**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**




**FORM
      10-KSB**




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




**For
                the Fiscal Year Ended December 31,
                2006**




**TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**




**For
                the Transition Period From
                _______to_______**




**Commission
      File No. 0-23553**




**IMCOR
      PHARMACEUTICAL CO.**


(Name
      of
      small business issuer in its charter)




**NEVADA**


(State
      or
      other jurisdiction of incorporation or organization)




**62-1742885**


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




**4660
      La Jolla Drive, Suite 500**


**San
      Diego, CA 92122**


(Address
      of principal executive offices) (Zip Code)




**(858)
      546-2955**


(Registrant’s
      telephone number, including area code)




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




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




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.




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




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. ****





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).
      Yes            No x




The
      issuer’s revenues for its most recent fiscal year: $1,200,000.




The
      aggregate market value of voting and non-voting common stock held by
      non-affiliates computed as of April 10, 2007, based upon the last sale price
      of
      the common stock reported on the Pink Sheets was approximately $41,724. 
For purposes of this calculation only, the registrant has assumed that its
      directors and executive officers, and any person known to the issuer to hold
      10%
      or more of the outstanding common stock, are affiliates.




The
      number of shares outstanding of each of the registrant’s classes of common
      stock, as of March 31, 2007 was 6,962,456.







***TABLE
      OF CONTENTS***




PagePART
                I.
            
            
            
            
            
            1ITEM
                1
            
            DESCRIPTION
                OF BUSINESS.
            
            1ITEM
                2
            
            DESCRIPTION
                OF PROPERTY.
            
            15ITEM
                3
            
            LEGAL
                PROCEEDINGS.
            
            15ITEM
                4
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS.
            
            15PART
                II.
            
            
            
            
            
            15ITEM
                5
            
            MARKET
                FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                ISSUER PURCHASES OF EQUITY SECURITIES.
            
            15ITEM
                6
            
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
            
            17ITEM
                7
            
            FINANCIAL
                STATEMENTS.
            
            30ITEM
                8
            
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE.
            
            74ITEM
                8A
            
            CONTROLS
                AND PROCEDURES.
            
            74ITEM
                8B
            
            OTHER
                INFORMATION.
            
            75PART
                III.
            
            
            
            
            
            75ITEM
                9
            
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(a) OF THE EXCHANGE ACT.
            
            75ITEM
                10
            
            EXECUTIVE
                COMPENSATION.
            
            78ITEM
                11
            
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS.
            
            82ITEM
                12
            
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS.
            
            84ITEM
                13
            
            EXHIBITS.
            
            85ITEM
                14
            
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES.
            
            91







***PART
      I.***




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




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




***INTRODUCTION***




The
      company was incorporated on December 28, 1994 as a Nevada corporation under
      the
      name MT Financial Group, Inc. (“MT Financial”). On May 15, 1997, MT Financial
      changed its name to Photogen Technologies, Inc. (then subsequently on February
      5, 2004 to IMCOR Pharmaceutical Co. to reflect the changed nature of our
      business to imaging pharmaceuticals). On March 4, 2005, we effected a
      one-for-twenty reverse split of our common stock and the trading symbol for
      our
      common stock changed to “ICRP.” We previously effected a one-for-four reverse
      split of our common stock in 2002. Unless otherwise indicated, all data
      (including historical numbers) in this Form 10-KSB reflect the impact of
      the reverse splits.




We
      have one FDA approved product, *Imagent®* (perflexane lipid microspheres), an ultrasound imaging contrast agent that
      we
      acquired in June 2003.




As
      discussed below, we are not currently marketing *Imagent* or
      further developing our technologies or manufacturing products using those
      technologies and, instead, we are implementing a restructuring plan and
      evaluating our alternatives with respect to efforts to maximize value to the
      company, and our shareholders and creditors. We will continue to consider as
      alternatives the sale or license of our remaining assets, a merger or other
      strategic transaction.




***TECHNOLOGIES
      AND PRODUCTS: IMAGENT*** ****




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




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




1


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




As
      part
      of the *Imagent* acquisition, we also assumed a worldwide development and commercialization
      agreement for *Imagent* with
      Schering Aktiengesellschaft (“Schering AG”) providing us exclusive rights to
      market the product worldwide until mid-2008, with Schering AG to be paid a
      royalty based on a percentage of net sales.  At the expiration of the
      period, we have the right to pay all of any remaining royalty obligations to
      Schering AG up to $20,000,000 and thus retain all rights to the product on
      a
      worldwide basis, or alternatively, to allow Schering AG the opportunity to
      obtain co-promotion rights along with us. With the ability to enter into
      worldwide development and commercialization agreements for *Imagent* ,
      in
      December 2003, we **** entered
      into a product license agreement with Kyosei Pharmaceutical Co., Ltd.
      (“Kyosei”), a unit of Sakai Chemical Industry Co. Ltd., for the development and
      marketing of *Imagent* in Japan
      for all radiology and cardiology indications.  The company and Kyosei
      amended and restated this license agreement effective as of November 13, 2006
      to
      provide (among other things) relief from our obligation under the original
      agreement to manufacture and supply *Imagent* for
      Kyosei. We assigned to Kyosei certain patents and a trademark for use in Japan,
      for which we received $1,200,000 in 2006 for our benefit and another $100,000
      which we received from Kyosei but passed directly through to Alliance as their
      share of the license revenue pursuant to the terms of a “Settlement Agreement”
between Alliance and us dated as of September 19, 2005.




In
      October 2004, we entered into a non-exclusive technology cross-license agreement
      with Bristol-Myers Squibb Medical Imaging, Inc. covering ultrasound contrast
      agent patents. Under the agreement, Bristol-Myers Squibb Medical Imaging, Inc.
      and IMCOR will have the right to further develop and commercialize their
      respective ultrasound contrast imaging agents without risk of infringing upon
      the other company’s patent rights and without having to pay further license fees
      or royalties. We received a total payment of $8,500,000 under the terms of
      the
      license agreement and a related stock purchase agreement with Bristol-Myers
      Squibb Company for our Series A Convertible Preferred Stock, and we will have
      the right of first negotiation to license select compounds from Bristol-Myers
      Squibb Medical Imaging, Inc. Elsewhere in this Form 10-KSB, we refer to
      Bristol-Myers Squibb Medical Imaging, Inc. and Bristol-Myers Squibb Company
      collectively as “Bristol-Myers Squibb.” In 2005, we also entered into a
      cross-license agreement with affiliates of GE Healthcare Ltd. to settle patent
      infringement litigation. This license was valued at $1,200,000 in favor of
      IMCOR, for which we received $1,000,000 directly. The balance, or $200,000,
      was
      paid directly to Alliance.




2




In
      connection with our restructuring plan, we have suspended manufacturing
      operations and vacated our leased manufacturing facility located in San Diego,
      California. On May 18, 2005, we notified the FDA of the cessation of our
      manufacturing operations. Because we no longer manufacture *Imagent* ,
      operations and sales staff are not necessary. Therefore, we no longer
      maintain the contract sales and distribution agreements with Cardinal
      Health, Inc. See “ *Risk
      Factor -- We no longer maintain any internal quality control and stability
      program for Imagent,* ”
      below.




***MARKETS
      FOR IMAGENT*** ****




The
      market for the current indication of all ultrasound contrast agents is for
      use
      in imaging patients with sub-optimal echocardiograms. The potential of this
      market is anticipated to be approximately 20% of the 18 million echocardiograms
      performed annually in the U.S. The larger market opportunity will be for
      indications in the diagnosis of coronary artery disease (“CAD”).




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




**· ****
            Uses
                radioactive drugs,




**· ****
            Requires
                expensive imaging equipment,




**· ****
            Is
                usually performed in a hospital,




**·****
            Requires
                subjecting the patient to cardiac stress,
                and




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




There
      are
      approximately 8 million nuclear stress exams performed in the U.S.
      annually.




Stress
      echocardiography imaging, or stress echo, assesses the ability of the heart
      to
      contract and circulate blood by observing motion of the walls of the heart
      in
      real time. Patients with CAD typically have inadequate perfusion to certain
      segments of the heart. The reduced flow, during stress, will cause the walls
      of
      the heart to move abnormally particularly when increased demands on the heart
      require more blood flow. This is detected as wall motion abnormalities during
      a
      stress echo. Stress is induced in the patient by exercise or pharmacologic
      agents. This imaging procedure is performed in 30-45 minutes. There are
      approximately 3 million stress echo studies performed in the U.S. each
      year.




3




While
      no ultrasound contrast agent is approved for assessment of perfusion to the
      heart (also called “myocardial perfusion”), non-clinical and clinical research
      has been conducted to investigate the ability of agents to evaluate the blood
      flow to the heart muscle and to assist in the detection of CAD.




***RAW
      MATERIALS SUPPLY***




We
      have
      no existing agreements with any raw material providers. Any party to whom we
      grant the right to further develop *Imagent* would
      have to enter into such agreements for its own benefit.




***RESTRUCTURING
      PLAN***




In
      April
      2005, we adopted an initial restructuring plan which included a
      reduction-in-force of a majority of the full-time employees and part-time
      employees or consultants who perform administrative support, manufacturing
      and
      related functions. In addition, a limited number of full-time employees were
      transferred to part-time positions to assist us with the actions necessary
      to
      curtail our operations. We also suspended our manufacturing
      operations.




Our
      board
      of directors later concluded that, for a variety of factors, including some
      of
      which are cited in Notes 1 and 13 of our financial statements, it was not
      probable that we would obtain additional cash funds to continue operating even
      on a limited basis in the near term. Therefore, during May 2005, we modified
      our
      restructuring plan to include the disposition of furniture, fixtures and
      equipment, to vacate our premises, and other steps to effect an orderly
      cessation or suspension of operations other than those necessary to facilitate
      completion of the restructuring plan.




During
      the fiscal year ended December 31, 2006 we continued to implement the
      restructuring plan by terminating all of the company’s employees. The company’s
      operations are now maintained by two contract consultants on an as-needed basis.
      Our primary activities during this time have included:




**· ****
            Negotiating
                and concluding an amendment and restatement of our license agreement
                with
                Kyosei, which relieved us of the obligation to manufacture and supply
                Imagent for Kyosei in exchange for which we transferred to Kyosei
                certain
                patents and a trademark for use in Japan, for which we received $1,200,000
                as our share of the license fee
                compensation;




**· ****
            Maintaining
                our intellectual property and patent estate related to*Imagent*,
                including conducting those additional activities necessary to preserve
                the
                value of this asset for potential other licensing or related strategic
                transactions;




4




**· ****
            Investigating
                with other parties as to potential transactions that would create
                additional revenues (license, royalty or other form of revenues)
                from the
                licensing or sale of*Imagent*;




**·****
            Meeting
                our regulatory, financial and tax reporting obligations; and




**·****
            Negotiating
                with certain creditors and executing related settlement agreements,
                wherein those certain creditors have agreed to take fractional payments
                for their liability claims in exchange for full and final release
                of the
                related indebtedness, resulting in gains from debt extinguishment
                inuring
                to our benefit.




As
      part
      of the employee reduction plan, the employment of our CEO and President was
      terminated effective May 31, 2005. We recorded a reserve for severance (equal
      to
      one year’s salary, as required by this individual’s employment contract),
      amounting to $275,000, as expense during the quarter ending June 30, 2005.
      This
      obligation remains unpaid and is accordingly included in accrued expenses at
      December 31, 2006.




Our
      subsidiary, Sentigen, Ltd., a Bermuda entity, currently has no operations.
      It is
      likely to be administratively dissolved by the Bermuda authorities.




When *Imagent* was
      initially acquired in June 2003 from Alliance, we acquired the underlying
      technology of the FDA approved product *Imagent* ,
      and an
      ongoing operation which held the possibility at the time that we could generate
      at least two strategic sources of revenue: (a) from direct product sales and
      (b)
      from product licensing and/or technology cross-licensing activities. For those
      reasons, the accounting policy was then established that the value
      of *Imagent* (“the
      Purchased Technology”) should be amortized on a straight-line basis into expense
      over the estimated useful remaining life of the underlying intellectual
      property, including the patent estate, which was 12 years from the date of
      the
      acquisition.




As
      a
      result of the second part of the strategic revenue plan, that of obtaining
      cash-based revenues from product licensing and/or technology cross-licensing
      activities, we received:




**· ****
            $4,000,000
                paid by Kyosei, a unit of the Sakai Group in Japan, in December 2003
                and
                April 2004 pursuant to a product
                license;




**· ****
            $4,000,000
                paid by Bristol-Myers Squibb in October 2004 for a technology
                cross-license;




**· ****
            $1,200,000
                paid by Amersham Health Inc. (“Amersham”) and affiliates in September 2005
                for a technology cross-license; and




**· ****
            $1,200,000
                paid by Kyosei in November and December 2006 in connection with the
                amendment and restatement of the original product license agreement
                referenced above.




5




We
      have
      no material future performance obligations in the furtherance of the two
      technology cross-license agreements with Bristol-Myers Squibb and Amersham,
      and
      the amended and restated license agreement with Kyosei.




The *Imagent* acquisition transaction and the related follow-on transactions for the
      above-described strategic revenues collected through 2005, together with the
      derivative royalties obligation owed to Schering AG (as related to the Kyosei
      product license agreement and its amendment/restatement) were inextricably
      related to one another. Accordingly, our accounting policies were adopted with
      one objective being to match the recognition of license/cross-license revenue
      and related royalties expense to the underlying amortization of *Imagent* ,
      especially during the time we were a fully functioning company with both
      production and selling capabilities. Therefore, up to December 31, 2005, the
      related license fees and royalties had been deferred and only partially
      recognized on a straight-line basis into license revenue and royalties expense,
      based on schedules which commenced on the dates the respective transactions
      were
      concluded, and over the remaining estimated useful lives of the underlying
      technology.




Prior
      to
      December 31, 2005, we were not able to predict what types of arrangements might
      ultimately be made with potential business partners for *Imagent* ,
      financial or otherwise. At December 31, 2005, we made an estimate as to the
      certainty of additional revenues which might flow from the underlying *Imagent* asset,
      license or otherwise, particularly in light of our overall restructuring
      activities commenced in 2005 and the cessation of normal operations, and
      concluded that the net fair value of the underlying *Imagent* Purchased Technology should not exceed $1,000,000. In part this valuation was
      also made after also taking into consideration one transaction we were then
      currently negotiating and had a reasonable expectation we might conclude in
      2006. Accordingly, we wrote down the carrying value of the Purchased Technology
      by $11,373,572, as well as the then-remaining deferred revenue credit totaling
      $8,119,485 and the corresponding remaining deferred royalties asset
      of **** $416,666
      remaining as of that date, as an impairment charge to operations netting to
      $3,670,753.




During
      2006 we continued to face certain continuing challenges to preserve and optimize
      the value of *Imagent* for the
      benefit of creditors and shareholders, not the least of which is the current
      lack of a full-time staff and reduced financial resources. Without an immediate
      capability to manufacture the *Imagent* product,
      we were no longer able to support the prospective aspects of the Kyosei product
      license agreement as originally drafted, therefore we found it necessary to
      amend and restate the license agreement on mutually acceptable terms. Under
      the
      terms of the amended and restated license agreement effective as of November
      13,
      2006 we were relieved of our obligation to manufacture and supply Imagent for
      Kyosei and we assigned to Kyosei certain patents and a trademark for use in
      Japan, for which Kyosei paid a total fees of $1,300,000.




In
      accordance with the terms of the Settlement Agreement between
      the company and Alliance dated as of September 19, 2005 an
      aggregate of $100,000 (approximately $91,000 net, after deducting Alliance’s
      allocated share of direct expenses) of the consideration due from Kyosei was
      paid to Alliance, and we retained the balance of $1,200,000, which we recorded
      as license revenues in 2006. After taking into account direct expenditures
      attributed to this transaction for which the company had remaining
      responsibility, and which totaled approximately $104,000 (including agent
      commission fees and incremental royalty obligations to Schering AG), we retained
      on a net basis approximately $1,096,000.




6




Following
      this 2006 transaction with Kyosei, we again assessed the carrying value of
      the
      Purchased Technology at December 31, 2006 and decided, in light of the
      conclusion of this transaction together with the likelihood of concluding any
      similar transaction in the near term, that we should further reduce the carrying
      value to $-0-. Therefore, at December 31, 2006, we made a further impairment
      charge to operations for $1,000,000. We have now established an aggregate
      impairment allowance of $12,373,572, of which $11,373,572 had previously been
      established by December 31, 2005, for the Purchased
      Technology.




In
      August
      2005, we notified the FDA that we suspended any activity related to the
      Investigational New Drug Application (“IND”). It is unlikely that we can readily
      restart the production of *Imagent* without
      first commencing a lengthy and costly process to reestablish manufacturing
      capabilities, which also eliminates for the time being the additional
      possibility of *Imagent* product
      sales.




As
      a
      result our restructuring activities involving the facilities lease termination,
      sale of equipment, sale of the technology license and impairment of the
      Purchased Technology, together with the recognition of the related deferred
      revenues and corresponding deferred royalties, we recorded cumulative asset
      impairment losses during 2005 and 2006 of $7,506,566 and $1,000,000,
      respectively (see Note 13 of our financial statements).




We
      continue to evaluate our alternatives with respect to selling or otherwise
      maximizing asset values related to our remaining assets, principally consisting
      of *Imagent* .
      We will
      continue to consider as alternatives the sale or license of our remaining
      assets, a merger or other material transaction. Such a transaction may include
      selling *Imagent* ,
      a
      license or sale of the patent portfolio underlying *Imagent* ,
      a
      manufacturing rights agreement, or another form of transaction. To date, efforts
      to complete such additional arrangements have not been successful. However,
      we continue to hold discussions with potentially interested parties, and there
      remain some potential for a sale, license, development agreement or comparable
      transaction, however remote, and which may take several months or years to
      develop and/or consummate.




Subject
      to the availability of capital, we intend to protect our patent portfolio,
      and
      seek additional value for the benefit of creditors and shareholders if factors
      warrant and the underlying cost-benefit analysis supports such action(s). While
      our history of enforcing our rights in patents indicates that there is merit
      in
      this approach, patent protection, enforcement and/or possible litigation
      activities can be costly, time consuming and the results are inherently
      uncertain, so there can be no assurance that this business strategy will result
      in net benefits to us, our creditors or our shareholders.




During
      the next year, we will focus our limited resources primarily on preserving
      the
      value of the *Imagent* assets,
      to the extent possible, and exploring various options concerning our business,
      including joint venturing, licensing or selling the *Imagent* assets
      and other possible strategic transactions. We no longer have human, financial
      and other resources available to us at this time to carry out our original
      business plan or fully develop and commercialize *Imagent* on our
      own. To date our board of directors has only authorized activities in support
      of
      the restructuring plan in order to maximize asset value to creditors and
      shareholders. We must conduct additional investigation before we can reach
      any
      definitive conclusions as to the ultimate values of the *Imagent* assets.




7




***PATENTS*** ****




We
      have
      twenty issued U.S. patents and four pending U.S. patent applications, which
      are
      directed to the composition, manufacture, and use of novel stabilized
      microbubble compositions used in ultrasound or harmonic ultrasound
      imaging.  Foreign applications directed to the same subject matter are also
      granted or pending. We also have five issued U.S. patents covering the use
      of
      various contrast agents, including *Imagent* ,
      in
      harmonic imaging.




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




***GOVERNMENT
      REGULATIONS*** ****




Because
      we are not currently undertaking any development, manufacturing, or marketing
      activities, compliance with regulatory matters requires only annual updates
      of
      the IND and New Drug Application (“NDA”) to the FDA.




All
      of
      the products that can be developed from our technologies require approval by
      the
      FDA prior to sales being made within the U.S. and by comparable foreign agencies
      prior to sales being made outside the U.S. *Imagent* has
      received FDA approval for use in patients with sub-optimal echocardiograms.
      The
      FDA and comparable foreign regulatory agencies impose substantial requirements
      on the manufacturing and marketing of pharmaceutical products and medical
      devices. These agencies and other entities extensively regulate, among other
      things, research and development activities and the testing, manufacturing,
      quality control, safety, effectiveness, labeling, storage, record keeping,
      approval, advertising and promotion of these products.




We,
      like other public companies, are also subject to the requirements of the federal
      securities laws. Among other things, these laws regulate how we raise capital
      and how we manage our internal financial and disclosure controls and reporting.




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




8




***COMPETITION*** ****




The
      industry for contrast agents is intensely competitive, and subject to
      significant change with respect to technology for the diagnosis and treatment
      of
      disease. We expect that competition in the ultrasound contrast imaging agent
      field (and for our other potential products) will be based primarily on each
      product’s safety profile, efficacy, stability, ease of administration, breadth
      of approved indications, and physician, healthcare payor and patient acceptance.
      There are two ultrasound contrast agents approved in the U.S. for use in
      cardiology which are competitive with *Imagent* : *Optison* (sales
      by GE Healthcare, Inc. have been on hold since 2005 due to sterility problems
      in
      manufacturing), and *Definity* (sold by
      Bristol-Myers Squibb). POINT Biomedical Corp. filed their New Drug Application
      (NDA) for *Cardiosphere* in
      January 2006. To the best of our knowledge, Acusphere Inc. has completed two
      Phase III myocardial perfusion studies with Imagify (formerly AI-700). One
      study
      for Imagify failed to achieve the endpoint for sensitivity. The second study,
      completed in October 2006, is undergoing blinded reader re-training to improve
      the sensitivity values before NDA submission in 2007.




