SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the fiscal year ended               JUNE 30, 2003
                          ------------------------------------------------------

                                       OR

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

For the transition period from                  to
                               ----------------    -----------------------------

                         Commission file number 0-12950

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

<TABLE>
<S>                                                                           <C>
                           New York                                           14-1644018
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(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

          6175 Lusk Boulevard, San Diego, California                             92121
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           (Address of principal executive offices)                           (Zip Code)

Registrant's telephone number, including area code                          (858) 410-5200
                                                                 ------------------------------------
</TABLE>

Securities registered pursuant to Section 12(b) of the Act:

Title of each class      Name of each exchange on which registered
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     None
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Securities registered pursuant to Section 12(g) of the Act:

                         common stock, par value $0.01.
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                                (Title of Class)

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                                (Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]


                            [Cover page 1 of 2 pages]


                                       1
<PAGE>

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock on the
Nasdaq Over-the-Counter Bulletin Board on September 24, 2003 was $17.6 million.

     The number of shares of the Registrant's common stock, $.01 par value,
outstanding at September 24, 2003 was 27,978,461.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part III of this report on Form 10-K is
incorporated by reference to the definitive Proxy Statement with respect to the
2003 Annual Meeting of Shareholders, which the Registrant intends to file with
the Securities and Exchange Commission no later than 120 days after the end of
the fiscal year covered by this report.


                            [Cover page 2 of 2 pages]


                                       2
<PAGE>

                                     PART I

     Except for historical information, the matters set forth in this report are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth herein. The
Company refers you to cautionary information contained elsewhere herein, in
other documents the Company files with the Securities and Exchange Commission
from time to time, and those risk factors set forth in the Company's most recent
registration statements on Form S-3 (Registration Number 333-72844) and Form S-4
(Report Number 333-49676).

Item 1. Business

     Alliance Pharmaceutical Corp. (the "Company" or "Alliance") is a
pharmaceutical research and development company that focuses on developing
scientific discoveries into medical products for human health applications.
Imagent(R) (formerly named Imavist(TM)), has been approved for sale in the U.S.
as an intravenous contrast agent for enhancement of ultrasound images to assess
cardiac structure and motion. In the past year, the Company entered into an
Asset Purchase Agreement with Photogen Technologies, Inc. ("Photogen") whereby
Photogen acquired all of the assets related to designing, developing,
manufacturing, marketing, selling, licensing, supporting and maintaining Imagent
(collectively, the "Imagent Business") and assumed certain of the Company's
liabilities. Another of the Company's products, Oxygent(TM), is in clinical
development as an intravascular oxygen carrier to reduce the need for donor
blood in surgical and other patients at risk of acute tissue hypoxia (oxygen
deficiency). Through its 100%-owned subsidiary, Astral, Inc. ("Astral"), the
Company has developed intellectual property and know-how for potential products
to treat immune disorders, including autoimmune disease, cancer, and infectious
diseases.

     The Company was incorporated in New York in 1983. Its principal executive
offices are located at 6175 Lusk Boulevard, San Diego, California 92121, and its
telephone number is (858) 410-5200.

Oxygent(TM)

     Alliance has developed certain proprietary technologies based on the use of
perfluorochemical ("PFC"). PFCs are biochemically inert compounds and may be
employed in a variety of therapeutic applications. The Company's primary drug
substance is perflubron, a brominated PFC that has a high solubility for
respiratory gases and when formulated into an emulsion, can be used to transport
these gases throughout the body.

     Oxygent (perflubron emulsion) is an intravascular oxygen carrier being
developed to augment oxygen delivery in surgical and other patients at risk of
acute tissue oxygen deficit. It is intended to provide oxygen to tissues during
elective surgeries where a blood transfusion is anticipated. It is estimated
that approximately eight to ten million patients worldwide annually receive one
or more units of donor blood during elective surgeries, including
cardiovascular, orthopedic, and general surgical procedures. An oxygen carrier
could be used instead of donor blood for a substantial portion of these
patients. Each single unit of Oxygent is expected to provide the equivalent
oxygen delivery of approximately one to two units of red blood cells.

     In addition to the well-publicized risks of known infectious disease
transmission (e.g., HIV, hepatitis), new emerging viruses (e.g., West Nile
Virus), and potential immune suppression effects related to blood transfusions,
there are emerging concerns regarding the availability and quality of donor
blood. The National Blood Data Resource Center has released data showing that
blood donations have leveled, while blood usage is expected to increase over the
next several years. This expected blood shortage may be further exacerbated by
prohibiting blood donations from people who are potentially at risk of having
been exposed to infected beef in Europe and the UK that may be linked to new
variant Creutzfeldt-Jakob (nvCJD) disease. During the summer of 2002, blood
banks were asked to begin screening potential donors to try to reduce the risk
of transmission of West Nile Virus via blood transfusions.

     These issues have heightened the search for alternatives that reduce or
eliminate the need for donor blood in elective surgeries. Oxygent is a sterile
PFC emulsion that is compatible with all blood types and is expected to have a
shelf-life of approximately two years. In December 2002 results of the Company's
Phase 3 General Surgery clinical trial in Europe was published in
Anesthesiology. The results established that the product provided a
statistically significant reduction in the need for donor blood in patients
undergoing a variety of general surgery procedures. Additionally, a greater
percentage of patients in the Oxygent-treated group were able to avoid the need
for any donor blood transfusion as compared to the control group.


                                       1
<PAGE>

     In January 2001, the Company voluntarily suspended enrollment in an
on-going Phase 3 cardiac surgery study in the U.S. due to an imbalance in
certain adverse events, primarily the incidence of stroke. While the overall
frequency of these adverse events in this study was consistent with published
data for patients undergoing cardiac bypass surgery, the control group frequency
was remarkably lower than normal, causing a disparity in the proportion between
the treatment and control patients. In July 2001, Alliance met with the FDA
regarding the continuing clinical development of Oxygent and presented a data
analysis that explained reasons for the imbalance. The FDA has requested that
the Company provide additional preclinical supporting data before submitting a
new Phase 3 study plan. The Company also met with several European regulatory
authorities to review the safety findings from the Phase 3 cardiac surgery study
and to propose a new Phase 3 protocol design for a study in general surgery.
Alliance received approval to start this study in Europe, but the clinical
development program for Oxygent was subsequently put on hold in the fall of 2002
due to lack of funds. To expedite a restart of this clinical program by the end
of 2003, Alliance intends to run this identical protocol design as a smaller
Phase 2 study in Europe, using general surgery patients undergoing procedures
typically requiring about 2 units of blood. Based on the success of this study,
the same protocol would then be run as a larger pivotal Phase 3 study to support
future regulatory filings.

     Previous clinical studies have utilized preoperative hemodilution
techniques. The new protocol for the proposed Oxygent general surgery study will
not use preoperative hemodilution, in that Oxygent is to be administered based
on patient need. Oxygent will be dosed only when blood loss has decreased the
patient's hemoglobin levels to a protocol-defined transfusion trigger
(essentially the same clinical criteria that normally trigger red cell
transfusions). Delaying Oxygent administration until a trigger is reached
ensures that patients receive Oxygent only at the point when transfusion is
clinically warranted. This allows the drug to be evaluated in a manner
consistent with its intended clinical use (and similar to the way blood
transfusions are administered).

     In May 2000, the Company and Baxter Healthcare Corporation ("Baxter")
established a joint venture, PFC Therapeutics, LLC ("PFC Therapeutics"), which
obtained a license from the Company for the development, manufacturing,
marketing, sales, and distribution of Oxygent in the United States, Canada and
countries in the European Union (the "Baxter Territory"). In June 2003, in
connection with the sale of the Imagent Business, Alliance acquired Baxter's
ownership interest in PFC Therapeutics. Alliance will pay Baxter a royalty on
the sales of Oxygent by PFC Therapeutics, following regulatory approval.

Astral, Inc.

     Astral Inc. is engaged in the development of immunoglobulins that are
engineered to bear specific disease-associated peptides. These immunoglobulins
will be used to generate biopharmaceutical products intended to regulate the
immune system in individuals with various disorders, in particular autoimmune
disease, cancer and infectious disease.

     Astral has developed a proprietary technology platform, Epitope-based
T-cell Immunotherapy (E.T.I.), which uses Immunoglobulin-Peptides (IgPs) to
control the profile of immune reactions in a selective manner. Unlike general
immunosuppressive therapies, E.T.I. is intended to selectively affect the T-cell
response to disease-associated epitopes by specifically targeting the
autoaggressive T-lymphocytes, while leaving the rest of the immune system
functional. The uniqueness of the E.T.I. platform is related to the use of the
IgPs to greatly improve the pharmacokinetics of delivered epitope peptides to
target antigen-presenting cells (APCs) and to regulate the profile of the immune
response.

     The E.T.I. platform has the potential to be effective in autoimmune disease
by incorporating self peptides and, when combined with the company's proprietary
immunomodulatory double stranded Ribonucleic Acid (dsRNA) as reported in the
October, 15, 2002 issue of The Journal of Clinical Investigation, can be used as
effectively against cancer and infectious disease.

     Astral is developing two programs, The Autoimmune Disease Program and the
Cancer and Infectious Disease Program.

     The Autoimmune Disease Program encompasses the E.T.I. platform and
     engineered IgPs, incorporated with disease-associated peptide(s) of
     interest, to create effective therapeutics against autoimmune deficiencies.
     Astral has demonstrated proof of concept in several animal models and it is
     anticipated that these positive results will be mirrored in the clinic.


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<PAGE>

     The Cancer and Infectious Disease Program encompasses the E.T.I. platform
     along with Astral's proprietary immunomodulatory dsRNA. Astral has
     demonstrated through various studies that E.T.I. in conjunction with dsRNA
     can trigger substantial levels of MHC class I-restricted immunity that is
     important for defense against viruses and for rejection of tumors.

     In December 2002, the Company Alliance entered into an exclusive license
agreement with Mixture Sciences, Inc. ("Mixture Sciences") for Mixture Sciences
to acquire all rights to a proprietary immunotherapy platform technology
developed by Astral. Mixture Sciences provided financing to support the overhead
and salaries of key employees involved with this technology for a secured
position in the technology subject to a royalty-bearing license. The Company has
certain rights to repurchase the technology by paying Mixture Sciences a
break-up fee.

     The Company's products require substantial development efforts. The Company
may encounter unforeseen technical or other problems that may force delay,
abandonment, or substantial change in the development of a specific product or
process, technological change, or product development by others, any of which
may materially adversely affect its business. The Company expends substantial
amounts of money on research and development and expects to do so for the
foreseeable future. In fiscal 2003, 2002 and 2001, the Company incurred research
and development expenses of $16.2 million, $33.5 million, and $55.3 million,
respectively.

Collaborative Relationships

     Baxter Healthcare Corporation. In May 2000, Alliance and Baxter entered
into a joint venture for the manufacture, marketing, sales, and distribution of
Oxygent in the Baxter Territory. The companies formed PFC Therapeutics to
oversee the further development, manufacture, marketing, sales, and distribution
of Oxygent.

     During the past fiscal year, Alliance and Baxter were unable to agree on a
financing plan to enable the continuation of the clinical program for Oxygent.
In August 2002, Alliance sent PFC Therapeutics a notice of intended termination
of the exclusive license on the grounds that PFC Therapeutics failed to fulfill
its obligations under the license agreement. After negotiations, in June 2003,
Alliance acquired Baxter's ownership in PFC Therapeutics in exchange for the
agreement by Alliance to pay Baxter a royalty on the sale of Oxygent following
regulatory approval. This resulted in Alliance obtaining worldwide rights to
Oxygent.

     Nektar Therapeutics. ("Nektar") In November 1999, the Company transferred
to Inhale certain rights to the Company's PulmoSpheres(R) technology and other
assets for use in respiratory drug delivery. Alliance will receive milestone
payments based on the achievement of future defined events, plus additional
royalty payments based on eventual sales of a defined number of products
commercialized using the technology. Nektar has agreed that Alliance can
commercialize two respiratory products that will be formulated by Nektar
utilizing the PulmoSpheres technology on a royalty-free basis. Alliance has
retained the right to use the technology to develop products for drug delivery
in conjunction with liquid ventilation.

     University of Missouri - Columbia. ("University of Missouri") In October
2001, Astral entered into a research agreement with the University of Missouri
to undertake in a program of research for the development of immunoglobulin
constructs and methods to prevent certain autoimmune diseases. Under this
agreement, Astral shall pay a research fee in return for certain rights to any
inventions or discoveries made by the University of Missouri.

     University of Tennessee Research Corporation. ("UTRC") In February 2003,
Astral entered into a license agreement with UTRC for exclusive worldwide rights
to utilize certain technology and patents developed under a previous research
agreement with UTRC. Astral will pay UTRC milestone payments based on defined
events, plus royalty payments based on eventual sales of products commercialized
using the technology.

     The Company intends to obtain new collaborative relationships for its other
products. There can be no assurances that the Company will be able to enter into
future collaborative relationships on acceptable terms. The termination of any
collaborative relationship or failure to enter into such relationships may limit
the ability of the Company to develop its technology and may have a material
adverse effect on the Company's business.


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<PAGE>

Patents

     The Company seeks proprietary protection for its products, processes,
technologies, and ongoing improvements. The Company continues to pursue patent
protection in the U.S. and in foreign countries that it regards as important for
future endeavors. Numerous patent applications have been filed in the European
Patent Office, Japan, Canada, Australia, Israel, Norway, South Africa, China,
and other countries, and patents have been granted in many of these countries.

     Alliance has numerous issued U.S. patents related to or covering PFC
emulsions with corresponding patents and applications in Europe, Japan, and
elsewhere. Such emulsions are the basis of the Company's Oxygent product. The
issued patents and pending patent applications cover specific details of
emulsified PFCs through composition claims, product-by-process claims, and
method claims describing their manufacture and use. In addition to the Oxygent
formulation, issued patents broadly cover concentrated PFC emulsions, as well as
methods for their manufacture and use.

     Alliance has received U.S. patents for a method of using blood substitutes
to facilitate oxygen delivery. Corresponding patents are issued or pending in
Canada , Japan, and other countries. The issued patents cover methods for
facilitating autologous blood use in conjunction with administering
oxygen-enriched gas and oxygen carriers that contain fluorochemicals, as well as
those derived from human, animal, plant or recombinant hemoglobin, in order to
reduce or eliminate the need for allogeneic (donor) blood transfusions during
surgery.

     Alliance has filed and/or has licensed rights to both U.S. and foreign
patents covering certain aspects of Astral's E.T.I. and dsRNA immunomodulatory
technologies. These patents are expected to protect the compounds, compositions,
and methods surrounding Astral's technologies. The Company plans to continue
building the Intellectual Property around certain areas of interest to Astral.

     The Company has filed U.S. and foreign patent applications on its method of
using oxygen-carrying PFCs to enhance respiratory gas exchange utilizing
conventional gas ventilators. An issued U.S. patent licensed to the Company
covers methods of administering liquids, including LiquiVent(R), to patients.
Other U.S. patents covering additional methods of enhancing patients'
respiratory gas exchange by administering liquids, including LiquiVent, have
also issued. Additionally, the Company has issued patents and pending
applications that cover apparatus for liquid ventilation using PFCs. The Company
also has issued patents and pending patent applications regarding the use of
PFCs to deliver drugs to the lungs and to wash debris from, and open, collapsed
lungs. In addition, the Company has received a U.S. patent covering the use of
fluorochemicals to treat localized and systemic inflammation.

     The Company also has issued patents and pending patent applications
covering its novel fluorinated surfactants. These compounds may be useful in
oxygen-carrying or drug-transport compositions, and in liposomal formulations
that have therapeutic and diagnostic applications. Additionally, the fluorinated
compounds may be employed in cosmetics, protective creams, and lubricating
agents, as well as incorporated in emulsions, microemulsions, and gels that may
be useful as drug delivery vehicles or contrast agents. The Company also has
pending applications relating to its dry powder technologies as well as various
types of emulsions and microstructures (tubules, helixes, fibers) that may have
uses in the fields of medicine, biomolecular engineering, microelectronics, and
electro-optics.

     On June 13, 2003, Alliance and Photogen jointly brought a patent
infringement action against Amersham Health Inc., Amersham Health AS and
Amersham Health plc (collectively, "Amersham") in the United States District
Court for the District of New Jersey. The lawsuit alleges that through the sale
of Amersham's OPTISON product, Amersham and its related entities infringe on
seven patents acquired by Photogen through its purchase of the Imagent Business.
Alliance and Photogen are seeking damages and injunctive relief against
Amersham. Amersham brought counterclaims against Alliance and Alliance's
subsidiary MBI asserting breach of contract claims, breach of good faith and
fair dealing, and tortious interference with contractual relations against
Alliance and MBI. Alliance and MBI believe that Amersham's counterclaims are
completely without merit; however there can be no assurances that Alliance and
MBI will ultimately prevail or that the outcome will not have a material adverse
effect on Company's future financial position or results of operations.

     Aside from the issued patents, no assurance can be given that any of these
applications will result in issued U.S. or foreign patents. Although patents are
issued with a presumption of validity and require a challenge with a high degree
of proof to establish invalidity, no assurance can be given that any issued
patents would survive such a challenge and would be valid and enforceable.
Although certain patents of the Company are subject to such ongoing challenges
and Alliance has


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<PAGE>

challenged the patents of other companies, Alliance believes that the outcome of
these challenges will not have a material adverse effect on the Company's
proprietary technology position.

