**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
DC 20549**





**FORM
10-KSB**


x
    **ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)****OF
      THE SECURITIES EXCHANGE ACT OF 1934****For
      the Fiscal Year Ended December 31, 2004**o
    **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d)****OF
      THE SECURITIES EXCHANGE ACT OF 1934****For
      the Transition Period From****to******


**Commission
File No. 0-23553**




**IMCOR
PHARMACEUTICAL CO.**


(Name of
Small Business Issuer 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**


(Small
Business Issuer telephone number, including area code)




Securities
registered under Section 12(b) of the Exchange Act: **None**




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




Check
whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days. Yes x No 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 or any amendment to this Form 10-KSB. o




The
issuer’s revenues for its most recent fiscal year: $354,940




The
approximate aggregate market value of voting and non-voting common stock held by
non-affiliates computed as of March 23, 2005, based upon the last sale price of
the common stock reported on the Pink Sheets was approximately $4,483,932
(excludes Series A Convertible Preferred Stock, which is not yet convertible
into shares of common stock). 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 10, 2005 was 4,499,393.












**TABLE OF
      CONTENTS**PART I.
    
    
    1ITEM 1 .
    DESCRIPTION OF BUSINESS.
    1ITEM 2 .
    DESCRIPTION OF PROPERTY.
    21ITEM 3 .
    LEGAL PROCEEDINGS.
    21ITEM 4 .
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS.
    22PART
      II.
    
    
    22ITEM 5 .
    MARKET FOR COMMON EQUITY, RELATED
      STOCKHOLDERMATTERS AND SMALL BUSINESS ISSUER
      PURCHASES OF EQUITY SECURITIES.
    22ITEM 6 .
    MANAGEMENT’S DISCUSSION AND ANALYSIS OF
      FINANCIALCONDITIONS AND RESULTS OF
      OPERATIONS.
    25ITEM 7.
    FINANCIAL STATEMENTS.
    F-1ITEM 8 .
    CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTSON ACCOUNTING AND FINANCIAL
      DISCLOSURE.
    35ITEM 8 A.
    CONTROLS AND PROCEDURES.
    35PART III.
    
    
    37ITEM 9 .
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
      ANDCONTROL PERSONS; AND COMPLIANCE WITH
      SECTION 16(A) OF THE EXCHANGE ACT.
    37ITEM 10 .
    EXECUTIVE COMPENSATION.
    40ITEM 11 .
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
      OWNERSAND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS.
    43ITEM 12 .
    CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS.
    46ITEM 13 .
    EXHIBITS, LIST AND REPORTS ON FORM
      8-K.
    46ITEM 14 .
    PRINCIPAL ACCOUNTANT FEES AND SERVICES.
    52










****


****


**PART
I.**




IMCOR
Pharmaceutical Co. and its wholly-owned subsidiary, Sentigen, Ltd., are
collectively referred to as “IMCOR,” the “company,” “we,” or “us.” Portions of
the discussion in this Form 10-KSB contain forward-looking statements and
are subject to the “Risk Factors” described below in Item 1.




On
February 5, 2004, our shareholders approved a change in our name from
Photogen Technologies, Inc. to IMCOR Pharmaceutical Co. On March 4, 2005,
we effected a one-for-twenty reverse split of our common stock and the trading
symbol for our common stock changed to “ICRP.” We also had a one-for-four
reverse split of our common stock in 2002. Unless otherwise indicated, all data
(including historical numbers) in this Form 10-KSB reflect the impact of
the reverse splits.




**ITEM
1** **.**  **DESCRIPTION
OF BUSINESS**




**INTRODUCTION**




IMCOR
Pharmaceutical Co. is a specialty pharmaceutical company focused on developing
medical imaging pharmaceutical products.  We have one FDA approved
product, *Imagent* *®* (perflexane lipid microspheres), an ultrasound imaging contrast agent that we
acquired in June 2003. We have two additional contrast agents for use in
computed tomography (“CT”) and x-ray imaging with potential applications (1) to
diagnose cancer metastasizing into the lymphatic system (which we have
designated N1177), and (2) as a blood pool agent, to diagnose diseased tissue in
the cardiovascular system and other organs (designated PH-50 or
Tomogent).




**BACKGROUND**




In May
1997, IMCOR Pharmaceutical Co. (formerly known as Photogen Technologies, Inc.),
acquired Photogen, Inc. through a subsidiary merger.  As a result,
Photogen, Inc. became a wholly-owned subsidiary of the
company.




In 1999,
we entered into an exclusive license agreement with units of Élan Pharmaceutical
Co. for a group of proprietary diagnostic imaging agents.  These agents
represent a new class of compounds that use nanoparticulate formulations in the
form of Nanocrystal TM colloidal suspension. Nanoparticles are particles less than a micron in
diameter, and colloidal suspension refers to these particles suspended, not
dissolved in a liquid. The unique formulation technology allows use in medical
imaging applications within the circulatory or lymphatic system, depending on
how the agent is administered.  The product designations N1177 and PH-50
refer to the same chemical entity with modifications to the formulations to
optimize for each application. N1177 is being developed for use in lymphography
and PH-50 is the identifier for applications in CT blood pool cardiovascular
imaging. We also acquired patented methods for performing minimally invasive
lymphography using x-ray, CT or magnetic resonance imaging (“MRI”). Our initial
efforts for developing this technology were accomplished through a joint
venture, called Sentigen, Ltd., with units of Élan Pharmaceutical. As of June
10, 2004, the joint venture with Élan was terminated and we became the sole
holder of the world-wide rights to develop the use of this technology for
diagnostic imaging.




In
November 2002, we effected the split off of Photogen, Inc. and substantially all
of the assets and all of the liabilities related to our therapeutic line of
business, including a compound known as PH-10, to our five founding stockholders
in exchange for and in cancellation of all of their stock in the company. 
At that time, we also sold $9,000,000 of our common stock to a group of
institutional investors at a price of $21.60 per share and effected a
one-for-four reverse split of our common stock.








1







On
June 18, 2003, we acquired related diagnostic imaging assets from Alliance
Pharmaceutical Corp. (“Alliance”).  The focus of this acquisition was *Imagent* , an FDA
approved contrast agent for ultrasound imaging. Included in our purchase was the
lease of an FDA-approved manufacturing facility, the marketing, manufacturing
and supporting infrastructure with experience in the diagnostic imaging field
and an intellectual property portfolio of approximately thirty patents in the
area of ultrasound imaging.




**TECHNOLOGIES
AND PRODUCTS**




***Imagent*** ****




*Imagent* is a
sterile powder comprising hollow, porous microspheres that contain the internal
gases perflexane vapor and nitrogen. It is sold in a complete kit which includes
the sterile water for reconstitution and all other components necessary to
prepare and administer the agent; all of which are conveniently stored at room
temperature. When the sterile water is added, the formulation is a dispersion of
flexible, surfactant-coated microbubbles in a buffered solution. The
microbubbles suspended within this solution are, on average, smaller than a red
blood cell and, upon injection, circulate freely within the small blood vessels,
through the organs and tissue. During an ultrasound exam, the microbubbles are
highly “echogenic” in that they strongly reflect the ultrasound beam and provide
enhancement within the area being examined.




The FDA
approved *Imagent* in May
2002 for marketing in the U.S. for use in patients with sub-optimal
echocardiograms. Sub-optimal exams often occur in patients who are obese or have
other body characteristics or lung conditions which make it difficult for
ultrasound waves to penetrate the chest. As the microbubbles travel within the
bloodstream they allow visualization of the blood flow and anatomy within the
left ventricle or the main pumping chamber of the heart. By improving the
delineation of the endocardial borders of the heart with contrast, the physician
is better able to diagnose heart disease during an echocardiography examination.




**N1177
and PH-50**




N1177/PH-50 is an
iodine-based x-ray contrast agent originally intended for use in determining the
spread of cancer through a patient’s lymphatic system. N1177 is being
investigated as an aerosolized CT contrast agent to detect lymph nodes in the
lungs to determine the extent of the spread of lung cancer. PH-50 has the
potential as an intravenously administered CT contrast agent to assist in the
detection of cardiovascular diseases. We plan to defer further clinical
development of PH-50 and N1177 and are seeking partners to develop those
technologies.




**MARKETS**




***Imagent***




The
market for the current indication of all ultrasound contrast agents is for use
in imaging patients with sub-optimal echocardiograms. The potential of this
market is anticipated to be approximately 20% of the 18 million echocardiograms
performed annually in the U.S. Current U.S. sales for this indication are
approximately $50 million. The current market is underserved but has been
growing at a rate of approximately 50% per year for the last few years.
Additional growth may be achieved through  future
follow-on indications including use for the diagnosis of coronary artery disease
(“CAD”), for body imaging to detect the presence of cancer in organs such as the
liver, kidney, or prostate, as well as to assess vascular diseases in the head
and neck and in the extremities.




Approximately
13 million Americans have CAD. It is the number one contributor to death in
America, accounting for almost 1 in 5 deaths. CAD occurs when the coronary
arteries become blocked with plaque and no longer deliver adequate amounts of
blood, therefore nutrients and oxygen, to the heart. The two most commonly used
non-invasive imaging techniques for the detection of coronary artery disease are
nuclear stress perfusion imaging and stress echocardiography imaging. A nuclear
stress perfusion examination involves the injection of radioactive labeled drugs
at rest and during stress initiated by physical activity or administration of a
drug. The patient is then imaged, most commonly using SPECT (single photon
emission computed tomography) cameras to detect disparities between the stress
and resting perfusion in major areas of the myocardium. Nuclear imaging assesses
blood flow to the heart muscle by the radioactive material attaching to live
muscle cells of the heart, providing a difference in enhancement between labeled
and non-labeled tissue. The limitations of nuclear cardiology are that
it:








2






·
    Uses
      radioactive drugs,





·
    Requires
      expensive imaging equipment,





·
    Is
      usually performed in a hospital,





·
    Requires
      subjecting the patient to cardiac stress,
and





·
    Costs
      about $1,000 per procedure and takes 5-6 hours to
  perform.





Sales of
nuclear stress contrast agents in the U.S. market are currently approximately
$600 million annually. By 2007, approximately 7 million nuclear stress exams are
expected to be performed in the U.S. annually.




Stress
echocardiography imaging, or stress echo, assesses the ability of the heart to
contract and circulate blood by observing motion of the walls of the heart in
real time. Patients with CAD typically have inadequate perfusion (blood flow) to
certain segments of the heart. The reduced flow, during stress, will cause the
walls of the heart to move abnormally particularly when increased demands on the
heart require more blood flow. This is detected as wall motion abnormalities
during a stress echo. Stress is induced in the patient by exercise or
pharmacologic agents. This imaging procedure is performed in 30-45 minutes.
There were over 2.5 million stress echo studies performed in the U.S. during
2004.




Following
a positive exam by either nuclear stress imaging or stress echo imaging, an
invasive coronary angiogram is usually conducted for a definitive diagnosis and
to determine the best method for treatment. This is an invasive examination
whereby a catheter in inserted in the major artery of the thigh, and threaded to
the heart vessels to inject an x-ray contrast agent. The procedure allows
visualization of the coronary blood vessels, but involves safety risks and
requires at least a day’s stay in the medical unit. There are about 3 million of
these procedures performed annually in the U.S. Each procedures costs about
$3,000.




While no
ultrasound contrast agent is approved for assessment of perfusion to the heart
(also called “myocardial perfusion”), non-clinical and clinical research has
been conducted to investigate the ability of agents to evaluate the blood flow
to the heart muscle and to assist in the detection of CAD. The approval of this
indication for myocardial perfusion in the detection of CAD with ultrasound
contrast represents a very large market opportunity of over 10 million patients,
potentially representing a $1 billion opportunity.




**N1177**




There are
approximately 200,000 patients tested annually in the U.S. for lung cancer and
over 170,000 of them are diagnosed with lung cancer. The current diagnostic
imaging gold standard is a Positron Emission Tomography (PET) scan, which costs
about $1,000-1,200 per exam. This scan procedure requires the use of a
radio-labeled contrast agent, and has poor ability to detect and stage disease.
A PET scan is currently the only non-invasive tool available to the surgeon to
evaluate the stages of progression of lung cancer.






3








The
enhancement provided by N1177 can be detected with traditional CT equipment with
a typical exam costing approximately $300-400. The International Early Lung
Cancer Action Project study indicates that as many as 95% of lung cancers
detected in the early stages can be treated and cured. Detection of early stage
lung cancer represents the immediate market opportunity for N1177. The longer
term, and larger market opportunity, is represented by the development of a
simple, inexpensive screening tool to detect lung cancer in smokers and
ex-smokers. There are over 40 million smokers and ex-smokers in the U.S. alone.




**PH-50**




There are
over 2.5 million CT exams conducted for assessment of cardiovascular disease in
the US. Contrast agents for CT imaging represent a current market opportunity of
$1.5 billion in sales in the U.S. PH-50, as a blood pool agent, would directly
address a large potion of this market. The opportunity for a blood pool agent
has diminished over the past five years because of improvements in the scanning
equipment. However, current iodinated CT agents are excreted via the kidney and
are associated with renal toxicity. PH-50 is excreted through the liver and is
expected to have a better safety profile than current iodinated agents.




**DEVELOPMENT
AND COMMERCIALIZATION STRATEGY**




Our
primary strategy is to develop our proprietary technologies as described below.
Additionally we plan to utilize the company as a platform for the acquisition
and/or licensing of technologies in related fields using our internal
organization supplemented by contractual collaborations with third parties. In
particular (subject to the receipt of adequate capital resources), we plan
to:





·
    Further
      develop*Imagent*through additional clinical trials for the diagnosis of CAD using a novel
      technique to detect myocardial perfusion requiring only a resting
      echocardiogram and to obtain FDA approval for this additional label
      indication,





·
    Continue
      to manufacture and sell*Imagent*in
      the United States on a limited direct basis to the accounts ordering the
      product, while seeking a commercial partner to co-market or co-promote in
      the current market,





·
    Negotiate
      relationships with third parties for the development and marketing
      of*Imagent*outside the U.S., and





·
    Defer
      further clinical development of PH-50 and N1177 while we seek
      relationships with third parties for the development of PH-50 and
      N1177.





***Imagent
Strategy***




Several
techniques are being investigated for the use of ultrasound contrast agents for
the detection of CAD. Typical methods to evaluate myocardial perfusion use
contrast agents to characterize blood flow within the capillaries of the heart
muscle. Ultrasound imaging is conducted as microbubbles fill the capillaries of
the heart muscle. The microbubbles are then destroyed by a stronger ultrasound
beam, creating a dark myocardial background. The rate at which the microbubbles
replenish the microcirculation is measured as a rate of change in image
intensity of the image, which is proportional to the velocity, and hence blood
flow, within the myocardial microcirculation. Areas that do not refill with
contrast are identified as regions where CAD may exist.




Currently,
these techniques require the use of pharmacologic stress agents. The adverse
event profiles of these stress agents have been established through extensive
experience and FDA review. Adverse events frequently reported associated with
their use include chest pain, headache, dizziness and abnormalities in heart
function, and a small percentage of cases result in serious or life threatening
events.








4







IMCOR is
pursuing a novel myocardial perfusion technique which would enable the detection
of myocardial perfusion for the diagnosis of CAD during a normal resting echo
procedure. We refer to this new technique as Phasic Changes. If successful in
clinical trials, this technique would:





·
    Eliminate
      the need for radionuclide agents to assess myocardial
      perfusion,





·
    Eliminate
      the need to place cardiac patients under
stress,





·
    Be
      performed with standard ultrasound equipment which is widely available,
      and





·
    Reduce
      the time and cost for the diagnosis of CAD.





The
Phasic Changes technique takes advantage of the body’s ability to automatically
regulate the blood flow to the capillaries in the heart muscle. Blood flow to
the capillaries is controlled by the ability of the small branches of the
arteries to dilate in the presence of increased oxygen demands. In the situation
where a narrowing exists that limits blood flow within the coronary arteries,
which are the major vessels that supply blood to the heart, the artery system
will dilate to maintain a constant level of blood flow to the heart muscle. This
auto-regulation feature occurs at rest. With *Imagent* , it is
possible to detect the changes in brightness or video intensity within the
arterial system during the cardiac cycle and predict the presence of narrowing
of a coronary artery at rest. Our technique has moved from experimental
proof-of-concept testing in animals to assessment in patients. To date, testing
in 22 patients has been completed using *Imagent* ** and the
results showed excellent correlation with coronary angiography, the current gold
standard for determining CAD. We plan to conduct two Phase II clinical studies
as a result of the positive findings in the feasibility study.




There are
properties inherent to the design of the *Imagent* **  microbubble
that make *Imagent* unique
in its ability to be used with the Phasic Changes technique,
namely:





·
    Optimum
      microbubble size range to provide excellent myocardial perfusion while
      reducing interference with image
interpretation,





·
    Flexible
      microbubble shell provides a strong harmonic signal improving the ability
      to detect myocardial perfusion, which cannot be accomplished by harder
      shell microspheres currently available or under
    investigation,





·
    Neutrally
      charged microbubble shell reduces interaction with blood components and
      minimizes the risks of allergic reactions,





·
    Can
      be effectively used at lower ultrasonic power potentially providing a
      wider safety margin to the patient.





·
    Contains
      no human blood components,





·
    Currently
      approved and on the market and is readily
available,





·
    Allows
      visualization of contrast in all areas of the heart in the Phasic Changes
      technique,





·
    10
      ml vial size is ideal for Myocardial Contrast Echocardiography (MCE)
      imaging providing economy of use. Most competitive agents are packaged in
      smaller volumes and would require multiple vials, increasing costs to the
      hospital,






5







·
    Easy
      to use and when administered as an infusion, allows the contrast image to
      last over the 10-15 minutes required to capture the images without
      multiple injections,





·
    Excellent
      safety profile,





·
    No
      need for refrigeration for convenience and savings in storage,
      and





·
    No
      need for special mixing equipment for convenience in
  use.





If the
use of *Imagent* for
Phasic Changes proves successful in clinical development, IMCOR would submit a
supplemental New Drug Application (“sNDA”) for a label expansion for *Imagent* to
detect CAD by contrast ultrasound. No additional preclinical testing is required
and only one pivotal trial may be required for a sNDA submission. Because *Imagent* is
currently manufactured in an FDA approved facility, there will be no requirement
to submit to the FDA the chemistry, manufacturing and control sections as
required in an initial NDA. Supplemental NDAs are generally reviewed and
approved more quickly by the FDA than initial NDAs, which should shorten the
time and reduce the expense of bringing this new indication for *Imagent* to
market.




The
additional market potential for Imagent with an expanded label represents
approximately 10 million patients currently undergoing either nuclear stress
perfusion studies or stress echo studies annually in the U.S. For this reason,
we expect to devote a substantial portion of our resources to developing *Imagent* for
Phasic Changes imaging.




**N1177
Strategy**




N1177 was
originally being developed to be administered by injection for CT lymphography.
Lymphography is a procedure used to determine if a patient’s cancer has spread
to the lymph nodes.  It is a procedure that provides oncologists with
critical information to help determine the stage of the disease to better define
the appropriate course of treatment.




Considerable
preclinical testing of N1177 has been conducted in multiple animal models. 
The results of these studies suggest a favorable safety and efficacy profile for
N1177.  The results of the initial human experience for lymph node
detection conducted as a 45 subjects Phase I indicated that the safety and
pharmacokinetic data are consistent with safety, pharmacokinetic and metabolic
data obtained in previous non-clinical safety and disposition studies. 
This data measures the process by which a drug is absorbed, distributed,
metabolized, and eliminated by the body. In addition, the number of nodes
visualized showed a statistically significant dose effect.




We plan
to expand on this initial testing to investigate N1177 as an aerosol formulation
for the detection of lymph nodes in the lung for the staging of lung cancer if
we are able to conclude a development agreement with a partner.




**PH-50
Strategy**




We have
completed pre-clinical studies of PH-50 for potentially significant applications
in cardiovascular imaging.  In our preclinical studies we have obtained
encouraging results demonstrating enhancement of the heart, liver and other
organs with results that are comparable or superior to those obtained by current
CT contrast agents.  Our ability to continue research in this area depends
on our ability to conclude a development agreement with a partner and we plan to
defer our development of PH-50 until such time.





****


6


****


****


**LICENSE
AND RELATED AGREEMENTS**




***Imagent***




As part
of the *Imagent* acquisition, we also assumed a worldwide development and commercialization
agreement for *Imagent* with
Schering Aktiengesellschaft (“Schering AG”) providing us exclusive rights to
market the product worldwide until mid-2008, with Schering AG to be paid a
royalty based on a percentage of net sales.  At the expiration of the
period, we have the right to pay all of any remaining royalty obligations to
Schering AG up to $20,000,000 and thus retain all rights to the product on a
worldwide basis, or alternatively, to allow Schering AG the opportunity to
obtain co-promotion rights along with us.




With the
ability to enter into worldwide development and commercialization agreements for *Imagent* , in
December 2003, we **** entered
into a product license agreement with Kyosei Pharmaceutical Co., Ltd., a unit of
Sakai Chemical Industry Co. Ltd., for the development and marketing
of *Imagent* in Japan
for all radiology and cardiology indications.  Terms of the agreement call
for Kyosei to pay us up to $10 million in fees and development milestone
payments plus royalties on commercial sales.  Kyosei will also pay us to
manufacture *Imagent* for
Kyosei’s clinical and commercial requirements. Kyosei has paid us $4,000,000
under the agreement to date (less $400,000 of tax withheld at the source), and
as a result we have paid Schering AG $100,000 and owe $400,000 as part of the
royalty obligation stated above. We do not expect Kyosei to begin clinical
studies before 2005 and the development program and regulatory approval is
likely to take four or more years; so sales on which we could earn royalties are
not likely to begin before 2008.




Our Asset
Purchase Agreement with Alliance also includes an obligation to pay further
consideration to Alliance in the form of an earn out based on our *Imagent* revenue
through 2010. The earn out equals, for each year of the earn out period, 7.5% of *Imagent* revenue
up to $20,000,000, 10% of *Imagent* revenue
between $20,000,000 and $30,000,000, increasing to 20% of *Imagent* revenue
above $40,000,000. The earn out will be reduced by amounts we pay pursuant to
our agreement with Schering AG, amounts of indemnification claims we have
against Alliance, and by the amount of certain offsets specified in the Asset
Purchase Agreement (with cumulative values up to $7,000,000 or
greater).




We no
longer maintain any contract sales agreement with Cardinal Health for the sale
of *Imagent* .




In
October 2004, we entered into a non-exclusive technology cross-license agreement
with Bristol-Myers Squibb Medical Imaging, Inc. covering ultrasound contrast
agent patents. Under the agreement, Bristol-Myers Squibb Medical Imaging and
IMCOR will have the right to further develop and commercialize their respective
ultrasound contrast imaging agents without risk of infringing upon the other
company’s patent rights and without having to pay further license fees or
royalties. We received a total payment of $8,500,000 under the terms of the
license agreement and a related stock purchase agreement with Bristol-Myers
Squibb Company for our Series A Convertible Preferred Stock, and we will have
the right of first negotiation to license select compounds from Bristol-Myers
Squibb Medical Imaging. Elsewhere in this Form 10-KSB, we refer to Bristol-Myers
Squibb Medical Imaging, Inc. and Bristol-Myers Squibb Company collectively as
“Bristol-Myers Squibb.”




**N1177
and PH-50**




We have
an exclusive license (subject to certain limitations) from Massachusetts General
Hospital and Nycomed Imaging AS for the world-wide right to make, market,
distribute and sell products using (i) the subject matter covered in pending
U.S. and foreign patent applications relating to the research, development,
manufacture and commercialization of diagnostic imaging agents for medical
location, treatment and diagnosis of tumors and other diseased tissues or other
material and (ii) the patent rights related to N1177 in the research,
development, manufacture and commercialization of human ethical pharmaceutical
products containing N1177. We will owe a royalty on net sales of product using
N1177, plus certain development fees and a percentage of any potential
non-royalty income.








7






We have a
license with Élan Pharma International Ltd.  Pursuant to this license, we
have the non-exclusive worldwide license to use certain Élan intellectual
property related to nanoparticulate medical diagnostic imaging agents (including
N1177) to make products for lymphography.  We will owe Élan a royalty on
net sales of products using N1177 or a percentage of net revenues derived from a
commercial partner.




Pursuant
to our settlement agreement with Gerald L. Wolf, a former employee, we agreed to
pay Massachusetts General Hospital a royalty of 1.25% on our net sales of
products related to PH-50 that utilize certain claims described in specified
patents related to the use of that chemical entity as a therapeutic agent for
treatment of disease with ionizing radiation. Because our focus is on diagnostic
agents rather than therapeutic technologies, we do not expect this royalty
obligation to be material.




We
acquired certain patents related to N1177 from Alliance in 1999. As part of that
acquisition, we granted Alliance an exclusive, royalty-free, worldwide,
perpetual license to use two patents related to N1177 in the field of ultrasound
which we now own.




**RAW
MATERIAL SUPPLY AND MANUFACTURING**




We are
parties to a Supply Agreement with Genzyme Corporation pursuant to which we
purchase all of our requirements of one of the key raw material for *Imagent* . The
term of the agreement expires in 2008 and is renewable for successive two-year
periods. Genzyme is obligated to manufacture the material in accordance with the
FDA’s current Good Manufacturing Practices (“cGMP”) and other quality
specifications.




Raw
materials for N1177 and PH-50 may be available on a contract manufacturing
basis. We have no agreement in place, however, for those materials.




Our
53,000 square foot leased facility in San Diego is approved by the FDA under
cGMP to manufacture *Imagent* . In
order to maintain cGMP status, the manufacturing facility must meet minimum FDA
requirements on an ongoing basis, even if no product is being manufactured. This
lease is scheduled to terminate in 2008 with two three-year renewal terms. At
this time, because we are not producing large quantities of *Imagent* , the
facility is not being utilized to its capacity.




**PATENTS**




We are
continuing to pursue patent protection for our proprietary technologies with the
U.S. Patent and Trademark Office and in various foreign jurisdictions. We plan
to prosecute, assert and defend our patent rights whenever appropriate. However,
securing patent protection does not necessarily assure us of competitive
success. See Risk Factors –
“ *We
filed a suit against Amersham for patent infringement and theft of trade
secrets, and Amersham has counterclaimed for patent infringement. This case, if
resolved unfavorably, could impede our ability to market
Imagent”* and *“If
we do not obtain and maintain patent or other protection for Imagent, PH-50 and
N1177, we may have difficulty commercializing products using these
technologies* ” below.
We have issued U.S. patents and pending U.S. patent applications, which are
directed to the composition, manufacture, and use of novel stabilized
microbubble compositions used in ultrasound or harmonic ultrasound
imaging.  Foreign applications directed to the same subject matter are also
granted or pending. We also have five issued U.S. patents covering the use of
various contrast agents, including *Imagent* , in
harmonic imaging.




We also
own two U.S. patents related to N1177 and we currently have two patent
applications pending in the U.S. and one application filed under the Patent
Cooperation Treaty which are directed to the use of nanoparticulates including
PH-50 for cardiovascular imaging and for delivery of pharmacologically active
substances.






8






In 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, and Amersham filed counterclaims alleging that Imagent infringes claims
in Amersham’s patents.  The case is described below under “Legal
Proceedings.”




We also
attempt to protect our proprietary products, processes and other information by
relying on trade secret laws and non-disclosure and confidentiality agreements
with our employees, consultants, and certain other persons who have access to
such products, processes and information. Among other things, these agreements
affirm that all inventions conceived by employees are the exclusive property of
the company. “IMCOR” is a trademark and *Imagent* ® is a
registered trademark of IMCOR. We have a pending application for registration of
the mark IMCOR in the U.S. All other trademarks or trade names used in this
registration statement are trademarks or trade names of their respective
owners.




**GOVERNMENT
REGULATIONS**




All of
the products we currently contemplate developing require approval by the FDA
prior to sales being made within the U.S. and by comparable foreign agencies
prior to sales being made outside the U.S. The FDA and comparable regulatory
agencies impose substantial requirements on the manufacturing and marketing of
pharmaceutical products and medical devices. These agencies and other entities
extensively regulate, among other things, research and development activities
and the testing, manufacturing, quality control, safety, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of our
proposed products.




The
regulatory process required by the FDA through which our products must
successfully pass before they may be marketed in the U.S. generally involves the
following:





·
    Preclinical
      laboratory and animal testing,





·
    Submission
      of an Investigational New Drug application (IND) which must become
      effective before clinical trials may begin,





·
    Adequate
      and well-controlled human clinical trials to establish the safety and
      efficacy of the product for its intended indication,
and





·
    Submission
      of an NDA or sNDA, and subsequent approval by the FDA to market a given
      product for a given indication.





For
pharmaceutical products, preclinical tests include laboratory evaluation of the
product, its chemistry, formulation and stability, as well as animal studies to
assess the potential safety and efficacy of the product. Where appropriate (for
example, for human disease indications for which there exist inadequate animal
models), we will attempt to obtain preliminary data concerning safety and
efficacy of proposed products using human pilot studies. We will require
sponsored work to be conducted in compliance with pertinent local and
international regulatory requirements.




The FDA
must grant permission before we can conduct human clinical trials. Human
clinical trials are typically conducted in three sequential phases, which may
overlap. Each of the three phases involves testing and studying specific aspects
of the effects of the pharmaceutical, including testing for safety, dosage
tolerance, side effects, absorption, metabolism, distribution, excretion and
clinical efficacy.






9






Data from
preclinical and clinical trials are submitted to the FDA in the form of an NDA.
The marketing of pharmaceuticals in the U.S. may not begin without FDA approval.
The approval process is affected by a number of factors, including the
demonstration of manufacturing, quality control, pre-clinical toxicology and
pharmacology testing results, and safety and efficacy demonstrated in clinical
trials. Regulatory authorities may deny an application in their sole discretion,
if they determine that applicable regulatory criteria have not been satisfied or
if they determine the submission is not adequate and additional testing or
information is required. One of the conditions for initial marketing approval,
as well as continued post-approval marketing, is that a prospective
manufacturer’s quality control and manufacturing procedures conform to the cGMP
regulations of the regulatory authority. In complying with these regulations, a
manufacturer must continue to expend time, money and effort in the area of
production, quality control and quality assurance to ensure full compliance.
Manufacturing establishments, both foreign and domestic, also are subject to
inspections by or under the authority of the FDA and by other federal, state,
local or foreign agencies. Discovery of previously unknown problems with a
product or manufacturer may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market.




We have
established a core clinical development team and have been working with outside
regulatory consultants to assist us in developing product development and
approval strategies, preparing the required submittals, guiding us through the
regulatory process, and providing input to the design and site selection of
human clinical studies.




We are
subject to requirements to perform post-marketing testing on the current label
indication for *Imagent* ,
including a safety surveillance study, a clinical study in a pediatric patient
population, an animal study to determine the safety of use of *Imagent* in
special populations, and a non-clinical study to determine the persistence of
the microbubble. We have successfully completed one animal study in an
obstructed lung model, which represents use in patients with chronic lung
disease as a part of this post-marketing commitment.




In the
ordinary course of business, we must also comply with a variety of other federal
and state governmental regulations. These regulations impose, among other
things, standards of conduct, record keeping, labeling and
reporting.




Specific
regulations affecting our current and proposed operations include:
environmental-type discharge requirements, good laboratory practices governing
animal testing, good manufacturing practices regarding the manufacture of drugs
and other FDA-regulated products, animal care and use regulations, laws and
regulations relating to labor, and required general business practices. We do
not currently anticipate that the cost of compliance in these areas, other than
obtaining FDA approval, will present a major obstacle to achieving our
goals.




We, like
other public companies, are also subject to the requirements of the federal
securities laws. Among other things, these laws regulate how we raise capital
and how we manage our internal financial and disclosure controls and reporting.
Recent amendments to the federal securities laws under the Sarbanes-Oxley Act
have increased our focus on improving and documenting our internal controls,
which is costly. As a company under the Securities and Exchange Commission’s
“small business” regulations, we are not required to comply with certain
portions of the requirements related to internal controls over financial
reporting until our fiscal year ending December 31, 2006, which should mitigate
these costs (somewhat, but not completely) for the 2005 fiscal year.




