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**UNITED STATES**





**SECURITIES AND EXCHANGE COMMISSION**


**Washington, DC 20549**





**FORM 10-KSB/A**





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|**For the Fiscal Year Ended December 31, 2003**   
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|**For the Transition Period From              to**




**Commission File No. 0-23553**





**IMCOR PHARMACEUTICAL CO.**


(Exact name of Registrant as specified in its Charter)





**NEVADA**


(State or other jurisdiction of incorporation or organization)





**62-1742885**


(I.R.S. Employer Identification No.)





**6175 LUSK BOULEVARD**


**SAN DIEGO, CA 92121**


(Address of principal executive offices) (Zip Code)





**(858) 410-5601**


(Registrants telephone number, including area code)





Securities registered pursuant to Section 12(b) of the Act: **None**





Securities registered pursuant to Section 12(g) of the Act: **common stock, par value $.001 per share**





Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No o





Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB/A or any amendment to this Form 10-KSB/A. o





The issuers revenues for its most recent fiscal year: $0





The approximate aggregate market value of voting and non-voting common stock held by non-affiliates computed as of March 30, 2004, based upon the last sale price of the common stock reported on the Nasdaq SmallCap Market was approximately $8,483,000 .  For purposes of this calculation only, the registrant has assumed that its directors and executive officers, and any person known to the issuer to hold 10% or more of the outstanding common stock, are affiliates.





The number of shares outstanding of each of the registrants classes of common stock, as of March 30, 2004 was 21,541,476.








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**Explanatory Note**




This Form 10-KSB/A amends Item 7 of the annual report of IMCOR Pharmaceutical Co. (formerly Photogen Technologies, Inc.) on Form 10-KSB/A for the year ended December 31, 2003 filed with the Securities and Exchange Commission on December 27, 2004. The purpose of this amendment is to amend Moss Adams LLPs Report of Independent Registered Public Accounting Firm by deleting it in its entirety and replacing it with the following report. The financial statements, which are part of Item 7, are also included herein, but no changes have been made to them.




**Report of Independent Registered Public Accounting Firm**





Board of Directors


IMCOR Pharmaceutical Co. (formerly Photogen Technologies, Inc.)





We have audited the accompanying consolidated balance sheet of IMCOR Pharmaceutical Co. (formerly Photogen Technologies, Inc.), a development stage company, as of December 31, 2003, and the related consolidated statements of operations, shareholders equity and cash flows for the period from November 3, 1996 (inception) to December 31, 2003 and for the year then ended. These financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements based on our audit.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IMCOR Pharmaceutical Co. (formerly Photogen Technologies, Inc.) at December 31, 2003, and the results of its operations and its cash flows for the period from November 3, 1996 (inception) to December 31, 2003 and for the year then ended, in conformity with accounting principles generally accepted in the United States.





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has reported accumulated losses since inception of $51,518,698, which raises substantial doubt about its ability to continue as a going concern.  Managements plans in regard to these matters are described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.





As further discussed in Note 1A, The Company restated its financial statements to reclassify certain preferred stock to mezzanine equity.





/s/ Moss Adams LLP


Moss Adams LLP


Los Angeles, California


March 31, 2004, except for Note 1A and 1B, which is as of June 30, 2004


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**Report of Independent Registered Public Accounting Firm**








Board of Directors


Photogen Technologies, Inc.


New Hope, Pennsylvania





We have audited the accompanying consolidated balance sheet of Photogen Technologies, Inc., a development stage company, as of December 31, 2002, and the related consolidated statements of operations, shareholders equity (deficit) and cash flows for the years ended December 31, 2001 and 2002. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Photogen Technologies, Inc. at December 31, 2002, and the results of its operations and its cash flows for the years ended December 31, 2001 and 2002, in conformity with accounting principles generally accepted in the United States of America.





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has reported accumulated losses $28,592,845 through December 31, 2002 and without additional financing, lacks sufficient working capital to fund operations for the entire year ending December 31, 2003, which raises substantial doubt about its ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.





As further discussed in Note 1A, the Company restated its financial statements to reclassify certain preferred stock to mezzanine equity.











/s/ BDO Seidman, LLP


Chicago, Illinois


March 7, 2003, except for Note 1A, which is as of June 30, 2004







F-2   IMCOR Pharmaceutical Co.(A Development Stage Company) Consolidated Balance Sheets December 31,

2002(restated)

2003(restated)AssetsCurrent AssetsCash and cash equivalents

$
6,090,904

$
1,657,594Deposits


98,721


108,721Prepaid expenses


693,313


492,718Total Current Assets

$
6,882,938

$
2,259,033Property, Plant and Equipment,less accumulated depreciation of $14,651 and $996,091, respectively


36,000


6,294,560Patent Costs,net of amortization of $142,359 and $183,854, respectively


357,641


316,146Deposits


14,383


338,383Investment in Alliance


1,255,000


Purchased Technology,net of amortization of $0 and $658,217, respectively





14,979,929Investment in and Advances to Affiliate


8,192,452


2,803,114Total Assets

$
16,738,414

$
26,991,165Liabilities and Shareholders' Equity/(Deficit)Current LiabilitiesAccounts payable

$
835,003

$
1,884,791Accrued expenses


34,132


3,281,792Accrued equipment lease


401,664


586,052Lines of Credit





12,064,716Notes Payable





1,250,000Total Current Liabilities


1,270,799


19,067,351Deferred contract revenue





2,000,000Accrued Equipment Lease


401,664


133,888Shares Subject to Rescission


650,000


Puttable Shares





1,969,668Mezzanine Equity: Preferred stock; par value $.01 per share; 5,000,000 shares authorized including: Series A Preferred Stock; 12,015 shares authorized, issued and outstanding, liquidation preference $1,000 per share (in aggregate $12,015,000)


12,015,000


12,015,000Shareholders' Equity/(Deficit)Preferred stock; par value $.01 per share; 5,000,000 shares authorized including:Series A Preferred Stock; 841 shares authorized, issued and outstanding, liquidation preference $1,000 per share (in aggregate $841,000)


8


8Common stock; par value $.001 per share; 150,000,000 shares authorized; 16,137,465 and 19,464,548 shares issued and outstanding, respectively


16,137


19,465Additional paid-in capital


31,130,000


38,184,323Common Stock to be issued





5,120,159Deficit accumulated during the development stage


(28,745,194
)

(51,518,697
)Total Shareholders' Equity/(Deficit)


2,400,951


(8,194,743
)Total Liabilities and Shareholders' Equity/(Deficit)

$
16,738,414

$
26,991,165 See accompanying notes to consolidated financial statements. F-3    IMCOR Pharmaceutical Co. Consolidated Statements of Operations Year EndedDec 31, 2001

Year EndedDec 31, 2002

Year EndedDec 31, 2003

CumulativeAmounts FromNov 3, 1996(Inception) toDec 31, 2003Operating ExpensesResearch and development

$
437,958

$
1,227,897

$
2,529,679

$
6,886,316Sales, general and administrative


3,220,584


4,030,083


14,241,767


30,889,289Restructuring charges





807,483


136,947


1,541,455Provision for future lease payments


1,264,208








1,264,208Total operating expenses


4,922,750


6,065,463


16,908,393


40,581,268Loss From Joint Venture


(1,952,758
)

(3,452,837
)

(5,389,338
)

(12,304,354
)Investment Income


110,741


1,563


7,394


1,216,335Interest Expense


(48,429
)

(418,466
)

(483,167
)

(950,062
)Loss from continuing operations


(6,813,196
)

(9,935,203
)

(22,773,504
)

(52,619,349
)Discontinued OperationsLoss from operations of discontinued therapeutic business


(2,909,820
)

(1,496,430
)




(10,679,101
)Gain from split-off of therapeutic business





11,779,752





11,779,752Income (loss) from discontinued operations


(2,909,820
)

10,283,322





1,100,651Net Income (Loss)


(9,723,016
)

348,119


(22,773,504
)
$
(51,518,698
)Dividends on Preferred Stock


(2,943,755
)

(1,997,723
)

(1,066,280
)Net Loss Applicable to Common Shareholders

$
(12,666,771
)
$
(1,649,604
)
$
(23,839,784
)Basic and Diluted Loss Per Common Share from Continuing Operations

$
(1.03
)
$
(1.17
)
$
(1.24
)Basic and Diluted Income (Loss) Per Common Share from Discontinued Operations

$
(0.30
)
$
1.01

$
Basic and Diluted Loss Per Common Share

$
(1.33
)
$
(0.16
)
$
(1.24
)Weighted Average Number of Common Shares OutstandingBasic and Diluted


9,507,693


10,187,619


19,265,599 See accompanying notes to consolidated financial statements. F-4    IMCOR Pharmaceutical Co. Consolidated Statement of Shareholders' Equity/(Deficit) Preferred StockSeries A

Series B

Common StockMembers'Capital

Common StockTo beIssued



AdditionalPaid-inCapital





Member's

Common Stock

Additional

Deficit AccumulatedShares

Amount

Shares

Amount

Shares

Amount

Capital

to be Issued

Paid-in Capital

Development Stage

TotalContribution of capital



$




$




$


$
7,268




$


$


$
7,268Net loss for the period ended December 31, 1996

















(1,779
)










(1,779
)Balance, at May 15, 1997



$




$




$


$
9,000




$


$
(3,511
)
$
5,489Issuance of common stock











1,578,208


1,578








1,801,872





1,803,450Effect of recapitalization and merger











7,421,792


7,422


(9,000
)




1,203,765


1,732


1,203,919Cost associated with recapitalization and merger























(371,111
)




(371,111
)Net loss for the period May 16, 1997 to December 31, 1997


























(554,702
)

(554,702
)Balance, at December 31, 1997











9,000,000


9,000








2,634,526


(556,481
)

2,087,045Issuance of common stock











218,755


219








6,999,781





7,000,000Costs associated with common stock issuance























(50,000
)




(50,000
)Options issued to consultants























45,446





45,446Net loss for the year ended December 31, 1998


























(1,973,913
)

(1,973,913
)Balance, at December 31, 1998











9,218,755


9,219








9,629,753


(2,530,394
)

7,108,578Exercise of stock options











1,125


1








50,062





50,063Issuance of warrants and options























3,664,749





3,664,749Issuance of common stock











125,967


126








6,082,528





6,082,654Issuance of preferred stock

12,015


120


















11,578,839





11,578,959Reclassification of Series A shares as mezzanine equity in accordance with EITF D-98

(12,015
)

(120
)

















(11,578,839
)




(11,578,959
)Net loss for the year ended December 31, 1999


























(6,052,841
)

(6,052,841
)Balance, at December 31, 1999 (restated)











