**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 
| **ý**                                                                                                                                                                                                                     |   | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                           |
| **FOR THE QUARTERLY PERIOD ENDED MARCH 31,  2004**                                                                                                                                                                             |
|                                                                                                                                                                                                                           |
| **OR**                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                           |
| **o**                                                                                                                                                                                                                          |   | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                           |
| **FOR THE TRANSITION PERIOD FROM                   TO                 ** |
|                                                                                                                                                                                                                           |
| **Commission File Number 0-23553**                                                                                                                                                                                             |
|                                                                                                                                                                                                                           |
| **IMCOR PHARMACEUTICAL CO.**                                                                                                                                                                                                   |
| (Exact name of small business issuer as  specified in its charter)                                                                                                                                                             |

 
| **NEVADA**                                                      |   | **62-1742885**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer Identification No.) |
|                                                            |   |                                 |
| **6175 Lusk Boulevard  San Diego, CA 92121**                    |
| (Address of principal executive offices)  (Zip Code)            |
|                                                            |   |                                 |
| **858/410-5601**                                                |
| (Issuer’s telephone number, including area  code)          |

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o

 

State the number of shares outstanding of each of the issuer’s classesof common equity, as of the latest practicable date: 30,095,328 shares of commonstock, $.001 par value per share, issued and outstanding at May 13, 2004.

 

Transitional Small Business DisclosureFormat (check one):

 

Yes  o      No ý

 

 

----

 

**INDEX**

 
| PART I.  | FINANCIAL INFORMATION                                           |   |
|----------|-----------------------------------------------------------------|--------|
| ITEM 1.  | FINANCIAL STATEMENTS                                            |   |
| ITEM  2. | MANAGEMENT’S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION |   |
| ITEM 3.  | CONTROLS AND PROCEDURES                                         |   |
| PART II. | OTHER INFORMATION                                               |   |
| ITEM  1. | LEGAL PROCEEDINGS                                               |   |
| ITEM 2.  | CHANGES IN SECURITIES                                           |   |
| ITEM 3.  | DEFAULTS UPON  SENIOR SECURITIES                                |   |
| ITEM  4. | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS            |   |
| ITEM  5. | OTHER INFORMATION                                               |   |
| ITEM 6.  | EXHIBITS AND  REPORTS ON FORM 8-K                               |   |

 

----

 

# **PART I. FINANCIAL INFORMATION**

# ** **

## **ITEM 1.  FINANCIALSTATEMENTS**

## ** **

IMCOR Pharmaceutical Co.

(formerly Photogen Technologies, Inc.)

(A Development Stage Company)

Consolidated Condensed Balance Sheets

All amounts in $

 
|                                                                                                                                                   |   | **Mar 31,  2004** |           | **Dec 31, 2003** |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|----------------|------------------|------------|
|                                                                                                                                                   |   | **(Unaudited)**   |           | **(Audited)**    |       |
| **Assets**                                                                                                                                             |   |              | ** **     |             | ** ** |
| **Current Assets**                                                                                                                                     |   |              | ** **     |             | ** ** |
| Cash and cash equivalents                                                                                                                              |   | $                 | **76,234**     |             | $          | **1,657,594** |   |
| Accounts Receivable                                                                                                                                    |   | **17,500**        | ** **     |             | ** ** |
| Deposits                                                                                                                                               |   | **108,721**       |           | 108,721          |       |
| Prepaid expenses                                                                                                                                       |   | **334,075**       |           | 492,718          |       |
| **Total Current  Assets**                                                                                                                              |   | **536,530**       |           | 2,259,033        |       |
|                                                                                                                                                   |   |              | ** **     |             | ** ** |
| **Property, Plant and Equipment,**  less accumulated depreciation of $1,439,266 and $996,091, respectively                                             |   | **5,855,905**     |           | 6,294,560        |       |
|                                                                                                                                                   |   |              | ** **     |             | ** ** |
| **Patent Costs,** net  of amortization of $201,215 and $183,854, respectively                                                                          |   | **298,785**       |           | 316,146          |       |
|                                                                                                                                                   |   |              | ** **     |             | ** ** |
| **Deposits**                                                                                                                                           |   | **438,383**       |           | 338,383          |       |
|                                                                                                                                                   |   |              | ** **     |             | ** ** |
| **Purchased  Technology,**net of amortization of $984,011 and  $658,217, respectively                                                                  |   | **14,654,134**    |           | 14,979,929       |       |
|                                                                                                                                                   |   |              | ** **     |             | ** ** |
| **Investment in and  Advances to Affiliate**                                                                                                           |   | **2,607,218**     |           | 2,803,114        |       |
| Total Assets                                                                                                                                           |   | $                 | **24,390,955** |             | $          | **26,991,165** |   |
|                                                                                                                                                   |   |              |           |             |       |
| **Liabilities and  Shareholders’ Equity**                                                                                                         |   |              | ** **     |             | ** ** |
|                                                                                                                                                   |   |              |           |             |       |
| **Current Liabilities**                                                                                                                                |   |              |           |             |       |
| Accounts payable                                                                                                                                       |   | $                 | **2,101,833**  |             | $          | 1,884,791 |   |
| Accrued expenses                                                                                                                                       |   | **2,821,597**     |           | 3,281,792        |       |
| Accrued equipment lease                                                                                                                                |   | **719,939**       |           | 586,052          |       |
| Promissory notes                                                                                                                                       |   | **398,607**       |           | 329,679          |       |
| Lines of Credit                                                                                                                                        |   | **13,356,009**    |           | 11,735,036       |       |
| Notes payable                                                                                                                                          |   | **1,250,000**     |           | 1,250,000        |       |
| **Total Current  Liabilities**                                                                                                                         |   | **20,647,985**    |           | 19,067,351       |       |
|                                                                                                                                                   |   |              |           |             |       |
| **Deferred contract revenue**                                                                                                                          |   | **1,958,333**     |           | 2,000,000        |       |
|                                                                                                                                                   |   |              |           |             |       |
| **Accrued Equipment  Lease**                                                                                                                           |   | **—**        |           | 133,888          |       |
|                                                                                                                                                   |   |              |           |             |       |
| **Puttable Shares**                                                                                                                                    |   | **1,779,668**     |           | 1,969,668        |       |
|                                                                                                                                                   |   |              |           |             |       |
| **Shareholders’ Equity**                                                                                                                          |   |              |           |             |       |
| Preferred stock; par value $.01 per share;  5,000,000 shares authorized including:                                                                     |   |              |           |             |       |
| Series A Preferred Stock; 12,856 shares  authorized, issued and outstanding,   liquidation preference $1,000 per share (in aggregate $12,856,000) |   | **128**           |           | 128              |       |
| Common stock; par value $.001 per share;  150,000,000 shares authorized,   21,524,798 and 19,464,548 shares issued and outstanding, respectively  |   | **21,715**        |           | 19,465           |       |
| Additional paid-in capital                                                                                                                             |   | **56,208,475**    |           | 50,199,203       |       |
| Common stock to be issued                                                                                                                              |   | **140,700**       |           | 5,120,159        |       |
| Deficit accumulated during the development  stage                                                                                                      |   | **(56,366,049**   | **)**          | (51,518,697      | )          |
| **Total Shareholders’  Equity**                                                                                                                   |   | **4,969**         |           | 3,820,258        |       |
| Total Liabilities and Shareholders’ Equity                                                                                                        |   | $                 | **24,390,955** |             | $          | 26,991,165 |   |

 

1

----

 

IMCOR Pharmaceutical Co.

(formerly Photogen Technologies, Inc.)

(A Development Stage Company)

Consolidated Condensed Statements ofOperations

(Unaudited)

All amounts in $

 
|                                                                               |   | **Three  Months  Ended  March 31,  2004** |       | **Three  Months  Ended  March 31,  2003** |       | **Cumulative  Amounts  From  November 3,  1996 (inception) to  March 31, 2004** |       |
|------------------------------------------------------------------------------------|--------|-------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
|                                                                               |   |                                      |       |                                      |       | **(Unaudited)**                                                                 |       |
| **License Revenue**                                                                |   | $                                         | 41,667     |                                      | $          | —                                                                          |       | $ | 41,667 |   |
|                                                                               |   |                                      |       |                                      |       |                                                                            |       |
| **Operating Expenses**                                                             |   |                                      |       |                                      |       |                                                                            |       |
| Research and development                                                           |   | 960,831                                   |       | 554,163                                   |       | 7,847,147                                                                       |       |
| Sales, general and administrative                                                  |   | 3,689,106                                 |       | 4,195,358                                 |       | 34,578,395                                                                      |       |
| Restructuring charges                                                              |   | —                                    |       | —                                    |       | 1,541,455                                                                       |       |
| Provision for future lease payments                                                |   | —                                    |       | —                                    |       | 1,264,208                                                                       |       |
| **Total Operating  Expenses**                                                      |   | 4,649,937                                 |       | 4,749,521                                 |       | 45,231,206                                                                      |       |
|                                                                               |   |                                      |       |                                      |       |                                                                            |       |
| **Loss from Joint  Venture**                                                       |   | (195,897                                  | )          | (195,897                                  | )          | (12,500,251                                                                     | )          |
|                                                                               |   |                                      |       |                                      |       |                                                                            |       |
| **Investment and  Other Income**                                                   |   | 224,236                                   |       | 4,522                                     |       | 1,440,571                                                                       |       |
|                                                                               |   |                                      |       |                                      |       |                                                                            |       |
| **Interest Expense**                                                               |   | (267,419                                  | )          | —                                    |       | (1,217,481                                                                      | )          |
| Loss from continuing operations                                                    |   | $                                         | (4,847,352 | )                                         | $          | (4,940,896                                                                      | )          | $ | (57,466,701 | ) |
|                                                                               |   |                                      |       |                                      |       |                                                                            |       |
| Discontinued Operations                                                            |   |                                      |       |                                      |       |                                                                            |       |
| Loss from operations of discontinued  therapeutic business                         |   | —                                    |       | —                                    |       | (10,679,101                                                                     | )          |
| Gain from split-off of therapeutic business                                        |   | —                                    |       | —                                    |       | 11,779,752                                                                      |       |
| Income (loss) from discontinued operations                                         |   | —                                    |       | —                                    |       | 1,100,651                                                                       |       |
| **Net Loss**                                                                       |   | $                                         | (4,847,352 | )                                         | $          | (4,940,896                                                                      | )          | $ | (56,366,049 | ) |
|                                                                               |   |                                      |       |                                      |       |                                                                            |       |
| **Dividends on  Preferred Stock**                                                  |   | (276,870                                  | )          | (258,466                                  | )          |                                                                            |       |
|                                                                               |   |                                      |       |                                      |       |                                                                            |       |
| **Net Loss Applicable  to Common Shareholders**                                    |   | $                                         | (5,124,222 | )                                         | $          | (5,199,362                                                                      | )          |   |   |
|                                                                               |   |                                      |       |                                      |       |                                                                            |       |
| **Basic and Diluted  Loss per Common Share**                                       |   | $                                         | (0.24      | )                                         | $          | (0.31                                                                           | )          |   |   |
|                                                                               |   |                                      | ** ** |                                      | ** ** |                                                                            | ** ** |
| **Weighted Average  Number of Common Shares Outstanding – Basic and Diluted** |   | 21,479,176                                |       | 16,670,181                                |       |                                                                            |       |

 

2

----

 

IMCOR Pharmaceutical Co.

(formerly Photogen Technologies, Inc.)

 (ADevelopment Stage Company)

Consolidated Condensed Statements ofShareholders’ Equity

(Unaudited)

 
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   | **Deficit** |   |        |   |
|----------------------------------------------------------------------|--------|----------------------|--------|--------------|--------|-------------------|--------|-------------------|--------|-------------------|--------|----------------|--------|-----------------|--------|------------|--------|-------------|--------|-------------|--------|-------------|--------|
|                                                                 |   | **Preferred  Stock** |   |         |   |              |   |              |   | **Common  Stock** |   | **Additional** |   | **Accumulated** |   |       |   |
|                                                                 |   | **Series A**         |   | **Series B** |   | **Common  Stock** |   | **Members’** |   | **To be**         |   | **Paid-in**    |   | **Development** |   |       |   |
|                                                                 |   | **Shares**           |   | **Amount**   |   | **Shares**        |   | **Amount**        |   | **Shares**        |   | **Amount**     |   | **Capital**     |   | **Issued** |   | **Capital** |   | **Stage**   |   | **Total**   |   |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| Contribution of capital                                              |   | —               |   | $            | — |              | — |              | $      | —            |   | —         |   | $               | — |       | $      | 7,268       |   | —      |   | $           | — |   | $ | — |   | $ | 7,268 |   |
| Net loss for the period ended December 31, 1996                      |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | (1,779          | )      | —     |   | —      |   | —      |   | (1,779      | )      |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| **Balance,** at May 15, 1997                                         |   | —               |   | $            | — |              | — |              | $      | —            |   | —         |   | $               | — |       | $      | 9,000       |   | —      |   | $           | — |   | $ | (3,511 | ) | $ | 5,489 |   |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| Issuance of common stock                                             |   | —               |   | —       |   | —            |   | —            |   | 1,578,208         |   | 1,578          |   | —          |   | —     |   | 1,801,872   |   | —      |   | 1,803,450   |   |
| Effect of recapitalization and merger                                |   | —               |   | —       |   | —            |   | —            |   | 7,421,792         |   | 7,422          |   | (9,000          | )      | —     |   | 1,203,765   |   | 1,732       |   | 1,203,919   |   |
| Cost associated with recapitalization and merger                     |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | (371,111    | )      | —      |   | (371,111    | )      |
| Net loss for the period May 16, 1997 to December  31, 1997           |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | —      |   | (554,702    | )      | (554,702    | )      |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| **Balance,** at December 31, 1997                                    |   | —               |   | —       |   | —            |   | —            |   | 9,000,000         |   | 9,000          |   | —          |   | —     |   | 2,634,526   |   | (556,481    | )      | 2,087,045   |   |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| Issuance of common stock                                             |   | —               |   | —       |   | —            |   | —            |   | 218,755           |   | 219            |   | —          |   | —     |   | 6,999,781   |   | —      |   | 7,000,000   |   |
| Costs associated with common stock issuance                          |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | (50,000     | )      | —      |   | (50,000     | )      |
| Options issued to consultants                                        |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | 45,446      |   | —      |   | 45,446      |   |
| Net loss for the year ended December 31,  1998                  |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | —      |   | (1,973,913  | )      | (1,973,913  | )      |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| **Balance,** at December 31, 1998                                    |   | —               |   | —       |   | —            |   | —            |   | 9,218,755         |   | 9,219          |   | —          |   | —     |   | 9,629,753   |   | (2,530,394  | )      | 7,108,578   |   |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| Exercise of stock options                                            |   | —               |   | —       |   | —            |   | —            |   | 1,125             |   | 1              |   | —          |   | —     |   | 50,062      |   | —      |   | 50,063      |   |
| Issuance of warrants and options                                     |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | 3,664,749   |   | —      |   | 3,664,749   |   |
| Issuance of common stock                                             |   | —               |   | —       |   | —            |   | —            |   | 125,967           |   | 126            |   | —          |   | —     |   | 6,082,528   |   | —      |   | 6,082,654   |   |
| Issuance of preferred stock                                          |   | 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                                    |   | 12,015               |   | 120          |   | —            |   | —            |   | 9,345,847         |   | 9,346          |   | —          |   | —     |   | 31,005,931  |   | (8,583,235  | )      | 22,432,162  |   |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| Stock option compensation                                            |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | 125,020     |   | —      |   | 125,020     |   |
| Issuance of warrants and options                                     |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | 1,366,050   |   | —      |   | 1,366,050   |   |
| Issuance of preferred stock dividend                                 |   | 841                  |   | 8            |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | (8          | )      | —      |   | —      |   |
| Issuance of preferred stock                                          |   | —               |   | —       |   | 337,056           |   | 3,370             |   | —            |   | —         |   | —          |   | —     |   | 5,272,970   |   | —      |   | 5,276,340   |   |
| Net loss for the year ended December 31,  2000                  |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | —      |   | (10,787,062 | )      | (10,787,062 | )      |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| **Balance,** at December 31, 2000                                    |   | 12,856               |   | 128          |   | 337,056           |   | 3,370             |   | 9,345,847         |   | 9,346          |   | —          |   | —     |   | 37,769,963  |   | (19,370,297 | )      | 18,412,510  |   |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| Stock option compensation                                            |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | 64,729      |   | —      |   | 64,729      |   |
| Issuance of common stock for cash                                    |   | —               |   | —       |   | —            |   | —            |   | 49,245            |   | 49             |   | —          |   | —     |   | 418,674     |   | —      |   | 418,723     |   |
| Issuance of common stock in satisfaction Of  anti-dilution provision |   | —               |   | —       |   | —            |   | —            |   | 190,856           |   | 191            |   | —          |   | —     |   | (191        | )      | —      |   | —      |   |
| Issuance of preferred stock dividend                                 |   | —               |   | —       |   | 20,224            |   | 202               |   | —            |   | —         |   | —          |   | —     |   | (202        | )      | —      |   | —      |   |
| Net loss for the year ended December 31,  2001                  |   | —               |   | —       |   | —            |   | —            |   | —            |   | —         |   | —          |   | —     |   | —      |   | (9,723,016  | )      | (9,723,016  | )      |
|                                                                 |   |                 |   |         |   |              |   |              |   |              |   |           |   |            |   |       |   |        |   |        |   |        |   |
| **Balance,** at December 31, 2001                                    |   | 12,856               |   | 128          |   | 357,280           |   | 3,572             |   | 9,585,948         |   | 9,586          |   | —          |   | —     |   | 38,252,973  |   | (29,093,313 | )      | 9,172,946   |   |