Another
area of regulation that will impact our business is the ongoing developments in
health care reimbursement and delivery practices as a means to better control
health care costs. Currently, *Imagent* qualifies for reimbursement in both the in-patient and out-patient cardiac
settings by the Centers for Medicare & Medicaid Services.






10


****


****


**COMPETITION**




The
industry in which we operate is intensely competitive, and subject to
significant change with respect to technology for the diagnosis and treatment of
disease. We expect that competition in the ultrasound contrast imaging agent
field (and for our other potential products) will be based primarily on each
product’s safety profile, efficacy, stability, ease of administration, breadth
of approved indications, and physician, healthcare payor and patient acceptance.
There are two ultrasound contrast agents approved in the U.S. for use in
cardiology which are competitive with *Imagent* : *Optison* (sold by
Amersham Health, Inc.), and *Definity* (sold by
Bristol-Myers Squibb). Bracco International filed an NDA in the U.S. late in
2000 for *SonoVue* ® ,  POINT
Biomedical Corp. has completed a Phase III myocardial perfusion study
for *CardioSphere* and is
preparing for an NDA submission, and Acusphere Inc. has initiated a Phase III
myocardial perfusion study in December 2003 for its AI-700
product.




*Imagent* contains
no human blood components (albumin), does not require refrigeration, and does
not require a mechanical shaker to activate the product. *Optison* contains
human albumin, carrying the appropriate label warnings for injection of a human
based product; and it also requires refrigeration. Having this component has
limited Optison’s development in certain countries. *Definity* requires
a mechanical shaker to manufacture the microbubble at the patient’s bedside as
well as it requires refrigeration. *SonoVue* in
approved in Europe and carries a restrictive use label warning in cardiac
patients. *CardioSphere* contains
human albumin and requires refrigeration. AI-700 also requires refrigeration.




The
existing market for radiopaque contrast agents is estimated by Frost &
Sullivan to be approximately $3.4 billion worldwide. The dominant uses of
contrast media are those procedures employed in conjunction with CT or x-ray
scans. In addition to CT or x-ray scans, other modalities, such as MRI and
ultrasound, are also used by physicians to image internal vasculature and
organs. These modalities, including CT imaging, each have particular attributes
that may make their use applicable to any particular situation. Approximately
half of the usage of contrast agents is in the U.S. Amersham’s Omnipaque®
product is believed to be the leading agent utilized in coronary angiography.
Other companies marketing contrast agents include Mallinckrodt, Inc. (a unit of
Tyco International Ltd.), Berlex Laboratories, Inc. (a subsidiary of Schering
AG) and Bracco International.




**RISK
FACTORS**




This
Form 10-KSB contains (and other filings with the Securities and Exchange
Commission, press releases and other public statements we may issue from time to
time may contain) forward-looking statements regarding our business and
operations. Statements in this document that are not historical facts are
forward-looking statements. Such forward-looking statements include those
relating to:





·
    Our
      current business and product development
plans,





·
    Our
      future business and product development
plans,





·
    The
      timing and results of regulatory approval for proposed products,
      and





·
    Projected
      capital needs, working capital, liquidity, revenues, costs, and
      income.





Examples
of forward-looking statements include predictive statements, statements that
depend on or refer to future events or conditions, and statements that may
include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”
“estimates,” “should,” “may,” or similar expressions, or statements that imply
uncertainty or involve hypothetical events.





11
 
 
 Forward-looking
statements involve known and unknown risks and uncertainties that may cause our
actual results in future periods to differ materially from what is currently
anticipated. We make cautionary statements in certain sections of this
Form 10-KSB, including under “Risk Factors.” You should read these
cautionary statements as being applicable to all related forward-looking
statements wherever they appear in this Form 10-KSB, in the materials
referred to in this Form 10-KSB, in the materials incorporated by reference
into this Form 10-KSB, or in our press releases or other public statements.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Form 10-KSB or other documents incorporated by
reference might not occur. No forward-looking statement is a guarantee of future
performance and you should not place undue reliance on any forward-looking
statement. We do not undertake any obligation to release publicly any revisions
to these forward looking statements, to reflect events or circumstances after
the date of this Form 10-KSB, or to reflect the occurrence of unanticipated
events, except as may be required under applicable securities
laws.


****


**Risks
Related To Our Financing and Operations**




**We
must raise additional financing and our inability to do so will prevent us from
continuing as a going concern and implementing our business
plan.**




Our cash
and securities on hand at December 31, 2004 was approximately $4,721,456. At
December 31, 2004, we had liabilities, including current liabilities (which
include the current portion of deferred licensing revenue totaling $696,307) of
approximately $5,889,376 and the long term portion of deferred license revenue
of approximately $6,948,753, together totaling $12,838,129.




We will
need substantial additional financing to continue planned operations including
manufacturing, marketing and product development programs, and the repayment of
debt. At our current rate of spending, including estimated requirements to
service a portion of our current liabilities and without additional funds, we
may not be able to continue our current level of operations beyond April, 2005.
We cannot accurately estimate the amount of additional financing required;
however, the amount could be an additional $12,000,000 or more in order to fund
operations through December 31, 2005.




We are
currently seeking capital in one or more transactions to fund our immediate and
longer-term capital needs. Additional funds may not be available on acceptable
terms, if at all, and existing stockholders may be diluted as a result of those
offerings. The pricing of our common stock, or other securities convertible into
common stock, in any such transaction may also result in an increase in the
number of shares of common stock issuable upon exercise of warrants in
accordance with the anti-dilution provisions in the instruments governing those
securities.




If we are
not able to raise adequate capital, we will have to curtail our operations and
development activities, reduce headcount and consider alternatives for our
business. Those alternatives may include the sale or license of some or all of
our assets, a merger or other material transaction.




**We
have a history of losses, and we may not achieve or maintain profitability in
the future or pay cash dividends.**




We have
incurred losses since the beginning of our operations. As of December 31, 2004,
we have incurred cumulative net losses (before dividends on preferred stock) of
approximately $73,191,333. We expect our losses to increase in the future as our
financial resources are used for litigation, manufacturing, marketing, research
and development, preclinical and clinical development, regulatory activities,
and other related expenses. We may not be able to achieve or maintain
profitability in the future.








12







We intend
to retain earnings, if any, for use in the operation and expansion of our
business. We do not anticipate paying any dividends on our common stock in the
foreseeable future.




**We
do not have any material revenue collections from product sales.**




Our
company and our technologies, other than *Imagent* , are in
early stages of development. We began our business as a pharmaceutical company
in 1997. To date, we have not generated material product revenues from sales
activities. Our earned revenues have come from the amortization of previously
received product and technology license fees. We expect to generate revenue from
future sales of *Imagent* , but
there can be no assurance that we will be able to generate enough revenue from
such sales to be profitable for at least several years, if at all. Our future
profitability will be affected by royalty and similar obligations we may have to
third parties with respect to *Imagent* (Schering AG and Alliance) and N1177 and/or PH-50 (Massachusetts General
Hospital, Élan and Gerald Wolf).




**Our
inability to expand the label indication of** ***Imagent*** **for the detection of coronary artery disease may impede our ability to raise
capital.**




We are
seeking to expand the label indication of *Imagent* for
myocardial perfusion imaging for the detection of coronary artery disease (CAD)
using a novel technique called Phasic Changes. We believe that development
of *Imagent* for the
detection of CAD and, in particular, using the Phasic Changes technique will be
important to our ability to attract capital and achieve future profitability. We
plan to defer further clinical development of PH-50 and N1177 and are seeking
partners to develop those technologies.




There are
a number of potential obstacles to these goals:





·
    We
      may not have sufficient capital to complete the clinical trials and other
      tasks necessary to obtain regulatory
approval,





·
    The
      results of studies on*Imagent*for the Phasic Changes technique are preliminary. Future clinical studies
      for*Imagent*may not provide sufficient data to show efficacy and safety for FDA
      approval,




·
    We
      may not be able to enter into a license or development agreement for N1177
      or PH-50,





·
    We
      may not attract capital or achieve profitability even if we successfully
      introduce*Imagent*for the additional indication or if we license or enter into a development
      agreement for PH-50 or N1177, and





·
    As
      a result of changing economic considerations, market, clinical or
      regulatory conditions, or clinical trial results, we may shift our focus
      or determine not to continue one or more of the product development
      projects we are currently pursuing.





**Many
of our competitors have greater resources and have products that are in more
advanced stages of development than we do, which may give them a competitive
advantage over us.**




The
markets for imaging products are extremely competitive. In addition
to *Imagent,* there
are currently two FDA approved ultrasound contrast agents being marketed in the
U.S. by Amersham Health, Inc. and Bristol-Myers Squibb for the same
indication for sub-optimal ultrasound images as *Imagent* . In
addition, Bracco International has filed a New Drug Application with the FDA
seeking approval to market its product in the U.S. Two other companies (POINT
Biomedical Corp. and Acusphere, Inc.) are in advanced clinical development for
the use of ultrasound contrast agents for myocardial perfusion. We are
distributing *Imagent* on a
limited basis and we cannot predict whether it will compete successfully with
these other products. Existing or future pharmaceutical and device companies,
government entities and universities may create developments that accomplish
similar functions to our technologies in ways that are less expensive, receive
faster regulatory approval or receive greater market acceptance than our
potential products.






13


****


****


**We
filed a suit against Amersham for patent infringement and theft of trade
secrets, and Amersham has counterclaimed for patent infringement. This case, if
resolved unfavorably, could impede our ability to market** ***Imagent*** **.**




We filed
a complaint against Amersham Health, Inc. and two other Amersham affiliates
alleging that certain Amersham products infringe on claims in our patents. 
We have also alleged theft of trade secrets and also seek a declaration that our
products do not infringe on Amersham’s patents.  Alliance joined as a
plaintiff in this suit.  Amersham filed an answer denying the material
allegations of our claims and asserting certain counterclaims.  Both
parties amended their complaints to include certain antitrust claims.  If
the suit is resolved unfavorably to us, it may be difficult or impossible to
implement our commercialization strategy for *Imagent* .




Intellectual
property disputes are often settled through licensing arrangements that could be
costly to us.  In any intellectual property litigation, it is possible that
those licenses necessary to settle the dispute would not be available on
commercially reasonable terms or that we would not be able to redesign out
technologies to avoid any claimed infringement thus resulting in our inability
to sell the product.




**If
we do not obtain and maintain patent or other protection for** ***Imagent*** **,
PH-50 and N1177, we may have difficulty commercializing products using these
technologies.**




Our
success depends in part on our ability to obtain, assert and defend our patents,
protect trade secrets and operate without infringing the intellectual property
of others. Among the important risks in this area are:





·
    Our
      patent applications may not result in issued patents. Moreover, any issued
      patents may not provide us with adequate protection of our intellectual
      property or competitive advantages, and the law on the scope of patent
      coverage is continually changing. We filed patent applications on the
      intellectual property associated with the use of*Imagent*for Phasic Changes, but these applications may not result in
      patents,





·
    Various
      countries limit the subject matter that can be patented and limit the
      ability of a patent owner to enforce patents in the medical field. This
      may limit our ability to obtain or utilize those patents
      internationally,





·
    Existing
      or future patents or patent applications (and the products or methods they
      cover) of our competitors (or others, such as research institutions or
      universities) may interfere, invalidate, conflict with or infringe our
      patents or patent applications. Similarly, the use of the methods or
      technologies contained in our patents, patent applications and other
      intellectual property may conflict with or infringe the rights of others,
      and





·
    If
      an advance is made that qualifies as a joint invention, the joint inventor
      or his or her employer may have rights in the
invention.





We will
be able to protect our proprietary rights from unauthorized use by third parties
only to the extent that these rights are covered by valid and enforceable
patents or effectively maintained as trade secrets. The patent position of
pharmaceutical companies involves complex legal and factual questions and
therefore we cannot assure the enforceability of these patents. A third party
might successfully challenge the validity or enforceability of our patents or if
issued, patents that would result from its patent applications. The patents
might not provide protection against competitive products or otherwise be
commercially valuable, and applications filed by others might result in patents
that would be infringed by the manufacture, use or sale of our products.
Intellectual property disputes relating to *Imagent* could be
costly to resolve and could affect our ability to commercialize products with
those technologies.






14




Litigation
over patents and other intellectual property rights occurs frequently in our
industry and there is a risk that we may not prevail in disputes over the
ownership of intellectual property. Further, an interference proceeding with the
Patent and Trademark Office may be instituted over the rights to certain
inventions, and there is a risk that we may not prevail in such an interference
proceeding. Those disputes can be expensive and time consuming, even if we
prevail. Intellectual property disputes are often settled through licensing
arrangements that could be costly to us. In any intellectual property
litigation, it is possible that licenses necessary to settle the dispute would
not be available on commercially reasonable terms or that the company would not
be able to redesign its technologies to avoid any claimed infringement thus
resulting in its inability to sell the product.




Confidentiality
agreements covering our intellectual property may be violated, and we may not
have adequate remedies for any violation. Our trade secret intellectual property
may in other ways become known or be independently discovered by competitors. In
addition, where intellectual property results from a research project supported
by government funding, the government has limited rights to use the intellectual
property without paying us a royalty. However, we cannot assure that these
agreements will afford significant protection against or adequate compensation
for misappropriation or unauthorized disclosure of inventions or our trade
secrets.




To the
extent we use intellectual property through licenses or sub-licenses, as is the
case for some of its lymphography technology, our rights are subject to us
performing the terms of the license or sub-license agreement with third parties.
Our rights are also subject to the actions of third parties we may not be able
to control, such as its sub-licensor complying with the terms of its license
with the patent owner and the patent owner maintaining the patent.




**Our
proposed products are subject to extensive testing and government approval and
post-market requirements, and we may not obtain or maintain the approvals
necessary to sell our proposed products.**




Other
than *Imagent* for its
current indication, none of our proposed imaging products has received the FDA’s
approval for commercial sales. An extensive series of clinical trials, data
collection and verification, and other regulatory requirements, must be
completed before our proposed products can be approved and sold in the U.S. or
other countries. Requirements for FDA approval of a product include preclinical
safety testing in animals and clinical testing for effective use and safety in
humans, which can be extremely costly. The time frame necessary to perform these
tasks for any individual product is long and uncertain, and we may encounter
problems or delays that we cannot predict at this time. Our lack of adequate
capital will contribute to delays in this process. We must also obtain
regulatory approvals comparable to those required in the U.S. to market our
products in other countries. Even if testing is successful, our proposed
products may not demonstrate sufficient effectiveness or safety to warrant
approval by the FDA or other regulatory authorities.




Development
of our nanoparticulate formulations has been limited primarily to laboratory
experiments and animal testing. Only the injectable nanoparticulate formulation
of N1177 for lymphography has completed Phase I human clinical trials. We have
not yet conducted substantive studies of our compounds in development to
evaluate their effectiveness on human patients. Results from early clinical
trials may not predict results that we will obtain in large-scale clinical
trials, as even after promising results in early trials, a number of companies
have suffered significant setbacks in advanced clinical trials.




We may
not conduct additional Phase II or Phase III clinical trials for our products
and such trials, if begun, may not demonstrate any efficacy or may not be
completed successfully in a timely manner, if at all. The rate of completion of
our clinical trials depends upon, among other things, the rate of patient
enrollment. Patient enrollment is a function of many factors, including the size
of the patient population for a particular indication, the nature of the
clinical protocol under which our products will be studied, the proximity of the
patient to a clinical site and the eligibility criteria for the study. Delays in
planned patient enrollment may result in increased costs, regulatory filing
delays, or both. Furthermore, we, the FDA or other regulatory authorities may
alter, suspend or terminate clinical trials at any time. If we do not
successfully complete clinical trials and obtain regulatory approval for a
product or an indication, we will not be able to market that product or
indication.








15








Once
issued, the FDA may withdraw a product approval if we do not comply with the
regulatory requirements and standards, or if problems occur after the product
reaches the market. If the FDA grants approval of a product, the approval may
impose limitations, including limits on the indicated uses for which we may
market a product. In addition, the FDA may require additional testing and
surveillance programs to monitor the safety and/or effectiveness of approved
products that have been commercialized, and the agency has the power to prevent
or limit further marketing of a product based on the results of these
post-marketing programs. Further, later discovery of previously unknown problems
with a product may result in restrictions on the product, including its
withdrawal from the market.




Our FDA
approved product, *Imagent* , is
subject to post-market approval requirements by regulatory authorities. These
requirements include a safety surveillance study, a clinical study in a
pediatric patient population, an animal study to determine the safety of use of
Imagent in a special population, and a non-clinical study to determine the
persistence of the microbubble. We have successfully completed one animal study
in an obstructed lung model, which represents use in patients with chronic lung
disease as a part of this post-marketing commitment. We cannot predict the
success of the other post-marketing studies.




We and
certain of our suppliers are subject to inspection and marketing surveillance by
the FDA to determine compliance with regulatory requirements with respect to any
approved products or raw materials. If the FDA determines that we or a supplier
have failed to comply, it can institute a wide variety of enforcement actions,
ranging from a public warning letter to more severe sanctions such as: recall or
seizure of products; fines, injunctions, civil penalties; operating
restrictions, partial suspension or total shutdown of production; and criminal
prosecution. Any enforcement action by the FDA may also affect our ability to
commercially distribute our products in the U.S.




**Some
of the key raw materials for our products are with single source suppliers, and
an interruption in availability of those materials would impair our ability to
market or test those products.**




We
assumed the rights and obligations of Alliance under the terms of the long-term
supply agreement for the principal raw material for *Imagent.* Raw
materials used in *Imagent* cannot
be changed without equivalency testing of any new material by us and approval of
the FDA. Some raw materials for *Imagent* are
currently qualified from only one source and, although we have some inventory,
we will attempt to acquire additional inventory of these materials and to
negotiate long-term supply arrangements. The raw material for N1177 and PH-50
are from a single source supplier and no contract currently exists for these
supplies. There can be no assurance that we will be successful in negotiating
alternative long term or other supply agreements.




To make
any significant change in the manufacturing process or change in suppliers, we
must conduct certain validation studies, which may require review and/or
approval by the FDA. Considerable delays in our research and development
programs for our products could result from having to change to a different
supplier. There can be no assurance that our current supplier will continue to
supply us with the raw materials that we need in a timely manner on conditions
that are acceptable to us.




**We
may encounter difficulties expanding or changing our manufacturing
operations.**




We lease
a single facility located in San Diego, California, a portion of which houses
our manufacturing operations. If the lease is not renewed, we may be required to
commit a significant amount of time and expense to move to a new facility that
meets FDA requirements, assuming we continue to maintain internal manufacturing
capabilities. We cannot assure that the FDA would approve the new facility on a
timely basis or deem any new facility to which we relocate to be compliant with
FDA manufacturing standards. In the event that we relocate to a new
manufacturing facility, a change to the chemistry, manufacturing, and controls
section of our NDA would be required to be submitted to the FDA for approval.
Timing of this event, should it occur, could affect the timeliness of the
clinical trials and the sNDA submission.






16




The
current facility is subject to a variety of regulatory requirements to maintain
compliance with the FDA’s current good manufacturing practices. We may encounter
difficulties in maintaining compliance with these regulations and standards,
which also could result in a delay or termination of manufacturing or an
inability to meet product demand.




We will
face risks inherent in operating a single facility for the manufacture
of *Imagent.* At this
time, we do not have alternative production plans in place or alternative
facilities available should the San Diego manufacturing facility cease to
function. These risks include unforeseen plant shutdowns due to personnel,
equipment or other factors, delays and expense in re-starting production in the
San Diego facility or finding alternatives, and the resulting inability to
produce product. We do not have the internal capability or a contract
manufacturing agreement in place for the production of the chemical entity for
N1177 and PH-50. We plan to attempt to secure long-term manufacturing
arrangements for these items depending on our progress in obtaining a
development partner, but there can be no assurance that we will be successful in
negotiating long term supply agreements.




**We
have to rely on third parties and collaborative relationships for distribution,
pre-clinical and clinical testing of** ***Imagent*** **and our proposed products, and it may be difficult to implement our business
plans without these collaborations.**




We
currently have a contract with Cardinal Specialty Pharmacy Distribution for
distribution and fulfillment. Cardinal PCI is currently our sole source for
labeling and packaging. **** We have
had and expect to continue in the future to have a variety of research
agreements with universities and other research institutions to investigate
specific protocols for the preclinical development and testing of its products
or research activities related to other new potential products. We also contract
and expect to continue to contract with research organizations and other third
parties to manage clinical trials of our products. We must obtain and maintain
collaborative relationships with third parties for research and development,
preclinical and clinical testing, marketing and distribution of our proposed
products. Collaborative relationships may limit or restrict our operations or
may not result in an adequate supply of necessary resources. A collaborative
partner could also pursue alternative technologies as a means of developing or
marketing products for the diseases targeted by our collaborative program. If a
third party we are collaborating with fails to perform under its agreement or
fails to meet regulatory standards, this could delay or prematurely terminate
preclinical or clinical testing of our proposed products.




**Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on our
business and operating results.**




Effective
internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. If we cannot provide reliable financial reports and
prevent fraud, our operating results could be harmed and current and potential
stockholders could lose confidence in our financial reporting, which could have
a material adverse effect on our stock price and ability to raise capital. In
September 2004, we and our independent registered public accounting firm
concluded that our internal controls and procedures had certain material
weaknesses and reportable conditions. For further information concerning our
controls, see Item 8A – “Controls and
Procedures.”




Beginning
in May 2004 we began to implement steps to address our internal controls and
procedures. We have completed certain remediation steps; however, if we cannot
further rectify these material weaknesses through measures and improvements to
our systems and procedures, management may encounter difficulties in timely
assessing business performance and identifying incipient strategic and oversight
issues.








17








We are
committed to maintaining high standards of corporate governance and public
disclosure. As a result, our efforts to comply with evolving laws, regulations
and standards have resulted in, and are likely to continue to result in,
increased general and administrative expenses and a diversion of management time
and attention from revenue-generating activities to compliance activities. In
particular, although the SEC has granted an extension for compliance with
certain aspects of Section 404 of the Sarbanes-Oxley Act of 2002 and the related
regulations regarding our required assessment of our internal controls over
financial reporting and our independent registered public accounting firm’s
audit of that assessment, compliance with these regulations will require the
commitment of significant financial and managerial resources. In addition, if we
fail to maintain the adequacy of our internal controls, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act.




**Our
operating results may fluctuate widely between reporting
periods.**




Our
operating results may vary significantly from quarter to quarter or year to
year, depending on factors such as timing of pharmaceutical development and
commercial adoption of products by our customers, the timing of increased
research and development and sales and marketing expenditures, the timing and
size of contracts and whether we introduce to the market new products or
processes. Consequently, revenues, profits or losses may vary significantly from
quarter-to-quarter or year-to-year, and revenue or profits in any period will
not necessarily be indicative of results in subsequent periods. These
period-to-period fluctuations in financial results may have a significant impact
on the market price of our securities.




**Our
products may not be fully accepted by physicians, laboratories and health
insurance providers, which would reduce our revenue and limit our ability to
raise capital.**




Our
growth and success will depend upon market acceptance by physicians,
laboratories and health insurance providers of our products. This requires
acceptance of our products as clinically useful and cost-effective alternatives
to other medical imaging products and methods. In addition, physicians may
utilize imaging techniques other than those for which our products are being
developed (such as magnetic resonance imaging (MRI) and radionuclear imaging).
Our success will also depend, in part, on the extent to which health insurers,
managed care entities and similar organizations provide coverage or
reimbursement for using the medical procedures we have and plan to develop.
Failure by physicians, hospitals and other users of our products to obtain
sufficient reimbursement from third-party payers for the procedures in which our
products would be used or adverse changes in governmental and private
third-party payers’ policies toward reimbursement for such procedures would have
a material adverse effect on our business.




**Product
liability claims could increase our costs and adversely affect its results of
operations.**




The
marketing, sale and clinical testing of *Imagent* and our
other product candidates may expose us to product liability claims, and we may
experience material product liability losses in the future. We maintain certain
levels of product liability insurance, but our coverage may not continue to be
available on terms acceptable to us or adequate for liabilities we actually
incur. A successful claim brought against us in excess of available insurance
coverage, or any claim or product recall that results in significant adverse
publicity against us, may have a material adverse effect on our business and
results of operations.






18




**We
depend on a small number of employees and consultants to provide management
expertise, and the loss of this expertise may interfere with our operations or
delay our ability to implement our business plan.**




We
currently have two senior executive officers: our Chief Executive Officer (Dr.
Williams) and our Chief Operating Officer (Mr. DeFranco). We also have retained
consultants to advise us in regulatory affairs, product reimbursement, quality
assurance and control matters and other business matters. Larry D. Grant, a
consultant, provides advisory and management services on a full-time basis on
financial, operational and strategic matters. These individuals have entered
into employment or consulting agreements, confidentiality and/or non-competition
agreements with us. If an individual performing one of these executive or
consulting functions for us terminates his association with us or breaches their
agreement with us:





·
    We
      could suffer competitive disadvantage or loss of intellectual property
      protection, and





·
    We
      could experience a delay in the implementation of our business plan until
      we arrange for another individual or firm to fulfill the
    role.








**Risks
Related To Our Common Stock**




**A
small group of stockholders has significant voting power, which may delay or
prevent a change of control of IMCOR and may limit the trading volume of our
common stock.**




As of
December 31, 2004, a small group of stockholders controlled approximately
2,561,372 shares, or 64% of our issued and outstanding common stock at that
date. These stockholders were parties to a Voting, Drag-Along and Right of First
Refusal Agreement (the “Voting Agreement”) which was terminated effective as of
February 1, 2005. This concentration of ownership and control may delay or
prevent a change in control of IMCOR, and may also result in a small supply of
shares available for purchase in the public securities markets. These factors
may affect the market and the market price for its common stock in ways that do
not reflect the intrinsic value of our common stock.




**The
price and trading volume of our common stock fluctuates significantly, which may
make it difficult for us or a stockholder to sell common stock at a suitable
price and may cause dilution for existing stockholders when we issue additional
shares.**




During
the period from January 1, 2004 through December 31, 2004 the closing trade
price of our common stock ranged from $39 to $0.80 per share. Daily trading
volume during that period ranged from zero shares to approximately 40,698
shares.




The
market prices for securities of pharmaceutical companies in general have been
highly volatile and may continue to be highly volatile in the future. The
following factors may have an impact on the price of our common
stock:







·
    Sales performance of*Imagent,*·
    Our liquidity,·
    Announcements by us or others regarding
      scientific discoveries, technological innovations, commercial products,
      patents or proprietary rights,·
    Announcements by us concerning the licensing
      or other transactions of its products or technologies,·
    Private sales of a significant block of our
      common stock at a price below the then current market price of our common
      stock and the subsequent registration and sale of those
    shares,
   19
   ·
    Public sales of our common stock pursuant to
      Rule 144 of the Securities Act of 1933 or pursuant to registration
      statements for the resale of stock we previously
issued,·
    The progress of preclinical or clinical
      testing,·
    Developments or outcome of litigation
      concerning proprietary rights, including patents (and the uncertainty
      related to the Amersham litigation),·
    Changes in government
    regulation,·
    Public concern about the safety of devices or
      drugs,·
    Limited, if any, coverage by securities
      analysts,·
    The occurrence of any of the risk factors
      described in this section,·
    Sales of large blocks of stock by an
      individual or institution,·
    Changes in our financial performance from
      period to period, securities analysts’ reports, and general market
      conditions, and·
    Economic and other external factors or a
      disaster or crisis.


****


**If
holders of substantial amounts of our common stock sell their stock in the
public market, the price of our stock could fall and it may be more costly for
us to raise capital.**




We have
recently registered the resale of 1,596,798 shares of our common stock (plus an
additional 735,881 shares of our common stock issuable upon the exercise of
warrants) we had previously sold in private transactions. We have also filed a
registration statement, which has not yet gone effective, covering the resale of
approximately 2,448,467 shares of our common stock. We may also register the
resale of shares issuable upon the conversion of our Series A Convertible
Preferred Stock, shares issuable pursuant to future financing transactions and
the exercise of options granted under our various option plans. In addition,
some of our shares are eligible for sale in the public market free of
restriction under Rule 144 of the Securities Act. Others shares of our
common stock are also subject to agreements requiring us to permit the holders
of the shares, under certain circumstances, to join in a public offering of our
stock or to demand that we register their shares for resale. The sale of these
shares could place downward pressure on the overall market price of our common
stock.




**We
have issued a substantial number of securities convertible into shares of our
common stock and may issue additional shares of our common stock or other
securities convertible into shares of our common stock in connection with one or
more financings that will result in substantial dilution to the ownership
interests of our existing shareholders.**




As of
December 31, 2004, we had reserved **** 2,414,003
shares of our common stock for issuance upon exercise or conversion of warrants
or stock options (including options that have been granted and that are
available for grant in the future). Furthermore, on October 29, 2004, we issued
and sold 4,500 shares of our newly issued Series A Convertible Preferred Stock
which are convertible into 833,334 shares of our common stock.






20




If our
options and warrants are all issued and exercised, or convertible securities
converted, investors may experience significant dilution in the voting power of
their common stock. The sale of these shares could also place downward pressure
on the overall market price of our common stock.




We may
also engage in financing transactions which involve the issuance of additional
shares of our common stock or securities which are convertible into shares of
our common stock. The sale of such securities could result in significant
dilution to existing shareholders.




**Applicable
Securities and Exchange Commission rules governing the trading of “penny stocks”
limits the trading and liquidity of our common stock, which may affect the
trading price of our common stock.**




Our
common stock currently is quoted on the Pink Sheets. Our appeal to NASDAQ to
reconsider its decision in 2004 to delist our shares was denied and for a
portion of 2004 our stock was quoted on the Pink Sheets. We are considering
options to seek re-listing of our shares on an appropriate exchange, but it will
be a minimum of at least several months before we could meet the requirements
for listing. As such, our common stock may have fewer market makers, lower
trading volumes and larger spreads between bid and asked prices than securities
listed on an exchange such as the New York Stock Exchange or the Nasdaq Stock
Market. These factors may result in higher price volatility and less market
liquidity for our common stock.




Because
our common stock is currently trading below $5.00 per share, our common stock is
considered a “penny stock” and subject to Securities and Exchange Commission
rules and regulations, which impose limitations upon the manner in which our
shares can be publicly traded. Our common stock may also trade below $5.00 per
share in the future. These regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the associated risks. Under these regulations, certain
brokers who recommend such securities to persons other than established
customers or certain accredited investors must make a special written
suitability determination regarding such a purchaser and receive such
purchaser’s written agreement to a transaction prior to sale. These regulations
have the effect of limiting the trading activity of our common stock and
reducing the liquidity of an investment in our common stock.




**ITEM
2** **.**  **DESCRIPTION
OF PROPERTY.**




We do not
own any real estate. We conduct operations from leased premises of approximately
53,000 square feet in San Diego, California. This lease expires in early 2008
and we are investigating available alternatives if we elect not to extend the
lease. At this facility we maintain our executive offices, perform research and
development, and manufacture *Imagent* . We have
obtained regulatory approval to manufacture *Imagent* at this
production facility. To our knowledge, the property and equipment is in good
condition. At this time, because we are not producing large quantities of *Imagent* , the
facility is not being utilized to its capacity.




**ITEM
3** **.**  **LEGAL
PROCEEDINGS.**




In 2003,
we filed a complaint against Amersham and two other Amersham affiliates alleging
that certain Amersham products infringe on claims in its patents
covering *Imagent* . The
case is captioned as *Photogen 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 and related Amersham entities infringe on eight patents owned
by us. We are also seeking a declaration that the claims of fifteen Amersham
patents are invalid and are not infringed by our *Imagent* product.
Amersham denied the material allegations of our claims and asserted certain
affirmative defenses and counterclaims. Amersham’s counterclaims against us
include claims of patent infringement of the fifteen Amersham patents, breach of
contract, breach of good faith and fair dealing, and tortious interference with
contract. Both parties have amended their complaints to include allegations of
antitrust violations by the other party.