9,345,847


9,346








19,427,092


(8,583,235
)

10,853,203Stock option compensation























125,020





125,020Issuance of warrants and options























1,366,050





1,366,050Issuance of preferred stock dividend

841


8


















(8
)




Issuance of preferred stock






337,056


3,370













5,272,970





5,276,340Beneficial accretion of Series A shares reclassified as mezzanine equity























(240,464
)




(240,464
)Net loss for the year ended December 31, 2000


























(10,787,062
)

(10,787,062
)Balance, at December 31, 2000 (restated)

841


8

337,056


3,370

9,345,847


9,346








25,950,660


(19,370,297
)

6,593,087Stock option compensation























64,729





64,729Issuance of common stock for cash











49,245


49








418,674





418,723Issuance of common stock in satisfaction Of anti-dilution provision











190,856


191








(191
)




Issuance of preferred stock dividend






20,224


202













(202
)




Beneficial accretion of Series A shares reclassified as mezzanine equity























(195,577
)




(195,577
)Net loss for the year ended December 31, 2001


























(9,723,016
)

(9,723,016
)Balance, at December 31, 2001 (restated)

841


8

357,280


3,572

9,585,948


9,586








26,238,093


(29,093,313
)

(2,842,054
)  F-5     Balance, at December 31, 2001 (restated)

841

$
8

357,280

$
3,572

9,585,948

$
9,586

$


$


$
26,238,093

$
(29,093,313
)
$
(2,842,054
)Stock option compensation























73,870





73,870Issuance of warrants for service























322,000





322,000Issuance of options in settlement of lawsuit























806,415





806,415Employee compensation from stock options























988,184





988,184Issuance of preferred stock dividends






40,194


402













(402
)




Conversion of Series B to common stock






(397,474
)

(3,974
)
422,316


422








3,552





Beneficial inducement costs for convertible debt converted























206,348





206,348Conversion of line of credit with Élan to common stock











128,437


128








3,082,359





3,082,487Conversion of line of credit with entity controlled by director of company to common stock











2,314,815


2,315








2,497,685





2,500,000Retirement of common stock returned in shareholder transaction (Note 6(f))











(5,137,109
)

(5,137
)







(12,221,182
)




(12,226,319
)Issuance of common stock for cash











8,823,058


8,823








9,133,078





9,141,901Net loss for the year ended December 31, 2002


























348,119


348,119Balance, at December 31, 2002 (restated)

841

$
8



$


16,137,465

$
16,137

$


$


$
31,130,000

$
(28,745,194
)
$
2,400,951Issuance of common stock for cash











27,778


28








29,972





30,000Issuance of common stock for standstill agreement











750,000


750








1,173,000





1,173,750Conversion of Series B to common stock











100

















Options issued to consultants for services























9,200





9,200Shares issued to consultant for services











68,750


69








132,193





132,262Employee compensation from stock options























1,236,566





1,236,566Shares issued in Technology Purchase











2,198,137


2,198








5,581,070





5,583,268Shares to be issued in Technology Purchase




















5,043,226








5,043,226Shares previously subject to rescission











124,627


125








649,875





650,000Shares issued to Xmark for penalties











98,826


99








163,577





163,676Shares issued to Xmark for interest











21,649


22








48,575





48,597Shares to be issued to Xmark and other former Alliance creditors for interest and penalties




















76,933








76,933Options exercised through cashless exercise











37,216


37








(37
)




Xmark puttable shares classified as mezzanine equity























(1,969,668
)




(1,969,668
)Net loss for the year ended December 31, 2003


























(22,773,504
)

(22,773,504
)Balance, at December 31, 2003 (restated)

841

$
8



$


19,464,548

$
19,465

$


$
5,120,159

$
38,184,323

$
(51,518,698
)
$
(8,194,743
)
 See accompanying notes to consolidated financial statements. F-6    IMCOR Pharmaceutical Co. Consolidated Statements of Cash Flows Year EndedDec 31, 2001

Year EndedDec 31, 2002

Year EndedDec 31, 2003(restated)

CumulativeAmounts FromNov 3, 1996(Inception)to Dec 31, 2003(restated)Cash Flows From Operating ActivitiesNet income (loss)

$
(9,723,016
)
$
348,119

$
(22,773,504
)
$
(51,518,698
)Loss from discontinued operations


2,909,820


1,496,430





10,679,101Depreciation and amortization


442,191


371,319


1,023,080


2,700,984Loss (gain) on disposal of equipment and leasehold improvements


(4,617
)







38,424Gain on sale of marketable securities











(18,503
)United States Treasury Notes amortization


(1,029
)







12,586Gain on sale of therapeutic business





(11,779,752
)




(11,779,752
)Allowance for notes receivable








658,217


658,217Stock option compensation


64,729


1,062,054


1,245,768


2,924,338Accrued interest on line of credit








318,035


318,035Note payable for services rendered








329,681


329,681Beneficial inducement costs for convertible notes





206,348





206,348Issuance of warrants in exchange for services rendered


760,363


322,000





4,317,091Issuance of stock options in settlement of lawsuit





806,415





806,415Issuance of stock for standstill agreement








1,337,426


1,337,426Issuance of stock for services rendered








132,262


132,262Issuance of stock for interest payments and penalties








125,530


125,530Loss from investment in affiliate


1,952,758


3,452,837


5,389,338


12,304,354Changes in operating assets and liabilitiesPrepaid expenses


152,340


(663,538
)

200,595


(492,718
)Interest receivable


93,219








Receipt of deferred contract revenue








2,000,000


2,000,000Accounts payable


(267,945
)

531,229


1,049,787


1,954,790Accrued expenses


(11,278
)

(298,465
)

(174,375
)

95,334Accrued equipment lease


1,123,740


10,237


(83,388
)

1,050,589Net cash used in continuing operating activities


(2,508,725
)

(4,134,767
)

(9,221,549
)

(21,818,167
)Net cash used in discontinued operations


(2,909,820
)

(1,496,430
)




(10,679,101
)Cash Flows From Investing ActivitiesSale of marketable securities

$


$


$


$
2,164,464Purchases of marketable securities











(2,182,967
)Purchases of United States Treasury Notes


(4,870,000
)







(38,656,973
)Sales of United States Treasury Notes


9,815,000








39,778,548Purchase of equipment and leasehold Improvements


(45,938
)







(636,877
)Proceeds from sale of equipment


145,551








145,551Costs to acquire patent











(237,335
)Investment in and advances to affiliate


(2,245,948
)

(650,609
)




(15,107,468
)Increase in note receivable





(1,255,000
)




(1,255,000
)Decrease (increase) in deposit


(14,383
)

100,000


(334,000
)

(777,753
)Purchase ofImagentbusiness








(5,074,761
)

(5,074,761
)Net cash provided by (used in) investing activities


2,784,282


(1,805,609
)

(5,408,761
)

(21,840,571Net cash used in investing activities of discontinued operations











(1,306,676
)Cash Flows From Financing ActivitiesPrincipal payments on capital leases

$
(18,356
)
$


$


$
(291,704
)Net proceeds from issuance of equity and mezzanine equity


1,068,723


9,141,901


30,000


40,539,340Proceeds from capital contributions by shareholders











1,911,674Principal payment on acquisition of debt








(1,250,000
)

(1,250,000
)Proceeds from issuance of debt


2,314,005


3,032,905


11,417,000


16,763,910Cost of recapitalization











(371,111
)Net cash provided by financing activities


3,364,372


12,174,806


10,197,000


57,302,109Net Increase (Decrease) in Cash and Cash Equivalents


730,109


4,738,000


(4,433,310
)