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




***RISK
      FACTORS*** ****




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




**· ****
            Our
                current business and product development
                plans,




**· ****
            Our
                future business and product development
                plans,




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




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




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




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




9




***WE
      CURRENTLY HAVE INSUFFICIENT FUNDS AVAILABLE TO PAY ALL OF OUR
      LIABILITIES.*** ****




Our
      cash
      and cash equivalents at December 31, 2006 was approximately $1,309,498. At
      December 31, 2006, we had current liabilities totaling approximately
      $4,603,451.




***IF
      WE ARE UNABLE TO FIND A PARTNER OR BUYER OF OUR REMAINING ASSETS AT ACCEPTABLE
      PRICES WE WILL CONTINUE TO BE UNABLE TO MEET OUR OBLIGATIONS TO OUR CREDITORS
      AND MAY ENTER INTO BANKRUPTCY PROCEEDINGS, OR LIQUIDATE AND DISSOLVE UNDER
      APPLICABLE STATE LAWS.*** ****




We
      have
      implemented a restructuring plan which resulted in a reduction-in-force of
      all
      our employees, terminating sales efforts and manufacturing operations,
      terminating clinical development, vacating our leased premises, selling our
      furniture, fixtures and manufacturing equipment, and selling our rights to
      other
      intellectual property (our iodine-based nanoparticulate contrast agent). Our
      board of directors has authorized actions necessary to effectuate the
      restructuring plan **.**




We
      plan to focus our efforts primarily on exploring various options concerning
      our
      business, including licensing or selling all or a portion of our remaining
      assets ( *Imagent* ),
      finding a partner with whom to pursue the clinical development and
      commercialization of *Imagent* and
      maintain our patent portfolio. To date, we have not been able to raise
      sufficient capital to operate the company, and the difficulties and delays
      in
      settling the lawsuit with Amersham Health, Inc. have resulted in our vacating
      our manufacturing facility, stopping the manufacturing of our *Imagent* product,
      and terminating clinical development. We need to find an acceptable buyer or
      partner for our *Imagent* assets
      in order to proceed with any type of development plan. If we are not able to
      find a buyer or partner for these assets in a timely manner and at acceptable
      prices, we will continue to not have sufficient funds to meet our obligations
      to
      our creditors and may be forced into voluntary or involuntary bankruptcy
      proceedings, or liquidate and dissolve under applicable state laws. The steps
      to
      sell or otherwise dispose of our assets (including negotiating agreements and
      obtaining shareholder approval to the extent required) are costly and will
      diminish the proceeds available for other purposes. The
      holder of our Series A Preferred Stock will, under certain circumstances, have
      a
      preferred claim on the proceeds of any such transaction. See “Series A
      Convertible Preferred Stock” below.




10




***WE
      EXPECT TO INCUR SIGNIFICANT COSTS IN CONNECTION WITH SECURITIES EXCHANGE ACT
      OF
      1934 COMPLIANCE AND MAY ELECT TO REMOVE THE COMPANY FROM THE SECURITIES EXCHANGE
      ACT OF 1934 REPORTING REQUIREMENTS, WHICH WOULD MAKE RULE 144 RESALES
      UNAVAILABLE TO INVESTORS.*** ****




We
      are
      currently subject to the rules of the Exchange Act and the related reporting
      requirements. Compliance with the reporting requirements of the Exchange Act
      requires the timely filing of Quarterly Reports on Form 10-QSB, Annual Reports
      on Form 10-KSB and Current Reports on Form 8-K, among other actions. Our
      compliance with the reporting requirements involves significant costs and
      expenditures of management’s time. Given our current financial position and the
      limited resources of our management, our board of directors may elect to remove
      the company from the reporting obligations of the Exchange Act at some point
      in
      2007 or thereafter. If we make such an election, investors would not be able
      to
      utilize Rule 144 in connection with the resale of their shares of our common
      stock (until the shares become freely tradable under Rule
      144(k)).




***OUR
      CURRENT FINANCIAL SITUATION COULD LEAD TO SHAREHOLDER OR CREDITOR LITIGATION
      WHICH COULD RESULT IN SUBSTANTIAL COSTS AND DISTRACT OUR MANAGEMENT FROM OUR
      RESTRUCTURING EFFORTS.*** ****




Historically,
      companies in financial situations similar to ours have often been the target
      of
      litigation by creditors or shareholders. We may become involved in this type
      of
      litigation as a result of the actions we have taken and/or our inability to
      meet
      our obligations to our creditors and others. If such a lawsuit is filed against
      us, the litigation is likely to be expensive, and, even if we ultimately
      prevail, the process will divert our attention away from implementing our
      current restructuring plan. If we do not prevail in such a lawsuit, we may
      be
      liable for damages. We cannot predict the amount of such damages, but they
      may
      be significant and could further reduce our limited available cash.




***WE
      HAVE A HISTORY OF LOSSES, AND WE DO NOT EXPECT TO ACHIEVE OR MAINTAIN
      PROFITABILITY IN THE FUTURE OR PAY CASH DIVIDENDS.*** ****




We
      have
      incurred losses since the beginning of our operations. As of December 31, 2006,
      we have incurred cumulative net losses (before dividends on preferred stock)
      of
      approximately $91,239,032. We expect our losses to increase in the future as
      our
      financial resources are used to preserve the value of our assets and to the
      extent possible, pay creditors. It is unlikely that we will be able to achieve
      or maintain profitability in the future.




We
      do not
      anticipate paying any dividends on our common stock in the foreseeable future,
      and, given our outstanding debt to creditors, it is unlikely that shareholders
      will receive funds from us if it is dissolved.




***WE
      NO LONGER MAINTAIN A MANUFACTURING FACILITY AND WE MAY ENCOUNTER DIFFICULTIES
      RESTARTING OUR MANUFACTURING OPERATIONS IF WE CHOSE TO DO SO IN THE FUTURE
      OR
      CONTRACTING WITH A CONTRACT MANUFACTURER.*** ****




11




We
      have
      suspended manufacturing operations and vacated our leased manufacturing facility
      located in San Diego, California. We do not have the resources to resume
      manufacturing at another facility ourselves and we cannot assume that a third
      party would be able to take over manufacturing. Any purchaser of *Imagent* or
      development or manufacturing partner will be required to comply with FDA
      manufacturing standards. A new manufacturing facility would require FDA
      submissions and approvals. Timing of this event, should it occur, would affect
      initiation of clinical trials and regulatory submissions. All of the above
      has
      prevented us from being able to fulfill certain of our previous contractual
      obligations to provide product (including fulfilling our obligations under
      our
      original license agreement with Kyosei).




***WE
      NO LONGER MAINTAIN ANY INTERNAL QUALITY CONTROL AND STABILITY PROGRAM FOR
      IMAGENT.***




Since
      we
      have suspended manufacturing operations and vacated our leased manufacturing
      facility located in San Diego, California, we no longer have the ability to
      support any clinical testing of the product.




***WE
      NO LONGER MAINTAIN ANY CLINICAL OR REGULATORY
      STAFF.***




We
      are
      required to rely on the services of outside consultants for clinical and
      regulatory advice, and maintenance of the IND and NDA. If we cannot use the
      services of those consultants, the IND and NDA may have to be abandoned,
      significantly reducing the assets of the corporation. In August 2005, we
      notified the FDA that we suspended any activity related to the
      IND.




***FAILURE
      TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION
      404 OF THE SARBANES-OXLEY ACT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
      BUSINESS AND OPERATING RESULTS.***




Effective
      internal controls are necessary for us to provide reliable financial reports
      and
      effectively prevent fraud. If we cannot provide reliable financial reports
      and
      prevent fraud, our operating results could be harmed and current and potential
      stockholders could lose confidence in our financial reporting, which could
      have
      a material adverse effect on our stock price and ability to raise capital.
      Due
      to the lack of sufficient personnel and financial resources, we have concluded
      that our internal controls over financial reporting include certain material
      weaknesses and reportable conditions. For further information concerning our
      controls, see ****** *”Item
      8A. Controls and Procedures.”*




Beginning
      in 2004, we began to implement steps to address our internal controls and
      procedures. We have completed certain steps and had started to implement
      remediation procedures to address the identified reportable conditions and
      material weaknesses. However, based on our limited capital resources and the
      adoption of a restructuring plan in April 2005, which included a
      reduction-in-force of our full-time employees and part-time employees or
      consultants who perform financial, administrative support, manufacturing and
      related functions, we have been unable to complete the previously identified
      remediation plans. Since it is unlikely that we can further rectify these
      material weaknesses through measures and improvements to our systems and
      procedures, management may encounter difficulties in timely assessing business
      performance and identifying incipient strategic and oversight
      issues.




12




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




***WE
      DEPEND ON A SMALL NUMBER OF CONTRACT CONSULTANTS TO PROVIDE MANAGEMENT
      EXPERTISE, AND THE LOSS OF THIS EXPERTISE MAY INTERFERE WITH OUR OPERATIONS
      OR
      DELAY OUR ABILITY TO IMPLEMENT OUR RESTRUCTURING PLAN.*** ****




We
      currently have one acting Principal Executive Officer (Mr. DeFranco) who was
      a
      part-time employee of the company until October 2005. Mr. DeFranco became a
      consultant to the company in November 2005 and is engaged by us on a part-time,
      as needed basis through June 30, 2007. **** We
      also
      have retained Larry D. Grant, a financial consultant, to provide advisory and
      management services, on a part-time basis, on financial, operational and
      strategic matters. These individuals have entered into consulting agreements,
      confidentiality and/or non-competition agreements with us. If an individual
      performing one of these executive or consulting functions for us terminates
      his
      association with us or breaches their agreement with us:




**·**
            We
                would not have anyone available to promote or negotiate a sale or
                development transaction with a
                third-party,




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




**·**
            We
                could experience a delay in our ability to implement our restructuring
                plan until we arrange for another individual or firm to fulfill the
                role.




13




***TWO
      RELATED STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER, WHICH MAY DELAY OR PREVENT
      A
      CHANGE OF CONTROL OF IMCOR AND MAY LIMIT THE TRADING VOLUME OF OUR COMMON
      STOCK.*** ****




As
      of
      December 31, 2006, two related stockholders controlled approximately 4,652,969
      shares, or 66.8% of our issued and outstanding common stock at that date. This
      concentration of ownership and control may delay or prevent a change in control
      of IMCOR, and may also result in a small supply of shares available for purchase
      in the public securities markets. These factors may affect the market and the
      market price for its common stock in ways that do not reflect the intrinsic
      value of our common stock.




***WE
      HAVE ISSUED A SUBSTANTIAL NUMBER OF SECURITIES CONVERTIBLE INTO SHARES OF OUR
      COMMON STOCK THAT WILL RESULT IN SUBSTANTIAL DILUTION TO THE OWNERSHIP INTERESTS
      OF OUR EXISTING SHAREHOLDERS.***




As
      of
      December 31, 2006, we had reserved 2,437,701 shares of our common stock for
      issuance upon exercise or conversion of warrants or stock options (including
      options that have been granted and that are available for grant in the future).
      Furthermore, on October 29, 2004, we issued and sold 4,500 shares of our newly
      issued Series A Convertible Preferred Stock which are convertible into 833,334
      shares of our common stock.




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




***APPLICABLE
      SECURITIES AND EXCHANGE COMMISSION RULES GOVERNING THE TRADING OF “PENNY STOCKS”
LIMITS THE TRADING AND LIQUIDITY OF OUR COMMON STOCK, WHICH MAY AFFECT THE
      TRADING PRICE OF OUR COMMON STOCK.*** ****




Our
      common stock currently is quoted on the Pink Sheets. We are not considering
      seeking a listing of our shares on another exchange at this time. As a result,
      our common stock may have fewer market makers, lower trading volumes and larger
      spreads between bid and asked prices than securities listed on an exchange
      such
      as the New York Stock Exchange or the NASDAQ Stock Market. These factors may
      result in higher price volatility and less market liquidity for our common
      stock.




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




14




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




We
      do not own any real estate. In 2005, we vacated our leased premises of
      approximately 53,000 square feet in San Diego, California. We currently do
      not
      maintain executive offices or facilities for research, development or
      manufacturing, other than for nominal administrative purposes rented on a
      month-by-month basis.




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




None.




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




None.




***PART
      II.*** ****




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




***COMMON
      STOCK***




Our
      common stock is quoted from time to time on the Pink Sheets under the symbol
      “ICRP.PK” As of March 31, 2007, there were approximately 6,962,456 shares
      of our common stock outstanding and as of March 31, 2007 there were
      approximately 145 stockholders of record. Holders of our common stock are
      entitled to receive such dividends as may be declared by our Board of Directors.
      We have not declared or paid cash dividends on our common stock and we do not
      anticipate paying any cash dividends in the foreseeable future.




The
      high and low closing bid prices for our common stock for each quarter of the
      fiscal years ended December 31, 2005 and December 31, 2006 are set forth
      below.





**Year
                Ended**
              **December
                31, 2005**
              **(Amounts
                in $)**
            
            **Year
                Ended**
              **December
                31, 2006**
              **(Amounts
                in $)****High**
            
            **Low**
            
            **High**
            
            **Low**1st
                Quarter
            
            $
            2.00
            
            $
            1.60
            
            $
            0.10
            
            $
            0.072nd
                Quarter
            
            
            1.65
            
            
            0.06
            
            
            0.10
            
            
            0.0263rd
                Quarter
            
            
            0.65
            
            
            0.06
            
            
            0.04
            
            
            0.0214th
                Quarter
            
            
            0.35
            
            
            0.06
            
            
            0.025
            
            
            0.015




The
      foregoing information was obtained from the Pink Sheets. The quotations
      generally reflect inter-dealer prices, without retail mark-up, mark-down or
      commission and may not represent actual transactions. The foregoing information
      reflects **** bid
      prices, as indicated. See “ *Risk
      Factor--Two related stockholders has significant voting power, which may delay
      or prevent a change of control of IMCOR and may limit the trading volume of
      our
      common stock,* ”
above,
      regarding the possible effects of the concentrated ownership of our stock on
      the
      market of our stock.




15




In
      2006,
      we did not grant any qualified incentive stock options or non-qualified stock
      options pursuant to our 2000 Long Term Incentive Compensation Plan.




All
      of
      the shares issued in January through April 2005 were subject to pending
      registration statements which were not declared effective by the SEC. The
      effectiveness of the registration statements was delayed while we responded
      to
      the SEC’s various comments which arose during the comment process. Given our
      current financial circumstances and our goal to maximize the funds available
      to
      our creditors, our board of directors determined that we would not continue
      to
      pursue our efforts to effect our registration statements that were on file
      with
      the SEC (File Nos. 333-122625 and 333-117907). Those registration statements
      have been withdrawn.




Many
      of
      our investors have held their shares in the Company for more than a year and
      will be qualified to sell their shares under Rule 144, subject to the
      restrictions set forth therein; ** indeed,
      several such investors have sold shares utilizing Rule 144. For that reason,
      we
      stopped accruing penalty shares for certain shareholders who had registration
      rights. However, given our current financial situation, at some point in 2007
      or
      thereafter we may elect to cease reporting under the Exchange Act, and as a
      result, investors will no longer be eligible to resell their shares of our
      common stock under Rule 144 (unless the shares have been held for two years,
      in
      which case they would be freely saleable under Rule 144(k)).




As
      of April 14, 2007, approximately 4,970,248 shares of our common stock are
“restricted stock” or are beneficially owned by persons who as of March 31,
      2007 were affiliates of the company as defined in Rule 144 under the
      Securities Act. For purposes of this calculation only (and the comparable
      disclosure on the cover page of this Form 10-KSB) we have assumed that
      officers, directors, 10% stockholders and that stock held by Oxford Bioscience
      Partners IV L.P. and MRNA Fund II L.P., other than shares and warrants which
      are
      covered by an effective registration statement, would be deemed to be
      beneficially owned by Jonathan Fleming (a director) (although Mr. Fleming
      disclaims beneficial ownership of those shares for all other purposes), and
      that
      a person beneficially owns stock subject to an option, warrant or convertible
      instrument that is exercisable or convertible within 60 days from April 14,
      2007. A portion of those shares would be eligible for resale by company
      affiliates and others who have satisfied the requisite holding periods, subject
      to the volume limitations and other provisions of Rule 144 and applicable
      law. As of April 14, 2007, we had approximately 1,992,208 shares eligible for
      sale free of restriction under Rule 144(k) which are not subject to an
      effective registration statement.




***EQUITY
      COMPENSATION PLAN INFORMATION*** ****




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




16




***SERIES A
      CONVERTIBLE PREFERRED STOCK***




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




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




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




**·****
            The
                preferred stock is convertible into common stock at a ratio of 185.1854
                shares of common stock for each share of preferred stock. As of December
                31, 2006, conversion of the preferred stock would result in issuance
                of
                833,334 shares of our common stock. We have the right to require
                conversion of the preferred stock into common stock if the closing
                price
                of our common stock exceeds $8.10 per share for ten consecutive trading
                days. The conversion ratio is subject to adjustments for dilution
                resulting from stock splits and combinations, certain dividends and
                distributions, reorganization, reclassification or merger of the
                company.




***ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION.***




Portions
      of the discussion in this item contain forward-looking statements and are
      subject to the “Risk Factors” described above. All forward-looking statements
      included in this item are based on information available to us on the date
      hereof, and we assume no obligation to update any such forward-looking
      statements. Our actual results could differ materially from those anticipated
      in
      these forward-looking statements as a result of a number of factors, including
      those set forth in the section captioned “RISK FACTORS” and elsewhere in this
      Form 10-KSB.




The
      following should be read in conjunction with our audited financial statements
      included herein. References to the “ *Imagent* Business” are to the property, plant and equipment, technology and medical
      imaging business of Alliance that we acquired on June 18, 2003. References
      to the “Purchased Technology” are to the technology and intellectual property
      that are part of the *Imagent* Business.




17




These
      financial statements present the results of operations of the *Imagent* Business
      following its acquisition on June 18, 2003 and have been adjusted to reflect
      the
      one-for-twenty reverse split effected on March 4, 2005.




***LIQUIDITY;
      CAPITAL RESOURCES***




The
      independent registered public accounting firm’s report dated April 13, 2007
      included in our December 31, 2006 Annual Report on Form 10-KSB, as amended,
      contained the following explanatory paragraph:




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 2 to the financial
      statements, the Company has reported recurring losses from operations through
      December 31, 2006 and had a working capital deficit at December 31, 2006. These
      factors raise substantial doubt about the Company’s ability to continue as a
      going concern. Management’s plans as to these matters are described in Note 2.
      The accompanying financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




At
      December 31, 2006, we had cash and cash equivalents totaling approximately
      $1,309,498, compared to $717,024 at the end of the 2005 fiscal year. At December
      31, 2006, we had a net shareholders’ deficit position of $3,263,305, compared to
      a net shareholders’ deficit position of $2,955,432 at the end of the 2005
      fiscal year.




During
      2006, our board of directors continued to implement our restructuring plan
      that
      resulted in cessation or suspension of substantially all operations, including
      a
      complete employee reduction-in-force, sale of excess equipment, suspension
      of
      manufacturing and clinical activities, cessation of manufacturing and selling
      activities, vacating our premises, and the sale and licensing of certain of
      our
      technology.




We
      entered into an amended and restated license agreement with Kyosei effective
      as
      of November 13, 2006. Under the terms of the revised agreement we have been
      relieved of our obligation to manufacture and supply Imagent for Kyosei and
      we
      assigned to Kyosei certain patents and a trademark for use in Japan. Kyosei
      paid
      a total fee of $1,300,000. In accordance with the terms of our Settlement
      Agreement with Alliance dated as of September 19, 2005, an aggregate of $100,000
      (approximately $91,000 net, after deducting Alliance’s allocated share of direct
      expenses) of payment from Kyosei was paid to Alliance. In addition, after taking
      into account direct expenditures attributed to this transaction for which we
      had
      remaining responsibility, and which totaled approximately $104,000 (including
      agent commission fees and incremental royalty obligations to Schering AG),
      we
      received net approximately $1,096,000.




18




From
      January 1, 2006 through December 31, 2006, significant uses of our cash, which
      totaled approximately $620,000 (leaving us a net cash amount of $1,309,498
      at
      December 31, 2006) (all amounts approximate) included:




**·****
            $48,000
                net commissions to an agent for facilitation of the amended and restated
                agreement with Kyosei;




**· ****
            $132,000
                for legal costs associated with patent protection matters related
                to*Imagent*,
                in order to preserve intellectual property viability and
                values;




**·**
            $81,000
                for legal costs associated with general corporate, contract, and
                SEC
                reporting matters;




**·**
            $86,000
                for accounting and auditing services, including $16,000 related to
                income
                tax reporting compliance matters;




**·**
            $36,000
                net payments to creditors in exchange for the cancellation of $361,000
                in
                total payable obligations, yielding a gain on extinguishment of debt
                of
                $325,000;




**· ****
            $96,000
                for contract consultants related to all administrative, revenue license
                negotiations, debt extinguishment negotiations and overall financial
                and
                SEC reporting compliance efforts;




**·****
            $75,000
                for directors and officers insurance
                premiums;




**·****
            $19,000
                in related SEC compliance
                expenditures;




**· ****
            $15,000
                payment to reduce a remaining creditor obligation under the sale
                of our
                technology license asset related to our iodine-based nanoparticulate
                compounds during 2005;




**· ****
            $14,000
                to a local tax authority as partial payment for unpaid property taxes
                (an
                unsecured obligation); and




**· ****
            $18,000
                other miscellaneous.




From
      January 1, 2007 through April 5, 2007, significant uses of our cash, which
      totaled approximately $290,000 (leaving us a net cash amount of $1,035,000
      at
      April 5, 2007) (all amounts approximate) included:




**· ****
            $61,000
                for legal costs associated with patent protection matters related
                to*Imagent*,
                in order to preserve intellectual property viability and
                values;




**· ****
            $21,000
                for legal costs associated with general corporate, contract, and
                SEC
                reporting matters;




**·****
            $44,000
                for accounting and auditing services, including $13,000 related to
                income
                tax reporting compliance matters;




19




**·****
            $47,000
                net payments to a single creditor in exchange for the cancellation
                of
                $417,000 in total payable obligations which were undisputed, and
                another
                $100,000 in disputed obligations, yielding a gain on extinguishment
                of
                debt of $370,000;




**·****
            $58,000
                for directors and officers insurance premiums;




**· ****
            $25,000
                for contract consultants related to administration, revenue license
                negotiations, debt extinguishment negotiations and overall financial
                and
                SEC reporting compliance efforts;




**·****
            $30,000
                transferred to a custodial account related to the remaining royalty
                payment obligation currently owed to Schering related to the amended
                and
                restated license agreement with Kyosei related to our*Imagent*during the year ending December 31, 2006;




**·****
            $3,000
                in related SEC compliance expenditures;
                and




**· ****
            $1,000
                other miscellaneous.




Based
      on
      the lack of potential transactions which might be concluded in the near term,
      particularly in light of the amended and restated license agreement with Kyosei
      which we concluded during the year ended December 31 2006, and for which we
      were
      paid $1,200,000 as our share of the gross license proceeds, we have determined
      that the carrying value of the *Imagent* assets
      should be written down as of December 31, 2006 to $-0- carrying value by an
      additional increase in the valuation impairment allowance, with a corresponding
      charge for the net carrying value of $1,000,000 carried over from December
      31,
      2005.