21






It is not
presently feasible to determine whether there is a reasonable possibility that
the assets have been impaired for purposes of Statement of Financial Accounting
Standards No. 5, or the extent of damages or gain, if any, that might result
depending on whether or not we prevail. In any event, we will continue to incur
litigation costs as we prosecute claims in the litigation.




See
“ *Risk
Factors—We filed a suit against Amersham for patent infringement and theft of
trade secrets, and Amersham has counterclaimed for patent infringement. This
case, if resolved unfavorably, could impede our ability to market
Imagent* ,”
above.







**ITEM
4** **.**  **SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.**




None.




**PART
II.**




**ITEM
5** **.**  **MARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES.**




Our
common stock is quoted from time to time on the Pink Sheets under the symbol
“ICRP.PK” Until June 28, 2004 our stock traded in the Nasdaq SmallCap
Market.




**Common
Stock**




As of
March 10, 2005, there were approximately 4,499,393 shares of our common
stock outstanding and as of March 3, 2005 (immediately preceding the reverse
split) there were approximately 275 stockholders of record. Holders of our
common stock are entitled to receive such dividends as may be declared by the
Board of Directors. We have not declared or paid cash dividends on our common
stock and we do not anticipate paying any cash dividends in the foreseeable
future.




The high
and low trading prices (adjusted to reflect our one-for-twenty reverse split)
for our common stock during each quarter of the fiscal year ended December 31,
2003 and for the fiscal quarters ended March 31, 2004 and June 30, 2004 (the
periods during which our common stock was listed on the Nasdaq SmallCap Market)
are set forth below. The high and low bid prices for our common stock during the
fiscal quarters ended September 30, 2004 and December 31, 2004 (the period
during which the common stock was listed on the Pink Sheets) are also set forth
below.








**Year
      Ended**
      **December
      31, 2003**
      **(Amounts
      in $)**
    
    **Year
      Ended**
      **December
      31, 2004**
      **(Amounts
      in $)****High**
    
    **Low**
    
    **High**
    
    **Low**1st
      Quarter
    
    $
    54.60
    
    $
    18.00
    
    $
    39.00
    
    $
    22.002nd
      Quarter
    
    
    52.00
    
    
    30.00
    
    
    44.00
    
    
    6.003rd
      Quarter
    
    
    48.80
    
    
    19.40
    
    
    6.20
    
    
    2.004th
      Quarter
    
    
    38.60
    
    
    21.40
    
    
    15.00
    
    
    0.80





In
addition, for comparison purposes, set forth below are the trading prices (as
opposed to the bid prices set forth in the above table for these periods) for
our common stock during the fiscal quarters ended September 30, 2004 and
December 31, 2004 when the stock was quoted on the Pink Sheets.





**Year
      Ended**
      **December
      31, 2004**
      **(Amounts
      in $)****High**
    
    **Low**3rd
      Quarter
    
    $
    8.00
    
    $
    2.004th
      Quarter
    
    
    17.50
    
    
    0.90








22





The
foregoing information was obtained from the National Association of Securities
Dealers and the Pink Sheets as reported on the Nasdaq SmallCap Market and the
Pink Sheets, respectively. The quotations generally reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions. The foregoing information reflects **** trade
or **** bid
prices, as indicated. See “ *Risk
Factors—A small group of stockholders has significant voting power and may delay
or prevent a change of control of IMCOR and may limit the trading volume of our
common stock* ” and
“ *The
price and trading volume of our common stock fluctuates significantly, like that
of many biopharmaceutical companies, which may make it difficult for us or a
stockholder to sell our common stock at a suitable price and may cause dilution
for existing stockholders when we issue additional shares* ,” above,
regarding the possible effects of the concentrated ownership of our stock on the
market and price of the stock.




In 2004,
we granted qualified and non-qualified stock options pursuant to our 2000 Long
Term Incentive Compensation Plan to purchase an aggregate of approximately
230,071 shares of common stock at exercise prices ranging from $2.80 to $36.20.
These options vest at various times up to four years from the date of grant
except for 201,421 options awarded to Dr. Williams that vest upon the earlier of
a change in control of the company or the date he ceases to be a salaried
employee of the company.




During
the fourth quarter of 2004, we issued common and preferred stock as follows:





·
    In
      October 2004, we sold an aggregate of 4,500 shares of our recently
      authorized Series A Convertible Preferred Stock for a purchase price of
      $4,500,000 in connection with a cross-licensing agreement (see “Series A
      Convertible Preferred Stock” below”).





·
    In
      November and December 2004, we issued an aggregate of 5,512 shares in
      connection with a settlement with a former creditor of
      Alliance.





These
securities were offered and sold by us in reliance upon exemptions from
registration requirements provided by Section 4(2) of the Securities Act and
Regulation D under the Securities Act relating to sales not involving any public
offering.




As of
December 31, 2004, we were subject to four groups of registration rights
agreements. In the aggregate, these agreements cover approximately
5,553,969 **** shares of
common stock (including approximately 735,881 shares issuable upon the exercise
of warrants and 833,334 shares issuable upon the conversion of our Series A
Convertible Preferred Stock) and require us to register those shares under
various terms and subject to specific conditions in the agreements. In
accordance with the terms of certain of these registration rights agreements, on
January 11, 2005 a registration statement became effective relating to the
resale of 2,332,679 shares of our common stock including 735,881 shares issuable
upon the exercise of warrants. In addition, on February 8, 2005 we filed a
registration statement relating to the resale of 2,448,467 shares of our common
stock. The registration statement filed on February 8, 2005 has not yet been
declared effective, and the final number of registered shares will increase to
reflect late registration shares and other adjustments.






23






As of
March **** 10, 2005,
approximately 2,057,379 shares of our common stock are “restricted stock” or are
beneficially owned by persons who as of March 10, 2005 were affiliates of
the company as defined in Rule 144 under the Securities Act. For purposes
of this calculation only (and the comparable disclosure on the cover page of
this Form 10-KSB) we have assumed that officers, directors, 10%
stockholders and that stock held by Oxford Bioscience Partners IV L.P. and MRNA
Fund II L.P., other than shares and warrants which are covered by an effective
registration statement, would be deemed to be beneficially owned by Jonathan
Fleming (a director) (although Mr. Fleming disclaims beneficial ownership of
those shares for all other purposes), and that a person beneficially owns stock
subject to an option, warrant or convertible instrument that is exercisable or
convertible within 60 days from March 10, 2005. A portion of those
shares would be eligible for resale by company affiliates and others who have
satisfied the requisite holding periods, subject to the volume limitations and
other provisions of Rule 144 and applicable law. As of March 10, 2005, we
had approximately 2,147,154 shares eligible for sale free of restriction under
Rule 144 which are not subject to an effective registration
statement.




**Equity
Compensation Plan Information**




See
Part III Item 11 for information regarding our equity compensation
plans.




**Series A
Convertible Preferred Stock**




In
October 2004, in connection with our technology cross-licensing agreement, we
entered into a securities purchase agreement with Bristol-Myers Squibb pursuant
to which we sold an aggregate of 4,500 shares of Series A Convertible Preferred
Stock for a total purchase price of $4,500,000. The Certificate of Designation,
Preferences and Rights which authorizes the Series A Convertible Preferred Stock
generally provides that:





·
    In
      the event of any liquidation, dissolution or winding up of the company
      (including the sale of all or substantially all the assets of the company
      unless the holders of 66-2/3% of the preferred stock then outstanding vote
      not to treat such a sale as a liquidation event), whether voluntary or
      involuntary, and subject to the rights of the holders of any future senior
      securities, each holder of preferred stock is entitled to be paid out of
      the funds and assets of the company available for distribution to holders
      of our capital stock before any payment or setting apart for payment of
      any amount shall be made in respect of any common stock, an amount equal
      to $1,000 per share of preferred stock;





·
    The
      holder of the preferred stock shall have no voting rights except as
      required by law; and





·
    The
      preferred stock is convertible into common stock at a ratio of 185.1854
      shares of common stock for each share of preferred stock. As of October
      29, 2004, conversion of the preferred stock would result in issuance of
      833,334 shares of our common stock. However, the holder of the preferred
      stock cannot convert it into common stock before July 29, 2005. We have
      the right to require conversion of the preferred stock into common stock
      if at any time after October 29, 2005 the closing price of our common
      stock exceeds $8.10 per share for ten consecutive trading days. The
      conversion ratio is subject to adjustments for dilution resulting from
      stock splits and combinations, certain dividends and distributions,
      reorganization, reclassification or merger of the
  company.





In
October 1999, we issued 12,015 shares of Series A Preferred Stock to an
affiliate of Élan in conjunction with the formation of Sentigen Ltd., our former
joint venture with Élan. As of June 10, 2004, all of the Series A Preferred
stock held by Élan’s affiliate was converted into 9,763 shares of common stock
and this series of Series A Preferred Stock was terminated.






24






**ITEM
6** **.**  **MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS.**




Portions
of the discussion in this item contain forward-looking statements and are
subject to the “Risk Factors” described above. References to the “ *Imagent* Business” are to the property, plant and equipment, technology and medical
imaging business of Alliance Pharmaceutical Corp. (“Alliance”) that we acquired
on June 18, 2003. References to the “Purchased Technology” are to the
technology and intellectual property that are part of the *Imagent* Business.




The
accompanying financial statements have been prepared assuming we are a going
concern. Without obtaining additional debt or equity financing we will not be
able to continue to fund operations beyond April, 2005. The 2004 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 this
uncertainty.




These
financial statements present the results of operations of the *Imagent* Business
following its acquisition on June 18, 2003 and have been adjusted to reflect the
one-for-twenty reverse split effected on March 4, 2005. Also, as one of a series
of transactions on November 12, 2002, we split off the therapeutic business to
certain founding shareholders; accordingly, the expenses associated with that
business have been reclassified as discontinued operations.




**Significant
Estimates**




We
consider the valuation of our investment in the *Imagent* Business
to be a significant estimate. The carrying value of the *Imagent* Business
at December 31, 2004 was approximately $18,103,793, net of accumulated
depreciation and amortization, including assets purchased subsequent to the
acquisition of the *Imagent* Business. On an annual basis (or more often as conditions may warrant), we
evaluate the carrying value of the *Imagent* Business
and make any necessary adjustments. No adjustments were required in 2004. Our
valuation assumptions have been based on currently available information
including estimates of market size and penetration, pricing, competitive threats
and general operating expenses. These estimates may change and such changes may
impact future estimates of carrying value. We initiated litigation against
Amersham regarding patents acquired with the Purchased Technology and Amersham
has responded with counter-claims. If there is an unfavorable outcome in this
litigation, our business and the value of the Purchased Technology would be
materially and adversely affected.




Prior to
termination of our joint venture activity with Élan, we considered our
investment in the joint venture’s technology license with units of Élan to be a
significant estimate. In June 2004, the joint venture was terminated and the
holder of our then outstanding Series A Preferred Stock converted it, including
accrued and unpaid dividends, into 9,763 shares of our common stock at a
conversion price of $1,693.60 per share. (The Preferred Stock formerly held by
Élan is different from the newly authorized Series A Convertible Preferred Stock
recently issued to Bristol-Myers Squibb in connection with a cross-license
agreement, which remains outstanding and is unrelated to the former Élan joint
venture.) On the conversion date, the value of our common stock was $15 per
share, which was deemed to be the implicit factor to value the 19.9% of Sentigen
that Élan sold to IMCOR at $146,447. Sentigen utilized this information to
impute a value to the technology license and recorded a $2,402,660 impairment
loss in its financial statements in June 2004 to write down the carrying value
of this asset to $735,916. In conjunction with the conversion of the preferred
stock into common stock, Élan surrendered its interest in Sentigen and Sentigen
became our wholly-owned subsidiary. At December 31, 2004, the technology license
is recorded on our balance sheet at a carrying value of $696,408, net of
accumulated amortization of $39,508. Due to capital constraints, we are
currently seeking candidates for partners with whom we might utilize this
technology. We intend to further evaluate the carrying value of the technology
license when we complete our efforts to obtain a development
partner.




****


25





****


**Results
of Operations**




Prior to
our acquisition of the *Imagent* Business
in 2003, our efforts were focused on the development and clinical testing of
PH-50 as a cardiovascular imaging agent, and N1177 for lymphography. During the
2003 and 2004 fiscal years, we did not generate significant revenues from the
sale of any proposed diagnostic products or other operations. Net loss
applicable to common shareholders (after preferred dividends) was $23,839,784
and $22,170,695 for the years ended December 31, 2003 and 2004,
respectively; and our cumulative losses since inception, including “in-kind”
preferred stock and beneficial conversion dividends totaling $9,431,246, are
approximately $82,622,579.




With the
acquisition of the *Imagent* Business, we hired approximately 35 employees. These employees were formerly
associated with Alliance and had previously demonstrated capabilities in
manufacturing, marketing and research and related administrative infrastructure.
At December 31, 2004, we employed approximately 35 employees (full time and part
time) and utilized the services of approximately 17 on site independent
contractors, many of whom are part-time and “as-needed.” We also continue to
contract with offsite third party consultants having expertise in clinical
development and regulatory matters to supplement our internal capabilities. In
addition, we contract with offsite third party research laboratories, contract
research organizations and manufacturers for clinical material supplies and the
management of clinical trials, and with academic and other institutions to
conduct specified research projects.




*Revenue
and License Fees*




We have
not generated significant product revenues during 2003 or 2004 due to capital
constraints limiting our sales and marketing capability. Any sales of products
are therefore included in our financial statements under “investment and other
income.”




In
December 2003 we entered into a product license agreement with Kyosei
Pharmaceutical Co., Ltd. for the development and marketing of *Imagent* in Japan
for all radiology and cardiology indications. We received a gross payment of
$2,000,000 from Kyosei in late 2003 and another $2,000,000 in the second quarter
of 2004 (both of which were recorded as deferred revenue on a gross basis), less
a total of $400,000 of taxes withheld at the source (for which $200,000 was
charged against operations in each of 2003 and 2004). As a result of these
Kyosei payments, we paid Schering AG $100,000 in 2004 and owe an additional
$400,000 at December 31, 2004. We recognize income from these payments ratably
over the remaining lives of our related underlying *Imagent* patents,
as calculated at the time the respective payments are received. Accordingly, we
recognized $295,238 as earned license revenue in 2004, and zero dollars as
license revenue in 2003.




In
addition to the $4,000,000 already received, the agreement with Kyosei provides
for an additional $6,000,000 to be paid to us in increments based largely on the
achievement by Kyosei of certain milestones of clinical development, including
the commencement of and completion of clinical studies and approval for sale by
Japanese regulatory authorities. We do not expect Kyosei’s commercial sales,
upon which we will earn royalties, to begin earlier than 2008. While we believe
that *Imagent* clinical
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.




In 2004,
we entered into a non-exclusive technology cross-license agreement with
Bristol-Myers Squibb. We received a gross payment of $4,000,000 in connection
with the license and an additional $4,500,000 under a related stock purchase
agreement. We have recognized $59,702 in earned license revenue for 2004 in
connection with this technology license utilizing the same revenue recognition
method described above. We do not owe Schering AG any royalty on the payments
from this technology license because, among other things, it did not involve our
sale of products.






26


**





*Research
and Development*




Research
and development expenses for the years ended December 31, 2003 and 2004
were approximately $2,529,679 and $3,794,063, respectively. Significant 2004
costs categorized as research and development expenditures (all numbers
approximate) include personnel costs (research, development and manufacturing
support) ($2,089,000), contract consulting services ($924,000) patent costs
($374,000), production facilities maintenance ($293,000) and supplies associated
with research and development and production activities ($222,000). These
expenses were partially offset by a credit recorded in 2004 related to the
settlement of a lease dispute for less than the amount originally estimated and
accrued in 2003. The expenditures incurred in our San Diego operations were
directed to product and regulatory support and compliance, and not to a
particular product research program.




Our
research and development expenses related to *Imagent* were
approximately $1,665,000 and $3,728,000 for the 2003 and 2004 fiscal years,
respectively. Expenses were less in 2003 because we acquired the *Imagent* Business
in June of 2003. We have incurred a total of $5,393,000 in development expense
for *Imagent* .




Research
and development expenses related to PH-50 were approximately $865,000 and
$66,000 respectively in the 2003 and 2004 fiscal years. To date, we have
incurred a total of $2,597,000 in development expense for PH-50. In 2004, we
reduced expenditures on development of PH-50 due to capital
constraints.




We had
been developing N1177 through our joint venture with units of Élan until June
2004 when we terminated the joint venture. Due to capital constraints and our
decision to focus on *Imagent* , no
research was conducted on N1177 during 2003 or 2004. Research and development
expenses for N1177 had been charged to the joint venture until its termination;
following termination of the joint venture, we bore all development expense.
Through the 2004 fiscal year, we incurred a total of approximately $3,130,000 of
expenses in connection with the development of N1177. Please see
“Technology—Development of N1177” below and Note 4 to our financial
statements for the year ending December 31, 2004.




Our total
research and development expenditures for 2004 increased by $1,264,384 to
$3,794,063 primarily due to the shift in research spending from N1177 and PH-50
to the development of *Imagent* , which
we considered to have greater market potential. The increased expenditures were
due to the additional contract work conducted by third party laboratories and
consultants. In 2005, we expect to devote the significant majority of our
research and development budget to obtaining FDA approval for the myocardial
perfusion application of *Imagent* .




*Selling,
General and Administrative Expense*




Selling,
general and administrative expenses for the fiscal years ended December 31, 2003
and 2004 were $14,241,767 and $15,389,363 respectively.




In 2004,
the overall increase in expenses was due primarily to the additional costs
incurred related to the *Imagent* Business
covering a full year’s operation, including costs of litigation, limited
marketing, and amortization of Purchased Technology related to the acquisition
of the *Imagent* Business. More specifically, significant 2004 costs categorized as selling,
general and administrative expenses (all numbers approximate) include personnel
costs including severance ($1,497,000), contract consultant costs ($1,979,000),
recognition of the expense of stock options granted at a price below the fair
market value for our common stock on the date of grant ($959,000), legal
(including general corporate) and accounting ($2,281,000), special fees
(primarily related to carrying costs associated with various Xmark obligations
and late registration share charges) ($2,371,000), facilities costs
($1,634,000), insurance (general liability and directors and officers)
($680,000), and depreciation and amortization ($3,127,000 which includes
$1,303,000 of amortization on the Purchased Technology).








27








In 2003,
selling, general and administrative expenses increased by $10,211,684 to
$14,241,767 from the prior year. The primary reasons for the increase were
related to our acquisition of the *Imagent* Business
from Alliance including (i) provisions we took against advances we made to
Alliance and shares of our common stock we issued to Xmark pursuant to a
standstill agreement with Xmark (approximately $2,615,000), (ii) costs of
conducting due diligence and other activities related to the acquisition of
the *Imagent* Business
(approximately $775,000), (iii) costs incurred by us to operate
the *Imagent* Business
following its acquisition (approximately ($4,445,000), (iv) depreciation
and amortization other than on the Purchased Technology (approximately
$945,000), and (v) amortization of the Purchased Technology (approximately
$658,000). Of the costs to operate the *Imagent* Business
after the acquisition, approximately $1,962,000 was for third party contract
services, contract sales and marketing and legal expenses, $850,000 for
facilities expenses and $775,000 for payroll and related expenses. In addition,
pursuant to an agreement in July 2003 with Dr. Taffy Williams, our Chief
Executive Officer, an aggregate of 52,500 stock options were granted to Dr.
Williams, as approved by our shareholders on January 20, 2005. Because the
exercise prices were below the closing price of our common stock at the dates of
grant, we recorded an expense of approximately $1,236,566 in 2003 reflecting the
differentials between those respective two prices.




*Impairment
Losses*




We
recorded an allowance for valuation impairment for our patents related to our
subcutaneous lymphography technology that we acquired from Alliance in 1999. In
December 2004, after consideration of our decision to focus on the approval of *Imagent* for a
new label indication, our limited resources, the results of our attempts to find
development partners for the related technologies, and our belief that there was
little probability of any future cash flows relating to these patents, we
determined that future cash flows related to patents were going to be less than
the carrying value of these patents. Therefore, we recorded an allowance for
valuation impairment in the fourth quarter of 2004 related to these patents
equal to their carrying value at that time of $274,479.




*Investment
in Affiliate – Sentigen
Matters*




As part
of our annual audits through 2003, we, on behalf of the Sentigen joint venture,
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
2004, we incorporated these projections, as well as other factors, as part of a
continuing analysis of any impairment in the value of the joint venture through
June 10, 2004 and subsequent to June 10, 2004 as related to the carrying value
of the newly recorded consolidated value of the license agreement.




During
2003 and 2004 we recorded equity in the losses from the Sentigen joint venture
of $5,389,338 and $2,213,646, respectively. In 2003, these losses were
substantially the result of the amortization of the lymphography license
purchased from units of Élan and a $4,605,000 charge for impairment of the
license value because, due to the lower priority of the development of N1177 and
capital constraints, limited development work was being conducted.




The
Sentigen joint venture was terminated on June 10, 2004. For the period from
January 1 through June 10, 2004, through normal amortization we wrote down
$346,085 relative to the joint venture. Immediately prior to the termination of
the joint venture, we wrote down our equity share of Sentigen by an additional
$1,857,561. Upon consolidation on June 10, 2004, when we became the sole owner
of Sentigen, the recorded value of the license agreement was $735,916 before
amortization.





**


28




*Investment
and Other Income*




Investment
and other income for the years ended December 31, 2003 and 2004 was $7,394 and
$235,664, respectively.




Investment
income for the years ended December 31, 2003 and 2004 was $7,394 and
$16,280, respectively. Investment income is generated by the amount of capital
in our investment portfolio prior to it being used to fund our operations and
the rate of interest earned on that capital.




In 2003,
investment and other income reflected earnings on the investment portfolio
following our capital raising efforts in late 2002. There was no other income in
2003.




In 2004,
in addition to investment income, we also had income from the following sources:





·
    Reversal
      of the remaining provision for the closing of our former offices in New
      Hope, PA upon the landlord’s successful efforts in replacing us on the
      lease, and





·
    Proceeds
      resulting from modest marketing of*Imagent*.





*Interest
Expense*




Interest
expense was $483,167 and $591,688 for the years ended December 31, 2003 and
2004, respectively. In 2004, interest expense was attributable primarily to our
bridge loan from a bank, our notes to certain of our principal investors and our
obligations to certain creditors of Alliance that we assumed in connection with
our purchase of the *Imagent* Business.




*Equipment
and Leasehold Improvements*




We had no
material purchases of equipment and leasehold improvements during 2003, other
than our acquisition of the *Imagent* Business
which included the assumption of the lease of a manufacturing facility located
in San Diego. This lease expires in 2008 and we are investigating available
alternatives if we elect not to extend the lease. In 2004, we purchased
approximately $115,000 of equipment related primarily to a necessary upgrade of
our information technology systems and nominal acquisitions of equipment for our
manufacturing facility.




Our
current manufacturing facility provides significant excess capacity for our
clinical development and commercial manufacturing activities, now and for the
foreseeable future.




*Preferred
Stock*




In 1999
we issued Series A Convertible Exchangeable Preferred Stock to units of Élan in
connection with the Sentigen joint venture with Élan. This Series A Preferred
was converted into common stock in June 2004 and is no longer outstanding. (This
is different from the Series A that was issued to Bristol-Myers Squibb in
October, 2004 and which remains outstanding.) The holder of the Élan
Series A Preferred Stock was entitled to a mandatory, cumulative,
semi-annual payment-in-kind dividend of 7% (i.e., 0.07 additional shares of
Series A Preferred Stock). We also issued Series B Preferred Stock in
February 2000, which was retired in November 2002 when the holders
converted all of their issued and outstanding Series B Preferred shares
(including accrued and unpaid dividends) into shares of our common stock at an
exchange rate of 4.25 (pre-reverse split).








29





Additionally,
the terms of the Élan Series A Preferred Stock and the Series B
Preferred Stock created additional preferred returns for the holders. The Élan
Series A Preferred Stock was issued with detachable warrants. The value
allocated to those warrants caused the preferred shareholders to receive an
additional return. As a result of the combination of the mandatory dividends,
the preferential value amortization, we recorded preferred stock dividends of
$1,066,280 and $498,060 in 2003 and 2004, respectively, for our series of
Preferred Stock.




*Loss
Attributable to Common Shareholders*




As a
result of the above factors, the net loss applicable to common shareholders
(after preferred dividends) was $23,839,784 and $22,170,695 for the years ended
December 31, 2003 and 2004 respectively. Basic and diluted loss per common
share was $24.75 and $8.20, respectively, for these periods. Weighted average
shares utilized in these calculations were 963,280 and 2,704,703, respectively.
The increase in weighted shares outstanding was due primarily to the timing of
our financing, debt conversion and Series A Preferred Stock
conversion.




**Liquidity;
Capital Resources**




At
December 31, 2004, we had cash and cash equivalents totaling approximately
$4,721,456, compared to $1,657,594 at the end of the 2003 fiscal year. At
December 31, 2004, we had a net equity position of $11,943,329, compared to a
net deficit position (in which our liabilities, puttable share obligations and
mezzanine equity, combined, exceeded our assets) of $8,194,743 **** at the
end of the 2003 fiscal year.




During
the 2004 fiscal year, the following transactions contributed to increased
shareholders’ equity:





·
    $10,150,000
      common stock financing, resulting in approximately $9,325,000 cash
      proceeds net of costs,





·
    Conversion
      of various debt instruments with principal values aggregating $12,719,500
      plus accrued interest, into common stock for a total value of
      approximately $13,496,000,





·
    Reclassification
      of the $12,015,000 mezzanine equity into shareholders’ equity upon the
      conversion of the Series A Preferred Stock issued in connection with the
      Élan joint venture into 9,763 shares of common stock (discussed below),
      and





·
    Contribution
      of $4,500,000 as part of the payment from Bristol-Myers Squibb in
      connection with our technology cross-license, resulting in $4,140,000 of
      proceeds net of costs.





The above
transactions, taken together, resulted in gross increases to shareholders’
equity totaling approximately $38,976,000 during the year ended December 31,
2004. The most significant reduction to shareholders’ equity during this same
period resulted from continuing net losses, totaling approximately $21,673,000.
Accordingly, the net shareholders’ deficit of $8,194,743 at December 31, 2003
was improved to a positive shareholders’ equity of $11,943,329 at December 31,
2004.





During
2004, we financed our operations and serviced a portion of our secured and
unsecured debt and secured puttable share obligations with the proceeds of the
financings we closed in the second quarter of 2004, the payments we received
from Kyosei (net of taxes and expenses), net proceeds from our sale of Series A
Convertible Preferred Shares to Bristol-Myers Squibb and the related technology
cross-license, and through borrowings from our principal institutional investors
(which were converted into common stock in the second quarter of 2004).








30






We
utilized approximately $14,806,000 in available cash for continuing operations
during 2004 (including approximately $1,111,000 to satisfy certain obligations
we assumed pursuant to the acquisition of the *Imagent* Business), which, after giving effect to the $6,000,000 received pursuant to our
Kyosei and Bristol-Myers Squibb license agreement transactions, netted to
approximately $8,806,000, as reported in our consolidated statements of cash
flows for the year then ended.




Our
current budget contemplates that during 2005 we will need at least approximately
$13,500,000 for manufacturing and limited marketing operations, as well as
research, clinical testing and product development programs during 2005. If we
raise additional funds by issuing equity securities, substantial dilution to
existing stockholders may result. However, there can be no assurance that such
capital will be available under acceptable terms, if at all. See “ *Risk
Factors—We must raise additional financing in the future and our inability to do
so will prevent us from continuing as a going concern and implementing our
business plan* ,” above.
Our financial condition raises substantial doubt about our ability to continue
as a going concern without adjustments to our planned levels of
expenditures.




In 2003,
accounts payable increased by $1,049,788 reflecting primarily increases in
balances due to certain vendors assumed by us as part of the *Imagent* Business
acquisition and to other vendors as we continued to manage our cash flow. In
2003, accrued expense balance increased by $3,247,651 to $3,281,793, of which
$3,422,036 related to the non-cash assumption of liabilities related to
the *Imagent* Business
acquisition (including approximately $923,000 for certain notes, all of which
were past due at the end of 2003, as well as, approximately $2,499,000 for other
obligations of which approximately $892,000 was paid down by year end 2003) and
the remaining increase of approximately $717,000 was due to the New Hope office
abandonment provision and general accruals and payroll liabilities. Accordingly,
and after eliminating the non-cash effect of the *Imagent* Business
acquisition liability assumptions, the net cash flow utilized for accrued
expenses was $174,230. In 2003, we issued an unsecured note payable in the
amount of $329,679 related to unpaid legal fees at year end.




In 2004
accounts payable increased by $31,759 to $1,916,551, as we continued to dedicate
available cash resources to ongoing operating expenditures and to reduce debt.
In 2004 accrued expenses decreased on a net basis by $1,090,492 to $2,191,301,
resulting primarily from continued gross cash payments on a portion of the
liabilities we assumed in 2003 as part of the *Imagent* Business
acquisition totaling $1,111,384 (including payments on certain notes totaling
$300,000 included in that amount), and a further non-cash reduction of $240,000
related to prior estimated obligations to certain former Alliance creditors
which we determined were no longer required; but offset by among other items, a
cash bonus declared for our chief executive officer totaling $206,250, which
remains unpaid at December 31, 2004. We also had a net $400,000 cash flow
benefit relating to unpaid royalty obligations in 2004. In 2004 unsecured notes
payable decreased by net $137,446 to $192,233, due to the payoff of the $329,679
note for legal fees (above), but offset by the issuance of notes to two of our
shareholders in the aggregate amount of $192,233 related to advances of certain
operating costs by these shareholders during the year.




In
connection with our acquisition of the *Imagent* Business, we were obligated to pay additional amounts to Alliance secured and
unsecured creditors at various times between 90 and 365 days after the
closing, (i) an aggregate of $2,500,000 to Xmark (a creditor of Alliance)
which was paid in 2004, (ii) subject to reaching satisfactory agreements
with certain Alliance secured and unsecured creditors, an aggregate amount of up
to approximately $3,000,000 to creditors other than Xmark, of which all but
approximately $1,179,000 has been paid, (iii) pay certain royalties based
upon sales of *Imagent* through
June 2010, subject to certain offsets, and (iv) deliver an aggregate
of approximately 102,700 shares of our common stock (which has been completed).
Our obligations to Xmark were secured by a first priority security interest on
the *Imagent* related
tangible and intangible assets, which was released in the fourth quarter of 2004
after the final payment.




As to the
remaining unpaid obligations assumed in connection with the *Imagent* Business
acquisition referenced above totaling approximately $1,179,000 at year end 2004,
$622,750 relates to certain notes (of which $247,750 remain past due at year
end) as a result of negotiated accommodations reached with two of the note
holders in the fourth quarter of 2004.






31




At the
time of the acquisition of the *Imagent* Business, we entered into a lease agreement with a unit of Baxter International
for certain equipment used for the manufacture of *Imagent* . Our
annual cost for this lease is approximately $126,000. Our other significant
long-term commitment that is not recorded on our financial statements is for our
office space in San Diego, California. Annual rent for the California lease,
which expires in 2008, is approximately $819,000 in 2005 (which does not include
estimates for building operations, insurance, property taxes and other common
area maintenance expenditures, which were approximately $146,000 in
2004).




In 2003,
we recognized the issuance of 6,232 shares of common stock that had previously
been subject to rescission. In 2004, we recognized issuance of an additional
11,250 of such shares.