 

3

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|                                                                                         |   |                 |       |         |       |              |       |              |       |              |       |           |       |            |       |       |       |                   |       | **Deficit** |       |        |       |
|----------------------------------------------------------------------------------------------|--------|----------------------|------------|--------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|----------------|------------|-----------------|------------|------------|------------|------------------------|------------|-------------|------------|-------------|------------|
|                                                                                         |   | **Preferred  Stock** |       |         |       |              |       |              |       | **Common  Stock** |       | **Additional** |       | **Accumulated** |       |       |       |
|                                                                                         |   | **Series A**         |       | **Series B** |       | **Common  Stock** |       | **Members’** |       | **To be**         |       | **Paid-in**    |       | **Development** |       |       |       |
|                                                                                         |   | **Shares**           |       | **Amount**   |       | **Shares**        |       | **Amount**        |       | **Shares**        |       | **Amount**     |       | **Capital**     |       | **Issued** |       | **Capital**            |       | **Stage**   |       | **Total**   |       |
| **Balance,** at December 31, 2001                                                            |   | 12,856               |       | $            | 128        |              | 357,280    |              | $          | 3,572             |       | 9,585,948      |       | $               | 9,586      |       | $          | —                 |       | $           | —     |        | $          | 38,252,973 |   | $ | (29,093,313 | ) | $ | 9,172,946 |   |
|                                                                                         |   |                 |       |         |       |              |       |              |       |              |       |           |       |            |       |       |       |                   |       |        |       |        |       |
| Stock option compensation                                                                    |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | 73,870                 |       | —      |       | 73,870      |       |
| Issuance of warrants for service                                                             |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | 322,000                |       | —      |       | 322,000     |       |
| Issuance of options in settlement of lawsuit                                                 |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | 806,415                |       | —      |       | 806,415     |       |
| Employee compensation from stock options                                                     |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | 988,184                |       | —      |       | 988,184     |       |
| Issuance of preferred stock dividends                                                        |   | —               |       | —       |       | 40,194            |       | 402               |       | —            |       | —         |       | —          |       | —     |       | (402                   | )          | —      |       | —      |       |
| Conversion of Series B to common stock                                                       |   | —               |       | —       |       | (397,474          | )          | (3,974            | )          | 422,316           |       | 422            |       | —          |       | —     |       | 3,552                  |       | —      |       | —      |       |
| Beneficial inducement costs for convertible debt  converted                                  |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | 206,348                |       | —      |       | 206,348     |       |
| Conversion of line of credit with Élan to common  stock                                 |   | —               |       | —       |       | —            |       | —            |       | 128,437           |       | 128            |       | —          |       | —     |       | 3,082,359              |       | —      |       | 3,082,487   |       |
| Conversion of line of credit with entity  controlled by director of company to common stock  |   | —               |       | —       |       | —            |       | —            |       | 2,314,815         |       | 2,315          |       | —          |       | —     |       | —  2,497,685 |       | —      |       | 2,500,000   |       |
| Retirement of common stock returned in shareholder  transaction (Note 6(f))                  |   | —               |       | —       |       | —            |       | —            |       | (5,137,109        | )          | (5,137         | )          | —          |       | —     |       | (12,221,182            | )          | —      |       | (12,226,319 | )          |
| Issuance of common stock for cash                                                            |   | —               |       | —       |       | —            |       | —            |       | 8,823,058         |       | 8,823          |       | —          |       | —     |       | 9,133,078              |       | —      |       | 9,141,901   |       |
| Net loss for the year ended December 31, 2002                                                |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | —                 |       | 348,119     |       | 348,119     |       |
|                                                                                         |   |                 |       |         |       |              |       |              |       |              |       |           |       |            |       |       |       |                   |       |        |       |        |       |
| **Balance,** at December 31, 2002                                                            |   | 12,856               |       | $            | 128        |              | —     |              | $          | —            |       | 16,137,465     |       | $               | 16,137     |       | $          | —                 |       | $           | —     |        | $          | 43,144,880 |   | $ | (28,745,194 | ) | $ | 14,415,951 |   |
|                                                                                         |   |                 | ** ** |         | ** ** |              | ** ** |              | ** ** |              | ** ** |           | ** ** |            | ** ** |       | ** ** |                   | ** ** |        | ** ** |        | ** ** |
| Issuance of common stock for cash                                                            |   | —               |       | —       |       | —            |       | —            |       | 27,778            |       | 28             |       | —          |       | —     |       | 29,972                 |       | —      |       | 30,000      |       |
| Issuance of common stock for standstill agreement                                            |   | —               |       | —       |       | —            |       | —            |       | 750,000           |       | 750            |       | —          |       | —     |       | 1,173,000              |       | —      |       | 1,173,750   |       |
| Conversion of Series B to common stock                                                       |   | —               |       | —       |       | —            |       | —            |       | 100               |       | —         |       | —          |       | —     |       | —                 |       | —      |       | —      |       |
| Options issued to consultants for services                                                   |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | 9,200                  |       | —      |       | 9,200       |       |
| Shares issued to consultant for services                                                     |   | —               |       | —       |       | —            |       | —            |       | 68,750            |       | 69             |       | —          |       | —     |       | 132,193                |       | —      |       | 132,262     |       |
| Employee compensation from stock options                                                     |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | 1,236,566              |       | —      |       | 1,236,566   |       |
| Shares issued in Technology Purchase                                                         |   | —               |       | —       |       | —            |       | —            |       | 2,198,137         |       | 2,198          |       | —          |       | —     |       | 5,581,070              |       | —      |       | 5,583,268   |       |
| Shares to be issued in Technology Purchase                                                   |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | 5,043,226  |       | —                 |       | 5,043,226   | ** ** |        | ** ** |
| Shares previously subject to rescission                                                      |   | —               |       | —       |       | —            |       | —            |       | 124,627           |       | 125            |       | —          |       | —     |       | 649,875                |       | —      |       | 650,000     |       |
| Shares issued to Xmark for penalties                                                         |   | —               |       | —       |       | —            |       | —            |       | 98,826            |       | 99             |       | —          |       | —     |       | 163,577                |       | —      |       | 163,676     |       |
| Shares issued to Xmark for interest                                                          |   | —               |       | —       |       | —            |       | —            |       | 21,649            |       | 22             |       | —          |       | —     |       | 48,575                 |       | —      |       | 48,597      |       |
| Shares to be issued to Xmark and other former  Alliance creditors for interest and penalties |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | 76,933     |       | —                 |       | —      |       | 76,933      |       |
| Options exercised through cashless exercise                                                  |   | —               |       | —       |       | —            |       | —            |       | 37,216            |       | 37             |       | —          |       | —     |       | (37                    | )          | —      |       | —      |       |
| Xmark puttable shares classified as mezzanine  equity                                        |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | (1,969,668             | )          | —      |       | (1,969,668  | )          |
| Net loss for the year ended December 31, 2003                                                |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | —                 |       | (22,773,504 | )          | (22,773,504 | )          |
|                                                                                         |   |                 |       |         |       |              |       |              |       |              |       |           |       |            |       |       |       |                   |       |        |       |        |       |
| **Balance,** at December 31, 2003                                                            |   | 12,856               |       | $            | 128        |              | —     |              | $          | —            |       | 19,464,548     |       | $               | 19,465     |       | $          | —                 |       | $           | 5,120,159  |        | $          | 50,199,203 |   | $ | (51,518,698 | ) | $ | 3,820,257 |   |
|                                                                                         |   |                 | ** ** |         | ** ** |              | ** ** |              | ** ** |              | ** ** |           | ** ** |            | ** ** |       | ** ** |                   | ** ** |        | ** ** |        | ** ** |
| Shares issued to consultant for services                                                     |   | —               |       | —       |       | —            |       | —            |       | 6,250             |       | 6              |       | —          |       | —     |       | 7,683                  |       | —      |       | 7,689       |       |
| Employee compensation from stock options                                                     |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | 633,651                |       | —      |       | 633,651     |       |
| Approved shares issued related to technology  purchase                                       |   | —               |       | —       |       | —            |       | —            |       | 1,985,522         |       | 1,986          |       | —          |       | (5,043,226 | )          | 5,041,240              |       | —      | ** ** |        | ** ** |
| Shares issued for late stock issuance penalties                                              |   |                 |       |         |       |              |       |              | ** ** | 68,478            | ** ** | 68             | ** ** |            | ** ** |       | ** ** | 136,888                | ** ** |        | ** ** | 136,956     | ** ** |
| Shares to be issued for late stock registration  penalties                                   |   |                 |       |         | ** ** |              | ** ** |              | ** ** |              | ** ** |           | ** ** |            | ** ** | 30,449     | ** ** |                   | ** ** |        | ** ** | 30,449      | ** ** |
| Shares to be issued to Xmark for interest                                                    |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | 33,318     |       |                   |       | —      | ** ** | 33,318      | ** ** |
| Xmark puttable shares issued from mezzanine equity                                           |   | —               |       | —       |       | —            |       | —            |       | —            |       | 190            |       | —          |       | —     |       | 189,810                |       | —      |       | 190,000     |       |
| Net loss for the three months ended March 31, 2004                                           |   | —               |       | —       |       | —            |       | —            |       | —            |       | —         |       | —          |       | —     |       | —                 |       | (4,847,352  | )          | (4,847,352  | )          |
|                                                                                         |   |                 |       |         |       |              |       |              |       |              |       |           |       |            |       |       |       |                   |       |        |       |        |       |
| **Balance,** at March 31, 2004                                                               |   | 12,856               |       | $            | 128        |              | —     |              | $          | —            |       | 21,524,798     |       | $               | 21,715     |       | $          | —                 |       | $           | 140,700    |        | $          | 56,208,475 |   | $ | (56,366,049 | ) | $ | 4,969 |   |

 

4

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IMCOR Pharmaceutical Co.

(formerly Photogen Technologies, Inc.)

(A Development Stage Company)

Consolidated Condensed Statements of CashFlows

(Unaudited)

All amounts in $

 
|                                                              |   | **Three  Months  Ended  March 31, 2004** |       | **Three  Months  Ended  March 31, 2003** |   | **Cumulative  Amounts From  November 3, 1996  (Inception)** |   |
|-------------------------------------------------------------------|--------|------------------------------------------|------------|------------------------------------------|--------|-------------------------------------------------------------|--------|
|                                                              |   |                                     |       |                                     |   | **(Unaudited)**                                             |   |
| **Cash Flows From  Operating Activities**                         |   |                                     |       |                                     |   |                                                        |   |
| Net loss                                                          |   | $                                        | (4,847,352 | )                                        | $      | (4,940,896                                                  | )      | $ | (56,366,050 | ) |
| Loss from discontinued operations                                 |   | —                                   |       |                                     |   | 10,679,101                                                  |   |
| Depreciation and amortization                                     |   | 786,331                                  |       | 11,889                                   |   | 3,487,315                                                   |   |
| Loss on disposal of fixed assets                                  |   | —                                   |       | —                                   |   | 38,424                                                      |   |
| Gain on sale of marketable securities                             |   | —                                   |       | —                                   |   | (18,503                                                     | )      |
| United States Treasury Notes Amortization                         |   | —                                   |       | —                                   |   | 12,586                                                      |   |
| Gain on sale of therapeutic business                              |   | —                                   |       | —                                   |   | (11,779,752                                                 | )      |
| Allowance for notes receivable                                    |   | —                                   |       | 1,491,500                                |   | 658,217                                                     |   |
| Stock option compensation                                         |   | 633,651                                  |       | 160,377                                  |   | 3,557,989                                                   |   |
| Accrued interest on line of credit                                |   | 234,102                                  |       |                                     |   | 552,137                                                     |   |
| Note payable for services rendered                                |   | 53,298                                   |       |                                     |   | 382,979                                                     |   |
| Recognition of deferred contract revenue                          |   | (41,667                                  | )          |                                     |   | (41,667                                                     | )      |
| Issuance of stock for standstill agreement                        |   | —                                   |       | 1,173,750                                |   | 1,337,426                                                   |   |
| Beneficial inducement costs for convertible  notes                |   | —                                   |       | —                                   |   | 206,348                                                     |   |
| Issuance of warrants in exchange for  services rendered           |   | —                                   |       | —                                   |   | 4,317,091                                                   |   |
| Issuance of stock options in settlement of  lawsuit               |   | —                                   |       | —                                   |   | 806,415                                                     |   |
| Issuance of stock for services rendered                           |   | 7,688                                    |       | 28,125                                   |   | 139,949                                                     |   |
| Loss from investment in affiliate                                 |   | 195,897                                  |       | 195,897                                  |   | 12,500,251                                                  |   |
| Issuance of stock for interest payments and  penalties            |   | 200,722                                  |       | —                                   |   | 326,252                                                     |   |
| Receipt of deferred contract revenue                              |   | —                                   |       | —                                   |   | 2,000,000                                                   |   |
| Changes in operating assets and  liabilities:                     |   |                                     |       |                                     |   |                                                        |   |
| Prepaid expenses                                                  |   | 158,643                                  |       | 193,083                                  |   | (334,075                                                    | )      |
| Accounts receivable                                               |   | (17,500                                  | )          | —                                   |   | (17,500                                                     | )      |
| Accounts payable                                                  |   | 217,043                                  |       | (202,495                                 | )      | 2,171,833                                                   |   |
| Accrued expenses                                                  |   | (460,196                                 | )          | (34,132                                  | )      | (364,862                                                    | )      |
| Accrued equipment lease                                           |   | —                                   |       | (66,944                                  | )      | 1,050,589                                                   |   |
| Net cash used in operating activities  (continuing operations)    |   | (2,879,340                               | )          | (1,989,846                               | )      | (24,697,507                                                 | )      |
| Net cash used in discontinued operations                          |   | —                                   |       | —                                   |   | (10,679,101                                                 | )      |
| **Cash Flows From  Investing Activities**                         |   |                                     |       |                                     |   |                                                        |   |
| Sale of marketable securities                                     |   | —                                   |       | —                                   |   | 2,164,464                                                   |   |
| Purchases of marketable securities                                |   | —                                   |       | —                                   |   | (2,182,967                                                  | )      |
| Purchases of United States Treasury Notes                         |   | —                                   |       | —                                   |   | (38,656,973                                                 | )      |
| Sales of United States Treasury Notes                             |   | —                                   |       | —                                   |   | 39,778,548                                                  |   |
| Purchase of capital assets                                        |   | (4,520                                   | )          | —                                   |   | (641,397                                                    | )      |
| Proceeds from sale of equipment                                   |   | —                                   |       | —                                   |   | 145,551                                                     |   |
| Costs to acquire patent                                           |   | —                                   |       | —                                   |   | (237,335                                                    | )      |
| Investment in and advances to affiliate                           |   | —                                   |       | (1,728,000                               | )      | (15,107,468                                                 | )      |
| Increase in deposit                                               |   | (100,000                                 | )          | (10,000                                  | )      | (877,753                                                    | )      |
| Investment in Alliance Pharmaceutical Corp.                       |   | —                                   |       | —                                   |   | (1,255,000                                                  | )      |
| Purchase of *Imagent* business                                    |   | —                                   |       | —                                   |   | (5,074,761                                                  | )      |
| Principal payment on acquisition debt                             |   | —                                   |       | —                                   |   | (1,250,000                                                  | )      |
| Net cash used in investing activities                             |   | (104,520                                 | )          | (1,738,000                               | )      | (23,195,091                                                 | )      |
| Net cash used in investing activities of  discontinued operations |   | —                                   |       | —                                   |   | (1,306,676                                                  | )      |
| **Cash Flows From  Financing Activities**                         |   |                                     |       |                                     |   |                                                        |   |
| Principal payments on capital leases                              |   | —                                   |       | —                                   |   | (291,704                                                    | )      |
| Net proceeds from issuance of equity                              |   | —                                   |       | 30,000                                   |   | 40,539,340                                                  |   |
| Proceeds from capital contributions by  shareholders              |   | —                                   |       | —                                   |   | 1,911,674                                                   |   |
| Proceeds from issuance of debt                                    |   | 1,402,500                                |       | —                                   |   | 18,166,410                                                  |   |
| Cost of recapitalization                                          |   | —                                   |       | —                                   |   | (371,111                                                    | )      |
| Net cash provided by financing activities                         |   | 1,402,500                                |       | 30,000                                   |   | 59,954,609                                                  |   |
| Increase (decrease) in Cash and Cash  Equivalents                 |   | (1,581,360                               | )          | (3,697,846                               | )      | 76,234                                                      |   |
| **Cash and Cash Equivalents,**  at beginning of period            |   | 1,657,594                                |       | 6,090,904                                |   | —                                                      |   |
| **Cash and Cash Equivalents,**  at end of period                  |   | $                                        | 76,234     |                                     | $      | 2,393,058                                                   |   | $ | 76,234 |   |