1,657,594Cash and Cash Equivalents, at beginning of year


622,795


1,352,904


6,090,904


Cash and Cash Equivalents, at end of year

$
1,352,904

$
6,090,904

$
1,657,594

$
1,657,594 See accompanying notes to consolidated financial statements. F-7    Noncash Investing and Financing Activities 2003 In 2003, the Company assumed $3,422,036 in accrued expenses and $2,500,000 of notes payable from Alliance Pharmaceutical Corp. issued stock valued at $5,583,268 to certain former creditors of Alliance and agreed to issue stock valued at $5,043,225 to such creditors as part of the acquisition of theImagentbusiness. 2002 The split-off of the therapeutic business in 2002 included equipment and leasehold improvements of $516,567 and accounts payable of $70,000 in exchange for the Company's common stock valued at $12,226,319. In 2002, debt of $5,346,910 and accrued interest of $235,577 were converted to common stock. Payments due on the accrued equipment lease were made through a reduction in deposits due to the Company in the amount of $330,649. F-8    IMCOR Pharmaceutical Co. Notes to Consolidated Financial Statements 1.    Organization, Significant Accounting Policies and Restatement of Financial Statements Nature of Operations IMCOR Pharmaceutical Co. ((formerly Photogen Technologies, Inc.), the "Company") is an emerging, development-stage specialty pharmaceutical company focused on developing and marketing medical imaging pharmaceutical products. The company has one FDA approved product,Imagent®(perflexane lipid microspheres), an ultrasound imaging contrast agent that it acquired in June 2003, and two additional contrast agents in development for use in computed tomography (CT) and x-ray imaging with potential applications (1) as a blood pool agent, to diagnose diseased tissue in the cardiovascular system and other organs, which is called PH-50, and (2) to diagnose cancer metastasizing into the lymphatic system, which is called N1177. The product designations PH-50 and N1177 refer to the same chemical entity. The two names distinguish commercialization rights between cardiovascular
imaging (and all other indications) (PH-50) to which we retain rights, and the field of lymphography (N1177), which is licensed to our joint venture (Sentigen, Ltd.) with affiliates of Elan. On February 5, 2004, we changed our name to IMCOR Pharmaceutical Co., reflecting the changed nature of our business to imaging pharmaceuticals. In December 2001, we announced positive preclinical results of PH-50. Based on these studies, the extensive preclinical toxicology and other study work, including the product's use in approximately 65 patients for lymphography, we shifted the strategic research direction of IMCOR to focus on the cardiovascular and lymphography applications. We accomplished this shift in focus also by splitting off our therapeutic line of business, and, in June 2003 acquiring the medical imaging business (the "Imagentbusiness") of Alliance Pharmaceutical Corp. ("Alliance") led byImagent® (perflexane lipid microspheres), an FDA approved diagnostic imaging agent. Please see Note 3 "Purchased Technology" below. For the two years up to the time of our acquisition of theImagentbusiness, substantially all of our research and development efforts were focused on the preclinical testing of PH-50. During that period, we operated with a very small staff and conducted substantially all of our research activities through contracts with academic institutions and contract research laboratories. In addition, we had conducted research and development activities on the development of certain therapeutic photodynamic therapy applications (namely a product we called PH-10 for the treatment of certain dermatological conditions) and the development of a medical laser. These operations were split off to our founding scientists as of November 12, 2002 and have been recorded as discontinued operations in our financial statements. PH-50 and N1177 are still in early stages of development. Of these products, based on the availability of capital, we intend to focus our research efforts first on the continued development of PH-50 and secondly, N1177. Pharmaceutical imaging agents are used with echocardiography, computed tomography ("CT"), nuclear medicine and magnetic resonance imaging ("MRI") equipment in order to increase the diagnostic capabilities of these techniques. By enhancing the contrast between different types of tissues, these intravenously administered contrast agents provide critical anatomical and disease state information that is not obtainable using the equipment alone. There are numerous potential applications for a contrast agent used in imaging parts or all of the cardiovascular system as well as other organs. Our products have the potential to enhance a physician's ability to diagnose certain cardiovascular abnormalities and the spread of cancer in the lymphatic system. F-9      IMCOR Pharmaceutical Co. Notes to Consolidated Financial Statements (Continued)  1.    Organization, Significant Accounting Policies and Restatement of Financial Statements (Continued) IMCOR is based in San Diego, California. We have approximately 30 full time employees and a 53,000 square foot building, a portion of which is an FDA approved cGMP (current Good Manufacturing Practices) manufacturing facility, at our San Diego location. Our personnel have expertise in sales, marketing and manufacturing, clinical development, clinical trial design and regulatory approval processes. We also work closely with consultants experienced in drug development and regulatory requirements. Restatement of Financial Statements and Other Information  A.    Restatement of Financial Statements  In 1999, the Company entered into a joint venture with units of Elan. As part of that transaction, the Company issued to Elan International Services 12,015 shares of its Series A Preferred Stock, with an initial value and liquidation preference of $1,000 per such share, or $12,015,000. In a concurrent transaction, Elan and the Company formed a joint venture Sentigen, with Elan and the Company holding 19.9% and 80.1% of the shares of common stock of Sentigen, respectively. The holders of Series A Preferred Stock were entitled to an in-kind 7% dividend payable semi-annually solely in additional shares of Series A Preferred Stock.  In addition, if the Companys Board of Directors declared a dividend or distribution on the common stock, holders of Series A Preferred Stock would have been entitled to receive the amount of dividend or distribution in the same form as received by the common stockholders as if the Series A Preferred Stock had been converted to common stock.  No dividends have been declared or paid on the common stock and the Board of Directors had stated its intention not to do so throughout the period during which the Series A Preferred Stock was outstanding.  In addition, the holder of the Series A Preferred Stock had the right, exercisable three years after the date of issuance, to exchange it for the number of additional shares of Sentigen Ltd. that would result in the
holder of the Series A Preferred Stock owning 50% of Sentigen Ltd.  If the holder of the Series A Preferred Stock exercised this exchange right it would have been obligated to pay the Company 30.1% of the total amount of Sentigen Ltd.s development funding through the date of the exchange (which could be have been satisfied through reduction of amounts owed by the Company under a convertible promissory note, by payment of cash, or a combination of the two). These shares of Series A Preferred Stock, plus accreted dividends, were convertible into shares of the Companys common stock at any time after October 20, 2001 for a conversion price of $84.68 per share of Series A Preferred, which such value at December 31, 2003 having accumulated to $16,036,810 (or 16,036.81 shares of Series A Preferred stock). As indicated, Elan had the right to exchange only its original 12,015 shares of the Companys Series A Preferred Stock for additional shares of Sentigens common stock of such an amount to increase Elans holdings from the aforementioned 19.9% interest in Sentigen to 50%. Any dividends otherwise accreted as attributable to shares of the Series A Preferred Stock and available for potential conversion into the Companys common stock, however, were not available in the event that in the alternative Elan had elected to exchange the shares of Series A Preferred Stock in order to increase its Sentigen holdings to 50%. The Company initially accounted for the issuance of the 12,015 shares of Series A Preferred Stock as permanent equity in the Companys Consolidated Balance Sheets and Consolidated Statements of Shareholders Equity/(Deficit) in the year ended December 31, 1999 and all year ends thereafter. Upon the issuance of EITF D-98 in July 2001, the Company evaluated the above-described transaction and made a determination that the elements were not present to warrant a reclassification of any of the value attributed to the shares of Series A Preferred Stock from permanent equity to mezzanine equity. On June 30, 2004, the Company reevaluated its position with respect to EITF D-98 and determined that the value attributable to the 12,015 shares held by Elan of the Companys Series A Preferred Stock, or $12,015,000 should be reclassified as mezzanine equity. The Company further determined that, inasmuch as the otherwise accreted dividends could only be considered as (a) preferential over common shareholders in the event of a liquidation of the Companys assets, or (b) additional value to be realized in the event that the underlying shares of Series A Preferred Stock were converted into common stock of the Company, that such value should not be reclassified as mezzanine equity, but should remain in permanent equity as such. Therefore, and in accordance with the provision of EITF D-98, the Company has restated its Consolidated Balance Sheets for the years ended December 31, 2002 and December 31, 2003, together with the Consolidated Statements of Shareholders Equity/(Deficit) for all years ended December 31, 1999 to and through December 31, 2003, to which these Notes to Consolidated Financial Statements relate, by reclassifying $12,015,000 from permanent equity to mezzanine equity. There is no effect on the Companys Consolidated Statements of Operations as a result of this reclassification. The effect of the reclassification is as follows: (a) the mezzanine equity was increased by $12,015,000 (from $0 to $12,015,000) for each of the fiscal years ended December 31, 2002 and 2003; (b) the par value of the Series A Preferred Stock was reduced by $120 (from $128 to $8) for each of the fiscal years ended December 31, 2002 and 2003; and (c) the additional paid-in capital was reduced by $12,014,880 for each of the fiscal years ended December 31, 2002 and 2003 (from $43,144,880 to $31,130,000 for the fiscal year ended December 31, 2002 and from $50,199,203 to $38,184,323 for the fiscal year ended December 31, 2003). Because the Company did not have any accumulated profits for any of the subject periods, the Company did not record any accreted dividends, which accumulated to $4,021,810 as of December 31, 2003, through the apportionment of accumulated losses within the Consolidated Statements of Shareholders Equity/(Deficit) for all years ended December 31, 1999 to and through December 31, 2003. B.    Kyosei Agreement. In April 2004, the Company received a payment of $2,000,000, less Japanese withholding taxes, from a Japanese pharmaceutical company (see Liquidity and Basis of Presentation  Going Concern which follows). Liquidity and Basis of PresentationGoing Concern The accompanying financial statements are prepared assuming the Company is a going concern. The Company has reported accumulated losses since inception of $51,518,697. The Company believes it lacks sufficient working capital to fund operations for the entire fiscal year ending December 31, 2004. Substantial additional capital resources will be required to fund its ongoing operations. Management believes there are a number of potential alternatives available to meet the continuing capital requirements such as public or private financings or collaborative agreements. The Company is taking continuing actions to reduce its ongoing expenses. If adequate funds are not available, the Company will be required to significantly curtail its operating plans and my have to sell or license out significant portions of the Company's technology or potential products. At December 31, 2003, we had a net deficit position (our liabilities, puttable share obligations and mezzanine equity, combined, exceeded our assets). Among other factors, we have reclassified $12,015,000 of our Series A Preferred Stock as mezzanine equity to acknowledge the holder's right to exchange that security for that number of additional shares of Sentigen to increase its ownership of Sentigen to 50%. As discussed below, we believe that the probability of the holder exercising the exchange right is remote. Under the Certificate of Designations of the Series A Preferred Stock the holder has a Series A Liquidation Preference entitling it as of December 31, 2003 to the first $16,036,810 of funds available for distribution to stockholders upon liquidation of the Company and has the right to convert shares of Series A Preferred Stock into common stock at any time after October 20, 2001 at a conversion price of $84.68 per share. The conversion price is subject to adjustment for certain dilutive events. Alternatively, the holder of Series A Preferred Stock may exchange the initial 12,015 shares of Series A Preferred Stock for common shares of Sentigen so that the holder of Series A Preferred Stock owns 50% of the equity of Sentigen. Shares attributable to dividends are not exchangeable and thus not reclassified as mezzanine equity. The exchange right terminates six years after issuance, or October 19,
2005. As the initial value of the Series A Preferred Stock is exchangeable at the holder's option into additional shares of Sentigen, we have reclassified $12,015,000 as mezzanine equity until such time that the exchange right terminates either by the passage of time or the agreement of the holder to terminate or irrevocably to not exercise the right. We believe that as the development program for N1177 will require several years to complete and as no research had been conducted on N1177 during 2003 due to our capital constraints that the probability of the holder exercising his exchange right prior to the expiration of that right is remote. On December 16, 2003, we entered into a License Agreement (the "Kyosei Agreement") with Kyosei Pharmaceutical Co. Ltd. ("Kyosei"), a subsidiary of the Sakai Group. The Kyosei Agreement gives Kyosei an exclusive license to develop and marketImagentfor all indications in Japan. The terms of the Kyosei Agreement provide for the payment to the company of up to $10 million in fees and development milestone payments plus royalties on commercial sales. Kyosei will also pay the company F-10     to manufactureImagentfor Kyosei's clinical and commercial requirements and we will receive royalties based on commercial sales. In each of December 2003 and April 2004, we received a payment of $2,000,000, less withholding taxes. Additional payments are expected in 2005 and beyond. Future payments from Kyosei are based on certain milestones of clinical development, including the commencement of and completion of clinical studies and approval for sale by Japanese regulatory authorities. Commencement of clinical studies is not expected to be earlier than 2005, and the development program, including regulatory approval, is expected to take four or more years. Accordingly, commercial sales, upon which we will earn royalties, are not expected to commence earlier than 2008. While we believe thatImagentclinical studies will be successful, there can be no assurance that such studies
conducted in Japan will be successful or that the product will be approved for sale by Japanese authorities. Please see Revenue Recognition and Deferred Revenue, below. During the next twelve months we will focus our efforts primarily on exploring various options concerning our business, including securing additional financing, joint ventures, licensing or selling all or a portion of our technology and other possible strategic transactions. Our ability to commercializeImagentand develop PH-50 and N1177 depends on the successful implementation of one or more of these transactions. Depending on the availability of capital and whether or not we pursue a sale or licensing strategy forImagent, we will focus our operating efforts on the sales and marketing ofImagent. If additional capital becomes available, we also expect to conduct preclinical and human clinical studies of our products in development. Subject to the availability of sufficient capital, we expect to continue to incur losses for at least the next three years as we intensify research and development, preclinical and clinical testing and associated regulatory approval activities and engage in or provide for the manufacture and/or sale of any products that we have or may develop. Greater capital resources would also enable us to quicken and expand our marketing and research and development activities, and our failure to raise additional capital will (absent a suitable collaborative agreement providing for a third party to take over these functions) significantly impair or curtail our ability to conduct further activities. In any event, complete development and commercialization of our technology will require substantial additional funds. We are seeking to raise capital through the sale of our common stock or other securities in a private placement to fund our immediate and longer-term capital needs. The financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of this uncertainty. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from the estimates and assumptions that the Company uses in the preparation of its financial statements. F-11     Cash Equivalents Highly liquid investments with a maturity of three months or less when purchased are classified as cash equivalents. Property, Plant and Equipment Property, plant and equipment and leasehold improvements are stated at cost. Depreciation and amortization of equipment are provided for using the straight-line method over the estimated useful lives of the assets. Computers and laboratory equipment are being depreciated over three years, and furniture and fixtures are being depreciated over seven years. Leasehold improvements are being amortized on a straight-line basis over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Long-Lived Assets The Company reviews the carrying values of its long-lived assets for possible impairment whenever an event or change in circumstances indicates that the carrying amount of the assets may not be recoverable. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less cost to sell. Patent Costs Internal patent costs are expensed in the period incurred. Patents purchased are capitalized and amortized over the remaining life of the patent. Patent amortization expense was $41,666 for each of 2001 2002, and 2003. Amortization of patent costs is expected to be $41,666 annually over the remaining life of the patent, approximately 7.5 years at December 31, 2003. Purchased Technology On June 18, 2003, we closed on the acquisition of assets, including Purchased Technology, related to the diagnostic imaging business, includingImagent, an FDA-approved product, of Alliance.Imagentis an intravenous contrast agent for use with ultrasound imaging equipment to improve visualization of blood vessels for better diagnosis of disease and assessment of organ function.Imagentconsists of perfluorochemical-based "microbubbles" that are highly echogenic (reflect ultrasound signals strongly) in the bloodstream, thereby significantly enhancing ultrasound images. We also entered into a number of agreements related to that acquisition. Included in the purchase were an FDA-approved manufacturing facility, the marketing, manufacturing and supporting infrastructure for the product and an
intellectual property portfolio of approximately thirty patents in the area of ultrasound imaging. Intangible assets resulting from the acquisition of theImagentbusiness are estimated by management based on the fair value of the assets received. These intangible assets consist entirely of purchased technology. Purchased Technology related to theImagentbusiness is amortized on a straight-line basis over the estimated remaining life equal to twelve years. Purchased Technology is stated at cost, less accumulated amortization. Research and Development Research and development costs are charged to expense when incurred. F-12     Revenue Recognition and Deferred Revenue The company recognizes revenue from license agreements ratably over the period of the agreement. Unamortized revenue is recorded as deferred revenue. Revenue from the Kyosei Agreement is being recognized over ten years. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax basis and financial reporting basis of certain assets and liabilities based upon currently enacted tax rates expected to be in effect when such amounts are realized or settled. Basic and Diluted Loss Per Common Share Basic and diluted loss per common share is computed based on the weighted average number of common shares outstanding. Loss per share excludes the impact of outstanding options, warrants and convertible preferred stock as they are antidilutive. Potential common shares excluded from the calculation at December 31, 2001 are 6,519,000 options, 1,149,724 warrants, 1,124,268 shares issuable upon the conversion of Series A and B Preferred Stock and 130,162 shares issuable upon conversion of long-term debt. Potential common shares excluded from the calculation at December 31, 2002 are 4,535,481 options, 237,431 warrants and 151,819 shares issuable upon the conversion of Series A Preferred Stock. Potential common shares excluded from the calculation at December 31, 2003 are 7,210,280 options, 377,431 warrants and 193,378 shares issuable upon the conversion of Series A Preferred Stock. Basic and diluted loss per
common share in 2003 includes 1,985,522 shares to be issued upon shareholder approval (see Note 3). Financial Instruments The carrying amounts reported in the consolidated balance sheets for cash, accounts payable and accrued expenses approximate fair value because of the short-term nature of these amounts. The Company's note payable and lines of credit approximate fair value based on instruments with similar terms. Stock Options In December 2002, SFAS No. 148,Accounting for Stock-Based CompensationTransition and Disclosurean amendment to FASB Statement No. 123was issued. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation from the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees (APB No. 25).In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123,Accounting for Stock Based Compensation.The company adopted the disclosure requirements of SFAS No. 123 effective December 31, 2002. As allowed by SFAS 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting proscribed in APB No. 25 and, accordingly, does not recognize compensation expense for stock option grants made to employees at an exercise price equal to or in excess of the fair value of the stock a the date of grant. F-13     If the Company had elected to recognize compensation expense based on the fair value at the grant dates, consistent with the method prescribed by SFAS No. 123, net loss per basic and diluted share would have been changed to the pro forma amount indicated below: 2001