     The Company also attempts to protect its proprietary products, processes
and other information by relying on trade secret laws and non-disclosure and
confidentiality agreements with its employees, consultants, and certain other
persons who have access to such products, processes and information. The
agreements affirm that all inventions conceived by employees are the exclusive
property of the Company, with the exception of inventions unrelated to the
Company's business and developed entirely on the employees' own time.
Nevertheless, there can be no assurance that these agreements will afford
significant protection against or adequate compensation for misappropriation or
unauthorized disclosure of the Company's trade secrets.

Competition

     Biotechnology and pharmaceutical companies are highly competitive. There
are many pharmaceutical companies, biotechnology companies, public and private
universities, and research organizations actively engaged in research and
development of products that may be similar to Alliance's products. Many of the
Company's existing or potential competitors have substantially greater
financial, technical, and human resources than the Company and may be better
equipped to develop, manufacture, and market products. These companies may
develop and introduce products and processes competitive with or superior to
those of the Company. In addition, other technologies or products may be
developed that have an entirely different approach or means of accomplishing the
intended purposes of the Company's products, which might render the Company's
technology and products uncompetitive or obsolete. There can be no assurance
that the Company will be able to compete successfully.

Product Liability Claims and Uninsured Risks

     The sale or use of any of the Company's products or processes that may be
developed or sold by the Company may expose the Company to potential liability
from claims by end-users of such products or by manufacturers or others selling
such products, either directly or as a component of other products. While the
Company has product liability insurance, there can be no assurance that the
Company will continue to maintain such insurance or that it will provide
adequate coverage. If the Company is held responsible for damages in a product
liability suit, the Company's financial condition could be materially and
adversely affected.

Government Regulation

     The Company's products require governmental approval before production and
marketing can commence. The regulatory approval process is administered by the
FDA in the U.S. and by similar agencies in foreign countries. The process of
obtaining regulatory clearances or approvals is costly and time-consuming. The
Company cannot predict how long the necessary clearances or approvals will take
or whether it will be successful in obtaining them.

     Generally, all potential pharmaceutical products must successfully complete
two major stages of development (preclinical and clinical testing) prior to
receiving marketing approval by the governing regulatory agency. In preclinical
testing, potential compounds are tested both in vitro and in animals to gain
safety information prior to administration in humans. Knowledge is obtained
regarding the effects of the compound on bodily functions as well as its
absorption, distribution, metabolism, and elimination.

     Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase 1, which frequently begins with the
initial introduction of the drug into healthy human subjects prior to
introduction into patients, the compound is tested for safety and dosage
tolerance. Phase 2 typically involves studies in a larger patient population to
identify possible adverse effects and safety risks, to begin gathering
preliminary efficacy data, and to investigate potential dose sizes and
schedules. Phase 3 trials are undertaken to further evaluate clinical efficacy
and to further test for safety within an expanded patient population. Each trial
is conducted in accordance with standards under protocols that detail the
objectives of the study, the parameters to be used to monitor safety, and the
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as
part of the investigational new drug application. Further, an independent review
board at the institution at which the study will be conducted must evaluate each
clinical study. The review board will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution.


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<PAGE>

     Following completion of these studies, an NDA must be submitted to and
approved by the FDA in order to market the product in the U.S. Similar
applications are required in foreign countries. There can be no assurance that,
upon completion of the foregoing trials, the results will be considered adequate
for government approval. If and when approval is obtained to market a product,
the FDA's (or applicable foreign agency's) regulations will govern manufacturing
and marketing activities.

     Perflubron is an eight-carbon halogenated fluorocarbon liquid. Certain
halogenated fluorocarbons (primarily the gaseous chlorofluorocarbons) have been
implicated in stratospheric ozone depletion. The FDA issued a Finding of No
Significant Impact under the National Environmental Protection Act in connection
with the approval for marketing of Imagent GI, a perflubron-based drug
previously developed by the Company; however, all materials contained in the
Company's products remain subject to regulation by governmental agencies.

     In addition to FDA regulation, the Company is subject to regulation by
various governmental agencies including, without limitation, the Drug
Enforcement Administration, the U.S. Department of Agriculture, the
Environmental Protection Agency, the Occupational Safety and Health
Administration, and the California State Department of Health Services, Food and
Drug Branch. Such regulation, by governmental authorities in the U.S. and other
countries may impede or limit the Company's ability to develop and market its
products.

Employees

     As of September 24, 2003, the Company had seven full-time employees, of
whom four were engaged in research and development and associated support, and
three in general administration. There can be no assurance that the Company will
be able to continue attracting and retaining sufficient qualified personnel in
order to meet its needs. None of the Company's employees is represented by a
labor union. The Company believes that its employee relations are satisfactory.

Risk Factors

     You should consider the following matters when reviewing the information
contained in this document. You also should consider the other information
incorporated by reference in this document.

We have a history of operating losses and limited product revenues and we may
never become profitable.

     We have had net operating losses since our inception and we expect such
losses to continue until we receive revenues from product sales. As of June 30,
2003, we had an accumulated deficit of $488.4 million. For the years ended June
30, 2003, 2002 and 2001 we incurred net losses of $20.3 million, $34.2 million,
and $60.7 million, respectively. Substantially all of our revenues to date have
come from sources other than product sales, such as licensing fees, milestone
payments and payments to fund research and development activities under joint
development and license agreements.

We may not be able to obtain the additional financing we will need to complete
development and to introduce products to the market.

     We will need additional financing for our business. Our future capital
requirements will depend on many factors, including:

     (a)  the timing and extent of our late-stage clinical trials for Oxygent;

     (b)  continued scientific progress in our research and development
          programs;

     (c)  the time and cost involved in obtaining regulatory approvals for our
          products;

     (d)  patent costs;

     (e)  completing technological and market developments; and

     (f)  the cost of manufacturing scale-up.

Accordingly, we cannot estimate the amount of additional financing that we will
require, but we know that it will be substantial.


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<PAGE>

Failure to license our products could seriously hinder our ability to further
develop our products and market them successfully.

     If we do not negotiate acceptable collaborative arrangements for our
principal products, we will lack the funds to develop them further. We do not
have internal marketing and sales capabilities and we will need to rely on
collaborative partners to market and sell any products that we may successfully
develop. Even if we find collaborative partners, we may not be able to
completely control the amount and timing of resources our collaborative partners
will devote to these activities. If we cannot find collaborative relationships
or other sources of financing, we may not be able to continue some of our
development programs and would be forced to sell assets, including technology,
to raise capital.

We do not have manufacturing or marketing capabilities for our products.

     We do not have manufacturing capabilities for any of our products. We
intend to negotiate agreements with third parties to provide the products for
our development activities, but there is no assurance that we will be able to
enter into such agreements or on commercially reasonable terms. All facilities
and manufacturing techniques used in the manufacture of products for clinical
use or for sale in the United States must be operated in conformity with current
good manufacturing practices guidelines as established by the FDA. We do not
know whether the FDA will determine that the third-party facilities comply with
good manufacturing practices. A delay in FDA approval of our manufacturing
facilities would delay the marketing of our products.

Delays in the completion of our clinical trials could increase our costs.

     We cannot predict how long our preclinical and clinical trials will take or
whether they will be successful. The rate of completion of the clinical trials
for our products depends on many factors, including obtaining adequate clinical
supplies and the rate of patient recruitment. Patient recruitment is a function
of many factors, including the size of the patient population, the proximity of
patients to clinical sites, and the eligibility criteria for patients who may
enroll in the trial. We may experience increased costs, program delays, or both,
if there are delays in patient enrollment in the clinical trials.

If we cannot protect our patents and proprietary technology, we may be unable to
manufacture and market our products successfully.

     We believe that our success will depend largely on our ability to obtain
and maintain patent protection for our own inventions, to license the use of
patents owned by third parties when necessary, to protect trade secrets and to
conduct our business without infringing the proprietary rights of others. We
obtained patents covering intermediate, and high-concentration PFC emulsions, as
well as other patents. We filed, and when appropriate will file, other patent
applications with respect to our products and processes in the United States and
in foreign countries. We do not know, however, whether we will develop any
additional products and processes that will be patentable or that any additional
patents will be issued to us. We do not know whether:

     (a)  any patent applications will result in the issuance of patents,

     (b)  issued patents will provide significant proprietary protection or
          commercial advantage, or

     (c)  issued patents will not be circumvented by others.

     The patent positions of pharmaceutical medical products and biotechnology
firms can be uncertain and involve complex legal and factual questions. It is
possible that a third party may successfully challenge any of our patents or any
of the patents licensed to us. If that were to happen, we would lose the right
to prevent others from using the technology. It is also possible that we may
unintentionally infringe on patents of third parties. We may have to alter our
products or manufacturing processes to take into account the patents of third
parties and this may cause delays in product development. Further, we may not be
able to alter our products or manufacturing processes to avoid conflicts with
third-party patents. As a result, we may have to terminate the development or
commercialization of a product or pay royalties to the holders of the patents.

     We may be forced to litigate to enforce any patents we own and/or to
determine the scope and validity of others' proprietary rights. Patent
litigation can be very expensive and the result is uncertain.


                                       7
<PAGE>

     We also attempt to protect our proprietary products and processes by
relying on trade secret laws and non-disclosure and confidentiality agreements.
We enter into these agreements with our employees and certain other persons who
have access to our products or processes.

     Other parties may independently develop products or processes similar to
our proprietary products and processes. They may also obtain access to such
products or processes. If others develop or obtain products or processes similar
to ours, our competitive position would be damaged.

We depend on our Chief Executive Officer, Duane J. Roth, and other key
personnel, to execute our strategic plan.

     Our success largely depends on the skills, experience and efforts of our
key personnel, including Chief Executive Officer, Duane J. Roth. We have not
entered into a written employment agreement with Mr. Roth. We do not maintain
"key person" life insurance policies covering Mr. Roth. The loss of Mr. Roth, or
our failure to retain other key personnel, would jeopardize our ability to
execute our strategic plan and materially harm our business.

We could incur significant delays in marketing our products if we are unable to
obtain the necessary raw materials from our existing sources.

     We need sufficient supplies of raw materials to develop and market our
products successfully. The raw materials in products that are approved by the
FDA cannot be changed without equivalency testing of the new material by us and
approval by the FDA. Some of the raw materials for our products are expected to
be qualified from only one supplier. At times, one or more of these qualified
materials may not be available or may be available only in limited quantities.

Unforeseen technological and scientific problems or third-party development may
delay or prevent marketing of our products.

     We or our collaborative partners may encounter unforeseen technological or
scientific problems, including adverse side effects. Unforeseen technological or
scientific problems may force us to abandon or substantially change the plan of
development of a specific product or process. A technological change or product
development by others may make our products or processes obsolete or may allow
another company to develop and manufacture much less expensive competitive
products. These problems could adversely affect our future business prospects
and operations.

The lack or inadequacy of third-party reimbursement for our products would make
it more difficult to market any products we develop.

     Our ability to commercialize our products successfully depends in part on
the extent to which the cost of the products and related treatment will be
reimbursed by government authorities, private health insurers and other
organizations, such as HMOs. Third-party payers are increasingly challenging the
prices charged for medical products and services. The purchase of healthcare
services and products could be significantly affected by:

     (a)  the trend toward managed healthcare in the United States,

     (b)  the growth of healthcare organizations such as HMOs, and

     (c)  legislative proposals to reform healthcare and government insurance
          programs.

     These factors could result in lower prices and reduced demand for our
products. Healthcare providers are instituting cost containment measures. Any
cost containment measures as well as any healthcare reform could reduce or
eliminate any profit to us on sales of our products. We also cannot assure you
that full or partial reimbursement in the United States or foreign countries
will be available for any of our products. If reimbursements are not available
or sufficient, we may not be able to sell our products. We cannot forecast what
additional legislation or regulation relating to the healthcare industry or
third-party coverage and reimbursement may be enacted in the future, or what
effect the legislation or regulation would have on our business.


                                       8
<PAGE>

Many of our existing or potential competitors have substantially greater
resources and may be better equipped to develop, manufacture and market products
similar to ours.

     We may be unable to compete successfully in developing and marketing our
products. Many pharmaceutical companies, biotechnology companies, public and
private universities, and research organizations are actively engaged in the
research and development of products that compete with our products. Some of
these companies, particularly the large worldwide pharmaceutical companies, have
more resources than we and may develop and introduce products and processes
competitive with or superior to ours. Other companies that we know are
developing blood substitute products are Biopure Corporation, Northfield
Laboratories Inc., and Hemosol, Inc. There are two primary approaches for oxygen
delivery used in blood substitute products: perfluorochemical emulsions, the
approach used in Oxygent, and hemoglobin solutions. Hemoglobin development
efforts include chemically modified, stroma-free hemoglobin from human or bovine
red blood cells, and the use of genetic engineering to produce recombinant
hemoglobin. There are several companies working on hemoglobin solutions as a
temporary oxygen carrier blood substitute. One of these companies, Hemosol,
Inc., has filed for regulatory approval in the U.K. and Canada, and Northfield
Laboratories Inc., another company working on hemoglobin solutions, has recently
filed for approval in the U.S. based on data from a Phase 2 trauma study. A
third company developing hemoglobin solutions, Biopure Corporation, has an
approval for its product in South Africa and has recently completed a Phase 3
study in orthopedic surgery, which it plans to use as the basis for a filing for
approval in the U.S. before the end of 2001. While we believe that Oxygent and
the perfluorochemical approach may have several advantages compared to the
hemoglobin-based oxygen carriers, including the potential availability of raw
materials in commercial-scale quantities, as well as the relatively low cost and
ease of production for Oxygent, there can be no assurance that hemoglobin-based
oxygen carriers will not prove to be more successful. In addition, we are aware
of two other early-stage companies developing perfluorochemical-based temporary
oxygen carriers, neither of which has progressed to clinical trials.

     In addition, our products and technologies may become uncompetitive or
obsolete upon the development of other technologies or products that have an
entirely different approach or means of accomplishing the same purposes.

Our products and the processes we use could expose Alliance to substantial
product liability.

     Claims by users of our products or of products manufactured by processes we
developed, or by manufacturers or others selling our products, either directly
or as a component of other products could expose us to substantial product
liability. Our product liability insurance coverage may be inadequate to cover
the amount of any liability.

Forward-Looking Statements

     This document may contain forward-looking statements regarding our plans,
expectations, estimates and beliefs. Our actual results could differ materially
from those discussed in, or implied by, these forward-looking statements.
Forward-looking statements are identified by words such as "believe,"
"anticipate," "expect," "intend," "plan," "will," "may," and other similar
expressions. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements. Forward-looking statements in this document include, but are not
necessarily limited to, those relating to:

     (a)  our ability to raise additional capital when needed,

     (b)  obtaining, or our ability to obtain, approval by the FDA and other
          regulatory authorities for certain products,

     (c)  our ability or capacity to manufacture, market and distribute our
          products,

     (d)  uncertainty of market acceptance of our products,

     (e)  our ability to obtain patents for our products and technologies,

     (f)  relationships with and abilities of important suppliers and business
          partners, and

     (g)  the development of new products and enhanced versions of existing
          products.

     Factors that cause actual results or conditions to differ from those
anticipated by these and other forward-looking statements include those more
fully described in the risk factors section and elsewhere in this prospectus. We
are not obligated to update or revise these forward-looking statements to
reflect new events or circumstances.


                                       9
<PAGE>

Executive Officers of the Registrant

     The following is the executive officer of the Company:

Duane J. Roth. Mr. Roth, who is 53, has been Chief Executive Officer since 1985,
Chairman since October 1989, and Chief Financial Officer since February 2003.
Prior to joining Alliance, Mr. Roth served as President of Analytab Products,
Inc., an American Home Products company involved in manufacturing and marketing
medical diagnostics, pharmaceuticals, and devices. For the previous ten years,
he was employed in various sales, marketing, and general management capacities
by Ortho Diagnostic Systems, Inc., a Johnson & Johnson company, which is a
manufacturer of diagnostic and pharmaceutical products.

Item 2. Properties

Facilities

     The Company is located in San Diego, California.

Item 3. Legal Proceedings

     In September 2003, Mt. Sinai School of Medicine of New York University sued
Alliance in a New York state court for alleged breach of two license and
research agreements dating back to 1987 and 2001. The suit alleges that Alliance
breached both the 1987 and 2001 agreements and demands $326,502.95 in damages
plus interest. The suit also seeks a declaratory judgment that both the 1987 and
2001 agreements are void and of no effect. Alliance believes the suit lacks
merit and plans a vigorous defense of its rights under both agreements; however
there can be no assurances that Alliance will ultimately prevail or that the
outcome will not have a material adverse effect on Company's future financial
position or results of operations.

     On June 13, 2003, Alliance and Photogen jointly brought a patent
infringement action against Amersham Health Inc., Amersham Health AS and
Amersham Health plc (collectively, "Amersham") in the United States District
Court for the District of New Jersey. The lawsuit alleges that through the sale
of Amersham's OPTISON product, Amersham and its related entities infringe on
seven patents acquired by Photogen through its purchase of the Imagent Business.
Alliance and Photogen are seeking damages and injunctive relief against
Amersham. Amersham brought counterclaims against Alliance and Alliance's
subsidiary MBI asserting breach of contract claims, breach of good faith and
fair dealing, and tortious interference with contractual relations against
Alliance and MBI. Alliance and MBI believe that Amersham's counterclaims are
completely without merit; however there can be no assurances that Alliance and
MBI will ultimately prevail or that the outcome will not have a material adverse
effect on Company's future financial position or results of operations.