 

5

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**1.             Basisof Presentation**

 

The accompanying unaudited financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation pursuant to Regulation S-B. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals as well asadjustments related to the acquisition of the medical imaging business (“*Imagent*Business,*”* “Purchased Technology” or “TechnologyPurchase”) of Alliance Pharmaceutical Corp. (“Alliance”) considered necessaryfor a fair presentation have been included. Operating results for the three months ended March 31, 2004are not necessarily indicative of the results that may be expected for the yearending December 31, 2004.

 

**2.             GoingConcern**

 

Theaccompanying financial statements are prepared assuming the Company is a goingconcern.  The Company has reported accumulated lossessince inception of $56,366,049.  The Company believes it lacks sufficentworking capital to fund operations for the entire fiscal year endingDecember 31, 2004.  Substantialadditional capital resources will be required to fund its ongoing operations.  Management believes there are a number ofpotential alternatives available to meet the continuing capital requirementssuch as public or private financings or collaborative agreements.  The Company is taking continuing actions toreduce its ongoing expenses.  Ifadequate funds are not availabe, the Company will be required to significantlycurtail its operating plans and my have to sell or license out significantportions of the Company’s technology or potential products.

 

OnDecember 16, 2003, we entered into a License Agreement (the “KyoseiAgreement”) with Kyosei Pharmaceutical Co. Ltd. (“Kyosei”), a member of theSakai Group in Japan.  The KyoseiAgreement gives Kyosei an exclusive license to develop and market *Imagent®* (perflexane lipidmicrospheres) for all indications in Japan. The terms of the Kyosei Agreement provide for the payment to IMCOR of upto $10 million in fees and development milestone payments plus royaltieson commercial sales.  Kyosei will alsopay IMCOR to manufacture *Imagent*for Kyosei’s clinical and commercial requirements.  In December 2003, we received a payment of $2,000,000, lesswithholding taxes.  Additional paymentsare expected in 2004 and beyond.  Pleasesee Licensing and Deferred Revenue, below.

 

During the next twelve monthswe will focus our efforts primarily on exploring various options concerning ourbusiness, including securing additional financing, joint ventures, licensing orselling all or a portion of our technology and other possible strategictransactions.  Our ability to commercialize*Imagent* and develop PH-50 andN1177 depends on the successful implementation of one or more of thesetransactions.

 

Depending on the availabilityof capital and whether or not we pursue a sale or licensing strategy for *Imagent*, we will focus ouroperating efforts on the sales and marketing of *Imagent* and the development of PH-50.  Subject to the availability of sufficientcapital, we expect to continue to incur losses for at least the next threeyears as we intensify research and development, preclinical

 

6

----

 

and clinicaltesting and associated regulatory approval activities and engage in or providefor the manufacture and/or sale of any products that we have or may develop.

 

Greatercapital resources would also enable us to quicken and expand our marketing andresearch and development activities, and our failure to raise additionalcapital will (absent a suitable collaborative agreement providing for a thirdparty to take over these functions) significantly impair or curtail our abilityto conduct further activities.  In anyevent, complete development and commercialization of our technology willrequire substantial additional funds. We are seeking to raise capital through the sale of our common stock orother securities in a private placement to fund our immediate and longer-termcapital needs.

 

The financial statements do not include any adjustment to reflect thepossible future effects on the recoverability and classification of assets orthe amount and classification of liabilities that may result from the outcomeof this uncertainty.

 

**3.             Basicand Diluted Loss Per Common Share**

 

Basic and diluted loss per common share is computed based on theweighted average number of common shares outstanding.  Basic and diluted loss per share excludes the impact ofoutstanding options, warrants and convertible preferred stock, as they areantidilutive.  Potential common sharesexcluded from the calculation at March 31, 2004 are 7,157,780 options,377,431 warrants and 193,378 shares issuable upon the conversion of Series AConvertible Preferred Stock.

 

**4.             Purchased Technology**

 

On June 18,2003, we closed on the acquisition of assets, including Purchased Technology,related to the medical imaging business, including *Imagent*, an FDA-approved product, of Alliance.  *Imagent* is an intravenous contrast agentfor use with ultrasound imaging equipment to improve visualization of bloodvessels for better diagnosis of disease and assessment of organ function.  *Imagent*consists ofperfluorochemical-based “microbubbles” that are highly echogenic (reflectultrasound signals strongly) in the bloodstream, thereby significantlyenhancing ultrasound images.  We alsoentered into a number of agreements related to that acquisition.  Included in the purchase was an FDA-approvedmanufacturing facility, the marketing, manufacturing and supportinginfrastructure for the product and an intellectual property portfolio ofapproximately thirty patents in the area of ultrasound imaging.

 

Intangible assets resulting from the acquisition of the *Imagent* Business are estimated bymanagement based on the fair value of the assets received.  These intangible assets consist entirely ofpurchased technology.  PurchasedTechnology related to the *Imagent*Business is amortized on a straight-line basis over the estimated remaininglife equal to twelve years.  PurchasedTechnology is stated at cost, less accumulated amortization.

 

Below issupplemental unaudited pro forma information that discloses the results ofoperations for the Purchased Technology for the current three-month periodending March 31, 2004, as well as the corresponding period for the precedingyear ended March 31, 2003.  The proforma information is as if the acquisition had been completed as of the beginningof the periods presented.  The unauditedpro forma information give effect to actual operating results prior to

 

7

----

 

theacquisition, adjusted to include the unaudited pro forma effect of amortizationof intangibles and weighted shares outstanding:

 

|                                                                           |   | **Actual**                              |       | **Pro Forma**                           |       |
|--------------------------------------------------------------------------------|--------|-----------------------------------------|------------|-----------------------------------------|------------|
|                                                                           |   | **Three Months  ended  March 31, 2004** |       | **Three Months  ended  March 31, 2003** |       |
| License Revenue                                                                |   | $                                       | 41,667     |                                    | $          | **—** |   |
|                                                                           |   |                                    | ** ** |                                    | ** ** |
| Expenses:                                                                      |   |                                    | ** ** |                                    | ** ** |
| Research & development                                                     |   | 960,831                                 |       | 2,753,183                               |       |
| Sales, general and administrative                                              |   | 3,689,106                               |       | 5,566,887                               |       |
| Restructuring charge                                                           |   | —                                  |       | —                                  |       |
| Total Expenses                                                                 |   | 4,649,937                               |       | 8,320,070                               |       |
| Loss from joint venture                                                        |   | (195,897                                | )          | (195,897                                | )          |
| Investment income                                                              |   | 224,236                                 |       | 4,522                                   |       |
| Interest expense                                                               |   | (267,419                                | )          | —                                  |       |
| Loss from continuing operations                                                |   | (4,847,352                              | )          | (8,511,445                              | )          |
| Discontinued operations – net                                             |   | —                                  |       | —                                  |       |
| Net income (Loss)                                                              |   | $                                       | (4,847,352 | )                                       | $          | (8,511,445 | ) |
| Dividends on Preferred Stock                                                   |   | (276,870                                | )          | (258,466                                | )          |
| Net income (loss) applicable to common  shareholder                            |   | (5,124,222                              | )          | (8,769,911                              | )          |
| Pro forma net income (loss) per share                                          |   | $                                       | (0.24      | )                                       | $          | (0.42 | ) |
| Weighted average number of common shares  outstanding – basic and diluted |   | 21,479,176                              |       | 20,853,741                              |       |

 

**5.             Licensingand Deferred Revenue**

 

In December2003, the Company entered into a license agreement with Kyosei PharmaceuticalCo., Ltd. (“Kyosei”), a unit of the Sakai Group in Japan, for the developmentand marketing of *Imagent* in Japanfor all radiology and cardiology indications. Terms of the agreement call for the payment to IMCOR of up to $10million in fees and development milestone payments plus royalties on commercialsales.  Kyosei will also pay IMCOR to manufacture *Imagent* for Kyosei’s clinical andcommercial requirements.  At theclosing, we received a gross payment of $2 million from Kyosei.  Recognition of this payment is being maderatably over the anticipated life of the agreement.

 

The Companyhas received a notice from Schering asserting a right against a portion of theproceeds received from Kyosei.  TheCompany contests the assertion.  If apayout were required, the Company does not believe the balance would bematerial to the financial statements.

 

The company recognizes revenue from license agreements based on anevaluation of the period of the agreement over which it is earned.  Unamortized revenue is recorded as deferredrevenue.  Revenue from the first payment under theKyosei Agreement is being recognized over twelve years.  During the period ended March 31, 2004, theCompany recognized $41,667 of license revenue under the Kyosei license agreement.

 

8

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**6.****                                     ****JointVenture/Investment in Affiliate**

 

OnOctober 7, 1999, the Company formed a joint venture with Elan InternationalServices, Ltd. (“Elan”) to develop and commercialize nanoparticulate diagnosticimaging agents for the detection and treatment of cancer through lymphography.

 

SentigenLtd. (“Sentigen”) was formed to hold the operations, assets and liabilities ofthe joint venture.  Elan purchased 2,980 shares of Sentigen nonvotingconvertible preferred stock for $2,985,000 representing a 19.9% ownershipinterest.  Elan also purchased 12,015 shares of the Company’s Series Aconvertible exchangeable preferred stock for $12,015,000.  The Companypurchased 12,000 shares of Sentigen’s common stock for $12,015,000 representingan 80.1% ownership interest.

 

Expensesincurred by the Company and Elan, which relate to the development of thediagnostic imaging agents, are charged to Sentigen.

 

Elanhas substantive participating rights in Sentigen, including the requirement forapproval of the business plan and budgets and equal representation on themanagement committee which decides all day-to-day functions.  As a result,the Company’s investment in Sentigen is recorded under the equity method.

 

Following is summarized financial information for Sentigen Ltd. at andas of the three months ended March 31, 2004 and 2003:

** **
| **March 31,**                                                                                                     |   | **2004**  |       | **2003**   |       |
|-------------------------------------------------------------------------------------------------------------------|--------|-----------|------------|------------|------------|
|                                                                                                              |   |      | ** ** |       | ** ** |
| Cash                                                                                                              |   | $         | 410        |       | $          | 410 |   |
| License purchased from Élan, net of  amortization and impairment of $11,673,923 and $2,445,659, respectively |   | 3,326,077 |       | 10,054,341 |       |
|                                                                                                              |   |      | ** ** |       | ** ** |
| Total assets                                                                                                      |   | $         | 3,326,487  |       | $          | 10,054,751 |   |
|                                                                                                              |   |      | ** ** |       | ** ** |
| Due to affiliates                                                                                                 |   | $         | 378,099    |       | $          | 378,099 |   |
|                                                                                                              |   |      | ** ** |       | ** ** |
| Total shareholders’ equity                                                                                   |   | 2,948,388 |       | 9,676,652  |       |
|                                                                                                              |   |      | ** ** |       | ** ** |
| Total liabilities and equity                                                                                      |   | $         | 3,326,487  |       | $          | 10,054,751 |   |
|                                                                                                              |   |      | ** ** |       | ** ** |
| Research and development Expense                                                                                  |   | $         | —     |       | $          | — |   |
| General and administrative expense                                                                                |   | —    |       | —     |       |
| Amortization of license                                                                                           |   | 244,566   |       | 244,566    |       |
| Impairment of license                                                                                             |   | —    |       | —     |       |
|                                                                                                              |   |      | ** ** |       | ** ** |
| Net loss                                                                                                          |   | $         | 244,566    |       | $          | 244,566 |   |

 

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**7.             Equity Transactions**

 

In January 2004, the Company recognized the issuance of 6,250 shares ofits Common Stock as compensation for services provided by a consultant.

 

On March 5, 2004, the Company issued the 2,054,000 shares of itsCommon Stock to certain creditors of Alliance upon approval by the Company’sshareholders.  The value of 1,985,522 ofthese shares was part of the acquisition consideration at fair market value forthe Purchased Technology and previously recorded as “Common Stock to be Issued”at December 31, 2003.  The remaining68,478 shares, valued at $136,956, was a penalty incurred due to delays insecuring shareholder approval of the issuance of the shares to be issued inconjunction with the acquisition of the Purchased Technology during 2003.

 

During the quarter ended March 31, 2004,Xmark sold 190,000 shares for which it held a put right.  Under certain circumstances, these puttableshares would require the Company to purchase the shares from Xmark at a priceof $1.00 per share.  At March 31, 2004,the puttable share balance in mezzanine equity totaled $1,779,668.  Separately, the Company accrued 30,449shares of the Company’s Common Stock issuable to certain entities for latestock registration penalties.