2002

2003Net loss, as reported

$
(12,666,771
)
$
(1,649,604
)
$
(22,773,504
)Add stock based employee compensation expense included in reported net loss





988,184


1,245,768Less total stock-based employee compensation expense determined under the fair value based method for all awards


(11,314,458
)

(6,084,842
)

(5,771,226
)Pro forma net loss

$
(23,981,229
)
$
(6,746,262
)
$
(27,298,962
)Basic and diluted loss per common share, as reported

$
(1.33
)
$
(0.16
)
$
(1.24
)Basis and diluted loss per common share, pro forma

$
(2.52
)
$
(0.66
)
$
(1.42
)
 The Company expenses the fair value of stock options granted to nonemployees. During 2002 and 2003, the Company issued stock options to employees with an exercise price less than the market price on the date of grant. Accordingly, compensation expense of $1,245,768 has been recorded in 2003 and $988,184 was recorded in 2002. The pro forma information regarding net loss is required by SFAS No. 123, and has been determined as if the Company has accounted for its stock-based compensation under the fair value method prescribed in SFAS No. 123. The fair value of the options was estimated at the date of grant using the Black-Scholes pricing model with the following assumptions: 2001

2002

2003Weighted average fair value per options granted

$
3.64

$
1.31

$
1.82Significant assumptions (weighted average)Risk-free interest rate at grant date


4.8
%

2.8
%

2.56
%Expected stock price volatility


95.5
%

98.0
%

98
%Expected option life (years)


5


5


5
 Recent Accounting Pronouncements In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective as of July 1, 2003. The adoption of SFAS No. 150 did not have a material impact on the results of operations or the financial position of the Company. In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have an impact on the results of operations or the financial position of the Company. F-14     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure", effective for fiscal years ending after December 15, 2002. This rule amends SFAS No. 123 to provide several alternatives for adopting the stock option expense provisions of SFAS No. 123, as well as additional required interim financial statement disclosures. SFAS No. 148 does not require companies to expense stock options in current earnings. The Company has not adopted the provisions of SFAS No. 123 for expensing stock based compensation (see "Employee stock option and stock purchase plans"); however, the Company has adopted the additional interim disclosure provisions of the statement. The impact of the adoption of SFAS No. 148 did not have a material impact on the results of operations or the financial position of the Company. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 eliminates Emerging Issues Task Force, or EITF, Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146, liabilities for costs associated with an exit or disposal activity are recognized when the liabilities are incurred, as opposed to being recognized at the date of entity's commitment to an exit plan under EITF No. 94-3. Examples of costs covered by the standard include lease termination cost and certain employee severance costs that are associated with a restructuring; discontinued operation, plant closing or other exit or disposal activity. Furthermore, SFAS
No. 146 establishes that fair value is the objective for initial measurement of the liabilities. This Statement is effective for exit or disposal activities that are initiated after December 31, 2002. During 2003 the Company recognized $136,947 of restructuring costs for lease termination and restructuring associated with the closure of its Pennsylvania facility and move to the Alliance facility in San Diego, CA. In January 2003, the FASB issued FASB Interpretation No. ("FIN") 46, "Consolidation of Variable Interest Entities," which was originally effective on July 1, 2003. In December 2003, the FASB deferred the effective date for applying the provisions of FIN 46 to March 31, 2004 for interests held by public companies in variable interest entities or potential variable interest entities created before February 1, 2003. The Company has completed its evaluation of the provisions of FIN 46 and does not have any significant interests in variable interest entities. Accordingly, the adoption of FIN 46 did not have a material impact on the results of operations or the financial position of the Company. In November 2002, the FASB issued Interpretation No. (FIN) 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45 requires a guarantor to include disclosure of certain obligations, and if applicable, at the inception of the guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The recognition requirement is effective for guarantees issued or modified after December 31, 2002 and did not have a material impact on the Company. 2.    Recapitalization and Merger On May 16, 1997, MT Financial Group, Inc. (an inactive public company), through its wholly owned subsidiary, effected a reverse merger with Photogen, Inc. ("Photogen"), successor to Photogen, L.L.C. Photogen, L.L.C. was formed on September 10, 1996 and commenced operations November 3, 1996. Photogen, L.L.C. was formed to develop proprietary laser-based technologies related to photodynamic therapy. Legally, Photogen was a wholly owned subsidiary of Photogen Technologies, Inc. F-15     (formerly known as MT Financial Group, Inc.), which is, as of February 5, 2004, now known as IMCOR Pharmaceutical Co. For financial reporting purposes, Photogen was deemed to be the acquiring entity. The transaction has been reflected in the accompanying financial statements as (1) a recapitalization of Photogen (consisting of a 48,000-for-one stock split and change in par value) and (2) an issuance of shares by Photogen in exchange for all of the outstanding shares of MT Financial Group, Inc. As part of the recapitalization, the Company sold 1,578,208 shares of common stock for a total purchase price of approximately $1,803,450. Legal and brokerage fees of approximately $371,000 were charged to additional paid-in capital as costs of the recapitalization and merger. Included in the paid-in capital is the net cash of approximately $109,000 from MT Financial Group, Inc. 3.    Purchased Technology On June 18, 2003, the Company acquired the medical imaging business includingImagent® (perflexane lipid microspheres), an FDA-approved product, of Alliance Pharmaceutical Corp. The Company's financial statements include the results of operations for the Purchased Technology from the closing date of the transaction, June 18, 2003, through the end of the reporting period Included in the purchase were an FDA-approved manufacturing facility, the marketing, manufacturing and supporting infrastructure for the product, and an intellectual property portfolio of approximately thirty patents in the area of ultrasound imaging.Imagenthas been approved for marketing by the FDA for use in patients with sub optimal echocardiograms to opacify the left ventricle and thereby improve visualization of the main pumping chamber of the heart, and to improve delineation of the endocardial borders of the heart. As a result, ultrasound withImagentmay better distinguish normal and abnormal heart structure and functiontwo critical indicators of cardiac health. Echocardiography is the most widely used imaging modality for the diagnosis of heart disease, the leading cause of death in the U.S. The attractiveness of the ultrasound
imaging market potential together with the acquisition of an approved product and an extensive intellectual property portfolio were fundamental reasons for the acquisition and primary determinants of the purchase price. F-16     The Purchased Technology acquisition costs and allocation to the assets acquired and liabilities assumed including adjustments in the third and fourth quarters 2003 is as follows: Summary of Purchase Transaction:Fair value of common stock issued