     On July 2, 2003, Hub Properties Trust ("Hub") filed a lawsuit against
Alliance, Immune Complex Corporation, Immune Complex, LLC (collectively "Immune
Complex"), and Vaccine Research Institute of San Diego ("Vaccine"). Hub alleges
that the defendants are liable for slightly less than $3.5 million of damages
Hub suffered, because Hub was unable to lease two properties due to defendants'
failure to timely deactivate the radiological materials licenses on the
properties. Alliance was the primary tenant, Immune Complex was Alliance's
subtenant, and Vaccine was Immune Complex's sub-subtenant. Immune Complex
tendered its defense to Alliance. Alliance did not accept the tender of defense.
On August 21, 2003, Immune Complex filed its cross-complaint for indemnity
against Alliance. Now that the pleading stage is near completion, the onset of
discovery should begin shortly. Alliance will continue to vigorously defend
against Hub's claims.

     On February 23, 2001, a lawsuit was filed by two former shareholders of MBI
purportedly on behalf of themselves and others against the Company and certain
of its officers. On March 1, 2001 and March 19, 2001, two additional similar
lawsuits were filed by other former shareholders of MBI. The lawsuits, filed in
the U.S. District Court for the Southern District of New York, allege that the
Company's registration statement filed in connection with the acquisition of MBI
contains misrepresentations and omissions of material facts in violation of
certain federal securities laws. In May 2001, the actions were consolidated. The
plaintiffs are seeking rescission or compensatory damages, payment of fees and
expenses, and further relief. In January 2002, the plaintiffs filed a second
amended complaint adding an additional securities claim against the Company and
the named officers. The Company and its officers have filed a


                                       10
<PAGE>

motion for summary judgment seeking dismissal of the action, but the Court has
not yet decided the motion. In August 2001, another purported class action
alleging substantially identical allegations was filed in the U.S. District
Court for the Southern District of California. The plaintiffs in that action
dismissed the action without prejudice in September 2001. The Company believes
that the lawsuits are completely without merit; however, there can be no
assurances that the Company will ultimately prevail or that the outcome will not
have a material adverse effect on Company's future financial position or results
of operations.

     In December 2001, a lawsuit was filed against MBI in the U.S. District
Court for the Northern District of Illinois. The plaintiff in the action alleges
that MBI breached a license agreement and seeks an accounting, damages, a
declaratory judgment terminating the license agreement, and payment of fees and
expenses. The Company believes that the lawsuit is completely without merit;
however, there can be no assurances that MBI will ultimately prevail or that the
outcome will not have a material adverse effect on Company's future financial
position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of the Company's stockholders during
the last quarter of Alliance's fiscal year ended June 30, 2003.


                                     PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters

     The common stock is traded in the over-the-counter market, and prices
therefore are quoted on the Nasdaq Bulletin Board under the symbol ALLP.OB.

     The following table sets forth, for the periods indicated, the high and low
sale prices of the common stock as reported on Nasdaq, without retail mark-up,
markdown or commission.

                                                         High           Low
                                                         ----           ---
Fiscal 2003

     Quarter ended September 30, 2002                $    1.59      $   0.20

     Quarter ended December 31, 2002                 $    0.27      $   0.05

     Quarter ended March 31, 2003                    $    0.49      $   0.12

     Quarter ended June 30, 2003                     $    0.34      $   0.14


Fiscal 2002 (adjusted to reflect reverse split)

     Quarter ended September 30, 2001                $   11.05      $   3.85

     Quarter ended December 31, 2001                 $    6.40      $   2.66

     Quarter ended March 31, 2002                    $    3.40      $   2.17

     Quarter ended June 30, 2002                     $    2.81      $   1.00


     On September 24, 2003, the closing price of the Company's common stock was
$0.63.

     The Company has not paid dividends on its common stock and does not
anticipate paying cash dividends in the foreseeable future.


                                       11
<PAGE>

     On October 8, 2003, the approximate number of record holders of the
Company's common stock was in excess of 1,350. The Company believes that, in
addition, there are in excess of 20,000 beneficial owners of its common stock
whose shares are held in street name and, consequently, the Company is unable to
determine the actual number of beneficial holders thereof.

Item 6. Selected Financial Data

     The selected consolidated financial data set forth below with respect to
the Company's statements of operations for each of the years in the three-year
period ended June 30, 2003, and with respect to the balance sheets at June 30,
2002 and 2003, are derived from the audited consolidated financial statements
which are included elsewhere in this Annual Report on Form 10-K and are
qualified by reference to such financial statements. The statement of operations
data for the years ended June 30, 1999 and 2000, and the balance sheet data at
June 30, 1999, 2000, and 2001, are derived from audited financial statements not
included in this Annual Report on Form 10-K. The following selected financial
data should be read in conjunction with the Consolidated Financial Statements
for the Company and notes thereto and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein (in thousands except per share amounts).

<TABLE>
<CAPTION>
                                                                    Years ended June 30,
                               2003              2002              2001              2000              1999
                               ----              ----              ----              ----              ----
<S>                      <C>               <C>               <C>               <C>               <C>
Statement of
     Operations Data:
     Total revenues      $          53     $      10,333     $       1,857     $      16,000     $       8,251
     Net loss(1)         $     (20,324)    $     (34,227)    $     (60,676)    $     (46,467)    $     (62,473)
     Net loss per
     common share
         basic and       $      (1.04)     $      (2.37)     $      (6.22)     $      (5.14)     $      (9.45)
     diluted(1)
</TABLE>

(1)  During fiscal 2003, the Company disposed of its Imagent assets and recorded
     a gain on sale of $10.6 million.

<TABLE>
<CAPTION>
                               2003              2002              2001              2000              1999
                               ----              ----              ----              ----              ----
<S>                      <C>               <C>               <C>               <C>               <C>
Balance Sheet Data:
     Working capital     $     (20,902)    $     (14,372)    $        (862)    $      21,325     $      11,009
     (deficit)
     Total assets(1)     $       1,905     $      31,169     $      49,149     $      75,949     $      65,984
     Long-term debt      $           -     $      10,960     $      32,729     $      19,013     $      10,499
     Stockholders'       $     (19,780)    $      (6,383)    $      (3,354)    $      33,266     $      42,125
     equity (deficit)
</TABLE>

(1)  During fiscal 2003, the Company disposed of its Imagent assets and recorded
     a gain on sale of $10.6 million.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

(References to years are to the Company's fiscal years ended June 30.)

     Since commencing operations in 1983, the Company has applied substantially
all of its resources to research and development programs and to clinical
trials. The Company has incurred losses since inception and, as of June 30,
2003, has an accumulated deficit of $488.4 million. The Company expects to incur
significant losses over at least the next few years as the Company continues its
research and product development efforts and attempts to commercialize its
products.


                                       12
<PAGE>

     The Company's revenues have come primarily from collaborations with
corporate partners, including research and development, milestone and royalty
payments. The Company's expenses have consisted primarily of research and
development costs and administrative costs. To date, the Company's revenues from
the sale of products have not been significant. The Company believes its future
operating results may be subject to quarterly fluctuations due to a variety of
factors, including the timing of future collaborations and the achievement of
milestones under collaborative agreements, whether and when new products are
successfully developed and introduced by the Company or its competitors, and
market acceptance of products under development.

Critical Accounting Policies

     We prepare our financial statements in conformity with generally accepted
accounting principles in the United States of America. As such, we are required
to make certain estimates, judgments and assumptions that we believe are
reasonable, based upon the information available to us. These estimates and
assumptions affect the reported balances and amounts within our financial
statements and supporting notes thereto. The significant accounting policies,
which we believe are the most critical to aid in fully understanding and
evaluating our reported financial results, include the following:

Basis of Presentation

     The accompanying financial statements have been prepared assuming the
Company is a going concern. The Company believes it lacks sufficient working
capital to fund operations for the entire fiscal year ending June 30, 2004. The
2003 financial statements do not include any adjustment to reflect the possible
future effects on the recoverability and classification of assets or the amount
and classification of liabilities that may result from this uncertainty.

Revenue Recognition

     Revenue is generally recognized when all contracted obligations have been
satisfied and collection of the resulting receivables has occurred or is
reasonably assured. Licensing and royalty agreements where we have no future
obligations include the Amended Optison Product Rights Agreement dated as of
August 6, 2001 and the Supplemental Agreement with Inhale Therapeutic Systems,
Inc. dated as of May 15, 2002.

Valuation of Purchased Technology

     The carrying value of purchased technology is reviewed periodically based
upon the projected cash flows to be received from license fees, milestone
payments, royalties and other product revenue. If such cash flows are less than
the carrying value of the purchased technology, an impairment loss based on a
comparison to the estimated fair value will be charged to expense. During fiscal
2003, the Company determined that impairment existed on the purchased technology
related to MBI and, accordingly, the carrying value of $1.8 million was charged
to impairment of an asset.

Investment in Joint Venture

     The Company had a 50% interest in a joint venture with Baxter. In
compliance with current accounting rules, we periodically reviewed the value of
the joint venture based upon the projected cash flows to be received from
license fees, milestone payments, royalties and other product revenue. In June
2003, Alliance acquired the balance of ownership interest in the joint venture.
Alliance will pay Baxter a royalty on the sales of Oxygent by the joint venture,
following regulatory approval. Concurrent with this acquisition, Alliance offset
the balance of the deferred revenue against its investment in PFC Therapeutics
and the carrying value of the PFC technology and charged $1.6 million to
impairment of an asset.

Liquidity and Capital Resources

     Through June 2003, the Company financed its activities primarily from
public and private sales of equity, debt issuance and funding from
collaborations with corporate partners.

     On June 18, 2003, Photogen Technologies, Inc. ("Photogen") acquired all of
the assets related to designing, developing, manufacturing, marketing, selling,
licensing, supporting and maintaining Imagent (collectively, the "Imagent
Business") and assumed certain liabilities from Alliance for approximately $1.1
million in cash and $3.5 million of


                                       13
<PAGE>

Photogen common stock. During the period between 90 and 365 days after the
closing, Photogen is obligated to pay up to $3 million and deliver up to an
aggregate of 1,985,522 shares of its common stock to certain creditors including
certain Alliance creditors. The amount of consideration was determined through
arms-length negotiation. In addition, subsequent to the closing and through
2010, Photogen is obligated to pay Alliance further consideration in the form of
an earn out based on Imagent revenue invoiced (subject to certain reductions).

     The amount of the earn out will equal, for each year of the earn out: 7.5%
of Imagent revenue up to $20,000,000; 10% of Imagent revenue between $20,000,000
and $30,000,000; 15% of Imagent revenue between $30,000,000 and $40,000,000 and
20% of Imagent revenue above $40,000,000. The earn out will be reduced by
amounts Photogen must pay pursuant to a license agreement with Schering
Aktiengesellschaft, net of payments they receive from Schering under the
license, and amounts of any indemnification claims Photogen has against
Alliance. The earn out is subject to three additional offsets (which are to be
applied in the manner described in the Asset Purchase Agreement) that entitle
Photogen to retain portions of the earn out otherwise payable to Alliance:

     -    Up to approximately $1,600,000 for a fixed price offset, depending on
          the satisfaction of certain conditions;

     -    The amount of any payments not committed to at closing Photogen makes
          after the closing to Alliance's creditors plus up to $1,000,000 of
          litigation expenses for certain patent and other litigation; and

     -    Between $4,000,000 and $5,000,000, which is the principal and accrued
          interest under Photogen's bridge loans to Alliance, depending on the
          satisfaction of certain conditions.

     As part of Photogen's purchase of the Imagent Business, Photogen assumed
certain debt obligations that Alliance entered into in July and August 2002,
which included two separate loan and security agreements that totaled $3 million
with an investment firm at an effective 100% annualized interest rate. Photogen
assumed a total of $3.75 million plus unpaid accrued interest.

     The rights Alliance was entitled to under the Schering License Agreement
were transferred to Photogen at the consummation of its acquisition of the
Imagent Business. Photogen also assumed the Cardinal marketing and line of
credit agreements totaling $2.5 million in connection with its acquisition of
the Imagent Business.

     As of June 18, 2003, the Company had received $5.8 million through the
issuance of 8% Convertible Secured Promissory Notes (the "Notes") to various
institutional investors and Photogen. The Notes were to mature in two years from
the date of issuance and were convertible into shares of Alliance's common stock
at $0.35 per share. Alliance's obligations under the Notes were secured by
certain of its assets, including all of its assets related to and its rights and
interests in Imagent and Oxygent. In connection with the issuance of the Notes,
Alliance obtained the consent and waiver of anti-dilution rights from a majority
of the investors in the Company's October 2001 private placement. The Company
also obtained a similar consent and waiver from the holders of its 5%
Convertible Debentures (the "2004 Debentures") issued in 2000. As amended in
February 2003, these consents and waivers applied to any future issuance of
notes by the Company on the same terms as the Notes up to an aggregate of $5
million. The Company reduced the exercise price on the warrants issued to the
investors in the October 2001 private placement from $3.38 to $0.35 per share,
in accordance with the terms of the warrants. Alliance reduced the conversion
rate of the 2004 Debentures to $1.60 per share. Alliance also agreed to issue
warrants exercisable for an aggregate of 2,000,000 shares of common stock, at an
exercise price of $0.50 per share, to holders of its 2004 Debentures and granted
them a junior lien in the assets securing the Notes. The Company recorded a
charge to finance expense for the warrants, based upon a Black-Scholes
valuation, of $80,000 in the second quarter of fiscal year 2003.

     In connection with the sale of the Imagent Business, the holders of the 8%
Notes (excluding Photogen) and the holders of the 5% Debentures agreed to accept
a Payout Amount (as defined in the Asset Purchase Agreement) in full
satisfaction of Alliance's obligations and liabilities under such Notes and
Debentures. To induce the debt holders to enter into this agreement, Alliance
agreed to deliver set considerations and Photogen agreed to deliver its
considerations as described in the Asset Purchase Agreement, in each case in the
manner and the dates specified thereon.

     Upon delivery of the specified considerations, Alliance's obligations shall
be terminated and satisfied in full, and each of the loan documents shall be
deemed terminated and of no further effect. It is understood that the obligation
of Photogen to the debt holders to deliver the consideration contemplated in the
Asset Purchase Agreement is a direct


                                       14
<PAGE>

obligation of Photogen for the benefit of Alliance, fully enforceable against
Photogen irrespective of any actions, financial condition or other circumstances
relating to Photogen hereafter.

     In November 2000, the Company sold $7 million of five-year 6% subordinated
convertible notes to certain investors. The notes were convertible at any time
after November 15, 2001, at each investor's option into shares of Alliance
common stock at $78.60 per share (as adjusted by the 1:5 reverse stock split),
subject to certain antidilution provisions. In connection with the transaction,
Alliance placed $1.5 million in a restricted cash account to be used to pay
interest on the issued notes. The balance of the restricted cash account was
$532,000 at June 30, 2003. The outstanding principal balance of $7 million and
accrued interest are due and payable and classified as Short-Term Debt in the
Consolidated Balance Sheet at June 30, 2003. Per the agreement, the investors
will also receive shares of Photogen common stock.

     In August and September 2000, the Company sold $12 million of four-year 5%
subordinated convertible debentures to certain investors. In connection with the
issuance of the Notes described above, Alliance obtained the consent and waiver
of antidilution rights from the investors. During the fiscal year ended June 30,
2003, $4.1 million of these debentures were converted into 4,541,000 shares of
Alliance common stock. On June 18, 2003, the balance outstanding on these
debentures was $5.9 million. Per the Pay Out agreement, the Company issued
1,250,000 shares of common stock and paid $100,000 in cash to one of the
investors. The outstanding principal balance of $4.5 million and accrued
interest are due and payable and classified as Short-Term Debt in the
Consolidated Balance Sheet at June 30, 2003. Per the agreement, the investors
will also receive shares of Photogen common stock.

     In February 2000, the Company sold $15 million of four-year 5% subordinated
convertible debentures to certain investors. For the 2003, 2002 and 2001 fiscal
years, $1 million, $7.9 million and $6.1 million of these debentures and accrued
interest were converted into 625,000, 2,340,000 and 638,000 shares of Alliance
common stock, respectively. As of June 30, 2003, all the debt and accrued
interest had been converted into shares of Alliance's common stock.

     In August 2002, as a result of the Company's balance sheet as reported on
the March 31, 2002 Form 10-Q, the Company received a Nasdaq Staff Determination
indicating that the Company had failed to comply with the net tangible assets
and stockholders' equity requirements for continued listing set forth in
Marketplace Rule 4450 (a)(3), and that its securities are, therefore, subject to
delisting from the Nasdaq National Market. The Company appealed the Nasdaq Staff
Determination and requested a hearing before a Nasdaq Listing Qualifications
Panel to present its plan to meet the minimum requirements for listing on
Nasdaq. The hearing was held on September 26, 2002. On October 18, 2002,
Alliance's common stock was delisted for failure to meet the continued listing
requirements. The Company's common stock in now trading on Nasdaq's
Over-the-Counter Bulletin Board under the symbol ALLP.OB.

     The Company had net working capital (deficit) of ($20.9 million) at June
30, 2003, compared to ($14.4 million) at June 30, 2002. The Company's cash, cash
equivalents, and short-term investments decreased to $763,000 at June 30, 2003,
from $1.4 million at June 30, 2002. The decrease resulted primarily from net
cash used in operations of $12.5 million, partially offset by proceeds of $8.8
million from issued debt, $2.0 million from a revolving line of credit, net
proceeds of $250,000 from the sale of preferred stock, net proceeds of $130,000
from the exercise of warrants, and $657,000 cash proceeds from the sale of the
Imagent Business. The Company's operations to date have consumed substantial
amounts of cash and are expected to continue to do so for the foreseeable
future.