Our
balance sheet for 2003 reflected the effect of classifying $12,015,000 as
mezzanine equity we received from a unit of Élan through its investment in our
Series A Convertible Exchangeable Preferred Stock that we issued in connection
with our joint venture. This Series A Preferred Stock was converted into common
stock in June 2004, and the amount previously designated as mezzanine equity has
been returned to equity on the December 31, 2004 balance sheet. Under the
Certificate of Designations of the Series A Preferred Stock originally held
by Élan, the holder had 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 to convert
shares of the Élan Series A Preferred Stock into common stock at any time
after October 20, 2001 at a conversion price of $84.68 per share.
Alternatively, the holder of the Élan Series A Preferred Stock could
exchange the initial 12,015 shares of the Élan Series A Preferred Stock for
common shares of Sentigen so that the holder of Series A Preferred Stock
owned 50% of the equity of Sentigen. Because the initial value of the Élan
Series A Preferred Stock was exchangeable at the holder’s option into
additional shares of Sentigen, we reclassified $12,015,000 as mezzanine equity
until such time that the exchange right terminated either by the passage of time
or the agreement of the holder to terminate or irrevocably to not exercise the
right. All of the Series A Preferred Stock issued in connection with the joint
venture was converted into 9,763 shares of our common stock in June 2004 and the
joint venture was terminated.




**Plan
of Operation**




During
the next twelve months we will focus our efforts primarily on exploring various
options concerning our business, including obtaining additional financing, joint
ventures, clinical development of *Imagent* ,
licensing or selling all or a portion of our technology and other possible
strategic transactions. Our ability to continue clinical development
of *Imagent* depends
on the successful implementation of one or more of these transactions because
our currently available capital is not sufficient to carry out our business plan
or fully develop and commercialize *Imagent* .




Depending
on the availability of capital and whether we pursue a sale or licensing
strategy for *Imagent* , we
intend to focus our operating efforts on the clinical development of *Imagent* , for the
detection of myocardial perfusion for the diagnosis of CAD during a normal
resting echo procedure. In particular, we plan to focus on Phase II studies for
the detection of CAD, which we expect to require funding of at least $5,800,000
(including out-of-pocket study costs, staffing and costs to maintain our San
Diego production facility at its current level). Longer term, we plan to conduct
Phase III clinical trials for the assessment of myocardial perfusion using *Imagent* with
Phasic Changes to diagnose CAD and prepare for a broader commercialization
effort, to include investigating the appropriate strategic relationships which
might provide additional funding. We plan to defer expenditures for development
of N1177 and PH-50 and we are investigating the possibility of licensing or
partnering with another entity to develop these products.








32








We also
intend to continue prosecuting our claims in the litigation against Amersham as
a high priority for our use of funds and other resources. We have asserted that
Amersham’s products infringe on our patent claims, theft of trade secrets and
certain antitrust violations. Amersham has asserted counterclaims against
us.




Subject
to the availability of sufficient capital, we expect to continue to incur losses
for at least the next three years as we intensify the clinical development,
associated regulatory approval activities and engage in or provide for the
manufacture and/or sale of these and any other products that we have or may
develop.




Greater
capital resources would 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. See “ *Risk
Factors – We must raise additional
financing in the future and our inability to do so will prevent us from
continuing as a going concern and implementing our business
plan* ,” above.
We are also taking continuing actions to reduce ongoing expenses. In the absence
of additional funds, we will need to reduce our rate of spending by limiting
operations, reducing our personnel, seeking accommodations from creditors and
other similar resources, or sell or license significant portions of our assets.
Our financial statements, including those contained in this Form 10-KSB, 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.




If we
raise additional funds by issuing equity securities, substantial dilution to
existing stockholders may result. However, there can be no assurance that such
capital will be available under acceptable terms, if at all. See “ *Risk
Factors - We must raise additional financing in the future and our inability to
do so will prevent us from continuing as a going concern and implementing our
business plan* ,”
below.




In
addition, we expect to evaluate from time to time the acquisition or license of
businesses, technologies or products. The purchase of any such licenses or
technologies would be funded by a portion of any net proceeds of future
offerings or the issuance of debt or equity securities specifically for that
purpose. We expect our use of capital to increase as we continue the clinical
development of *Imagent* .




As of
December 31, 2004, we expect to pay the following contractual obligations and
commitments:





**Payments
      due by Year**

**Recorded
      Liabilities**
    
    **2005**
    
    **2006-2007**
    
    **2008-2009**
    
    **Beyond2009**
    
    **Total***Imagent*purchase obligations and related notes (remaining)
    
    $
    1,179,051
    
    $
    —
    
    $
    —
    
    $
    —
    
    **$**
    **$1,179,051**Equipment
      lease settlement obligations
    
    
    492,984
    
    
    —
    
    
    —
    
    
    —
    
    
    **492,984**Accrued
      royalty liability
    
    
    400,000
    
    
    
    
    
    
    
    
    
    
    
    **400,000****Commitments**Operating
      Lease Commitments
    
    
    979,945
    
    
    1,798,139
    
    
    147,081
    
    
    —
    
    
    **2,925,165**Total
      Contractual Obligations
    
    **$******
    ******3,051,980**
    
    **$**************************************************************
    **************************************************************1,798,139**
    
    **$**************************************************************
    **************************************************************147,081**
    
    **$**************************************************************
    **************************************************************—**
    
    **$**************************************************************
    **************************************************************4,997,200**








33


We have three long-term operating lease commitments. At
the time of the acquisition of the *Imagent*Business,
we entered into a non-cancelable operating lease agreement with a opertaing
lease unit of Baxter International for certain equipment used for the
manufacture of*Imagent*. Our
annual cost for this lease is approximately $126,000 and expires in mid-2006. We
also lease certain office equipment at an annual cost of approximately $35,000
and this lease also expires mid-2006. We lease
a building in San Diego, California for our offices and manufacturing facilities
which expires in February 2008. Annual minimum rent for the lease is
approximately $819,000 (excluding estimated operating costs, such as insurance,
property taxes and common area maintenance, which in 2004 totaled approximately
$146,000).




**Recent
Accounting Pronouncements**




In
December 2004, the FASB issued revised
SFAS No. 123 (SFAS No. 123R), Share-Based Payment. This standard eliminates the
ability to account for share-based compensation transactions using the intrinsic
value-based method under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and requires instead that such transactions be
accounted for using a fair-value-based method. SFAS No. 123R is effective for
Small Business Issuers for financial statements issued for the first interim
period beginning after December 15, 2005. Currently, the Company discloses the
pro forma net income and related pro forma income per share information in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS
No. 148, Accounting for Stock-Based Compensation Costs—Transition and
Disclosure. The Company is evaluating the impact of this statement, which could
have a material impact on its results of operations.




In December 2004,
the FASB issued FAS 153, Exchanges of Non-monetary Assets. The provisions of
this Statement is effective for non-monetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The provisions of this Statement should
be applied prospectively, and eliminates the exception from fair value
measurement for non-monetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29, Accounting for Non-monetary Transactions, and
replaces it with an exception for exchanges that do not have commercial
substance. The adoption of this accounting pronouncement is not expected to have
a material effect on the consolidated financial statements.




In
November 2004, the FASB issued SFAS No. 151, Inventory Costs - an Amendment of
ARB No. 43, Chapter 4. The standard requires abnormal amounts of idle facility
and related expenses to be recognized as current period charges and also
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
No. 151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The Company does not believe adoption of this statement
will have a material impact on the Company’s financial statements.







34


**ITEM
7. FINANCIAL STATEMENTS.**
  **Report
of Independent Registered Public Accounting Firm**
  Board of
Directors
 IMCOR
Pharmaceutical Co. (formerly Photogen Technologies, Inc.)
  We have
audited the accompanying consolidated balance sheets of IMCOR Pharmaceutical Co.
and Subsidiaries (formerly Photogen Technologies, Inc.), a development stage
company, as of December 31, 2004 and 2003, and the related consolidated
statements of operations, shareholders’ equity (deficit) and cash flows for the
years then ended and for the period from November 3, 1996 (inception) to
December 31, 2004.  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 IMCOR Pharmaceutical Co. and
Subsidiaries (formerly Photogen Technologies, Inc.) at December 31, 2004
and 2003, and the results of its operations and its cash flows for the years
then ended and for the period from November 3, 1996 (inception) to December 31,
2004, 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
$73,191,333, 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.
  /s/ Moss Adams LLP
  Moss
Adams LLP
 San
Diego, California
 March 19,
2005
  
 F-1
 
   IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES
      (formerly
      Photogen Technologies, Inc.)
      (A
      Development Stage Company)
      CONSOLIDATED
      BALANCE SHEETS
  December
      31,
    
    December
      31,2003
    
    2004ASSETSCurrent
      AssetsCash
      and cash equivalents
    
    $
    1,657,594
    
    $
    4,721,456Accounts
      receivable
    
    
    --
    
    
    33,916Deposits
    
    
    108,721
    
    
    --Prepaids
    
    
    492,718
    
    
    442,8022,259,033
    
    
    5,198,174Property
      and equipment, net
    
    
    6,294,560
    
    
    4,427,043Other
      assets:Purchased
      technology, net
    
    
    14,979,929
    
    
    13,676,750Patents,
      net
    
    
    316,146
    
    
    --Technology
      license, net
    
    
    --
    
    
    696,408Investment
      in and advances to affiliate
    
    
    2,803,114
    
    
    --Deferred
      royalties, net
    
    
    --
    
    
    458,333Deposits
    
    
    338,383
    
    
    324,75018,437,572
    
    
    15,156,241Total
      Assets
    
    $
    26,991,165
    
    $
    24,781,458
   F-2
  IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES
      (formerly
      Photogen Technologies, Inc.)
      (A
      Development Stage Company)
      CONSOLIDATED
      BALANCE SHEETS (Continued)
  December
      31,
    
    December
      31,2003
    
    2004LIABILITIES
      AND SHAREHOLDERS' EQUITY (DEFICIT)Current
      Liabilities:Notes
      payable - secured
    
    $
    1,250,000
    
    $
    —Lines
      of credit - secured
    
    
    11,735,036
    
    
    —Notes
      payable - unsecured
    
    
    329,679
    
    
    192,233Current
      portion of deferred license revenue
    
    
    166,667
    
    
    696,307Accounts
      payable
    
    
    1,884,792
    
    
    1,916,551Accrued
      expenses and assumed acquisition obligations
    
    
    3,281,793
    
    
    2,191,301Accrued
      royalty fees
    
    
    --
    
    
    400,000Accrued
      equipment lease obligation
    
    
    586,052
    
    
    492,984Total
      current liabilities
    
    
    19,234,019
    
    
    5,889,376Deferred
      license revenue
    
    
    1,833,333
    
    
    6,948,753Accrued
      equipment lease obligation
    
    
    133,888
    
    
    —Puttable
      shares
    
    
    1,969,668
    
    
    —Commitments
      and contingencies (Notes 3, 8, 13, and 14)Mezzanine
      equity- Preferred stock, $.01 par value; 5,000,000shares
      authorized including: Series A preferred stock: 12,015
    sharesand
      no shares authorized, issued and outstanding atDecember
      31, 2003 and 2004, respectively; $1,000 liquidationpreference
      per share ($12,015,000 in aggregate)
    
    
    12,015,000
    
    
    —SHAREHOLDERS'
      EQUITY (DEFICIT):Preferred
      stock, $.01 par value; 5,000,000 shares authorizedSeries
      A preferred stock: 841 shares and 4,500 sharesauthorized,
      issued and outstanding as of December 31, 2003and
      2004, respectively; $1,000 liquidation preference per
share($841,000
      and $4,500,000 in aggregate as of December 31, 2003and
      2004, respectively)
    
    
    8
    
    
    45Common
      stock, $.001 par value; 200,000,000 shares authorized;973,228
      and 4,000,916 shares issued and outstandingas
      of December 31, 2003 and 2004, respectively
    
    
    973
    
    
    4,001Additional
      paid-in capital
    
    
    38,202,815
    
    
    84,020,364Common
      stock to be issued
    
    
    5,120,159
    
    
    1,120,752Unearned
      compensation
    
    
    —
    
    
    (10,500
    )Deficit
      accumulated during the development stage
    
    
    (51,518,698
    )
    
    (73,191,333
    )(8,194,743
    )
    
    11,943,329$
    26,991,165
    
    $
    24,781,458
  See notes
to consolidated financial statements.
 
 F-3
  IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES
      (formerly
      Photogen Technologies, Inc.)
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF OPERATIONSPeriod
      fromInception(November
      3,Year
      Ended
    
    Year
      Ended
    
    1996)
      toDecember
      31,
    
    December
      31,
    
    December
      31,2003
    
    2004
    
    2004License
      revenue
    
    $
    —
    
    $
    354,940
    
    $
    354,940Operating
      expenses:Research
      and development
    
    
    2,529,679
    
    
    3,794,063
    
    
    10,680,379Sales,
      general and administrative
    
    
    14,241,767
    
    
    15,389,363
    
    
    46,278,652Restructuring
      charges
    
    
    136,947
    
    
    —
    
    
    1,541,455Provision
      for future lease payments
    
    
    —
    
    
    —
    
    
    1,264,208Impairment
      losses
    
    
    —
    
    
    274,479
    
    
    274,479Total
      operating expenses
    
    
    16,908,393
    
    
    19,457,905
    
    
    60,039,173Operating
      loss
    
    
    (16,908,393
    )
    
    (19,102,965
    )
    
    (59,684,233
    )Loss
      from joint venture
    
    
    (5,389,338
    )
    
    (2,213,646
    )
    
    (14,518,000
    )Investment
      and other income
    
    
    7,394
    
    
    235,664
    
    
    1,451,999Interest
      expense
    
    
    (483,167
    )
    
    (591,688
    )
    
    (1,541,750
    )Loss
      from continuing operations
    
    
    (22,773,504
    )
    
    (21,672,635
    )
    
    (74,291,984
    )Discontinued
      operations:Operating
      loss from therapeutic business
    
    
    —
    
    
    —
    
    
    (10,679,101
    )Gain
      from split-off of therapeutic business
    
    
    —
    
    
    —
    
    
    11,779,752—
    
    
    —
    
    
    1,100,651Net
      loss
    
    
    (22,773,504
    )
    
    (21,672,635
    )
    $
    (73,191,333
    )Dividends
      on preferred stock
    
    
    (1,066,280
    )
    
    (498,060
    )Net
      loss available to common shareholders
    
    $
    (23,839,784
    )
    $
    (22,170,695
    )Basic
      and Diluted loss per common share fromcontinuing
      operations
    
    $
    (24.75
    )
    $
    (8.20
    )Basic
      and Diluted Loss per common sharefrom
      discontinued operations
    
    $
    —
    
    $
    —Basic
      and diluted net loss per common share
    
    $
    (24.75
    )
    $
    (8.20
    )Weighted
      average number of common sharesoutstanding-
      basic and diluted
    
    
    963,280
    
    
    2,704,703
 
 See notes
to consolidated financial statements.
 F-4
  IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES
      (formerly
      Photogen Technologies, Inc.)
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT)
      (Continued)
  Preferred
      Stock
    
    
    
    
    
    
    
    
    
    
    
    CommonStock
    
    
    Unearned
    
    
    Additional
    
    
    DeficitAccumulatedSeries
      A
    
    
    Series
      B
    
    
    Common
      Stock
    
    
    Members'
    
    
    To
      Be
    
    
    Compen-
    
    
    Paid-in
    
    
    DevelopmentShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Issued
    
    
    sation
    
    
    Capital
    
    
    Stage
    
    
    TotalContribution
      of capital
    
    
    –
    
    $
    –
    
    
    –
    
    $
    –
    
    
    –
    
    $
    –
    
    $
    7,268
    
    $
    –
    
    $
    –
    
    $
    –
    
    $
    –
    
    $
    7,268Net
      loss for the period ended December 31, 1996
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    (1,779
    )
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    (1,779
    )**Balance,
      at December 31, 1996**
    
    
    –
    
    
    –
    
    
    –
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **5,489**
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **5,489**–
    
    
    
    
    
    
    
    
    
    
    
    –Contribution
      of capital
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –Net
      loss for the period January 1, 1997 to May 15, 1997
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    3,511
    
    
    –
    
    
    –
    
    
    –
    
    
    (3,511
    )
    
    –**Balance,
      at May 15, 1997**
    
    
    –
    
    
    –
    
    
    –
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **9,000**
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **(3,511**
    **)**
    
    **5,489**–
    
    
    
    
    
    
    
    
    
    
    
    –Issuance
      of common stock
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    78,910
    
    
    79
    
    
    –
    
    
    –
    
    
    –
    
    
    1,803,371
    
    
    –
    
    
    1,803,450Effect
      of recapitalization and merger
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    371,090
    
    
    371
    
    
    (9,000
    )
    
    –
    
    
    –
    
    
    1,210,816
    
    
    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**
    
    
    –
    
    
    –
    
    
    –
    
    
    **–**
    
    
    **450,000**
    
    
    **450**
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **2,643,076**
    
    
    **(556,481**
    **)**
    
    **2,087,045**–
    
    
    
    
    
    
    
    
    
    
    
    –Issuance
      of common stock
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    10,938
    
    
    11
    
    
    –
    
    
    –
    
    
    –
    
    
    6,999,989
    
    
    –
    
    
    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**
    
    
    –
    
    
    –
    
    
    –
    
    
    **–**
    
    
    **460,938**
    
    
    **461**
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **9,638,511**
    
    
    **(2,530,394**
    **)**
    
    **7,108,578**
 
 F-5
 IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES
      (formerly
      Photogen Technologies, Inc.)
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT)
      (Continued)
 Preferred
      Stock
    
    
    
    
    
    
    
    
    
    
    
    CommonStock
    
    
    Unearned
    
    
    Additional
    
    
    DeficitAccumulatedSeries
      A
    
    
    Series
      B
    
    
    Common
      Stock
    
    
    Members'
    
    
    To
      Be
    
    
    Compen-
    
    
    Paid-in
    
    
    DevelopmentShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Issued
    
    
    sation
    
    
    Capital
    
    
    Stage
    
    
    Total
 Exercise
      of stock options
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    56
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    50,063
    
    
    –
    
    
    50,063Issuance
      of warrants and options
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    3,664,749
    
    
    –
    
    
    3,664,749Issuance
      of common stock
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    6,298
    
    
    6
    
    
    –
    
    
    –
    
    
    –
    
    
    6,082,648
    
    
    –
    
    
    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**
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **467,292**
    
    
    **467**
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **19,435,971**
    
    
    **(8,583,235**
    **)**
    
    **10,853,203**Stock
      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**
    
    
    **841**
    
    
    **8**
    
    
    **337,056**
    
    
    **3,370**
    
    
    **467,292**
    
    
    **467**
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **25,959,539**
    
    
    **(19,370,297**
    **)**
    
    **6,593,087**
 
 F-6
 IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES
      (formerly
      Photogen Technologies, Inc.)
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT)
      (Continued)
 Preferred
      Stock
    
    
    
    
    
    
    
    
    
    
    
    CommonStock
    
    
    Unearned
    
    
    Additional
    
    
    DeficitAccumulatedSeries
      A
    
    
    Series
      B
    
    
    Common
      Stock
    
    
    Members'
    
    
    To
      Be
    
    
    Compen-
    
    
    Paid-in
    
    
    DevelopmentShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Issued
    
    
    sation
    
    
    Capital
    
    
    Stage
    
    
    Total
 Stock
      option compensation
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    64,729
    
    
    –
    
    
    64,729Issuance
      of common stock for cash
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    2,462
    
    
    2
    
    
    –
    
    
    –
    
    
    –
    
    
    418,721
    
    
    –
    
    
    418,723Issuance
      of common stock in satisfaction of anti-dilution provision
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    9,543
    
    
    10
    
    
    –
    
    
    –
    
    
    –
    
    
    (10
    )
    
    –
    
    
    –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**
    
    
    **841**
    
    
    **8**
    
    
    **357,280**
    
    
    **3,572**
    
    
    **479,297**
    
    
    **479**
    
    
    **–**
    
    
    **–**
    
    
    **–**
    
    
    **26,247,200**
    
    
    **(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
    )
    
    21,116
    
    
    21
    
    
    –
    
    
    –
    
    
    –
    
    
    3,953
    
    
    –
    
    
    –Beneficial
      inducement costs for convertible debt converted
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    206,348
    
    
    –
    
    
    206,348Conversion
      of line of credit with Élan to common stock
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    6,422
    
    
    6
    
    
    –
    
    
    –
    
    
    –
    
    
    3,082,481
    
    
    –
    
    
    3,082,487Conversion
      of line of credit with entity controlled by director of company to common
      stock
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    115,741
    
    
    116
    
    
    –
    
    
    –
    
    
    –
    
    
    2,499,884
    
    
    –
    
    
    2,500,000Retirement
      of common stock returned in shareholder transaction
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    (256,855
    )
    
    (257
    )
    
    –
    
    
    –
    
    
    –
    
    
    (12,226,062
    )
    
    –
    
    
    (12,226,319
    )Issuance
      of common stock for cash
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    441,153
    
    
    441
    
    
    –
    
    
    –
    
    
    –
    
    
    9,141,460
    
    
    –
    
    
    9,141,901Net
      loss for the year ended December  31, 2002
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    348,119
    
    
    348,119****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ******Balance,
      at December  31, 2002**
    ****
    ****
    **841**
    ****
    ****
    **8**
    ****
    ****
    **–**
    ****
    ****
    **–**
    ****
    ****
    **806,874**
    ****
    ****
    **806**
    ****
    ****
    **–**
    ****
    ****
    **–**
    ****
    ****
    **–**
    ****
    ****
    **31,145,331**
    ****
    ****
    **(28,745,194**
    **)**
    ****
    **2,400,951**
 
 F-7
 IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES
      (formerly
      Photogen Technologies, Inc.)
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT)
(Continued)
 Preferred
      Stock
    
    
    
    
    
    
    
    
    
    
    
    CommonStock
    
    
    Unearned
    
    
    Additional
    
    
    DeficitAccumulatedSeries
      A
    
    
    Series
      B
    
    
    Common
      Stock
    
    
    Members'
    
    
    To
      Be
    
    
    Compen-
    
    
    Paid-in
    
    
    DevelopmentShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Issued
    
    
    sation
    
    
    Capital
    
    
    Stage
    
    
    Total
 Issuance
      of common stock for cash
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    1,389
    
    
    1
    
    
    –
    
    
    –
    
    
    –
    
    
    29,999
    
    
    –
    
    
    30,000Issuance
      of common stock    forstandstill agreement
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    37,500
    
    
    38
    
    
    –
    
    
    –
    
    
    –
    
    
    1,173,712
    
    
    –
    
    
    1,173,750Conversion
      of Series B tocommon stock
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    5
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –Options
      issued to consultants forservices
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    9,200
    
    
    –
    
    
    9,200Shares
      issued to consultant forservices
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    3,438
    
    
    4
    
    
    –
    
    
    –
    
    
    –
    
    
    132,258
    
    
    –
    
    
    132,262Employee
      compensation fromstock options
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    1,236,566
    
    
    –
    
    
    1,236,566Shares
      issued in Technology Purchase
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    109,907
    
    
    110
    
    
    –
    
    
    –
    
    
    –
    
    
    5,583,158
    
    
    –
    
    
    5,583,268Shares
      to be issued inTechnology 
      Purchase
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    5,043,226
    
    
    –
    
    
    –
    
    
    –
    
    
    5,043,226Shares
      previously subject torescission
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    6,231
    
    
    6
    
    
    –
    
    
    –
    
    
    –
    
    
    649,994
    
    
    –
    
    
    650,000Shares
      issued to Xmark forpenalties
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    4,941
    
    
    5
    
    
    –
    
    
    –
    
    
    –
    
    
    163,671
    
    
    –
    
    
    163,676Shares
      issued to Xmark for interest
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    1,082
    
    
    1
    
    
    –
    
    
    –
    
    
    –
    
    
    48,596
    
    
    –
    
    
    48,597Shares
      to be issued to Xmark and other former Alliance
      creditors  for interest and
penalties
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    76,933
    
    
    –
    
    
    –
    
    
    –
    
    
    76,933Options
      exercised throughcashless
    exercise
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    1,861
    
    
    2
    
    
    –
    
    
    –
    
    
    –
    
    
    (2
    )
    
    –
    
    
    –Xmark
      puttable shares classifiedas mezzanine
      equity
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    (1,969,668
    )
    
    –
    
    
    (1,969,668
    )Net
      loss for the year endedDecember  31,
      2003
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    (22,773,504
    )
    
    (22,773,504
    )**Balance,
      at December  31, 2003**
    ****
    ****
    **841**
    ****
    ****
    **8**
    ****
    ****
    **–**
    ****
    ****
    **–**
    ****
    ****
    **973,228**
    ****
    ****
    **973**
    ****
    ****
    **–**
    ****
    ****
    **5,120,159**
    ****
    ****
    **–**
    ****
    ****
    **38,202,815**
    ****
    ****
    **(51,518,698**
    **)**
    ****
    **(8,194,743**
    **)**
 
 F-8
  IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES
      (formerly
      Photogen Technologies, Inc.)
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT)
(Continued)
 Preferred
      Stock
    
    
    
    
    
    
    
    
    
    
    
    CommonStock
    
    
    Unearned
    
    
    Additional
    
    
    DeficitAccumulatedSeries
      A
    
    
    Series
      B
    
    
    Common
      Stock
    
    
    Members'
    
    
    To
      Be
    
    
    Compen-
    
    
    Paid-in
    
    
    DevelopmentShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Issued
    
    
    sation
    
    
    Capital
    
    
    Stage
    
    
    Total
 Shares
      issued to consultant for services
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    11,562
    
    
    12
    
    
    –
    
    
    –
    
    
    (10,500
    )
    
    43,675
    
    
    –
    
    
    33,187Shares
      to be issued for legal fees
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    247,865
    
    
    –
    
    
    –
    
    
    –
    
    
    247,865Employee
      compensation from stock options
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    959,283
    
    
    –
    
    
    959,283Shares
      issued in *Imagent* Business purchase
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    99,276
    
    
    99
    
    
    –
    
    
    (5,043,226
    )
    
    –
    
    
    5,043,127
    
    
    –
    
    
    –Shares
      issued for penalties
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    8,935
    
    
    9
    
    
    –
    
    
    (107,513
    )
    
    –
    
    
    244,460
    
    
    –
    
    
    136,956Shares
      to be issued to Xmark and secured creditors for interest and
      penalties
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    252,357
    
    
    –
    
    
    –
    
    
    –
    
    
    252,357Shares
      issued as payment for promissory notes
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    1,679,173
    
    
    1,679
    
    
    –
    
    
    –
    
    
    –
    
    
    13,431,705
    
    
    –
    
    
    13,433,384Shares
      issued for cash, net
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    1,268,750
    
    
    1,269
    
    
    –
    
    
    –
    
    
    –
    
    
    9,323,731
    
    
    –
    
    
    9,325,000Shares
      to be issued to investors for late registration
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    832,300
    
    
    –
    
    
    –
    
    
    –
    
    
    832,300Issuance
      of stock in settlement of lease
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    30,829
    
    
    31
    
    
    –
    
    
    –
    
    
    –
    
    
    586
    
    
    –
    
    
    617Xmark
      puttable shares issued from mezzanine equity
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    1,969,668
    
    
    –
    
    
    1,969,668Conversion
      of Series A to common stock
    
    
    (841
    )
    
    (8
    )
    
    –
    
    
    –
    
    
    9,763
    
    
    10
    
    
    –
    
    
    –
    
    
    –
    
    
    12,161,445
    
    
    –
    
    
    12,161,447Retirement
      of puttable shares
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    (80,600
    )
    
    (81
    )
    
    –
    
    
    (203,190
    )
    
    –
    
    
    (1,575,176
    )
    
    –
    
    
    (1,778,447
    )Adjust
      shares for prior rounding
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –Shares
      to be issued to consultants for services
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    22,000
    
    
    –
    
    
    –
    
    
    –
    
    
    22,000Shares
      issued for cash, net
    
    
    4,500
    
    
    45
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    4,139,955
    
    
    –
    
    
    4,140,000Proceeds
      from contribution by shareholder
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    46,690
    
    
    –
    
    
    46,690Warrants
      issued for services rendered
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    28,400
    
    
    –
    
    
    28,400Net
      loss for the year ended December  31, 2004
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    –
    
    
    (21,672,635
    )
    
    (21,672,635
    )**Balance
      December 31, 2004**
    
    
    **4,500**
    
    **$**
    **45**
    
    
    **–**
    
    **$**
    **–**
    
    
    **4,000,916**
    
    **$**
    **4,001**
    
    **$**
    **–**
    
    **$**
    **1,120,752**
    
    **$**
    **(10,500**
    **)**
    **$**
    **84,020,364**
    
    **$**
    **(73,191,333**
    **)**
    **$**
    **11,943,329**
   F-9
 IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES
      (formerly
      Photogen Technologies, Inc.)
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF CASH FLOWS
  Period
      fromInception(November
      3,Year
      Ended
    
    Year
      Ended
    
    1996)
      toDecember
      31,
    
    December
      31,
    
    December
      31,2003
    
    2004
    
    2004CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
    
    $
    (22,773,504
    )
    $
    (21,672,635
    )
    $
    (73,191,333
    )Loss
      from discontinued operations
    
    
    –
    
    
    –
    
    
    (1,100,651
    )Adjustments
      to reconcile net income (loss) to cashby
      operating activities:Depreciation
      and amortization
    
    
    1,681,152
    
    
    3,126,628
    
    
    6,485,684Loss
      (gain) on disposal of property and equipment
    
    
    –
    
    
    (2,200
    )
    
    36,224Gain
      on sale of marketable securities
    
    
    –
    
    
    –
    
    
    (18,503
    )United
      States Treasury Notes amortization
    
    
    –
    
    
    –
    
    
    12,586Stock
      option compensation
    
    
    1,245,766
    
    
    959,283
    
    
    3,883,619Gain
      from equipment lease settlement
    
    
    –
    
    
    (126,257
    )
    
    (126,257
    )License
      revenue deferred
    
    
    2,000,000
    
    
    6,000,000
    
    
    8,000,000Recognition
      of deferred license revenue
    
    
    –
    
    
    (354,940
    )
    
    (354,940
    )Amortization
      of deferred royalty expense
    
    
    –
    
    
    41,667
    
    
    41,667Valuation
      impairment allowances
    
    
    –
    
    
    274,479
    
    
    274,479Beneficial
      inducement costs for convertible notes
    
    
    –
    
    
    –
    
    
    206,348Issuance
      of warrants for services rendered
    
    
    –
    
    
    28,400
    
    
    4,345,491Issuance
      of stock options in settlement of lawsuit
    
    
    –
    
    
    –
    
    
    806,415Issuance
      of stock for standstill agreement
    
    
    1,173,750
    
    
    –
    
    
    1,173,750Issuance
      of stock for services rendered
    
    
    132,262
    
    
    303,052
    
    
    435,314Issuance
      of stock for interest payments and penalties
    
    
    289,206
    
    
    1,221,612
    
    
    1,510,818Equity
      in loss of affiliate
    
    
    5,389,338
    
    
    2,213,646
    
    
    14,518,000Changes
      in operating assets and liabilities:Accounts
      receivable
    
    
    –
    
    
    (33,916
    )
    
    (33,916
    )Prepaid
      expenses
    
    
    200,595
    
    
    49,916
    
    
    (442,802
    )Deferred
      royalty expense
    
    
    –
    
    
    (500,000
    )
    
    (500,000
    )Accounts
      payable
    
    
    1,049,789
    
    
    105,398
    
    
    2,060,190Accrued
      expenses
    
    
    (174,230
    )
    
    (450,492
    )
    
    (355,013
    )Accrued
      equipment lease obligation
    
    
    (83,388
    )
    
    –
    
    
    1,050,589Other
    
    
    –
    
    
    10,000
    
    
    10,000Net
      cash used in continuing operating activities
    
    
    (9,869,264
    )
    
    (8,806,359
    )
    
    (31,272,241
    )Net
      cash used in discontinued operations
    
    
    –
    
    
    –
    
    
    (10,679,101
    )
  F-10
  IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES
      (formerly
      Photogen Technologies, Inc.)
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF CASH FLOWS (continued)
  Period
      fromInception(November
      3,Year
      Ended
    
    Year
      Ended
    
    1996)
      toDecember
      31,
    
    December
      31,
    
    December
      31,2003
    
    2004
    
    2004CASH
      FLOWS FROM INVESTING ACTIVITIES:Sale
      of marketable securities
    
    
    –
    
    
    –
    
    
    2,164,464Purchases
      of marketable securities
    
    
    –
    
    
    –
    
    
    (2,182,967
    )Purchases
      of United States Treasury Notes
    
    
    –
    
    
    –
    
    
    (38,656,973
    )Sale
      of United States Treasury Notes
    
    
    –
    
    
    –
    
    
    39,778,548Purchase
      of property and equipment
    
    
    –
    
    
    (114,757
    )
    
    (751,634
    )Proceeds
      from sale of property and equipment
    
    
    –
    
    
    2,200
    
    
    147,751Patent
      acquisition costs
    
    
    –
    
    
    –
    
    
    (237,335
    )Investment
      in and advances to affiliate
    
    
    –
    
    
    –
    
    
    (15,107,468
    )Increase
      in note receivable
    
    
    –
    
    
    –
    
    
    (1,255,000
    )Decrease
      (increase in deposits)
    
    
    (334,000
    )
    
    13,633
    
    
    (764,120
    )Purchase
      of Imagent business
    
    
    (5,074,761
    )
    
    –
    
    
    (5,074,761
    )Net
      cash provided by (used in) investing activities
    
    
    (5,408,761
    )
    
    (98,924
    )
    
    (21,939,495
    )Net
      cash used in investing activities of discontinued
    operations
    
    
    –
    
    
    –
    
    
    (1,306,676
    )CASH
      FLOWS FROM FINANCING ACTIVITIESPrincipal
      payments on capital leases
    
    
    –
    
    
    –
    
    
    (291,704
    )Net
      proceeds from issuance of equity and mezzanine equity
    
    
    30,000
    
    
    13,465,000
    
    
    54,004,340Capital
      contributions from shareholders
    
    
    –
    
    
    46,690
    
    
    1,958,364Principal
      payments on acquisition debt
    
    
    (1,250,000
    )
    
    (1,250,000
    )
    
    (2,500,000
    )Principal
      payments on other debt
    
    
    –
    
    
    (3,350,641
    )
    
    (3,350,641
    )Proceeds
      from issuance of debt
    
    
    12,064,715
    
    
    3,133,096
    
    
    20,544,721Payments
      on lease settlement obligation
    
    
    –
    
    
    (75,000
    )
    
    (75,000
    )Cost
      of recapitalization
    
    
    –
    
    
    –
    
    
    (371,111
    )Net
      cash provided by financing activities
    
    
    10,844,715
    
    
    11,969,145
    
    
    69,918,969NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (4,433,310
    )
    
    3,063,862
    
    
    4,721,456CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    6,090,904
    
    
    1,657,594
    
    
    –CASH
      AND CASH EQUIVALENTS, END OF YEAR
    
    $
    1,657,594
    
    $
    4,721,456
    
    $
    4,721,456SUPPLEMENATAL
      SCHEDULE OF CASH FLOWS INFORMATION:Interest
      paid
    
    $
    165,132
    
    $
    85,320
    
    $
    481,769
   F-11
  
 IMCOR
PHARMACEUTICAL CO. AND SUBSIDIARIES
 (formerly
Photogen Technologies, Inc.)
 (A
Development Stage Company)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
 
 **NON-CASH
INVESTING AND FINANCING ACTIVITIES:**
 
 **YEAR
ENDED DECEMBER 31, 2004:**
 
 As part
of the settlement of a lease obligation, the Company paid $75,000, issued 30,829
shares of common stock and utilized a $98,721 lease deposit to offset the
estimate of the liability recorded at December 31, 2003. The Company recorded a
$126,257 credit to expenses in 2004 which represented the amount by which the
estimated liability at December 31, 2003 exceeded the value of the settlement
reached in 2004. As a result the following items in the balance sheet were
reduced: Deposits: $98,721; Accounts payable: $73,639; Accrued lease obligation
- current: $93,068; and Accrued lease obligation - long-term:
$133,888.
 