$
5,583,268Fair value of common stock to be issued


5,043,226Cash advances in prior year applied


1,255,000Net current year cash advances applied


2,763,052Cash paid at closing


669,117Direct current year payments to vendors on behalf of Alliance


388,387Assumption of debt to Xmark


2,500,000Assumption of certain Alliance liabilities


3,422,036Acquisition costs


1,254,205Purchase Price

$
22,878,291Fair Value of Assets Acquired and Liabilities Assumed:Property, plant & equipment

$
7,240,145Purchased technology


15,638,146Fair Value of Assets Acquired

$
22,878,291
 At the closing, the Company paid approximately $669,000 in cash and delivered 2,198,137 shares of its common stock. In addition to bridge financing the Company provided to Alliance before the closing, its purchase of a $1,250,000 interest in Alliance's obligations to two of its creditors, Xmark Fund, Ltd. and Xmark Fund, L.P. (collectively "Xmark"), and its assumption of specified Alliance operating liabilities related toImagent, the Company is obligated to pay, at various times between 90 and 365 days after the closing, (i) an aggregate of $2,500,000 to Xmark, (ii) subject to reaching satisfactory agreements with certain Alliance secured and unsecured creditors, an aggregate amount of up to $3,304,793 to creditors other than Xmark and (iii) subject to stockholder approval, deliver an aggregate of approximately 1,985,522 shares of its common stock. On
February 5, 2004, the shareholders approved the issuance of the additional shares of common stock. We are currently in default under obligations to pay $775,000 to creditors of Alliance Pharmaceutical Co. in connection with our acquisition ofImagentand we are in default under an equipment lease and the lessor has demanded approximately $787,000. We also have not registered the resale of shares we issued in connection with that acquisition, which in some cases is a condition to the effectiveness of agreements to release us from any claims by the Alliance creditor. The Company must also pay Alliance further consideration in the form of an earn out based onImagentrevenue, subject to certain reductions, after the closing and through June 2010. This earn out equals, for each year of the earn out: 7.5% ofImagentrevenue up to $20,000,000; 10% ofImagentrevenue between $20,000,000 and $30,000,000; 15% ofImagentrevenue between $30,000,000 and $40,000,000; and 20% ofImagentrevenue above $40,000,000. The earn out will be reduced by amounts the Company pays pursuant to a license agreement with Schering Aktiengesellschaft ("Schering"), net of payments received from Schering under the license, and amounts of any indemnification claims the Company has against
Alliance. The earn out is subject to three additional offsets (which are to be applied in the manner described in the Asset Purchase Agreement dated as of June 10, 2003 with Alliance) that entitle the Company to retain portions of the earn out otherwise payable to Alliance. F-17     Due to the absence of current or expected revenue from Imagent, management is not able to, and has not, included the present value of future estimated earn out payments in determination of the consideration paid in the acquisition. Future royalty obligations will be expensed in the period reasonably estimatable. Intangible assets resulting from the acquisition of theImagentbusiness are estimated by management based on the fair value of the assets received. These intangible assets consist entirely of purchased technology. Purchased Technology related to theImagentbusiness is amortized on a straight-line basis over the estimated remaining life equal to twelve years. Purchased Technology is stated at cost, less accumulated amortization. Following is summarized statements of revenues and direct expenses for the Purchased Technology for the year ended December 31, 2002 and the approximate six-month period ended June 18, 2003 (date of purchase): Year ended12/31/02

Six-Monthperiod ended6/18/03

Total forPeriodsExpenses:Research & development

$
12,775,041

$
4,501,299

$
17,276,341Sales, general and administrative


5,080,021


1,363,973


6,443,995Total Expenses

$
17,855,062

$
5,865,272

$
23,720,336
 Below is supplemental unaudited pro forma information that discloses the results of operations for the Purchased Technology for the current three and twelve month periods ending December 31, 2003, as well as the corresponding periods for the preceding year ending December 31, 2002. The pro forma information is as if the acquisition had been completed as of the beginning of the periods presented. The unaudited pro forma information give effect to actual operating results prior to the acquisition, F-18     adjusted to include the unaudited pro forma effect of amortization of intangibles and weighted shares outstanding: Pro Forma12 MonthsendedDec 31,2003

12 MonthsendedDec 31,2002Expenses:Research & development

$
7,030,978

$
14,002,984Sales, general and administrative


16,387,260


10,399,159Restructuring charge





807,483Total Expenses


23,418,238


25,209,626Loss from joint venture


(5,389,338
)

(3,452,837
)Investment income


7,394


1,563Interest expense


(483,167
)

(418,466
)Loss from continuing operations


(29,283,349
)

(29,079,366
)Discontinued operationsnet





10,283,322Net income (Loss)

$
(29,283,349
)
$
(18,796,044
)Dividends on Preferred Stock


(1,066,280
)

(1,997,723
)Net income (loss) applicable to common shareholder


(30,349,629
)

(20,793,767
)Pro forma net income (loss) per share

$
(1.58
)
$
(1.45
)Weighted average number of common shares outstandingbasic and diluted


19,265,599


14,371,265
 The statement of revenues and expenses ofImagentare based upon an audit of that business as filed on Form 8-K/A on October 27, 2003. As an integrated operation of Alliance, theImagentbusiness did not, in the normal course of operations, prepare separate financial statements in accordance with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") for presentation of less than full financial statements and for inclusion in our Current Report on Form 8-K. These financial statements are not intended to be a complete presentation of theImagentbusiness' financial position and operating results. The Statement of Assets Acquired and Liabilities Assumed include assets and liabilities that are purchased or assumed by the Company. The Statement of Revenues and Direct Expenses include direct charges for expenses and
indirect charges for other common expenses and corporate expenses. Common expenses include, but are not limited to, shared services, such as human resources, accounting, information technology, and legal services. Common and corporate expenses are charged to the business unit based on direct labor hours, which is deemed to be a practical and reasonable method. There was no direct interest expense incurred by or allocated to theImagentbusiness, therefore, no interest expense has been reflected in these financial statements. These financial statements are not necessarily indicative of the results of operations that would have occurred if theImagentbusiness had been an independent company. F-19     The pro forma data give effect to actual operating results prior to the acquisition, adjusted to include the pro forma effect of: Amortization of intangibles (totaling $15,136,282) of the Purchased Technology of $1,261,357 and $630,678 for the twelve- and six-month periods ended December 31, 2002 and June 30, 2003, respectively. The estimated life of the purchased technology is twelve years.The issuance of 4,183,659 shares of common stock related to the acquisition of the Purchased Technology incorporated into the calculation of weighted shares outstanding. This unaudited pro forma information is not necessarily indicative of the actual results that would have been achieved had the Purchased Technology been acquired the first day of the Company's twelve- or six-month periods, nor is it necessarily indicative of future results. 4.    Joint Venture/Investment in Affiliate On October 7, 1999, the Company formed a joint venture with Elan International Services, Ltd. ("Elan") to develop and commercialize nanoparticulate diagnostic imaging agents for the detection and treatment of cancer through lymphography. Our goal is to demonstrate that the use of N1177 will enable physicians to precisely locate tumorous nodes by first injecting the material in the vicinity of the tumor and then taking an image (picture) using a CT device. We plan to commence Phase 2 clinical studies for detection of cancer metastasis in lymph nodes in patients with cervical cancer, subject to the availability of sufficient capital. In this patient population, studies document an increase in survival when lymph nodes containing cancer are removed. Tumor identification by CT imaging will be correlated to the results of biopsy results from patients undergoing surgery to demonstrate effectiveness in locating nodes and identifying those with cancer in them. Sentigen Ltd. ("Sentigen") was formed to hold the operations, assets and liabilities of the joint venture. Elan purchased 2,980 shares of Sentigen nonvoting convertible preferred stock for $2,985,000 representing a 19.9% ownership interest. Elan also purchased 12,015 shares of the Company's Series A convertible exchangeable preferred stock for $12,015,000. In connection with the issuance of the preferred stock to Elan, the Company granted warrants to Elan to purchase 100,000 shares of the Company's common stock at $84.68 per share which was valued at $678,000. As a result, a preferred stock dividend of $436,041 was recorded for the accretion of the preferred stock to its face value of $12,015,000 over the period until it is first convertible. Beginning in 2000, in accordance with EITF 00-27, the Company recorded an additional preferred stock dividend to represent the beneficial conversion feature associated with the
intrinsic value of the Series A Preferred conversion option. As a result, an additional preferred stock dividend of $436,041 was recorded over the period until it is first convertible. As of December 31, 2001, the beneficial conversion feature was fully recorded. The Company purchased 12,000 shares of Sentigen's common stock for $12,015,000 representing an 80.1% ownership interest. Sentigen used the $15,000,000 received from the Company and Elan to purchase from Elan a worldwide license to certain patented Elan technology related to the joint venture. The acquisition of the license by Sentigen was for certain issued patents with multiple applications and not for the use of pending or in process research and development, and therefore capitalized. Expenses incurred by the F-20     Company and Elan, which relate to the development of the diagnostic imaging agents, are charged to Sentigen. As part of our annual audits, we, on behalf of Sentigen, prepared cash flow projections of the product, N1177 including assumptions of research and clinical development costs, market size, market share and resulting potential revenues and the costs (manufacturing, marketing and sales along with administrative costs) to generate the projected revenue stream. These cash flows, assuming that the research is successful, were then discounted to a present value. During the year, we incorporated these projections as part of the analysis of any impairment in the value of the joint venture. As part of our review of our financial statements at year end 2002, we evaluated the carrying value of the Sentigen license in light of the projection of cash flows and availability of capital to conduct the research in a timely manner. Accordingly, we advised Sentigen to reduce the carrying value of the Elan license by $2,500,000. Further, as part of our review of our financial statements for the quarter ended June 30, 2003, we again evaluated the carrying value of the Sentigen license in light of the projection of cash flows, the availability of capital to conduct the research in a timely manner, the knowledge that this area of research was no longer an area stated by Elan to be an area of focus for that company, and the priority of committing capital to the further development of N1177 in light of our other priorities, namely the continued development of PH-50 and the manufacturing and marketing of its recently acquired Imagent Business. Accordingly, we advised Sentigen to reduce the carrying value of the Elan license by $5,750,000 to a value of approximately $4,060,000, it being also determined, in the judgment of certain of our directors with experience in these matters, that a value of approximately $4,000,000 could be fair should Sentigen either sell or
license N1177 to a third party. Elan granted the Company a line of credit of $4,806,000 to be used by the Company to fund its portion of Sentigen's research and development. Principal and interest under the line of credit, if any, become due and payable in 2005 or, at the option of Elan, can be converted into the Company's common stock at $72.60 per share. Any borrowings under the line of credit would bear interest at 8%. At December 31, 2001, borrowings on this line of credit were $2,314,005 and accrued interest was $48,429. During 2002, the Company borrowed an additional $532,905 and incurred additional accrued interest of $187,148. On November 12, 2002, the total borrowings of $2,846,910 and accrued interest of $235,577 were converted to common stock at a conversion price of $24 per share and the line of credit was cancelled. A beneficial conversion amount of $206,348 was recorded as a result of the decrease in the original conversion price. In connection with the joint venture agreement, Elan also purchased 115,385 shares of the Company's common stock for $6,000,000. The total cash proceeds from the equity issuance to Elan of $18,015,000 were allocated to the common stock, preferred stock and the warrants. If in the Company's next third-party offering after the issuance of the Series A Preferred, it sells common stock at a price less than $52 per share, the Company must issue additional shares to Elan so that Elan's overall price for its common stock equals the effective price in that third-party offering. During 2001, the Company issued 190,857 shares of common stock to satisfy this requirement. Additionally, proceeds received under the line of credit amounting to $4,806,000 was allocated to common stock upon conversion. Elan has substantive participating rights in Sentigen, including the requirement for approval of the business plan and budgets and equal representation on the management committee which decides all day-to-day functions. As a result, the Company's investment in Sentigen is recorded under the equity method. F-21    Following is summarized unaudited financial information for Sentigen at December 31, 2002 and 2003 and for the years then ended: 2002