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

     The Company expects to incur substantial expenditures associated with
product development. The Company may seek additional collaborative research and
development relationships with suitable corporate partners for its products.
There can be no assurance that such relationships, if any, will successfully
reduce the Company's funding requirements. Additional equity or debt financing
may be required, and there can be no assurance that such financing will be
available on reasonable terms, if at all. Because adequate funds were not
available, the Company has delayed its Oxygent


                                       15
<PAGE>

development efforts and it has delayed, scaled back, and eliminated one or more
of its other product development programs, and it may be required to obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates, or products that the Company would not otherwise relinquish.

     The Company lacks sufficient working capital to fund operations for the
entire fiscal year ending June 30, 2004. Therefore, substantial additional
capital resources will be required to fund the ongoing operations related to the
Company's research, development, and business development activities. As noted
in the report of the Company's independent auditors, the report includes a
paragraph that notes that the Company's financial condition raises substantial
doubt about its ability to continue as a going concern. Management believes
there are a number of potential alternatives available to meet the continuing
capital requirements such as public or private financings or collaborative
agreements. Under the Asset Purchase Agreement of the sale of the Imagent
Business, the following debt was either assumed by Photogen or settled through
Pay Out agreements: $5.5 million of secured debt, $2.5 million drawn on a line
of credit, a $2.4 million capital lease, $2.5 million in accrued expenses, and
$12.6 million in secured convertible debt (which is still included in
liabilities as of June 30, 2003). Also, as part of the agreement, the Photogen
portion of the 8% convertible debt of $4.8 million has been forgiven and will be
repaid by a reduction of future Imagent royalty payments, if any.

     The Company is taking continuing actions to reduce its ongoing expenses. If
adequate funds are not available, the Company will be required to significantly
curtail its plans and may have to sell or license out significant portions of
the Company's technology or potential products. The 2003 financial statements do
not include any adjustment to reflect the possible future effects on the
recoverability and classification of assets or the amount and classification of
liabilities that may result from the outcome of this uncertainty.

     The Company's future capital requirements will depend on many factors,
including, but not limited to, continued scientific progress in its research and
development programs, progress with preclinical testing and clinical trials, the
time and cost involved in obtaining regulatory approvals, patent costs,
competing technological and market developments, changes collaborative
relationships, and the ability of the Company to establish additional
collaborative relationships.

Metracor Technologies, Inc.

     In July 1997, the Company entered into a development agreement with
Metracor Technologies, Inc. ("Metracor") for the joint development a minimally
invasive, point-of-care patient monitoring system. In June 2001, Alliance
entered into an agreement to acquire approximately 2.5 million shares of Series
B Preferred Stock of Metracor in exchange for approximately $500,000 cash and
the Metracor license. During the second quarter of fiscal 2003, the Company
determined that the decline in the valuation of its investment in Metracor was
"other than temporary." Accordingly, the Company recorded a loss on investment
of $500,000.

Molecular Biosystems, Inc.

     On December 29, 2000, Alliance acquired Molecular Biosystems, Inc. ("MBI"),
which became a wholly owned subsidiary of the Company, in exchange for 770,000
shares of Alliance common stock. MBI is the developer of Optison(R), the only
intravenous ultrasound contrast agent for the heart being marketed in both the
United States and Europe. During the fourth quarter of fiscal 2003, MBI
determined that Chugai Pharmaceutical Co., Ltd. was no longer developing Optison
for marketing in Japan, South Korea and Taiwan per their agreement. Accordingly,
MBI recorded an impairment of purchased technology asset of $1.8 million.

Collaborative Relationships

     In December 2002, Alliance entered into an exclusive license agreement with
Mixture Sciences, Inc. for Mixture Sciences to acquire all rights to a
proprietary immunotherapy platform technology developed by Astral. Mixture
Sciences provided financing to support the overhead and salaries of key
employees involved with this technology for a secured position in the technology
subject to a royalty-bearing license. Alliance has certain rights to repurchase
the technology by paying Mixture Sciences a break-up fee. Alliance has recorded
the funds from Mixture Sciences as a current liability.

     In May 2000, Alliance and Baxter entered into a joint venture for the
manufacture, marketing, sales, and distribution of Oxygent in the Baxter
Territory. The companies formed PFC Therapeutics to oversee the further
development, manufacture, marketing, sales, and distribution of Oxygent; and
each party invested $5 million in PFC


                                       16
<PAGE>

Therapeutics. In connection with the transaction, PFC Therapeutics obtained an
exclusive license in the Baxter Territory to manufacture, market, sell, and
distribute all of the Company's injectable PFC emulsions capable of transporting
oxygen in therapeutic effective amounts in the bloodstream, including Oxygent.
PFC Therapeutics paid Alliance a prepaid royalty of $10 million. In connection
with this arrangement, Baxter purchased 500,000 shares of the Company's
convertible Series F Preferred Stock for $20 million. In May 2001, because of a
revised product development schedule, Baxter purchased an additional $4 million
of preferred stock and $3 million of certain Oxygent-related equipment in lieu
of purchasing the same amount of preferred stock. In August 2001, Baxter
purchased another $4 million of the Company's preferred stock, and from January
to June 2002, Baxter made an additional investment of $3.5 million in Alliance
preferred stock. In July 2002, Baxter purchased another $250,000 worth of the
preferred stock. In June 2003, in connection with the sale of the Imagent
Business, Photogen assumed Alliance's equipment lease for Imagent related items
from Baxter. All remaining equipment was returned to Baxter. Concurrent with
this transaction, Alliance acquired Baxter's ownership interest in PFC
Therapeutics. Alliance will pay Baxter a royalty on the sales of Oxygent by PFC
Therapeutics, following regulatory approval. Accordingly, Alliance wrote off the
deferred revenue against its investment in PFC Therapeutics and the carrying
value of the PFC technology and charged $1.6 million to impairment of an asset.

     Except for historical information, the statements made herein and elsewhere
are forward-looking. The Company wishes to caution readers that these statements
are only predictions and that the Company's business is subject to significant
risks. The factors discussed herein and other important factors, in some cases
have affected, and in the future could affect, the Company's actual results and
could cause the Company's actual consolidated results for 2004, and beyond, to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company. These risks include, but are not limited to,
the inability to obtain adequate financing for the Company's development
efforts; the inability to enter into collaborative relationships to further
develop and commercialize the Company's products; changes in any such
relationships, or the inability of any collaborative partner to adequately
commercialize any of the Company's products; the uncertainties associated with
the lengthy regulatory approval process, including uncertainties associated with
FDA decisions and timing on product development or approval; and the
uncertainties associated with obtaining and enforcing patents important to the
Company's business; and possible competition from other products. Furthermore,
even if the Company's products appear promising at an early stage of
development, they may not reach the market for a number of important reasons.
Such reasons include, but are not limited to, the possibilities that the
potential products will be found ineffective during clinical trials; failure to
receive necessary regulatory approvals; difficulties in manufacturing on a large
scale; failure to obtain market acceptance; and the inability to commercialize
because of proprietary rights of third parties. The research, development, and
market introduction of new products will require the application of considerable
technical and financial resources, while revenues generated from such products,
assuming they are developed successfully, may not be realized for several years.
Other material and unpredictable factors which could affect operating results
include, without limitation, the uncertainty of the timing of product approvals
and introductions and of sales growth; the ability to obtain necessary raw
materials at cost-effective prices or at all; the effect of possible technology
and/or other business acquisitions or transactions; and the increasing emphasis
on controlling healthcare costs and potential legislation or regulation of
healthcare pricing. Further cautionary information is contained in documents the
Company files with the Securities and Exchange Commission from time to time,
including the last Form 10-K, and those risk factors set forth in the most
recent registration statement on Form S-3 (File No. 333-72844) and Form S-4
(File No. 333-49676).

Results of Operations

2003 Compared to 2002

     The Company's revenue was $53,000 for 2003, compared to $10.3 million for
2002. During fiscal 2002, the Company received $5.25 million in connection with
the licensing of the PulmoSpheres technology and $5 million in connection with
the licensing of the Optison technology.

     Research and development expenses decreased by 52% to $16.2 million for
2003, compared to $33.5 million for 2002. The decrease in expenses was primarily
due to a $7.0 million decrease in staffing costs for employees engaged in
research and development activities; a $2.6 million decrease in utilities
expenses, a $1.5 million decrease in depreciation expense, and a $1.1 million
decrease in rent expense, all due to the consolidation of facilities; a $2.4
million decrease in payments to outside researchers for clinical trials and
other product development work; a $1.6 million decrease in supplies and
chemicals; as well as other decreases related to the Company's downsizing,
consolidation of facilities and scaling back on production because of lack of
funds and in anticipation of the sale of the Imagent Business.


                                       17
<PAGE>

     General and administrative expenses were $7.5 million for 2003, compared to
$9.7 million for 2002. The decrease in general and administrative expenses was
primarily due to decreased professional fees related to marketing activities
assumed by Photogen in connection with the sale of the Imagent Business.

     Also recorded as expense during fiscal 2003, was a loss on our investment
in Metracor of $500,000; and impairment of assets, comprised of the carrying
values of the MBI technology of $1.8 million, and the PFC technology, including
PFC Therapeutics, of $1.6 million.

     Investment income was $51,000 for 2003, compared to $247,000 for 2002. The
decrease was primarily a result of a decrease in realized gains from the sale of
short-term investments.

     Other income in fiscal 2003 was $329,000, primarily from proceeds recorded
from the settlement of a lawsuit.

     Also recorded as other income in fiscal 2003, was the gain of $10.6 million
on disposition of assets primarily the result of the sale of the Imagent
Business as described elsewhere in this annual report.

     Interest expense was $3.9 million for 2003, compared to $1.7 million for
2002. The increase was primarily a result of higher average debt balances.

2002 Compared to 2001

     The Company's license and research revenue was $10.3 million for 2002,
compared to $1.9 million for 2001. The increase was primarily a result of the
$5.25 million in revenue recorded in connection with the Inhale supplemental
agreement for PulmoSpheres technology in March 2002 and the $5 million recorded
in connection with the amendment of the Optison Product Rights Agreement with
Mallinckrodt in August 2001.

     Research and development expenses decreased by 39% to $33.5 million for
2002, compared to $55.3 million for 2001. The decrease in expenses was primarily
due to a $14.8 million decrease in payments to outside researchers for clinical
trials and other product development work, a $5.1 million decrease in staffing
costs for employees engaged in research and development activities, a $1.2
million decrease in utility expenses, as well as other decreases related to the
Company's research and development activities.

     General and administrative expenses were $9.7 million for 2002, compared to
$8.7 million for 2001. The increase in general and administrative expenses was
primarily due to increased professional fees related to marketing activities.

     Investment income was $247,000 for 2002, compared to $5.6 million for 2001.
The decrease was primarily a result of a decrease in realized gains from the
sale of short-term investments.

     Interest expense was $1.7 million for 2002, compared to $2.2 million for
2001. The decrease was primarily a result of lower average long-term debt
balances.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

     The Company is or has been exposed to changes in interest rates primarily
from its long-term debt arrangements and, secondarily, its investments in
certain securities. Under its current policies, the Company does not use
interest rate derivative instruments to manage exposure to interest rate
changes. The Company believes that a hypothetical 100 basis point adverse move
in interest rates along the entire interest rate yield curve would not
materially affect the fair value of the Company's interest sensitive financial
instruments at June 30, 2003.

Item 8. Controls and Procedures

     Based on his evaluation as of the end of the year covered by this report,
our Chief Executive Officer and Chief Financial Officer has concluded that
Alliance's disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, are effective to insure
that information required to be disclosed by us in reports that we file or
submit under the Securities Exchange act is recorded, processed, summarized and
reported as specified in Securities and Exchange Commission rules and forms.
There were no significant changes in our internal


                                       18
<PAGE>

controls over financial reporting that occurred during our most recent fiscal
year that has materially affected, or are reasonably likely to materially affect
our internal control over financial reporting.

Item 9. Financial Statements and Supplementary Data

     See Table of Contents to Consolidated Financial Statements on page F-1
below for a list of the Financial Statements being filed herein.

Item 10. Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

None.


                                    PART III

Item 11. Directors and Executive Officers of the Registrant

     Information concerning the executive officers of the Company is contained
in Part I of this Annual Report on Form 10-K under the caption "Executive
Officers of the Registrant." Information concerning the directors of the Company
is incorporated by reference to the section entitled "Election of Directors"
that the Company intends to include in its definitive proxy statement for
Alliance's December 16, 2003 Annual Meeting of Shareholders (the "Proxy
Statement"). Copies of the Proxy Statement will be duly filed with the SEC
pursuant to Rule 14a-6(c) promulgated under the Securities Exchange Act of 1934,
as amended, not later than 120 days after the end of the fiscal year covered by
its Annual Report on Form 10-K.

Item 12. Executive Compensation

     The sections labeled "Executive Compensation" and "Election of Directors"
to appear in the Company's Proxy Statement are incorporated herein by reference.

Item 13. Security Ownership of Certain Beneficial Owners and Management

     The section labeled "Ownership of Voting Securities by Certain Beneficial
Owners and Management" to appear in the Company's Proxy Statement is
incorporated herein by reference.

Item 14. Certain Relationships and Related Transactions

     The sections labeled "Election of Directors" and "Executive Compensation"
to appear in the Company's Proxy Statement are incorporated herein by reference.


                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  Documents Filed as Part of the Report.

     1.   See Table of Contents to Consolidated Financial Statements on Page F-1
          for a list of Financial Statements being filed herein.

     2.   See Page F-2 for the Report of Ernst & Young LLP, Independent Auditors
          being filed herein.


                                       19
<PAGE>

     3.   See Exhibits below for a list of all Exhibits being filed or
          incorporated by reference herein.

(b)  Reports on Form 8-K.

     1. The Company filed a Current Report on Form 8-K dated October 8, 2002
stating that the Company issued an 8% Convertible Secured Promissory Note (the
"Note") in the principal amount of $551,625 to an institutional investor. The
Note matures in two years from the date of issuance and is convertible into
shares of the Company's common stock at $0.35 per share. The Company's
obligations under the Note are secured by certain of its assets, including all
of its assets relating to and its rights and interests in Imagent and Oxygent.

     2. The Company filed a Current Report on Form 8-K dated November 25, 2002
stating that the Company and Photogen Technologies, Inc. ("Photogen") announced
execution of a term sheet for Photogen to acquire all of the of the Company's
assets related to medical imaging, including all manufacturing and marketing
rights to Imagent, the Company's ultrasound contrast agent that was approved by
the FDA for marketing in the United States in June 2002.

     3. The Company filed a Current Report on Form 8-K dated January 30, 2003
stating that the Company announced that it has signed a letter of intent with
Baxter Healthcare Corporation under which the Company would acquire an option to
purchase Baxter's ownership interest in PFC Therapeutics, LLC, the joint venture
established by the Company and Baxter in May 2000 to commercialize Oxygent, an
intravascular oxygen carrier, in North America and Europe.

     In addition, Theodore D. Roth has resigned his position as the Company's
President and Chief Operating Officer, but will remain a member of the Board of
Directors. Helen M. Ranney, M.D. has retired from the Board of Directors.

     4. The Company filed a Current Report on Form 8-K dated June 16, 2003
stating that the Company signed an Asset Purchase Agreement with Photogen
Technologies, Inc. ("Photogen") that contemplates, among other things, the sale
of the Company's assets relating to its imaging and diagnostic imaging business.
The assets include the Company's Imagent product line. Photogen will be hiring
certain Alliance personnel who had been associated with the Imagent business.

     The purchase price for the assets, to be paid at the closing, consists of
up to approximately $1.5 million in cash, the assumption of certain specified
liabilities, and delivery of up to approximately 3,115,156 shares of Photogen
common stock. After the closing, Photogen would be required to make additional
payments, including an earn out based on varying percentages of revenues
Photogen receives from the sale of Imagent through the year 2010. A portion of
the earn out would be paid by the cancellation of the Company's 8% Convertible
Secured Promissory Notes, previously issued to Photogen.

     5. The Company filed a Current Report on Form 8-K dated June 20, 2003
stating that the Company sold all of its assets related to designing,
developing, manufacturing, marketing, selling, licensing, supporting and
maintaining its Imagent product, the Company's ultrasound contrast agent that
was approved by the FDA for marketing in the United States in June 2002, to
Photogen Technologies, Inc. ("Photogen").

     At the closing, at the Company's direction, Photogen paid approximately
$1,100,000 in cash and delivered 2,198,137 shares of its Common Stock to
creditors, employees and vendors of the Company, valued at approximately
$3,500,000. Photogen is obligated to pay additional amounts to the Company's
secured and unsecured creditors after the closing. At various times between 90
and 365 days after the closing and subject to reaching satisfactory agreements
with certain secured and unsecured creditors, Photogen must pay an aggregate
amount of up to approximately $3,000,000 to them and deliver up to an aggregate
of approximately 1,985,522 shares of its Common Stock. The amount of
consideration was determined through arms-length negotiations.

     In addition, after the closing and through 2010, Photogen must pay the
Company further consideration in the form of an earn out based on Imagent
revenue invoiced (subject to certain reductions).

     The Company also announced its acquisition of Baxter Healthcare
Corporation's ("Baxter") ownership interest in PFC Therapeutics, LLC, the joint
venture established by the Company and Baxter in May 2000 to commercialize
Oxygent, an intravascular oxygen carrier, in North America and Europe. The
Company will pay Baxter a royalty on the sales of Oxygent by PFC Therapeutics,
following regulatory approval.