We
      are still considering our alternatives with respect to efforts to sell or
      otherwise maximize asset values related to the Purchased Technology, and will
      continue to consider as alternatives the sale or license of our remaining
      assets, a merger or other material transaction. Such a transaction may include
      selling the Purchased Technology, a license or sale of the patent portfolio
      underlying the Purchased Technology, a manufacturing rights agreement, or
      another form of transaction.




We
      incurred gross decreases to shareholders’ equity totaling approximately $349,816
      ($307,873, net of increase in paid-in capital attributed to the recognition
      of
      stock option compensation totaling $41,943) during the year ended December
      31,
      2006. The most significant reduction to shareholders’ equity during this same
      period resulted from continuing net losses, totaling approximately $349,816.
      Accordingly, the net shareholders’ deficit of $2,955,432 at December 31, 2005
      was increased to a deficit of $3,263,305 **** at
      December 31, 2006.




Our
      financial condition raises substantial doubt about our ability to continue
      as a
      going concern (which activities have been limited to implementing our
      restructuring plan as discussed above) without further financing and adjustments
      to our levels of expenditures that we deem necessary to maximize the remaining
      asset values. In 2006, our operations consumed approximately $620,236 in cash.
      However, after giving effect to the gross receipt of $1,200,000 related to
      the
      amendment and restatement of the Kyosei agreement and additional cash increases
      related to $12,711 in interest income, our net cash increased for 2006 by
      approximately $592,474.




20




The
      “Assumed acquisition obligations” relates primarily to past due payment
      obligations owed to several parties totaling $622,750 **** at
      December 31, 2006. Our former CEO is owed $206,250 for a bonus earned in 2004
      and $275,000 for severance relating to the termination of his employment in
      2005. No portion of these obligations, totaling $481,250, has been paid; such
      amounts are included in “Accrued payroll, deferred bonuses and related expenses”
at December 31, 2006. For a discussion of other changes in accrued expenses
      and
      assumed acquisition obligations see Note 7 to our financial
      statements.




In
      connection with our acquisition of the *Imagent* Business, we undertook certain obligations, including (i) subject to
      reaching satisfactory agreements with certain Alliance secured and unsecured

      creditors, to pay an aggregate amount of up to approximately $3,000,000 to
      creditors, of which all but approximately $1,179,000 has been paid, and
      (ii) to pay certain royalties based upon sales of *Imagent* through
      June 2010, subject to certain offsets. The remaining unpaid obligations
      assumed in connection with the *Imagent* Business
      acquisition referenced above now totals approximately $925,000 at year end
      2006.  This includes $622,750 related to certain notes (of which all
      remain past due at year end). Our other obligations that we assumed from
      Alliance have been discharged.




***RESULTS
      OF OPERATIONS***




*Revenue
      and License Fees*




We
      did
      not generate significant product revenues during 2005 or 2006, due to capital
      constraints limiting our sales and marketing capability and the cessation of
      manufacturing operations related to the closing of our FDA-approved
      manufacturing facility in 2005. Any sales of products are therefore included
      in
      our financial statements under “investment and other income.”




License
      revenues relate to the amortization and/or recognition of license revenue
      received but previously deferred in December 2003 ($2,000,000), April 2004
      ($2,000,000), October 2004 ($4,000,000), September 2005 ($1,200,000) and
      November and December 2006 ($1,200,000).




In
      December 2003, we entered into a product license agreement with Kyosei for
      the development and marketing of *Imagent* in Japan
      for all radiology and cardiology indications. We received a gross payment of
      $2,000,000 from Kyosei in late 2003 and another $2,000,000 in the second quarter
      of 2004 (both of which were recorded as deferred revenue on a gross basis),
      less
      a total of $400,000 of taxes withheld at the source (for which $200,000 was
      charged against operations in each of 2003 and 2004). In November and December
      2006 we entered into an amended and restated license agreement which yielded
      another $1,300,000, ($1,200,000 to us and $100,000 to Alliance). As a result
      of
      these Kyosei payments aggregating $5,300,000, we are obligated to pay Schering
      AG a total of $530,000 ($100,000 of which was paid in 2004 and an additional
      amount now totaling $430,000 remains unpaid at December 31, 2006. Through
      December 31, 2005 we recognized income from these payments ratably over the
      remaining lives of our related underlying *Imagent* patents,
      as calculated at the time the respective payments are received. Subsequent
      to
      that date we have recognized the full license fees inuring to our benefit
      without further deferrals. Accordingly, we recognized $1,200,000 as earned
      license revenue in 2006, and $338,095 as license revenue in 2005 in connection
      with the Kyosei agreements. Because we no longer conducted manufacturing
      operations, effective November 13, 2006 we entered into an amended and restated
      license agreement with Kyosei which relieved us of the obligation to manufacture
      and supply Imagent for Kyosei and we assigned to Kyosei certain patents and
      a
      trademark for use in Japan. Kyosei paid a total fee of $1,300,000. In accordance
      with our Settlement Agreement with Alliance dated as of September 19, 2005
      an
      aggregate of $100,000 (approximately $91,000 net, after deducting Alliance’s
      allocated share of direct expenses) of the Kyosei proceeds was paid to Alliance.
      After taking into account direct expenditures attributed to this transaction
      for
      which we had remaining responsibility, and which totaled approximately $104,000
      (including agent commission fees and incremental royalty obligations to Schering
      AG), we received net approximately $1,096,000.




21




In
      2004, we entered into a non-exclusive technology cross-license agreement with
      Bristol-Myers Squibb. We received a gross payment of $4,000,000 in connection
      with the license and an additional $4,500,000 under a related stock purchase
      agreement. We have recognized $358,212 and $-0- **** license
      revenue for 2005 and 2006, respectively, in connection with this technology
      license utilizing the same revenue recognition method described above. We do
      not
      owe Schering AG any royalty on the payments from this technology license
      because, among other things, it did not involve our sale of
      products.




*Research
      and Development*




Essentially
      all of our research expenses since the third quarter of 2004 until the early
      second quarter 2005 had been directed toward infrastructure and expenses
      associated with regulatory compliance and continued development of *Imagent* for new
      indications and the maintenance of our manufacturing capability. Since early
      in
      the second quarter of 2005, however, the majority of the costs have been
      expended with a focus on patent considerations, regulatory and clinical
      considerations in keeping with our overall objective to preserve net asset
      values for the benefit of creditors and shareholders. In August 2005, we
      notified the FDA that we suspended any activity related to the IND. Our
      regulatory and clinical operations were discontinued as part of our
      restructuring plan.  Based on the discontinuance of our research and
      development, regulatory and clinical operations, patent costs incurred in
      connection with preserving the Company’s intellectual property, which previously
      had been classified as research and development activities, have been
      reclassified to selling, general and administrative expenses. The
      following is a summary of our major research and development cost categories
      (all amounts approximate):





Fiscal
                Year Ended
              December
                31, 2005
            
            Fiscal
                Year Ended
              December
                31, 2006
            
            Increase/
              (Decrease)
              2005
                to 2006Personnel
            
            $
            746,000
            
            $
            —
            
            $
            (746,000
            )Contract
                consultants
            
            
            341,000
            
            
            —
            
            
            (341,000
            )Production
                facilities costs
            
            
            122,000
            
            
            —
            
            
            (122,000
            )Supplies
            
            
            17,000
            
            
            —
            
            
            (17,000
            )Gain
                on equipment lease settlement
            
            
            —
            
            
            —
            
            
            —Other
            
            
            75,000
            
            
            —
            
            
            (75,000
            )Total
            
            $
            1,301,000
            
            $
            —
            
            $
            (1,301,000
            )




22




We
      had no
      personnel, contract consultants’ charges, production facilities costs and
      supplies in 2006, and to the extent incurred during 2005 were greatly reduced
      over prior years primarily due to our cessation of operations and implementation
      of other aspects of our restructuring plan which was initiated in the three
      months ending June 30, 2005. The only research and development costs incurred
      in
      2006 related solely to patent and related intellectual property protection
      activities for *Imagent* ,
      in
      furtherance of our restructuring plan.




Our
      research and development expenses related to *Imagent* were
      approximately $1,301,000 and **** $-0-
      for
      the 2005 and 2006 fiscal years, respectively. We have incurred a total of
      $6,842,000 in development expense for *Imagent* .




*Selling,
      General and Administrative Expense*




The
      following is a summary of the major cost categories in selling general and
      administrative expenses (all amounts approximate):





Fiscal
                Year
              Ended
              December
                31,
              2005
            
            Fiscal
                Year
              Ended
              December
                31,
              2006
            
            Increase/
              (Decrease)
              2005
                to 2006Personnel
            
            $
            845,000
            
            $
            —
            
            
            (845,000
            )Contract
                consultants
            
            
            646,000
            
            
            108,000
            
            
            (538,000
            )Stock
                based compensation
            
            
            1,078,000
            
            
            42,000
            
            
            (1,036,000
            )Legal
                and accounting
            
            
            1,324,000
            
            
            191,000
            
            
            (1,133,000
            )Fees
            
            
            1,675,000
            
            
            —
            
            
            (1,675,000
            )Facilities
                costs
            
            
            937,000
            
            
            12,000
            
            
            (925,000
            )Insurance
            
            
            476,000
            
            
            173,000
            
            
            (303,000
            )Commission
                related to earned license revenues
            
            
            —
            
            
            48,000
            
            
            48,000Royalties
                related to earned license revenues
            
            
            —
            
            
            28,000
            
            
            28,000Depreciation
                & amortization
            
            
            618,000
            
            
            —
            
            
            (618,000
            )Amortization
                of purchase technology
            
            
            1,303,000
            
            
            —
            
            
            (1,303,000
            )Patent
                costs
            
            
            148,000
            
            
            157,000
            
            
            9,000Other
            
            
            396,000
            
            
            31,000
            
            
            (365,000
            )Total
            
            $
            9,446,000
            
            $
            790,000
            
            
            (8,656,000
            )




Personnel,
      contract consultants, facilities and insurance expenses decreased from 2005
      to
      the comparable 2006 period, primarily due to our efforts to cut expenses and
      implement our restructuring plan.




There
      were no personnel costs in 2006, as all employee relationships were terminated
      in 2005 as part of our restructuring activities. Personnel costs in 2005 include
      a contractually obligated bonus of $206,250 to our then chief executive officer
      incurred in 2004, which remains unpaid in its entirety at December 31, 2006.
      In
      addition, the personnel costs incurred for 2005 include approximately
      $329,000 **** in
      net
      one-time charges for severance and incentive retention bonuses. Gross charges
      incurred during 2005 totaled $389,000, but was reduced by the offsetting waiver
      of a previously accrued bonus of $60,000 related to a prior period. Of the
      gross
      charges of $389,000, of which $34,000 represented nominal severance incentives
      paid to former staff in order to induce orderly restructuring of our affairs,
      $275,000 reflects the accrual of a one year salary severance obligation
      contractually owed to our former chief executive officer whose employment with
      us ended on May 31, 2005 (and which also remains unpaid in its entirety at
      December 31, 2006) and $80,000 in incentive retention bonuses issued in favor
      of
      our chief operating officer and one other employee who were both deemed integral
      to conducting the orderly restructuring of our operations in a manner necessary
      to preserve net asset values for creditors and shareholders.




23




Contract
      consultant charges decreased significantly from the fiscal year ended December
      31, 2005 for the comparable 2006 period, due to the restructuring plan commenced
      in the second quarter of 2005.




Stock
      based compensation expense decreased during the fiscal year ended December
      31,
      2006 over the comparable 2005 period. The 2005 charges were significantly larger
      primarily due to the accelerated expense recognition of approximately 88,290
      option-shares which had previously been issued at then below-market strike
      process to our former chief executive officer, but which became 100% vested
      on
      his employment termination date of May 31, 2005. Expenses recognized in 2006
      related to options granted in prior period to two board members as compensation
      for their service on our board of directors.




Legal
      and accounting expense decreased significantly from the fiscal year ended
      December 31, 2006 from the comparable period in 2005. Costs incurred during
      2006
      were relatively lower as a result of completing or curtailing litigation and
      registration activities. Costs incurred in 2006 related primarily to
      contract-related matters (including the amended and restated license agreement
      with Kyosei effective as of November 13, 2006) and SEC compliance and related
      reporting matters.




There
      were no expenditures on fees in 2006. Fees incurred during the fiscal year
      ended
      December 31, 2005 related almost entirely to late registration penalties that
      began accruing in January 2005 for shares for which we have filed two
      registration statements.  Given our financial circumstances and goal to
      maximize the funds available to creditors, we withdrew those registration
      statements. We have stopped accruing penalty shares for investors that had
      registration rights, either by agreement (as with Oxford Bioscience Partners
      IV L.P., MRNA Fund II, L.P. and Mi3 L.P.) or because the shares originally
      issued became salable under Rule 144.




Commissions
      of $48,000 and royalties of $28,000 incurred in 2006 (none in 2005) related
      solely to the amended and restated license agreement with Kyosei effective
      as of
      November 13, 2006, net of that portion which was reimbursed by Alliance as
      their
      pro rata portion (approximately $4,000 and $2,000, respectively).




Depreciation
      and amortization costs incurred during 2005 related to only that portion
      expensed up through April 2005, as after that date we took our equipment out
      of
      use and prepared for public auction, which was conducted in June 2005, in
      accordance with our restructuring activities.




24




*Loss
      on Disposal of Property, Plant and Equipment*





During
      the year ended December 31, 2005, furniture, fixtures and equipment with a
      net
      book value of $550,689 ($1,827,859 cost, less $1,083,993 accumulated
      depreciation and amortization and less $193,177 allowance for impairment
      reserve) was sold or otherwise disposed of for $324,384 in net proceeds,
      resulting in a loss on disposal of equipment totaling $226,305. No such losses
      were incurred in 2006, as all equipment was disposed in 2005 in accordance
      with
      our restructuring activities.




*Impairment
      Losses*




In
      2006,
      we recorded impairment losses totaling $1,000,000 against the remaining net
      value of our Purchased Technology, after completing the amended and restated
      license agreement with Kyosei for which we received gross compensation of
      $1,200,000, after which we gave further consideration as to the likelihood
      of
      concluding any similar transactions, which we deem unlikely in the near term.




In
      2005,
      we recorded the impairment losses totaling a net amount of approximately
      $7,506,500 in order to reflect fair market value of certain assets for which
      we
      were able to make reasonable estimations, all as a result of our restructuring
      activities (all amounts approximate):




**· ****
            Leasehold
                improvements - $3,072,500 (reduced to a remainder carrying value
                of
                $20,000 at June 30, 2005, an amount which was associated with a pending
                transaction that was subsequently concluded by December 31, 2005
                for which
                we received cash consideration);




**· ****
            Equipment
                - $193,000 (reduced to a remainder carrying value of $31,220 at June
                30,
                2005, an amount which was associated with a pending transaction that
                was
                subsequently concluded by December 31, 2005 for which we received
                cash
                consideration);




**· ****
            Technology
                license - $570,500 (reduced to a remainder carrying value of $102,500
                at
                June 30, 2005, an amount which was associated with a pending transaction
                that was subsequently concluded by December 31, 2005 for which we
                received
                cash consideration);




**· ****
            Purchased
                Technology - $11,373,500 (reduced to a remainder carrying value of
                $1,000,000 at December 31, 2005);
                and




**·****
            Deferred
                royalties - $416,500 (reduced to a carrying value of $-0- at December
                31,
                2005).




25




In
      addition, the above impairment charges, totaling approximately $15,626,000,
      were
      offset by the adjustment of previously deferred revenue totaling
      approximately $8,119,500, resulting in net impairment charges recognized in
      2005
      amounting to approximately $7,506,500.




*Investment
      and Other Income*





Investment
      and other income for the years ended December 31, 2005 and 2006 was $42,875
      and
      $12,711, respectively. Investment and other income for 2006 **** decreased
      from the comparable period in 2005, primarily due to the cessation of the
      production and sales of *Imagent* in 2005.
      Our investment and income in 2006 consisted solely of interest earnings on
      our
      cash reserves, whereas only $3,952 was attributed to interest earnings in
      2005.




*Gain
      on Extinguishment of Debt*





In
      2005,
      we obtained a settlement of obligations totaling $114,802 in exchange for cash
      payments of $10,360, resulting in a gain on the extinguishment of debt of
      $104,442. In
      2006,
      we obtained a settlement of obligations totaling $361,242 in exchange for cash
      payments of $36,321, resulting in a gain on the extinguishment of debt of
      $324,921. We continue to negotiate with creditors from time to time, with the
      objective of achieving compromises with similar discounts, to the extent our
      cash reserves permit.




*Interest
      Expense*





Interest
      expense was $90,857 and $97,187 **** for
      the
      years ended December 31, 2005 and 2006, respectively. There as no change in
      the
      underlying amounts of obligations of interest-bearing notes receivable and
      other
      interest bearing obligations during 2006, which is attributable to royalties
      accrued from Schering AG (with an adjustable interest rate feature), obligations
      assumed in the Alliance transactions, and amounts owed to certain shareholders.
      No interest payments have been made in either year.




*Preferred
      Stock*




There
      were no preferred stock dividend obligations in either 2005 or 2006, as to
      any
      series of Preferred Stock.




*Loss
      Attributable to Common Shareholders*




As
      a
      result of the above factors, the net loss applicable to common shareholders
      was
      $17,697,883 and $349,816 for the years ended December 31, 2005 and 2006
      respectively. Basic and diluted loss per common share was $2.95 and $$0.05,
      respectively, for these periods. Weighted average shares utilized in these
      calculations were 6,003,141 and 6,962,456, respectively. The increase in
      weighted shares outstanding was due primarily to the issuance of shares in
      settlement of penalties and late registration fees during 2005, all of which
      were outstanding for the duration of 2006. There were no additional issuances of common stock made in 2006, other than
      related to rounding by one share associated with the continued exchange of
      common shares pursuant to the reverse stock split effected in 2005.




26




***PLAN
      OF OPERATION*** ****




In
      April
      and May 2005, we adopted a restructuring plan that resulted in cessation or
      suspension of substantially all operations, including significant employee
      reduction-in-force, sale of excess equipment, suspension of manufacturing and
      clinical activities, cessation of current selling activities, vacating its
      premises, and the sale of certain of our technology. We also helped locate
      a
      third party to occupy our facility, and accordingly were able to negotiate
      a
      lease termination agreement which was concluded in July 2005. However,
      abandoning our facility resulted in us no longer being able to
      manufacture *Imagent* ourselves. We have also sold our equipment and other licensed technology
      assets except for the *Imagent* Purchased Technology.




Therefore,
      we are currently unable to operate in a manner that would allow us to further
      develop or promote the *Imagent* product.
      In August 2005, we notified the FDA that we suspended any activity related
      to
      the Investigational New Drug Application. We will focus our limited resources
      primarily on preserving the value of the Purchased Technology, to the extent
      possible, and exploring various options concerning our business, including
      joint
      venturing, licensing or selling our *Imagent* Purchased Technology and other possible strategic transactions. We no longer
      have current human, financial and other resources available to us at this time
      to carry out our original business plan or fully develop and
      commercialize *Imagent* on our
      own. Our plan is to effectuate the restructuring plan described
      above.




We
      will
      continue to investigate with other parties as to potential transactions that
      would create additional revenues (license, royalty or other form of revenues)
      from the licensing or sale of Imagent. In addition, we plan to maintain our
      intellectual property and patent estate related to Imagent, including conducting
      those additional activities necessary to preserve the value of this asset for
      potential other licensing or related strategic transactions. Our activities
      will
      also include those actions necessary to meet our regulatory, financial and
      tax
      reporting obligations. When opportunities present themselves, we will negotiate
      with certain creditors and execute related settlement agreements with those
      certain creditors who have agreed to take fractional payments for their
      liability claims in exchange for a full and final release of the related
      indebtedness, which will result in gains from debt extinguishment for our
      benefit. We have no current plans to hire any staff or to pursue any
      manufacturing, marketing or distribution activities.