2003Cash

$
410

$
410License purchased from Elan, net of amortization and impairment of $4,701,693 and $11,429,357 respectively


10,298,907


3,570,643Total assets

$
10,299,317

$
3,571,053Due to affiliates

$
378,099

$
378,099Total shareholders' equity


9,921,218


3,192,954Total liabilities and equity

$
10,299,317

$
3,571,053Research and development expense

$
823,409

$
General and administrative expense


18,329


Amortization of license


978,264


978,264Impairment of license


2,500,000


5,750,000Net loss

$
(4,320,002
)
$
(6,728,264
)
 5.    Property, Plant and Equipment Property, plant and equipment consist of the following at December 31, 2002 and 2003: December 31,

2002

2003Leasehold improvements

$
33,131

$
5,527,738Furniture, fixtures and equipment


17,520


1,762,913Total


50,651


7,290,651Accumulated depreciation and amortization


(14,651
)

(996,091
)Property, plant and equipment, net

$
36,000

$
6,294,560
 Maintenance and repairs are charged to operations as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Depreciation and amortization expense on property, plant and equipment amounted to $400,525, $329,653, and $981,440 during 2001, 2002 and 2003, respectively and $2,517,130 for the period from inception to December 31, 2003. F-22     6.    Accruals Accrued expenses consist of the following: December 31,

2002

2003Alliance liabilities assumed from acquisition

$


$
2,530,434New Hope office abandonment provision





136,947Accrued general trade payables





291,908Payroll liabilities


34,132


322,503$
34,132

$
3,281,792
 7.    Commitments and Contingencies Leases:The Company has leased its facilities and certain equipment under non-cancelable operating leases, which expire at various times through 2008. The leases require the Company to pay for all maintenance, insurance and property taxes. On August 31, 2003, the Company closed its Pennsylvania corporate headquarters and transferred its headquarters to itsImagentfacility in San Diego, California. At December 31, 2003, the remaining obligation under the lease amounts to $136,947. The Company also has an operating lease for laboratory equipment which expires during 2004. During 2001, the Company determined that equipment leased by the Company under this operating lease would no longer be used by the Company in its research. As a result, in 2001, the Company recorded a provision for all future lease payments of $1,264,208. At December 31, 2003, $786,884 remains to be paid. Minimum future rental payments under these leases are as follows: Year ending December 31,