 The
Company abandoned and sold $52,851 of fully depreciated equipment and leasehold
improvements.
 
 In April
and June 2004, the Company issued 1,679,173 shares of common stock in settlement
of $13,433,384 in Lines of Credit Secured, including $713,884 of interest
accrued which was added to the principal balance in 2003 and 2004.
 
 In June
2004, the holder of the Series A Preferred Stock elected to convert these shares
into 9,763 shares of common stock and surrender its interest in a joint venture
with the Company. As a result, $12,015,000 of mezzanine equity was reclassified
into shareholders’ equity, shareholders equity was also increased by $146,447
for the value of the common shares issued, and the investment in and advances to
affiliate was increased by a similar amount. Simultaneously, the investment in
and advances to affiliate was reduced by $735,916 and technology license was
increased by a similar amount to reflect the consolidation of the joint venture
with the Company.
 
 In June
2004, the Company issued secured promissory notes Xmark Fund Ltd. and Xmark Fund
LP totaling $2,128,447 to retire 80,599 common shares that had a put feature,
extinguish obligations to issue additional shares valued at $166,458 ($123,409
accrued in 2004), as well as pay a $350,000 fee. As a result of this transaction
and the holder of the puttable shares, having sold a portion of the shares and
thereby extinguishing $314,630 of the put feature, Puttable Shares decreased by
$1,969,668 and shareholder equity increased by $191,221.
 
 In March
2004, the Company issued 99,276 shares of common stock at a value of $5,043,226
related to the purchase of *Imagent* in June
2003. These shares had been classified in Common Stock to be
Issued.
 
 As a
result of settlement of liabilities assumed in the *Imagent* acquisition for amounts less than the original estimate, accrued expenses and
leasehold improvement costs were decreased by $240,000 each.
  **YEAR
ENDED DECEMBER 31, 2003:**
 
 In June
2003, as part of the acquisition of the *Imagent* business, the Company paid cash of $5,074,761, issued common shares and share to
be issued valued at $10,626,494, assumed notes payable of $2,500,000 and other
creditor obligations of $3,421,891. In addition the Company applied $1,255,000
of previous advances as additional consideration. The total consideration of
$22,878,146 was allocated to Purchased Technology ($15,638,146) and Property and
Equipment ($7,240,000). The Company also accrued a $297,000 obligation to
provide a security deposit related to the assumed operating lease for the
facilities.
  See
accompanying notes to consolidated financial statements *.*
  F-12
  ****
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements**
  **1.
Operations**
 
  IMCOR
Pharmaceutical Co. (formerly Photogen Technologies, Inc.) and Subsidiaries (the
“Company”) is a development-stage
pharmaceutical company focused on developing medical imaging pharmaceutical
products. These imaging agents are used with echocardiography and computed
tomography (“CT”) equipment in order to increase the diagnostic capabilities of
these techniques . On
February 5, 2004, the Company changed its name to IMCOR Pharmaceutical Co.
to reflect the changed nature of the Company’s business to imaging
pharmaceuticals.
 
 The
Company has one FDA approved product, *Imagent* **®** (perflexane
lipid microspheres) (“ *Imagent* ”), an
ultrasound imaging contrast agent that was acquired in June 2003. *Imagent* has been
approved for marketing by the FDA for use in patients with sub-optimal
echocardiograms to opacify the left ventricle of the heart and improve
delineation of the endocardial borders of the heart. The Company is seeking to
expand the label indication for *Imagent* to
myocardial perfusion imaging for the detection of coronary artery disease.
 
 The
Company has 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 (PH-50), and (2) to diagnose cancer metastasizing
into the lymphatic system (N1177). PH-50 and N1177 are iodinated nanoparticulate
formulations and are still in early stages of development. Based on the
availability of capital and Management’s assessment of market potential, the
Company intends to focus its efforts on *Imagent* and
plans to defer the development of PH-50 and N1177 to a later date.
  For the
two years prior to the acquisition of the *Imagent* business, substantially all the Company’s research and development efforts were
focused on the preclinical testing of PH-50. In addition, the Company had
conducted research and development activities on the development of certain
therapeutic photodynamic therapy applications and the development of a medical
laser. These operations were split-off to the founding scientists as of
November 12, 2002 and were recorded as discontinued operations in the
financial statements.
   The
Company has realized minimal revenues resulting from the licensing and sale of *Imagent* to date.
Such sales are intermittent and represent selective market efforts and are not
necessarily indicative of future revenues or market penetration for current or
prospective indications. Currently, the Company's core business focus remains on
raising additional capital, securing extended payment terms with its current
creditors, and the continued clinical development of its *Imagent* products
(which will result in continued expenditures for product development). These
costs, as well as increased costs associated with relevant sales and marketing
activities, will be incurred only as sufficient capital remains available.
 
 **2.
Summary of Significant Accounting Policies:**
 
  **Liquidity
and Basis of Presentation  Going Concern:** The
accompanying consolidated financial statements are prepared assuming the Company
is a going concern.  The Company has  reported
accumulated losses since inception of $73,191,333. At December 31, 2004 the
Company lacks sufficient **** working
capital to fund operations for the entire fiscal year ending
December 31, 2005. 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
by April 30, 2005 **,** the
Company will be required to significantly curtail its operating plans and may
have to sell or license out significant portions of the Company’s technology or
potential products.
 
  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.
  ****
 **Recapitalization
and Merger** - On May
16, 1997, MT Financial Group, Inc. (an inactive public company) effected a
reverse merger with Photogen, Inc. (“Photogen”), which was a wholly owned
subsidiary. Photogen was a successor to Photogen, L.L.C., which commenced
operations on November 3, 1996. On February 5, 2004 Photogen changed its
name to IMCOR Pharmaceutical Co.
  F-13
 ****
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 **Principles
of Consolidation** –The accompanying consolidated financial
statements include the accounts of IMCOR Pharmaceutical Co. and its wholly owned
subsidiary, Sentigen Ltd. (“Sentigen”). Sentigen was a joint venture with Elan
International, Ltd. which was formed in October 1999 with the Company as an
80.1% owner. Elan was a 19.9% owner but retained substantive participation and
management rights. On June 10, 2004, the joint venture was terminated and
Sentigen became a wholly owned subsidiary of the Company. The Company’s
investment in Sentigen was accounted for under the equity method from inception
through June 10, 2004 and consolidated thereafter. All inter-company
transactions have been eliminated.
 
 **Stock
Splits**– On March
4, 2005, the Company effected a 1-for-20 reverse stock split of its common
stock. In November 2002, the Company effected a 1-for-4 reverse stock split of
its common stock. All share and per share amounts related to common stock in the
consolidated financial statements have been retroactively adjusted for all
periods presented to give effect to these reverse stock splits.
 
  **Use
of 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.
  ****
 **Cash
Equivalents**–  Highly
liquid investments with a maturity of three months or less when purchased are
classified as cash equivalents. Cash equivalents are carried at cost, which
approximate their fair market value.
  ****
 **Property
and Equipment**–**** Property
and equipment 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. Expense for maintenance and repairs
are expensed as incurred.
  ****
 **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 value of these assets may not be recoverable and recognizes a loss when
it is probable that the estimated future cash flows will be less than the
carrying value of the asset. Any long-lived assets held for disposal are
reported at the lower of their carrying amounts or fair value less cost to
sell.
 
 **Intangible
Assets and Deferred Expenses** –
Patent costs, purchased technology, and technology license are amortized on a
straight-line basis over their estimated useful lives ranging from 10-12 years.
Deferred royalty payments are amortized over the same period as the related
deferred revenue, which is 12 years. The carrying values of intangible assets
are periodically reviewed and impairments, if any, are recognized when the
expected future benefit to be derived from an intangible asset is less than its
carrying value.
 
 **Research
and Development** –
Research and development costs are charged to expense when
incurred.
  ****
 **Revenue
Recognition and Deferred Revenue**–**** The
Company recognizes revenue from license agreements ratably over remaining useful
life (11-12 years )of the related technology as calculated at the time the
respective licensing payments are received.
 
 **Income
Taxes** – Deferred
tax liabilities and assets are provided for differences between the book and tax
bases of existing assets and liabilities and tax loss carryforwards and credits
using tax rates expected to be in effect in the years in which differences are
expected to reverse. Valuation allowances are provided to the extent realization
of tax assets is not considered likely .
 
 
 F-14
  **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 
 **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 of each year are as follows:
  2003
    
    2004Options
      pursuant to plans
    
    
    332,104
    
    
    516,670Options
      outside of plans, net of cashless component
    
    
    15,727
    
    
    15,727Warrants
    
    
    18,874
    
    
    820,147Issuable
      upon conversion of preferred stock
    
    
    9,669
    
    
    833,334Total
    
    
    376,374
    
    
    2,185,878
 
 Basic and
diluted loss per common share in 2003 includes 99,276 shares to be issued upon
shareholder approval and in 2004 includes 417,965 shares to be
issued.
  ****
 **Fair
Value of 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** –
The Company’s stock option plans are accounted for using the intrinsic-value
method of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees”, and related interpretations. The intrinsic-value
method requires that compensation expense, if any, be determined by calculating
the difference between the fair value of the Company’s common stock and the
option’s strike price at a measurement date. The measurement date is generally
when the number of shares and the option strike price are known. The Company
uses the fair-value method to account for non-employee stock-based compensation.
The Company has also adopted the disclosure requirements of SFAS No. 148,
“Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment
to FASB Statement No. 123”. Options issued to non-employees are accounted for
using the recognition provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation”, using the fair value-based method.
 
 The
Company has computed the pro forma disclosures required by SFAS No. 123,
“Accounting for Stock-Based Compensation”, for options granted using the
Black-Scholes option-pricing model prescribed by SFAS No. 123. The assumption
used and weighted-average information are as follows for each of the years ended
December 31:
 
 2003
    
    2004Weighted-average
      fair value of options granted
    
    $
    36.40
    
    $
    6.60Expected
      dividend yield
    
    $
    –
    
    $
    –Risk-free
      interest rate at grant date
    
    
    2.56
    %
    
    3.79
    %Expected
      stock price volatility
    
    
    98.00
    %
    
    183.24
    %Expected
      option lives (years)
    
    
    5
    
    
    5
  F-15
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 
 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 for each of the years ended December
31:
    2003
    
    2004Applicable
      to common stockholders:Net
      loss, as reported
    
    $
    (23,839,784
    )
    $
    (22,170,695
    )Add
      stock based compensation expenseincluded
      in reported net loss
    
    
    1,245,768
    
    
    959,283Less
      total stock-based employeecompensation
      expense determined underthe
      fair-value based method for all awards
    
    
    (5,771,226
    )
    
    (1,752,190
    )Pro
      forma net loss
    
    $
    (28,365,242
    )
    $
    (22,963,602
    )Net
      loss per common share (basic and diluted):Reported
    
    $
    (24.75
    )
    $
    (8.20
    )Pro
      forma
    
    $
    (29.45
    )
    $
    (8.49
    )
 ****
 **Recent
Accounting Pronouncements:**
 
 In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs - an Amendment of
ARB No. 43, Chapter 4”. The statement requires abnormal amounts of idle facility
and related expenses to be recognized as current period charges and also
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
No. 151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The adoption of this statement is not expected to have a
material impact on the Company’s financial statements.
  In
December 2004, the FASB issued revised SFAS No. 123 (SFAS No. 123R),
“Share-Based Payment”. This statement eliminates the ability to account for
share-based compensation transactions using the intrinsic value-based method
under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees”, and requires instead that such transactions be accounted for
using a fair-value-based method. SFAS No. 123R is effective for Small Business
Issuers for financial statements issued for the first interim period beginning
after December 15, 2005. Currently, the Company discloses the pro forma net
income and related pro forma income per share information in accordance with
SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148,
Accounting for Stock-Based Compensation Costs—Transition and Disclosure. The
Company is evaluating the impact of this statement, which could have a material
impact on its results of operations.
  In
December 2004, the FASB issued FAS 153, “Exchanges of Nonmonetary Assets”. The
provisions of this statement are effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. This statement
eliminates the exception from fair value measurement for non-monetary exchanges
of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
“Accounting for Nonmonetary Transactions”, and replaces it with an exception for
exchanges that do not have commercial substance. The adoption of this statement
is not expected to have a material effect on the Company’s consolidated
financial statements. This statement will be applied prospectively.
  **Reclassification:** Certain
reclassifications have been made to the prior years' financial statements to
conform to the current year presentation. These reclassifications had no effect
on previously reported results of operations or retained earnings.
  F-16
  **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
  **3.
Acquisition of** ***Imagent*** **Business:**
 
  On
June 18, 2003, the Company acquired the medical imaging business from
Alliance Pharmaceutical Corp. (“Alliance”). The
acquisition costs and allocation to the assets acquired and liabilities assumed
were as follows:
 
  Total
      consideration and acquisition costs:Fair
      value of common stock issued in 2003
    
    $
    5,583,268Fair
      value of common stock issued in 2004
    
    
    5,043,226Prior
      cash advances from Company
    
    
    4,018,052Cash
      paid at closing
    
    
    669,117Current
      year payments to vendors on behalf of Alliance
    
    
    388,387Notes
      payable assumed
    
    
    2,500,000Obligation
      to pay Alliance creditors
    
    
    3,421,891Acquisition
      costs
    
    
    1,254,205$
    22,878,146Fair
      value of assets acquired:Leasehold
      improvements
    
    $
    5,527,738Equipment
    
    
    1,712,2627,240,000Purchased
      technology
    
    
    15,638,146$
    22,878,146
 
 The fair
value of the common stock issued in 2003 and 2004 were all based on the fair
value of the shares of stock on June 18, 2003, which was the date the shares
were issuable . The
purchase agreement provided that the Company was obligated to pay Alliance
creditors up to a specified amount for various categories of creditors. During
2004, some obligations to Alliance creditors were satisfied for less than the
amounts originally estimated and as a result, the Company reduced both accrued
expenses and the original acquisition cost of the leasehold improvements by
$240,000.
 
  The
Company is obligated to pay Alliance contingent consideration (“Earnout”) based
on revenues from the sale of *Imagent* from
June 18, 2003 through June 18, 2010, subject to certain reductions. The Earnout
is based on varying percentages applied to the revenue during the twelve month
periods ending on each anniversary date as follows: 7.5% *of* revenue
up to $20,000,000; 10% of ** revenue
from $20,000,001 up to $30,000,000; 15% of ** revenue
from $30,000,001 up to $40,000,000; and 20% of ** revenue
in excess of $40,000,000. The Earnout will be reduced by the net amounts the
Company is obligated to pay pursuant to a license agreement with Schering
Aktiengesellschaft (“Schering AG”) and any amounts that may be due from Alliance
pursuant to an indemnification agreement. The Earnout is subject to three
additional offsets that are applied in different priorities but in total may
provide reductions to the Earnout obligation up to approximately $7,000,000. Due
to the absence of any meaningful current or expected revenue from *Imagent* ,
management is not able to, and has not, included the present value of future
estimated Earnout payments in the determination of the consideration paid for
the acquisition. Future Earnout obligations will be expensed in the periods when
they can be reasonably estimated.
 
 The
purchase costs allocated to intangible assets related to the acquisition of
the *Imagent* business, referred to as Purchased Technology, were estimated by management
based on the fair value of the assets acquired. Purchased Technology is being
amortized on a straight-line basis over the estimated remaining life of twelve
years.  Purchased Technology is stated at cost, less accumulated
amortization.
  
 F-17
 
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 
 The
following are the statements of revenues and direct expenses related to the *Imagent* business
for the period of January 1, 2003 through June 18, 2003 (date of
purchase):
 
  Expenses:Research
      & development
    
    $
    4,501,299Sales,
      general and administrative
    
    
    1,363,973Total
      Expenses
    
    $
    5,865,272
  The *Imagent* business
was an integrated operation of Alliance and in the normal course of operations
Alliance did not prepare separate financial statements for the *Imagent* business
in accordance with accounting principles generally accepted in the United
States. The statements of revenues and direct expenses related to the *Imagent* business
presented above were prepared in accordance with the rules and regulations of
the Securities and Exchange Commission (“SEC”) for presentation of less than
full financial statements. These statements are not intended to be a complete
presentation of the operating results of the *Imagent* business. These statements 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 were
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 the *Imagent* business, therefore, no interest expense has been reflected in these statements.
These statements are not necessarily indicative of the results of operations
that would have occurred if the *Imagent* business
had been an independent company.
  The
following is supplemental unaudited pro forma information for the results of
operations of the Company for the year ended December 31, 2003 as if the
acquisition had been completed as of the beginning of the period. The unaudited
pro forma information gives effect to actual operating results of the Company
prior to the acquisition, adjusted to include the unaudited pro forma effect of
the operations of Alliance related to the *Imagent* business, amortization of intangibles and leasehold improvements, and weighted
shares outstanding:
 
  Year
      EndedDecember
      31,2003Operating
      expenses:Research
      & development
    
    $
    7,030,978Sales,
      general and administrative
    
    
    16,387,260Restructuring
      charge
    
    
    136,947Operating
      loss
    
    
    (23,555,185
    )Loss
      from joint venture
    
    
    (5,389,338
    )Investment
      income
    
    
    7,394Interest
      expense
    
    
    (483,167
    )Loss
      from continuing operations
    
    
    (29,420,296
    )Discontinued
      operations – net
    
    
    –Net
      income (loss)
    
    
    (29,420,296
    )Dividends
      on preferred stock
    
    
    (1,066,280
    )Net
      loss applicable to common shareholders
    
    $
    (30,486,576
    )Pro
      forma net loss per share
    
    $
    (31.51
    )Weighted
      average number of common sharesoutstanding –
      basic and diluted
    
    
    963,280
  F-18
 ****
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 
 The pro forma information gives effect to actual operating results prior
to the acquisition, adjusted to include the pro forma effect
of:
  Amortization
of purchased technology costs ($15,136,282) of $630,678 for the period from
January 1, 2003 through June 18, 2003. The estimated life of the purchased
technology is twelve years.
  The
issuance of 209,183 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 on January 1, 2003, nor
is it necessarily indicative of future
results.
 
 **4.
Investment in and Advances to Affiliate**
 
  On
October 7, 1999, Sentigen, Ltd. (“Sentigen”) was formed as a joint venture
between the Company and Elan International Services, Ltd. (“Elan”) to develop
and commercialize
nanoparticulate diagnostic imaging agents for the detection and treatment of
cancer through lymphography. As part of the organization of Sentigen in
1999:
  Elan was
issued 2,980 shares of Sentigen non-voting convertible preferred stock for
$2,985,000 representing a 19.9% ownership interest. The Company was issued
12,000 shares of Sentigen’s common stock for $12,015,000 representing an 80.1%
ownership interest.
 
 Elan
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
Company’s preferred stock to Elan, the Company granted warrants to Elan to
purchase 5,000 shares of the Company’s common stock at $1,693.60 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 was 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 was first convertible. As of December 31, 2001, the beneficial
conversion feature was fully recorded.
 
 Elan
purchased 5,769 shares of the Company’s common stock for $6,000,000. The Company
was required to issue an additional 9,543 shares of the Company’s common stock
to adjust the number of shares issued to equal the effective per share price of
the Company’s next offering of common stock in a third-party
offering.
 
 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.
 
 Elan also
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, were due and payable in 2005 or, at the option
of Elan, converted into the Company’s common stock at $1,452 per share.
Borrowings under the line of credit bore interest at 8%. 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 $480 per share and the line
of credit was cancelled. A beneficial conversion amount of $206,348 was added to
additional paid-in capital as a result of the decrease in the original
conversion price.
 
  In
June 2004 the holder of the Company's Series A Preferred Stock sold
that instrument and the purchaser converted all Series A Preferred Stock,
including accrued and unpaid dividends, into 9,763 shares of the Company's
common stock at a conversion price of $1,693.60 per share. On the conversion
date, the value of the Company's common stock was $15.00 per share, which was
deemed to be the implicit factor to value the 19.9% of Sentigen that Elan sold
to the Company for $146,447. Accordingly, the Company wrote down the carrying
value of its 80.1% share of the related technology license then held by Sentigen
to $589,469.
  Separately,
on June 10, 2004, the Company and Elan terminated the joint venture. As a
result, on that date Sentigen became a wholly owned subsidiary of the Company
and was consolidated in the Company’s financial statements.
 
 F-19
 ****
**IMCOR
Pharmaceutical Co. and Subsidiaries**
**(formerly
Photogen Technologies, Inc.)**
**(A
Development Stage Company)**
**Notes
to Consolidated Financial Statements
(Continued)**
 
 Elan had
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 was accounted for using the equity method
until June 10, 2004.
 
  The
following is summarized unaudited financial information of Sentigen as of
December 31, 2003 and the year then ended and as of June 18, 2004 and the
period from January 1, 2004 through June 10, 2004:
 
  December
      31,
    
    June
      10,2003
    
    2004Cash
    
    $
    410
    
    $
    –License
      purchased from Elan
    
    
    3,570,643
    
    
    735,916Total
      assets
    
    $
    3,571,053
    
    $
    735,916Due
      to affiliates
    
    $
    378,099
    
    $
    –Total
      shareholders’ equity
    
    
    3,192,954
    
    
    735,916Total
      liabilities and equity
    
    $
    3,571,053
    
    $
    735,916Operating
      expenses:Amortization
      of license
    
    $
    978,264
    
    $
    432,067Impairment
      of license
    
    
    5,750,000
    
    
    2,402,660Net
      loss
    
    $
    6,728,264
    
    $
    2,834,727
 
 The
License purchased from Elan is net of accumulated amortization of $3,179,357 and
$3,611,424 as of December 31, 2003 and June 10, 2004, respectively and also net
of cumulative allowances for valuation impairments of $8,250,000 and $10,652,660
as of December 31, 2003 and June 10, 2004, respectively. Allowances for
valuation impairment were recorded as follows: $2,500,000 in 2002, $5,750,000 in
2003 and $2,402,660 in the period ended June 10, 2004. In each of these cases,
the allowance for valuation impairment was based on Sentigen’s assessment of the
future cash flows or a valuation of the fair value of the license.
  ****
 **5.
Property and Equipment**
 
  Property,
plant and equipment consist of the following at December 31, 2003 and
2004:
 
  2003
    
    2004Leasehold
      improvements
    
    $
    5,560,869
    
    $
    5,287,738Furniture,
      fixtures and equipment
    
    
    1,729,782
    
    
    1,824,819Total
    
    
    7,290,651
    
    
    7,112,557Accumulated
      depreciation and amortization
    
    
    (996,091
    )
    
    (2,685,514
    )Property,
      plant and equipment, net
    
    $
    6,294,560
    
    $
    4,427,043
 
 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 was $981,440 and
$1,742,274 in 2003 and 2004, respectively.
  ****
 F-20
 ******
**IMCOR
Pharmaceutical Co. and Subsidiaries**
**(formerly
Photogen Technologies, Inc.)**
**(A
Development Stage Company)**
**Notes
to Consolidated Financial Statements (Continued)****
 **6.
Intangible Assets and Deferred Expenses:**
 
 The cost
and accumulated amortization of intangible assets and deferred expenses are as
follows:
 
 2003
    
    2004Purchased
      technology:Cost
    
    $
    15,638,146
    
    $
    15,638,146Accumulated
      amortization
    
    
    (658,217
    )
    
    (1,961,396
    )$
    14,979,929
    
    $
    13,676,750Patents:Cost
    
    $
    500,000
    
    $
    500,000Less
      allowance for valuation impairment
    
    
    –
    
    
    (274,479
    )Accumulated
      amortization
    
    
    (183,854
    )
    
    (225,521
    )$
    316,146
    
    $
    –Technology
      license:Cost
    
    $
    –
    
    $
    735,916Accumulated
      amortization
    
    
    –
    
    
    (39,508
    )$
    –
    
    $
    696,408Prepaid
      royalty:Cost
    
    $
    –
    
    $
    500,000Accumulated
      amortization
    
    
    –
    
    
    (41,667
    )$
    –
    
    $
    458,333
 
 In
December 2004, the Company determined, after consideration of its decision to
focus on the approval of *Imagent* in a new
application, its limited resources, and the results of attempts to find
development partners for the related technologies, that the future cash flows
related to patents were going to be less than the carrying value of patents.
Therefore, in December 2004 the Company recorded an allowance for valuation
impairment related to the patents to reduce the carrying value to zero because
the Company did not believe there was a realistic probability of future cash
flows related to this asset.
 
 Amortization
expense for purchase technology, patents and technology license was $1,342,687
and $699,883 in 2004 and 2003, respectively. Amortization for these intangible
assets is estimated to be $1,373,940 in each of the next five
years.
 
 **7.
Accrued Expenses and Assumed Acquisition Obligations:**
 
   December
      31,
    
    December
      31,2003
    
    2004Assumed
      acquisition obligations- Alliance
    
    $
    2,530,435
    
    $
    1,179,051Accrued
      payroll, deferred bonuses and related expenses
    
    
    322,503
    
    
    723,707Other
      accrued expenses
    
    
    428,855
    
    
    288,543$
    3,281,793
    
    $
    2,191,301
 
 **8.
Commitments and Contingencies**
 
  **Leases:** The
Company leases 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.
   F-21
  **IMCOR
Pharmaceutical Co. and Subsidiaries**
**(formerly
Photogen Technologies, Inc.)**
**(A
Development Stage Company)**
**Notes
to Consolidated Financial Statements
(Continued)**
   Minimum
future rental payments under these leases are as follows:
 
 Year
      EndingDecember
      31,
    
    Total
    
    Building
    
    Equipment2005
    
    $
    980,000
    
    $
    819,200
    
    $
    160,8002006
    
    
    920,600
    
    
    847,800
    
    
    72,8002007
    
    
    877,500
    
    
    877,500
    
    
    –2008
    
    
    147,100
    
    
    147,100
    
    
    –Total
    
    $
    2,925,200
    
    $
    2,691,600
    
    $
    233,600
 
 Total
rental expense charged to operations for the years ended December 31, 2003,
and 2004 was approximately  $985,000 and $1,002,000, respectively. In
addition to the rental expense, the charges from the landlord for maintenance,
insurance and property taxes totaled $77,000 in 2003 and $146,000 in
2004.
 
 **Employment
Agreements:** The
Company has employment agreements with two executives that provide for severance
benefits upon termination of their employment without cause. The severance
benefit is 12 months salary for each executive. The severance benefit currently
totals $506,000 based on their current salaries. One of the employment
agreements provides for complete vesting of 315,594 options (none were vested as
of December 31, 2004) upon a change of control of the Company or upon
termination of employment. This employee currently holds an additional 52,500
options which are fully vested. The other employment agreement provides for
complete vesting of all outstanding options (21,000 as of December 31, 2004 of
which 2,125 were vested) upon a change of control or upon termination of
employment without cause.
 
 **License
Agreements:** As part
of the acquisition of the *Imagent* business
from Alliance in June 2003, the Company assumed a license agreement between
Alliance and Schering AG (“Schering AG License”) which provides the Company with
exclusive marketing and manufacturing rights, drug compositions, and medical
devices and systems related to perfluorocarbon ultrasound imaging products,
including *Imagent* , in the
United States, for a five-year period from the date of the first commercial sale
of a related product, which was August 2003. Schering AG is entitled to royalty
payments based on five percent of sales revenues and ten percent of license fee
revenues that are received as lump sum payments. Schering AG is entitled to a
minimum royalty payment of $500,000 for lump sum license fee revenues received.
If at the expiration of the five-year period the Company has not provided
royalty payments to Schering AG in excess of $20,000,000 then Schering AG has
the option to become a co-promoter of products, in which event the Company will
be entitled to receive royalty payments from Schering AG. During the year ended
December 31, 2004 the Company accrued $500,000 as the royalty obligation related
to the product license agreement described in Note 14. The Company deferred this
cost and is amortizing it to expense over the same period that it is amortizing
the license revenue to income.
 
  **Litigation:** ****** On
June 18, 2003, the Company filed a complaint against Amersham Health, Inc.
and two other Amersham affiliates alleging that certain Amersham products
infringe on claims in the patents covering *Imagent* . The
complaint alleges that principally through the Optison® product, Amersham Health
Inc. and related Amersham entities infringe on eight patents owned by the
Company. The Company is also seeking a declaration that the claims of fifteen
Amersham patents are invalid and are not
infringed by the
Company’s *Imagent* product.
The Company is seeking damages, an injunction against Amersham, a declaratory
judgment and other relief.
  