 

**8.             StockOptions**

 

The Company expenses the fair value of stock options granted tonon-employees.  In 2003, the Companyissued stock options in connection with the Technology Purchase with anexercise price less than the market price on the date of grant, which vest overfour years.  In 2004, the Company issuedstock options to employees with an exercise price less than the market price onthe date of grant, which vest over four years. Accordingly, compensation expense of $633,651 has been recorded in thefirst quarter of 2004.

 

For stock options granted to employees and directors during the firstthree months of 2004, the Company has estimated the fair value of each optiongranted using the Black-Scholes option-pricing model with the followingassumptions:

 
|                                             |   | **2004** |   |
|--------------------------------------------------|--------|----------|--------|
|                                             |   |     |   |
| Weighted average fair value per options  granted |   | $        | 1.37   |   |
|                                             |   |     |   |
| Significant assumptions (weighted average)       |   |     |   |
| Risk-free interest rate at grant date            |   | 2.62     | %      |
| Expected stock price volatility                  |   | 98       | %      |
| Expected option life (years)                     |   | 5        |   |
|                                                  |        |          |        |  |

 

If the Company had elected to recognize compensationexpense based on the fair value at the grant dates, consistent with the methodprescribed by SFAS No. 123, net loss per share would have been changed tothe pro forma amounts indicated below:

 

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|                                                                                                               |   | **Three  Months  Ended  March 31,  2004** |           | **Three  Months  Ended  March 31,  2003** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|----------------|-------------------------------------------|--------|
|                                                                                                               |   |                                      | ** **     |                                      |   |
| Net Loss Applicable to Common Shareholders,  as reported                                                           |   | $                                         | **(5,124,222** | **)**                                     | $      | (5,199,362 | ) |
|                                                                                                               |   |                                      | ** **     |                                      |   |
| Add stock based employee compensation  expense included in reported net income                                     |   | **633,651**                               | ** **     | 151,177                                   |   |
|                                                                                                               |   |                                      | ** **     |                                      |   |
| Less total stock-based employee  compensation expense determined under the fair value based method for all  awards |   | **(3,507,931**                            | **)**          | (559,222                                  | )      |
| Pro forma net loss                                                                                                 |   | $                                         | **(7,998,502** | **)**                                     | $      | (5,607,407 | ) |
|                                                                                                               |   |                                      | ** **     |                                      |   |
| Basic and diluted loss per common share, as  reported                                                              |   | $                                         | **(0.24**      | **)**                                     | $      | (0.31 | ) |
| Basis and diluted loss per common share,  pro forma                                                                |   | $                                         | **(0.37**      | **)**                                     | $      | (0.34 | ) |

 

**9.             Secured Debt**

 

Notes payable –We have entered into aseries of agreements with Xmark.   Weremain obligated to make the second principal payment of $1,250,000 under anobligation assumed in the acquisition of the *Imagent* Business.  The remaining payment was due on the earlierof (i) November 3, 2003 or (ii) the consummation of one or more institutionalfinancings resulting in aggregate gross proceeds to us of at least$18,000,000.  We have exercised ourright to extend the November 3rd due date monthly until May 3, 2004for a fee ranging from $50,000 to $100,000 per month.

 

Our obligations to Xmark are secured by afirst priority security interest on the *Imagent*related tangible and intangible assets. Xmark would be entitled to foreclose on its lien covering these assetsif we default on our obligations to Xmark, if we lose FDA approval for *Imagent*, if we fail to pay other debts, orif we file for bankruptcy protection or similar matters.

 

On May 3,2004, we repaid the last Senior Secured Note in the principal amount of$1,250,000 to Xmark (See Note 12).  Anadditional 19,888 shares of our common stock are issuable to Xmark in paymentof interest as of March 31, 2004.  As aresult, Xmark’s remaining security interest in assets of the *Imagent* Business relates solely to its putright, which at March 31, 2004 totaled $1,779,668.

 

Except asspecifically amended by the Letter Agreement, the terms of the Going ForwardAgreement and the other agreements governing our obligations to Xmark remain ineffect, including Xmark’s put right with respect to our common stock that Xmarkowns.

 

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Lines of Credit – Three of our existinginstitutional investors have provided capital to us in exchange for ourPromissory Notes in an aggregate principal amount of up to $12,719,500 at March 31, 2004,which is included within “Lines of Credit”. The notes bear interest at a rate of 7.25% per annum, compoundedmonthly.  A total of $4,160,000 of thesenotes are convertible into our common stock. The notes were payable on the earlier of August 5, 2003 or the datethat we commit various defaults or become subject to bankruptcy or similarproceedings.  We defaulted on thepayment of $4,160,000 of these notes on August 5, 2003; however while under noobligation to do so, these investors continued to loan us capital under demandnotes that bear interest at the rate of 7.25% per annum, compounded monthly.

 

The entire principal and interest outstanding under our convertiblenotes to these investors automatically converts into shares of our common stockon the same terms and at the same price as the shares issued in a financing foradditional long-term capital.  To securethe obligations under our notes to these investors, we granted them a securityinterest in all of our tangible and intangible assets, including intellectualproperty.  This lien covers our *Imagent*-related assets, but as to theseassets the investors’ lien is subordinate to the security interest held byXmark. On April 19, 2004, the $4,160,000 of convertible notes, plus accruedinterest, were converted into shares of our common stock at an exchange ratioof $.75 per share (see Note 12).

 

The Company’s remaining Line of Credit balance is due to i) these threeinstitutional shareholders upon demand (See Note 12) and ii) to one otherinstitution (principal amount of $100,000).

 

**10.          AccruedExpenses**

 

Accrued expenses consist of the following at March 31, 2004 andDecember 31, 2003:

 

|                                           |   | **March 31,  2004** |          | **December  31,  2003** |   |
|------------------------------------------------|--------|---------------------|---------------|-------------------------|--------|
|                                           |   |                |          |                    |   |
| Alliance liabilities assumed from  acquisition |   | **$**               | **2,357,943** |                    | $      | 2,530,434 |   |
| New Hope office abandonment provision          |   | **—**          |          | 136,947                 |   |
| Accrued general trade payables                 |   | **175,199**         |          | 291,908                 |   |
| Payroll liabilities                            |   | **288,455**         |          | 322,503                 |   |
|                                           |   |                |          |                    |   |
|                                           |   | **$**               | **2,821,597** |                    | $      | 3,281,792 |   |

 

During the period ended March 31, 2004, the Company removed theprovision recorded for the New Hope office abandonment as the landlord hasrelieved the Company of its obligation.

 

**11.****                               Commitments**

 

***Leases:***  TheCompany has leased its facilities and certain equipment under non-cancelableoperating leases, which expire at various times through 2008.  The leases require the Company to pay forall maintenance, insurance and property taxes.

 

Minimum future rental payments under theseleases are as follows:

 

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|                                   |   | **Operating  Leases** |          |
|----------------------------------------|--------|-----------------------|---------------|
| Nine months ending December 31, 2004   |   | $                     | 999,083       |   |
| Twelve months ending December 31, 2005 |   | 979,944               |          |
| Twelve months ending December 31, 2006 |   | 920,625               |          |
| Twelve months ending December 31, 2007 |   | 877,514               |          |
| Twelve months ending December 31, 2008 |   | 147,081               |          |
| **Total minimum lease  payments**      |   | **$**                 | **3,924,247** | ** ** |

 

***License Agreements:***  In September 1997, Alliance entered into the Schering LicenseAgreement, which provided Schering with worldwide exclusive marketing andmanufacturing rights, drug compositions, and medical devices and systemsrelated to perfluorocarbon ultrasound imaging products, including *Imagent*. In February 2002, the agreement with Schering was modified to giveAlliance exclusive rights to market the product in the U.S. for cardiologyindications for a five-year period, with Schering to be paid a nominal royaltyon such sales.  At the expiration of thefive-year period, Alliance had the option to acquire all of Schering’s rightsto the product on a worldwide basis for total consideration including royaltiesof $20,000,000 or, alternatively, to allow Schering the opportunity to obtainco-promotion rights along with Alliance. The rights Alliance had under the Schering License Agreement weretransferred to IMCOR at the consummation of its acquisition of the *Imagent* Business.

 

***Related Party Agreement:***  Concurrent with the restructuring of the Schering agreement in2002, Alliance entered into a five-year exclusive agreement with CardinalHealth, Inc. (“Cardinal”) to assist with the marketing of *Imagent*. Under the agreement, Cardinal performed certain packaging, distribution,and sales services for Alliance under a fee-for-service arrangement.  IMCOR assumed the Cardinal agreement fromAlliance at the consummation of the *Imagent*acquisition.  At March 31, 2004, theCompany owed Cardinal $562,601, which is included within accounts payable.

 

***Litigation:*** OnJune 18, 2003, we filed a complaint against Amersham Health, Inc. and twoother Amersham affiliates alleging that certain Amersham products infringe onclaims in our patents covering *Imagent*.  The case is captioned as PhotogenTechnologies, Inc. and Alliance Pharmaceutical Corp. v. Amersham Health Inc.et. al., Civil Action No. 03CV2853(SRC), in the United States DistrictCourt for the District of New Jersey. Our complaint alleges that principally through their *Optison*® product, Amersham Health Inc. andrelated Amersham entities infringe on seven patents owned by us.  We are also seeking a declaration that theclaims of fourteen Amersham patents are invalid and are not infringed by our *Imagent* product.  Alliance, the party from whom we recently acquired the *Imagent* product, is also a plaintiff inthe suit.  We are seeking damages, aninjunction against Amersham, a declaratory judgment and other relief.

 

Amershamfiled an answer dated July 18, 2003 denying the material allegations ofour claims and asserting certain affirmative defenses and counterclaims.  Amersham’s counterclaims against us includeclaims of patent infringement, breach of contract, breach of good faith andfair dealing, and tortuous interference with contract.  We are studying Amersham’s answer, defensesand counterclaims in consultation with our counsel.

 

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**12.****                               SubsequentEvents**

 

On April 14, 2004, the Company announced that it had receivedcommitments to purchase approximately $10.1 million of its common stock ata price of $0.75 per share plus half a warrant to purchase an additional shareexercisable at $1.00 per share (the “April 2004 Financing”).  Pursuant to NASD Marketplace regulationsrequiring shareholder approval prior to the company’s issuance of greater than20% of its common stock outstanding, the Company is closing the financing intwo tranches.  On April 19, 2004,the Company closed the first tranche selling approximately 2,650,000 shares ofcommon stock plus warrants to purchase approximately 1,325,000 sharesexercisable at $1.00 per share. Proceeds were $1,805,851 net of investment agent cash fees of $181,654.  At the first closing, the company alsoissued an aggregate of approximately 212,000 warrants, with an estimated valueof $150,647, to its agents in the April 2004 Financing.

 

Concurrent with the April 2004 Financing, holders of all the $4,160,000principal amount of the Company’s Revolving Notes converted these RevolvingNotes, plus accrued interest, into the Company’s common stock at a conversionprice of $0.75 per share.  At March 31,2004, these Notes are represented as a portion of the Lines of Credit balanceon the Balance Sheet.  Shareholderapproval for this issuance was obtained at the Company’s shareholder meeting ofFebruary 5, 2004.  The Companyissued approximately 5,903,850 shares of its common stock in this transaction.

 

Following shareholder approval, expected to be received at theCompany’s Annual Meeting scheduled for June 2004, the Company expects to closeon the second tranche of the April 2004 Financing.  Based on commitments received, the Companyexpects to issue an additional 10,884,000 shares of its common stock and5,442,000 warrants in this second closing and to receive estimated proceeds ofapproximately $8,162,000.  At the secondclosing, the Company also expects to issue an aggregate of approximately870,700 warrants to its agents in the April 2004 Financing.  As a condition precedent to the secondclosing, the Company expects the holders of approximately $8,559,000 principalamount of its Secured Promissory Notes (“Promissory Notes”) to convert thesePromissory Notes, plus accrued interest, into shares of its Common Stock at avalue of $0.75 per share.

 

The terms of the securities Purchase Agreementprovide for the sale of up to $15 million of the company’s common stock,plus warrants.  Accordingly the Companymay sell an additional $4.85 million of its common stock at the secondclosing.  In addition, the Company maysell a further $2.25 million of its common stock (without warrants) as anover allotment option to purchasers of the securities in the April 2004 Financing.

 

On May 3, 2004, the Company repaid its last Senior Secured Note in theprincipal amount of $1,250,000 to Xmark. As a result, Xmark’s remaining security interest in assets of the *Imagent* Business relates solely to its putright, which at March 31, 2004 totaled $1,779,668.

 

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**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOR PLAN OF OPERATION**

 

Portionsof the discussion in this Form 10-QSB contain forward-looking statements andare subject to the “Risk Factors” described below. References to the “Company,”“IMCOR,” “we” or “our” are to IMCOR Pharmaceutical Co. (formerly known asPhotogen Technologies, Inc.) and, where appropriate, our 80.1% owned jointventure company, Sentigen, Ltd. References to the “*Imagent*Business”, “Technology Purchase” or “Purchased Technology” are to the medicalimaging business of Alliance Pharmaceutical Corp. (“Alliance”) acquired by uson June 18, 2003.  *Imagent*® is a registeredtrademark owned by IMCOR.

 

Theaccompanying financial statements have been prepared assuming we are a goingconcern.  The company currently receivesfinancing through its use of demand notes payable to its major institutionalinvestor.  Without the continuation ofthe use of these notes or obtaining additional debt or equity financing we willnot be able to continue to fund operations. The financial statements for the three month period ending March 31,2004 do not include any adjustment to reflect the possible future effects onthe recoverability and classification of assets or the amount and classificationof liabilities that may result from this uncertainty.

 

OnApril 14, 2004, we announced the receipt of commitments to purchaseapproximately $10.1 million of our common stock at $0.75 per share plus half awarrant to purchase an additional share exercisable at $1.00 per share.  We closed on the first tranche of thisfinancing on April 19, 2004, issuing approximately 2,650,000 shares of commonstock and 1,350,000 warrants for gross proceeds of approximately $1,987,000.  Please see “Subsequent Events”, below.

 

We are anemerging, development-stage specialty pharmaceutical company focused ondeveloping and marketing medical imaging pharmaceutical products.  We have one FDA approved product, *Imagent®* (perflexane lipid microspheres),**anultrasound imaging contrast agent thatwe acquired in June 2003, and two additional contrast agents indevelopment for use in computed tomography (CT) and x-ray imaging with potential applications (1) as a bloodpool agent, to diagnose diseased tissue in the cardiovascular system and otherorgans, which we call PH-50, and (2) to diagnose cancer metastasizing into thelymphatic system, which we call N1177. The product designations PH-50 and N1177 refer to the same chemicalentity.  We established the two names todistinguish commercialization rights between cardiovascular imaging (and allother indications) (PH-50) to which we retain rights, and the field oflymphography (N1177), which we licensed to our joint venture (Sentigen, Ltd.)with affiliates of Elan Corporation. On February 5, 2004, we changed our name to IMCOR Pharmaceutical Co.,reflecting the changed nature of our business to imaging pharmaceuticals.

 

On June 18,2003, we closed the acquisition of the *Imagent*Business.  The amount of considerationwas determined through arms-length negotiations.  The attractiveness of the ultrasound imaging market potentialtogether with the acquisition of an approved product and an extensiveintellectual property portfolio were fundamental reasons for the acquisitionand primary determinants of the purchase price of Purchased Technology ofapproximately $16,572,000, plus future earn out payments as describe in theagreement based upon *Imagent* revenue.