Operating Leases2004

$
1,455,1802005


979,9442006


920,6252007


877,5142008


147,081Total minimum lease payments

$
4,380,344
 Total rental expense charged to operations for the years ended December 31, 2001, 2002, and 2003 aggregated approximately $358,000, $227,000, and $984,945, respectively. License Agreements:In September 1997, Alliance entered into the Schering License Agreement, which provided Schering with worldwide exclusive marketing and manufacturing rights, drug compositions, and medical devices and systems related to perfluorocarbon ultrasound imaging products, includingImagent. In February 2002, the agreement with Schering was modified to give Alliance exclusive rights to market the product in the U.S. for cardiology indications for a five-year period, with Schering to be paid a nominal royalty on such sales. At the expiration of the five-year period, Alliance had the option to acquire all of Schering's rights to the product on a worldwide basis or, alternatively, to allow Schering the opportunity to obtain co-promotion rights along with Alliance. The rights Alliance had under the Schering License
Agreement were transferred to IMCOR at the consummation of its acquisition of theImagentBusiness. F-23     Concurrent with the restructuring of the Schering agreement in 2002, Alliance entered into a five-year exclusive agreement with Cardinal Health, Inc. ("Cardinal") to assist the marketing ofImagent. Under the agreement, Cardinal will perform certain packaging, distribution, and sales services for Alliance under a fee-for-service arrangement. IMCOR assumed the Cardinal agreement from Alliance at the consummation of theImagentacquisition. Litigation:On June 18, 2003, we filed a complaint against Amersham Health, Inc. and two other Amersham affiliates alleging that certain Amersham products infringe on claims in our patents coveringImagent. The case is captioned asPhotogen Technologies, Inc. and Alliance Pharmaceutical Corp. v. Amersham Health Inc. et. al., Civil Action No. 03CV2853(SRC), in the United States District Court for the District of New Jersey. Our complaint alleges that principally through their Optison® product, Amersham Health Inc. and related Amersham entities infringe on seven patents owned by us. We are also seeking a declaration that the claims of fourteen Amersham patents are invalid and are not infringed by ourImagentproduct. Alliance, the party from whom we recently acquired theImagentproduct, is also a plaintiff in the suit. We are seeking damages, an injunction against Amersham, a declaratory judgment and other relief. Amersham filed an answer dated July 18, 2003 denying the material allegations of our claims and asserting certain affirmative defenses and counterclaims. Amersham's counterclaims against us include claims of patent infringement, breach of contract, breach of good faith and fair dealing, and tortuous interference with contract. We are studying Amersham's answer, defenses and counterclaims in consultation with our counsel. It is not presently feasible to determine whether there is a reasonable possibility that a loss may have occurred. Such a determination will only be possible after the facts and circumstances of the litigation have been established and, potentially, litigated before a court of competent jurisdiction. Intellectual property disputes are often settled through licensing arrangements, which if resolved unfavorably, could be costly to us or ultimately make it unfeasible to market the product. In any intellectual property litigation, it is possible that licenses necessary to settle the dispute would not be available on commercially reasonable terms or that we would not be able to redesign our technologies to avoid any claimed infringement thus resulting in our inability to sell the product. On July 29, 2003, the European Patent Office revoked Amersham's European Patent (EP) No. 620744 with claims directed to contrast agents. We had brought the opposition proceeding against the EP "744 patent in the European Patent Office. The EP "744 is a counterpart to the patents that are the subject of our suit against Amersham in the United States described above. See "Risk FactorsWe filed a suit against Amersham for patent infringement, which, if resolved unfavorably, could impede our ability to utilize our patents forImagent," above. 8.    Secured Debt Notes payableAt the closing of the Technology Purchase, the Company issued to Xmark promissory notes in the total principal amount of $2,500,000. The notes were payable in two equal installments on August 5 and November 3, 2003 or (if sooner) at the time the Company completed a financing of at least $18,000,000 of gross proceeds and bear interest at 3% over the prime rate. Interest is payable in shares of common stock. F-24     Obligations to Xmark (including obligations under the put right) are secured by a first priority security interest on theImagentrelated tangible and intangible assets. The Company defaulted on the principal payment due to Xmark on August 5, 2003 and Xmark delivered a notice stating that it was accelerating all amounts due under the notes. On August 18, 2003, the Company and Xmark executed a Letter Agreement pursuant to which the Company made an immediate payment of $1,250,000 and Xmark rescinded the default notice. In addition, as part of the Letter Agreement: The Company has the right to extend the November 3, 2003 payment due date monthly until April 3, 2004 for a fee (and not as a reduction of any amounts due and owing under the promissory notes) ranging from $50,000 to $100,000 per month. The Company has been exercising its right to extend the November 3, 2003 payment.The demand registration rights held by Xmark became piggyback registration rights.The definition of "Event of Default" was amended. The provision that an Event of Default included any default by the Company in the payment of borrowed money indebtedness was eliminated. Instead, the Company agreed that it would be an Event of Default if it made any repayments of borrowed money indebtedness.If the Company makes payments to certain institutions, it will make a pro-rata payment to Xmark. Lines of CreditTo obtain funds for operations and certain cash payments related to the Technology Purchase, the Company issued $11,417,000 in notes, of which $4,160,000 are Revolving Convertible Senior Secured Promissory Notes ("Revolving Notes") and the balances are non-convertible ("Demand Notes") (collectively, the "Promissory Notes") to three institutional investors ("Investors"). The Promissory Notes are secured by a first priority security interest on all the Company's assets (but as to the lien onImagentrelated assets, the lien is subordinate to the security interest held by Xmark see Notes 3, 8 and 9), bear interest at 7.25% per annum, compounded monthly, and were due on the earlier of August 5, 2003 (in the case of the Revolving Notes) or are due upon demand (in the case of the Demand Notes) or are due upon the occurrence of
an "acceleration event" (in the case of all Promissory Notes). All principal and interest under the Revolving Notes was to convert into the Company's common stock upon completion of a qualified financing that closes before August 5, 2003 at the same price and on the same terms as are in effect for the other investors in the qualified financing; and the Investors will have the same rights, benefits and obligations as other investors in that financing. No such financing had occurred as of August 5, 2003. The acceleration events include a breach of the Company's obligations or representations under a security agreement in favor of the Investors; if the Company files for bankruptcy protection or similar events occur indicating insolvency; if the Company liquidates, or if the Company incurs any debt senior orpari passuto the debt of the Investors. The Company defaulted on $4,160,000 of its Revolving Notes due to the Investors on August 5, 2003. The Investors have not asserted any of their rights under the default provisions of the Revolving Notes and (although under no obligation to do so) have continued to advance capital, pursuant to the Demand Notes, to the Company. All other terms and conditions of these Revolving Notes remain unchanged. F-25     9.    Stockholders' Equity Transactions, Series A Preferred Stock Classification and Puttable Shares (a)   The Company applies the recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," and applies the fair value-based method of accounting for stock options issued to nonemployees,. The Company has issued options and warrants in exchange for consulting services rendered. The Company issued 10,000 options in 1998, 2,500 options and 125,500 warrants in 1999, 5,250 options and 128,750 warrants in 2000, 7,500 options in 2001, 200,000 warrants in 2002 and 10,000 options in 2003 to nonemployees. During 2002 the Company issued 190,000 warrants to vest upon achievement of certain milestones. As of December 31, 2003 the warrants are unvested and no expense has been recognized. As the fair market value of these services was not readily determinable, these services were valued based on the fair market value of the options and warrants issued, determined using the Black-Scholes option pricing model
(see Note 1). Fair market value for options and warrants issued for consulting services were determined to be $3.08 in 2001, $1.01 to $1.81 in 2002 and $1.60 in 2003. Consulting costs charged to operations were $825,092 in 2001, $395,870 in 2002 and $16,521 in 2003. In 2002, the Company also issued 390,556 options in settlement of a lawsuit associated with restructuring costs. The value of these options under the Black-Scholes option pricing model was $806,415 which was recorded as restructuring charges in 2002. (b)   Series A Preferred StockIn October 1999 the Company issued 12,015 shares of preferred stock as Series A Preferred Stock ("Series A Preferred"). For the first six years from issuance, the preferred stock has a mandatory dividend of 7%. Such dividends are cumulative and compound on a semiannual basis and are payable semiannually solely by the issuance of additional preferred Series A stock. The Company has a deficit and, as a result, the dividends have been recorded against paid-in capital.    In accordance with the provisions of the agreement, the Company issued additional preferred shares of 841 in 2000 in settlement of dividend requirements. Therefore, at December 31, 2003, there were 12,856 shares of Series A Preferred outstanding. The Company has accrued and will issue 3,181 preferred shares in fulfillment of the 2001, 2002 and 2003 dividend requirements.
The Series A Preferred shall rank senior to any future series of preferred stock unless the majority of the Series A shareholders agree to rankpari passuwith any future issuances. The liquidation preference is $1,000 per share. The Series A Preferred is convertible, after two years but before six years from issuance, into common stock of the Company with an initial conversion price of $84.68. Under the Certificate of Designations of the Series A Preferred Stock the holder has a Series A Liquidation Preference entitling it as of December 31, 2003 to the first $16,036,810 of funds available for distribution to stockholders upon liquidation of the Company and has the right to convert shares of Series A Preferred Stock into common stock at any time after October 20, 2001 at a conversion price of $84.68 per share. The conversion price is subject to adjustment for certain dilutive events. Alternatively, the holder of the Series A Preferred Stock may exchange the initial 12,015 shares of Series A Preferred Stock for common shares of Sentigen so that the holder of Series A Preferred Stock owns 50% of the equity of Sentigen. The exchange right terminates six years after issuance, or October 19, 2005. As the initial value of the Series A Preferred Stock is exchangeable at the holder's
option into additional shares of Sentigen, we have reclassified $12,015,000 as mezzanine equity until such time that the exchange right terminates either by the passage of time or the agreement of the holder to terminate or irrevocably to not exercise the right. We believe that as the development program for N1177 will require several years to complete and as no research had been conducted on N1177 during 2003 due to our capital constraints that the probability of the holder exercising his exchange right prior to the expiration of that right is remote. F-26    The holder of Series A Preferred is only entitled to vote on matters that adversely affect or change the rights of holders of Series A Preferred and does not have the right to vote on the election of directors of the Company. The holder of Series A Preferred also had a preemptive right until October 2003 to participate in any offering of the Company. (c)   Series B Preferred StockIn February 2000, the Company completed a private placement of its Series B Convertible Preferred Stock ("Series B Preferred"). The Company received cash proceeds, net of related expenses, of $5,276,340 in exchange for 337,056 shares of the Series B Preferred. The Series B Preferred had an annual dividend rate of 6%. In accordance with the provisions of the agreement, the Company issued additional preferred shares of 20,224 in 2001 and 40,194 in 2002 in settlement of dividend requirements. In conjunction with the financing on November 12, 2002 all of the Series B Preferred was converted into common stock. In exchange for this conversion, the then conversion ratio of 0.36175 was changed to 1.0625. As a result, the Series B Preferred was converted into 422,316 shares of common stock and a beneficial conversion amount of $668,464 has been recorded. The Series B Preferred is no longer outstanding, nor is there any liquidation preference associated with the Series B Preferred. (d)   Common StockThe Company is subject to six sets of registration rights agreements covering an aggregate of approximately 15,028,000 shares of the Company's common stock, options and warrants that have vested covering the Company's common stock, its common stock issued/issuable pursuant to the acquisition of the Imagent Business (including shares issued/issuable to Xmark) and common stock issuable upon conversion of the Company's Series A Preferred. Excluded from this total are shares of common stock issuable pursuant to the Company's Revolving Convertible Senior Secured Promissory Notes as this conversion rate is dependant upon the pricing of the Company's next Qualified Equity Financing, as defined in the terms of the notes. 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 15,028,000 shares, 4,502,000 shares are entitled to piggyback registration only, 50,000 shares are entitled to both demand and piggyback registration and 10,244,000 shares will be registered by the Company within the time frames set forth in the respective registration agreements. Warrants that have vested covering 187,431 shares of the Company's common stock have weighted average anti-dilution rights. On March 13, 1998, the Company completed a private placement of 218,755 shares of common stock for $32 per share to a number of accredited investors. The Company received $6,950,000, net of related expenses of approximately $50,000 from this offering. On February 9, 2001, the Company's shelf registration on Form S-3 was declared effective. Under the shelf registration, the Company could have issued up to $40,000,000 of common stock. As of December 31, 2002, 173,872 shares had been issued under the shelf registration for cash proceeds of $1,068,723, net of related expenses of $56,252. The Company's registration statement is no longer effective. As of April 2, 2001, the Company no longer met the eligibility requirements to continue selling shares under the S-3. Prior to realizing it was ineligible to continue using the S-3, the Company sold 124,627 shares of common stock for $650,000. Through June 2003, this amount had been reclassified from permanent equity to mezzanine equity as the Company could be required to repay a portion of F-27     this amount to the purchaser. In the second quarter of 2003 the Company recognized in permanent equity the issuance of these shares. On November 12, 2002, the Company completed a private placement of 8,333,334 shares of common stock for $1.08 per share to a number of accredited investors. The Company received proceeds of $8,677,000, net of related expenses of $387,000. Proceeds included cash of $6,113,000 and the conversion of a credit facility with an entity controlled by a then director of the Company with borrowings of $2,500,000 which converted into 2,314,815 shares of common stock. In December 2002, the Company completed a second closing of the November 12, 2002 private placement in which 2,804,539 shares of common stock were sold for $1.08 per share for gross proceeds of $3,028,902. On November 12, 2002, the Company also effected the split-off of Photogen, Inc. and the assets and liabilities related to the Company's therapeutic line of business to the five founding stockholders of the Company (the "Tennessee Stockholders") in exchange for all of their common stock in the Company. The Tennessee Stockholders owned 5,137,109 shares of the Company and those shares were cancelled prior to December 31, 2002. The market value of the 5,137,109 shares on the date of the split-off was $12,226,319. In conjunction with the November 12, 2002 transactions, the Company implemented a one-for-four reverse split of its common stock. All amounts have been retroactively stated to reflect this reverse stock split. Pursuant to a Standstill and Make Whole Agreement dated as of December 30, 2002 with Xmark, secured creditors of Alliance, the Company issued a total of 750,000 shares to Xmark in January through March 2003. Xmark agreed to not exercise any rights against Alliance as a creditor. The value of these shares was treated as an expense at fair market value amounting to $1,173,750. On May 2, 2003, the Company executed a Going Forward Agreement with Xmark that provided, among other things, for the issuance of shares of the Company's common stock upon the acquisition of the Purchased Technology as payment for interest owed by Alliance to Xmark. On June 18, 2003, the Company issued 2,198,137 shares of its common stock to certain creditors of Alliance, including 1,056,144 shares to Xmark pursuant to the Going Forward Agreement, as partial consideration for the Technology Purchase. Following approval by shareholders, the Company will issue an additional approximately 1,985,522 shares to certain other creditors as part of the Purchased Technology. The value of these shares was treated as acquisition consideration at fair market value (see Note 3). Such approval was obtained at the Company's shareholder meeting held on February 5, 2004. On May 27, 2003 the Company issued 11,250 shares of its Common Stock to Xmark as a penalty for failure to timely register certain shares held by Xmark. The value of these shares was treated as an expense at fair market value amounting to $25,200. On July 31, 2003 the Company issued 82,977 shares of its Common Stock to Xmark for interest and penalties, including the failure to timely register certain shares of its Common Stock held by Xmark as of that date. The value of these shares was treated as an expense at fair market value amounting to $158,987. F-28     On September 2, 2003, pursuant to a Letter Agreement dated as of August 18, 2003 with Xmark, the Company issued 26,248 shares of its Common Stock to Xmark for the failure to timely register certain shares of its Common Stock held by Xmark as of that date. The value of these shares was treated as an expense at fair market value amounting to $28,085. Total shares issued to Xmark as a result of the agreements noted above are 1,926,619. In addition, an aggregate of 43,048 shares of the Company's Common Stock are issuable to Xmark for payment of accrued interest. Xmark has a put right for all these shares that would, under certain circumstances, require the Company to purchase the shares from Xmark at a price of $1.00 per share. As a result, $1,969,668 has been classified as mezzanine equity at December 31, 2003. During 2003, in addition to the above issuances, the Company issued an aggregate of 140,094 shares pursuant to several factors including cash, compensation for service and cashless exercise of stock options. 10.    Stock Incentive Plans and Warrants The Company maintains three long-term incentive compensation plans, which are described as follows: The 1998 Long-Term Incentive Compensation Plan, which provides for the granting of up to 500,000 stock options to key employees, directors and consultants;The 2000 Long-Term Incentive Compensation Plan, which provides for the granting of up to 4,568,750 stock options to key employees, directors and consultants;The 2000 Senior Executive Long-Term Incentive Compensation Plan, which provides for the granting of up to 1,000,000 stock options to senior executives. Options exercised under this plan contain certain registration rights. Options granted under these plans may be either "incentive stock options" within the meaning of Section 422A of the Internal Revenue Code, or nonqualified options. In 2003, 1,050,000 options were issued outside of the option plans in a grant to an executive officer subject to the approval of shareholders. Shareholders representing more than fifty percent of the Company's outstanding stock have agreed to approve this option grant. In 2002, the Company issued 358,000 options outside of the option plans as settlement of certain obligations; these were fully expensed in 2002. 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. F-29     Information with respect to the plans follows: Year ended December 31,