***CONTRACTUAL
      OBLIGATIONS***




The
      following table summarizes our approximate contractual obligations as of
      December 31, 2006 and the effect such obligations are expected to have on our
      liquidity and cash flow for future periods:





Total
              Obligations
              All
                Years
            
            2007
            
            2008
            
            2009
            
            2010*Imagent*purchase obligations and related notes (remaining)
            
            $
            808,000
            
            $
            808,000
            
            $
            —
            
            $
            —
            
            $
            —Notes
                payable
            
            
            192,000
            
            
            192,000
            
            
            —
            
            
            —
            
            
            —Accrued
                royalty liabilities
            
            
            432,000
            
            
            432,000
            
            
            —
            
            
            —
            
            
            —Severance
                and unpaid bonus to former CEO
            
            
            481,000
            
            
            481,000
            
            
            —
            
            
            —
            
            
            —Settlement
                amounts owed and guaranteed pursuant to equipment lease
                settlement
            
            
            493,000
            
            
            493,000
            
            
            —
            
            
            —
            
            
            —Other
                liabilities- past due
            
            
            696,000
            
            
            696,000
            
            
            —
            
            
            —
            
            
            —Accounts
                payable- ($1,452,000 past due)
            
            
            1,501,000
            
            
            1,501,000
            
            
            —
            
            
            —
            
            
            —Total
                contractual cash obligations
            
            $
            4,603,000
            
            $
            4,603,000
            
            $
            —
            
            $
            —
            
            $
            —




27




We
      were
      released from operating lease obligations totaling approximately $2,285,000,
      which were related to our facilities lease at 6175 Lusk Boulevard in San Diego,
      pursuant to a lease termination agreement executed July 19, 2005 and made
      effective on or about July 31, 2005.




As
      of December 31, 2006, we have not entered into any purchase orders for capital
      equipment.




***SIGNIFICANT
      ESTIMATES*** ****




Our
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with generally accepted accounting principles in the United States.
      The preparation of these financial statements requires us to make estimates
      and
      judgments that affect the reported amounts of assets, liabilities and expenses.
      On an ongoing basis, we evaluate our estimates and judgments, including those
      related to evaluation of impairment analysis of long-lived assets. We based
      our
      estimates on historical experience and on various other assumptions that we
      believe to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      from
      these estimates under different assumptions or conditions. We believe our most
      significant estimates relate to the impairment analysis we perform on long-lived
      assets to assess when a change in circumstances indicates that the carrying
      value may not be recoverable and we estimate the probable future cash flows
      related to that asset. We base our valuation assumptions on currently available
      information including estimates of market size and penetration, pricing,
      competitive threats and general operating expenses. These estimates may change
      and such changes may impact future estimates of carrying value.




We
      consider the valuation of our investment in the *Imagent* Business
      to be a significant estimate. The carrying value of the *Imagent* Business
      at December 31, 2005 was approximately $1,000,000, net of accumulated
      depreciation and amortization and allowances for impairment, including assets
      purchased subsequent to the acquisition of the *Imagent* Business. On an annual basis (or more often as conditions may warrant), we
      continue to evaluate the carrying value of the *Imagent* Business
      and make any necessary adjustments (which we did again at December 31, 2006).
      Our valuation assumptions have been based on currently available information
      including estimates of market size and penetration, pricing, competitive threats
      and general operating expenses. These estimates may change and such changes
      may
      impact future estimates of carrying value.




28




At
      December 31, 2006, after giving consideration to a) the amended and restated
      license agreement with Kyosei, for which we received gross proceeds of
      $1,200,000 in additional earned license revenue in November and December 2006,
      and b) the likelihood of executing any similar agreements in the near term,
      we
      recorded an additional and final charge for impairment losses on the *Imagent* Purchased Technology in the amount of $1,000,000, reducing the carrying value
      on
      our balance sheet as of that date to $-0-.




***RECENT
      ACCOUNTING PRONOUNCEMENTS***




In
      March
      2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial
      Assets, an amendment of FASB Statement No. 140” (“SFAS No. 156”). SFAS No. 156
      amends SFAS No. 140 to require that all separately recognized servicing assets
      and liabilities in accordance with SFAS No. 140 be initially measured at fair
      value, if practicable. Furthermore, this standard permits, but does not require,
      fair value measurement for separately recognized servicing assets and
      liabilities in subsequent reporting periods. SFAS No. 156 is also effective
      for
      the Company beginning January 1, 2007; however, the standard is not expected
      to
      have any impact on the Company’s financial position, results of operation or
      cash flows.




In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109,” (“FIN 48”). FIN 48
      clarifies the accounting for uncertainty in tax positions and requires that
      a
      Company recognize in its financial statements the impact of a tax position,
      if
      that position is more likely than not of being sustained on audit, based on
      the
      technical merits of the position. The provisions of FIN 48 are effective for
      fiscal years beginning after December 15, 2006. The adoption of FIN 48 is not
      expected to have any impact on the Company’s financial statements.




In
      September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS 157 defines fair value, establishes a framework for
      measuring far value in generally accepted accounting principles and expands
      related disclosures about fair value measurements. This Statement focuses on
      creating consistency and comparability in fair value measurements. SFAS No.
      157
      is effective for the Company beginning January 1, 2008, including any interim
      reporting periods. The Company is currently evaluating the impact of adopting
      SFAS No. 157 on its financial statements.




In
      September 2006, the SEC Staff issued Staff Accounting Bulletin No. 108 (“SAB
      108”) to require registrants to quantify financial statement misstatements that
      have been accumulating in their financial statements for years and to correct
      them, if material, without restating. Under the provisions of SAB 108, financial
      statement misstatements are to be quantified and evaluated for materiality
      using
      both balance sheet and income statement approaches. SAB 108 is effective for
      fiscal years ending after November 15, 2006. The adoption of SAB 108 did not
      have a material impact on our financial statements.


29




***ITEM
      7. FINANCIAL STATEMENTS.***




***INDEX
      TO FINANCIAL STATEMENTS***




**Page**Report
                of Independent Registered Public Accounting Firm
            
            
            31FINANCIAL
                STATEMENTS:Consolidated
                Balance Sheets as of December 31, 2005 and 2006
            
            
            33Consolidated
                Statements of Operations for the Years EndedDecember
                31, 2005 and 2006 and for the Period from November 3,
                1996(inception)
                through December 31, 2006
            
            
            34Consolidated
                Statements of Shareholders’ Equity (Deficit) forthe
                Period from November 3, 1996 (inception) throughDecember
                31, 2006
            
            
            35Consolidated
                Statements of Cash Flows for the Years EndedDecember
                31, 2005 and 2006 and for the Period fromNovember
                3, 1996 (inception) through December 31, 2006
            
            
            41Notes
                to Consolidated Financial Statements
            
            
            44




30


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Board of Directors and Stockholders of


IMCOR
      Pharmaceutical Co.




We
      have
      audited the accompanying balance sheets of IMCOR Pharmaceutical Co. (the
“Company”), a Development Stage Company, as of December 31, 2006 and 2005, and
      the related statements of operations, stockholders' deficit, and cash flows
      for
      the years then ended, and for the period from November 3, 1996 (inception)
      through December 31, 2006. These financial statements are the responsibility
      of
      the Company's management. Our responsibility is to express an opinion on these
      financial statements based on our audit.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require that
      we plan and perform the audit to obtain reasonable assurance about whether
      the
      financial statements are free of material misstatement *.*  The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An
      audit also includes examining, on a test basis, evidence supporting the amounts
      and disclosures in the financial statements, 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 financial position of IMCOR Pharmaceutical Co. as of
      December 31, 2006 and 2005, and the results of its operations and its cash
      flows
      for the years then ended, and for the period from November 3, 1996 (inception)
      through December 31, 2006, in conformity with accounting principles generally
      accepted in the United States of America.





As
      discussed in Note 2 to the financial statements, the Company changed its method
      of accounting for stock-based compensation, effective January 1, 2006, as a
      result of the adoption of Statement of Financial Accounting Standards No. 123R,
      Share-Based Payments.




31


The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 2 to the financial
      statements, the Company has reported recurring losses from operations through
      December 31, 2006 and had a working capital deficit at December 31, 2006. These
      factors raise substantial doubt about the Company’s ability to continue as a
      going concern. Management’s plans as to these matters are described in Note 2.
      The accompanying financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




SQUAR,
        MILNER,
        PETERSON,
        MIRANDA& WILLIAMSON,
        LLP


San
      Diego, California


April
      13,
      2007




32





IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES


(A
      Development Stage Company)


CONSOLIDATED
      BALANCE SHEETS





December
                31,
              2005
            
            December
                31,
              2006ASSETSCurrent
                Assets:Cash
                and cash equivalents
            
            $
            717,024
            
            $
            1,309,498Prepaid
                expenses and other current assets
            
            
            144,535
            
            
            30,648Total
                current assets
            
            
            861,559
            
            
            1,340,146Other
                assets:Purchased
                technology, net
            
            
            1,000,000
            
            
            —1,000,000
            
            
            —$
            1,861,559
            
            $
            1,340,146




LIABILITIES
                AND SHAREHOLDERS’ DEFICITCurrent
                Liabilities:Notes
                payable - unsecured
            
            $
            192,233
            
            $
            192,233Accounts
                payable
            
            
            1,841,667
            
            
            1,500,940Accrued
                expenses and assumed acquisition obligations
            
            
            1,888,161
            
            
            1,985,348Accrued
                royalty fees
            
            
            401,946
            
            
            431,946Accrued
                equipment lease obligation
            
            
            492,984
            
            
            492,984Total
                current liabilities
            
            
            4,816,991
            
            
            4,603,451Commitments
                and contingencies (Notes 3, 8 and 13)SHAREHOLDERS’
                DEFICIT:Preferred
                stock, $0.01 par value; 5,000,000 shares authorizedSeries
                A preferred stock: 4,500 sharesauthorized,
                issued and outstanding as of December 31, 2005and
                2006, respectively; $1,000 liquidation preference per
                share($4,500,000
                in aggregate as of December 31, 2005and
                2006)
            
            
            45
            
            
            45Common
                stock, $0.001 par value; 200,000,000 shares authorized;6,962,455
                and 6,962,456 shares issued and outstandingas
                of December 31, 2005 and 2006, respectively
            
            
            6,962
            
            
            6,962Additional
                paid-in capital
            
            
            87,926,777
            
            
            87,968,720Deficit
                accumulated during the development stage
            
            
            (90,889,216
            )
            
            (91,239,032
            )(2,955,432
            )
            
            (3,263,305
            )$
            1,861,559
            
            $
            1,340,146




See
      notes
      to consolidated financial statements.


33




IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF OPERATIONS




Year
                Ended
              December
                31,
              2005
            
            Year
                Ended
              December
                31,
              2006
            
            Period
                from
              Inception
              (November
                3,
              1996)
                to
              December
                31,
              2006License
                revenue
            
            $
            725,575
            
            $
            1,200,000
            
            $
            2,280,515Operating
                expenses:Research
                and development
            
            
            1,301,149
            
            
            —
            
            
            11,981,528Selling,
                general and administrative
            
            
            9,445,898
            
            
            790,261
            
            
            56,514,811Restructuring
                charges
            
            
            —
            
            
            —
            
            
            1,541,455Provision
                for future lease payments
            
            
            —
            
            
            —
            
            
            1,264,208Loss
                on disposal of property, plant and equipment
            
            
            226,305
            
            
            —
            
            
            226,305Impairment
                losses, net
            
            
            7,506,566
            
            
            1,000,000
            
            
            8,781,045Total
                operating expenses
            
            
            18,479,918
            
            
            1,790,261
            
            
            80,309,352Operating
                loss
            
            
            (17,754,343
            )
            
            (590,261
            )
            
            (78,028,837
            )Loss
                from joint venture
            
            
            —
            
            
            —
            
            
            (14,518,000
            )Investment
                and other income
            
            
            42,875
            
            
            12,711
            
            
            1,507,585Gain
                on extinguishment of debt
            
            
            104,442
            
            
            324,921
            
            
            429,363Interest
                expense
            
            
            (90,857
            )
            
            (97,187
            )
            
            (1,729,794
            )Loss
                from continuing operations
            
            
            (17,697,883
            )
            
            (349,816
            )
            
            (92,339,683
            )Discontinued
                operations:Operating
                loss from therapeutic business
            
            
            —
            
            
            —
            
            
            (10,679,101
            )Gain
                from split-off of therapeutic business
            
            
            —
            
            
            —
            
            
            11,779,752—
            
            
            —
            
            
            1,100,651Net
                loss
            
            $
            (17,697,883
            )
            $
            (349,816
            )
            $
            (91,239,032
            )Basic
                and Diluted loss per common share fromcontinuing
                operations
            
            $
            (2.95
            )
            $
            (0.05
            )Basic
                and Diluted Loss per common sharefrom
                discontinued operations
            
            $
            —
            
            $
            —Basic
                and diluted net loss per common share
            
            $
            (2.95
            )
            $
            (0.05
            )Weighted
                average number of common sharesoutstanding-
                basic and diluted
            
            
            6,003,141
            
            
            6,962,456





See
      notes
      to consolidated financial statements.


34




IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT)





Common
            
            
            
            
            
            DeficitPreferred
                Stock
            
            
            
            
            
            Stock
            
            Unearned
            
            Additional
            
            AccumulatedSeries
                A
            
            Series
                B
            
            Common
                Stock
            
            Members’
            
            To
                Be
            
            Compen-
            
            Paid-in
            
            DevelopmentShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Issued
            
            sation
            
            Capital
            
            Stage
            
            TotalContribution
                of capital
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            $
            7,268
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            7,268Net
                loss for the period ended December 31, 1996
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,779
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,779
            )**Balance,
                at December 31, 1996**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **5,489**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **5,489**Contribution
                of capital
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss for the period January 1, 1997 to May 15, 1997
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,511
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,511
            )
            
            —**Balance,
                at May 15, 1997**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **9,000**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            (3,511
            )
            
            **5,489**Issuance
                of common stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            78,910
            
            
            79
            
            
            —
            
            
            —
            
            
            —
            
            
            1,803,371
            
            
            —
            
            
            1,803,450Effect
                of recapitalization and merger
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            371,090
            
            
            371
            
            
            (9,000
            )
            
            —
            
            
            —
            
            
            1,210,816
            
            
            1,732
            
            
            1,203,919Cost
                associated with recapitalization and merger
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (371,111
            )
            
            —
            
            
            (371,111
            )Net
                loss for the period May 16, 1997 to December 31, 1997
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (554,702
            )
            
            (554,702
            )**Balance,
                at December 31, 1997**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **450,000**
            
            
            **450**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **2,643,076**
            
            
            **(556,481**
            **)**
            
            **2,087,045**Issuance
                of common stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            10,938
            
            
            11
            
            
            —
            
            
            —
            
            
            —
            
            
            6,999,989
            
            
            —
            
            
            7,000,000Costs
                associated with common stock issuance
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (50,000
            )
            
            —
            
            
            (50,000
            )Options
                issued to consultants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            45,446
            
            
            —
            
            
            45,446Net
                loss for the year ended December 31,  1998
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,973,913
            )
            
            (1,973,913
            )**Balance,
                at December 31, 1998**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **460,938**
            
            
            **461**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **9,638,511**
            
            
            **(2,530,394**
            **)**
            
            **7,108,578**




35





IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT) (Continued)




Common
            
            
            
            
            
            DeficitPreferred
                Stock
            
            
            
            
            
            Stock
            
            Unearned
            
            Addtional
            
            AccumulatedSeries
                A
            
            Series
                B
            
            Common
                Stock
            
            Members’
            
            To
                Be
            
            Compen-
            
            Paid-in
            
            DevelopmentShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Issued
            
            sation
            
            Capital
            
            Stage
            
            TotalExercise
                of stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            56
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            50,063
            
            
            —
            
            
            50,063Issuance
                of warrants and options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,664,749
            
            
            —
            
            
            3,664,749Issuance
                of common stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            6,298
            
            
            6
            
            
            —
            
            
            —
            
            
            —
            
            
            6,082,648
            
            
            —
            
            
            6,082,654Issuance
                of preferred stock
            
            
            12,015
            
            
            120
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            11,578,839
            
            
            —
            
            
            11,578,959Reclassification
                of Series A shares as mezzanine equity in accordance with EITF
                D-98
            
            
            (12,015
            )
            
            (120
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (11,578,839
            )
            
            —
            
            
            (11,578,959
            )Net
                loss for the year ended December 31,  1999
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (6,052,841
            )
            
            (6,052,841
            )**Balance,
                at December 31, 1999**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **467,292**
            
            
            **467**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **19,435,971**
            
            
            **(8,583,235**
            **)**
            
            **10,853,203**Stock
                option compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            125,020
            
            
            —
            
            
            125,020Issuance
                of warrants and options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,366,050
            
            
            —
            
            
            1,366,050Issuance
                of preferred stock dividend
            
            
            841
            
            
            8
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (8
            )
            
            —
            
            
            —Issuance
                of preferred stock
            
            
            —
            
            
            —
            
            
            337,056
            
            
            3,370
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5,272,970
            
            
            —
            
            
            5,276,340Beneficial
                accretion of Series A shares reclassified as mezzanine
                equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (240,464
            )
            
            —
            
            
            (240,464
            )Net
                loss for the year ended December 31,  2000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (10,787,062
            )
            
            (10,787,062
            )**Balance,
                at December 31, 2000**
            
            
            **841**
            
            
            **8**
            
            
            **337,056**
            
            
            **3,370**
            
            
            **467,292**
            
            
            **467**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **25,959,539**
            
            
            (19,370,297
            )
            
            **6,593,087**Stock
                option compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            64,729
            
            
            —
            
            
            64,729Issuance
                of common stock for cash
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,462
            
            
            2
            
            
            —
            
            
            —
            
            
            —
            
            
            418,721
            
            
            —
            
            
            418,723




36





IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT) (Continued)




Common
            
            
            
            
            
            DeficitPreferred
                Stock
            
            
            
            
            
            Stock
            
            Unearned
            
            Additional
            
            AccumulatedSeries
                A
            
            Series
                B
            
            Common
                Stock
            
            Members’
            
            To
                Be
            
            Compen-
            
            Paid-in
            
            DevelopmentShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Issued
            
            sation
            
            Capital
            
            Stage
            
            TotalIssuance
                of common stock in satisfaction of anti-dilution provision
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            9,543
            
            
            10
            
            
            —
            
            
            —
            
            
            —
            
            
            (10
            )
            
            —
            
            
            —Issuance
                of preferred stock dividend
            
            
            —
            
            
            —
            
            
            20,224
            
            
            202
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (202
            )
            
            —
            
            
            —Beneficial
                accretion of Series A shares reclassified as mezzanine
                equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (195,577
            )
            
            —
            
            
            (195,577
            )Net
                loss for the year ended December 31,  2001
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (9,723,016
            )
            
            (9,723,016
            )**Balance,
                at December 31, 2001**
            
            
            **841**
            
            
            **8**
            
            
            **357,280**
            
            
            **3,572**
            
            
            **479,297**
            
            
            **479**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **26,247,200**
            
            
            **(29,093,313**
            **)**
            
            (2,842,054
            )Stock
                option compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            73,870
            
            
            —
            
            
            73,870Issuance
                of warrants for service
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            322,000
            
            
            —
            
            
            322,000Issuance
                of options in settlement of lawsuit
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            806,415
            
            
            —
            
            
            806,415Employee
                compensation from stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            988,184
            
            
            —
            
            
            988,184Issuance
                of preferred stock dividends
            
            
            —
            
            
            —
            
            
            40,194
            
            
            402
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (402
            )
            
            —
            
            
            —Conversion
                of Series B to common stock
            
            
            —
            
            
            —
            
            
            (397,474
            )
            
            (3,974
            )
            
            21,116
            
            
            21
            
            
            —
            
            
            —
            
            
            —
            
            
            3,953
            
            
            —
            
            
            —Beneficial
                inducement costs for convertible debt converted
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            206,348
            
            
            —
            
            
            206,348Conversion
                of line of credit with Élan to common stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            6,422
            
            
            6
            
            
            —
            
            
            —
            
            
            —
            
            
            3,082,481
            
            
            —
            
            
            3,082,487Conversion
                of line of credit with entity controlled by director of company to
                common
                stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            115,741
            
            
            116
            
            
            —
            
            
            —
            
            
            —
            
            
            2,499,884
            
            
            —
            
            
            2,500,000Retirement
                of common stock returned in shareholder transaction
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (256,855
            )
            
            (257
            )
            
            —
            
            
            —
            
            
            —
            
            
            (12,226,062
            )
            
            —
            
            
            (12,226,319
            )




37





IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT) (Continued)





Common
            
            
            
            
            
            DeficitPreferred
                Stock
            
            
            
            
            
            
            
            Stock
            
            Unearned
            
            Additional
            
            AccumulatedSeries
                A
            
            Series
                B
            
            Common
                Stock
            
            Members’
            
            To
                Be
            
            Compen-
            
            Paid-in
            
            DevelopmentShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Issued
            
            sation
            
            Capital
            
            Stage
            
            TotalIssuance
                of common stock for cash
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            441,153
            
            
            441
            
            
            —
            
            
            —
            
            
            —
            
            
            9,141,460
            
            
            —
            
            
            9,141,901Net
                loss for the year ended December  31, 2002
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            348,119
            
            
            348,119**Balance,
                at December  31, 2002**
            
            
            **841**
            
            
            **8**
            
            
            **—**
            
            
            **—**
            
            
            **806,874**
            
            
            **806**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **31,145,331**
            
            
            **(28,745,194**
            **)**
            
            **2,400,951**Issuance
                of common stock for cash
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,389
            
            
            1
            
            
            —
            
            
            —
            
            
            —
            
            
            29,999
            
            
            —
            
            
            30,000Issuance
                of common stock for standstill agreement
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            37,500
            
            
            38
            
            
            —
            
            
            —
            
            
            —
            
            
            1,173,712
            
            
            —
            
            
            1,173,750Conversion
                of Series B to common stock
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Options
                issued to consultants for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            9,200
            