 

As part of the development plan for *Imagent*, we expect to continue to use theservices of

 

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Cardinal and inChord.  Currently, *Imagent*will be marketed and distributed in the United States through agreements withCardinal. Various Cardinal companies will also provide packaging, salessupport, and distribution services. InChord will provide advertising, medical education and similarservices.

 

During 2003 we entered into a series ofagreements with Xmark.  We remainobligated to make the second principal payment of $1,250,000 under anobligation assumed in the acquisition of the *Imagent* Business.  The remaining payment was due on the earlierof (i) November 3, 2003 or (ii) the consummation of one or more institutionalfinancings resulting in aggregate gross proceeds to us of at least $18,000,000.  We have exercised our right to extend theNovember 3rd due date monthly until May 3, 2004 for a fee rangingfrom $50,000 to $100,000 per month.

 

On May 3,2004, we repaid the last Senior Secured Note in the principal amount of$1,250,000 to Xmark.  During the periodended March 31, 2004 Xmark sold 190,000 common shares subject to the putright.  As a result we have reduced thecontingent obligation under the agreement by $190,000.  Xmark’s remaining security interest inassets of the *Imagent* Businessrelates solely to its put right, which at March 31, 2004 totaled $1,779,668.

 

Xmark’s put right, as set forth in the Going Forward Agreement,requires that, if Xmark does not otherwise sell the shares subject to the putright, we must repurchase those shares at $1.00 per share.  Our remaining put right obligations to Xmarkare secured by a first priority security interest on the *Imagent* related tangible and intangibleassets.  Xmark would be entitled toforeclose on its lien covering these assets if we default on our obligations toXmark, if we lose FDA approval for *Imagent*,if we fail to pay other debts, or if we file for bankruptcy protection orsimilar matters.  The put right is fullyexercisable beginning on the earlier of 13 months after the closing of theacquisition of the *Imagent* assetsor the date on which we close a financing for $20,000,000 or more and expireson June 18, 2005.  Before that time,Xmark can exercise the put right in quarterly installments beginning 90 daysafter the closing of our acquisition of the *Imagent*assets.  In connection with thesequarterly installments, we can elect to defer repurchasing the shares if welack adequate cash to satisfy our operating and working capital requirementsfor the subsequent 18-month period based on an operating plan approved by ourBoard.  We agreed to use our reasonableefforts to have sufficient cash to meet our operating plan.  If we do not repurchase these shares, Xmarkis entitled to a payment of 1.5% of the value of the shares not repurchased forany 30-day period or pro rata portion thereof during which such failure iscontinuing.

 

We arecurrently funding our operations through the use of proceeds received from ourlicensing agreement with Kyosei Pharmaceutical Co., Ltd., a unit of Sakai Groupof Japan, demand notes we have issued to two major institutional investors andproceeds from the closing of the first tranche of a private placement of equitysecurities received during April 2004..  Although we are aggressively seeking additional equity or debtfinancing, we are currently dependant upon the sale of these notes to financeour current operations.  Withoutadditional financing we will not have sufficient cash resources to meet ourcurrent commitments.  We will needsubstantial additional financing for our research, clinical testing, productdevelopment and marketing programs.  Wecannot accurately estimate the amount of additional financing required;however, the amount could be an additional $30 million or more over the nextseveral years depending significantly on the level of sales of *Imagent* and expenditures on marketing,manufacturing,

 

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research and administrative overhead. In particular, we are currently seeking to raise additional capitalthrough the sale of stock to accredited investors.  See “Subsequent Events” and “Risk Factors — We must raiseadditional financing in the future and our inability to do so will prevent usfrom continuing as a going concern and implementing our business developmentplan,” below.

 

IMCOR is based in San Diego, California.  We have approximately 30 full time employees and a 53,000 squarefoot facility in San Diego a part of which is an FDA approved cGMP (currentGood Manufacturing Practices) manufacturing plant sufficient for our currentand projected manufacturing needs of *Imagent*.  Our personnel have expertise in sales, marketing and manufacturing,clinical development, clinical trial design and regulatory approvalprocesses.  To supplement our internal capabilities, we work closely withconsultants experienced in drug development and regulatory requirements, thirdparty research laboratories, contract research organizations and manufacturersfor clinical material supplies and the management of clinical trials and withacademic and other institutions to conduct specified research projects.

 

We expect thatour quarterly and annual results of operations will fluctuate based on severalfactors including, our ability to raise additional capital to implement oursales, marketing and manufacturing programs, the results of our litigationagainst Amersham, the timing and amount of expenses involved in marketing andmanufacturing *Imagent*, conductingour research programs, particularly the conduct of clinical trials, the cost ofclinical material used in those trials and required for compliance with FDAregulations and the amount, if any, of fees, milestone payments and researchsupport payments received from potential strategic partners.

 

We considerthe valuation of our investment in the purchased technology of *Imagent* to be a significant estimate.  The carrying value of this purchasedtechnology at March 31, 2004 is approximately $14,654,000, net of accumulatedamortization.  The assumptionsunderlying the financial forecast have been based on currently availableinformation including estimates of market size and penetration, pricing,competitive threats and general operating expenses.  We have also instituted litigation against Amersham, and Amershamhas responded with counter-claims. Should we lose this litigation, our business and the value of thePurchased Technology would be materially and adversely affected.  These estimates may change and such changesmay impact future estimates of carrying value.

 

We alsoconsider our investment in the joint venture with affiliates of ÉlanCorporation, plc (“Élan”) to be subject to a significant estimate.  The carrying value of our 80.1% equityinterest in Sentigen, Ltd., the joint venture entity, plus advances to Sentigen, Ltd.,at March 31, 2004 totaled approximately $2,607,000.  The assumptions underlying the financialforecasts were based on currently available information, including estimates ofdevelopment costs, pricing, operating expenses and market sizes and penetration.  These estimates may change and any suchchanges may impact future estimates of appropriate carrying values.

 

**Results of Operations**

 

Prior to our acquisition of the *Imagent*Business in June, 2003, our efforts were focused on the development andclinical testing of diagnostic products, specifically PH-50, being developed asa cardiovascular imaging agent, and N1177, being developed for lymphography,the diagnosis of

 

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cancer metastasizing to lymph nodes. To date, wehave not generated significant revenues from the sale of any proposeddiagnostic products or other operations.  Net loss applicable to commonshareholders (after preferred dividends) was $5,199,362 and $5,277,797 for thethree month periods ended March 31, 2003 and 2004, respectively, and ourcumulative losses since inception, including “in-kind” preferred stock andbeneficial conversion dividends totaling $8,989,379, are approximately$65,418,738.

 

Theaccompanying financial statements for the period ended March 31, 2003 representthe operations of the Company prior to the acquisition of the *Imagent* Business and those for the periodended March 31, 2004 include the results of operations following theacquisition.  Please see Note 4 to thefinancial statements for a presentation of the pro-forma results of operationsfor all periods.

 

Sinceinception, IMCOR had been developing products for both therapeutic and medicalimaging applications.  As one of a series of transactions on November 12,2002, we split off our therapeutic business to certain foundingshareholders.  Accordingly, the expenses associated with that businesshave been reclassified as discontinued operations.

 

In December 2003 we entered into a license agreement with Kyosei forthe development and marketing of *Imagent*in Japan for all radiology and cardiology indications.  Terms of the agreement call for the paymentto IMCOR of up to $10 million in fees and development milestone payments plusroyalties on commercial sales.  Kyosei will also pay IMCOR to manufacture *Imagent* for Kyosei’s clinical andcommercial requirements.  At theclosing, we received a gross payment of $2 million from Kyosei.   We are recognizing income fromthat payment ratably over the twelve year expected life of the Kyoseiagreement.  Accordingly, we recognized$41,667 as License Revenue in the first quarter of 2004.

 

Researchand development expenses for the quarters ended March 31, 2003 and 2004 were$554,163, and $960,831 respectively.  These expenses include personnelcosts, fees and other compensation paid to outside consultants, and costsassociated with conducting preclinical and clinical studies and manufacturingproduct to be used in these studies.

 

Theincrease in research expenses was primarily due to the increase in the numberof research personnel and supporting laboratory spending we incurred as aresult of acquiring the *Imagent*Business.Substantially all of the research expenses in 2004 wereoriented to expenses associated with regulatory compliance and continueddevelopment of *Imagent* for newindications.  We expect our developmentpriorities, based on the availability of sufficient capital, to focus on thecontinued development of PH-50, compliance with regulatory obligations for *Imagent* and development of new indicationsfor *Imagent*.  Expensesassociated with the development of N1177 are charged to our joint venture, andexpenses associated with the development of our other products are bornecompletely by us.

 

Selling,general and administrative expenses the quarters ended March 31, 2003 and 2004were $4,195,358 and $3,705,734 respectively.  These expenses include in2003 costs associated with our acquisition of the *Imagent* business prior to firmlycommitting to the acquisition (costs incurred following our firm commitment toacquire the *Imagent* business havebeen capitalized as part of the acquisition cost) including (i) provisionswe had taken against advances we had

 

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made to Alliance and shares of our common stock we had issued to Xmarkpursuant to a standstill agreement with Xmark and (ii) costs of conductingdue diligence and other activities related to the acquisition of the *Imagent* Business, and (iii) costs associated with obtaining patentprotection for our intellectual property, costs associated with administrativepersonnel and corporate management, the amortization of options granted to ouremployees, legal and related expenses and facilities expenses.  In 2004, these costs also included the costsof selling and marketing programs for *Imagent*and amortization of Purchased Technology related to the acquisition of the *Imagent* Business.

 

Inthe fourth quarter of 1999, we entered into a joint venture with affiliates ofElan for the development of N1177, a potential product to identify and diagnoselymph nodes for the presence of cancer. We own 80.1% of the joint ventureentity, Sentigen, Ltd., with the balance owned by Elan.  During the firstquarter 2003 and 2004 we recorded losses from the joint venture of $195,897 and$195,897, respectively.  As there have beendelays, principally due to capital constraints, on the development of N1177,these losses were substantially the result of the amortization of the licensepurchased from Élan as, due to the lower priority of the development of N1177,limited development work was being conducted.

 

Investmentand other income for the quarters ended March 31, 2003 and 2004 was $4,522, and$224,236, respectively.  Investment income is generated by the amount ofcapital in our investment portfolio prior to it being used to fund ouroperations and the rate of interest earned on that capital.  We investfunds in the investment portfolio in U.S. Government obligations.  In 2003investment and other income reflected earnings on the investment portfoliofollowing our capital raising efforts in late 2002.  In 2004 investment and other income reflected:

 

•                  reversalof the remaining provision for the closing of our former offices in New Hope,PA upon the landlord’s successful efforts in replacing our lease;

 

•                  disgorgementof profits to the Company resulting from certain sales of our common stock by ashareholder, deemed to be an affiliate of the company;

 

•                  sales proceeds resulting from the test marketing of *Imagent*; and

 

•                  earningson the investment portfolio.

 

•                  Weexpect investment income to continue to fluctuate both as the size of theinvestment portfolio decreases or increases and as the rate of interest earnedby the portfolio varies due to shifts in short term interest rates.

 

Purchasesof equipment and leasehold improvements for the quarters ended March 31, 2003and 2004 were $0 and $4,520, respectively.  Our purchases, if any, areprimarily for the acquisition of laboratory and other equipment necessary toconduct manufacturing operations and leasehold improvements at our offices inSan Diego.  During the next twelve months, assuming that we obtainsufficient capital,  we expect capitalexpenditures for equipment to be less than $500,000.

 

Wehave issued two series of convertible preferred stock: Series A, issued inOctober 1999, which remains outstanding, and Series B Preferred Stock, issuedin February 2000, which was

 

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retiredin November 2002 and the Series B shares were converted into shares of ourcommon stock.  The holder of Series A Preferred Stock is entitled to amandatory, cumulative, semi-annual payment-in-kind dividend of 7% (i.e., 0.07additional shares of Series A Preferred Stock).  The terms of the Series APreferred Stock also created additional preferred returns for the holders asthe Series A Preferred Stock was issued with detachable warrants.  That additional return has been fullyamortized over the period from issuance through October 2001, when the stockwas first convertible.  We recorded preferred stock dividends of $258,466and $276,870 in the quarters ended March 31, 2003 and 2004 for Series APreferred Stock.

 

### **Subsequent Events**

### ** **

On April 14, 2004, we announced that we had received commitmentsto purchase approximately $10.1 million of its common stock at a price of$0.75 per share plus half a warrant to purchase an additional share exercisableat $1.00 per share (the “April 2004 Financing”).  Pursuant to NASD Marketplace regulations requiring shareholderapproval prior to the company’s issuance of greater than 20% of its commonstock outstanding, we are closing the financing in two tranches.  On April 19, 2004 we closed the firsttranche selling approximately 2,650,000 shares of common stock plus warrants topurchase approximately 1,325,000 shares exercisable at $1.00 per share.  Proceeds were $1,805,851 net of investmentagent cash fees of $181,654.  At thefirst closing, we also issued an aggregate of approximately 212,000 warrants toits agents in the April 2004 Financing, with an aggregate fair value ofapproximately $150,600.

 

Concurrently, the holders of all the $4,160,000 principal amount of ourRevolving Notes converted these Revolving Notes, which are included withinLines of Credit on the balance sheet, plus accrued interest, into the Company’scommon stock at a conversion price of $0.75 per share.  Shareholder approval for this issuance wasobtained at the Company’s shareholder meeting of February 5, 2004.  The Company issued approximately 5,903,850shares of its common stock in this transaction.

 

Following shareholder approval, expected to be received at our AnnualMeeting scheduled for late June 2004, we expect to close on the secondtranche of the April 2004 Financing. Based on commitments received, we expect to issue an additional10,884,000 shares of our common stock and 5,442,000 warrants in this secondclosing and to receive estimated proceeds of approximately $8,162,000.  At the second closing, we also expect to issuean aggregate of approximately 870,700 warrants to its agents in theApril 2004 Financing.  As acondition precedent to the second closing, we expect the holders ofapproximately $8,559,000 principal amount of our Secured Promissory Notes(“Promissory Notes”), which are included within Lines of Credit on the balancesheet, to convert these Promissory Notes, plus accrued interest, into shares ofour Common Stock at a value of $0.75 per share.

 

The terms of the Securities Purchase Agreement provide for the sale ofup to $15 million of our common stock, plus warrants.  Accordingly we may sell an additional $4.85 million of our commonstock at the second closing.  Inaddition, we may sell a further $2.25 million of our common stock (withoutwarrants) as an over allotment option to purchasers of the securities in theApril 2004 Financing.

 

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On May 3, 2004, we repaid the last Senior Secured Note in the principalamount of $1,250,000 to Xmark.  As aresult, Xmark’s remaining security interest in assets of the *Imagent* Business relates solely to its putright, which at March 31, 2004 totaled $1,779,668.

 

**Liquidity; Capital Resources**

 

At March 31, 2004, we hadcash and cash equivalents totaling approximately $76,234.  Ourability to conduct operations is entirely dependent on our ability to obtainadditional capital.  Without additional financing we may not havesufficient cash resources for our entire fiscal year ending December 31, 2004.

 

We have beenfinancing our operations from three sources: borrowings, evidenced by securedpromissory notes, payable upon demand, from our principal institutionalinvestors, the proceeds (net of taxes and expenses) that we have received fromour licensing of *Imagent* toKyosei in Japan and, in April 2004 net proceeds from the closing of the firsttranche of our sale of common stock and warrants to certain institutionalinvestors.

