM 1.  LEGAL PROCEEDINGS

     In September 1998, HMRI delivered to the Company a demand for 
arbitration ("Demand") in connection with its termination of the HMRI License 
Agreement. On October 8, 1998, HMRI filed the Demand with the American 
Arbitration Association. The Demand seeks up to $16.8 million, plus interest 
and punitive damages. The Demand alleges that the Company breached its 
agreement with HMRI, did not act in good faith, and misrepresented that if 
the HMRI License Agreement was terminated by December 31, 1997, the Company 
would pay certain monies to HMRI. The Company does not believe the claim is 
meritorious, intends to vigorously contest such claim, and has filed a 
counterclaim for unspecified damages. The 


                                   14

<PAGE>


Company believes that the ultimate resolution will not have a material 
adverse effect on the Company's financial condition, results of operations or 
liquidity. However, no assurances can be given that the Company will prevail 
on the claim or that an adverse result will not have a material adverse 
effect on the Company.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     10 (a) Employment Letter Agreement dated February 26, 1999 and executed
            by Dr. Artemios B. Vassos;

        (b) Promissory Note in the amount of $180,000, dated March 3, 1999 and
            executed by Dr. Artemios B. Vassos in favor of the Company;

        (c) Promissory Note in the amount of $125,000, dated March 3, 1999 and
            executed by Dr. Artemios B. Vassos in favor of the Company;

        (d) Promissory Note in the amount of $125,000, dated March 3, 1999 and
            executed by Dr. Artemios B. Vassos in favor of the Company.

(b)  There was no report on Form 8-K


                                        15


<PAGE>

                          Alliance Pharmaceutical Corp.

                                    Form 10-Q

                                  EXHIBIT INDEX

The following exhibits are being filed herewith:

   Number                      Document
   ------                    ------------
    10(a)           Employment Letter Agreement dated February 26, 1999 and
                    executed by Dr. Artemios B. Vassos
    10(b)           Promissory Note in the amount of $180,000, dated March 3, 
                    1999 and executed by Dr. Artemios B. Vassos in favor of 
                    the Company
    10(c)           Promissory Note in the amount of $125,000, dated March 3, 
                    1999 and executed by Dr. Artemios B. Vassos in favor of 
                    the Company
    10(d)           Promissory Note in the amount of $125,000, dated March 3, 
                    1999 and executed by Dr. Artemios B. Vassos in favor of 
                    the Company

<PAGE>

SIGNATURES

     Pursuant to the requirements 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.

                                            ALLIANCE PHARMACEUTICAL CORP.
                                                    (Registrant)

                                                   /s/ Tim T. Hart 
                                                    ---------------
                                                    Tim T. Hart
                                               Chief Financial Officer
                                                    and Treasurer

Date:  May 13, 1999