            
            —
            
            
            9,200Shares
                issued to consultant for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,438
            
            
            4
            
            
            —
            
            
            —
            
            
            —
            
            
            132,258
            
            
            —
            
            
            132,262Employee
                compensation from stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,236,566
            
            
            —
            
            
            1,236,566Shares
                issued in Technology Purchase
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            109,907
            
            
            110
            
            
            —
            
            
            —
            
            
            —
            
            
            5,583,158
            
            
            —
            
            
            5,583,268Shares
                to be issued in Technology Purchase
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5,043,226
            
            
            —
            
            
            —
            
            
            —
            
            
            5,043,226Shares
                previously subject to rescission
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            6,231
            
            
            6
            
            
            —
            
            
            —
            
            
            —
            
            
            649,994
            
            
            —
            
            
            650,000Shares
                issued to Xmark for penalties
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            4,941
            
            
            5
            
            
            —
            
            
            —
            
            
            —
            
            
            163,671
            
            
            —
            
            
            163,676Shares
                issued to Xmark for interest
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,082
            
            
            1
            
            
            —
            
            
            —
            
            
            —
            
            
            48,596
            
            
            —
            
            
            48,597Shares
                to be issued to Xmark  and other former Alliance creditors for
                interest and penalties
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            76,933
            
            
            —
            
            
            —
            
            
            —
            
            
            76,933Options
                exercised through cashless exercise
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,861
            
            
            2
            
            
            —
            
            
            —
            
            
            —
            
            
            (2
            )
            
            —
            
            
            —Xmark
                puttable shares classified as mezzanine equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,969,668
            )
            
            —
            
            
            (1,969,668
            )




38


IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT) (Continued)




Common
            
            
            
            
            
            DeficitPreferred
                Stock
            
            
            
            
            
            Stock
            
            Unearned
            
            Additional
            
            AccumulatedSeries
                A
            
            Series
                B
            
            Common
                Stock
            
            Members’
            
            To
                Be
            
            Compen-
            
            Paid-in
            
            DevelopmentShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Issued
            
            sation
            
            Capital
            
            Stage
            
            TotalNet
                loss for the year ended December  31, 2003
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (22,773,504
            )
            
            (22,773,504
            )**Balance,
                at December  31, 2003**
            
            
            **841**
            
            
            **8**
            
            
            **—**
            
            
            **—**
            
            
            **973,228**
            
            
            **973**
            
            
            **—**
            
            
            **5,120,159**
            
            
            **—**
            
            
            **38,202,815**
            
            
            **(51,518,698**
            **)**
            
            (8,194,743
            )Shares
                issued to consultant for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            11,562
            
            
            12
            
            
            —
            
            
            —
            
            
            (10,500
            )
            
            43,675
            
            
            —
            
            
            33,187Shares
                to be issued for legal fees
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            247,865
            
            
            —
            
            
            —
            
            
            —
            
            
            247,865Employee
                compensation from stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            959,283
            
            
            —
            
            
            959,283Shares
                issued in*Imagent* Business purchase
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            99,276
            
            
            99
            
            
            —
            
            
            (5,043,226
            )
            
            —
            
            
            5,043,127
            
            
            —
            
            
            —Shares
                issued for penalties
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            8,935
            
            
            9
            
            
            —
            
            
            (107,513
            )
            
            —
            
            
            244,460
            
            
            —
            
            
            136,956Shares
                to be issued to Xmark and secured creditors for interest and
                penalties
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            252,357
            
            
            —
            
            
            —
            
            
            —
            
            
            252,357Shares
                issued as payment for promissory notes
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,679,173
            
            
            1,679
            
            
            —
            
            
            —
            
            
            —
            
            
            13,431,705
            
            
            —
            
            
            13,433,384Shares
                issued for cash, net
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,268,750
            
            
            1,269
            
            
            —
            
            
            —
            
            
            —
            
            
            9,323,731
            
            
            —
            
            
            9,325,000Shares
                to be issued to investors for late registration
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            832,300
            
            
            —
            
            
            —
            
            
            —
            
            
            832,300Issuance
                of stock in settlement of lease
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            30,829
            
            
            31
            
            
            —
            
            
            —
            
            
            —
            
            
            586
            
            
            —
            
            
            617Xmark
                puttable shares issued from mezzanine equity
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,969,668
            
            
            —
            
            
            1,969,668Conversion
                of Series A to common stock
            
            
            (841
            )
            
            (8
            )
            
            —
            
            
            —
            
            
            9,763
            
            
            10
            
            
            —
            
            
            —
            
            
            —
            
            
            12,161,445
            
            
            —
            
            
            12,161,447Retirement
                of puttable shares
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (80,600
            )
            
            (81
            )
            
            —
            
            
            (203,190
            )
            
            —
            
            
            (1,575,176
            )
            
            —
            
            
            (1,778,447
            )Adjust
                shares for prior rounding
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Shares
                to be issued to consultants for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            22,000
            
            
            —
            
            
            —
            
            
            —
            
            
            22,000Shares
                issued for cash, net
            
            
            4,500
            
            
            45
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            4,139,955
            
            
            —
            
            
            4,140,000




39





IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT) (Continued)




Common
            
            
            
            
            
            DeficitPreferred
                Stock
            
            
            
            
            
            Stock
            
            Unearned
            
            Additional
            
            AccumulatedSeries
                A
            
            Series
                B
            
            Common
                Stock
            
            Members’
            
            To
                Be
            
            Compen-
            
            Paid-in
            
            DevelopmentShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Issued
            
            sation
            
            Capital
            
            Stage
            
            TotalProceeds
                from contribution by shareholder
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            46,690
            
            
            —
            
            
            46,690Warrants
                issued for services rendered
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            28,400
            
            
            —
            
            
            28,400Net
                loss for the year ended December  31, 2004
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (21,672,635
            )
            
            (21,672,635
            )**Balance
                December 31, 2004**
            
            
            **4,500**
            
            
            **45**
            
            
            **—**
            
            
            **—**
            
            
            **4,000,916**
            
            
            **4,001**
            
            
            **—**
            
            **$**
            **1,120,752**
            
            **$**
            **(10,500**
            **)**
            
            **84,020,364**
            
            
            **(73,191,333**
            **)**
            
            **11,943,329**Shares
                issued for services
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            105,610
            
            
            105
            
            
            —
            
            
            (269,865
            )
            
            10,500
            
            
            269,760
            
            
            —
            
            
            10,500Employee
                compensation from stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            1,077,780
            
            
            —
            
            
            1,077,780Shares
                issued for penalties
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,855,743
            
            
            2,856
            
            
            —
            
            
            (850,887
            )
            
            —
            
            
            2,516,623
            
            
            —
            
            
            1,668,592Options
                issued in settlement of claim
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            42,250
            
            
            —
            
            
            42,250Shares
                issued per round-up requirement related to reverse stock
                split
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            186
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss for the year ended December  31, 2005
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (17,697,883
            )
            
            (17,697,883
            )**Balance
                December 31, 2005**
            
            
            **4,500**
            
            
            **45**
            
            
            **—**
            
            
            **—**
            
            
            **6,962,455**
            
            **$**
            **6,962**
            
            
            **—**
            
            
            **—**
            
            
            **—**
            
            
            **87,926,777**
            
            
            (90,889,216
            )
            
            (2,955,432
            )Employee
                compensation from stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            41,943
            
            
            —
            
            
            41,943Shares
                issued per round-up requirement related to reverse stock
                split
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss for the year ended December  31, 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (349,816
            )
            
            (349,816
            )**Balance
                December 31, 2006**
            
            
            **4,500**
            
            $
            45
            
            
            **—**
            
            $
            —
            
            
            **6,962,456**
            
            **$**
            **6,962**
            
            **$**
            **—**
            
            **$**
            **—**
            
            **$**
            **—**
            
            **$**
            **87,968,720**
            
            **$**
            (91,239,032
            )
            **$**
            (3,263,305
            )




40


IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF CASH FLOWS




Year
                Ended
              December
                31,
              2005
            
            Year
                Ended
              December
                31,
              2006
            
            Period
                from
              Inception
              (November
                3,
              1996)
                to
              December
                31,
              2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (17,697,883
            )
            $
            (349,816
            )
            $
            (91,239,032
            )Net
                gain from discontinued operations
            
            
            —
            
            
            —
            
            
            (1,100,651
            )Adjustments
                to reconcile net loss to cash (used in)provided
                by operating activities:Depreciation
                and amortization
            
            
            1,920,667
            
            
            —
            
            
            8,406,351Loss
                on disposal of property, plant and equipment
            
            
            226,305
            
            
            —
            
            
            262,529Gain
                on sale of marketable securities
            
            
            —
            
            
            —
            
            
            (18,503
            )United
                States Treasury Notes amortization
            
            
            —
            
            
            —
            
            
            12,586Stock
                based compensation
            
            
            1,077,780
            
            
            41,943
            
            
            5,003,342Gain
                on extinguishment of debt
            
            
            (104,442
            )
            
            (324,921
            )
            
            (429,363
            )Gain
                from equipment lease settlement
            
            
            —
            
            
            —
            
            
            (126,257
            )License
                revenue deferred
            
            
            1,000,000
            
            
            —
            
            
            9,000,000Recognition
                of deferred license revenue
            
            
            (725,575
            )
            
            —
            
            
            (1,080,515
            )Amortization
                of deferred royalties expense
            
            
            41,667
            
            
            —
            
            
            83,334Valuation
                impairment allowances
            
            
            7,506,566
            
            
            1,000,000
            
            
            8,781,045Beneficial
                inducement costs for convertible notes
            
            
            —
            
            
            —
            
            
            206,348Issuance
                of warrants for services rendered
            
            
            —
            
            
            —
            
            
            4,345,491Issuance
                of stock options in settlement of lawsuit
            
            
            —
            
            
            —
            
            
            806,415Issuance
                of stock for standstill agreement
            
            
            —
            
            
            —
            
            
            1,173,750Issuance
                of stock for services rendered
            
            
            10,500
            
            
            —
            
            
            445,814Issuance
                of stock for interest payments and penalties
            
            
            1,668,592
            
            
            —
            
            
            3,179,410Equity
                in loss of affiliate
            
            
            —
            
            
            —
            
            
            14,518,000Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            33,916
            
            
            —
            
            
            —Prepaid
                expenses and other current assets
            
            
            298,267
            
            
            113,887
            
            
            (30,648
            )Deferred
                royalties expense
            
            
            —
            
            
            —
            
            
            (500,000
            )Accounts
                payable
            
            
            29,558
            
            
            (15,806
            )
            
            2,073,942Accrued
                expenses and assumed acquisition obligations
            
            
            (58,944
            )
            
            127,187
            
            
            (286,770
            )Accrued
                equipment lease obligation
            
            
            —
            
            
            —
            
            
            1,050,589Other
            
            
            —
            
            
            —
            
            
            10,000Net
                cash (used in) provided by continuing operating activities
            
            
            (4,773,026
            )
            
            592,474
            
            
            (35,452,793
            )Net
                cash used in discontinued operations
            
            
            —
            
            
            —
            
            
            (10,679,101
            )




41




IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF CASH FLOWS (Continued)





Year
                Ended
              December
                31,
              2005
            
            Year
                Ended
              December
                31,
              2006
            
            Period
                from
              Inception
              (November
                3,
              1996)
                to
              December
                31,
              2006CASH
                FLOWS FROM INVESTING ACTIVITIES:Sale
                of marketable securities
            
            
            —
            
            
            —
            
            
            2,164,464Purchases
                of marketable securities
            
            
            —
            
            
            —
            
            
            (2,182,967
            )Purchases
                of United States Treasury Notes
            
            
            —
            
            
            —
            
            
            (38,656,973
            )Sale
                of United States Treasury Notes
            
            
            —
            
            
            —
            
            
            39,778,548Purchase
                of property, plant and equipment
            
            
            (3,040
            )
            
            —
            
            
            (754,674
            )Proceeds
                from disposal of property, plant and equipment
            
            
            344,384
            
            
            —
            
            
            492,135Proceeds
                from disposal of technology license
            
            
            102,500
            
            
            —
            
            
            102,500Patent
                acquisition costs
            
            
            —
            
            
            —
            
            
            (237,335
            )Investment
                in and advances to affiliate
            
            
            —
            
            
            —
            
            
            (15,107,468
            )Increase
                in note receivable
            
            
            —
            
            
            —
            
            
            (1,255,000
            )Decrease
                (increase) in deposits
            
            
            324,750
            
            
            —
            
            
            (439,370
            )Purchase
                of Imagent business
            
            
            —
            
            
            —
            
            
            (5,074,761
            )Net
                cash provided by (used in) investing activities
            
            
            768,594
            
            
            —
            
            
            (21,170,901
            )Net
                cash used in investing activities of discontinued
                operations
            
            
            —
            
            
            —
            
            
            (1,306,676
            )CASH
                FLOWS FROM FINANCING ACTIVITIESPrincipal
                payments on capital leases
            
            
            —
            
            
            —
            
            
            (291,704
            )Net
                proceeds from issuance of equity and mezzanine equity
            
            
            —
            
            
            —
            
            
            54,004,340Capital
                contributions from shareholders
            
            
            —
            
            
            —
            
            
            1,958,364Principal
                payments on acquisition debt
            
            
            —
            
            
            —
            
            
            (2,500,000
            )Principal
                payments on other debt
            
            
            —
            
            
            —
            
            
            (3,350,641
            )Proceeds
                from issuance of debt
            
            
            —
            
            
            —
            
            
            20,544,721Payments
                on lease settlement obligation
            
            
            —
            
            
            —
            
            
            (75,000
            )Cost
                of recapitalization
            
            
            —
            
            
            —
            
            
            (371,111
            )Net
                cash provided by financing activities
            
            
            —
            
            
            —
            
            
            69,918,969NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (4,004,432
            )
            
            592,474
            
            
            1,309,498CASH
                AND CASH EQUIVALENTS, BEGINNING OF YEAR
            
            
            4,721,456
            
            
            717,024
            
            
            —CASH
                AND CASH EQUIVALENTS, END OF YEAR
            
            $
            717,024
            
            $
            1,309,498
            
            $
            1,309,498SUPPLEMENTAL
                SCHEDULE OF CASH FLOWSINFORMATIONInterest
                paid
            
            $
            —
            
            $
            —
            
            $
            481,769




42




***IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES***


***(A
      DEVELOPMENT STAGE COMPANY)***


***CONSOLIDATED
      STATEMENTS OF CASH FLOWS (CONTINUED)***





***NON-CASH
      INVESTING AND FINANCING ACTIVITIES:***




***YEAR
      ENDED DECEMBER 31, 2006:***




NONE




***YEAR
      ENDED DECEMBER 31, 2005:***




In
      February 2005, the Company issued modified options in further settlement of
      claims by a former employee. The modification of the options resulted in a
      $42,250 decrease of accrued expenses with a corresponding increase in additional
      paid-in capital.




In
      September 2005, the Company entered into two simultaneous agreements with GE
      Healthcare Ltd. and Alliance Pharmaceutical Corp., for among other things,
      a
      technology cross-license valued at $1,200,000 in favor of the Company, for
      which
      the Company received $1,000,000. By agreement, the balance, or $200,000, was
      paid directly by GE Healthcare Ltd. to Alliance Pharmaceutical Corp., resulting
      in a non-cash increase in license revenue deferred and a decrease in assumed
      acquisition liabilities.


43


***IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARIES***


***(A
      DEVELOPMENT STAGE COMPANY)***


***NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)***




***1.
      OPERATIONS AND RESTRUCTURING OVERVIEW***




IMCOR
      Pharmaceutical Co. (formerly Photogen Technologies, Inc.) and Subsidiaries
      (the
“Company”) is a development-stage pharmaceutical company previously focused on
      developing medical imaging pharmaceutical products. On February 5, 2004,
      the Company changed its name to IMCOR Pharmaceutical Co. to reflect the changed
      nature of the Company’s business to imaging pharmaceuticals.




One
      of
      the imaging agents is an FDA approved product, *Imagent* **®** (perflexane lipid microspheres) (“ *Imagent* ”),
      an
      ultrasound imaging contrast agent that was acquired in
      June 2003. *Imagent* had been
      previously approved for marketing by the FDA for use in patients with
      sub-optimal echocardiograms to opacify the left ventricle of the heart and
      improve delineation of the endocardial borders of the heart. Additionally,
      the
      Company had previously sought to expand the label indication for *Imagent* to
      myocardial perfusion imaging for the detection of coronary artery
      disease.




During
      the second quarter of 2005, the Company’s board of directors concluded that
      substantial additional capital resources required to fund its ongoing operations
      would not be forthcoming, and as more further described in Note 13, the Company
      has adopted and implemented an evolving restructuring plan that resulted in
      cessation or suspension of substantially all operations, including complete
      employee reduction-in-force, sale of excess equipment, suspension of
      manufacturing and clinical activities, cessation of current selling activities,
      vacating its premises, and the sale of certain of its technology. During the
      quarter ending September 30, 2005 the Company entered into a technology
      cross-license and two settlement agreements to resolve certain litigation and
      related disputes with other parties, as further described in Notes 3 and
      8.




As
      a
      result of these restructuring activities, the Company is no longer able to
      operate in a manner that would allow it to further develop or promote
      the *Imagent* product
      on its own, and is currently evaluating its alternatives with respect to efforts
      to sell or otherwise maximize asset values related to the “Purchased Technology”
(defined as the assets acquired on June 18, 2003 from Alliance Pharmaceutical
      Corp. (“Alliance”) which relate to the medical imaging business,
      including *Imagent* ®
      (perflexane lipid microspheres), an FDA-approved product), and will continue
      to
      consider as alternatives the sale or license of it’s remaining assets, a merger
      or other material transaction. Such a transaction may include selling the
      Purchased Technology, a license or sale of the patent portfolio underlying
      the
      Purchased Technology, a manufacturing rights agreement, or another form of
      transaction. While such efforts as of December 31, 2006 have resulted in one
      such arrangement which yielded $1,200,000 in gross license revenues totaling
      $1,200,000 for the year then ended (see Note 13), no other definitive agreements
      have been reached nor transactions concluded. Although the Company is still
      contacting other interested or potentially interested parties, the attainment
      of
      a sale, license, development agreement or comparable transaction, while
      possible, is not likely to be developed and/or consummated in the near
      term.




44




The
      Company had two additional contrast agents in development for use in computed
      tomography (“CT”) and x - ray imaging with potential applications,
      (1) as a blood pool agent to diagnose diseased tissue in the cardiovascular
      system and other organs (PH-50), and (2) to diagnose cancer metastasizing
      into the lymphatic system (N1177). PH-50 and N1177 are iodinated nanoparticulate
      formulations and were still in early stages of development when the Company
      concluded a sale of the Technology License (to which these assets relate) for
      $102,500 in the third quarter 2005.




For
      the
      two years prior to the acquisition of the *Imagent* business
      in 2003, substantially all the Company’s research and development efforts were
      focused on the preclinical testing of PH-50. In addition, the Company had
      conducted research and development activities on the development of certain
      therapeutic photodynamic therapy applications and the development of a medical
      laser. These operations were split-off to the founding scientists as of
      November 12, 2002 and were recorded as discontinued operations in the
      financial statements.




The
      Company has previously realized only minimal revenues resulting from the
      licensing and sale of *Imagent* through
      the date of the suspension of selling activities in the second quarter of 2005.
      Such sales were intermittent and represented selective market efforts and were
      not necessarily indicative of future revenues or market penetration which might
      have been derived from the Company’s then current or prospective indications,
      and in the event adequate financial resources had been available to the
      Company.




Currently,
      the Company’s core business focus has evolved from an operating entity
      conducting research and development, manufacturing and limited selling
      activities, to one which is now developing alternatives with respect to
      maximizing the asset value for its remaining principal Purchased Technology
      asset, continuing to protect its patent portfolio, securing extended payment
      terms and/or release of creditor claims in exchange for significantly discounted
      settlement payments to its current creditors and conducting other
      compliance-related activities, including the submission of required filings
      with
      the Securities and Exchange Commission (SEC). Costs associated with conducting
      these activities will be incurred only so long as sufficient capital remains
      available, and with the overall primary objective remaining as that of
      maximizing net values available to unsecured creditors first and shareholders
      second.




***2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:***




***LIQUIDITY
      AND BASIS OF PRESENTATION - GOING CONCERN:*** The
      accompanying consolidated financial statements are prepared assuming the Company
      is a going concern.  The Company has reported accumulated losses since
      inception of $91,239,032, and as of December 31, 2006, has a working capital
      deficit of approximately $3,263,305. In addition, and as indicated above and
      in
      more details in Note 13, a restructuring plan was implemented commencing in
      the
      second quarter of 2005.




To
      the
      extent that the Company was able to estimate with reasonable certainty the
      fair
      value of certain assets as a result of its restructuring activities, it provided
      for valuation impairment allowances during 2005 where necessary to reflect
      the
      estimated fair values, including property, leasehold improvements, and equipment
      and technology license. As a result, all non-working capital assets with the
      exception of the Purchased Technology asset and the related deferred royalty
      asset were written down to a carrying value of $-0- by September 30,
      2005.