 

We will needsubstantial additional financing for our manufacturing and marketing operationsas well as research, clinical testing and product development programs.  We cannot accurately estimate the amount ofadditional financing required; however, the amount could be an additional****$30 million or more over the nextseveral years.  If we raise additional funds by issuing equitysecurities, substantial dilution to existing stockholders may result.  However, there can be no assurance that suchcapital will be available under acceptable terms, if at all.  See“Risk Factors-We must raise additional financing in the future and ourinability to do so will prevent us from continuing as a going concern andimplementing our business development plan,” below.

 

On June 18, 2003, we closedthe acquisition of the *Imagent*Business from Alliance.  At the closing,we paid approximately $669,000 in cash and delivered 2,198,137 shares of ourcommon stock.  Following a SpecialMeeting of Stockholders held on February 5, 2004 we issued an additionalaggregate of approximately 2,054,000 shares of our common stock to certainother creditors of Alliance.  We areobligated to pay additional amounts to Alliance secured and unsecured creditorsat various times between 90 and 365 days after the closing, (i) the remaining$1,250,000 to Xmark which was paid on May 3, 2004, (ii) subject to reachingsatisfactory agreements with certain Alliance secured and unsecured creditors,an aggregate amount of up to approximately $2,825,000 to creditors other thanXmark and (iii) pay certain royalties based upon sales of *Imagent*through June 2010, subject tocertain offsets.

 

We are currently indefault under obligations to pay $775,000 to creditors of Alliance inconnection with our acquisition of*Imagent*and we are in default under an equipment lease and the lessor hasdemanded approximately $787,000. We also have not registered the resale of shares we issued in connectionwith that acquisition, which in some cases is a condition to the effectivenessof agreements to release us from any claims by the Alliance creditor.

 

Except as specifically amended by the Letter Agreement, the terms ofthe Going Forward Agreement and the other agreements governing our obligationsto Xmark remain in effect,

 

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including Xmark’s put right with respect to an aggregate 1,779,668shares, or $1,779,668 of our common stock that Xmark owns.

 

Three of our existing institutional investors have provided capital tous in exchange for our Promissory Notes in an aggregate principal amount of upto $12,719,500 at March 31, 2004. The notes bear interest at a rate of 7.25% per annum, compoundedmonthly.  A total of $4,160,000 of thesenotes is convertible into our common stock. Unless converted into common stock, amounts due under the notes werepayable on the earlier of August 5, 2003 or the date that we commitvarious defaults or become subject to bankruptcy or similar proceedings.  We defaulted on the payment of $4,160,000 ofthese notes on August 5, 2003; however while under no obligation to do so,these investors continued to loan us capital under demand notes, which bearinterest at the rate of 7.25% per annum, compounded monthly.

 

The entire principal and interest outstanding under our convertiblenotes to these investors automatically converts into shares of our common stockon the same terms and at the same price as the shares issued in a financing foradditional long-term capital.  On April19, 2004, the $4,160,000 of convertible notes was converted into shares of ourcommon stock at an exchange ratio of $.75 per share.

 

To secure the obligations under our notes to these investors, wegranted them a security interest in all of our tangible and intangible assets,including intellectual property.  Thislien covers our *Imagent*-relatedassets, but as to these assets the investors’ lien is subordinate to thesecurity interest held by Xmark.

 

Wehave used, and expect to use capital available from sales of common stock, forgeneral corporate purposes, including activities related to manufacturing andmarketing *Imagent*, preparing forand conducting clinical trials, purchase and preparation of clinical material,conduct of preclinical studies, administrative expenses to support ouroperating activities, capital expenditures and to meet working capital needs.

 

We are currently seeking to raise capital in one or more transactionsto fund our immediate and longer-term capital needs through the privateplacement of securities to accredited investors.  Inaddition, we expect to evaluate from time to time the acquisition or license ofbusinesses, technologies or products. The purchase of any such licenses or technologies would be funded by aportion of any net proceeds of future offerings or the issuance of debt orequity securities specifically for that purpose.  We expect our use ofcapital to increase as we build the commercial presence of *Imagent* and conduct further clinicaltrials of our products in development.

 

Wehave two long-term commitments that are not recorded on our financialstatements.  At the time of theacquisition of the *Imagent*business, we entered into a non-cancelable operating lease agreement with aunit of Baxter International for certain equipment used for the manufacture of *Imagent*. Our annual cost for this lease is approximately $126,000.  We lease our office and manufacturing spacein San Diego, California.  Annual rentfor the California lease, which expires in 2008, is approximately$792,000.  In addition, we have providedfor the remaining lease payments of certain laboratory equipment that is nolonger useful to our operations.  Thelease expires in 2004.  We are indefault under the equipment lease and have received a demand

 

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letterfrom the lessor for payment of $787,000 for remaining unpaid lease obligationsand other fees.  We are attempting tonegotiate a resolution with the lessor but there can be no assurances that wewill be successful in this regard.

 

***Plan of Operation***

* *

Managementbelieves it lacks sufficient working capital to fund operations****for the entire fiscal year endingDecember 31, 2004.  Therefore,substantial additional capital resources will be required to fund the ongoingoperations related to our marketing and manufacturing of *Imagent* and our research and businessdevelopment activities.  Our financialcondition raises substantial doubt about our ability to continue as a goingconcern.  We believe there are a numberof potential alternatives available to meet the continuing capital requirementssuch as public or private financings or collaborative agreements.  We are taking continuing actions to reduceour ongoing expenses.  If adequate fundsare not available, we will be required to significantly curtail our operatingplans and may have to sell or license out significant portions of ourtechnology or potential products.  Ourfinancial statements, including those contained in this Form 10-QSB, do notinclude any adjustment to reflect the possible future effects on therecoverability and classification of assets or the amount and classification ofliabilities that may result from the outcome of this uncertainty.

 

During the next twelve monthswe will focus our efforts primarily on exploring various options concerning ourbusiness, including securing additional financing, joint ventures, licensing orselling all or a portion of our technology and other possible strategictransactions.  Our ability tocommercialize *Imagent* and developPH-50 and N1177 depends on the successful implementation of one or more ofthese transactions.

 

Depending on the availabilityof capital and whether or not we pursue a sale or licensing strategy for *Imagent*, we will focus ouroperating efforts on the sales and marketing of *Imagent* and the development of PH-50.  Subject to the availability of sufficientcapital, we expect to continue to incur losses for at least the next threeyears as we intensify research and development, preclinical and clinical testingand associated regulatory approval activities and engage in or provide for themanufacture and/or sale of any products that we have or may develop.

 

Greatercapital resources would also enable us to quicken and expand our marketing andresearch and development activities, and our failure to raise additionalcapital will (absent a suitable collaborative agreement providing for a thirdparty to take over these functions) significantly impair or curtail our abilityto conduct further activities.  In anyevent, complete development and commercialization of our technology willrequire substantial additional funds. We are seeking to raise capital through the sale of our common stock orother securities in a private placement to fund our immediate and longer-termcapital needs. See “Risk Factors-We must raise additional financing in thefuture and our inability to do so will prevent us from continuing as a goingconcern and implementing our business development plan,” below.

 

As of March 31, 2004, weexpect to pay the following contractual obligations and commitments:

 

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|                            |   | **Payments  due by Year** |      |
|---------------------------------|--------|---------------------------|-----------|
|                            |   | **2004**                  |      | **2005-2006** |   | **2007-2008** |   | **Beyond  2008** |   | **Total** |   |
|                            |   |                      |      |   |   |   |   |   |   |   |   |
| **Recorded Liabilities**        |   |                      |      |   |   |   |   |   |   |   |   |
| Long term debt                  |   | $                         | —    |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| *Imagent*  purchase obligations |   | 3,515,811                 |      | — |   | — |   | — |   | 3,515,811 |   |
| **Commitments**                 |   |                      |      |   |   |   |   |   |   |   |   |
| Operating Lease Commitments     |   | 999,083                   |      | 1,900,569 |   | 1,024,595 |   | — |   | 3,924,247 |   |
|                            |   |                      |      |   |   |   |   |   |   |   |   |
| Total Contractual Obligations   |   | $                         | 4,514,894 |   | $ | 1,900,569 |   | $ | 1,024,595 |   | $ | — |   | $ | 7,440,058 |   |

 

**Recent Accounting Pronouncements**

 

Duringthe quarter ended March 31, 2004 there were no new Accounting Pronouncementsimpacting the Company’s accounting, financial position or operating results.

 

**ITEM 3.                  CONTROLSAND PROCEDURES**

 

Disclosurecontrols and procedures are defined by the SEC as those controls and otherprocedures that are designed to ensure that information required to bedisclosed in the company’s filings under the Securities Act of 1934 isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.  The company’s Chief Executive Officer andChief Financial Officer have evaluated the company’s disclosure controls andprocedures within 90 days prior to the filing of this Quarterly Report on Form10-QSB and have determined that such disclosure controls and procedures areeffective.

 

Subsequent to the company’s evaluation, there were no significantchanges in internal control over financial reporting or other factors that havematerially affected, or are reasonably likely to materially affect theCompany’s internal controls over financial reporting.

 

**PART II.                OTHERINFORMATION**

 

**ITEM 1.                  LEGALPROCEEDINGS**

 

On June 18, 2003, we filed a complaintagainst Amersham Health, Inc. and two other Amersham affiliates alleging thatcertain Amersham products infringe on claims in our patents covering *Imagent*.  The case is captioned as PhotogenTechnologies, Inc. and Alliance Pharmaceutical Corp. v. Amersham Health Inc.et. al., Civil Action No. 03CV2853(SRC), in the United States DistrictCourt for the District of New Jersey. Our complaint alleges that principally through their Optison® product,Amersham Health Inc. and related Amersham entities infringe on seven patentsowned by us.  We are also seeking adeclaration that the claims of fourteen Amersham patents are invalid and arenot infringed by our *Imagent*product.  Alliance, the party from whom

 

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we recently acquired the *Imagent*product, is also a plaintiff in the suit. We are seeking damages, an injunction against Amersham, a declaratoryjudgment and other relief.

 

Amersham filedan answer dated July 18, 2003 denying the material allegations of our claimsand asserting certain affirmative defenses and counterclaims.  Amersham’s counterclaims against us includeclaims of patent infringement, breach of contract, breach of good faith andfair dealing, and tortuous interference with contract.  We are studying Amersham’s answer, defensesand counterclaims in consultation with our counsel.

 

On July 29, 2003, the European Patent Office revoked Amersham’sEuropean Patent (EP) No. 620744 with claims directed to contrastagents.  We had brought the oppositionproceeding against the EP ‘744 patent in the European Patent Office.  The EP ‘744 is a counterpart to the patentsthat are the subject of our suit against Amersham in the United Statesdescribed above.  See“Risk Factors — We filed a suitagainst Amersham for patent infringement, which, if resolved unfavorably, couldimpede our ability to utilize our patents for *Imagent*,” below.

 

**ITEM 2.                  CHANGESIN SECURITIES**

 

During the three-month period ending March 31, 2004, we have issuedsecurities in the transactions described below without registration under theSecurities Act.  These securities wereoffered and sold by us in reliance upon exemptions from the registrationrequirements provided by Section 4(2) of the Securities Act andRegulation D under the Securities Act relating to sales not involving anypublic offering, and/or Rule 701 under the Securities Act relating totransactions occurring under compensatory benefit plans.  We relied on representations and warrantiesfrom the purchasers of the securities that they were acquiring the securitiesfor their own account and not with a view to, or for sale in connection with,any distribution of the securities in violation of the Securities Act.

 

•                  In January 2004 the Companyrecognized the issuance of 6,250 shares of its Common Stock as compensation forservices provided by a consultant.

 

•                  On March 5,2004 the Company issued 2,054,000 shares of its Common Stock to certaincreditors of Alliance.  The value of1,985,522 of these shares was treated as acquisition consideration at fairmarket value for the Purchased Technology. The value of the remaining 68,478 shares was treated as a penalty due todelays in securing shareholder approval of the issuance of these shares.

 

**ITEM 3.                  DEFAULTSUPON SENIOR SECURITIES**

 

Under the terms of that certain Going Forward Agreement we entered intowith Xmark dated as of May 2, 2003, we had an obligation to pay Xmark$1,250,000 on August 5, 2003 and an additional $1,250,000 on November 3, 2003or (if sooner) at the time we complete a financing resulting in at least$18,000,000 of gross proceeds to us.  OnAugust 5, 2003, we were unable to make our $1,250,000 payment to Xmark.  On August 18, 2003, we entered into a LetterAgreement with Xmark pursuant to which we agreed to make an immediate paymentof $1,250,000 and Xmark agreed to rescind the default notice.  We remain obligated to make a secondprincipal payment of $1,250,000 on the earlier to occur of (i) November 3, 2003or (ii)

 

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the consummation of one or more institutional financings resulting inaggregate gross proceeds to us of at least $18,000,000.  We will have the right to extend theNovember 3rd due date monthly until April 3, 2004 for a fee (and notas a reduction of any amounts due and owing under the promissory notes) rangingfrom $50,000 to $100,000 per month.  Wehave been exercising our right to extend the November 3, 2003 due date.

 

On May 3, 2004, we repaid the last Senior Secured Note in the principalamount of $1,250,000 to Xmark.  As aresult, Xmark’s remaining security interest in assets of the *Imagent* Business relates solely to its putright, which at March 31, 2004 totaled $1,779,668.

 

Except as specifically amended by the Agreement, the terms of the GoingForward Agreement and the other agreements governing our obligations to Xmarkremain in effect, including, but not limited to, Xmark’s put right with respectto our common stock that Xmark owns.

 

We were also obligated to repay our convertible promissory notes in favorof three of our investors for an aggregate principal amount of $4,160,000 as ofAugust 5, 2003.  We were unable to meetour obligation under the terms of these notes at that time; however, these noteholders continue to loan us capital, as evidenced by secured promissory notesbearing interest at 7.25% per annum, compounded monthly and payable upondemand.  Our obligations to these noteholders are secured by a second priority lien in favor of the note holders onour *Imagent*-related assets and afirst priority lien in favor of the note holders on all of our otherassets.  On April 19, 2004, the$4,160,000 of convertible notes was converted into shares of our common stockat an exchange ratio of $.75 per share.

 

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

 

On February 5, 2004, we held a Special Meeting of Stockholders (the“Special Meeting”) pursuant to a Proxy Statement dated January 13, 2004whereby the stockholders: i) approved the issuance of more than 20% of theCompany’s voting stock to certain creditors of Alliance Pharmaceutical Corp inconnection with the Company’s acquisition of Alliance’s assets related to itsimaging and diagnostic imaging business, which closed on June 18, 2003;ii) approved the issuance of additional shares of common stock upon theconversion of secured promissory notes in the aggregate principal amount of$4,160,000, at the same price as the Company sells shares in a qualifiedfinancing; iii) approved an amendment to the Company’s articles ofincorporation to change its name to IMCOR Pharmaceutical Co.; iv) authorizedthe Company’s Board of Directors to amend the Company’s articles ofincorporation to effect, when and as determined by the Board in its solediscretion within the 2004 calendar year, a reverse stock split in a rangebetween one-for-two up to one-for-five; and v)  ratified the engagement ofMoss Adams LLP as the Company’s independent certified public accountants forthe 2004 fiscal year.

 

## **ITEM 5.                  OTHERINFORMATION**

 

***RISK FACTORS***

* *

This Form10-QSB contains (and press releases and other public statements we may issuefrom time to time may contain) a number of forward-looking statements regardingour business and

 

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operations.  Statements in this document that are nothistorical facts are forward-looking statements.  Such forward-looking statements include those relating to:

 

•                  ourcurrent business and product development plans,

 

•                  ourfuture business and product development plans,

 

•                  thetiming and results of regulatory approval for proposed products, and

 

•                  projectedcapital needs, working capital, liquidity, revenues, interest costs and income.