                                       20
<PAGE>

(c)  Exhibits.

     (a) Restated Certificate of Incorporation of the Company, filed on May 7,
2001 (incorporated by reference to Exhibit 3 of the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 30, 2001 (the "March 2001
10-Q")).

     (b) By-Laws of the Company, as amended (incorporated by reference to
Exhibit 3(b) of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989 (the "1989 10-K")).

         (10) (a) Lease Agreement, as amended, between the Company and Hartford
Accident and Indemnity Company relating to certain research and manufacturing
facilities in San Diego, California (incorporated by reference to Exhibit 10(x)
of the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1993).

          (b) Formula Award of Stock Options for Non-employee Members of the
Board of Directors as approved by shareholders of the Company (incorporated by
reference to Exhibit 10(e) of the 1994 10-K). (1)

          (c) Agreement and Plan of Merger by and among the Company, MDV
Acquisition Corp. and MDV Technologies, Inc. dated October 8, 1996 (incorporated
by reference to Exhibit 1 of the Current Report on Form 8-K filed on November
20, 1996).

          (d) License Agreement dated September 23, 1997, between the Company
and Schering AG, Germany (incorporated by reference to Exhibit 2(a) of the
Current Report on Form 8-K/A filed on February 27, 1998 (the "1997 8-K/A")). (2)

          (e) Preferred Stock Purchase Agreement dated September 23, 1997,
between the Company and Schering Berlin Venture Corp. (incorporated by reference
to Exhibit 2(b) of the 1997 8-K/A).

          (f) Royalty Rights Agreement dated as of August 13, 1998, between the
Company and certain investors (incorporated by reference to Exhibit 10(k) of the
1998 10-K).

          (g) Credit Agreement dated as of June 17, 1998, between the Company
and Imperial Bank (incorporated by reference to Exhibit 10(m) of the 1998 10-K).

          (h) Security Agreement dated June 17, 1998, executed by the Company in
favor of Imperial Bank (incorporated by reference to Exhibit 10(o) of the 1998
10-K).

          (i) Lease Agreement dated November 7, 1998, between the Company and
WHAMC Real Estate Limited Partnership, a Delaware limited partnership, relating
to certain manufacturing and development facilities in San Diego, California
(incorporated by reference to Exhibit 10(p) of the 1998 10-K).

          (j) First Amendment to License Agreement, dated as of December 30,
1998, between the Company and Schering AG, Germany (incorporated by reference to
Exhibit 10 of the December 1998 10-Q). (2)

          (k) Employment Letter Agreement dated February 26, 1999 and executed
by Dr. Artemios B. Vassos (incorporated by reference to Exhibit 10(a) of the
Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1999 (the "March 1999 10-Q")). (1)

          (l) Promissory Note in the amount of $180,000 dated March 3, 1999, and
executed by Dr. Artemios B. Vassos in favor of the Company (incorporated by
reference to Exhibit 10(b) of the March 1999 10-Q). (1)

          (m) Promissory Note in the amount of $125,000 dated March 3, 1999, and
executed by Dr. Artemios B. Vassos in favor of the Company (incorporated by
reference to Exhibit 10(c) of the March 1999 10-Q). (1)

          (n) Promissory Note in the amount of $125,000 dated March 3, 1999, and
executed by Dr. Artemios B. Vassos in favor of the Company (incorporated by
reference to Exhibit 10(d) of the March 1999 10-Q). (1)


                                       21
<PAGE>

          (o) Security Purchase Agreement dated May 20, 1999, between the
Company and Harris & Harris Group, Inc., Jan A. Dekker and Stephen McGrath with
forms of the 6% Convertible Subordinated Note Due May 20, 2002 and Warrant
(incorporated by reference to Exhibit 10(u) of the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1999 (the "1999 10-K")).

          (p) Agreement to Waive Covenant Violation and Modify Loan dated May
17, 1999, between the Company and Imperial Bank (incorporated by reference to
Exhibit 10(w) of the 1999 10-K).

          (q) Intellectual Property Security Agreement dated May 17, 1999,
between the Company and Imperial Bank (incorporated by reference to Exhibit
10(x) of the 1999 10-K). (2)

          (r) First Amendment to Credit Agreement dated June 17, 1999, among the
Company, MDV Technologies, Inc. and Imperial Bank (incorporated by reference to
Exhibit 10(y) of the 1999 10-K). (2)

          (s) Intellectual Property Security Agreement dated August 2, 1999,
between MDV Technologies, Inc. and Imperial Bank (incorporated by reference to
Exhibit 10(z) of the 1999 10-K).

          (t) Commercial Security Agreement dated August 3, 1999, among the
Company, MDV Technologies, Inc. and Imperial Bank (incorporated by reference to
Exhibit 10(aa) of the 1999 10-K).

          (u) Promissory Note dated August 2, 1999, in the amount of $5,000,000
executed by the Company and MDV Technologies, Inc. in favor of Imperial Bank
(incorporated by reference to Exhibit 10(bb) of the 1999 10-K).

          (v) Promissory Note dated August 2, 1999, in the amount of
$8,422,619.04 executed by the Company and MDV Technologies, Inc. in favor of
Imperial Bank (incorporated by reference to Exhibit 10(cc) of the 1999 10-K).

          (w) Split Dollar Life Insurance Agreement between the Company and
Duane J. Roth dated November 12, 1998 (incorporated by reference to Exhibit
10(a) to the Company's Quarterly report on Form 10-Q for the quarterly period
ended September 31, 1999 (the "September 1999 10-Q")). (1)

          (x) Collateral Assignment of Life Insurance Policy between the Company
and Duane J. Roth dated November 25, 1998 (incorporated by reference to Exhibit
10(b) of the September 1999 10-Q). (1)

          (y) Split Dollar Life Insurance Agreement between the Company and
Theodore D. Roth dated November 12, 1998 (incorporated by reference to Exhibit
10(c) of the September 1999 10-Q). (1)

          (z) Collateral Assignment of Life Insurance Policy between the Company
and Theodore D. Roth dated November 12, 1998 (incorporated by reference to
Exhibit 10(d) of the September 1999 10-Q). (1)

          (aa) Eleventh Amendment to Lease Agreement dated September 1, 1999,
between the Company and HUB Properties Trust (incorporated by reference to
Exhibit 10(e) of the September 1999 10-Q). (1)

          (bb) Asset Purchase Agreement between Alliance and Inhale Therapeutic
Systems, Inc. dated October 4, 1999 (incorporated by reference to Exhibit 2(a)
of the Current Report on Form 8-K dated November 4, 1999 (the "November 1999
8-K"). (2)

          (cc) Product Development Rights Agreement between Alliance and Inhale
Therapeutic Systems, Inc. dated November 4, 1999 (incorporated by reference to
Exhibit 2(b) of the November 1999 8-K). (2)

          (dd) License Agreement (License to Inhale) between Alliance and Inhale
Therapeutic Systems, Inc. dated November 4, 1999 (incorporated by reference to
Exhibit 2(c) to the November 1999 8-K). (2)

          (ee) License Agreement (License to Alliance) between Alliance and
Inhale Therapeutic Systems, Inc. dated November 4, 1999 (incorporated by
reference to Exhibit 2(d) of the November 1999 8-K). (2)


                                       22
<PAGE>

          (ff) Inhale Common Stock Purchase Agreement between Alliance and
Inhale Therapeutic Systems, Inc. dated November 4, 1999 (incorporated by
reference to Exhibit 2(e) of the November 1999 8-K).

          (gg) Alliance Common Stock Purchase Agreement between Alliance and
Inhale Therapeutic Systems, Inc. dated November 4, 1999 (incorporated by
reference to Exhibit 2(f) of the November 1999 8-K).

          (hh) Supply Agreement dated as of July 9, 1999, between the Company
and Fluoromed L.P. (incorporated by reference to Exhibit 10(d) of the Company's
Quarterly report on Form 10-Q for the quarterly period ended December 31, 1999).
(2)

          (ii) Form of 5% Subordinated Convertible Debenture dated February 11,
2000 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K
dated February 11, 2000 (the "February 2000 8-K")).

          (jj) Form of Securities Purchase Agreement dated February 11, 2000
(incorporated by reference to Exhibit 4.2 of the February 2000 8-K).

          (kk) Form of Registration Rights Agreement dated February 11, 2000
(incorporated by reference to Exhibit 4.3 of the February 2000 8-K).

          (ll) Form of 5% Subordinated Convertible Debenture dated August 22,
2000 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K
dated August 22, 2000 (the "August 2000 8-K")).

          (mm) Form of Securities Purchase Agreement dated August 22, 2000
(incorporated by reference to Exhibit 4.2 of the August 2000 8-K).

          (nn) Form of Registration Rights Agreement dated August 22, 2000
(incorporated by reference to Exhibit 4.3 of the August 2000 8-K).

          (oo) License Agreement dated May 19, 2000, between the Company and PFC
Therapeutics, LLC (incorporated by reference to Exhibit 10(pp) of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (the "2000
10-K")). (2)

          (pp) Marketing and Distribution Agreement executed May 19, 2000,
effective June 1, 2000 between the Company, Baxter Healthcare Corporation and
PFC Therapeutics, LLC (incorporated by reference to Exhibit 10(qq) of the 2000
10-K). (2)

          (qq) Alliance Manufacturing and Supplier Agreement dated May 19, 2000,
between the Company and PFC Therapeutics, LLC (incorporated by reference to
Exhibit 10(rr) of the 2000 10-K). (2)

          (rr) Baxter Manufacturing and Supplier Agreement dated May 19, 2000,
between Baxter Healthcare Corporation and PFC Therapeutics, LLC (incorporated by
reference to Exhibit 10(ss) of the 2000 10-K). (2)

          (ss) Operating Agreement dated May 17, 2000, between the Company and
Baxter Healthcare Corporation (incorporated by reference to Exhibit 10(tt) of
the 2000 10-K). (2)

          (tt) Preferred Stock Purchase Agreement dated May 19, 2000, between
the Company and Baxter Healthcare Corporation (incorporated by reference to
Exhibit 10(uu) of the 2000 10-K).

          (uu) Deferred Stock Purchase Agreement dated May 19, 2000, between the
Company and Baxter Healthcare Corporation (incorporated by reference to Exhibit
10(vv) of the 2000 10-K).

          (vv) Security Agreement dated May 19, 2000, between the Company and
PFC Therapeutics, LLC (incorporated by reference to Exhibit 10(ww) of the 2000
10-K). (2)

          (ww) Form of 6% Convertible Note dated as of November 15, 2000
(incorporated by reference to Exhibit 4(i) of the Company's Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 2000 (the "December 2000
10-Q")).


                                       23
<PAGE>

          (xx) Form of Option Agreement and Zero Coupon Convertible Note dated
as of November 8, 2000 (incorporated by reference to Exhibit 4(ii) of the
December 2000 10-Q).

          (yy) Form of Collateral Pledge and Security Agreement dated as of
November 15, 2000 (incorporated by reference to Exhibit 4(iii) of the December
2000 10-Q).

          (zz) Amendment No. 2 to the License Agreement dated as of September
23, 1997 between the Company and Schering Aktiengesellschaft (incorporated by
reference to Exhibit 10(a) of the December 2000 10-Q).

          (aaa) Consulting Agreement between Alliance Pharmaceutical GmbH and
Jean Riess (incorporated by reference to Exhibit 10(b) of the December 2000
10-Q). (1)

          (bbb) Severance Agreement and Release between Artemios B. Vassos and
the Company dated January 31, 2001 (incorporated by reference to Exhibit 10(a)
of the Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2001 (the "March 2001 10-Q")).(1)

          (ccc) Consulting Agreement between Artemios B. Vassos and the Company
dated November 4, 2000 (incorporated by reference to Exhibit 10(b) of the March
2001 10-Q). (1)

          (ddd) 1991 Stock Option Plan of the Company as amended through May 8,
2001 (incorporated by reference to Exhibit 10(c) of the March 2001 10-Q).

          (eee) 2000 Stock Option Plan of the Company as amended through May 8,
2001 (incorporated by reference to Exhibit 10(d) of the March 2001 10-Q).

          (fff) 2001 Stock Option Plan of the Company as amended through May 8,
2001 (incorporated by reference to Exhibit 10(e) of the March 2001 10-Q).

          (ggg) Form of Option Agreement, dated June 22, 2001, between the
Registrant and certain holders of Series B Preferred Stock of Metracor
Technologies, Inc. (incorporated by reference to Exhibit 4.1 of the Current
Report on Form 8-K dated June 22, 2001).

          (hhh) Consulting Agreement dated July 31, 2001 between the Company and
Harold W. DeLong. (1) (incorporated by reference to Exhibit 10(hhh) of the
Company's annual report on Form 10-K for the fiscal year ended June 30, 2001
(the "2001 10-K"))

          (iii) Agreement and Plan of Merger dated as of October 11, 2000 by and
between the Company, Alliance Merger Subsidiary, Inc. and Molecular Biosystems,
Inc. (incorporated by reference to Exhibit 2.1 to Company registration statement
on Form S-4, filed on November 9, 2000).

          (jjj) Letter Agreement dated as of May 1, 2001 between the Company and
Baxter Healthcare Corporation amending the Deferred Stock Purchase Agreement
dated May 19, 2000. (3) (incorporated by reference to Exhibit 10(jjj) of the
2001 10-K)

          (kkk) Term Sheet dated August 1, 2001 between the Company and Baxter
Healthcare Corporation amending the Deferred Stock Purchase Agreement dated May
19, 2000. (3) (incorporated by reference to Exhibit 10(jjj) of the 2001 10-K)

          (lll) Third Amendment to Optison Products Rights Agreement dated as of
August 6, 2001, between the Company, Molecular Biosystems, Inc. and Mallinckrodt
Inc. (incorporated by reference to Exhibit 10(jjj) of the 2001 10-K).

          (mmm) Form of Amendment to the 1991, 2000 and 2001 Stock Option Plans
of the Company adopted May 8, 2001 (incorporated by reference to Exhibit 10(jjj)
of the 2001 10-K).

          (nnn) Form of Purchase Agreement dated October 30, 2001 (incorporated
by reference to Exhibit 99.2 of the Current Report on Form 8-K dated October 31,
2001 (the "October 2001 8-K")).


                                       24
<PAGE>

          (ooo) Form of Registration Rights Agreement dated October 30, 2001
(incorporated by reference to Exhibit 99.3 of the October 2001 8-K).

          (ppp) Form of Warrant dated October 30, 2001 (incorporated by
reference to Exhibit 99.4 of the October 2001 8-K).

          (qqq) Supplemental Agreement dated March 15, 2002, between the Company
and Inhale Therapeutic Systems, Inc. (incorporated by reference to Exhibit 10.1
of the Current Report on Form 8-K dated March 15, 2001).

          (rrr) Form of Contribution Agreement dated October 23, 2001
(incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K
dated November 30, 2001).

          (sss) Amended and Restated License Agreement dated as of February 22,
2002 between the Company and Schering Aktiengesellschaft (1) (incorporated by
reference to Exhibit 10(b) of the March 2002 10-Q).

          (ttt) Agreement dated as of February 28, 2002 between the Company and
RedKey, Inc., dba Cardinal Health Sales and Marketing Services (1) (incorporated
by reference to Exhibit 10(a) of the Company's Quarterly report on Form 10-Q for
the quarterly period ended March 31, 2002 (the "March 2002 10-Q"))

          (uuu) Certificate of Amendment of Certificate of Incorporation (1)
(incorporated by reference to the Company's Report on Form 8-K dated October 18,
2001).

          (vvv) Form of Purchase Agreement dated October 4, 2002 (incorporated
by reference to Exhibit 99.1 of the October 4, 2001 8-K (the "October 2001
8-K"));

          (www) Form of Promissory Note dated October 4, 2002 (incorporated by
reference to Exhibit 99.2 of the October 2001 8-K);

          (xxx) Form of Imagent Security Agreement dated October 4, 2002
(incorporated by reference to Exhibit 99.3 of the October 2001 8-K);

          (yyy) Form of Imagent and Oxygent Trademark Security Agreement dated
October 4, 2002 (incorporated by reference to Exhibit 99.4 of the October 2001
8-K);

          (zzz) Form of General Collateral Security Agreement dated October 4,
2002 (incorporated by reference to Exhibit 99.5 of the October 2001 8-K);

          (aaaa) Form of Warrant dated October 4, 2002 (incorporated by
reference to Exhibit 99.6 of the October 2001 8-K);

          (bbbb) Form of Imagent Collateral Security Agreement dated October 4,
2002 (incorporated by reference to Exhibit 99.7 of the October 2001 8-K);

          (cccc) Form of General Collateral Security Agreement dated October 4,
2002 (incorporated by reference to Exhibit 99.8 of the October 2001 8-K);

          (dddd) Imagent and Oxygent Patent and Trademark Security Agreement
dated October 4, 2002 (incorporated by reference to Exhibit 99.9 of the October
2001 8-K);

          (eeee) Form of Asset Purchase Agreement dated June 10, 2003
(incorporated by reference to Exhibit 2.1 of the June 20, 2003 8-K); and

          (ffff) License Agreement dated as of December 3, 2002 between the
Company and Mixture Sciences, Inc. (2) (incorporated by reference to Exhibit 10
of the February 14, 2003 10-Q).

(21) Subsidiary List


                                       25
<PAGE>

(23.1) Consent of Ernst & Young LLP, Independent Auditors

(1)  Management contract or compensatory plan or arrangement required to be
     filed.