 Amersham
denied the material allegations of the Company’s claims and asserted certain
affirmative defenses and counterclaims. Amersham’s counterclaims include claims
of patent infringement of the fifteen Amersham patents, breach of contract,
breach of good faith and fair dealing, and tortious interference with contract.
Both parties have amended their complaints to include allegations of antitrust
violations by the other party.
  It is not
presently feasible to determine whether there is a reasonable possibility that
the assets have been impaired for purposes of Statement of Financial Accounting
Standards No. 5, or the extent of damages or gain, if any, that might result
depending on whether or not the Company prevails. In any event, the Company will
continue to incur litigation costs as it prosecutes claims in the
litigation.
 F-22
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
**(formerly
Photogen Technologies, Inc.)**
**(A
Development Stage Company)**
**Notes
to Consolidated Financial Statements (Continued)**
****
 **9.
Notes Payable:**
   **Notes
Payable- Secured** - In
conjunction with the acquisition of the *Imagent* business, the Company assumed $2,500,000 of secured promissory notes that were
payable in two equal installments in August and November of 2003. The Company
was not able to make the scheduled payments and on August 18, 2003, the Company
paid the lender $1,250,000 and the lender extended the due date of the second
payment to April 2004 in exchange for agreeing to pay extension fees that
totaled $200,000 in 2003 and $200,000 in 2004. Interest on these notes payable
accrued at 7.25 percent which were payable in shares of the Company’s stock
based on a conversion of $1 per share. These notes were secured by a first
priority security interest in the *Imagent* related
tangible and intangible assets. The note payable was paid in May 2004. As of
December 31, 2004 all liens and security interests related to these obligations
have been removed.
 
 **Lines
of Credit– Secured** – During
2003 and 2004 the Company borrowed funds pursuant to $4,160,000
of Revolving Convertible Senior Secured Promissory Notes (“Revolving Notes”) and
other non–convertible notes payable (“Demand Notes”) (collectively, the
“Promissory Notes”) to three institutional investors (“Investors”) which are
also shareholders of the Company. In addition, two of the Company’s directors
are officers or general partners in the Investors. The Promissory Notes were
secured by a first priority security interest on all the Company’s assets
(subordinate to the senior security interest of the secured note payable
described above), accrued interest at 7.25% per annum, compounded monthly, and
were due on August 5, 2003 (Revolving Notes) or on demand (Demand Notes).
The Company defaulted on its obligation to complete a qualified financing by
August 2003 for the conversion of the Revolving Notes into the Company’s common
stock. In 2003 the Company had borrowed $11,735,036, including accrued interest
of $318,036 under the Promissory Notes, and in 2004 the Company borrowed
$1,698,348, including $395,848 of interest accrued during the year. In April and
June of 2004, all of the principal and accrued interest was converted into
1,679,173 shares of the Company’s common stock based on $8.00 per
share.
 
 In June
2004, the Company borrowed approximately $700,000 from a bank and paid the loan
in July 2004.
 
 As of
December 31, 2004 all liens and security interests related to these obligations
have been removed.
 
 **Notes
Payable – Unsecured** :
 
 The
unsecured notes payable bear interest at eight percent annually.
  
 One of
the Company’s directors is a general partner in the two entities that are owed
$192,233 as of December 31, 2004.
 
 **10.
Shareholders’ Equity** **(Deficit)
and Mezzanine Equity:**
 ****
 **(a) 
Series A Preferred Stock:**
 ****
 **Series
A–New:** In
October 2004, the Company authorized and issued 4,500 shares of Series A
Convertible Preferred Stock (“Series A–New”) to Bristol–Meyers Squibb Medical
Imaging, Inc. (“BMSI”) for $4,500,000 in conjunction with a non–exclusive
technology cross–licensing agreement whereby BMSI also paid the Company
$4,000,000. Each share of the Series A–New is entitled to a liquidation
preference of $1,000 per share and is convertible into 833,334 shares of the
Company’s common stock at an effective conversion rate of $5.40 per common
share. The Company may force the conversion of these shares into common stock
after October 2005 in the event that the value of the Company’s common stock
exceeds $8.10 for ten consecutive days. This mandatory conversion feature is
limited to converting into an amount of common shares which does not exceed 19.9
percent of the then outstanding shares of the Company’s common
stock.
  An
investment banking firm was paid a $680,000 fee and issued warrants expiring in
October 2009 to purchase 66,667 shares of the Company’s common stock at $5.40
per share. The Company estimated $60,400 value for the warrants using the
Black–Sholes pricing model. These costs were allocated pro rata between the
value of the cross licensing agreement and the value of the Series A–New shares.
Accordingly, $392,000 was charged to shareholders’ equity as a reduction of the
proceeds from the Series A–New shares and $348,400 was charged to
expense.
 
 F-23
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
**(formerly
Photogen Technologies, Inc.)**
**(A
Development Stage Company)**
**Notes
to Consolidated Financial Statements (Continued)**
****
 **Series
A–****Old** : In
October 1999 the Company issued 12,015 shares of preferred stock as Series
A Preferred Stock (“Series A-Old”).  For the first six years from issuance,
the preferred stock had a mandatory dividend of 7%.  Such dividends were
cumulative, compounded on a semiannual basis, and were payable semiannually
solely by the issuance of additional shares of the Series A-Old. At the time
these shares were outstanding, the Company had a deficit and, as a result, the
dividends were recorded against paid-in capital. In accordance with the
provisions of the agreement, the Company issued 841 additional shares of the
Series A-Old in 2000 in settlement of dividend requirements.  At
December 31, 2003, there were 12,856 shares of Series A-Old outstanding.
The Company had accrued 3,679 preferred shares in fulfillment of the dividend
requirements since 2001. The liquidation preference was $1,000 per share, which
amounted to $16,036,810 as of December 31, 2003. The
Series A-Old was convertible into common stock of the Company with an initial
conversion price of $1,693.60 from October 2001 through October
2005. The
Series A-Old was also exchangeable into additional shares of Sentigen to raise
its ownership percentage to fifty percent until October 2005. As a result of
this exchange feature, $12,015,000 was classified as mezzanine
equity.
 
 In June
2004, the holder of the Series A-Old converted all shares, including accrued but
unpaid dividends, into 9,763 shares of the Company’s common stock. Accordingly,
the $12,015,000 classified as mezzanine equity was reclassified to permanent
equity and the liquidation preference of $16,534,840 related to these shares was
extinguished.
 
 **(b)**  **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 percent. 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 0.01809 was changed to 0.05313. 
As a result, the Series B Preferred was converted into 21,116 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.
 
 **(c)
Common Stock** **–** As of
December 31, 2004, the Company was subject to four groups of registration rights
agreements. In the aggregate, these agreements cover approximately
5,553,969 **** shares of
common stock (including approximately 735,881 shares issuable upon the exercise
of warrants and 833,334 shares issuable upon the conversion of the Series A
Convertible Preferred Stock) and require the Company to register those shares
under various terms and subject to specific conditions in the agreements. In
accordance with the terms of certain of these registration rights agreements, on
January 11, 2005 a registration statement became effective relating to the
resale of 2,332,679 shares of common stock including 735,881 shares issuable
upon the exercise of warrants. In addition, on February 8, 2005 the Company
filed a registration statement relating to the resale of 2,448,467 shares of
common stock. The registration statement filed on February 8, 2005 has not yet
been declared effective, and the final number of registered shares will increase
to reflect late registration shares and other adjustments.
 
 On
March 13, 1998, the Company completed a private placement of 10,938 shares
of common stock for $640 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, 8,694 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 6,231 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 this amount to the purchaser.  In the second
quarter of 2003 the Company recognized in permanent equity the issuance of these
shares.
 
 F-24
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
**(formerly
Photogen Technologies, Inc.)**
**(A
Development Stage Company)**
**Notes
to Consolidated Financial Statements
(Continued)**
 
 On
November 12, 2002, the Company completed a private placement of 416,667
shares of common stock for $21.60 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 115,741 shares of
common stock.
 
 In
December 2002, the Company completed a second closing of the
November 12, 2002 private placement in which 140,227 shares of common stock
were sold for $21.60 per share for gross proceeds of $3,028,902.
 
 On
November 12, 2002, the Company 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 256,855 shares of the Company and those shares were cancelled
prior to December 31, 2002.  The market value of the 256,855 shares on
the date of the split-off was $12,226,319.
 
 Pursuant
to a Standstill and Make Whole Agreement dated as of December 30, 2002 with Xmark
Fund L.P. and Xmark Fund, Ltd. (collectively “ Xmark”),
secured creditors of Alliance, the Company issued a total of 37,500 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 109,907
shares of its common stock to certain creditors of Alliance, including 52,807
shares to Xmark pursuant to the Going Forward Agreement, as partial
consideration for the Technology Purchase.  Following approval by
shareholders, the Company would issue an additional approximately 99,276 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 563 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 4,149 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.
 
 On
September 2, 2003, pursuant to a Letter Agreement dated as of
August 18, 2003 with Xmark, the Company issued 1,312 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 was
96,331.  In addition, an aggregate of 2,152 shares of the Company’s Common
Stock were issuable to Xmark for payment of accrued interest.  Xmark had a
put right for all these shares that, under certain circumstances, would have
required the Company to purchase the shares from Xmark at a price of $20.00 per
share.  As a result, $1,969,668 was classified as mezzanine equity at
December 31, 2003.
 
 During
2003, in addition to the above issuances, the Company issued an aggregate of
7,005 shares pursuant to several factors including cash, compensation for
service and cashless exercise of stock options.
 
 In
February 2004 the Company received $46,690 from Xmark as proceeds from the sale
of unregistered shares in excess of their original purchase price.
  F-25
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 On March
5, 2004, the Company issued 102,699 shares of the Company's common stock to
certain creditors of Alliance. Of the total shares issued, 99,276 shares (valued
at $5,043,226) related to the acquisition consideration for the *Imagent* Business
which had been classified as Common Stock to be Issued at December 31,
2003.
  During
the six months ended June 30, 2004, Xmark sold 15,732 shares of common
stock for which it held a put right. In June 2004, the Company entered into
an agreement with Xmark whereby the Company exchanged all remaining 80,600
puttable shares held by Xmark plus related obligations and fees for an aggregate
of $2,128,447 of Secured Notes that were payable on or before December 1,
2004.
  On
April 19 and June 30, 2004, the Company sold 1,268,750 shares of its
common stock for $8.00 per share and 735,875 warrants exercisable for $10.00 per
share (including 101,500 warrants issued to its two placement agents), for
approximately $10.15 million. The net proceeds to the Company were
approximately $9,325,000. In addition, holders of an aggregate of approximately
$12,719,500 principal amount of the Company's Secured Promissory Notes and
Revolving Convertible Senior Secured Promissory Notes ("Notes"), plus $713,884
interest accrued and added to the note balance, converted these Notes into
1,687,034 shares of the Company's common stock at $8.00 per share.
  In
June 2004, the Company issued 30,829 shares of its common stock as a
partial settlement of obligations under an equipment lease (See Note 13). As
part of the terms of the settlement, the Company remains obligated to make an
additional payment equal to the difference (if any) between the net proceeds the
lessor receives from sales of these shares of stock during the 12 months after
the Company registers the shares and $468,601 (which represents the number of
issued shares valued at $15.20 per share). Accordingly, the Company has recorded
into equity only that portion of the issued shares' par value, or $617. The
balance of $467,984 is included in the balance of Accrued Equipment Lease
Obligation in the balance sheet at December 31, 2004.
  During
2004, the Company issued 11,563 shares of common stock to consultants for
services rendered and to be rendered. The value of these shares was $43,688 of
which $10,500 is presented as Unearned Stock Compensation.
  During
2004, the Company recorded $1,221,613 for penalties and fees, representing
327,957 shares of common stock due to shareholders for late registration of
their shares. In June 2004, the Company extinguished its obligation for $203,190
(8,323 shares) of penalties and fees, which included $70,239 accrued as of
December 31, 2003, as part of the exchange of Xmark puttable shares, noted
previously. In December 2004, the Company issued 8,935 shares related to
$244,469 of penalties and fees. As of December 31, 2004, the balance of shares
to be issued related to penalties and late registration fees totals $850,887,
representing 317,265 shares of common stock.
  During
2004 one of the Company’s law firms agreed to accept shares of the Company’s
common stock for services rendered. As of December 31, 2004, 101,378 shares are
issuable related to $247,865 of services, which were expensed.
  On March
4, 2005, the Company amended its Articles of Incorporation to increase the
number of common shares authorized from 150,000,000 to 200,000,000.
 
 **11.
Stock Incentive Plans, Options and Warrants**
 
  The
Company maintains three long-term incentive compensation plans (“Plans”) as
follows:
 
 The 1998
Long-Term Incentive Compensation Plan, which provides for the granting of up to
25,000 stock options to key employees, directors and consultants; 20,731 options
were outstanding as of December 31, 2004.
 
 The 2000
Long-Term Incentive Compensation Plan, which provides for the granting of up to
1,500,000 stock options to key employees, directors and consultants; 445,939
options were outstanding as of December 31, 2004.
 
 The 2000
Senior Executive Long-Term Incentive Compensation Plan, which provides for the
granting of up to 50,000 stock options to senior executives. Options exercised
under this plan contain certain registration rights. 50,000 options were
outstanding as of December 31, 2004.
  
 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. 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-26
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
**(formerly
Photogen Technologies, Inc.)**
**(A
Development Stage Company)**
**Notes
to Consolidated Financial Statements
(Continued)**
 
 The
following summarizes the activity under the Plans combined for the years ended
December 31,:
 
  2003
    
    2004Options
      outstanding at beginning of year
    
    
    207,251
    
    
    332,104Options
      granted
    
    
    155,514
    
    
    230,071Exercised
    
    
    –
    
    
    –Options
      forfeited
    
    
    (30,661
    )
    
    (45,505
    )Options
      outstanding at end of year
    
    
    332,104
    
    
    516,670Option
      prices per share granted
    
    $
    18.60
      - $44.00
    
    $
    2.80
      - $36.20Weighted
      average exercise price:Options
      granted
    
    $
    24.59
    
    $
    8.96Options
      granted at less than market price
    
    $
    23.76
    
    $
    –Options
      granted at the market price
    
    $
    35.49
    
    $
    8.96Options
      forfeited
    
    $
    64.97
    
    $
    26.96Options
      outstanding at end of year
    
    $
    195.60
    
    $
    127.34Options
      exercisable at end of year
    
    $
    567.20
    
    $
    445.51Number
      of shares exercisable
    
    
    102,927
    
    
    134,884
 
 All of
the stock options granted from the Plans in 2003 were granted to employees at an
exercise price less than the market value at grant date except for 11,000 stock
options granted to directors and a consultant. The weighted average fair value
of the options issued below market is $37.00. As of December 31, 2004, un-vested
options for 334,469 shares will become fully vested upon a change in control of
the Company, and unvested options for 315,594 shares will become fully vested
upon termination of an employee.
 
  In
addition to the options issued as part of the Plans summarized above, in 2002,
the Company issued fully vested options outside of the plans that, after
amendment in 2003, expire in February 2010. 1,875 of these options were
exercisable at $84 per share and the balance of the options were effectively
exercisable into 13,852 shares of the Company’s stock at an exercise price equal
to zero, of which 500 were exercised in 2003 (the exercise price for these
“cashless” options was originally $25.40 per share). These options were issued
in settlement of claims from a former employee and were fully expensed in 2002.
On February 10, 2005, in final settlement of further and all claims, the Company
modified the options for the 1,875 shares to make them effectively exercisable
into 21,125 shares at an exercise price equal to zero. The expense related to
this modification was reflected in the balance sheet as accrued expense at
December 31, 2004.
  F-27
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 The
following table summarizes information related to outstanding and exercisable
options of the Plans as of December 31, 2004:
 
 Options
      Outstanding
    
    Options
      ExercisableWeightedWeighted
    
    Average
    
    
    
    WeightedAverage
    
    Remaining
    
    
    
    AverageRange
      of
    
    Number
      of
    
    Exercise
    
    Contractual
    
    Number
      of
    
    ExerciseExercise
      Price
    
    Shares
    
    Price
    
    Life
      in Years
    
    Shares
    
    Price$2.80-$18.40
    
    
    223,871
    
    $
    8.51
    
    
    9.49
    
    
    2,000
    
    $
    6.05$18.41-$21.60
    
    
    153,271
    
    $
    21.59
    
    
    6.74
    
    
    35,974
    
    $
    21.56$21.61-$91.20
    
    
    63,857
    
    $
    28.51
    
    
    8.27
    
    
    22,489
    
    $
    33.84$91.21-$220.00
    
    
    24,889
    
    $
    203.26
    
    
    4.05
    
    
    23,639
    
    $
    204.99$220.01-$550.00
    
    
    557
    
    $
    444.75
    
    
    1.20
    
    
    557
    
    $
    444.75$550.01-$1060.00
    
    
    12,725
    
    $
    664.07
    
    
    1.78
    
    
    12,725
    
    $
    664.07$1060.01-$1205.00
    
    
    37,500
    
    $
    1,200.00
    
    
    5.38
    
    
    37,500
    
    $
    1,200.00Total
    
    
    516,670
    
    $
    127.34
    
    
    7.76
    
    
    134,884
    
    $
    445.51
 
 The
following summarizes the activity related to warrants for the years ended
December 31,:
 
 2003
    
    2004Warrants
      outstanding at beginning of year
    
    
    21,374
    
    
    18,874Warrants
      granted
    
    
    –
    
    
    802,548Warrants
      exercised
    
    
    (2,500
    )
    
    –Warrants
      forfeited
    
    
    –
    
    
    (1,275
    )Warrants
      outstanding at end of year
    
    
    18,874
    
    
    820,147Warrants
      prices per share granted
    
    $
    21.60-$1693.60
    
    $
    5.40-$955.60Weighted
      average exercise price:Warrants
      granted
    
    $
    –
    
    $
    9.62Warrants
      exercised
    
    $
    –
    
    $
    –Warrants
      forfeited
    
    $
    –
    
    $
    1,678.84Warrants
      outstanding at end of year
    
    $
    176.80
    
    $
    10.87Warrants
      exercisable at end of year
    
    $
    305.00
    
    $
    10.50Number
      of shares exercisable
    
    
    9,374
    
    
    812,547
  F-28
 **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 The following
table summarizes information related to outstanding and exercisable warrants as
of December 31, 2004:
 Warrants
      Outstanding
    
    Warrants
      ExercisableWeightedWeighted
    
    Average
    
    
    
    WeightedAverage
    
    Remaining
    
    
    
    AverageRange
      of
    
    Number
      of
    
    Exercise
    
    Contractual
    
    Number
      of
    
    ExerciseExercise
      Price
    
    Shares
    
    Price
    
    Life
      in Years
    
    Shares
    
    Price$5.40-$5.40
    
    
    66,667
    
    $
    5.40
    
    
    4.80
    
    
    66,667
    
    $
    5.40$10.00-$10.00
    
    
    735,881
    
    
    10.00
    
    
    4.50
    
    
    735,881
    
    
    10.00$21.60-$50.40
    
    
    17,000
    
    
    37.69
    
    
    2.90
    
    
    9,400
    
    
    27.42$884.60-$955.60
    
    
    599
    
    
    933.30
    
    
    1.67
    
    
    599
    
    
    933.30Total
    
    
    820,147
    
    $
    10.87
    
    
    4.49
    
    
    812,547
    
    $
    10.50
  
 In 2004,
the Company issued 66,667 warrants, exercisable at $5.40, to an investment
advisor in conjunction with the cross-license and securities purchase agreement
described in Note 14. The value of these options under the Black-Scholes option
pricing model was $60,400 of which was $28,400 was allocated to the
cross-license agreement and charged to expense. The Company also issued 735,881
warrants, exercisable at $10.00, to purchasers of the Company’s shares of common
stock in April and June 2004 as described in Note 10 (d).
 
 **12.
Dividends**
 
 Dividends
for of the years ended December 31, 2003 and 2004 related to the accrual of
dividends on the Series A-Old Convertible Preferred stock.
 
 **13.
Restructuring**
 
  On
August 31, 2003, the Company closed its Pennsylvania corporate headquarters
and transferred its headquarters to its facility in San Diego, California. The
lease for the corporate headquarters expired in July 2004. As of
December 31, 2003, the Company had accrued $236,700 as the estimate of the
amount due for the remaining lease obligation. The Company subsequently
determined that the landlord had leased its vacated premises and as a result the
Company has reduced the estimate of the remaining lease obligation to $96,800 as
of December 31, 2004.
 
  The
Company had an operating lease for laboratory equipment which expired 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 and discontinued making the monthly lease payments. In 2001 the Company
recorded a provision for the remaining future lease payments of $1,264,208. At
December 31, 2003 the balance of this obligation was $719,940. In June
2004, the Company reached a settlement with the equipment lessor issuing 30,829
shares of common stock and paying $75,000 with an agreement to pay $25,000 in
January 2005. The settlement requires the Company to make additional payments to
the lessor to the extent the lessor’s proceeds from its future sales of this
stock are below $486,601. This contingent obligation is classified in the
balance sheet as accrued equipment lease obligation at December 31, 2004. The
balance of the estimated obligation in June 2004 in excess of the value of the
settlement was recorded as miscellaneous income ($126,257).
  F-29
  **IMCOR
Pharmaceutical Co. and Subsidiaries**
 **(formerly
Photogen Technologies, Inc.)**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 **14.
Deferred Revenue:**
 
 In
December 2003, the Company entered into a product license agreement with Kyosei
Pharmaceutical Co., Ltd. (“Kyosei”), a unit of the Sakai Group in Japan, for the
development and marketing of *Imagent* in Japan
for all radiology and cardiology indications. Terms of the agreement call for
the payment to the Company of up to $10,000,000 in fees and development
milestone payments plus royalties on commercial sales. Kyosei will also pay the
Company to manufacture *Imagent* for
Kyosei’s clinical and commercial requirements. The Company received gross
payments of $2,000,000 each in December 2003 and April 2004. These milestone
payments are being amortized over the remaining life of the related patents at
the time each payment is received, which was approximately 12 years. The Company
recognized $295,238 of license revenue related to this agreement in 2004. The
remaining milestone payments become due as follows: $1,000,000 upon commencement
of a Phase 1 clinical study; $1,000,000 is due at the earlier of the initiation
of a Phase 3 clinical study or December 2007, unless a Phase 2 clinical study
was required, in which case date is December 2008, $2,000,000 on the earlier of
the filing of a New Drug Application for Licensed Products in Japan (“NDA”), or
the one year anniversary of the completion of the Phase 3 clinical study;
$2,000,000 upon approval of the NDA.
 
 On
October 29, 2004, the Company received $4,000,000 related to the cross-licensing
provisions of a technology cross-licensing and securities purchase agreement
with Bristol-Meyers Squibb Company (“BMSC”) covering ultrasound contrast agent
patents. The agreement provides both BMSC and the Company the right to further
develop and commercialize their respective ultrasound contrast imaging agents
without risk of infringing upon the other company’s patent rights. This payment
is being amortized over the remaining life of the related patents, which was
approximately 11 years at the time of the agreement. The Company recognized
$59,702 of license revenue related to this agreement in 2004. This agreement was
not subject to any obligations of the Company for royalty or licensing
agreements.
 
 **15.
Income Taxes**
  As of
December 31, 2004, the Company has net operating loss (“NOL”) carryforwards for
federal income tax purposes of approximately $40,372,000 that expire from 2018
through 2024 and approximately $18,854,000 for California state income tax
purposes that expire in 2013 and 2014. The Tax Reform Act of 1996 contains
provisions that may limit the utilization of NOL carryforwards available to be
used in any given year in the event of significant changes in ownership
interests as defined in the act. In addition, a portion of the NOL carryforward
may be lost as a result of the disposition of the Company’s therapeutic business
in 2002. The amount of this adjustment has not yet been determined.
 
 The
following is a schedule of the significant components of the Company’s deferred
tax assets as of December 31, 2003 and 2004:
 
 2003
    
    2004Net
      operating loss carryforwards
    
    $
    9,835,000
    
    $
    14,826,000Deferred
      revenue
    
    
    797,000
    
    
    2,862,000Equity
      in loss of affiliate
    
    
    4,183,000
    
    
    5,081,000Other
      temporary timing differences
    
    
    145,000
    
    
    431,000Deferred
      tax asset
    
    
    14,960,000
    
    
    23,200,000Less
      valuation allowance
    
    
    (14,960,000
    )
    
    (23,200,000
    )$
    –
    
    $
    –
   F–30




**ITEM
8** **.**  **CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.**




Matters
related to our auditors' decisions not to stand for re-election during the past
two fiscal years are described in our Current Reports on Form 8-K that we
previously filed.




**ITEM
8** **A.**  **CONTROLS
AND PROCEDURES.**




In
September 2004, our management concluded that there were certain reportable
conditions and material weaknesses in our internal controls and procedures
related to the period covered by this report. We formed this view in response to
communications with our independent auditors, Moss Adams LLP. Moss Adams had
orally discussed certain matters related to our internal controls and financial
reporting with our former Chief Financial Officer and our Audit Committee. After
we filed our Form 10-QSB for the quarter ended June 30, 2004, Moss Adams
concluded that these matters cumulatively amounted to reportable conditions and
material weaknesses and formally advised us of their overall determination by
letter in September 2004.




The
reportable conditions noted were that our financial statement close process was
not performed in a timely manner, leading to delays and adjustments in
reconciling recurring and non-recurring balances and transactions, and could
result in material contracts and transactions being improperly omitted or
incorrectly disclosed. In addition, Moss Adams stated that our use of Quickbooks
accounting software, while itself not a reportable condition, when coupled with
the lack of adequate internal controls could lead to situations in which errors
or irregularities may not be discovered in a timely manner or a risk that users
of the software could modify historical data.




The
material weaknesses noted were that our accounting and reporting processes were
not completed on a timely basis (in part due to the absence of a full-time
on-site chief financial officer); the small size of our accounting staff results
in inadequate segregation of duties; the limited number of our financial and
accounting personnel make it difficult to create a backup knowledge base
enabling personnel to fill in if one individual is absent; and our policies and
procedures relating to cash disbursements, cash handling, cash receipts and
reconciliation should have greater segregation of duties to mitigate the risk of
fraud or financial statement misstatement.




Moss
Adams recommended taking steps to alleviate understaffing in our accounting
department to improve the timeliness of financial reporting and enable
appropriate segregation of duties. Additionally, Moss Adams recommended that we
require management to assess and report annually on the effectiveness of
internal controls.




IMCOR and
its Audit Committee are committed to remediating the reportable conditions and
material weakness. We do not expect to be able to fully implement all
remediation until we have sufficient additional financing. Although certain
matters may not be fully remediated, we believe appropriate mitigating controls
are in place to reduce the likelihood of material misstatements or improper
disclosure.




During
the period beginning in May 2004, we began to implement steps to address our
internal controls and procedures. The following remediation actions have been
completed:






35






·
    We
      engaged Larry D. Grant as a financial consultant. Mr. Grant has 31 years
      of experience in accounting and financial advisory work, both in private
      practice with major accounting firms and as a consultant and interim
      executive to various enterprises. He has been working full time for us at
      the company’s San Diego headquarters since May 11,
2004,





·
    We
      added Darlene Deptula-Hicks to our Audit Committee. Ms. Deptula-Hicks
      joined the company’s Board on July 22, 2004, and is Chair of the company’s
      Audit Committee. Ms. Deptula-Hicks has over 20 years of experience in
      financial management positions, primarily in the life sciences sector. She
      is currently Executive Vice President and Chief Financial Officer of ONI
      Medical Systems, Inc.,





·
    We
      have required, since July 2004, the Executive Committee of the Board to
      ratify routine and/or recurring expenditures and approve significant
      commitments and non-routine expenditures and
payments,





·
    We
      require both Larry Grant and our Chief Operating Officer to review and
      approve incurring all significant obligations and remitting
      payments,





·
    We
      hired a full time Controller to assist in all accounting and finance
      matters,





·
    We
      evaluated the effectiveness of Quickbooks and have now converted to a new
      accounting software that provides greater segregation of duties and
      limited access,





·
    We
      adopted a Code of Ethics to address other internal control procedures,
      such as conflicts of interest. All employees have been made aware of and
      are required to comply with the Code of
Ethics,





·
    We
      adopted a Code of Ethics for Senior Executives and Finance Personnel, and
      we adopted or updated the Charters of our Audit and Compensation
      Committees,





·
    We
      created a Disclosure Committee, and adopted a Disclosure Committee
      Charter, to facilitate proper disclosure procedures for press releases,
      filings with the SEC and similar matters,





·
    We
      require our Controller to reconcile cash to on-line banking records
      several times each month, and





We are in
the process of developing and implementing the following remediation
steps:





·
    We
      are, on an ongoing basis, reviewing significant processes involved in
      accounting and financial reporting to ensure that they function as
      designed.





·
    We
      continue to work to improve disclosure controls as they relate to
      non-routine material agreements and
transactions.





The
following remediation actions are in the planning stages. We do not expect to be
able to fully implement these actions until sufficient additional financing is
available:





·
    We
      intend to hire a full-time on-site Chief Financial
  Officer.





·
    We
      intend to hire additional full time accounting staff, as
      necessary.






36








As noted,
IMCOR is committed to remediating the reportable conditions and material
weaknesses. To mitigate the delay in implementing a formal internal control
plan, we have been and intend to continue specifically monitoring internal
controls and related procedures until such a plan is put into
place.




Our Chief
Executive Officer (who is the acting Principal Financial Officer until we hire a
permanent replacement to our former Chief Financial Officer) has consulted with
Larry Grant and has participated in the evaluation of our disclosure controls
(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of
December 31, 2004. Based on
that evaluation, and as informed by correspondence from Moss Adams received in
September 2004, our Chief Executive Officer concluded that as of September 2004
our disclosure controls and procedures in specific areas were not fully
effective to ensure timely collection, evaluation and disclosure of information
relating to the company that would potentially be subject to disclosure under
the Securities Exchange Act of 1934, and the rules and regulations thereunder.
However, based on the ongoing improvements in internal controls and disclosure
controls and procedures listed above which we began implementing in May 2004,
our Chief Executive Officer (in consultation with Larry Grant) concluded that as
of December 31, 2004, we had enhanced our internal controls and disclosure
controls and procedures through the continued provision of compensating
oversights on transactions and disclosure events, both as they occurred and then
again periodically reviewed, sufficient to prevent material misstatements and to
assure timeliness in our financial reporting. As a result, our Chief Executive
Officer concluded (in consultation with Larry Grant) that as of December 31,
2004 the collection, evaluation and disclosure of information relating to the
company potentially subject to disclosure under the Securities Exchange Act of
1934, and the rules and regulations thereunder, was timely and adequate. We will
continue to provide such high-level compensating controls, in the meantime, as
we continue to implement ongoing improvements to establish more routine internal
controls and disclosure controls and procedures.


**PART
III.**







**ITEM
9** **.**  **DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; AND COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.**




**Directors.** The table
below sets forth our seven directors and information concerning their age and
position with the company as of March 10, 2005. Except for Mr. Gallagher (who is
a director of CollaGenex Pharmaceuticals, Inc.) and Mr. Fleming (who is a
director of Memory Pharmaceuticals Corp.), none of these individuals is a
director of any other company subject to the reporting requirements under the
federal securities laws.








**Name**
    
    **Age**
    
    **Position**Brian
      M. Gallagher, Ph.D.(1)
    
    57
    
    Director,
      Chairman of the BoardTaffy
      J. Williams, Ph.D.(1)
    
    55
    
    Director,
      President and ChiefExecutive OfficerRobert
      A. Ashley(2)
    
    47
    
    DirectorRichard
      T. Dean, Ph.D.(2)(3)
    
    57
    
    DirectorDarlene
      M. Deptula-Hicks, M.B.A.(2)
    
    47
    
    DirectorJonathan
      J. Fleming(1)(3)
    
    47
    
    DirectorAlan
      D. Watson, Ph.D., M.B.A.(3)
    
    52
    
    Director
  *(1)*
    
    Member of the Executive
    Committee*(2)*
    
    Member of the Audit Committee*(3)*
    
    Member of the Compensation
    Committee


Ms.
Deptula-Hicks is the Chairperson of our Audit Committee. Our Board has
determined that she is an “audit committee financial expert” and is
“independent” as contemplated by SEC rules.