 

Examples offorward-looking statements include predictive statements, statements thatdepend on or refer to future events or conditions, and statements that mayinclude words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”“estimates,” “should,” “may,” or similar expressions, or statements that implyuncertainty or involve hypothetical events.

 

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

 

The followingare the key risk factors that may affect our future results:

 

**We must raise additional financing in the future and ourinability to do so will prevent us from continuing as a going concern andimplementing our business development plan.**

 

Our cash and securities on hand at March 31,2004 was approximately $76,200.  We haveexpended all this cash and are currently funding our operations through the netproceeds of our license of Imagent in Japan and the net proceeds of the firstclosing of our $10.1 million private equity financing announced in April, 2004.  We will need substantial additionalfinancing to continue operations including our manufacturing, marketing andproduct development programs.

 

We cannot accurately estimate the amount ofadditional financing required to develop our products.  In particular, we are currently seekingcapital in one or more transactions to fund our immediate and longer-termcapital needs through a private placement to accredited investors.  Additional funds may not be available on acceptableterms, if at all, and existing stockholders may be diluted as a result of thoseofferings.  The pricing of our commonstock, or other securities convertible into common stock, in any suchtransaction may also result in an increase

 

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in the number of shares of common stockissuable upon exercise of warrants in accordance with the anti-dilutionprovisions in the instruments governing those securities.

 

We are currently indefault under obligations to pay $775,000 to creditors of Alliance PharmaceuticalCo. in connection with our acquisition of*Imagent*and we are in default under an equipment lease and the lessor hasdemanded approximately $750,000 in remaining lease payments and other fees.  We also have not registered the resale ofshares we issued in connection with that acquisition, which in some cases is acondition to the effectiveness of agreements to release us from any claims bythe Alliance creditor.

 

**Prior to our acquisition of the *Imagent* assets, we were a development stage company, we haveconducted only limited studies on our products in development and we do nothave any revenues from sales.**

 

Our company and our technologies, other thanour recently acquired *Imagent*product, are in early stages of development. We began our business as abiopharmaceutical company in 1997.  Todate, we have not generated material revenues from sales or operations.  We expect to generate revenue from sales of *Imagent*, but there can be no assurancethat we will be able to generate enough revenue from such sales to beprofitable for at least several years, if at all.

 

The products we currently contemplatedeveloping will require costly and time-consuming research and development,preclinical and clinical testing and regulatory approval before they can becommercially sold.  We may not be ableto develop our technology into marketable products or develop our technology soit is effective for diagnosis or treatment of human diseases.  As a result of changing economicconsiderations, market, clinical or regulatory conditions, or clinical trialresults, we may shift our focus or determine not to continue one or more of theprojects we are currently pursuing.

 

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

 

We have incurred losses since the beginningof our operations.  As of March 31,2004, we have incurred cumulative net losses (before dividends on preferredstock) of approximately $56,366,000.  Weexpect our losses to increase in the future as our financial resources are usedfor manufacturing, marketing, research and development, preclinical andclinical testing, regulatory activities, and other related expenses.  We may not be able to achieve or maintainprofitability in the future.  We havenever declared or paid any cash dividends to stockholders and do not expect todo so in the foreseeable future.

 

**The markets for imaging products are extremely competitive,and many of our competitors have greater resources and have products that arein more advanced stages of development than we do, which may give them acompetitive advantage over us.**

 

In addition to*Imagent,* there are currently twoFDA approved ultrasound contrast agents being marketed in the U.S. for certaincardiology applications by Amersham Health, Inc. and Bristol-Myers Squibb.  In addition, Bracco International has fileda New Drug Application with the FDA seeking approval to market itsproduct.  Two other companies (POINTBiomedical and

 

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Acusphere) arein advanced clinical trials for the use of ultrasound contrast agents forassessing certain organs and vascular structures.  We expect that competition in the ultrasound contrast imagingfield will be based primarily on each product’s safety profile, efficacy,stability, ease of administration, breadth of approved indications, andphysician, healthcare payer and patient acceptance.  We are at the very early stages of launching the *Imagent* product, and we cannot predictwhether it will compete successfully with these other products.

 

**We filed a suit against Amersham for patent infringement,which, if resolved unfavorably, could impede our ability to utilize our patentsfor *Imagent*.**

 

We filed acomplaint against Amersham Health, Inc. and two other Amersham affiliatesalleging that certain Amersham products infringe on claims in our patentscovering *Imagent*.  We also seek a declaration that our patentsdo not infringe on Amersham’s in this area, and other relief.  Alliance joined us as a plaintiff in thissuit.  Amersham filed an answer denyingthe material allegations of our claims and asserting certaincounterclaims.  If the suit is resolvedunfavorably to us, we may have difficulty utilizing the protections of ourpatents for *Imagent* and there maybe other complications that may make it difficult to implement ourcommercialization strategy for *Imagent*.

 

Intellectual property disputes are oftensettled through licensing arrangements that could be costly to us.  In any intellectual property litigation, itis possible that licenses necessary to settle the dispute would not beavailable on commercially reasonable terms or that we would not be able toredesign our technologies to avoid any claimed infringement thus resulting inour inability to sell the product.

 

**Our common stock could be delisted from the NASDAQ SmallCapMarket, which would make trading in our common stock more difficult.**

 

Since November1999, our common stock has been quoted in the Nasdaq SmallCap Market.  Our shares could be delisted if we fail tomeet the listing requirements of the Nasdaq SmallCap Market, which would forceus to list our shares on the OTC Bulletin Board or some other quotation medium,such as pink sheets, depending upon our ability to meet the specific listingrequirements of those quotation systems. As a result, an investor might find it more difficult to dispose of, orto obtain accurate price quotations for, our shares.  Delisting might also reduce the visibility, liquidity and priceof our common stock.

 

OnAugust 26, 2003, September 8, 2003, and January 7, 2004 we received noticesfrom Nasdaq that we did not meet specified listing criteria.  We have corrected the identifieddeficiencies to Nasdaq’s satisfaction and Nasdaq has notified us that it has withdrawnits delisting notice subject to our meeting the shareholder meeting requirementand all other listing standards by mid-May 2004.

 

If our commonstock were delisted from the Nasdaq SmallCap Market and were not traded onanother national securities exchange, we could become subject to penny stockregulations that impose additional sales practice disclosure and market makingrequirements on broker/dealers who sell or make a market in our stock.  The rules of the SEC generally define “pennystock” to be common stock that has a market price of less than $5.00 per shareand is not traded on a

 

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nationalexchange.  If our stock became subjectto penny stock regulations, it could adversely affect the ability andwillingness of broker/dealers who sell or make a market in our common stock andof investors to purchase or sell our stock in the secondary market.

 

**Our proposed products are subject to extensive testing andgovernment approval, and we may not obtain or maintain the approvals necessaryto sell our proposed products.**

 

Other than *Imagent*, none of our proposed imagingproducts has received the FDA’s approval for commercial sales.  An extensive series of clinical trials andother associated requirements must be completed before our proposed productscan be approved and sold in the U.S. or other countries.  Requirements for FDA approval of a productinclude preclinical and clinical testing for effective use and safety inanimals and humans, which can be extremely costly.  The time frame necessary to perform these tasks for anyindividual product is long and uncertain, and we may encounter problems ordelays that we cannot predict at this time. Even if testing is successful, our proposed products may not demonstratesufficient effectiveness or safety to warrant approval by the FDA or otherregulatory authorities.  Any regulatoryapproval may not cover the clinical symptoms or indications that we may seek.  We must also obtain regulatory approvalscomparable to those required in the U.S. to market our products in othercountries.

 

Other than *Imagent*, our proposed technologies andproducts generally must complete preclinical tests in animals and three phasesof tests (also called clinical trials) in humans before we can market them foruse.  Use of our technology has beenlimited primarily to laboratory experiments and animal testing; only N1177 hascompleted Phase 1 human clinical trials. We have not yet conducted substantive studies of our compounds indevelopment on their effectiveness on human subjects.

 

Our resultsfrom early clinical trials may not predict results that we will obtain inlarge-scale clinical trials, as a number of companies have suffered significantsetbacks in advanced clinical trials, even after promising results in earlytrials.

 

We may notconduct additional Phase 2 or Phase 3 clinical trials for our products and suchtrials, if begun, may not demonstrate any efficacy or may not be completedsuccessfully in a timely manner, if at all.

 

The rate ofcompletion of our clinical trials depends upon, among other things, the rate ofpatient enrollment.  Patient enrollmentis a function of many factors, including the size of the patient population fora particular indication, the nature of the clinical protocol under which ourproducts will be studied, the proximity of the patient to a clinical site andthe 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 terminateclinical trials at any time.  If we donot successfully complete clinical trials and obtain regulatory approval for aproduct, we will not be able to market that product.

 

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**Any products approved by the FDA are subject to postmarketrequirements of the FDA.**

 

Our FDAapproved product, *Imagent*, issubject to numerous postmarket requirements by regulatory authorities.  We will be subject to inspection andmarketing surveillance by the FDA to determine our compliance with regulatoryrequirements with respect to any approved products.  If the FDA finds that we have failed to comply, it can institutea wide variety of enforcement actions, ranging from a public warning letter tomore severe sanctions such as:

 

•                  fines,injunctions and civil penalties;

 

•                  recallor seizure of our products;

 

•                  operatingrestrictions, partial suspension or total shutdown of production; and

 

•                  criminalprosecution.

 

Anyenforcement action by the FDA may also affect our ability to commerciallydistribute our products in the U.S.

 

**Product liability claims could increase our costs andadversely affect our results of operations.**

 

The marketingand clinical testing of *Imagent*and our product candidates may expose us to product liability claims, and wemay experience material product liability losses in the future.  We maintain certain levels of productliability insurance for the use of our products, but our coverage may notcontinue to be available on terms acceptable to us or adequate for liabilitieswe actually incur.  A successful claimbrought against us in excess of available insurance coverage, or any claim or productrecall that results in significant adverse publicity against us, may have amaterial adverse effect on our business and results of operations.

 

**If we do not obtain and maintain patent or other protectionof our core technologies (namely Imagent and PH-50 for cardiovascular imagingand N1177 for lymphography), we may have difficulty commercializing productsusing these technologies.**

 

Our successdepends in part on our ability to obtain, assert and defend our patents,protect trade secrets and operate without infringing the intellectual propertyof others.  Among the important risks inthis area are that:

 

•                  ourpatent applications may not result in issued patents.  Moreover, any issued patents may not provide us with adequateprotection of our intellectual property or competitive advantages, and the lawon the scope of patent coverage is continually changing.

 

•                  variouscountries limit the subject matter that can be patented and limit the abilityof a patent owner to enforce patents in the medical field.  This may limit our ability to obtain orutilize those patents internationally.

 

•                  existingor future patents or patent applications (and the products or methods theycover) of our competitors (or others, such as research institutions oruniversities) may interfere,

 

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invalidate, conflict with or infringe our patents or patentapplications.  Similarly, the use of themethods or technologies contained in our patents, patent applications and otherintellectual property may conflict with or infringe the rights of others.

 

•                  ifan advance is made that qualifies as a joint invention, the joint inventor orhis or her employer may have rights in the invention.

 

We will beable to protect our proprietary rights from unauthorized use by third partiesonly to the extent that these rights are covered by valid and enforceablepatents or effectively maintained as trade secrets.  We acquired an extensive patent portfolio related to *Imagent* as part of the acquisition of the *Imagent* business. We also own two patentsin the U.S., and certain other patents in foreign countries includingAustralia, Canada, Japan and Germany that relate to methods for performinglymphography.

 

Other than thepatents and patent applications we acquired through the purchase of the *Imagent* Business, we have filed patentapplications in the U.S. and under the Patent Cooperation Treaty covering anumber of foreign countries.  Thesepatent applications relate to the use of nanoparticulates, including PH-50, ascardiovascular imaging agents and to deliver pharmacologically activesubstances for treatment of various diseases. We are also the exclusive licensee of a group of patented proprietarycompounds known as “nanoparticulates,” including N1177 and PH-50 from NycomedImaging AS.  We are the exclusivelicensee of U.S. and foreign patent applications from Massachusetts GeneralHospital which relate to diagnostic imaging agents and methods for using thediagnostic imaging agents for medical location, treatment and diagnosis oftumors and other diseased tissues.

 

Additionalpatents may never be issued on any of the patent applications we own or licensefrom third parties.  Furthermore, evenif such patents are issued, the validity of the patents might successfully bechallenged by a third party.  Thepatents might not provide protection against competitive products or otherwisebe commercially valuable, or the applications filed by others might result inpatents that would be infringed by the manufacture, use or sale of ourproducts.

 

The patentposition of biopharmaceutical companies involves complex legal and factualquestions and therefore we cannot assure the enforceability of thesepatents.  Litigation over patents andother intellectual property rights occurs frequently in our industry and thereis a risk that we may not prevail in disputes over the ownership ofintellectual property.  Further, aninterference proceeding with the Patent and Trademark Office may be institutedover the rights to certain inventions and there is a risk that we may notprevail in such an interference proceeding. Those disputes can be expensive and time consuming, even if weprevail.  Intellectual property disputesare often settled through licensing arrangements that could be costly tous.  In any intellectual propertylitigation, it is possible that licenses necessary to settle the dispute wouldnot be available on commercially reasonable terms or that we would not be ableto redesign our technologies to avoid any claimed infringement thus resultingin our inability to sell the product.

 

Confidentialityagreements covering our intellectual property may be violated and we may nothave adequate remedies for any violation. Third parties may challenge our existing patents and

 

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seek to holdthem invalid or unenforceable.  Also,our trade secret intellectual property may in other ways become known or beindependently discovered by competitors.

 

To the extentwe use intellectual property through licenses or sub-licenses (as is the casefor some of our lymphography technology), our rights are subject to usperforming the terms of the license or sub-license agreement with thirdparties.  Our rights are also subject tothe actions of third parties we may not be able to control, such as oursub-licensor complying with the terms of its license with the patent owner andthe patent owner maintaining the patent.

 

Whereintellectual property results from a research project supported by governmentfunding, the government has limited rights to use the intellectual propertywithout paying us a royalty.

 

**We are highly dependent upon a small number of employees andconsultants who provide management expertise, and it may be difficult toimplement our business operations and development plans without this expertise.**

 

Theseindividuals have entered into employment or consulting agreements,confidentiality and/or non-competition agreements with us.  We could suffer competitive disadvantage,loss of intellectual property or other material adverse effects on our businessand results of operations if any employee or consultant violates or terminatesthese agreements or terminates his or her association with us.  Our growth and future success also dependsupon the continued involvement and contribution from these individuals, as wellas our ability to attract and retain highly qualified personnel now and in thefuture.

 

We currentlyemploy three senior executive officers: Dr. Williams (our Chief ExecutiveOfficer), Mr. Boveroux (our Chief Financial Officer) and Mr. DeFranco (ourSr. Vice President Marketing and Business Development).  We also have retained consultants to adviseus in regulatory affairs and product development matters.  If we lost the services of our executiveofficers or outside consultants, we could experience a delay in theimplementation of our business plan until we arranged for another individual orfirm to fulfill the role.

 

**The raw materials for *Imagent* are subject to a long-term supplycontract with one supplier.  The raw materialsnecessary for the manufacture of PH-50 and N1177 are supplied by onesupplier.  An interruption inavailability of those materials may impair our ability to market or test thoseproducts.**

 

We have assumed the rights and obligations ofAlliance under the terms of the long-term supply agreement that Alliance hasentered for the principal raw material for *Imagent. *Although some raw materials for *Imagent* are currently qualified from onlyone source and we have some inventory, we will attempt to acquire additionalinventory of these materials and to negotiate long-term supplyarrangements.  Raw materials used in *Imagent*cannot be changed withoutequivalency testing of any new material by us and approval of the FDA.