(2)  Certain confidential portions of this exhibit have been deleted pursuant to
     an order granted by the Securities and Exchange Commission under the
     Securities Exchange Act of 1934.

(3)  A request for confidential treatment of certain portions of this exhibit
     has been filed with the Securities and Exchange Commission.


                                       26
<PAGE>

SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        ALLIANCE PHARMACEUTICAL CORP.

                                        (Registrant)

Date:    __________, 2003               By: /s/ Duane J. Roth
                                            ------------------------------------
                                            Duane J. Roth
                                            Chairman and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

                /s/                     Chairman,
-----------------------------------     Chief Executive Officer, Treasurer
Duane J. Roth                           and Chief Financial Officer

                /s/                     Director
-----------------------------------
Theodore D. Roth

                /s/                     Director
-----------------------------------
Pedro Cuatrecasas, M.D.

                /s/                     Director
-----------------------------------
Carroll O. Johnson

                /s/                     Director
-----------------------------------
Stephen M. McGrath

                /s/                     Director
-----------------------------------
Donald E. O'Neill

                /s/                     Director
-----------------------------------
Jean Riess, Ph.D.


                                       27
<PAGE>

                          ALLIANCE PHARMACEUTICAL CORP.

             TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                              Page No.
                                                                              --------
<S>                                                                          <C>
Report of Ernst & Young LLP, Independent Auditors                                F-2

Consolidated Balance Sheets at June 30, 2003 and 2002                            F-3

Consolidated Statements of Operations for the Years
     Ended June 30, 2003, 2002 and 2001                                          F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the Years
     Ended June 30, 2003, 2002 and 2001                                          F-5

Consolidated Statements of Cash Flows for the Years
     Ended June 30, 2003, 2002 and 2001                                          F-6

Notes to Consolidated Financial Statements                                   F-7 to F-17
</TABLE>

No consolidated financial statement schedules are filed herewith because they
are not required or are not applicable, or because the required information is
included in the consolidated financial statements or notes thereto.


                                      F-1
<PAGE>

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Alliance Pharmaceutical Corp.


We have audited the accompanying consolidated balance sheets of Alliance
Pharmaceutical Corp. as of June 30, 2003 and 2002, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of the
three years in the period ended June 30, 2003. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Alliance
Pharmaceutical Corp. at June 30, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 2003, in conformity with accounting principles generally accepted
in the United States.

As discussed in Note 1 to the financial statements, Alliance Pharmaceutical
Corp. has reported accumulated losses of $488 million and without additional
financing, lacks sufficient working capital to fund its operations for the
entire fiscal year ending June 30, 2004, which raises substantial doubt about
its ability to continue as a going concern. Management's plans as to these
matters are described in Note 1. The accompanying financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.


                                                           /S/ ERNST & YOUNG LLP
                                                           ---------------------


San Diego, California
October 7, 2003


                                      F-2
<PAGE>

ALLIANCE PHARMACEUTICAL CORP.
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                      June 30,
                                                                                            2003                    2002
                                                                                    --------------------    ---------------------
<S>                                                                                 <C>                      <C>
Assets
Current assets:
     Cash and cash equivalents                                                      $           763,000     $          1,416,000
     Other current assets                                                                        20,000                  804,000
                                                                                    --------------------    ---------------------
             Total current assets                                                               783,000                2,220,000

Property, plant and equipment - net                                                                  --               11,198,000
Purchased technology - net                                                                           --               10,540,000
Investment in joint venture                                                                          --                5,000,000
Restricted cash                                                                                 532,000                  940,000
Other assets - net                                                                              590,000                1,271,000
                                                                                    --------------------    ---------------------
                                                                                    $         1,905,000     $         31,169,000
                                                                                    ====================    =====================

Liabilities and Stockholders' Deficit

Current liabilities:
     Accounts payable                                                               $         6,406,000     $          4,254,000
     Accrued expenses                                                                         2,696,000                1,858,000
     Short-term debt                                                                         12,583,000               10,480,000
                                                                                    --------------------    ---------------------
             Total current liabilities                                                       21,685,000               16,592,000

Deferred revenue                                                                                     --               10,000,000
Long-term debt                                                                                       --               10,960,000

Commitments and contingencies

Stockholders' deficit:
     Preferred stock - $.01 par value; 5,000,000 shares authorized; Series F
        preferred stock - 793,750 and 787,500 shares issued and outstanding at
        June 30, 2003 and 2002, respectively; liquidation preference of
        $31,750,000 and $31,500,000 at June 30, 2003 and 2002, respectively                       8,000                    8,000
     Common stock - $.01 par value; 125,000,000 shares authorized;
         27,973,961 and 17,368,849 shares issued and outstanding at
        June 30, 2003 and 2002, respectively                                                    280,000                  174,000
     Additional paid-in capital                                                             468,350,000              461,529,000
     Accumulated deficit                                                                   (488,418,000)            (468,094,000)
                                                                                    --------------------    ---------------------
             Total stockholders' deficit                                                    (19,780,000)              (6,383,000)
                                                                                    --------------------    ---------------------
                                                                                    $         1,905,000      $        31,169,000
                                                                                    ====================    =====================
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>

ALLIANCE PHARMACEUTICAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                   Years ended June 30,
                                                                      2003                 2002                2001
                                                                ------------------   ------------------  ------------------
<S>                                                             <C>                  <C>                 <C>
Revenues:
      License, research and royalty revenues                    $          53,000    $      10,333,000   $       1,857,000

Operating expenses:
      Research and development                                         16,186,000           33,462,000          55,288,000
      General and administrative                                        7,455,000            9,674,000           8,745,000
      Impairment of assets                                              3,353,000                   --                  --
                                                                ------------------   ------------------  ------------------
                                                                       26,994,000           43,136,000          64,033,000
                                                                ------------------   ------------------  ------------------
Loss from operations                                                  (26,941,000)         (32,803,000)        (62,176,000)

Investment income                                                          51,000              247,000           5,616,000
Other income                                                              329,000                   --                  --
Loss on investment                                                       (500,000)                  --                  --
Interest expense                                                       (3,880,000)          (1,671,000)         (3,321,000)
Gain (loss) on disposition of assets                                   10,617,000                   --            (795,000)
                                                                ------------------   ------------------  ------------------
Net loss                                                        $     (20,324,000)   $     (34,227,000)  $     (60,676,000)
                                                                ==================   ==================  ==================

Net loss per common share:
  Basic and diluted                                             $           (1.04)   $           (2.37)  $           (6.22)
                                                                ==================   ==================  ==================
Weighted average shares outstanding:
  Basic and diluted                                                    19,510,000           14,425,000           9,749,000
                                                                ==================   ==================  ==================
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>

ALLIANCE PHARMACEUTICAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                Convertible
                                                               preferred stock         Common stock            Additional
                                                            --------------------- -------------------------      paid-in
                                                              Shares     Amount      Shares       Amount         capital
                                                            ---------- ---------- ------------ ------------ ----------------
<S>                                                           <C>        <C>       <C>           <C>          <C>
Balances at June 30, 2000                                     500,000    $ 5,000    9,447,000    $  94,000    $ 402,848,000
     Exercise of stock options and warrants                                           175,000        2,000        4,459,000
     Issuance of warrants and stock options                                                                       1,538,000
     Issuance of stock for MBI acquisition                                            154,000        1,000       10,525,000
     Sale of convertible Series F Preferred Stock             100,000      1,000                                  3,807,000
     Conversion of convertible notes                                                  128,000        1,000        6,161,000
     Imputed interest expense on convertible notes                                                                1,082,000
     Issuance of stock in satisfaction of employer
         matching contribution to 401(k) savings plan                                   5,000        1,000          207,000
     Net unrealized loss on available-for-sale securities
     Net loss
                                                            ---------- ---------- ------------ ------------ ----------------
Balances at June 30, 2001                                     600,000      6,000    9,909,000       99,000      430,627,000
     Issuance of common stock for cash                                              4,467,000       45,000       13,613,000
     Sale of convertible Series F Preferred Stock             188,000      2,000                                  7,203,000
     Conversion of convertible notes and accrued interest                           2,932,000       29,000        9,879,000
     Issuance of stock in satisfaction of employer
         matching contribution to 401(k) savings plan                                  61,000        1,000          207,000
     Net unrealized gain on available-for-sale securities
     Net loss
                                                            ---------- ---------- ------------ ------------ ----------------
Balances at June 30, 2002                                     788,000      8,000   17,369,000      174,000      461,529,000
     Exercise of warrants                                                             371,000        4,000          126,000
     Sale of convertible Series F Preferred Stock               6,000                                               250,000
     Conversion of convertible notes and accrued interest                           5,679,000       57,000        4,996,000
     Issuance of stock in exchange for release
         of debt obligation                                                         4,555,000       45,000        1,321,000
     Issuance of warrants to secured creditors                                                                      128,000
     Net loss
                                                            ---------- ---------- ------------ ------------ ----------------
Balances at June 30, 2003                                     794,000    $ 8,000   27,974,000    $ 280,000    $ 468,350,000
                                                            ========== ========== ============ ============ ================

<CAPTION>

                                                              Accumulated                            Total
                                                             comprehensive    Accumulated        comprehensive
                                                             income (loss)      deficit               loss
                                                            --------------- ----------------   -----------------
<S>                                                            <C>           <C>               <C>
Balances at June 30, 2000                                      $ 3,510,000   $ (373,191,000)   $    (42,957,000)
     Exercise of stock options and warrants
     Issuance of warrants and stock options
     Issuance of stock for MBI acquisition
     Sale of convertible Series F Preferred Stock
     Conversion of convertible notes
     Imputed interest expense on convertible notes
     Issuance of stock in satisfaction of employer
         matching contribution to 401(k) savings plan
     Net unrealized loss on available-for-sale securities       (3,729,000)                          (3,729,000)
     Net loss                                                                   (60,676,000)        (60,676,000)
                                                            --------------- ----------------   -----------------
Balances at June 30, 2001                                         (219,000)    (433,867,000)        (64,405,000)
     Issuance of common stock for cash
     Sale of convertible Series F Preferred Stock
     Conversion of convertible notes and accrued interest
     Issuance of stock in satisfaction of employer
         matching contribution to 401(k) savings plan
     Net unrealized gain on available-for-sale securities          219,000                              219,000
     Net loss                                                                   (34,227,000)        (34,227,000)
                                                            --------------- ----------------   -----------------
Balances at June 30, 2002                                               --     (468,094,000)        (34,008,000)
     Exercise of warrants
     Sale of convertible Series F Preferred Stock
     Conversion of convertible notes and accrued interest
     Issuance of stock in exchange for release
         of debt obligation
     Issuance of warrants to secured creditors
     Net loss                                                                   (20,324,000)        (20,324,000)
                                                            --------------- ----------------   -----------------
Balances at June 30, 2003                                      $        --   $ (488,418,000)   $    (20,324,000)
                                                            =============== ================   =================
</TABLE>

     See accompanying Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>

ALLIANCE PHARMACEUTICAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                           Years ended June 30,
                                                                                  2003              2002             2001
                                                                            ----------------  ---------------  ---------------
<S>                                                                          <C>               <C>              <C>
Operating activities:
      Net loss                                                               $  (20,324,000)   $ (34,227,000)   $ (60,676,000)
      Adjustments to reconcile net loss to net cash
          used in operations:
              Depreciation and amortization                                       5,359,000        7,313,000        6,955,000
              Imputed interest expense on convertible notes                              --               --        1,082,000
              Expense associated with warrant issuance                              128,000          168,000          402,000
              (Gain) loss on sale of equity securities                                   --          251,000       (3,917,000)
              (Gain) loss on sale of assets                                     (10,617,000)              --          795,000
              Loss on investment                                                    500,000               --               --
              Loss on impairment of assets                                        3,353,000               --               --
              Non-cash compensation - net                                                --          207,000          257,000
              Changes in operating assets and liabilities:
                  Research revenue receivable                                            --               --          146,000
                  Restricted cash and other assets                                1,373,000        5,882,000        2,579,000
                  Accounts payable and accrued expenses and other                 7,679,000       (1,035,000)      (5,177,000)
                                                                            ----------------  ---------------  ---------------
Net cash used in operating activities                                           (12,549,000)     (21,441,000)     (57,554,000)
                                                                            ----------------  ---------------  ---------------

Investing activities:
      Sales and maturities of short-term investments                                     --           49,000        4,939,000
      Property, plant and equipment                                                      --          (65,000)      (2,747,000)
      Proceeds from sale of assets                                                  657,000               --        3,050,000
      Cash acquired from MBI acquisition                                                 --               --        7,951,000
                                                                            ----------------  ---------------  ---------------
Net cash provided by (used in) investing activities                                 657,000          (16,000)      13,193,000
                                                                            ----------------  ---------------  ---------------

Financing activities:
      Issuance of common stock and warrants                                         130,000       13,666,000        3,879,000
      Issuance of convertible preferred stock - net                                 250,000        7,205,000        3,808,000
      Proceeds from debt obligations                                              8,827,000               --       19,000,000
      Proceeds from revolving line of credit                                      2,032,000          428,000               --
      Principal payments on long-term debt                                               --       (4,611,000)      (4,862,000)
                                                                            ----------------  ---------------  ---------------
Net cash provided by financing activities                                        11,239,000       16,688,000       21,825,000
                                                                            ----------------  ---------------  ---------------

Decrease in cash and cash equivalents                                              (653,000)      (4,769,000)     (22,536,000)
Cash and cash equivalents at beginning of year                                    1,416,000        6,185,000       28,721,000
                                                                            ----------------  ---------------  ---------------
Cash and cash equivalents at end of year                                     $      763,000    $   1,416,000    $   6,185,000
                                                                            ================  ===============  ===============

Supplemental disclosure of cash flow information:
Interest paid                                                                $      445,000    $   1,417,000    $   1,386,000

Supplemental disclosure of non-cash investing and financing activities:
Receivable from sale of assets                                               $           --    $          --    $     961,000
Issuance of option to purchase convertible notes in exchange for
      restricted cash                                                        $           --    $          --    $   1,500,000
Issuance of common stock for acquisition of MBI                              $           --    $          --    $  10,526,000
Issuance of common stock upon conversion of notes                            $    5,052,000    $   9,908,000    $   6,100,000
Issuance of common stock in exchange for release of debt obligation          $    1,366,000    $          --    $          --
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                      F-6
<PAGE>

ALLIANCE PHARMACEUTICAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. Organization and Summary of Significant Accounting Policies

Organization

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

Liquidity and Basis of Presentation

     The accompanying financial statements are prepared assuming the Company is
a going concern. The Company believes it lacks sufficient working capital to
fund its operations for the entire fiscal year ending June 30, 2004. Therefore,
substantial additional capital resources will be required to fund the ongoing
operations related to the Company's research, development, manufacturing and
business development activities. Management believes there are a number of
potential alternatives available to meet the continuing capital requirements
such as public or private financings or collaborative agreements. In addition,
the Company is taking continuing actions to reduce its ongoing expenses and has
significantly curtailed its operating plans. The 2003 financial statements do
not include any adjustment to reflect the possible future effects on the
recoverability and classification of assets or the amount and classification of
liabilities that may result from the outcome of this uncertainty.

Principles of Consolidation

     The consolidated financial statements include the accounts of Alliance
Pharmaceutical Corp., the accounts of its wholly owned subsidiary Molecular
Biosystems, Inc. ("MBI") from the acquisition date of December 29, 2000, its
wholly owned subsidiaries Astral, Inc., MDV Technologies, Inc., Alliance
Pharmaceutical GmbH, and its majority-owned subsidiary Talco Pharmaceutical,
Inc. All significant intercompany accounts and transactions have been
eliminated.

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates.

Cash, Cash Equivalents, and Short-Term Investments

     Short-term investments consist of highly liquid debt instruments.
Management has classified the Company's short-term investments as
available-for-sale securities in the accompanying financial statements.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses reported as a separate component of accumulated comprehensive
income (loss). The Company considers instruments purchased with an original
maturity of three months or less to be cash equivalents.

Concentration of Credit Risk

     Cash, cash equivalents, and short-term investments are financial
instruments that potentially subject the Company to concentration of credit
risk. The Company invests its excess cash primarily in U.S. government
securities and debt instruments of financial institutions and corporations with
strong credit ratings. The Company has established guidelines relative to
diversification and maturities to maintain safety and liquidity. These
guidelines are reviewed periodically and modified to take advantage of trends in
yields and interest rates. The Company has not experienced any material losses
on its short-term investments.


                                      F-7
<PAGE>

Purchased Technology

     The majority of the purchased technology was acquired as a result of the
merger of Fluoromed Pharmaceutical, Inc. in 1989. The technology acquired is the
Company's core perfluorochemical ("PFC") technology and was valued based on an
analysis of the future cash flows anticipated from this technology at that time.
The Company identified alternative future uses for the PFC technology, including
the Oxygent(TM) (perflubron emulsion, an intravascular oxygen carrier, or
temporary blood substitute) product. The PFC technology is the basis for the
Company's main drug development programs and was being amortized over a 20-year
life. The PFC technology had a net book value of $7.7 million and was reported
net of accumulated amortization of $15.5 million at 2002.