Each
director of the company holds office until the next annual meeting of
stockholders and until his or her successor has been elected and qualified. Each
executive officer holds office at the pleasure of the Board of Directors and
until his or her successor has been elected and qualified. A brief discussion of
the business experience of each director is set forth below.






37


****





**Brian
M. Gallagher, Ph.D.** is
Chairman of the Board and has served as a director since July 22, 2004. Dr.
Gallagher received his B.S. is biology from St. Louis University, his M.S. in
marine sciences from Long Island University, and his Ph.D. in biology from St.
John’s University. Dr. Gallagher currently serves as a Director of CollaGenex
Pharmaceuticals, Inc. and ImaRx Therapeutics, Inc., a privately held,
drug delivery/specialty pharmaceutical company with a focus on cardiovascular
diseases. From 1994 to 2003, he was the Chairman, President and Chief Executive
Officer of CollaGenex Pharmaceuticals, Inc.




**Taffy
J. Williams, Ph.D.** has
served as our President, Chief Executive Officer and a director since
May 17, 2000. Prior to joining the company, Dr. Williams served as CEO and
President of PANAX Pharmaceuticals for two and half years and President of
InKine Pharmaceuticals for two years. He received his Bachelor of Science in
Chemistry from the University of Notre Dame and his Ph.D. in Chemistry from the
University of South Carolina.




**Robert
A. Ashley** began
serving **** as a
director following his election at the annual stockholders’ meeting held on
January 20, 2005. Mr. Ashley received his MA in Biochemistry from St. Peter’s
College, Oxford University. Since 2004, he has served as President, Chief
Executive Officer and Chairman of the Board of Amplimed Corporation. From 1994
to 2003, he served in various capacities with CollaGenex
Pharmaceuticals Inc., including as Senior Vice President, Vice President of
Commercial Development and Managing Director of CollaGenex
International Ltd.




**Richard
T. Dean, Ph.D.** has
served as a director since October 27, 2003. Dr. Dean received his B.S.
from Cornell University, his M.S. from the University of Michigan and his Ph.D.
from the University of California at Berkeley. Since 2004, Dr. Dean has served
as the Chief Executive Officer of Xanthus Life Sciences, Inc., a company
founded to develop novel oncology drugs. From 1999 to 2003, Dr. Dean served in
various capacities with Schering AG, including as Head of Strategic Business
Development, Diagnostics and Radiopharmaceuticals. Dr. Dean has over
25 years experience in the pharmaceutical and biotechnology
field.




**Darlene
M. Deptula-Hicks, M.B.A.** has
served as a director since July 22, 2004. Ms. Deptula-Hicks received her
B.S. in accounting from New Hampshire College and her M.B.A. from Rivier
College. Since 2002, she has served as Executive Vice President and Chief
Financial Officer of ONI Medical Systems, Inc. Prior to that, she was the
Executive Vice President, Chief Financial Officer and Treasurer of Implant
Sciences Corporation from 1998 to 2001. Ms. Deptula-Hicks has over 20 years
of experience in financial management positions, primarily in the life sciences
sector.




**Jonathan
J. Fleming** has
served as a director since August 15, 2003. Mr. Fleming has been a Partner
of Oxford Bioscience Partners since 1996 and its Managing Partner since 2001.
Oxford Bioscience Partners is an international venture capital firm with
committed capital of more than $800 million specializing in life science
technology based investments. Mr. Fleming holds a Master’s degree in Public
Administration from Princeton University and a Bachelor of Arts degree from the
University of California, Berkeley. Mr. Fleming is a co-founder and is Chairman
of the Board of Memory Pharmaceuticals. He is also Chairman of the Board of
BioProcessors Corporation and Dynogen Corporation, and is a director of several
private companies, including Leerink Swann. Mr. Fleming is a Trustee of the
Museum of Science in Boston and is a Senior Lecturer at MIT’s Sloan School of
Management.




**Alan
D. Watson, Ph.D., M.B.A.** has
served as a director since November 12, 2002. Dr. Watson received his B.S.
from the University of N.S.W., his Ph.D. in Chemistry from Australian National
University, and his M.B.A. from Northeastern University. Since 2002, Dr. Watson
has served as Executive Vice President and Chief Business Officer of Elixir
Pharmaceuticals, Inc. Prior to that, he was the Senior Vice President,
Corporate Development of Cubist Pharmaceuticals, Inc. from 1999 to 2002.








38




**Executive
Officers and Significant Employees.** The
recent business experience of our other executive officers and significant
employees follows.




**Jack
DeFranco** , age 59,
has served as Chief Operating Officer since January 20, 2005. From June 18, 2003
until January 20, 2005, he served as our Senior Vice President of Business
Development and Marketing. For the ten years prior to joining the company, Mr.
DeFranco served as Vice President of Marketing and Business Development for
Alliance Pharmaceutical Corp. Mr. DeFranco received his B.S. from Stephen F.
Austin University and an M.B.A. and M.A. from Fairleigh Dickenson
University.




**Larry
D. Grant** , age 53,
has served as a financial consultant since May 11, 2004. Mr. Grant is an
independent consultant who provides concentrated interim chief financial officer
services, generally to technology companies, for extended periods of time. From
May 2003 to May 2004, Mr. Grant represented the Investors and Board of Directors
of Molecular Reflections, Inc. From April 2003 to December 2003, Mr. Grant
represented the Investors and Board of Directors of QED Solutions, Inc. From
July 2002 to April 2003, Mr. Grant served as acting Chief Financial Officer with
Voxiva, Inc. From February 2001 to July 2002, Mr. Grant served as Executive Vice
President and Chief Financial Officer with SymRx, Inc. From August 1999 to
February 2001, Mr. Grant served as Executive Vice President and Chief Financial
Officer with JFX Software, Inc. Mr. Grant is a certified public accountant and
has 31 years of experience in providing accounting and financial
services.




**Section
16(a) Beneficial Ownership Reporting Compliance.** Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors and persons who beneficially own more than 10% of our common
stock to file initial reports of ownership and changes in ownership with the
SEC. Those persons are required by SEC regulations to furnish us with copies of
all Section 16(a) forms that they file. To our knowledge, based solely on a
review of the copies of those reports furnished to us during the fiscal year
ended December 31, 2004, we believe that our executive officers, directors
and beneficial owners of more than 10% of our common stock complied with all
Section 16(a) filing requirements, except as follows: (i) Brian M.
Gallagher filed a late Form 3 reflecting his directorship with the company and
his receipt of stock options; he filed this Form 3 on December 15, 2004; (ii)
Xmark Asset Management filed a late Form 3 reflecting its acquisition of our
common stock and two Form 4’s reflecting sales of such common stock; they filed
the Form 3 and the respective Form 4’s on January 14, 2004; (iii) OBP Management
IV LP filed a late Form 3 reflecting its beneficial ownership of our common
stock; they filed this Form 3 on June 17, 2004; (iv) Oxford Bioscience Partners
IV L.P. and Jonathan Fleming filed late Form 4’s reflecting Oxford’s acquisition
of our common stock in the first closing of the 2004 financing and Mr. Fleming’s
beneficial ownership of such shares; they each filed these Form 4’s on June 17,
2004; (v) Taffy J. Williams, Jack DeFranco, Darlene Deptula-Hicks and Alan
Watson filed late Form 4’s reflecting their receipt of stock options; they each
filed these Form 4’s on March 8, 2005 except Ms. Deptula-Hicks who filed her
Form 4 on March 22, 2005; and (vi) Brooks Boveroux filed a late Form 5
reflecting his termination as Chief Financial Officer; he filed this Form 5 on
March 8, 2005. These late filings were due in part to a lack of resources by the
company to assist the reporting persons with these filings; however, the
obligation to file these reports rests with the person obligated to make the
filing. We continue to improve our reporting compliance procedures to avoid
delinquencies in the future.




**Code
of Ethics** . As of
December 31, 2004, we have adopted a code of ethics for principal executives and
senior financial officers, which includes our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, as required by sections 406 and 407 of the
Sarbanes-Oxley Act of 2002. A copy of our Code of Ethics for Senior Executives
and Financial Personnel is attached as Exhibit 14 and will be provided without
charge following the receipt of a written request to Taffy J. Williams, Ph.D.,
Chief Executive Officer, IMCOR Pharmaceutical Co., 6175 Lusk Boulevard, San
Diego, CA 92121.




****





39


****


**ITEM
10** **.**  **EXECUTIVE
COMPENSATION.**




**Executive
Compensation.** The
following executive compensation disclosure reflects all compensation awarded
to, earned by or paid to the Named Executive Officers (as defined below) for the
fiscal years ended December 31, 2002, 2003 and 2004. The named executive
officers (“Named Executive Officers”) are the company’s Chief Executive Officer
and the other executive officers of the company who each received in excess of
$100,000 in total salary and bonus for the fiscal year 2004. Compensation is
shown in the following table:


SUMMARY COMPENSATION TABLE
 **Long
      Term Compensation****Annual
      Compensation**
    
    
    **Awards**
    
    **Payouts**
  **Name
      andPrincipal Position**
    
    **Year**
    
    
    **Salary**
    
    
    **Bonus**
    
    
    
    **Other**
      **Annual**
      **Compen-**
      **sation
      ($)**
    
    
    
    **Restricted**
      **Stock**
      **Award(s)($)**
    
    
    **Securities**
      **Underlying**
      **Options(#)(4)**
    
    
    
    **LTIP**
      **Payouts($)**
    
    
    **All
      Other**
      **Compen-**
      **sation
      ($)**Taffy
      J. Williams,Ph.D(1)
      Director,
      Presidentand Chief ExecutiveOfficer
    
    2004
      2003
      2002
    
    $
    275,000
      275,000
      265,000
    
    $
    206,250
      60,000
      0
    (6)
    
    $
    0
      0
      0
    
    
    $
    0
      0
      0
    
    
    201,421
      52,500
      61,673
    (5)(5)
    
    $
    0
      0
      0
    
    $
    0
      0
      0Brooks
      Boveroux
      (1)(2)
      Senior
      VicePresident—Finance,Chief FinancialOfficer, Treasurerand
      Secretary
    
    2004
      2003
      2002
    
    $
    147,115
      225,000
      216,250
    
    $
    0
      25,000
      32,250
    (8)
    
    $
    77,885
      0
      0
    (7)
    
    $
    0
      0
      0
    
    
    1,250
      0
      27,544
    
    
    $
    0
      0
      0
    
    $
    0
      0
      0Jack
      DeFranco(1)(3)
      Chief
      OperatingOfficer
    
    2004
      2003
      2002
    
    $
    183,000
      107,145
      0
    
    $
    60,000
      60,000
      0
    (6)
    
    $
    0
      0
      0
    
    
    $
    0
      0
      0
    
    
    12,500
      8,500
      0
    
    
    $
    0
      0
      0
    
    $
    0
      0
      0


*(1)*
    Dr. Williams and Messrs. Boveroux and
      DeFranco are entitled to severance if their employment is terminated
      without cause, as discussed below.*(2)*
    Mr. Boveroux’s employment with the company
      terminated as of August 29, 2004.*(3)*
    Mr. DeFranco joined the company on
      June 18, 2003 as part of the acquisition of the *Imagent*Business.
      He has served as Chief Operating Officer since January 20, 2005 and served
      as our Senior Vice President of BusinessDevelopment and Marketing from
      June 18, 2003 until January 20, 2005.*(4)*
    Reflects a one-for-twenty reverse split which
      occurred in March, 2005.*(5)*
    Reflects (i) 52,500 options granted in 2003
      pursuant to that certain Letter Agreement dated July 23, 200 and (ii)
      201,421 options issued on June 30, 2004, both of which were subject to
      stockholder approval, which wasreceived at the Annual Meeting held on
      January 20, 2005.*(6)*
    Dr. Williams and Mr. DeFranco elected to
      defer payment of their bonuses.*(7)*
    During 2004, Mr. Boveroux received severance
      payments of $77,885, out a total of $112,500 to be paid. elected to defer
      payment of their bonuses.*(8)*
    At December 31, 2004 $15,000 of the bonus
      remain unpaid.
 
 40


**Stock
Options.** The
following table contains information concerning the grant of stock options
during the 2004 fiscal year under our 2000 Long Term Incentive Compensation Plan
to the Named Executive Officers. To date, none of these options have been
exercised.





**Option
Grants in 2004**


**Individual
Grants**





**Name**
    
    **Number
      of Securities Underlying
      OptionsGranted(#)**
    
    **%
      of**
      **TotalOptionsGranted**
      **toEmployeesin 2004**
    
    **ExercisePrice($/Sh)**
    
    **ExpirationDate**
    
    **MarketPrice
      on**
      **Grant**
      **Date**
      **($)**Taffy
      J. Williams, Ph.D.(1)
    
    
    201,421
    
    
    87.6
    %
    $
    8.00
    
    
    6/30/14
    
    $
    6.00Brooks
      Boveroux(3)
    
    
    1,250
    
    
    0.5
    %
    $
    29.40
    
    
    —
    
    
    29.40Jack
      DeFranco(2)
    
    
    2,000
    
    
    0.9
    %
    $
    29.40
    
    
    1/7/14
    
    $
    38.80Jack
      DeFranco(2)
    
    
    10,500
    
    
    4.6
    %
    $
    17.00
    
    
    5/6/14
    
    $
    17.00
   *(1)*
    The option was granted at exercise prices
      equal to the purchase prices paid by the institutional investors in the
      2004 financing. The option become exercisable on the earlier of a change
      in control of the company or the date that Dr. Williams no longer is an
      employee of the company in accordance with the terms of the Award
      Agreement covering the options.*(2)*
    A portion of the options becomes exercisable
      upon various dates in accordance with the terms of the Award Agreement
      covering the options.*(3)*
    Mr. Boveroux was granted an option to
      purchase 1,250 shares of our common stock on January 14, 2004. The option
      had an exercise price of $29.40 and the market price for common stock on
      the grant date was $29.40. This option was terminated and is no longer
      outstanding.
  The
following table sets forth information about the Named Executive Officers
concerning the exercise of options during the last fiscal year and unexercised
options held as of the end of the 2004 fiscal year.





**2004
Option Exercises and Year-End Values**





**Number
      of SecuritiesUnderlying UnexercisedOptions at Year End
      2004(#)**
    
    **Fair
      Value of UnexercisedIn-the-Money Optionsat Year End 2004
      ($)(1)****Name**
    
    **Shares
      AcquiredOnExercise(#)**
    
    **Value
      Realized($)****Exercisable**
    
    **Unexercisable**
    
    **Exercisable**
    
    **Unexercisable**Taffy
      J. Williams, Ph.D.
    
    0
    $
    0
    
    52,500
    
    315,594
    
    $
    0
    
    $
    443,126Brooks
      Boveroux
    
    0
    
    0
    
    27,928
    
    0
    
    
    0
    
    
    0Jack
      DeFranco
    
    0
    
    0
    
    2,125
    
    18,975
    
    
    0
    
    
    0
   41
   *(1)*
    For purposes of this table, the “value” of
      stock options was determined by the difference between the exercise price
      and $10.20, the closing price for common stock on the last business day of
      the fiscal year. Shares acquired on exercise of these options are not
      registered under the Securities Act of 1933 and are not freely saleable
      except in compliance with exemptions from registration, including the
      holding period and other requirements of Rule 144 thereunder.
      Consequently, the values set forth in the table are only theoretical
      values and may not accurately represent actual market
    value.
  We have
employment agreements with Dr. Williams and Mr. DeFranco. Each of these
employment agreements is terminable at-will by either party at any time with or
without cause. Mr. Boveroux’s employment with the company terminated effective
August 29, 2004. In addition, Dr. Williams and Messrs. Boveroux and
DeFranco are bound by their respective Employee Confidentiality, Inventions and
Noncompetition Agreements, as amended (each of these agreements is referred to
as a “Confidentiality Agreement”). Each Confidentiality Agreement provides that
while we employ the respective individual and for a period of two years after
termination he will not engage in activities that compete with our business.
Each Confidentiality Agreement also requires the respective employee to disclose
to our Board of Directors all inventions or other intellectual property
discovered or made by the employee during his employment and twelve months
thereafter, if those inventions are related to or useful in our business, or
result from duties assigned to that individual or from the use of any of our
assets or facilities.
  In
addition, pursuant to the terms of Dr. Williams’ July 23, 2003 employment
agreement, he was awarded: (1) a non-qualified option to acquire 52,500 shares
of our common stock at an exercise price of $21.60 per share which has a 10-year
term and vests upon the earlier of a Change of Control, as defined therein, or
when Dr. Williams ceases to be a salaried employee of the company and (2)
because we closed a financing transaction by July 23, 2004, (i) a
non-qualified option to purchase 201,421 shares (the number of shares, which
taken together with all other options Dr. Williams has been awarded (other than
his options to purchase 37,500 shares with an exercise price of $1,200 per share
and 15,000 shares at $220 per share), equaled 6% of our outstanding Common Stock
on a fully diluted basis), with a 10-year term, exercisable at $8.00 per share
(the same price as shares were issued in the financing) and (ii) a cash bonus of
$206,250 (which he elected to defer to a later date).
  Dr.
Williams and Mr. DeFranco each are eligible to receive typical health, life and
disability insurance benefits that are available to our other salaried
employees. These individuals are also eligible to defer a portion of their
salary through our 401(k) plan, but the Company did not match or make any
contributions to the 401(k) plan during the 2004 fiscal year. We do not maintain
a pension plan other than our 401(k) plan.
  We had a
consulting agreement with Dr. Watson pursuant to which he provided business and
product development services to us. The consulting agreement commenced in
November, 2002 and terminated on December 31, 2004. The term was on a
month-to-month basis (unless terminated earlier by notice or cause). The
consulting agreement provided that Dr. Watson was to be paid $175 per hour of
service, be reimbursed for all reasonable out-of-pocket expenses, and receive
options to purchase up to 10,000 shares of common stock on February 3, 2003
and each January 1 thereafter so long as the agreement is in effect. The
options have an exercise price of the fair market value of our common stock on
the date of grant. However, Dr. Watson did not receive more than $60,000
annually while he was on our Audit Committee.
  Mr. Grant
provides services to us under a consulting agreement that requires us to pay him
consulting fees at a rate of $925 per day, plus pay for his reasonable
out-of-pocket expenses, modest interim living accommodations in San Diego, and
certain transportation expenses between San Diego and the East Coast. During
2004, we paid Mr. Grant consulting fees totaling $122,900 directly and another
$34,000 paid by a stockholder on behalf of the company. In return, during 2004
Mr. Grant provided us with financial and accounting advisory services and spent
an average of at least five days per week and at least eight hours per day
devoted to our business.
 
 
 42
  
 Officers
generally serve at the discretion of the Board of Directors. We do not have any
compensatory plans or arrangements resulting from resignation, retirement or any
other termination of an executive officer’s employment with us. However, the
employment agreements for Dr. Williams and Mr. DeFranco each provide for
severance in the event we terminate their employment without cause. Upon
termination without cause, Dr. Williams and Mr. DeFranco would be entitled
to a severance payment equal to one year’s salary.
  We have
entered into letter agreements with certain of our directors relating to their
compensation as directors and members of various committees. Mr. Gallagher, our
Chairman of the Board has received an option award to purchase 100,000 shares of
common stock subject to vesting over a four year period. In addition, Mr.
Gallagher receives $10,000 per month. On each anniversary of Mr. Gallagher’s
continued election as the Chairman of the Board he will receive a new option
grant to purchase 100,000 shares of common stock at the market price on the date
of the grant. The additional options will vest over a four year period. Ms.
Deptula-Hicks, Dr. Dean and Mr. Watson are each entitled to receive an annual
fee of $20,000 and an additional annual fee of $5,000 for membership on the
Audit Committee and $3,000 for membership on any other committee. Ms.
Deptula-Hicks, Dr. Dean and Mr. Watson are each also entitled to a bi-annual
option grant to acquire 3,000 shares of common stock, subject to quarterly
vesting. Each of Mr. Gallagher, Ms. Deptula-Hicks, Dr. Dean and Mr. Watson are
reimbursed for normal and necessary business expenses. Mr. Ashley is entitled to
receive 3,000 options vesting over two years, and 250 options for his Audit
Committee membership.
  Mr.
Fleming has declined to receive any compensation for his participation on the
Board or any of its committees. Dr. Williams does not receive any separate
compensation for his Board membership or for his Executive Committee
membership.
  **ITEM
11** **.**  **SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.**
  **Security
Ownership of Certain Beneficial Owners and Management.** The
following table sets forth the approximate beneficial ownership of our common
stock as of **** on March
10, 2005 by directors and executive officers of the Company and any person or
group known to us to be the owner of more than five percent of our common stock.
Shares beneficially owned by the individuals below through family partnerships
or other entities they control are included in the number of shares listed in
the table below for that individual.
 
 
 
 43


**Name
      and Address**
      **of
      Beneficial Owner(1)**
    
    **Shares
      of**
      **Common
      Stock**
      **Beneficially
      Owned(2)**
    
    
    **Percent
      of Class**
      **Outstanding(3)****EXECUTIVE
      OFFICERS AND DIRECTORS:**Robert
      A. Ashley
    
    
    0
    
    
    
    *Richard
      T. Dean
      230
      Cushing Road
      Newmarket,
      NH 03857
    
    
    2,625
    (4)
    
    
    *Jack
      DeFranco
    
    
    5,250
    (5)
    
    
    *Darlene
      M. Deptula-Hicks, M.B.A.
    
    
    1,500
    (6)
    
    
    *Jonathan
      Fleming/Oxford Bioscience
      Partners
      IV L.P.
      225
      Berkeley St., Suite 1650
      Boston,
      MA 02216
    
    
    2,448,147
    (7)
    
    
    44.6Brian
      M. Gallagher, Ph.D.
    
    
    25,000
    (8)
    
    
    *Alan
      D. Watson, Ph.D.
      One
      Kendall Square
      Building
      1000, Fifth Floor
      Cambridge,
      MA 02139
    
    
    5,750
    (9)
    
    
    *Taffy
      J. Williams, Ph.D.
    
    
    52,713
    (10)
    
    
    *All
      directors and executive officers as a group—2004 fiscal year
      (8 persons)
    
    
    2,540,985
    
    
    
    46.3**OTHER
      SHAREHOLDERS:**Oxford
      Bioscience Partners IV L.P.
      225
      Berkeley Street, Suite 1650
      Boston,
      MA 02216
    
    
    See
      above.
  ***
    Constitutes one percent or less of the
      percent of class outstanding.*(1)*
    Unless otherwise indicated, the address of
      each person named in the table is c/o: IMCOR Pharmaceutical Co., 6175 Lusk
      Boulevard, San Diego, California 92121.*(2)*
    With respect to directors and executive
      officers, based on information furnished by the director or executive
      officer listed.*(3)*
    The percent of class outstanding includes
      common stock outstanding as of March 10, 2005, and the shares of common
      stock issuable upon exercise of warrants and options or conversion of
      other securities within 60 days of March 10, 2005.*(4)*
    Includes 2,625 options exercisable within
      60 days of March 10, 2005.*(5)*
    Includes 5,250 options exercisable within
      60 days of March 10, 2005.*(6)*
    Includes 1,500 options exercisable within
      60 days of March 10, 2005.*(7)*
    Includes 22,954 shares and 1,366 warrants
      held by MRNA Fund II L.P. and 2,287,692 shares and 136,135 warrants held
      by Oxford Bioscience Partners IV L.P., which Mr. Fleming may be deemed to
      control. Mr. Fleming disclaims beneficial
      ownership of these shares for all other purposes. Excludes additional late
      registration shares to be issued upon effectiveness of the registration
      statement on Form SB-2.*(8)*
    Includes 25,000 options exercisable within
      60 days of March 10, 2005.*(9)*
    Includes 1,250 shares of common stock and
      options to acquire 4,500 shares of common stock exercisable within
      60 days of March 10, 2005.*(10)*
    Includes 213 shares of common stock and
      52,500 options exercisable within 60 days of March 10,
      2005.
   44


**Change
in Control Agreements.** We know
of no arrangements which could result in a change of control of the
company.




**Securities
Authorized for Issuance Under Equity Compensation Plans.**





The
information provided in the following table is as of December 31, 2004.





**Plan
      Category**
    
    **Number
      ofsecurities to be**
      **issued
      upon**
      **exercise
      of**
      **outstandingoptions,
      warrantsand rights (a)**
    
    **Weighted-average
      exercise price of outstandingoptions, warrantsand rights
      (b)**
    
    **Number
      of securitiesremaining availablefor future issuanceunder
      equitycompensation plans (excluding**
      **securities**
      **reflected
      in column(a)) (c)**Equity
      compensation plansapproved by security holders
    
    
    262,749
    
    $
    239.80
    
    
    40,631Equity
      compensation plans notapproved by security holders
    
    
    253,921
    
    $
    10.81
    
    
    1,017,642TOTAL
    
    
    516,670
    
    $
    127.26
    
    
    1,058,273





We have
issued the following warrants to purchase shares of our common stock without the
prior approval of our stockholders:





·
    A
      warrant to purchase 7,500 shares at $21.60 per share to Broadmark Capital,
      LLC in connection with a Settlement Agreement and Mutual Release dated as
      of September 23, 2002 which related to our engagement of Broadmark
      Capital, LLC as a placement agent,





·
    A
      warrant to purchase 9,500 shares at $50.40 per share to Clinical
      Regulatory Strategies, LLC in connection with our August 12, 2002
      engagement of Clinical Regulatory Strategies, LLC to provide us with
      certain clinical, regulatory and new product development services, of
      which only 1,900 are exercisable,





·
    A
      warrant to purchase 188 shares at $884.54 per share to a consultant as of
      January 24, 2000 in connection with certain consulting services
      provided by the consultant,





·
    Options
      to purchase on a cashless basis a net aggregate of 34,977 shares issued to
      Gerald Wolf, M.D. to settle certain intellectual property and related
      disputes; a portion of these options were previously granted but were
      amended in 2005, which such amendment is reflected
  herein,






45





·
    Warrants
      to purchase an aggregate of 735,881 shares issued to investors and
      placement agents in our April/June 2004 financing,
and





·
    A
      warrant to purchase 66,667 shares of our common stock with an exercise
      price of $5.40 per share to First Albany Capital, Inc. in connection with
      certain investment banking services provided to us by First Albany
      Capital, Inc. in October, 2004.




****


**ITEM
12** **.**  **CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.**




**Certain
Relationships and Related Transactions.** We
were involved in a joint venture transaction with units of Élan Corporation,
plc. That joint venture, called Sentigen Ltd., was involved in the
development of lymphography diagnostic products and is described under the
heading “Joint Venture/Investment in Affiliate” in Note 6 to our Financial
Statements included in our 10-QSB/A for the quarterly period ended June 30,
2004.




Mi3,
Oxford and MRNA purchased shares in the institutional financing which closed in
April and June 2004. Jonathan Fleming (a director) is General Partner of OBP
Management IV L.P. which is the general partner of Oxford and MRNA. William
McPhee (a director at that time) was president of Mi3 Services L.L.C., the
general partner of Mi3. These investors also provided capital to us evidenced by
secured notes, which were converted into shares of our common stock at $8.00 per
share in connection with the April/June 2004 financing. We have filed
registration statements covering the resale of shares held by these
stockholders, and we issued additional late registration shares to them as
required by the applicable registration rights agreements.







**ITEM
13** **.**  **EXHIBITS,
LIST AND REPORTS ON FORM 8-K.**




**(a)** **Exhibits**




The
following is a list of exhibits filed as part of this Form 10-KSB. Exhibits
that were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous filings
is indicated in parentheses.