2001

2002

2003Options outstanding at beginning of year


1,411,000


1,629,750


4,535,481Options granted


218,750


2,914,356


2,930,250Options forfeited





(8,625
)

(255,451
)Options outstanding at end of year


1,629,750


4,535,481


7,210,280Option prices per share granted

$
4.56 - 21.24

$
1.08 - 4.20

$
0.93 - $2.05Weighted average exercise priceOptions granted

$
8.12

$
1.14

$
1.19Options granted at less than market price





1.08


1.19Options granted at the market price


8.12


1.55


1.21Options forfeited





18.41


0.93Options outstanding at end of year


37.16


14.05


9.72Options exercisable at end of year


43.04


19.85


19.74Number of shares exercisable


458,333


2,057,208


3,077,577 In 2003 all stock options granted, except for 40,000 options granted to directors and a consultant, were granted to employees at an exercise price less than the market value at grant date. The weighted average fair value of the options issued below market is $1.83. Options Outstanding

Options ExercisableRange ofExercise Price

NumberOutstanding atDec 31, 2003

WeightedAverageExercise Price

WeightedAverageRemainingContractualLife (Years)

NumberOutstanding atDec 31, 2003

WeightedAverageExercise Price$  0.93 - $  1.08

3,354,597

$
1.08

8.32

1,212,425

$
1.08$  1.09 - $  4.56

2,281,431

$
1.36

9.24

433,057

$
1.79$  4.57 - $11.00

539,128

$
10.17

5.56

397,471

$
10.18$11.01 - $27.50

13,125

$
23.04

2.87

13,125

$
23.04$27.51 - $53.00

269,499

$
34.13

6.45

268,999

$
34.10$53.01 - $60.25

752,500

$
60.00

6.38

752,500

$
60.00Total

7,210,280

$
9.27

8.12

3,077,577

$
19.74 F-30    Information with respect to the warrants follows: Year ended December 31,

2001

2002

2003Warrants outstanding at beginning of year


287,431


287,431


427,431Warrants granted





390,000


Warrants exercised








(50,000
)Warrants forfeited





(250,000
)

Warrants outstanding at end of year


287,431


427,431


377,431Warrant prices per share outstanding

$
37.80 - 84.68

$
1.08 - 84.68

$
1.08 - 84.68Weighted average exercise priceWarrants granted

$


$
1.78

$
Warrants forfeited

$


$
37.80

$
Warrants outstanding at end of year

$
43.08

$
7.94

$
8.84Warrants exercisable at end of year

$
43.08

$
12.27

$
15.25Number of warrants exercisable


287,431


237,431


187,431 Warrants Outstanding

Warrants ExercisableRange ofExercise Price

NumberOutstandingat Dec 31,2003

WeightedAverageExercise Price

WeightedAverageRemainingContractualLife (Years)

NumberOutstanding atDec 31, 2003

WeightedAverageExercise Price$  1.08 -   2.52

340,000

$
1.78

4.5

150,000

$
1.08$44.20 - 47.78

12,431

$
46.67

3.8

12,431

$
46.67$84.68

25,000

$
84.68

1.7

25,000

$
84.68 As of December 31, 2003, the 1998 Long-Term Incentive Compensation Plan had options outstanding for 490,500 shares with 9,500 shares remaining available, under the 2000 Long-Term Incentive Compensation Plan, options were outstanding for 4,299,220 shares with 269,530 shares remaining available, and under the 2000 Senior Executive Long-Term Incentive Compensation Plan options were outstanding for 1,000,000 shares with zero shares remaining available. F-31     11.    Dividends Dividends are comprised of the following: Year ended December 31,

2001

2002

2003Accrual of dividend on Series A Convertible Preferred

$
930,090

$
996,335

$
1,066,280Deemed dividend associated with beneficial conversion feature of Series A Convertible Preferred


391,154





Accrual of dividend on Series B Convertible Preferred


359,292


332,924


Deemed dividend associated with beneficial conversion feature of Series B Convertible Preferred


1,263,219





Deemed dividend associated with beneficial conversion of Series B Convertible Preferred to Common Stock





668,464


Total

$
2,943,755

$
1,997,723

$
1,066,280 12.    Restructuring In 2003, the Company closed its Pennsylvania corporate headquarters and transferred its headquarters to itsImagentfacility in San Diego, California. The Company recorded a charge of $244,459 in the third quarter ($199,529 for remaining lease payments for the office, $12,103 for certain remaining equipment leases and $32,827 to write off certain leasehold improvements) related to the closing of the office. At December 31, 2003, the remaining obligation under the lease amounts to $136,947. In 2000, the Company recorded a restructuring charge of $597,025, included in operating expenses, relating to the closure of its operations in Westborough, Massachusetts. The restructuring charge includes accruals related to estimated lease termination costs and accruals related to employee severance and related expenses in connection with their termination. All employees at the Westborough facility were terminated. The activities previously performed at the Westborough facility were continued at other company locations or with outside consultants. In 2002, the Company recorded an additional restructuring charge related to an additional termination costs for one of the Westborough employees. As of December 31, 2002, all restructuring costs have been settled. 13.    Income Taxes In 2002, the Company had taxable income due to the gain from the split-off of the therapeutic business. This resulted in current income tax expense of approximately $2,300,000 which was completely off-set by net operating losses. The Company has not recorded an income tax benefit for net operating losses remaining of approximately $29,500,000 primarily expiring in 2018 through 2022, or for equity losses in affiliate of approximately $12,000,000. The Company is in the development stage and realization of the losses is not considered more likely than not. An income tax valuation allowance has been provided for the deferred tax assets related to the net operating loss carryforwards and the losses in affiliate. A portion of the net operating loss carryforwards will not remain with the Company as a result of the split-off of the therapeutic business. However, the amount of these net operating losses is not known. F-32     Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of the Company's net operating losses could be limited in the event of cumulative changes in ownership of more than 50%. However, the Company does not believe such limitation will have a material effect upon the Company's ability to utilize the carryforwards. 14.    Selected Quarterly Financial Data (Unaudited) Summarized quarterly financial data for 2003 and 2002 is as follows: Quarter2003First

Second

Third(a)

Fourth(a)Operating expenses(b)

$
4,749,521

$
2,536,510

$
4,868,947

$
4,753,415Loss from continuing operations(c)


(4,940,896
)

(7,389,855
)

(5,261,431
)

(5,181,322
)Net income (loss)


(4,940,896
)

(7,389,855
)

(5,261,431
)

(5,181,322
)Basic and diluted loss per share from continuing operations(d)


(0.30
)

(0.42
)

(0.25
)

(0.24
)Basic and diluted income (loss) per share(d)


(0.31
)

(0.44
)

(0.26
)

(0.25
)Quarter2002First

Second

Third

FourthOperating expenses(e)

$
1,208,285

$
906,957

$
1,218,083

$
2,732,138Loss from continuing operations(f)


(1,813,246
)

(1,341,652
)

(1,594,897
)

(5,185,408
)Income (loss) from discontinued operations(g)


(502,449
)

(544,657
)

(244,719
)

11,575,147Net income (loss)


(2,315,695
)

(1,886,309
)

(1,839,616
)

6,389,739Basic and diluted loss per share from continuing operations(d)


(0.23
)

(0.17
)

(0.20
)

(0.51
)Basic and diluted income (loss) per share from discontinued operations(d)


(0.05
)

(0.06
)

(0.03
)

0.96Basic and diluted income (loss) per share(d)


(0.28
)

(0.23
)

(0.23
)

0.45  (a)Includes the results of operations following the acquisition on June 18, 2003 of theImagentBusiness from Alliance Pharmaceutical Corp.(b)Operating expenses for the first quarter 2003 includes a reserve of $1,491,500 for the value of notes receivable from Alliance.(c)Loss from continuing operations in the second quarter 2003 includes an increase in loss from joint venture of $4,605,000 resulting from the impairment of the value of the joint venture's licensed technology(d)Earnings (loss) per share calculations for each of the quarters are based on the weighted average shares outstanding for each period. The sum of the quarters may not necessarily be equal to the full year earnings per share amounts.(e)Operating expenses for the fourth quarter 2002 includes a charge of $988,184 from the issuance of stock options to employees.(f)Loss from continuing operations for the fourth quarter 2002 includes an increase in loss from joint venture of $2,000,000 resulting from the impairment of the joint venture's licensed technology.(g)Income (loss) from discontinued operations for the fourth quarter 2002 includes a gain of $11,779,752 from the sale of the therapeutic business. F-33      **ITEM 13. EXHIBITS.**

The following is a list of exhibits filed as part of this Form 10-KSB/A.

**EXHIBIT NO.**

**DESCRIPTION**31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002.31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002.32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.3

**SIGNATURES**

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

**IMCOR PHARMACEUTICAL CO.**Date: January 4, 2005
By:
/s/ Taffy J. WilliamsTaffy J. Williams, Ph.D.President and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


**Signature**

**Title**

**Date**By:
/s/ Taffy J. Williams


President, Chief Executive Officer and

January 4, 2005Taffy J. Williams, Ph.D.

Director, Chairman of the Board (principal executive officer and actingprincipal financial officer)By:
/s/ Darlene M. Deptula-Hicks


Director

January 4, 2005Darlene M. Deptula-HicksBy:
/s/ Alan D. Watson


Director

January 4, 2005Alan D. Watson, Ph.D.By:
/s/ Jonathan Fleming


Director

January 4, 2005Jonathan FlemingBy:
/s/ Richard T. Dean


Director

January 4, 2005Richard Dean, Ph.D.By:
/s/ William D. McPhee


Director

January 4, 2005William D. McPheeBy:
/s/ Brian M. Gallagher


Director

January 4, 2005Brian M. Gallagher, Ph.D.

4**EXHIBIT INDEX**

The following exhibits are added to the Exhibit Index.

**EXHIBIT NO.**

**DESCRIPTION**31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.