 

We currentlyrely on Nanosystems, a division of Élan, as the sole supplier of the rawnanoparticulates used to manufacture PH-50 and N1177.  There can be no assurance that Nanosystems will continue tosupply us with the raw materials that we need in a timely manner on conditionsthat are acceptable to us.

 

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**We may encounterdifficulties starting or expanding our manufacturing operations.**

 

We are leasinga single manufacturing facility located in San Diego, California.  This facility is subject to a variety ofquality systems regulations, international quality standards and otherregulatory requirements, including requirements for good manufacturingpractices, or current good manufacturing procedures.  We may encounter difficulties expanding our manufacturingoperations in compliance with these regulations and standards, which also couldresult in a delay or termination of manufacturing or an inability to meetproduct demand.

 

We will facerisks inherent in operating a single facility for the manufacture of *Imagent.* At this time, we do not have alternative production plans in place oralternative facilities available should the San Diego manufacturing facilitycease to function.  These risks includeunforeseen plant shutdowns due to personnel, equipment or other factors, andthe resulting inability to meet customer orders on a timely basis.

 

**We have to rely on third parties and collaborativerelationships for the marketing, manufacturing and clinical testing of *Imagent* and our proposed products, and itmay be difficult to implement our business development plans without thesecollaborations.**

 

We currentlyhave an agreement for sales and marketing of *Imagent*by Cardinal Health, Inc.  We have hadand expect to continue in the future to have a variety of research agreementswith universities and other research institutions to investigate specificprotocols.  We also contract and expectto continue to contract with research organizations and other third parties tomanage clinical trials of our products. We must obtain and maintain collaborative relationships with thirdparties for research and development, preclinical and clinical testing,marketing and distribution of our proposed products.

 

We arecurrently involved in a joint venture with affiliates of Élan, calledSentigen, Ltd., to develop and commercialize materials in the field oflymphography.  Collaborativerelationships may limit or restrict our operations or may not result in anadequate supply of necessary resources. Our collaborative partner could also pursue alternative technologies asa means of developing or marketing products for the diseases targeted by ourcollaborative program.  If a third partywe are collaborating with fails to perform under its agreement or fails to meetregulatory standards, this could delay or prematurely terminate clinicaltesting of our proposed products.

 

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

 

Our growth andsuccess will depend upon market acceptance by physicians, laboratories andhealth insurance providers of our products. This requires acceptance of our products as clinically useful andcost-effective alternatives to other medical imaging methods.  In addition, physicians may utilize imagingtechniques other than those for which our products are being developed (such asmagnetic resonance imaging (MRI)) to image internal vasculature and organs andtherefore, our products may not be utilized.

 

34

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**Changes in health care reimbursement policies or legislationmay make it difficult for patients to use or receive reimbursement for usingour products, which could reduce our revenues.**

 

Our successwill depend, in part, on the extent to which health insurers, managed careentities and similar organizations provide coverage or reimbursement for usingthe medical procedures we have and plan to develop.  These third-party payers are increasingly challenging the priceof medical procedures and services and establishing guidelines that may limitphysicians’ selections of innovative products and procedures.  We also cannot predict the effect of anycurrent or future legislation or regulations relating to third-party coverageor reimbursement on our business.  Wemay not be able to achieve market acceptance of our proposed products ormaintain price levels sufficient to achieve or maintain any profits on ourproducts if adequate reimbursement coverage is not available.  Failure by physicians, hospitals and otherusers of our products to obtain sufficient reimbursement from third-partypayers for the procedures in which our products would be used or adverse changesin governmental and private third-party payers’ policies toward reimbursementfor such procedures would have a material adverse effect on our business.

 

**A small group of stockholders control IMCOR, which may makeit difficult for stockholders who are not in that group to influence management.**

 

As of March31, 2004, a small group of stockholders control approximately 55.4% of ouroutstanding common stock (including shares issuable, following shareholderapproval, related to the acquisition of the *Imagent*Business).  These stockholders are alsoparties to a Voting, Drag-Along and Right of First Refusal Agreement (the“voting agreement”) concerning the election of certain designees to the Boardof Directors and certain other corporate actions.  The Voting Agreement requires these stockholders to vote theirshares for the election of certain individuals nominated by parties to theVoting Agreement.  This concentration ofownership and control may delay or prevent a change in control of IMCOR, andmay also result in a small supply of shares available for purchase in thepublic securities markets. These factors may affect the market and the marketprice for our common stock in ways that do not reflect the intrinsic value ofour common stock.

 

**The price and trading volume of our common stock fluctuatessignificantly, like that of many biopharmaceutical companies, which may make itdifficult for us or a stockholder to sell our common stock at a suitable priceand may cause dilution for existing stockholders when we issue additionalshares.**

 

During the periodfrom January 1, 2003 through March 31, 2004 the closing trade price of ourcommon stock ranged from $2.73 to $0.90****pershare.  Daily trading volume ranged fromzero shares to approximately 132,250 shares during that period.

 

The marketprices for securities of biopharmaceutical companies in general have beenhighly volatile and may continue to be highly volatile in the future.  The following factors may have an impact onthe price of our common stock:

 

•                  Salesperformance of *Imagent*

 

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•                  Announcementsby us or others regarding scientific discoveries, technological innovations,commercial products, patents or proprietary rights;

 

•                  Announcementsby us concerning the licensing or other transactions of our products ortechnologies;

 

•                  Privatesale of a significant block of our common stock at a price below the thencurrent market price of our common stock and the subsequent registration andsale of those shares;

 

•                  Theprogress of preclinical or clinical testing;

 

•                  Developmentsor outcome of litigation concerning proprietary rights, including patents;

 

•                  Changesin government regulation;

 

•                  Publicconcern about the safety of devices or drugs;

 

•                  Limitedcoverage by securities analysts;

 

•                  Theoccurrence of any of the risk factors described in this section;

 

•                  Salesof large blocks of stock by an individual or institution;

 

•                  Changesin our financial performance from period to period, securities analysts’reports, and general market conditions; and

 

•                  Economicand other external factors or a disaster or crisis.

 

**If stockholders holding substantial amounts of our commonstock should sell their stock in the public market, the price of our stockcould fall and it may be more costly for us to raise capital.**

 

Wehave reserved shares of common stock for future issuance upon grants ofoptions, or exercise or conversion of outstanding options and warrants andconvertible securities.  In addition,some of our shares are eligible for sale in the public market free of restrictionunder Rule 144 of the Securities Act. Others shares of our common stock are subject to agreements requiring usto permit the holders of the shares, under certain circumstances, to join in apublic offering of our stock or to demand that we register their shares forresale.  The sale of these shares couldplace downward pressure on the overall market price of our common stock.

 

Ifour options and warrants are all issued and exercised, investors may experiencesignificant dilution in the voting power of their common stock.  The sale of these shares could also placedownward pressure on the overall market price of our common stock.

 

**ITEM 6.                  EXHIBITSAND REPORTS ON FORM 8-K**

 

(a)                                                          Exhibits.

 

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The following is a list of exhibits filed as part of this Form10-QSB.  Exhibits that were previouslyfiled are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit inthe previous filing is indicated in parenthesis.

 
| **EXHIBIT  NO.** |   | **DESCRIPTION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +3.1             |   | Articles  of Incorporation of IMCOR Pharmaceutical Co., as amended (Filed as Exhibit E  to the company’s Proxy Statement on Form DEFM 14A dated September 12, 2002  and incorporated herein by reference.)                                                                                                                                                                                                                                                                       |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +3.2             |   | Amended  and Restated Certificate of Designations, Preferences and Rights of Series A  Preferred Stock.  (Filed as Exhibit 3.5 to the company’s Quarterly  Report on Form 10-QSB for the quarter ended September 30, 1999 and  incorporated herein by reference.)                                                                                                                                                                                                           |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +3.3             |   | 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 Secured  Promissory Note by and among IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund, L.P., and Xmark  Fund, Ltd. dated June 18, 2003.   (Filed as Exhibit 10.4 to the Company’s 8-K filed on June 20, 2003 and  incorporated herein by reference.)                                                                                                                                                                                       |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +4.2             |   | Form of Revolving  Convertible Senior Secured Promissory Note 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. and Mi3 LP  dated June 18, 2003.  (Filed as  Exhibit 10.7 to the Company’s 8-K filed on June 20, 2003 and incorporated  herein by reference.)                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +4.3             |   | Form  of Secured Promissory Note 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. and Mi3 LP.  (Filed  as Exhibit 4.3 to the Company’s Annual Report on Form 10-KSB for the year  ended December 31, 2003 and incorporated herein by reference.)                                                                                                                             |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +4.4             |   | 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.)                                                                                               |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +4.5             |   | 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.) |

 

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| +4.6   |   | 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.)                       |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| +4.7   |   | 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.)                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| +4.8   |   | Warrant  to Purchase Shares of Common Stock dated October 20, 1999 between IMCOR  Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Elan 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.) |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| +4.9   |   | 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.)                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| +4.10  |   | 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.)   |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| *4.11  |   | Form  of Securities Purchase Agreement dated as of April 19, 2004, between IMCOR  Pharmaceutical Co. and each of the purchasers signatory thereto.                                                                                                                                                                                                  |
| *4.12  |   | Form  of Warrant Agreement dated as of April 19, 2004 between IMCOR Pharmaceutical  Co. and each of the purchasers signatory to the Securities Purchase Agreement  dated as of April 19, 2004.                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| *4.13  |   | Form  of Registration Rights Agreement dated as of April 19, 2004 entered into by  and between IMCOR Pharmaceutical Co. and each of the purchasers signatory to  the Securities Purchase Agreement dated as of April 19, 2004.                                                                                                                      |
| *4.14  |   | Form  of Securities Purchase Agreement dated as of April 19, 2004, by and among  IMCOR Pharmaceutical Co., Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and Mi3  LP.                                                                                                                                                                       |
| *4.15  |   | Form  of Registration Rights Agreement dated as of April 19, 2004 by and among  IMCOR Pharmaceutical Co. and each of Oxford Bioscience Partners IV L.P., MRNA Fund II L.P.  and Mi3 LP.                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| *31.1  |   | Certification of Principal Executive  Officer pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                           |

 

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| *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. |

 

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+Incorporated by Reference.

* Filed herewith.

 

(b)           Reportson Form 8-K.

 

The following reports on Form 8-K were filed during the three-monthperiod ending March 31, 2004:

 

On January 14, 2004, the company filed a Form 8K stating that it hadreceived a notice of additional deficiencies from Nasdaq, specifically that it didnot hold an annual meeting of its stockholders during 2003.

 

On February 9, 2004, the company filed a Form 8K detailing the resultsof a Special Meeting of Stockholders (the “Special Meeting”) pursuant to aProxy Statement dated January 13, 2004 whereby the stockholders: i)approved the issuance of more than 20% of the Company’s voting stock to certaincreditors of Alliance Pharmaceutical Corp in connection with the Company’sacquisition of Alliance’s assets related to its imaging and diagnostic imagingbusiness, which closed on June 18, 2003; ii) approved the issuance ofadditional shares of common stock upon the conversion of secured promissorynotes in the aggregate principal amount of $4,160,000, at the same price as theCompany sells shares in a qualified financing; iii) approved anamendment to the Company’s articles of incorporation to change its name toIMCOR Pharmaceutical Co.; iv) authorized the Company’s Board of Directors toamend the Company’s articles of incorporation to effect, when and as determinedby the Board in its sole discretion within the 2004 calendar year, a reversestock split in a range between one-for-two up to one-for-five; and v) ratified the engagement of Moss Adams LLP as the Company’s independentcertified public accountants for the 2004 fiscal year.

 

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**Signatures**

 

In accordance with the requirements of theExchange Act, the registrant has caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.

 
| Date:   May 14, 2004 | IMCOR Pharmaceutical Co.                                                                                                           |
|---------------------------|------------------------------------------------------------------------------------------------------------------------------------|
|                      |                                                                                                                               |
|                      |                                                                                                                               |
|                      |  /s/  Taffy J. Williams                                                                                                       |   |
|                      | Taffy J. Williams, Ph.D., President  and Chief Executive Officer                                                                   |
|                      |                                                                                                                               |
|                      |                                                                                                                               |
|                      |                                                                                                                               |
|                      | /s/ Brooks Boveroux                                                                                                                |   |
|                      | Brooks Boveroux, Senior Vice President -  Finance  and Chief Financial Officer (Principal Financial and  Chief Accounting Officer) |

 

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**EXHIBIT INDEX**

** **
| **EXHIBIT  NO.** |   | **DESCRIPTION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +3.1             |   | Articles  of Incorporation of IMCOR Pharmaceutical Co., as amended (Filed as Exhibit E  to the company’s Proxy Statement on Form DEFM 14A dated September 12, 2002  and incorporated herein by reference.)                                                                                                                                                                                                                                                                       |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +3.2             |   | Amended  and Restated Certificate of Designations, Preferences and Rights of Series A  Preferred Stock.  (Filed as Exhibit 3.5 to the company’s Quarterly  Report on Form 10-QSB for the quarter ended September 30, 1999 and  incorporated herein by reference.)                                                                                                                                                                                                           |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +3.3             |   | 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 Secured  Promissory Note by and among IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund, L.P., and Xmark  Fund, Ltd. dated June 18, 2003.   (Filed as Exhibit 10.4 to the Company’s 8-K filed on June 20, 2003 and  incorporated herein by reference.)                                                                                                                                                                                       |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +4.2             |   | Form of Revolving  Convertible Senior Secured Promissory Note 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. and Mi3 LP  dated June 18, 2003.  (Filed as  Exhibit 10.7 to the Company’s 8-K filed on June 20, 2003 and incorporated  herein by reference.)                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +4.3             |   | Form  of Secured Promissory Note 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. and Mi3 LP.  (Filed  as Exhibit 4.3 to the Company’s Annual Report on Form 10-KSB for the year  ended December 31, 2003 and incorporated herein by reference.)                                                                                                                             |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| +4.4             |   | 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.)                                                                                               |
| +4.5             |   | 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.) |

 

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| +4.6   |   | 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.)                       |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| +4.7   |   | 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.)                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| +4.8   |   | Warrant  to Purchase Shares of Common Stock dated October 20, 1999 between IMCOR  Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Elan 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.) |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| +4.9   |   | 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.)                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| +4.10  |   | 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.)    |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| *4.11  |   | Form  of Securities Purchase Agreement dated as of April 19, 2004, between IMCOR  Pharmaceutical Co. and each of the purchasers signatory thereto.                                                                                                                                                                                                  |
| *4.12  |   | Form  of Warrant Agreement dated as of April 19, 2004 between IMCOR Pharmaceutical  Co. and each of the purchasers signatory to the Securities Purchase Agreement  dated as of April 19, 2004.                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| *4.13  |   | Form  of Registration Rights Agreement dated as of April 19, 2004 entered into by  and between IMCOR Pharmaceutical Co. and each of the purchasers signatory to  the Securities Purchase Agreement dated as of April 19, 2004.                                                                                                                      |
| *4.14  |   | Form  of Securities Purchase Agreement dated as of April 19, 2004, by and among  IMCOR Pharmaceutical Co., Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and Mi3  LP.                                                                                                                                                                       |
| *4.15  |   | Form  of Registration Rights Agreement dated as of April 19, 2004 by and among  IMCOR Pharmaceutical Co. and each of Oxford Bioscience Partners IV L.P., MRNA Fund II L.P.  and Mi3 LP.                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| *31.1  |   | Certification of Principal Executive  Officer pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                           |

 

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| *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. |

 

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*Filedherewith

+Incorporatedherein by reference

 

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