45




At
      December 31, 2005, and then again at December 31, 2006, the Company reassessed
      the carrying value of the Purchased Technology and the related deferred
      royalties asset, after taking into consideration the following
      factors:





The
                experience related to the continued solicitation of interest in
                alternative transactions involving the Company’s Purchased Technology,
                particularly in the aftermath of the settlement of its litigation
                and the
                corresponding entry into the technology cross-license and the two
                settlement agreements;





The
                continued evolution of the Company’s business model from an operating
                entity with research and development, manufacturing and limited selling
                capabilities to a holder of intellectual property which might have
                commercial application to other interested
                parties;





The
                lack of adequate capital which precludes the Company from supporting
                next-stage obligations associated with its current product license
                for*Imagent*,
                wherein it acts as the licensor, and which has therefore disrupted
                the
                prospective nature of this commercialization activity with the licensee
                and which may therefore require an adjustment to the future business
                arrangements between the parties, which currently is being explored
                but
                has not concluded. See Note 14; and





The
                uncertainty about obtaining additional capital in amounts adequate
                to
                provide for the continued protection of the Company’s patent portfolio
                associated with the Purchased Technology, notwithstanding the two
                technology cross-licenses entered into in the fourth quarter 2004
                and the
                third quarter 2005, respectively and the license agreement amendment
                finalized in the fourth quarter of
                2006.





In
      light
      of these factors, discussed in greater detail in Note 13, the Company determined
      that as of December 31, 2005, the carrying values of the Purchased Technology
      and the related deferred royalties asset and the deferred revenue, should be
      reduced to their estimated fair values and the amount of the write-down
      recognized as additional “Impairment losses.”




Accordingly
      the net carrying value of the Purchased Technology was written down to
      $1,000,000 and the related deferred royalties asset and deferred revenue were
      written down to $-0- at December 31, 2005.




At
      December 31, 2006, the Company concluded, after further evaluation and taking
      into consideration a) the amended and restated license agreement with Kyosei,
      for which the Company received gross proceeds of $1,200,000 earned license
      revenue in November and December 2006 and b) the likelihood of entering into
      any
      similar transactions in the near term, that the remaining $1,000,000 Purchased
      Technology should be written down to $-0-, and a charge of the same amount
      was
      recorded as an additional and final impairment loss on Purchased Technology
      for
      the year ended December 31, 2006.




The
      financial statements do not include any additional adjustments 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
      any remaining uncertainties.




46




**Recapitalization
      and Merger** - In May
      1997, IMCOR Pharmaceutical Co. (formerly known as Photogen Technologies, Inc.
      which was then known as M T Financial Group, Inc. (“M T Financial”)), acquired
      Photogen, Inc. through a subsidiary merger. As a result, Photogen, Inc. became
      a
      wholly-owned subsidiary of M T Financial and then M T Financial changed its
      name
      to Photogen Technologies, Inc. (then subsequently on February 5, 2005 to IMCOR
      Pharmaceutical, Co.).




**Principles
      of Consolidation** - The
      accompanying consolidated financial statements include the accounts of IMCOR
      Pharmaceutical Co. and its wholly owned subsidiary, Sentigen Ltd. (“Sentigen”),
      a Bermuda entity. Sentigen was a joint venture with Elan International, Ltd.
      which was formed in October 1999 with the Company as an 80.1% owner. Elan was
      a
      19.9% owner but retained substantive participation and management rights. On
      June 10, 2004, the joint venture was terminated and Sentigen became a wholly
      owned subsidiary of the Company. The Company’s investment in Sentigen was
      accounted for under the equity method from inception through June 10, 2004
      and
      consolidated thereafter. All inter-company transactions have been eliminated.
      Sentigen currently has no operations and it is likely that it will be dissolved
      by the Bermuda authorities.




**Stock
      Splits** - On
      March 4, 2005, the Company effected a 1-for-20 reverse stock split of its common
      stock. In November 2002, the Company effected a 1-for-4 reverse stock split
      of
      its common stock. All share and per share amounts related to common stock in
      the
      consolidated financial statements have been retroactively adjusted for all
      periods presented to give effect to these reverse stock splits.




**Use
      of Estimates** - The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and the disclosure of contingent assets and liabilities at the
      date
      of the financial statements, as well as the reported amounts of revenue and
      expenses during the reporting period.  Actual results could differ
      materially from the estimates and assumptions that the Company uses in the
      preparation of its financial statements.




**Cash
      Equivalents** - Highly
liquid investments with a maturity of three months or less when purchased are
      classified as cash equivalents. Cash equivalents are carried at cost, which
      approximate their fair market value.




**Concentration
      Risk** -
      The
      Company maintains its cash in bank deposit accounts which, at times, may exceed
      federally insured limits. The Company has not experienced any losses in such
      accounts and believes it is not exposed to significant concentration risk based
      on the quality of the financial institutions where deposits are
      maintained. Cash balances held by federally insured institutions at
      December 31, 2006 which exceed federally insured limits amount to
      $1,212,935.




**Property,
      Plant and Equipment -** Property, plant and equipment were originally stated at cost.  Depreciation
      and amortization of equipment and furniture and fixtures was provided for using
      the straight-line method over the estimated useful lives of the assets,
      generally three to seven years.  Leasehold improvements are being amortized
      on a straight-line basis over the lives of the respective leases or the service
      lives of the improvements, whichever is shorter. Expense for maintenance and
      repairs are expensed as incurred. Impairment in the carrying values of these
      respective assets has been charged to “Impairment losses.” Upon disposition, all
      associated property, plant and equipment asset costs, together with the related
      accumulated depreciation and amortization and allowance for valuation impairment
      for the respective assets have been written off, and to the extent that such
      net
      carrying values exceeded the amount of the disposition proceeds received, if
      any, such difference is then charged to “Loss on sale of
      equipment.”




47




**Long-Lived
      Assets -** The
      Company reviews the carrying values of its long-lived assets for possible
      impairment whenever an event or change in circumstances indicates that the
      carrying value of these assets may not be recoverable and recognizes a loss
      in
      the form of an allowance for valuation impairment when it is probable that
      the
      estimated future cash flows will be less than the carrying value of the asset.
      Any long-lived assets held for disposal are reported at the lower of their
      carrying amounts or fair value less cost to sell.




**Intangible
      Assets and Deferred Royalties** -
      Intangible assets are amortized on a straight-line basis over their estimated
      useful lives. Deferred royalties assets are amortized over the same period
      as
      the related deferred revenue to which these assets relate. The carrying values
      of intangible assets are periodically reviewed and impairments, if any, are
      recognized when the expected future benefit to be derived from an intangible
      asset is less than its carrying value. Upon disposition, all associated
      intangible asset and deferred royalties asset costs, together with the related
      accumulated amortization and allowance for valuation impairment for the
      respective assets are written off, and to the extent that such net carrying
      values exceeded the amount of the disposition proceeds received, if any, such
      difference is then additionally recognized.




**Research
      and Development** -
      Research and development costs are charged to expense when
      incurred.




**Revenue
      Recognition and Deferred Revenue -** Prior to
      December 31, 2005, the date by which the Company had ceased production,
      operating and sales activities associated with its *Imagent* Purchased Technology and had sold off all of its other technology assets, the
      Company recognized revenue arising from previously received payments related
      to
      product and technology cross-license agreements ratably over remaining useful
      life (10-12 years) of the related technology as calculated from that time
      forward the respective licensing payments were received. At December 31,
      2005, the Company recognized the then remaining deferred revenue as a reduction
      of “Impairment losses” related to the corresponding impairment write downs on
      intangible assets and deferred royalties made on a contemporaneous basis.
      Commencing in the year ending December 31, 2006, receipts for fees related
      to
      product and technology license agreements for which there are no future
      performance obligations are recognized when the Company has the contractual
      rights to receive the funds. See Notes 6, 13 and 14.




**Income
      Taxes** -
      Deferred tax liabilities and assets are provided for differences between the
      book and tax bases of existing assets and liabilities and tax loss carryforwards
      and credits using tax rates expected to be in effect in the years in which
      differences are expected to reverse. Valuation allowances are provided to the
      extent realization of tax assets is not considered likely .




48




**Basic
      and Diluted Loss Per Common Share** - Basic
      and diluted loss per common share is computed based on the weighted average
      number of common shares outstanding. Loss per share excludes the impact of
      outstanding options, warrants and convertible preferred stock as they are
      anti-dilutive. Potential common shares excluded from the calculation at each
      of
      the years ended December 31, are as follows:




2005
            
            2006Options
                pursuant to plans
            
            
            167,017
            
            
            110,671Options
                outside of plans, net of cashless component
            
            
            34,977
            
            
            34,977Warrants
            
            
            819,736
            
            
            819,736Issuable
                upon conversion of preferred stock
            
            
            833,334
            
            
            833,334Total
            
            
            1,855,064
            
            
            1,798,718




**Fair
      Value of Financial Instruments** - The
      carrying amounts reported in the consolidated balance sheets for cash, accounts
      payable and accrued expenses approximate fair value because of the short-term
      nature of these amounts. The carrying value of unsecured notes payable
      approximates its fair value, as interest approximates market rates.




**Gain
      on Extinguishment of Debt** -
      Reductions of amounts owed obtained through debt settlement arrangements with
      creditors are recorded as gains from extinguishment of debt in the period such
      arrangements are reached.




**Stock
      Options** -
      Effective January 1, 2006, the Company adopted the provisions of FASB Statement
      No. 123(R), “Share-Based Payments,” (“SFAS 123(R)”) which establishes the
      accounting for employee stock-based awards. Under the provisions of SFAS
      No.123(R), stock-based compensation is measured at the grant date, based on
      the
      calculated fair value of the award, and is recognized as an expense over the
      requisite employee service period (generally the vesting period of the grant).
      The Company adopted SFAS No. 123(R) using the modified prospective method and,
      as a result, periods prior to January 1, 2006 have not been
      restated.




**Recent
      Accounting Pronouncements:**




In
      March
      2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial
      Assets, an amendment of FASB Statement No. 140” (“SFAS No. 156”). SFAS No. 156
      amends SFAS No. 140 to require that all separately recognized servicing assets
      and liabilities in accordance with SFAS No. 140 be initially measured at fair
      value, if practicable. Furthermore, this standard permits, but does not require,
      fair value measurement for separately recognized servicing assets and
      liabilities in subsequent reporting periods. SFAS No. 156 is also effective
      for
      the Company beginning January 1, 2007; however, the standard is not expected
      to
      have any impact on the Company’s financial position, results of operation or
      cash flows.




In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109,” (“FIN 48”). FIN 48
      clarifies the accounting for uncertainty in tax positions and requires that
      a
      Company recognize in its financial statements the impact of a tax position,
      if
      that position is more likely than not of being sustained on audit, based on
      the
      technical merits of the position. The provisions of FIN 48 are effective for
      fiscal years beginning after December 15, 2006. The adoption of FIN 48 is not
      expected to have any impact on the Company’s financial statements.




49




In
      September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS 157 defines fair value, establishes a framework for
      measuring far value in generally accepted accounting principles and expands
      related disclosures about fair value measurements. This Statement focuses on
      creating consistency and comparability in fair value measurements. SFAS No.
      157
      is effective for the Company beginning January 1, 2008, including any interim
      reporting periods. The Company is currently evaluating the impact of adopting
      SFAS No. 157 on its financial statements.




In
      September 2006, the SEC Staff issued Staff Accounting Bulletin No. 108 (“SAB
      108”) to require registrants to quantify financial statement misstatements that
      have been accumulating in their financial statements for years and to correct
      them, if material, without restating. Under the provisions of SAB 108, financial
      statement misstatements are to be quantified and evaluated for materiality
      using
      both balance sheet and income statement approaches. SAB 108 is effective for
      fiscal years ending after November 15, 2006. The adoption of SAB 108 did not
      have a material impact on our financial statements.




**Reclassification
      -** Certain
      reclassifications have been made to the prior years’ financial statements to
      conform to the current year presentation. These reclassifications had no effect
      on previously reported results of operations or retained earnings.




**3.
      Acquisition of** ***Imagent*** **Business:**




On
      June 18, 2003, the Company acquired the medical imaging business from
      Alliance Pharmaceutical Corp. (“Alliance”), pursuant to an Asset Purchase
      Agreement dated June 10, 2003 (the “Alliance Asset Purchase Agreement”). The
      acquisition costs and allocation to the assets acquired and liabilities assumed
      were as follows:




Total
              consideration and acquisition costs:Fair
                value of common stock issued in 2003
            
            $
            5,583,268Fair
                value of common stock issued in 2004
            
            
            5,043,226Prior
                cash advances from Company
            
            
            4,018,052Cash
                paid at closing
            
            
            669,117Current
                year payments to vendors on behalf of Alliance
            
            
            388,387Notes
                payable assumed
            
            
            2,500,000Obligation
                to pay Alliance creditors
            
            
            3,421,891Acquisition
                costs
            
            
            1,254,205$
            22,878,146Fair
                value of assets acquired:Leasehold
                improvements
            
            $
            5,527,738Equipment
            
            
            1,712,2627,240,000Purchased
                technology
            
            
            15,638,146$
            22,878,146





The
      fair
      value of the common stock issued in 2003 and 2004 were all based on the fair
      value of the shares of stock on June 18, 2003, which was the date the shares
      were issuable. The Alliance Asset Purchase Agreement provided that the Company
      was obligated to pay Alliance creditors up to a specified amount for various
      categories of creditors. During 2004, some obligations to Alliance creditors
      were satisfied for less than the amounts originally estimated and as a result,
      the Company reduced both accrued expenses and the original acquisition cost
      of
      the leasehold improvements by $240,000.




50




Prior
      to
      reaching a settlement agreement with Alliance dated September 19, 2005 in
      conjunction with the settlement of certain litigation (see Note 8) (the
“Alliance Settlement”), the Company was obligated to pay Alliance under the
      Alliance Asset Purchase Agreement contingent consideration (“Earnout”) based on
      revenues from the sale of *Imagent* from
      June 18, 2003 through June 18, 2010, subject to certain reductions. The Earnout
      was to be based on varying percentages applied to the revenue during the twelve
      month periods ending on each anniversary date as follows: 7.5% ** of
      revenue up to $20,000,000; 10% of ** revenue
      from $20,000,001 up to $30,000,000; 15% of ** revenue
      from $30,000,001 up to $40,000,000; and 20% of ** revenue
      in excess of $40,000,000. The Earnout was to have been reduced by the net
      amounts the Company was obligated to pay pursuant to a license agreement with
      Schering Aktiengesellschaft (“Schering AG”) and any amounts that may be due from
      Alliance pursuant to an indemnification agreement. The Earnout was subject
      to
      three additional offsets that were to have been applied in different priorities
      but in total may have provided reductions to the Earnout obligation up to
      approximately $7,000,000. Due to the absence of any meaningful current or
      expected revenue from *Imagent* ,
      management was not previously able to, and therefore did not include the present
      value of future estimated Earnout payments in the determination of the
      consideration paid for the acquisition. Future Earnout obligations under the
      original arrangement would have therefore have been expensed in the periods
      when
      they could have been reasonably estimated.




As
      noted
      above, the Company entered into the Alliance Settlement on September 19, 2005,
      pursuant to which (i) each party’s respective ongoing obligations to one another
      under the Alliance Asset Purchase Agreement were terminated, including any
      obligations related to Earnout and Future Earnout, (ii) each party granted
      the
      other a mutual general release (which resolved, among other things, the parties’
claims against one another for various accumulated post-closing payments),
      and
      (iii) the parties agreed to share in the proceeds of future transactions
      involving the disposition of the Company’s *Imagent* asset in
      accordance with the following schedule:





**Proceeds**
            
            **Alliance
                Percentage**
            
            **Company
                Percentage**$1
                to $1,450,000
            
            10.0%,
                not to exceed $100,000
            
            90.0%
                of first $1,000,000;
              100.0%
                of next $450,000$1,450,001
                to $5,000,000
            
            30.0%
            
            70.0%$5,000,001
                and above
            
            33.3%
            
            66.7%




The
      purchase costs allocated to intangible assets related to the acquisition of
      the
      Purchased Technology were estimated by management based on the fair value of
      the
      assets acquired. Purchased Technology has been amortized on a straight-line
      basis over the estimated remaining life of twelve years up to and through
      December 31, 2005, at which date it was written down to a carrying value of
      $1,000,000. This remaining value of $1,000,000 was further reduced to a carrying
      value of $-0- at December 31, 2006.  Purchased Technology is stated at
      cost, less accumulated amortization and allowance for impairment. See Note
      6.




51




**4.
      Investment in and Advances to Affiliate**




On
      October 7, 1999, Sentigen, Ltd. (“Sentigen”) was formed as a joint venture
      between the Company and Elan International Services, Ltd. (“Elan”) to develop
      and commercialize nanoparticulate diagnostic imaging agents for the detection
      and treatment of cancer through lymphography.




On
      June 10, 2004, the Company and Elan terminated the joint venture. As a
      result, on that date Sentigen became a wholly owned subsidiary of the Company
      and was consolidated in the Company’s financial statements, with a carrying
      value of $735,916, whose value was wholly related to a worldwide license to
      certain patented Elan technology.




Through
      that date the Company had recognized “Loss from joint venture” totaling
      $14,518,000, primarily as a result of the amortization on the underlying license
      and impairment charges which had been taken from time to time, based on
      Sentigen’s period assessments of the future cash flows or valuation of the fair
      value of the license .




By
      December 31, 2005 this resulting license asset had been sold to a third party
      -
      see Note 6.




**5.
      Property, Plant and Equipment**




As
      a result of restructuring activities began by the Company during 2005 (See
      Note
      13), all previously recorded property, plant and equipment had been either
      sold
      or written down to a $0 carrying value by December 31, 2005.




Depreciation
      and amortization expense on property, plant and equipment was $593,901 in 2005
      at the time the assets were taken out of service pursuant to the Company’s
      restructuring activities commenced during the second quarter of 2005 and $-0-
      in
      2006. See Note 13. In addition an impairment allowance reserve was established
      in 2005 totaling $3,265,492, of which $3,072,315 was attributed to leasehold
      improvements and $193,177 was attributed to furniture, fixtures and
      equipment.




During
      the year ended December 31, 2005, furniture, fixtures and equipment with a
      net
      book value of $550,689 ($1,827,859 cost, less $1,083,993 accumulated
      depreciation and amortization and less $193,177 allowance for impairment
      reserve)] was sold or otherwise disposed of for $324,384 in net proceeds,
      resulting in a loss on disposal of equipment totaling $226,305.




On
      July
      19, 2005, and as part of its continued restructuring activities, the Company
      concluded two concurrent, interdependent negotiations with EOP-Industrial
      Portfolio, LLC (“EOP”), its lessor of the Company’s leased facilities property
      located at 6175 Lusk Boulevard in San Diego, California, and a new tenant for
      this property. See Note 8 for additional discussion. As a result of these
      negotiations, the Company executed a lease termination agreement, involving
      among other things, a surrender of the facility and the underlying leasehold
      improvements with a net book value of $20,000 ($5,287,738 cost, less $2,195,423
      accumulated amortization and less $3,072,315 allowance for impairment reserve).
      Concurrent with that transaction and pursuant to an agreement with the new
      tenant, the Company received $20,000 from the new tenant, resulting in no gain
      or loss in the leasehold improvements, other than to the extent of the
      previously recorded impairment allowance noted above.




52




**6.
      Intangible Assets and Deferred Royalties:**




The
      cost
      and accumulated amortization of intangible assets and deferred royalties as
      of
      each of the years ended December 31, are as follows:





2005
            
            2006Purchased
                technology:Cost
            
            $
            15,638,146
            
            $
            15,638,146Less
                allowance for valuation impairment
            
            
            (11,373,572
            )
            
            (12,373,572
            )Accumulated
                amortization
            
            
            (3,264,574
            )
            
            (3,264,574
            )$
            1,000,000
            
            $
            —Patents:Cost
            
            $
            500,000
            
            $
            500,000Less
                allowance for valuation impairment
            
            
            (274,479
            )
            
            (274,479
            )Accumulated
                amortization
            
            
            (225,521
            )
            
            (225,521
            )$
            —
            
            $
            —Deferred
                royalties:Cost
            
            $
            500,000
            
            $
            500,000Less
                allowance for valuation impairment
            
            
            (416,666
            )
            
            (416,666
            )Accumulated
                amortization
            
            
            (83,334
            )
            
            (83,334
            )$
            —
            
            $
            —





During
      2005 the Company, as part of its restructuring activities (see Note 13), entered
      into an agreement in principal with a third party to sell its technology license
      asset for $102,500, net of certain costs, and an impairment allowance of
      $570,321 was then recorded, resulting in a net carrying cost of $102,500
      ($735,916 cost, less $63,095 accumulated amortization and less $570,321
      allowance for impairment reserve). During the quarter ending September 30,
      2005
      the agreement was finalized, and the Company received the contemplated $102,500,
      resulting in no further gain or loss on the sale of this technology license
      asset, other than to the extent of the previously recorded impairment allowance
      noted above.




The
      carrying values of the Purchased Technology were amortized on a straight-line
      basis over their estimated useful lives ranging from 10-12 years through
      December 31, 2005. The deferred royalties asset was amortized into operations
      over the same period as the related deferred revenues associated from a product
      license agreement to which these assets relate, **** which
      is
      12 years, also through December 31, 2005. However, in light of the additional
      considerations addressed by the Company associated with its continuing
      restructuring activities (See Notes 2 and 13), management determined at December
      31, 2005 that impairment allowances for the Purchased Technology and the
      deferred royalties assets, amounting to $11,373,572 and $416,666, respectively
      were appropriate, and the necessary adjustments were recorded. At December
      31,
      2006 management made a subsequent adjustment of further and final impairment
      allowance for the remaining $1,000,000, related to the Purchased Technology.
      This determination was made after giving consideration to a) the conclusion
      of
      the amended and restated license agreement with Kyosei, for which the Company
      received $1,200,000 in earned license revenues and b) the likelihood of any
      similar agreements which might be reached in the near term.