     In May 2000, a portion of the PFC technology was licensed to the joint
venture, PFC Therapeutics, LLC ("PFC Therapeutics"), with Baxter Healthcare
Corporation ("Baxter") to commercialize Oxygent in North America and Europe. In
connection with the joint venture, the Company invested $5 million in the joint
venture and received an advanced royalty payment of $10 million from the joint
venture, which was non refundable and was recorded as deferred revenue. Net of
deferred revenue, the carrying value of the PFC technology and investment was
$1.6 million. In June 2003, Alliance acquired Baxter's ownership interest in PFC
Therapeutics. Alliance will pay Baxter a royalty on the sales of Oxygent by PFC
Therapeutics, following regulatory approval. Concurrent with this transaction,
the carrying value of $1.6 million of the PFC technology and investment was
charged to expense in June 2003.

     The carrying value of purchased technology is reviewed for impairment
periodically based on the projected cash flows to be received from license fees,
milestone payments, royalties and other product revenues. If such cash flows are
less than the carrying value of the purchased technology, the difference will be
charged to expense. Accordingly, $1.8 million, the carrying value of the
purchased technology capitalized as a result of the acquisition of MBI in
December 2000, was charged to expense during the last quarter of fiscal 2003.

Revenue Recognition

     Revenue is generally recognized when all contractual obligations have been
satisfied and collection of the resulting receivable is reasonably assured.

Research and Development Revenues Under Collaborative Agreements

     Research and development revenues under collaborative agreements are
recognized as the related expenses are incurred, up to contractual limits.
Payments received under these agreements that are related to future performance
are deferred and recorded as revenue as they are earned over the specified
future performance period. Revenue related to nonrefundable, upfront fees are
recognized over the period of the contractual arrangements as performance
obligations related to the services to be provided have been satisfied. Revenue
related to milestones is recognized upon completion of the milestone's
performance requirement. Revenue from product sales is recognized upon the
transfer of title, which is generally when products are shipped.

Licensing and Royalty Revenues

     Licensing and royalty revenues for which no services are required to be
performed in the future are recognized immediately, if collectibility is
reasonably assured.

Research and Development Expenses

     Research and development expenditures are charged to expense as incurred.
Research and development expenditures include the cost of salaries and benefits
for clinical, scientific, manufacturing, engineering and operations personnel,
payments to outside researchers for preclinical and clinical trials and other
product development work, payments related to facility lease and utility
expenses, depreciation and amortization, patent costs, as well as other
expenditures. In fiscal 2003, 2002 and 2001, the Company incurred research and
development expenses of $16.2 million, $33.5 million, and $55.3 million,
respectively.


                                      F-8
<PAGE>

Accounting for Stock-Based Compensation

         The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" and SFAS No. 148, an amendment to SFAS No. 123. In accordance with
its provisions, the Company applies Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its stock option plans, and
accordingly, no compensation cost has been recognized for stock options in 2003,
2002 or 2001. If the Company had elected to recognize compensation cost based on
the fair value of the options granted at grant date and amortized to expense
over their vesting period as prescribed by SFAS No. 123, the Company's net loss
applicable to common shares and net loss per share would have been increased to
the pro forma amounts indicated below for the years ended June 30:

<TABLE>
<CAPTION>
                                     2003                 2002                   2001
                              -------------------   ------------------    -------------------
<S>                           <C>                   <C>                   <C>
Net loss
   As reported                $     (20,324,000)    $     (34,227,000)    $     (60,676,000)
   Pro forma                       (23,017,000)           (39,571,000)          (69,055,000)

Net loss per share
   As reported                 $        (1.04)       $        (2.37)       $        (6.22)
   Pro forma                            (1.18)                (2.74)                (7.08)
</TABLE>

     The impact of outstanding non-vested stock options granted prior to 1996
has been excluded from the pro forma calculations; accordingly, the 2003, 2002
and 2001 pro forma adjustments are not indicative of future period pro forma
adjustments if the calculation reflected all applicable stock options. The fair
value of options at date of grant was estimated using the Black-Scholes
option-pricing model with the following assumptions for 2003, 2002 and 2001,
respectively: risk-free interest rate range of and 3.25% to 6.5%; 3.375% to
6.5%; 4.625% to 6.5%; dividend yield of 0% for all years; volatility factor of
135%, 103%, and 105%; and a weighted-average expected term of 7 years, 7 years
and 6 years. The estimated weighted average fair value at grant date for the
options granted during 2003, 2002 and 2001 was $0.26, $2.57, and $29.30 per
option, respectively.

Net Loss Per Share

     The Company computes net loss per common share in accordance with Financial
Accounting Standards Board's Statement No. 128, "Earnings Per Share" ("SFAS No.
128"). SFAS No. 128 requires the presentation of basic and diluted earnings per
share amounts. Basic earnings per share is calculated based upon the weighted
average number of common shares outstanding during the period while diluted
earnings per share also gives effect to all potential dilutive common shares
outstanding during the period such as common shares underlying options,
warrants, and convertible securities, and contingently issuable shares. All
potential dilutive common shares have been excluded from the calculation of
diluted loss per share as their inclusion would be anti-dilutive.

Comprehensive Income (Loss)

     Financial Accounting Standards Board's Statement No. 130, "Comprehensive
Income" ("SFAS No. 130") requires unrealized gains and losses on the Company's
available-for-sale securities to be included in accumulated comprehensive income
(loss). During the fiscal years ended June 30, 2003 and 2002, the total
comprehensive loss, which included the unrealized gain or loss on
available-for-sale securities, was $20.3 million and $34 million, respectively.
The Company has reported the total comprehensive loss in the Consolidated
Statements of Stockholders' Deficit.

New Accounting Requirements

     In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The principal
difference between SFAS 146 and EITF 94-3 relates to SFAS 146's requirements for
recognition of a liability for a cost associated with an exit or disposal
activity. SFAS 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred. Under EITF
94-3, a liability for an exit cost as generally defined in EITF


                                      F-9
<PAGE>

94-3 was recognized at the date of an entity's commitment to an exit plan. The
provisions of this SFAS 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. The adoption of this standard did not
have a material impact on the consolidated financial statements.

2. FINANCIAL STATEMENT DETAILS

Other Current Assets

     Other current assets consist of the following:

<TABLE>
<CAPTION>
                                                                          June 30,
                                                                    2003             2002
                                                               -------------    -------------
<S>                                                            <C>              <C>
     Prepaid insurance                                         $         --     $    340,000
     Short-term receivables                                          20,000          457,000
     Other                                                               --            7,000
                                                               -------------    -------------
                                                               $     20,000     $    804,000
                                                               =============    =============
</TABLE>

Property, Plant and Equipment - Net

     Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                          June 30,
                                                                    2003             2002
                                                               -------------    -------------
<S>                                                            <C>              <C>
     Furniture, fixtures, and equipment                        $     81,000     $ 15,258,000
     Leasehold improvements                                       2,628,000       22,020,000
                                                               -------------    -------------
                                                                  2,709,000       37,278,000
     Less accumulated depreciation and amortization              (2,709,000)     (26,080,000)
                                                               -------------    -------------
                                                               $         --     $ 11,198,000
                                                               =============    =============
</TABLE>

Accrued Expenses

     Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                                          June 30,
                                                                    2003            2002
                                                               ------------    -------------
<S>                                                            <C>             <C>
     Payroll and related expenses                              $  1,249,000    $  1,183,000
     Accrued interest on convertible debt                           822,000              --
     Rent and related operating expenses                            355,000         125,000
     Other                                                          270,000         550,000
                                                               ------------    -------------
                                                               $  2,696,000    $  1,858,000
                                                               ============    =============
</TABLE>

3. INVESTMENTS

     The Company classifies its investment securities as available-for-sale and
records holding gains or losses in accumulated comprehensive income (loss).

     The realized loss on sales of available-for-sale securities totaled $0 and
$251,000, in 2003 and 2002, respectively. The unrealized gain (loss) is recorded
as a component of comprehensive income (loss). The unrealized gain or loss had
no cash effect and therefore is not reflected in the Consolidated Statements of
Cash Flows.

     In July 1997, the Company entered into a development agreement with
Metracor Technologies, Inc. ("Metracor") for the joint development of a patient
monitoring system. In June 2001, Alliance entered into an agreement to acquire
approximately 2.5 million shares of Series B Preferred Stock of Metracor in
exchange for approximately $500,000 cash and the Metracor license. During the
second quarter of fiscal 2003, the Company determined that the decline in the


                                      F-10
<PAGE>

valuation of its investment in Metracor was "other than temporary." Accordingly,
the Company recorded a loss on investment of $500,000 during the quarter.

4. SALE OF Imagent(R) BUSINESS

     On June 18, 2003, Photogen Technologies, Inc. ("Photogen") acquired certain
assets and assumed certain liabilities from Alliance Pharmaceutical Corp.
("Alliance") for approximately $1.1 million in cash and $3.5 million of Photogen
common stock. During the period between 90 and 365 days after the closing,
Photogen is obligated to pay up to $3 million and deliver up to an aggregate of
1,985,522 shares of its common stock to the creditors. The amount of
consideration was determined through arms-length negotiation. Alliance recorded
a gain from sale of assets of $10.6 million during the year ended June 30, 2003
related to this disposition of asset. In addition, subsequent to the closing and
through 2010, Photogen is obligated to pay Alliance further consideration in the
form of an earn out based on Imagent revenue invoiced (subject to certain
reductions). The assets acquired by Photogen include all of Alliance's assets
related to designing, developing, manufacturing, marketing, selling, licensing,
supporting and maintaining its Imagent product, an ultrasound contrast agent
that was approved by the Federal Food & Drug Administration ("FDA") for
marketing in the United States in June 2002.

     The amount of the earn out will equal, for each year of the earn out: 7.5%
of Imagent revenue up to $20,000,000; 10% of Imagent revenue between $20,000,000
and $30,000,000; 15% of Imagent revenue between $30,000,000 and $40,000,000 and
20% of Imagent revenue above $40,000,000. The earn out will be reduced by
amounts Photogen must pay pursuant to a license agreement with Schering
Aktiengesellschaft ("Schering"), net of payments they receive from Schering
under the license, and amounts of any indemnification claims Photogen has
against Alliance. The earn out is subject to three additional offsets (which are
to be applied in the manner described in the Asset Purchase Agreement) that
entitle Photogen to retain portions of the earn out otherwise payable to
Alliance:

     -    Up to approximately $1,600,000 for a fixed price offset, depending on
          the satisfaction of certain conditions;

     -    The amount of any payments not committed to at closing Photogen makes
          after the closing to Alliance's creditors plus up to $1,000,000 of
          litigation expenses for certain patent and other litigation; and

     -    Between $4,000,000 and $5,000,000, which is the principal and accrued
          interest under Photogen's bridge loans to Alliance, depending on the
          satisfaction of certain conditions.

5. DEBT OBLIGATIONS

     As of June 18, 2003, the Company had received $5.8 million through the
issuance of 8% Convertible Secured Promissory Notes (the "Notes") to various
institutional investors ($1.1 million) and Photogen ($4.7 million). The Notes
were to mature in two years from the date of issuance and were convertible into
shares of Alliance's common stock at $0.35 per share. Alliance's obligations
under the Notes were secured by certain of its assets, including all of its
assets related to and its rights and interests in Imagent and Oxygent. In
connection with the issuance of the Notes, Alliance obtained the consent and
waiver of anti-dilution rights from a majority of the investors in the Company's
October 2001 private placement. The Company also obtained a similar consent and
waiver from the holders of its 5% Convertible Debentures (the "2004 Debentures")
issued in 2000. As amended in February 2003, these consents and waivers applied
to any future issuance of notes by the Company on the same terms as the Notes up
to an aggregate of $5 million. The Company reduced the exercise price on the
warrants issued to the investors in the October 2001 private placement from
$3.38 to $0.35 per share, in accordance with the terms of the warrants. Alliance
reduced the conversion rate of the 2004 Debentures to $1.60 per share. Alliance
also agreed to issue warrants exercisable for an aggregate of 2,000,000 shares
of common stock, at an exercise price of $0.50 per share, to holders of its 2004
Debentures and granted them a junior lien in the assets securing the Notes. The
Company recorded a charge to interest expense for the warrants, based upon a
Black-Scholes valuation, of $80,000 in the second quarter of fiscal year 2003.

     In connection with the sale of the all of the assets related to designing,
developing, manufacturing, marketing, selling, licensing, supporting and
maintaining Imagent (collectively, the "Imagent Business"), the holders of the
8% Notes (excluding Photogen) and the holders of the 5% Debentures agreed to
accept a Payout Amount (as defined in the Asset Purchase Agreement) in full
satisfaction of Alliance's obligations and liabilities under such Notes and
Debentures. To


                                      F-11
<PAGE>

induce the debt holders to enter into this agreement, Alliance agreed to deliver
set considerations and Photogen agreed to deliver its consideration as described
in the Asset Purchase Agreement, in each case in the manner and the dates
specified thereon. The outstanding balance remaining is $1.1 million at June 30,
2003 and is classified in the Current Liabilities section of the Consolidated
Balance Sheet at June 30, 2003. The debt of $4.8 million, including accrued
interest, due to Photogen has been forgiven by Photogen and will be repaid
through a reduction of future Imagent royalty payments, if any.

     Upon delivery of the specified considerations, Alliance's obligations shall
be terminated and satisfied in full, and each of the loan documents shall be
deemed terminated and of no further effect. It is understood that the obligation
of Photogen to the debt holders to deliver the consideration contemplated in the
Asset Purchase Agreement is a direct obligation of Photogen for the benefit of
Alliance, fully enforceable against Photogen irrespective of any actions,
financial condition or other circumstances relating to Photogen hereafter.

     In July and August 2002, the Company entered into two separate loan and
security agreements, totaling $3 million, with an investment firm at an
effective 100% annualized interest rate. The loans were due at the earlier of 90
days after the date of the loans or the date on which the Company completed and
received proceeds from a financing with aggregate proceeds of at least $5
million. Amounts borrowed were secured by Imagent intangible assets. In October
and November 2002, the Company did not pay the principal and accrued interest on
the due dates, which constitutes an event of default under the loan terms. In
connection with the transaction, the Company issued warrants to purchase up to
200,000 shares of common stock at an exercise price of $3.38 per share. The
Company recorded deferred interest expense on the warrants, based upon a
Black-Scholes valuation, of $48,000. As part of the sale of the Imagent
Business, Photogen assumed Alliance's obligation under these two loan and
security agreements.

     In November 2000, the Company sold $7 million of five-year 6% subordinated
convertible notes to certain investors. The notes were convertible at any time
after November 15, 2001, at each investor's option into shares of Alliance
common stock at $78.60 per share (as adjusted by the 1:5 reverse stock split),
subject to certain antidilution provisions. In connection with the transaction,
Alliance placed $1.5 million in a restricted cash account to be used to pay
interest on the issued notes. The balance of the restricted cash account was
$532,000 at June 30, 2003. The outstanding principal balance of $7 million and
accrued interest of $65,000 are due and payable and classified in the current
liabilities section of the Consolidated Balance Sheet at June 30, 2003. Photogen
is responsible for the remaining balance of the liabilities; however, if
Photogen is unable to make the necessary payments, the convertible debenture
holders are able to have recourse against the Company. Per the agreement, the
investors will also receive shares of Photogen common stock.

     In August and September 2000, the Company sold $12 million of four-year 5%
subordinated convertible debentures to certain investors. In connection with the
issuance of the 8% Notes described above, Alliance obtained the consent and
waiver of antidilution rights from the investors. During the fiscal year ended
June 30, 2003, $4.1 million of these debentures were converted into 4,541,000
shares of Alliance common stock. On June 18, 2003, the balance outstanding on
these debentures was $5.9 million. Per the Pay Out agreement, the Company issued
1,250,000 shares of common stock and paid $100,000 in cash to one of the
investors. As of June 30, 2003, the outstanding principal balance is $4.5
million and accrued interest is $621,000. The outstanding principal balance and
accrued interest are due and payable and classified in the current liabilities
section of the Consolidated Balance Sheet at June 30, 2003. Photogen is
responsible for the remaining balance of the liabilities; however, if Photogen
is unable to make the necessary payments, the convertible debenture holders are
able to have recourse against the Company. Per the agreement, the investors will
also receive shares of Photogen common stock.

     In February 2000, the Company sold $15 million of four-year 5% subordinated
convertible debentures to certain investors. For the 2003, 2002 and 2001 fiscal
years, $1 million, $7.9 million and $6.1 million of these debentures and accrued
interest were converted into 625,000, 2,340,000, and 638,000 shares of Alliance
common stock, respectively. As of June 30, 2003, there was no remaining balance
outstanding on these debentures.

     In March 2002, the Company entered into a five-year exclusive agreement
with Cardinal Health, Inc. ("Cardinal") to assist in the marketing, packaging,
distribution, and sales services of Imagent. Under the agreement, Cardinal
extended to Alliance a revolving line of credit. The balance outstanding on this
line of credit was $2.5 million and $428,000 at June 30, 2003 and 2002,
respectively. Photogen assumed the Cardinal agreement including the line of
credit, which had an outstanding balance of $2.5 million from Alliance upon the
consumption of the sale of the Imagent Business.


                                      F-12
<PAGE>

     In May 2001, the Company sold manufacturing equipment to Baxter for
proceeds of $3 million. In conjunction with the sale of the equipment to Baxter,
the Company leased the equipment back from Baxter. The term of the lease was for
six years and the Company was to begin making monthly payments of $40,000 plus
interest, at prime plus 1% (5.75% at June 30, 2002), following the first year of
the lease term. In addition, following the expiration of the lease term,
Alliance would be able to purchase the equipment for $750,000. The lease
obligation to Baxter of $3 million had been included in long-term debt of the
Company as of June 30, 2002. In connection with the sale of the Imagent
Business, Photogen entered into an operating lease agreement with Baxter that
released Alliance of its commitment.