**EXHIBITNO.**
    
    **DESCRIPTION**+2.1
    
    Asset
      Purchase Agreement dated as of June 10, 2003 by and between IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Alliance
      Pharmaceutical Corp. (Filed as Exhibit 2.1 to the company’s
      Form 8-K dated June 20, 2003 and incorporated herein by
      reference.)*3.1
    
    Articles
      of Incorporation of IMCOR Pharmaceutical Co., as
  amended.+3.2
    
    Certificate
      of Designation, Preferences and Rights of Series A Preferred Stock.
      (Filed as part of Exhibit 3.1 to the company’s 8-K filed on November
      11, 2004 and incorporated herein by reference.)+3.3
    
    Amended
      and Restated Bylaws of IMCOR Pharmaceutical Co. (Filed as Exhibit C
      to the company’s Information Statement on Form DEF 14C dated
      December 23, 2002 and incorporated herein by
    reference.)
   46
   **EXHIBITNO.**
    
    **DESCRIPTION**+4.1
    
    Form
      of Registration Rights Agreement entered into by and between IMCOR
      Pharmaceutical Co. and each purchaser signatory thereto dated April 14,
      2004. (Filed as Exhibit 4.13 to the company’s 10-QSB for the quarter ended
      March 31, 2004 and incorporated herein by reference.)+4.2
    
    Form
      of Warrant Agreement entered into by and between IMCOR Pharmaceutical Co.
      and each purchaser signatory thereto dated as of April 14, 2004. (Filed as
      Exhibit 4.12 to the company’s 10-QSB for the quarter ended March 31, 2004
      and incorporated herein by reference.)+4.3
    
    Form
      of Registration Rights Agreement entered into by and among IMCOR
      Pharmaceutical Co. Oxford Bioscience Partners IV L.P., MRNA Fund II L.P.
      and Mi3 LP dated April 19, 2004. (Filed as Exhibit 4.15 to the company’s
      10-QSB for the quarter ended March 31, 2004 and incorporated herein by
      reference.)+4.4
    
    Form
      of Registration Rights Agreement entered into by and between IMCOR
      Pharmaceutical Co. and Bristol-Myers Squibb Medical Imaging, Inc. dated as
      of October 29, 2004. (Filed as Exhibit 10.3 to the company’s 8-K filed on
      November 4, 2004 and incorporated herein by reference.)+4.5
    
    Registration
      Rights Agreement entered into as of November 12, 2002 by and among
      IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Mi3 L.P.,
      Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and Tannebaum,
      LLC. (Filed as Exhibit D to the company’s Proxy Statement on
      Form DEFM 14A dated September 12, 2002 and incorporated
      herein by reference.)+4.6
    
    Form
      of Registration Rights Agreement dated as of December 30, 2002
      entered into by and between IMCOR Pharmaceutical Co. (f/k/a Photogen
      Technologies, Inc.) and each of Oxford Bioscience Partners IV
      L.P., MRNA Fund II L.P., DMG Legacy Institutional Fund LLC, DMG
      Legacy Fund LLC, and DMG Legacy International Ltd. (Filed as
      Exhibit 10.7 to the company’s Annual Report on Form 10-K for
      dated December 31, 2002 and incorporated herein by
      reference.)+4.7
    
    Incentive
      Stock Option Award Agreement entered into by and between IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and
      Taffy J. Williams, Ph.D. dated May 17, 2000. (Filed as
      Exhibit 10.4 to the company’s Current Report on Form 8-K dated
      May 17, 2001 and incorporated herein by
reference.)+4.8
    
    Incentive
      Stock Option Award Agreement entered into by IMCOR Pharmaceutical Co.
      (f/k/a Photogen Technologies, Inc.) and Brooks Boveroux dated
      August 1, 2000. (Filed as Exhibit 10.13 to the company’s Annual
      Report on Form 10-K dated December 31, 2000 and incorporated
      herein by reference.)+4.9
    
    Warrant
      to Purchase Shares of Common Stock dated October 20, 1999 between
      IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Élan
      International Services, Ltd. (Filed as Exhibit 10.9 to the company’s
      Quarterly Report on Form 10-QSB for the quarter ended
      September 30, 1999 and incorporated herein by
    reference.)
   47
   **EXHIBITNO.**
    
    **DESCRIPTION**+4.10
    
    Warrant
      Agreement dated as of November 12, 2002 between Broadmark Capital LLC
      and IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.).
      (Filed as Exhibit 10.27 to the company’s Annual Report on
      Form 10-K for the year ended December 31, 2002 and incorporated
      herein by reference.)+4.11
    
    Non-Qualified
      Stock Option Award Agreement dated as of January 14, 2004 by and
      between IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and
      Taffy J. Williams, Ph.D. (Filed as Exhibit 4.11 to the company’s
      Annual Report on Form 10-KSB for the year ended December 31, 2003 and
      incorporated herein by reference.)+4.12
    
    Form
      of Senior Secured Promissory Note dated June 4, 2004 between IMCOR
      Pharmaceutical Co. and Xmark Fund, L.P. (Filed as Exhibit 4.12 to the
      company’s registration statement on Form SB-2 filed on August 3, 2004 and
      incorporated herein by reference.)+4.13
    
    Form
      of Senior Secured Promissory Note dated June 4, 2004 between IMCOR
      Pharmaceutical Co. and Xmark Fund, Ltd. (Filed as Exhibit 4.13 to the
      company’s registration statement on Form SB-2 filed on August 3, 2004 and
      incorporated herein by reference.)+9.1
    
    Voting,
      Drag-Along and Right of First Refusal Agreement entered into as of
      November 12, 2002 by and among Robert J. Weinstein, M.D.,
      Stuart P. Levine, Tannebaum, LLC, Mi3 L.P., Oxford Bioscience
      Partners IV L.P. and MRNA Fund II L.P. (Filed as Exhibit G
      to the company’s Proxy Statement on Form DEFM 14A dated
      September 12, 2002 and incorporated herein by
    reference.)+10.1
    
    Letter
      Agreement entered into as of August 29, 2002 by and between IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Clinical
      Regulatory Strategies, LLC (Filed as Exhibit 10.2 to the company’s
      quarterly report on Form 10-Q for the quarter ended
      September 30, 2002 and incorporated herein by
    reference.)+10.3
    
    Form
      of Indemnification Agreement entered into by and between IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and each
      Director and Senior Vice President of the company. (Filed as
      Exhibit 10.13 to the company’s Annual Report on Form 10-K for
      dated December 31, 2002 and incorporated herein by
      reference.)+10.5
    
    License
      Agreement effective as of September 30, 1999 between The General
      Hospital Corporation and Photogen, Inc. (Filed as Exhibit 10.7
      to the company’s Quarterly Report on Form 10-QSB for the quarter
      ended September 30, 1999 and incorporated herein by reference.)
      Confidential portions of this exhibit were redacted.+10.6
    
    Forbearance
      Agreement dated June, 2004 by and between IMCOR Pharmaceutical Co. and
      Philips Medical Capital, LLC. (Filed as Exhibit 10.22 to the company’s
      registration statement on Form SB-2 filed on August 3, 2004 and
      incorporated herein by reference.)+10.7
    
    Exchange
      Agreement dated as of June 4, 2004 by and among IMCOR Pharmaceutical Co.,
      Xmark Fund, L.P., Xmark Fund Ltd., Oxford Bioscience Partners IV L.P.,
      MRNA Fund II, L.P. and Mi3 L.P. (Filed as Exhibit 10.23 to the company’s
      registration statement on Form SB-2 filed on August 3, 2004 and
      incorporated herein by reference.)
   48
   **EXHIBITNO.**
    
    **DESCRIPTION**+10.8
    
    Single-Tenant
      Industrial Lease dated November 7, 1997 by and between WHAMC Real Estate
      Limited Partnership and Alliance Pharmaceutical Co. (Filed as Exhibit 10.1
      to the company’s quarterly report on Form 10-QSB for the quarter ended
      September 30, 2004 and incorporated herein by
  reference.)+10.9
    
    Landlord
      Consent to Assignment and Assumption dated as of June 18, 2003 by and
      among IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.),
      EOP-Industrial Portfolio, L.L.C. and Alliance Pharmaceutical Corp. (Filed
      as Exhibit 10.2 to the company’s quarterly report on Form 10-QSB for the
      quarter ended September 30, 2004 and incorporated herein by
      reference.)+10.10
    
    Equipment
      Lease between Picker Financial Group, L.L.C. and Photogen, Inc. dated
      October 25, 1999. (Filed as Exhibit 10.37 to the company’s
      Annual Report on Form 10-KSB for the year ended December 31,
      1999 and incorporated herein by reference.)+10.11
    
    Going
      Forward Agreement dated as of May 2, 2003 by and among IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund,
      L.P., and Xmark Fund, Ltd. (Filed as Exhibit 10.1 to the company’s
      8-K filed on June 20, 2003 and incorporated herein by
      reference.)+10.12
    
    Security
      Agreement dated as of June 18, 2003 by and among IMCOR Pharmaceutical
      Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund, L.P. and Xmark
      Fund, Ltd. (Filed as Exhibit 10.2 to the company’s 8-K filed on
      June 20, 2003 and incorporated herein by
  reference.)+10.13
    
    Patent
      and Trademark Security Agreement dated as of June 18, 2003 by and
      among IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.),
      Xmark Fund, L.P., and Xmark Fund, Ltd. (Filed as Exhibit 10.3 to the
      company’s 8-K filed on June 20, 2003 and incorporated herein by
      reference.)+10.14
    
    Security
      Agreement dated as of June 18, 2003 by and among IMCOR Pharmaceutical
      Co. (f/k/a Photogen Technologies, Inc.), Oxford Bioscience
      Partners IV L.P., MRNA Fund II L.P. and Mi3 LP. (Filed as
      Exhibit 10.5 to the company’s 8-K filed on June 20, 2003
      and incorporated herein by reference.)+10.15
    
    Patent
      and Trademark Security Agreement dated as of as of June 18, 2003 by
      and among IMCOR Pharmaceutical Co. (f/k/a Photogen
      Technologies, Inc.), Oxford Bioscience Partners IV L.P., MRNA
      Fund II L.P. and Mi3 LP. (Filed as Exhibit 10.6 to the company’s
      8-K filed on June 20, 2003 and incorporated herein by
      reference.)+10.16
    
    Equipment
      Lease dated as of June 18, 2003 by and between IMCOR Pharmaceutical
      Co. (f/k/a Photogen Technologies, Inc.) and Baxter Healthcare
      Corporation. (Filed as Exhibit 10.8 to the company’s 8-K filed on
      June 20, 2003 and incorporated herein by
  reference.)+10.17
    
    Letter
      Agreement dated as of August 18, 2003 by and among IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund,
      Ltd. and Xmark Fund, L.P. (Filed as Exhibit 10.1 to the company’s
      Form 8-K filed on August 20, 2003 and incorporated herein by
      reference.)
   49
   **EXHIBITNO.**
    
    **DESCRIPTION***10.18
    
    Amended
      and Restated Letter Agreement dated February 8, 2005 by and between IMCOR
      Pharmaceutical Co. and Jack DeFranco.+10.19
    
    Letter
      Agreement dated July 23, 2003 by and between IMCOR Pharmaceutical Co.
      (f/k/a Photogen Technologies, Inc.) and Taffy J. Williams, Ph.D.
      (Filed as Exhibit 10.5 to the company’s Form 10-QSB for the
      quarter ended September 30, 2003 and incorporated herein by
      reference).+10.20
    
    Form
      of Letter Agreement by and between IMCOR Pharmaceutical Co. (f/k/a
      Photogen Technologies, Inc.) and each outside director. (Filed as
      Exhibit 10.20 to the Company’s Form 10-KSB for the year ended December 31,
      2003 and incorporated herein by reference.)+10.21
    
    License
      Agreement dated December 16, 2003 by and between IMCOR Pharmaceutical
      Co. (f/k/a Photogen Technologies, Inc.) and Kyosei Pharmaceutical Co. Ltd.
      Confidential portions of this exhibit were redacted. (Filed as
      Exhibit 10.1 to the company’s report on Form 8-K filed on
      December 18, 2003 and incorporated herein by
    reference.)+10.22
    
    Termination
      Agreement dated June 9, 2004 by and among IMCOR Pharmaceutical Co. (f/k/a/
      Photogen Technologies, Inc.), Élan Corporation, plc, Élan Pharma
      International Ltd., Élan International Services, Ltd., and Sentigen, Ltd.
      Confidential portions of this exhibit were redacted. (Filed as Exhibit
      10.11 to the company’s quarterly report on Form 10-QSB for the quarter
      ended September 30, 2004 and incorporated herein by
      reference.)+10.23
    
    License
      Agreement dated June 9, 2004 between IMCOR Pharmaceutical Co. (f/k/a
      Photogen Technologies, Inc.) and Élan Pharma International Ltd.
      Confidential portions of this exhibit were redacted. (Filed as Exhibit
      10.12 to the company’s quarterly report on Form 10-QSB for the quarter
      ended September 30, 2004 and incorporated herein by
      reference.)+10.24
    
    Letter
      Agreement dated June 9, 2004 by and among IMCOR Pharmaceutical Co. (f/k/a
      Photogen Technologies, Inc.), Élan Drug Delivery, Inc. and Élan Pharma
      International Ltd. Confidential Portions of this exhibit were redacted.
      (Filed as Exhibit 10.13 to the company’s quarterly report on Form 10-QSB
      for the quarter ended September 30, 2004 and incorporated herein by
      reference.)+10.25
    
    Letter
      Agreement dated June 27, 2004 by and between IMCOR Pharmaceutical Co. and
      Brian M. Gallagher. (Filed as Exhibit 10.14 to the company’s quarterly
      report on Form 10-QSB for the quarter ended June 30,
  2004.)+10.26
    
    Cross
      License Agreement dated as of October 29, 2004 by and between
      Bristol-Myers Squibb Medical Imaging, Inc. and IMCOR Pharmaceutical Co.
      Confidential portions of this exhibit were redacted. (Filed as Exhibit
      10.1 to the company’s 8-K filed on November 4, 2004 and incorporated
      herein by reference.)+10.27
    
    License
      Agreement originally dated as of September 23, 1997 amended and restated
      in its entirety as of February 22, 2002 by and between Alliance
      Pharmaceutical Corp. and Schering Aktiengesellschaft. Confidential
      portions of this exhibit were redacted. (Filed as Exhibit 10.1 to the
      company’s quarterly report on Form 10-QSB for the quarter ended September
      30, 2004 and incorporated herein by
reference.)
   50
   **EXHIBITNO.**
    
    **DESCRIPTION**+10.28
    
    Settlement
      and Worldwide License Agreement dated as of January 31, 2001 by and among
      Bracco International B.V., Schering Aktiengesellschaft and Alliance
      Pharmaceutical Corp. Confidential portions of this exhibit were redacted.
      (Filed as Exhibit 10.2 to the company’s quarterly report on Form 10-QSB
      for the quarter ended September 30, 2004 and incorporated herein by
      reference.)*10.29
    
    Amended
      and Restated Supply Agreement dated as of October 8, 2003 by and between
      Genzyme Corporation and IMCOR Pharmaceutical Co. (f/k/a Photogen
      Technologies, Inc.). Confidential portions of this exhibit were
      redacted.+10.30
    
    Amendment
      and Assignment Agreement dated as of August 18, 2003 by and among IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Cardinal Health
      411, Inc., Cardinal Health 105, Inc. (f/k/a CORD Logistics, Inc., n/k/a
      Cardinal Specialty Pharmacy Distribution) and Alliance Pharmaceutical Co.
      Confidential portions of this exhibit were redacted. (Filed as Exhibit
      10.4 to the Company’s 10-QSB filed on November 20,
  2003.)*10.31
    
    Exclusive
      Distribution Agreement dated as of April 1, 2002 by and between Alliance
      Pharmaceutical Co. and CORD Logistics, Inc. (n/k/a Cardinal Specialty
      Pharmacy Distribution). Confidential portions of this exhibit were
      redacted.*14
    
    Code
      of Ethics for Principal Executive and Senior Financial Officers effective
      as of December 31, 2004.+21
    
    List
      of subsidiaries of the company (Filed as Exhibit 21 to the company’s
      Form 10-K for the year ended December 31, 2002 and incorporated
      herein by reference.)*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.*+*Incorporated
      by Reference.**
      F*iled
      herewith.


***(b)*** **Reports
On Form 8-K.**




During
the quarter ended December 31, 2004, we filed the following reports on
Form 8-K:





1. On
October 29, 2004, we filed a Current Report on Form 8-K announcing a
non-exclusive, cross-licensing agreement with Bristol-Myers Squibb covering
ultrasound contrast agent patents.








51




2. On
November 4, 2004, we filed a Current Report on Form 8-K announcing the License
Agreement, Securities Purchase Agreement and Registration Rights Agreement with
Bristol-Myers Squibb. The Form 8-K also provided the terms of our Certificate of
Designation, Preferences and Rights for our newly issued Series A Preferred
Stock.






**ITEM
14** **.**  **PRINCIPAL
ACCOUNTANT FEES AND SERVICES.**




**Independent
Auditors’ Fees**




**Audit
Fees.** In the
fiscal years ended December 31, 2003 and December 31, 2004, Moss Adams LLP
billed us an aggregate of $89,217 **** and
$175,670, respectively, in fees for professional services rendered in connection
with the audit of our financial statements and the review of the financial
statements included in our Quarterly Reports on Form 10-QSB.




**Audit-Related
Fees.** In the
fiscal years ended December 31, 2003 and December 31, 2004, Moss Adams LLP
billed us an aggregate of $3,248 and $56,350 for audit-related fees including
services related to review of registration statements and communication with the
SEC.




**Tax
Fees.** In the
fiscal years ended December 31, 2003 or December 31, 2004, Moss Adams LLP billed
us an aggregate of $7,346 and $6,998, respectively, for professional services
rendered in connection with tax compliance, tax advice and tax
planning.




**All
Other Fees.** In the
fiscal years ended December 31, 2003 and December 31, 2004, Moss Adams, LLP
did not bill us for any products or services, other than those disclosed above
under the headings “Audit Fees,” “Audit-Related Fees” and “Tax
Fees.”




**Audit
Committee Pre-Approval Policy.** Pursuant
to the terms of our Audit Committee’s charter, our Audit Committee pre-approves
all auditing services (which may entail providing comfort letters in connection
with securities underwritings) and non-audit services proposed to be provided by
the Company’s independent certified public accountant, except for non-audit
services within the de minimus exception under Section 10A(i)(B) of the Exchange
Act. In this connection, the Audit Committee has the authority to appoint one or
more of its members to approve services, provided that the decisions made by
such designees between meetings of the Audit Committee shall be presented to the
full Audit Committee at the next meeting thereof. All of the services provided
to the Company by Moss Adams LLP during the fiscal years ended December 31, 2003
and December 31, 2004 were pre-approved by the Audit
Committee.


****




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
      PHARMACEUTICALS CO.**Date: March 29,
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. WILLIAMSTaffy
      J. Williams, Ph.D.
    
    President,
      Chief Executive Officer and Director (principal executive officer and
      acting principal financial officer)
    
    March
      29, 2005By:
    
    /s/  DARLENE
      M. DEPTULA - HICKS
    
    Director
    
    March
      28, 2005Darlene
      M. Deptula - HicksBy:
    
    /s/  ALAN
      D. WATSON
    
    Director
    
    March
      29, 2005Alan
      D. Watson, Ph.D.By:
    
    /s/  JONATHAN
      FLEMING
    
    Director
    
    March
      25, 2005Jonathan
      FlemingBy:
    
    /s/  RICHARD
      T. DEAN
    
    Director
    
    March
      25, 2005Richard
      Dean, Ph.D.By:
    
    /s/  ROBERT
      A. ASHLEY
    
    Director
    
    March
      29, 2005Robert
      A. AshleyBy:
    
    /s/
      BRIAN M. GALLAGHER
    
    Director
    
    March
      24, 2005Brian
      M. Gallagher, Ph.D.


****





53





****


**EXHIBIT
INDEX**







**EXHIBITNO.**
    
    **DESCRIPTION**+2.1
    
    Asset
      Purchase Agreement dated as of June 10, 2003 by and between IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Alliance
      Pharmaceutical Corp. (Filed as Exhibit 2.1 to the company’s
      Form 8-K dated June 20, 2003 and incorporated herein by
      reference.)*3.1
    
    Articles
      of Incorporation of IMCOR Pharmaceutical Co., as
  amended.+3.2
    
    Certificate
      of Designation, Preferences and Rights of Series A Preferred Stock.
      (Filed as part of Exhibit 3.1 to the company’s 8-K filed on November
      11, 2004 and incorporated herein by reference.)+3.3
    
    Amended
      and Restated Bylaws of IMCOR Pharmaceutical Co. (Filed as Exhibit C
      to the company’s Information Statement on Form DEF 14C dated
      December 23, 2002 and incorporated herein by
    reference.)+4.1
    
    Form
      of Registration Rights Agreement entered into by and between IMCOR
      Pharmaceutical Co. and each purchaser signatory thereto dated April 14,
      2004. (Filed as Exhibit 4.13 to the company’s 10-QSB for the quarter ended
      March 31, 2004 and incorporated herein by reference.)+4.2
    
    Form
      of Warrant Agreement entered into by and between IMCOR Pharmaceutical Co.
      and each purchaser signatory thereto dated as of April 14, 2004. (Filed as
      Exhibit 4.12 to the company’s 10-QSB for the quarter ended March 31, 2004
      and incorporated herein by reference.)+4.3
    
    Form
      of Registration Rights Agreement entered into by and among IMCOR
      Pharmaceutical Co. Oxford Bioscience Partners IV L.P., MRNA Fund II L.P.
      and Mi3 LP dated April 19, 2004. (Filed as Exhibit 4.15 to the company’s
      10-QSB for the quarter ended March 31, 2004 and incorporated herein by
      reference.)+4.4
    
    Form
      of Registration Rights Agreement entered into by and between IMCOR
      Pharmaceutical Co. and Bristol-Myers Squibb Medical Imaging, Inc. dated as
      of October 29, 2004. (Filed as Exhibit 10.3 to the company’s 8-K filed on
      November 4, 2004 and incorporated herein by reference.)+4.5
    
    Registration
      Rights Agreement entered into as of November 12, 2002 by and among
      IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Mi3 L.P.,
      Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and Tannebaum,
      LLC. (Filed as Exhibit D to the company’s Proxy Statement on
      Form DEFM 14A dated September 12, 2002 and incorporated
      herein by reference.)
   54
   **EXHIBITNO.**
    
    **DESCRIPTION**+4.6
    
    Form
      of Registration Rights Agreement dated as of December 30, 2002
      entered into by and between IMCOR Pharmaceutical Co. (f/k/a Photogen
      Technologies, Inc.) and each of Oxford Bioscience Partners IV
      L.P., MRNA Fund II L.P., DMG Legacy Institutional Fund LLC, DMG
      Legacy Fund LLC, and DMG Legacy International Ltd. (Filed as
      Exhibit 10.7 to the company’s Annual Report on Form 10-K for
      dated December 31, 2002 and incorporated herein by
      reference.)+4.7
    
    Incentive
      Stock Option Award Agreement entered into by and between IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and
      Taffy J. Williams, Ph.D. dated May 17, 2000. (Filed as
      Exhibit 10.4 to the company’s Current Report on Form 8-K dated
      May 17, 2001 and incorporated herein by
reference.)+4.8
    
    Incentive
      Stock Option Award Agreement entered into by IMCOR Pharmaceutical Co.
      (f/k/a Photogen Technologies, Inc.) and Brooks Boveroux dated
      August 1, 2000. (Filed as Exhibit 10.13 to the company’s Annual
      Report on Form 10-K dated December 31, 2000 and incorporated
      herein by reference.)+4.9
    
    Warrant
      to Purchase Shares of Common Stock dated October 20, 1999 between
      IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Élan
      International Services, Ltd. (Filed as Exhibit 10.9 to the company’s
      Quarterly Report on Form 10-QSB for the quarter ended
      September 30, 1999 and incorporated herein by
    reference.)+4.10
    
    Warrant
      Agreement dated as of November 12, 2002 between Broadmark Capital LLC
      and IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.).
      (Filed as Exhibit 10.27 to the company’s Annual Report on
      Form 10-K for the year ended December 31, 2002 and incorporated
      herein by reference.)+4.11
    
    Non-Qualified
      Stock Option Award Agreement dated as of January 14, 2004 by and
      between IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and
      Taffy J. Williams, Ph.D. (Filed as Exhibit 4.11 to the company’s
      Annual Report on Form 10-KSB for the year ended December 31, 2003 and
      incorporated herein by reference.)+4.12
    
    Form
      of Senior Secured Promissory Note dated June 4, 2004 between IMCOR
      Pharmaceutical Co. and Xmark Fund, L.P. (Filed as Exhibit 4.12 to the
      company’s registration statement on Form SB-2 filed on August 3, 2004 and
      incorporated herein by reference.)+4.13
    
    Form
      of Senior Secured Promissory Note dated June 4, 2004 between IMCOR
      Pharmaceutical Co. and Xmark Fund, Ltd. (Filed as Exhibit 4.13 to the
      company’s registration statement on Form SB-2 filed on August 3, 2004 and
      incorporated herein by reference.)+9.1
    
    Voting,
      Drag-Along and Right of First Refusal Agreement entered into as of
      November 12, 2002 by and among Robert J. Weinstein, M.D.,
      Stuart P. Levine, Tannebaum, LLC, Mi3 L.P., Oxford Bioscience
      Partners IV L.P. and MRNA Fund II L.P. (Filed as Exhibit G
      to the company’s Proxy Statement on Form DEFM 14A dated
      September 12, 2002 and incorporated herein by
    reference.)
   55
   **EXHIBITNO.**
    
    **DESCRIPTION**+10.1
    
    Letter
      Agreement entered into as of August 29, 2002 by and between IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Clinical
      Regulatory Strategies, LLC (Filed as Exhibit 10.2 to the company’s
      quarterly report on Form 10-Q for the quarter ended
      September 30, 2002 and incorporated herein by
    reference.)+10.3
    
    Form
      of Indemnification Agreement entered into by and between IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and each
      Director and Senior Vice President of the company. (Filed as
      Exhibit 10.13 to the company’s Annual Report on Form 10-K for
      dated December 31, 2002 and incorporated herein by
      reference.)+10.5
    
    License
      Agreement effective as of September 30, 1999 between The General
      Hospital Corporation and Photogen, Inc. (Filed as Exhibit 10.7
      to the company’s Quarterly Report on Form 10-QSB for the quarter
      ended September 30, 1999 and incorporated herein by reference.)
      Confidential portions of this exhibit were redacted.+10.6
    
    Forbearance
      Agreement dated June, 2004 by and between IMCOR Pharmaceutical Co. and
      Philips Medical Capital, LLC. (Filed as Exhibit 10.22 to the company’s
      registration statement on Form SB-2 filed on August 3, 2004 and
      incorporated herein by reference.)+10.7
    
    Exchange
      Agreement dated as of June 4, 2004 by and among IMCOR Pharmaceutical Co.,
      Xmark Fund, L.P., Xmark Fund Ltd., Oxford Bioscience Partners IV L.P.,
      MRNA Fund II, L.P. and Mi3 L.P. (Filed as Exhibit 10.23 to the company’s
      registration statement on Form SB-2 filed on August 3, 2004 and
      incorporated herein by reference.)+10.8
    
    Single-Tenant
      Industrial Lease dated November 7, 1997 by and between WHAMC Real Estate
      Limited Partnership and Alliance Pharmaceutical Co. (Filed as Exhibit 10.1
      to the company’s quarterly report on Form 10-QSB for the quarter ended
      September 30, 2004 and incorporated herein by
  reference.)+10.9
    
    Landlord
      Consent to Assignment and Assumption dated as of June 18, 2003 by and
      among IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.),
      EOP-Industrial Portfolio, L.L.C. and Alliance Pharmaceutical Corp. (Filed
      as Exhibit 10.2 to the company’s quarterly report on Form 10-QSB for the
      quarter ended September 30, 2004 and incorporated herein by
      reference.)+10.10
    
    Equipment
      Lease between Picker Financial Group, L.L.C. and Photogen, Inc. dated
      October 25, 1999. (Filed as Exhibit 10.37 to the company’s
      Annual Report on Form 10-KSB for the year ended December 31,
      1999 and incorporated herein by reference.)+10.11
    
    Going
      Forward Agreement dated as of May 2, 2003 by and among IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund,
      L.P., and Xmark Fund, Ltd. (Filed as Exhibit 10.1 to the company’s
      8-K filed on June 20, 2003 and incorporated herein by
      reference.)+10.12
    
    Security
      Agreement dated as of June 18, 2003 by and among IMCOR Pharmaceutical
      Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund, L.P. and Xmark
      Fund, Ltd. (Filed as Exhibit 10.2 to the company’s 8-K filed on
      June 20, 2003 and incorporated herein by
  reference.)
   56
   **EXHIBITNO.**
    
    **DESCRIPTION**+10.13
    
    Patent
      and Trademark Security Agreement dated as of June 18, 2003 by and
      among IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.),
      Xmark Fund, L.P., and Xmark Fund, Ltd. (Filed as Exhibit 10.3 to the
      company’s 8-K filed on June 20, 2003 and incorporated herein by
      reference.)+10.14
    
    Security
      Agreement dated as of June 18, 2003 by and among IMCOR Pharmaceutical
      Co. (f/k/a Photogen Technologies, Inc.), Oxford Bioscience
      Partners IV L.P., MRNA Fund II L.P. and Mi3 LP. (Filed as
      Exhibit 10.5 to the company’s 8-K filed on June 20, 2003
      and incorporated herein by reference.)+10.15
    
    Patent
      and Trademark Security Agreement dated as of as of June 18, 2003 by
      and among IMCOR Pharmaceutical Co. (f/k/a Photogen
      Technologies, Inc.), Oxford Bioscience Partners IV L.P., MRNA
      Fund II L.P. and Mi3 LP. (Filed as Exhibit 10.6 to the company’s
      8-K filed on June 20, 2003 and incorporated herein by
      reference.)+10.16
    
    Equipment
      Lease dated as of June 18, 2003 by and between IMCOR Pharmaceutical
      Co. (f/k/a Photogen Technologies, Inc.) and Baxter Healthcare
      Corporation. (Filed as Exhibit 10.8 to the company’s 8-K filed on
      June 20, 2003 and incorporated herein by
  reference.)+10.17
    
    Letter
      Agreement dated as of August 18, 2003 by and among IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund,
      Ltd. and Xmark Fund, L.P. (Filed as Exhibit 10.1 to the company’s
      Form 8-K filed on August 20, 2003 and incorporated herein by
      reference.)*10.18
    
    Amended
      and Restated Letter Agreement dated February 8, 2005 by and between IMCOR
      Pharmaceutical Co. and Jack DeFranco.+10.19
    
    Letter
      Agreement dated July 23, 2003 by and between IMCOR Pharmaceutical Co.
      (f/k/a Photogen Technologies, Inc.) and Taffy J. Williams, Ph.D.
      (Filed as Exhibit 10.5 to the company’s Form 10-QSB for the
      quarter ended September 30, 2003 and incorporated herein by
      reference).+10.20
    
    Form
      of Letter Agreement by and between IMCOR Pharmaceutical Co. (f/k/a
      Photogen Technologies, Inc.) and each outside director. (Filed as
      Exhibit 10.20 to the Company’s Form 10-KSB for the year ended December 31,
      2003 and incorporated herein by reference.)+10.21
    
    License
      Agreement dated December 16, 2003 by and between IMCOR Pharmaceutical
      Co. (f/k/a Photogen Technologies, Inc.) and Kyosei Pharmaceutical Co. Ltd.
      Confidential portions of this exhibit were redacted. (Filed as
      Exhibit 10.1 to the company’s report on Form 8-K filed on
      December 18, 2003 and incorporated herein by
    reference.)+10.22
    
    Termination
      Agreement dated June 9, 2004 by and among IMCOR Pharmaceutical Co. (f/k/a/
      Photogen Technologies, Inc.), Élan Corporation, plc, Élan Pharma
      International Ltd., Élan International Services, Ltd., and Sentigen, Ltd.
      Confidential portions of this exhibit were redacted. (Filed as Exhibit
      10.11 to the company’s quarterly report on Form 10-QSB for the quarter
      ended September 30, 2004 and incorporated herein by
      reference.)
   57
   **EXHIBITNO.**
    
    **DESCRIPTION**+10.23
    
    License
      Agreement dated June 9, 2004 between IMCOR Pharmaceutical Co. (f/k/a
      Photogen Technologies, Inc.) and Élan Pharma International Ltd.
      Confidential portions of this exhibit were redacted. (Filed as Exhibit
      10.12 to the company’s quarterly report on Form 10-QSB for the quarter
      ended September 30, 2004 and incorporated herein by
      reference.)+10.24
    
    Letter
      Agreement dated June 9, 2004 by and among IMCOR Pharmaceutical Co. (f/k/a
      Photogen Technologies, Inc.), Élan Drug Delivery, Inc. and Élan Pharma
      International Ltd. Confidential Portions of this exhibit were redacted.
      (Filed as Exhibit 10.13 to the company’s quarterly report on Form 10-QSB
      for the quarter ended September 30, 2004 and incorporated herein by
      reference.)+10.25
    
    Letter
      Agreement dated June 27, 2004 by and between IMCOR Pharmaceutical Co. and
      Brian M. Gallagher. (Filed as Exhibit 10.14 to the company’s quarterly
      report on Form 10-QSB for the quarter ended June 30,
  2004.)+10.26
    
    Cross
      License Agreement dated as of October 29, 2004 by and between
      Bristol-Myers Squibb Medical Imaging, Inc. and IMCOR Pharmaceutical Co.
      Confidential portions of this exhibit were redacted. (Filed as Exhibit
      10.1 to the company’s 8-K filed on November 4, 2004 and incorporated
      herein by reference.)+10.27
    
    License
      Agreement originally dated as of September 23, 1997 amended and restated
      in its entirety as of February 22, 2002 by and between Alliance
      Pharmaceutical Corp. and Schering Aktiengesellschaft. Confidential
      portions of this exhibit were redacted. (Filed as Exhibit 10.1 to the
      company’s quarterly report on Form 10-QSB for the quarter ended September
      30, 2004 and incorporated herein by reference.)+10.28
    
    Settlement
      and Worldwide License Agreement dated as of January 31, 2001 by and among
      Bracco International B.V., Schering Aktiengesellschaft and Alliance
      Pharmaceutical Corp. Confidential portions of this exhibit were redacted.
      (Filed as Exhibit 10.2 to the company’s quarterly report on Form 10-QSB
      for the quarter ended September 30, 2004 and incorporated herein by
      reference.)*10.29
    
    Amended
      and Restated Supply Agreement dated as of October 8, 2003 by and between
      Genzyme Corporation and IMCOR Pharmaceutical Co. (f/k/a Photogen
      Technologies, Inc.). Confidential portions of this exhibit were
      redacted.+10.30
    
    Amendment
      and Assignment Agreement dated as of August 18, 2003 by and among IMCOR
      Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Cardinal Health
      411, Inc., Cardinal Health 105, Inc. (f/k/a CORD Logistics, Inc., n/k/a
      Cardinal Specialty Pharmacy Distribution) and Alliance Pharmaceutical Co.
      Confidential portions of this exhibit were redacted. (Filed as Exhibit
      10.4 to the Company’s 10-QSB filed on November 20,
  2003.)*10.31
    
    Exclusive
      Distribution Agreement dated as of April 1, 2002 by and between Alliance
      Pharmaceutical Co. and CORD Logistics, Inc. (n/k/a Cardinal Specialty
      Pharmacy Distribution). Confidential portions of this exhibit were
      redacted.*14
    
    Code
      of Ethics for Principal Executive and Senior Financial Officers effective
      as of December 31, 2004.
   58
   **EXHIBITNO.**
    
    **DESCRIPTION**+21
    
    List
      of subsidiaries of the company (Filed as Exhibit 21 to the company’s
      Form 10-K for the year ended December 31, 2002 and incorporated
      herein by reference.)*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.*+*Incorporated
      by Reference.***Filed
      herewith.





59