53




Amortization
      expense for purchased technology, patents and technology license was $1,326,766
      in and $-0- in 2005 and 2006, respectively. There is no additional amortization
      contemplated in the next five years, as the only remaining intangible asset
      held
      by the Company, the Purchased Technology, has no current carrying value at
      December 31, 2006, even though it continues to be held in the event that the
      Company might reach one or more alternative transactions which may result in
      net
      cash payments to the Company (none of which is predicted in the near
      term).




**7.
      Accrued Expenses and Assumed Acquisition Obligations:**




December
                31,
            
            December
                31,2005
            
            2006Assumed
                acquisition obligations
            
            $
            924,784
            
            $
            924,784Accrued
                payroll, deferred bonuses and related expenses
            
            
            512,656
            
            
            512,656Accrued
                legal fees
            
            
            139,153
            
            
            139,153Accrued
                interest
            
            
            121,568
            
            
            218,755Other
                accrued expenses
            
            
            190,000
            
            
            190,000$
            1,888,161
            
            $
            1,985,348





During
      2005, the Company reduced its “Assumed acquisition obligations” by $200,000 as a
      result of reaching overall settlements in litigation and other disputes
      involving the Purchased Technology. See Note 8. The remainder of the “Assumed
      acquisition obligations” relates primarily to past due payment obligations owed
      to several parties totaling $622,750 at December 31, 2005 and 2006.




During
      2005 the Company also paid out $353,884 in salary-related costs which had been
      accrued at December 31, 2004 in “Accrued payroll, deferred bonuses and related
      expenses,” including $156,172 in accrued salary, $159,787 in earned vacation and
      $37,925 in the remainder of a severance obligation for a former employee. There
      were no further payments of salary related costs made in 2006.




During
      2005, the former CEO’s employment with the Company was terminated, and the
      Company recorded a reserve for severance totaling $275,000. This individual
      is
      also owed $206,250 for a bonus earned in 2004. No portion of these obligations,
      totaling $481,250, has been paid; such amounts are included in “Accrued payroll,
      deferred bonuses and related expenses” at both December 31, 2005 and
      2006.




One
      of
      the Company’s law firms had originally agreed to accept shares of the Company’s
      common stock for a portion of their services rendered during the six months
      ending June 30, 2005. However, prior to the end of this period, the law firm
      advised the Company that it preferred to be compensated for these services
      in
      cash payment, to the extent the Company is ultimately able to pay. The Company
      agreed to this request and has accordingly recorded this obligation, totaling
      $139,153, to “Accrued legal fees” at both December 31, 2005 and
      2006.




Incurred
      but unpaid interest totaling $218,755, which represents an increase of $97,187
      from December 31, 2005 to December 31, 2006, is included in “Accrued interest,”
and is associated with various interest-bearing obligations, including “Notes
      payable unsecured” ($192,233), “Accrued royalty fees” owed to Schering AG
      ($431,946) and various payable obligations associated with the “Assumed
      acquisition obligations” referenced above ($622,750). ****


54




Incurred
      but unpaid Board fees, including related fees for service on various committees,
      totaling $180,000, and which were incurred during the period January 1 to
      December 31, 2005 ($101,000) are included in “Other accrued
      expenses.” **** No
      additional Board fees were accrued during the period January 1 to December
      31,
      2006. There have been no payments for any such obligations incurred after the
      first quarter ending March 31, 2004.




**8.
      Commitments and Contingencies**




**Leases:** The
      Company previously leased its facilities and certain equipment under
      non-cancelable operating leases, which expired at various times through 2008.
      The facilities leases required the Company to pay for all maintenance, insurance
      and property taxes.




As
      more
      completely discussed in Note 13, the Company was released from the remainder
      of
      its building lease obligations related to future minimum rental payments
      totaling $2,244,113 pursuant to a lease termination agreement executed July
      19,
      2005 and made effective on or about July 31, 2005.




The
      Company had two other lease obligations for rental equipment, but at the time
      of
      vacating its former facilities, the Company made this equipment available back
      to the respective lessors, and believes it has no further financial obligations
      beyond that which was incurred in 2005 totaling approximately
      $123,000.




Commencing
      approximately August 1, 2005, the Company rented temporary office space,
      originally for a minimum of 3 months, but then converting this arrangement
      to
      month-to-month by year end. Total expense incurred under this arrangement
      totaled $12,654 for the remainder of the year ended December 31, 2005 and $5,018
      for the year ended December 31, 2006.




Total
      rental expense charged to operations for the years ended December 31, 2005
      was approximately $583,000. In addition to the rental expense, the charges
      from
      the landlord at 6175 Lusk Boulevard in San Diego, California for maintenance,
      insurance and property taxes totaled approximately $93,000 in 2005.




**License
      Agreements:** As part
      of the acquisition of the *Imagent* business
      from Alliance in June 2003, the Company assumed a license agreement between
      Alliance and Schering AG (“Schering AG License”) which provides the Company with
      exclusive marketing and manufacturing rights, drug compositions, and medical
      devices and systems related to perfluorocarbon ultrasound imaging products,
      including *Imagent* ,
      in the
      United States, for a five-year period from the date of the first commercial
      sale
      of a related product, which was August 2003. Schering AG is entitled to royalty
      payments based on five percent of sales revenues ($4,871 earned through December
      31, 2006) and ten percent of license fee revenues that are received as lump
      sum
      payments ($4,871 and $530,000, respectively, earned through December 31, 2006).
      Only $102,950 of such royalties have been paid as of December 31,
      2006.




If
      at the
      expiration of the five-year period the Company has not provided royalty payments
      to Schering AG in excess of $20,000,000 then Schering AG has the option to
      become a co-promoter of products, in which event the Company will be entitled
      to
      receive royalty payments from Schering AG. It is unlikely that the Company
      can
      meet this minimum royalty threshold obligation.




55




The
      Company entered into an amended and restated license agreement with Kyosei
      effective as of November 13, 2006. Under the terms of the revised agreement
      the
      Company has been relieved of its obligation under the original agreement to
      manufacture and supply Imagent for Kyosei and Kyosei was assigned certain
      patents and a trademark for use in Japan. Kyosei paid a total fee of $1,300,000.
      In accordance with the terms of the Settlement Agreement between the company
      and
      Alliance dated as of September 19, 2005 an aggregate of $100,000 (approximately
      $91,000 net, after deducting Alliance’s allocated share of direct expenses) of
      the consideration due from Kyosei was paid to Alliance. In addition, after
      taking into account direct expenditures attributed to this transaction for
      which
      the company had remaining responsibility, and which totaled approximately
      $104,000 (including agent commission fees and incremental royalty obligations
      to
      Schering AG), the company received net approximately $1,096,000




**Litigation:** ****** On
      June 18, 2003, the Company, together with Alliance, the prior owner of the
      Purchased Technology, filed a complaint against Amersham Health, Inc. and two
      other Amersham affiliates (now known as GE Healthcare Ltd.) (collectively
“Amersham”) alleging that certain Amersham products infringed on claims in the
      patents covering *Imagent* .
      The
      complaint alleged that principally through the Optison® product, Amersham
      infringed on eight patents owned by the Company. The Company further alleged
      misappropriation of trade secrets as well as other state law claims against
      Amersham.




The
      Company entered a Settlement Agreement and License (the “Amersham Settlement”)
      dated as of September 19, 2005 with Amersham, Alliance and Molecular Biosystems,
      Inc., at which time the parties dismissed their litigation and granted each
      other fully paid-up, irrevocable, royalty-free, non-exclusive cross-licenses,
      with the right to sub-license, and mutual releases. The Amersham Settlement
      resolved the parties’ claims arising under the case described above. See Notes
      13 and 14 for a discussion of the financial terms of these settlements.




On
      May
      11, 2005, the Company was served with an unlawful detainer lawsuit by EOP,
      the
      lessor of the property located at 6175 Lusk Boulevard in San Diego, California,
      regarding the Company’s default on its building lease for failing to pay back
      rent. As described more in Notes 8 and 13, as part of the Company’s
      restructuring activities commenced in the second quarter ended June 30, 2005,
      the Company was allowed to peacefully vacate the premises by July 31, 2005
      pursuant to a lease termination agreement. The Company was further released
      from
      all past due rents, late payment fees and any future lease payments for which
      the base rents totaled at least $2,244,000.




The
      Company is not now a party to any litigation.




**9.
      Notes Payable:**




**Notes
      Payable - Unsecured** :




The
      unsecured notes payable bear interest at eight percent annually.




56




One
      of
      the Company’s directors is a general partner in the two entities that are owed
      $192,233 as of both December 31, 2005 and 2006.




**10.
      Shareholders’ Equity (Deficit) and Mezzanine Equity:**




**(a) 
      Series A Preferred Stock** - In
      October 2004, the Company authorized and issued 4,500 shares of Series A
      Convertible Preferred Stock (“Series A-New”) to Bristol-Meyers Squibb Medical
      Imaging, Inc. (“BMSMI”) for $4,500,000 in conjunction with a non-exclusive
      technology cross-licensing agreement whereby BMSMI also paid the Company
      $4,000,000. Each share of the Series A-New is entitled to a liquidation
      preference of $1,000 per share and is convertible into 833,334 shares of the
      Company’s common stock at an effective conversion rate of $5.40 per common
      share. The Company may force the conversion of these shares into common stock
      after October 2005 in the event that the value of the Company’s common stock
      exceeds $8.10 for ten consecutive days. This mandatory conversion feature is
      limited to converting into an amount of common shares which does not exceed
      19.9
      percent of the then outstanding shares of the Company’s common
      stock.




An
      investment banking firm was paid a $680,000 fee and issued warrants expiring
      in
      October 2009 to purchase 66,667 shares of the Company’s common stock at $5.40
      per share. The Company estimated $60,400 value for the warrants using the
      Black-Scholes pricing model. These costs were allocated pro rata between the
      value of the cross-licensing agreement and the value of the Series A-New shares.
      Accordingly, $392,000 was charged to shareholders’ equity as a reduction of the
      proceeds from the Series A-New shares and $348,400 was charged to
      expense.




**(b)
      Common Stock** - As of
      December 31, 2004, the Company was subject to four groups of registration rights
      agreements. In the aggregate, these agreements cover approximately
      5,553,969 **** shares
      of
      common stock (including approximately 735,881 shares issuable upon the exercise
      of warrants and 833,334 shares issuable upon the conversion of the Series A
      Convertible Preferred Stock) and require the Company to register those shares
      under various terms and subject to specific conditions in the agreements. In
      accordance with the terms of certain of these registration rights agreements,
      on
      January 11, 2005 a registration statement became effective relating to the
      resale of 2,332,679 shares of common stock including 735,881 shares issuable
      upon the exercise of warrants. In addition, on February 8, 2005 the Company
      filed a registration statement relating to the resale of 2,448,467 shares of
      common stock.




All
      of
      the shares issued in January through April 2005 were subject to pending
      registration statements which are not currently effective. The effectiveness
      of
      the registration statements was delayed while the Company responded to the
      SEC’s
      various comments which arose during the comment process. Given the Company’s
      current financial circumstances and its goal to maximize the funds available
      to
      its creditors, its board of directors has determined that the Company will
      not
      continue to pursue its efforts to effect its registration statements that were
      on file with the SEC (File Nos. 333-122625 and 333-117907). Those registration
      statements will be withdrawn.




The
      Company has stopped accruing penalty shares for the security holders who
      received shares subject to that certain registration rights agreement dated
      as
      of April 14, 2004 because without an effective registration statement the
      Company is unable to abide by the contractual requirement that the penalty
      shares such parties receive freely tradable shares.  In addition, we
      entered into an agreement with Oxford Bioscience Partners IV L.P., MRNA
      Fund II, L.P., and Mi3 L.P. to cease accruing penalty shares as of June 30,
      2005.   In general, privately issued shares held by investors for more
      than one year may be sold under Rule 144.




57




Many
      of
      the Company’s investors have held their shares in the Company for more than a
      year and will be qualified to sell their shares under Rule 144, subject to
      the
      restrictions set forth therein; ** indeed,
      several such investors have sold shares utilizing Rule 144. However, given
      the
      Company’s current financial situation, at some point in 2006 or thereafter the
      Company may elect to cease reporting under the Exchange Act, and as a result,
      investors will no longer be eligible to resell their shares of the Company’s
      common stock under Rule 144 (unless the shares have been held for two years,
      in
      which case they would be freely saleable under Rule 144(k)).




On
      March 13, 1998, the Company completed a private placement of 10,938 shares
      of common stock for $640 per share to a number of accredited investors. 
The Company received $6,950,000, net of related expenses of approximately
      $50,000 from this offering.




On
      February 9, 2001, the Company’s shelf registration on Form S-3 was declared
      effective.  Under the shelf registration, the Company could have issued up
      to $40,000,000 of common stock.  As of December 31, 2002, 8,694 shares
      had been issued under the shelf registration for cash proceeds of $1,068,723,
      net of related expenses of $56,252.  The Company’s registration statement
      is no longer effective.




As
      of
      April 2, 2001, the Company no longer met the eligibility requirements to
      continue selling shares under the S-3.  Prior to realizing it was
      ineligible to continue using the S-3, the Company sold 6,231 shares of common
      stock for $650,000.  Through June 2003, this amount had been
      reclassified from permanent equity to mezzanine equity as the Company could
      be
      required to repay a portion of this amount to the purchaser.  In the second
      quarter of 2003 the Company recognized in permanent equity the issuance of
      these
      shares.




On
      November 12, 2002, the Company completed a private placement of 416,667
      shares of common stock for $21.60 per share to a number of accredited
      investors.  The Company received proceeds of $8,677,000, net of related
      expenses of $387,000.  Proceeds included cash of $6,113,000 and the
      conversion of a credit facility with an entity controlled by a then director
      of
      the Company with borrowings of $2,500,000 which converted into 115,741 shares
      of
      common stock.




In
      December 2002, the Company completed a second closing of the
      November 12, 2002 private placement in which 140,227 shares of common stock
      were sold for $21.60 per share for gross proceeds of $3,028,902.




On
      November 12, 2002, the Company effected the split-off of Photogen, Inc. and
      the assets and liabilities related to the Company’s therapeutic line of business
      to the five founding stockholders of the Company (the “Tennessee Stockholders”)
      in exchange for all of their common stock in the Company.  The Tennessee
      Stockholders owned 256,855 shares of the Company and those shares were cancelled
      prior to December 31, 2002.  The market value of the 256,855 shares on
      the date of the split-off was $12,226,319.




58




Pursuant
      to a Standstill and Make Whole Agreement dated as of December 30, 2002 with
      Xmark Fund L.P. and Xmark Fund, Ltd. (collectively “Xmark”), secured creditors
      of Alliance, the Company issued a total of 37,500 shares to Xmark in
      January through March 2003.  Xmark agreed to not exercise any
      rights against Alliance as a creditor.  The value of these shares was
      treated as an expense at fair market value amounting to $1,173,750.




On
      May 2,
      2003, the Company executed a Going Forward Agreement with Xmark that provided,
      among other things, for the issuance of shares of the Company’s common stock
      upon the acquisition of the Purchased Technology as payment for interest owed
      by
      Alliance to Xmark.  On June 18, 2003, the Company issued 109,907
      shares of its common stock to certain creditors of Alliance, including 52,807
      shares to Xmark pursuant to the Going Forward Agreement, as partial
      consideration for the Technology Purchase.  Following approval by
      shareholders, the Company would issue an additional approximately 99,276 shares
      to certain other creditors as part of the Purchased Technology.  The value
      of these shares was treated as acquisition consideration at fair market value
      (see Note 3).  Such approval was obtained at the Company’s shareholder
      meeting held on February 5, 2004.




On
      May
      27, 2003 the Company issued 563 shares of its Common Stock to Xmark as a penalty
      for failure to timely register certain shares held by Xmark. The value of these
      shares was treated as an expense at fair market value amounting to
      $25,200.




On
      July 31, 2003 the Company issued 4,149 shares of its Common Stock to Xmark
      for interest and penalties, including the failure to timely register certain
      shares of its Common Stock held by Xmark as of that date.  The value of
      these shares was treated as an expense at fair market value amounting to
      $158,987.




On
      September 2, 2003, pursuant to a Letter Agreement dated as of
      August 18, 2003 with Xmark, the Company issued 1,312 shares of its Common
      Stock to Xmark for the failure to timely register certain shares of its Common
      Stock held by Xmark as of that date.  The value of these shares was treated
      as an expense at fair market value amounting to $28,085.




Total
      shares issued to Xmark as a result of the agreements noted above was
      96,331.  In addition, an aggregate of 2,152 shares of the Company’s Common
      Stock were issuable to Xmark for payment of accrued interest.  Xmark had a
      put right for all these shares that, under certain circumstances, would have
      required the Company to purchase the shares from Xmark at a price of $20.00
      per
      share.  As a result, $1,969,668 was classified as mezzanine equity at
      December 31, 2003.




During
      2003, in addition to the above issuances, the Company issued an aggregate of
      7,005 shares pursuant to several factors including cash, compensation for
      service and cashless exercise of stock options.




In
      February 2004 the Company received $46,690 from Xmark as proceeds from the
      sale
      of unregistered shares in excess of their original purchase price.




On
      March
      5, 2004, the Company issued 102,699 shares of the Company’s common stock to
      certain creditors of Alliance. Of the total shares issued, 99,276 shares (valued
      at $5,043,226) related to the acquisition consideration for the *Imagent* Business
      which had been classified as Common Stock to be Issued at December 31,
      2003.




59




During
      the six months ended June 30, 2004, Xmark sold 15,732 shares of common
      stock for which it held a put right. In June 2004, the Company entered into
      an agreement with Xmark whereby the Company exchanged all remaining 80,600
      puttable shares held by Xmark plus related obligations and fees for an aggregate
      of $2,128,447 of Secured Notes that were payable on or before December 1,
      2004.




On
      April 19 and June 30, 2004, the Company sold 1,268,750 shares of its
      common stock for $8.00 per share and 735,875 warrants exercisable for $10.00
      per
      share (including 101,500 warrants issued to its two placement agents), for
      approximately $10.15 million. The net proceeds to the Company were
      approximately $9,325,000. In addition, holders of an aggregate of approximately
      $12,719,500 principal amount of the Company’s Secured Promissory Notes and
      Revolving Convertible Senior Secured Promissory Notes (“Notes”), plus $713,884
      interest accrued and added to the note balance, converted these Notes into
      1,687,034 shares of the Company’s common stock at $8.00 per share, 7,861 of
      which were returned prior to year-end 2004 due to an over-issuance associated
      with an interest computation adjustment.




In
      June 2004, the Company issued 30,829 shares of its common stock as a
      partial settlement of obligations under an equipment lease (See Note 13). As
      part of the terms of the settlement, the Company remains obligated to make
      an
      additional payment equal to the difference (if any) between the net proceeds
      the
      lessor receives from sales of these shares of stock during the 12 months after
      the Company registers the shares and $468,601 (which represents the number
      of
      issued shares valued at $15.20 per share). Accordingly, the Company has recorded
      into equity only that portion of the issued shares’ par value, or $617. The
      balance of $467,984 is included in the balance of Accrued Equipment Lease
      Obligation in the balance sheet at December 31, 2004.




During
      2004, the Company issued 11,563 shares of common stock to consultants for
      services rendered and to be rendered. The value of these shares was $43,688
      of
      which $10,500 is presented as Unearned Stock Compensation.




During
      2004, the Company recorded $1,221,613 for penalties and fees, representing
      327,957 shares of common stock due to shareholders for late registration of
      their shares. In June 2004, the Company extinguished its obligation for $203,190
      (8,323 shares) of penalties and fees, which included $70,239 accrued as of
      December 31, 2003, as part of the exchange of Xmark puttable shares, noted
      previously. In December 2004, the Company issued 8,935 shares related to
      $244,469 of penalties and fees. As of December 31, 2004, the balance of shares
      to be issued which could be quantified included (a) 316,462 shares related
      to
      penalties and late registration fees totaling $812,000 and (b) 818 shares
      related to penalties and late registration fees totaling $18,587. In addition,
      an additional $20,300 in penalties and late registration fees were accrued
      but
      for which the number of shares to be issued could not be quantified as of
      December 31, 2004.




On
      January 11, 2005, 328,053 common shares were issued in settlement of penalties
      and late registration fees totaling $893,200, including those 316,462 shares
      which were quantifiable at December 31, 2004. Accordingly, $832,300 was
      reclassified from common stock to be issued, the additional $60,900 was charged
      off to current 2005 year operations, and the combined amounts totaling $893,200
      were recorded to common stock and additional paid in capital in
      2005.




60




On
      February 8, 2005, the remainder 818 shares which were quantifiable at December
      31, 2004 were issued and the corresponding value of $18,587 was reclassified
      from common stock to be issued to common stock and additional paid in
      capital.




During
      2004 one of the Company’s law firms agreed to accept shares of the Company’s
      common stock for services rendered. As of December 31, 2004, 101,378 shares
      are
      issuable related to $247,865 of services, which were expensed.




During
      2004 two of the Company’s consultants agreed to accept shares of the Company’s
      common stock for services rendered. As of December 31, 2004, 4,232 shares are
      issuable related to $22,000 of services, which were expensed. These shares
      were
      subsequently issued on February 8, 2005 and accordingly $22,000 was reclassified
      from common stock to be issued to common stock and additional paid in capital
      at
      that time.




On
      February 10, 2005, in final settlement of further and all claims from a former
      employee, the Company modified exiting options for 1,875 shares to make them
      effectively exercisable in 21,125 net shares at an exercise price equal to
      zero.
      At December 31, 2004, the $42,250 cost associated with this contemplated
      transaction was accrued into operations. Upon completing the agreement in 2005,
      the associated accrued expense was reclassified into additional paid in
      capital.