6. STOCKHOLDERS' DEFICIT

Stock Option Plans

     The Company has a 1983 Incentive Stock Option Plan (the "1983 Plan"), a
1983 Non-Qualified Stock Option Program (the "1983 Program"), a 1991 Stock
Option Plan, a 2000 Stock Option Plan and a 2001 Stock Option Plan, which
provide for both incentive and non-qualified stock options (the "1991 Plan", the
"2000 Plan" and the "2001 Plan"). These plans provide for the granting of
options to purchase shares of the Company's common stock (up to an aggregate of
500,000, 2,500,000, 8,300,000, 2,100,000 and 2,000,000 shares under the 1983
Plan, 1983 Program, 1991 Plan, 2000 Plan and 2001 Plan, respectively) to
directors, officers, employees and consultants. The optionees, date of grant,
option price (which cannot be less than 100% and 80% of the fair market value of
the common stock on the date of grant for incentive stock options and
non-qualified stock options, respectively), vesting schedule, and term of
options, which cannot exceed ten years (five years under the 1983 Plan), are
determined by the Compensation Committee of the Board of Directors. The 1983
Plan, the 1983 Program and the 1991 Plan have expired and no additional options
may be granted under such plans.

The following table summarizes stock option activity for the three years ended
June 30, 2003:

<TABLE>
<CAPTION>
                                                                                       Weighted
                                                               Shares               Average Price
                                                          ------------------     ---------------------
<S>                                                            <C>                      <C>
Balance at June 30, 2000                                        1,338,771               $ 37.36
   Granted                                                        686,540               $ 36.18
   Exercised                                                      (77,179)              $ 25.62
   Terminated/Expired                                            (245,245)              $ 39.40
                                                          ------------------
Balance at June 30, 2001                                        1,702,887               $ 37.12
   Granted                                                        954,500               $  3.15
   Terminated/Expired                                            (455,431)              $ 35.54
                                                          ------------------
Balance at June 30, 2002                                        2,201,956               $ 22.72
   Granted                                                        337,000               $  0.28
   Terminated/Expired                                          (1,384,299)              $ 16.03
                                                          ------------------
Balance at June 30, 2003                                        1,154,657               $ 24.25
                                                          ==================

Available for future grant under the 2000 Plan                    330,500
Available for future grant under the 2001 Plan                    767,370
                                                          ------------------
                                                                1,097,870
                                                          ==================
</TABLE>


                                      F-13
<PAGE>

     The following table summarizes information concerning outstanding and
exercisable stock options at June 30, 2003:

<TABLE>
<CAPTION>
                                                                Weighted
                                              Weighted          Average                             Weighted
                                              Average          Remaining                            Average
   Range of Exercise         Number           Exercise         Contractual         Number           Exercise
        Prices             Outstanding         Price              Life          Exercisable          Price
------------------------ ---------------- ----------------- ----------------- ----------------- -----------------
<S>                          <C>               <C>             <C>                 <C>               <C>
     $0.11 - $3.09              81,750         $ 0.21          5.85 years             61,625         $ 0.19
         $3.10                 330,450         $ 3.10          8.35 years            266,925         $ 3.10
    $3.11 - $13.75             185,455         $13.37          7.23 years            178,995         $13.35
    $13.76 - $25.00            122,658         $24.21          5.41 years            119,098         $24.32
    $25.01 - $38.75            149,944         $33.38          4.42 years            140,144         $33.00
   $38.76 - $64.374            127,480         $47.52          3.76 years            124,080         $47.41
   $64.375 - $82.50            156,920         $66.15          5.17 years            136,660         $66.38
                         ----------------                                     -----------------
                             1,154,657         $24.25          6.23 years          1,027,527         $25.08
                         ================                                     =================
</TABLE>

     The following table summarizes common shares reserved for issuance at June
30, 2003 on exercise or conversion of:

                                                                Shares
                                                         ----------------------
          Series F convertible preferred stock                     288,636
          Convertible subordinated debentures                    6,037,496
          Common stock options                                   2,252,527
          Common stock warrants                                  7,281,712
                                                         ----------------------
          Total common shares reserved for issuance             15,860,371
                                                         ======================

Warrants

     At June 30, 2003, the Company had warrants outstanding to purchase
7,281,712 shares of common stock at prices ranging from $0.35 to $48.25 per
share. The warrants expire on various dates from February 2004 through October
2006.

Preferred Stock

     In May 2000, the Company entered into a joint venture with Baxter and sold
500,000 shares of its convertible Series F Preferred Stock for $20 million. For
the 2003, 2002 and 2001 fiscal years, the Company sold to Baxter 6,250, 187,500
and 100,000 shares of its convertible Series F Preferred Stock for $250,000,
$7.5 million and $4 million, respectively. If Alliance's common stock price
averages $22 per share over a 20-day period within the next two years, the
conversion price for the Series F Preferred Stock will be $22 (prior to effect
of revenue stock split) per share. If the stock does not reach that price, the
conversion price will be based on the market value of Alliance's common stock at
the time of conversion, subject to certain limitations. The Series F Preferred
Stock has no annual dividend and is not entitled to any voting rights except as
otherwise required by law.

7. INCOME TAXES

     The significant components of the Company's deferred tax assets as of June
30, 2003 and 2002, respectively, are shown below. A valuation allowance of
$226,966,000, of which $4,004,000 is related to 2003, has been recognized to
offset the deferred tax assets as realization of such assets is uncertain.


                                      F-14
<PAGE>

     Deferred tax assets consist of the following:

<TABLE>
<CAPTION>
                                                                             June 30,
                                                                       2003            2002
                                                                 ---------------  ---------------
<S>                                                              <C>              <C>
          Net operating loss carryforwards                       $  179,561,000   $  173,513,000
          Research and development credits                           26,425,000       26,585,000
          Capitalized research expense                               17,902,000       17,902,000
          Other - net                                                 3,078,000        4,962,000
                                                                 ---------------  ---------------
          Total deferred tax assets                                 226,966,000      222,962,000
          Valuation allowance for deferred tax assets              (226,966,000)    (222,962,000)
                                                                 ---------------  ---------------
          Net deferred tax assets                                $           --   $           --
                                                                 ===============  ===============
</TABLE>

     Approximately $3,930,000 of the valuation allowance for deferred tax assets
relates to stock option deductions which, if recognized, will be allocated to
contributed capital.

     At June 30, 2003, the Company had federal and various state net operating
loss carryforwards of approximately $503,600,000 and $57,200,000, respectively.
The difference between the federal and state tax loss carryforwards is primarily
attributable to the capitalization of research and development expenses for
California tax purposes and the approximate fifty to sixty percent limitation on
California loss carryforwards. Approximately $3,938,000 of federal tax loss
carryforwards expired in fiscal 2003 and will continue to expire (beginning in
fiscal 2009). The Company also has federal and state research and development
tax credit carryforwards of $20,800,000 and $8,600,000, respectively.
Approximately 155,000 of federal research and development tax credit
carryforwards expired in fiscal 2003 and will continue to expire (beginning in
fiscal 2009) unless previously utilized. Pursuant to Sections 382 and 383 of the
Internal Revenue Code, annual use of the Company's net operating loss and credit
carryforwards will likely be limited because of cumulative changes in ownership
of more than 50%, which have occurred; and therefore, may expire prior to being
fully utilized.

8. Commitments and Contingencies

     On June 18, 2003, the Company sold Imagent Business assets and transferred
certain liabilities to Photogen for approximately $1.1 million in cash and $3.5
million of Photogen common stock that was issued directly to certain secured
creditors of Alliance. During the period between 90 and 365 days after the
closing, Photogen is obligated to pay up to and additional $3 million and
deliver up to an additional aggregate of 1,985,522 shares of its common stock to
certain creditors. The amount of consideration was determined through
arms-length negotiation. In addition, subsequent to the closing and through
2010, Photogen is obligated to pay Alliance further consideration in the form of
an earn out based on Imagent revenue invoiced (subject to certain reductions).

     In connection with the sale of the Imagent Business, the holders of the 8%
Notes (excluding Photogen) and the holders of the 5% Debentures agreed to accept
a Payout Amount (as defined in the Asset Purchase Agreement) in full
satisfaction of Alliance's obligations and liabilities under such Notes and
Debentures. To induce the debt holders to enter into this agreement, Alliance
agreed to deliver set considerations and Photogen agreed to deliver its
considerations as described in the Asset Purchase Agreement, in each case in the
manner and the dates specified thereon.

     Upon delivery of the specified considerations, Alliance's obligations shall
be terminated and satisfied in full, and each of the loan documents shall be
deemed terminated and of no further effect. It is understood that the obligation
of Photogen to the debt holders to deliver the consideration contemplated in the
Asset Purchase Agreement is a direct obligation of Photogen for the benefit of
Alliance, fully enforceable against Photogen irrespective of any actions,
financial condition or other circumstances relating to Photogen hereafter.

     Alliance's specified considerations include the issuance of an aggregate of
4,555,000 shares of common stock, which were issued on June 19, 2003, to certain
secured creditors; cash payments funded by Photogen made at closing and to be
made during the period between 90 and 365 days after the closing; and up to an
aggregate of 13.34% of PFC Therapeutics. If Photogen meets it obligation in
funding the cash payments, Alliance's Short-Term Debt as recorded at June 30,
2003, will be decreased by $12.6 million, along with reductions in Accounts
Payable and Accrued Expenses.


                                      F-15
<PAGE>

     In September 2003, Mt. Sinai School of Medicine of New York University sued
Alliance in a New York state court for alleged breach of two license and
research agreements dating back to 1987 and 2001. The suit alleges that Alliance
breached both the 1987 and 2001 agreements and demands $326,502.95 in damages
plus interest. The suit also seeks a declaratory judgment that both the 1987 and
2001 agreements are void and of no effect. Alliance believes the suit lacks
merit and plans a vigorous defense of its rights under both agreements; however
there can be no assurances that Alliance will ultimately prevail or that the
outcome will not have a material adverse effect on Company's future financial
position or results of operations.

     On June 13, 2003, Alliance and Photogen jointly brought a patent
infringement action against Amersham Health Inc., Amersham Health AS and
Amersham Health plc (collectively, "Amersham") in the United States District
Court for the District of New Jersey. The lawsuit alleges that through the sale
of Amersham's OPTISON product, Amersham and its related entities infringe on
seven patents acquired by Photogen through its purchase of the Imagent Business.
Alliance and Photogen are seeking damages and injunctive relief against
Amersham. Amersham brought counterclaims against Alliance and Alliance's
subsidiary MBI asserting breach of contract claims, breach of good faith and
fair dealing, and tortious interference with contractual relations against
Alliance and MBI. Alliance and MBI believe that Amersham's counterclaims are
completely without merit; however, there can be no assurances that Alliance and
MBI will ultimately prevail or that the outcome will not have a material adverse
effect on Company's future financial position or results of operations.

     On July 2, 2003, Hub Properties Trust ("Hub") filed a lawsuit against
Alliance, Immune Complex Corporation, Immune Complex, LLC (collectively "Immune
Complex"), and Vaccine Research Institute of San Diego ("Vaccine"). Hub alleges
that the defendants are liable for approximately $3.5 million of damages Hub
suffered, because Hub was unable to lease two properties due to defendants'
failure to timely deactivate the radiological materials licenses on the
properties. Alliance was the primary tenant, Immune Complex was Alliance's
subtenant, and Vaccine was Immune Complex's sub-subtenant. Immune Complex
tendered its defense to Alliance. Alliance did not accept the tender of defense.
On August 21, 2003, Immune Complex filed its cross-complaint for indemnity
against Alliance. Now that the pleading stage is near completion, the onset of
discovery should begin shortly. Alliance will continue to vigorously defend
against Hub's claims; however, there can be no assurances that Alliance will
ultimately prevail or that the outcome will not have a material adverse effect
on Company's future financial position or results of operations.

     Per a settlement agreement with a former landlord, the Company has a
commitment to pay a compromised amount totaling $420,000 per a schedule included
in the agreement. Accordingly, Alliance has included this amount in Accrued
Expenses in the Consolidated Balance Sheet as of June 30, 2003..

     Rent expense for fiscal 2003, 2002 and 2001 was $2.6 million, $4.1 million,
and $4.3 million, respectively. Sublease income for fiscal 2003, 2002 and 2001
was $0, $393,000, and $285,000, respectively.

     On February 23, 2001, a lawsuit was filed by two former shareholders of MBI
purportedly on behalf of themselves and others against the Company and certain
of its officers. On March 1, 2001 and March 19, 2001, two additional similar
lawsuits were filed by other former shareholders of MBI. The lawsuits, filed in
the U.S. District Court for the Southern District of New York, allege that the
Company's registration statement filed in connection with the acquisition of MBI
contains misrepresentations and omissions of material facts in violation of
certain federal securities laws. In May 2001, the actions were consolidated. The
plaintiffs are seeking rescission or compensatory damages, payment of fees and
expenses, and further relief. In January 2002, the plaintiffs filed a second
amended complaint adding an additional securities claim against the Company and
the named officers. The Company and its officers have filed a motion for summary
judgment seeking dismissal of the action, but the Court has not yet decided the
motion. In August 2001, another purported class action alleging substantially
identical allegations was filed in the U.S. District Court for the Southern
District of California. The plaintiffs in that action dismissed the action
without prejudice in September 2001. The Company believes that the lawsuits are
completely without merit; however, there can be no assurances that the Company
will ultimately prevail or that the outcome will not have a material adverse
effect on Company's future financial position or results of operations.

     In December 2001, a lawsuit was filed against MBI in the U.S. District
Court for the Northern District of Illinois. The plaintiff in the action alleges
that MBI breached a license agreement and seeks an accounting, damages, a
declaratory judgment terminating the license agreement, and payment of fees and
expenses. The Company believes that the lawsuit is completely without merit;
however, there can be no assurances that the MBI will ultimately prevail or that
the outcome will not have a material adverse effect on Company's future
financial position or results of operations.


                                      F-16
<PAGE>

9. Selected Quarterly financial data (UNAUdited)

     The following tables present unaudited quarterly financial information for
each of the four quarters of the fiscal years ended June 30, 2003 and June 30,
2002. We believe this information reflects a fair presentation of such
information in accordance with accounting principles generally accepted in the
United States. The results are not necessarily indicative of results for any
future period. More detailed information can be found in our quarterly
statements on Form 10-Q for the respective periods. Selected unaudited quarterly
results were as follows (in thousands, except per share amounts):


<TABLE>
<CAPTION>
Fiscal year 2003 Quarter Ended                September 30   December 31   March 31     June 30
                                              ------------   -----------   --------     -------
<S>                                             <C>           <C>          <C>         <C>
Revenues                                        $     21      $     10     $     22    $     --
Operating expenses                                 9,043         5,944        4,001       8,006
Loss from operations                              (9,022)       (5,934)      (3,979)     (8,006)
Net income (loss)                                 (9,424)       (7,651)      (5,054)      1,805
Net income (loss) per share, basic(1)               (.54)         (.41)        (.26)        .08
Net income (loss) per share, diluted(2)             (.54)         (.41)        (.26)        .08

<CAPTION>
Fiscal year 2002 Quarter Ended                September 30   December 31   March 31     June 30
                                              ------------   -----------   --------     -------
<S>                                             <C>           <C>          <C>         <C>
Revenues                                        $  5,023      $     44     $  4,516    $    750
Operating expenses                                11,290        10,281       10,492      11,073
Loss from operations                              (6,267)      (10,237)      (5,976)    (10,323)
Net loss                                          (6,877)      (10,540)      (6,213)    (10,597)
Net loss per share, basic and diluted(1)            (.69)         (.79)        (.36)       (.61)
</TABLE>

(1)  Net loss per share is computed independently for each of the quarters
     presented. Therefore, the sum of the quarterly net loss per share will not
     necessarily equal the total for the year.
(2)  The Company recorded net income during the three months ended June 30, 2003
     due to the disposition of Imagent assets.


                                      F-17
<PAGE>

                                  EXHIBIT INDEX

     Certain exhibits to this Report on Form 10-K have been incorporated by
reference. For a list of exhibits, see Item 14 hereof.

     The following exhibits are being filed herewith:

  Number                                Document
----------     -----------------------------------------------------------------

 10 (vvv)      Form of Purchase Agreement dated October 4, 2002 (incorporated by
               reference to Exhibit 99.1 of the October 4, 2001 8-K (the
               "October 2001 8-K")

 10 (www)      Form of Promissory Note dated October 4, 2002 (incorporated by
               reference to Exhibit 99.2 of the October 2001 8-K)

 10 (xxx)      Form of Imagent Security Agreement dated October 4, 2002
               (incorporated by reference to Exhibit 99.3 of the October 2001
               8-K)

 10 (yyy)      Form of Imagent and Oxygent Trademark Security Agreement dated
               October 4, 2002 (incorporated by reference to Exhibit 99.4 of the
               October 2001 8-K)

 10 (zzz)      Form of General Collateral Security Agreement dated October 4,
               2002 (incorporated by reference to Exhibit 99.5 of the October
               2001 8-K)

10 (aaaa)      Form of Warrant dated October 4, 2002 (incorporated by reference
               to Exhibit 99.6 of the October 2001 8-K)

10 (bbbb)      Form of Imagent Collateral Security Agreement dated October 4,
               2002 (incorporated by reference to Exhibit 99.7 of the October
               2001 8-K)

    21         Subsidiary List

   23.1        Consent of Ernst & Young LLP, Independent Auditors

   99.1        Certification of Chief Executive Officer and Chief Financial
               Officer