During
      2005 the Company issued an additional 2,526,872 common shares to settle
      $1,607,693 of penalties and late registration fees, associated with registration
      obligations relating to 1,679,173 common shares issued in 2004 upon the
      conversion of debt and accumulated interest totaling $13,433,384. 2,008,913
      of
      these common shares were issuable at June 30, 2005, and have been accordingly
      included in the Company’s weighted average computations of weighted common
      shares outstanding for the year ending December 31, 2005. The common shares
      to
      settle these penalties and late registration fees were issued as follows: (a)
      63,810 common shares on February 8, 2005, (b) 454,149 common shares on April
      11,
      2005, and (c) 2,008,913 common shares on December 30, 2005.




During
      2005 the Company recorded into expense $10,500 related to previously issued
      shares which had been recorded to unearned compensation.




On
      January 24, 2005, the Company amended it Articles of Incorporation to increase
      the number of common shares authorized from 150,000,000 to
      200,000,000.




61




**11.
      Stock Incentive Plans, Options and Warrants**




The
      Company maintains three long-term incentive compensation plans (“Plans”) as
      follows:




The
      1998
      Long-Term Incentive Compensation Plan, which provides for the granting of up
      to
      25,000 stock options to key employees, directors and consultants (57 of which
      have been exercised to date); 421 options were outstanding as of December 31,
      2006.




The
      2000
      Long-Term Incentive Compensation Plan, which provides for the granting of up
      to
      1,500,000 stock options to key employees, directors and consultants (none of
      which have been exercised to date); 110,250 options were outstanding as of
      December 31, 2006.




The
      2000
      Senior Executive Long-Term Incentive Compensation Plan, which provides for
      the
      granting of up to 50,000 stock options to senior executives (none of which
      have
      been exercised to date). Options exercised under this plan contain certain
      registration rights; no options were outstanding as of December 31,
      2006.




Options
      granted under these Plans may be either “incentive stock options” within the
      meaning of Section 422A of the Internal Revenue Code, or nonqualified
      options. The stock options are exercisable over a period determined by the
      Board
      of Directors (through its Compensation Committee), but generally no longer
      than
      10 years after the date they are granted.




The
      following summarizes the activity under the Plans combined for each of the
      years
      ended December 31,:




2005
            
            2006Options
                outstanding at beginning of year
            
            
            516,670
            
            
            167,017Options
                granted
            
            
            95,000
            
            
            —Exercised
            
            
            —
            
            
            —Options
                forfeited
            
            
            (444,653
            )
            
            (56,346
            )Options
                outstanding at end of year
            
            
            167,017
            
            
            110,671Option
                prices per share granted
            
            $
            8.00
            
            $
            n/aWeighted
                average exercise price:Options
                granted
            
            $
            8.00
            
            $
            —Options
                granted at less than market price
            
            $
            —
            
            $
            —Options
                granted at the market price
            
            $
            8.00
            
            $
            —Options
                forfeited
            
            $
            123.20
            
            $
            184.79Options
                outstanding at end of year
            
            $
            70.49
            
            $
            12.29Options
                exercisable at end of year
            
            $
            97.80
            
            $
            15.67Number
                of shares exercisable
            
            
            116,267
            
            
            61,921Aggregate
                Intrinsic Value
            
            $
            —
            
            $
            —




62




A
      summary
      of the status of the Company’s nonvested shares as of December 31, 2006, and
      changes during the year ended December 31, 2006, is presented
      below:




Nonvested
                Shares
            
            Shares
            
            Weighted-Average
              Grant
                Date
              Fair
                ValueNonvested
                at January 1, 2005
            
            
            50,750
            
            $
            1.79Granted
            
            
            —
            
            
            —Vested
            
            
            (2,000
            )
            $
            4.61Forfeited
            
            
            —
            
            
            —Nonvested
                at December 31, 2006
            
            
            48,750
            
            $
            1.68




As
      of
      December 31, 2006, there was $19,011 of total unrecognized compensation cost
      related to nonvested share-based compensation arrangements granted under the
      Plan. That cost is expected to be recognized over a weighted average period
      of
      11.6 months.




In
      addition to the options issued as part of the Plans summarized above, in 2002,
      the Company issued fully vested options outside of the plans that, after
      amendment in 2003, expire in February 2010. 1,875 of these options were
      exercisable at $84 per share and the balance of the options were effectively
      exercisable into 13,852 shares of the Company’s stock at an exercise price equal
      to zero, of which 500 were exercised in 2003 (the exercise price for these
      “cashless” options was originally $25.40 per share). These options were issued
      in settlement of claims from a former employee and were fully expensed in 2002.
      On February 10, 2005, in final settlement of further and all claims, the Company
      modified the options for the 1,875 shares to make them effectively exercisable
      into 21,125 shares at an exercise price equal to zero.




The
      following table summarizes information related to outstanding and exercisable
      options of the Plans as of December 31, 2006:




Options
                Outstanding
            
            Options
                ExercisableRange
                    of
                  Exercise
                    Price
            
            Number
                    of
                  Shares
            
            Weighted
                      Average
                      Exercise
                      Price
            
            Weighted
                        Average
                        Remaining
                        Contractual
                        Life
                          in Years
            
            Number
                    of
                  Shares
            
            Weighted
                      Average
                      Exercise
                      Price$2.80
                - $18.40
            
            
            103,000
            
            $
            7.85
            
            
            8.13
            
            
            54,250
            
            $
            7.71$18.41
                - $21.60
            
            
            500
            
            $
            18.60
            
            
            6.01
            
            
            500
            
            $
            18.60$21.61-
                $91.20
            
            
            6,813
            
            $
            41.71
            
            
            6.34
            
            
            6,813
            
            $
            41.71$91.21
                - $220.00
            
            
            45
            
            $
            220.00
            
            
            3.92
            
            
            45
            
            $
            220.00$220.01
                - $550.00
            
            
            88
            
            $
            550.00
            
            
            3.70
            
            
            88
            
            $
            550.00$550.0
                1- $1060.00
            
            
            225
            
            $
            890
            
            
            1.68
            
            
            225
            
            $
            890.00Total
            
            
            110,671
            
            $
            12.29
            
            
            7.99
            
            
            61,921
            
            $
            15.67





During
      the year ended December 31, 2006, the Company recognized stock-based
      compensation of $41,943 pursuant to SFAS No.123(R) in the “Selling, general and
      administrative” line item of the Consolidated Statement of Operations.
      Additionally, no modifications were made to outstanding stock options prior
      to
      the adoption of SFAS No. 123(R), and no cumulative adjustments were recorded
      in
      the Company’s financial statements.




63




Prior
      to
      January 1, 2006, the Company accounted for stock-based compensation in
      accordance with provisions of Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees,” (“APB No. 25”) and related
      interpretations. Under APB No. 25, compensation cost was recognized based on
      the
      difference, if any, on the date of grant between the fair value of the Company’s
      stock and the amount an employee must pay to acquire the stock. In certain
      cases
      the Company granted stock options at an exercise price less than the market
      price on the date of grant, and accordingly compensation expense was recognized
      for the stock option grants in periods prior to the adoption of SFAS No.
      123(R).




SFAS
      No.
      123(R) requires disclosure of pro-forma information for periods prior to the
      adoption. The pro-forma disclosures are based on the fair value of awards at
      the
      grant date, amortized to expense over the service period. The Company has
      computed the pro forma disclosures required by SFAS No. 123, “Accounting for
      Stock-Based Compensation,” for options granted using the Black-Scholes
      option-pricing model prescribed by SFAS No. 123. The assumptions used and
      weighted-average information are as follows for each of the years ended December
      31,:





2005
            
            2006Weighted-average
                fair value of options granted
            
            $
            1.60
            
            $
            n/aExpected
                dividend yield
            
            $
            —
            
            $
            n/aRisk-free
                interest rate at grant date
            
            
            3.44
            %
            
            n/aExpected
                stock price volatility
            
            
            233.16
            %
            
            n/aExpected
                option lives (years)
            
            
            5
            
            
            n/a




The
      following table illustrates the effect on net income and earnings per share
      as
      if the Company had applied the fair value recognition provisions of SFAS No.
      123, “Accounting for Stock-Based Compensation,” for the period ending December
      31, 2005 prior to the adoption of SFAS No. 123(R), and the actual effect on
      net
      income and earnings per share for the period after the adoption of SFAS No.
      123(R).




2005
            
            2006Applicable
                to common stockholders:Net
                loss, as reported
            
            $
            (17,697,883
            )
            $
            (349,816
            )Add
                stock based compensation expenseincluded
                in reported net loss
            
            
            1,077,780
            
            
            41,943Less
                total stock-based employeecompensation
                expense determined underthe
                fair-value based method for all awards
            
            
            (3,478,149
            )
            
            (41,943
            )Pro
                forma net loss
            
            $
            (20,098,252
            )
            $
            (349,816
            )Net
                loss per common share (basic and diluted):Reported
            
            $
            (2.95
            )
            $
            (0.05
            )Pro
                forma
            
            $
            (3.35
            )
            $
            (0.05
            )




64




The
      following summarizes the activity related to warrants for each of the years
      ended December 31:





2005
            
            2006Warrants
                outstanding at beginning of year
            
            
            820,147
            
            
            819,736Warrants
                granted
            
            
            —
            
            
            —Warrants
                exercised
            
            
            —
            
            
            —Warrants
                forfeited
            
            
            (411
            )
            
            —Warrants
                outstanding at end of year
            
            
            819,736
            
            
            819,736Weighted
                average exercise price:Warrants
                granted
            
            $
            —
            
            $
            —Warrants
                exercised
            
            $
            —
            
            $
            —Warrants
                forfeited
            
            $
            955.60
            
            $
            —Warrants
                outstanding at end of year
            
            $
            10.40
            
            $
            10.40Warrants
                exercisable at end of year
            
            $
            10.03
            
            $
            10.03Number
                of shares exercisable
            
            
            812,136
            
            
            812,136




The
      following table summarizes information related to outstanding and exercisable
      warrants as of December 31, 2006:





Warrants
                Outstanding
            
            Warrants
                ExercisableRange
                    of
                  Exercise
                    Price
            
            Number
                    of
                  Shares
            
            Weighted
                      Average
                      Exercise
                      Price
            
            Weighted
                        Average
                        Remaining
                        Contractual
                        Life
                          in Years
            
            Number
                    of
                  Shares
            
            Weighted
                      Average
                      Exercise
                      Price$5.40
                - $5.40
            
            
            66,667
            
            $
            5.40
            
            
            2.80
            
            
            66,667
            
            $
            5.40$10.00
                - $10.00
            
            
            735,881
            
            $
            10.00
            
            
            2.50
            
            
            735,881
            
            $
            10.00$21.60
                - $50.40
            
            
            17,000
            
            $
            37.69
            
            
            0.90
            
            
            9,400
            
            $
            27.42$884.54
                - $884.54
            
            
            188
            
            $
            884.54
            
            
            3.10
            
            
            188
            
            $
            884.54Total
            
            
            819,736
            
            $
            10.40
            
            
            2.49
            
            
            812,136
            
            $
            10.03




**12.
      Dividends**




There
      were no dividends for the years ended December 31, 2005 and December 31,
      2006.




**13.
      Restructuring Activities**




On
      August 31, 2003, the Company closed its Pennsylvania corporate headquarters
      and transferred its headquarters to its facility in San Diego, California.
      The
      lease for the corporate headquarters expired in July 2004. As of
      December 31, 2003, the Company had accrued $236,700 as the estimate of the
      amount due for the remaining lease obligation. The Company subsequently
      determined that the landlord had leased its vacated premises and as a result
      the
      Company has reduced the estimate of the remaining lease obligation during 2004,
      and which is included in accounts payable at December 31, 2005 at
      $99,764.




The
      Company had an operating lease for laboratory equipment which expired during
      2004. During 2001, the Company determined that equipment leased by the Company
      under this operating lease would no longer be used by the Company in its
      research and discontinued making the monthly lease payments. In 2001 the Company
      recorded a provision for the remaining future lease payments of $1,264,208.
      At
      December 31, 2003 the balance of this obligation was $719,940. In June
      2004, the Company reached a settlement with the equipment lessor issuing 30,829
      shares of common stock and paying $75,000 with an agreement to pay $25,000
      in
      January 2005. The settlement requires the Company to make additional payments
      to
      the lessor to the extent the lessor’s proceeds from its future sales of this
      stock are below $468,601 (30,829 shares at a guaranteed minimum price of $15.20
      per common share). This contingent obligation is classified in the balance
      sheet
      at both December 31, 2004 and 2005 as $467,984 accrued equipment lease
      obligation, with the remainder as $31 par value common stock and $586 additional
      paid in capital (attributed to the minor difference effected upon recording
      the
      change in the underlying shares issued upon the retroactive restatement related
      to the 1-for-20 reverse stock split - see Note 10). In addition, the scheduled
      January 2005 payment, which has not been made, is also included in accrued
      equipment lease obligation at both December 31, 2005 and 2006. The balance
      of
      the estimated obligation in June 2004 in excess of the value of the settlement
      was recorded as miscellaneous income ($126,257).




65




In
      April
      2005, the Company, after assessing its cash resources, circumstances related
      to
      the continued patent litigation matter (see Note 8) and inability to obtain
      additional sources of cash necessary to continue the Company’s planned business
      activities, formulated and began to adopt a new restructuring plan which
      initially included a reduction-in-force of a majority of the full-time employees
      and part-time employees or consultants who perform administrative support,
      manufacturing and related functions. In addition, a limited number of full-time
      employees were transferred to part-time positions to assist the Company with
      the
      actions necessary to curtail its operations. The Company also temporarily
      suspended its manufacturing operations at that time, pending further
      developments.




The
      Company’s board of directors later concluded that, for a variety of factors,
      including some of which are cited in Note 2, it was not probable that the
      Company would obtain additional cash funds to continue operating even on a
      limited basis in the near term. Therefore, during May 2005, the Company modified
      its restructuring plan to include the disposition of its furniture, fixtures
      and
      equipment, to vacate its premises, and other steps to effect an orderly
      cessation or suspension of operations other than those necessary to facilitate
      completion of the restructuring plan.




The
      Company incurred approximately $34,000 in cash disbursements for severance
      pay
      associated with this restructuring plan during the year ended December 31,
      2005,
      and also paid approximately $191,000 in previously accrued vacation obligations,
      primarily to terminated employees (which is required under California employment
      laws). The Company also terminated its vacation benefit program, and vacation
      was no longer accrued for then remaining employees. In addition, the Company
      negotiated two cash retention bonuses totaling $80,000 with two employees deemed
      integral to the restructuring efforts of the Company as part of this
      restructuring plan; however, one of the employees, as consideration, also waived
      any further claim he had to a previously earned, accrued but unpaid bonus of
      $60,000 from 2003. Accordingly, the Company recognized on a net basis only
      $20,000 bonus expense in the quarter ended June 30, 2005. The retention bonus
      obligations were paid as follows: $30,000 during the quarter ended June 30,
      2005, $35,000 during the quarter ended September 30, 2005 and the remainder
      of
      $15,000, owed to one individual and accrued as of September 30, 2005, was
      subsequently paid in November 2005. All efforts required of these two
      individuals were largely concluded by September 30, 2005.




66




As
      part
      of the employee reduction plan, the employment of the Company’s CEO and
      President was terminated effective May 31, 2005. A reserve for severance (equal
      to one year’s salary, as required by this individual’s employment contract),
      amounting to $275,000, was recorded as expense during the quarter ending June
      30, 2005, but remains unpaid and is accordingly included in accrued expenses
      at
      December 31, 2006.




As
      also
      discussed in Note 8, the Company concluded a successful negotiation with EOP,
      the lessor of the Company’s facility at 6175 Lusk Boulevard, San Diego,
      California. In conformity with the terms of this agreement, the Company vacated
      the premises on or about July 31, 2005 and surrendered its lease security
      deposit totaling $297,000. The Company was released from all other obligations,
      including past due rents totaling approximately $331,292 at July 31, 2005
      (approximately $248,469 at June 30, 2005), as well as late payment fees and
      any
      future lease payments, commitments and/or contingencies. Future minimum lease
      payments at June 30, 2005 eliminated as result of the lease termination
      agreement totaled $2,244,113 at that date. In addition, Alliance, which was
      the
      lease guarantor, was also released from any and all claims, commitments and
      contingencies.




As
      a
      result of the successful adoption of the plan to vacate the premises, the
      Company recorded a leasehold valuation impairment allowance of approximately
      $3,072,000 in the quarter ending June 30, 2005, leaving a net carrying value
      of
      leasehold improvements as of June 30, 2005 totaling $20,000.




On
      June
      16, 2005, the Company sold the majority of its excess equipment at a public
      auction, which netted the Company $270,820, $175,000 of which was received
      by
      June 30, 2005. The balance of $95,820 was recorded as accounts receivable on
      that date, and was subsequently received during the quarter ended September
      30,
      2005. At June 30, 2005 the Company recorded an equipment valuation impairment
      allowance of approximately $193,000, leaving a net carrying value of $31,220
      for
      unsold equipment remaining as of that date.




The
      remainder of the Company’s equipment and leasehold interest was subsequently
      sold subsequent to June 30, 2005 for $51,220 and, accordingly, all carrying
      values of related assets, accumulated depreciation and amortization, and
      valuation impairment allowances have been adjusted to $-0- as of December 31,
      2005.




In
      addition to the impairment losses charged to operations, the Company recognized
      $248,599 as a “Loss on sale of equipment” as of June 30, 2005 for those certain
      asset sales which were concluded by that date; however, the Company has since
      collected $1,500 in miscellaneous collections attributed to assets whose book
      value had previously been written off, and also collected a net payment of
      $20,794 from its property and liability insurance carrier as a result of a
      submitted claim for stolen property which occurred during the period the Company
      was vacating the premise in favor of the new tenant. As a result, the actual
      “Loss on sale of equipment” has been reduced to $226,305 at December 31,
      2005.




67




During
      the quarter ending June 30, 2005, the Company solicited interest from several
      parties regarding its technology license asset, which relates to the Company’s
      N1177 compound and PH-50, the same or substantially same compound for a
      different indication. An agreement in principle was reached with a party to
      acquire these related assets for $102,500, net of third party intermediary
      compensation costs. Accordingly, the Company recorded a technology license
      valuation impairment allowance of approximately $570,000 in the quarter ending
      June 30, 2005, leaving a net carrying value of technology license as of June
      30,
      2005 of $102,500.




During
      the quarter ended September 30, 2005, the Company and the third party completed
      the asset purchase agreement for the sale of the Company’s assets exclusively
      related to N1177 and PH-50. The sale includes certain patent rights related
      to
      N1177 and PH-50 and other intellectual property, including the Company’s
      technology license asset. The agreement called for an aggregate purchase price
      (net of a third party intermediary fee, of $102,500) which was due in two
      payments, the first of which was $71,500 and was paid at closing and the balance
      of $31,000 was paid prior to year end upon satisfactory conclusion of certain
      required follow-on activities. Accordingly, all carrying values of this
      technology license related to its cost, accumulated amortization and valuation
      allowance have been adjusted to zero as of December 31, 2005.




The
      Company entered into the Amersham Settlement dated as of September 19, 2005
      with
      Amersham, Alliance and Molecular Biosystems, Inc. The Amersham Settlement
      resolved the parties’ claims arising under the case described above. Under the
      terms of the Amersham Settlement, the Company’s technology cross-license was
      valued at $1,200,000 in favor of the Company, for which the Company received
      $1,000,000 directly from Amersham. The balance, or $200,000, was paid directly
      by Amersham to Alliance which served as the cash consideration to Alliance
      under
      the separate but concurrent Alliance Settlement discussed below. The parties
      dismissed their litigation and granted each other fully paid-up, irrevocable,
      royalty-free, non-exclusive cross-licenses, with the right to sublicense, and
      mutual releases.




In
      addition, the Company entered into the Alliance Settlement with Alliance dated
      as of September 19, 2005 pursuant to which: (i) each party’s respective ongoing
      obligations to one another under the Asset Purchase Agreement dated June 10,
      2003 between the Company and Alliance were terminated, (ii) each party granted
      the other a mutual general release (which resolved, among other things, the
      parties’ claims against one another for various accumulated post-closing
      payments), and (iii) the parties agreed to share in the proceeds of future
      transactions involving the disposition of the Company’s *Imagent* asset.




When
      the
      Purchased Technology was initially acquired in June 2003, the Company not only
      acquired the underlying technology of the FDA approved product *Imagent* ,
      but
      ongoing operation which held out the possibility at the time that the Company
      could generate at least two strategic sources of revenue: (a) from direct
      product sales and (b) from product licensing and/or technology cross-licensing
      activities. For those reasons, the accounting policy was then established that
      the value of the Purchased Technology should be amortized on a straight-line
      basis into expense over the estimated useful remaining life of the underlying
      intellectual property, including the patent estate, which was 12 years from
      the
      date of the acquisition.




68




Notwithstanding
      the difficulties associated with the ongoing litigation with Amersham, the
      Company nevertheless has been able to execute to a significant extent on the
      second part of the strategic revenue plan through 2005), that of obtaining
      cash-based revenues from product licensing and/or technology cross-licensing
      activities, including:




**·****
            $4,000,000
                paid by Kyosei Pharmaceutical Co., Ltd. (“Kyosei”), a unit of the Sakai
                Group in Japan, in December 2003 and April 2004 pursuant to a product
                license, which was potentially worth as much as $10,000,000 to the
                Company
                if the future milestone obligations could be
                met;




**·****
            $4,000,000
                paid by BMSMI in October 2004 for a technology cross-license;
                and




**·****
            $1,200,000
                paid by Amersham in September 2005 for a technology cross-license,
                pursuant to reaching the Amersham Settlement and the related Alliance
                Settlement.




Because
      the Purchased Technology and the follow-on transactions for the above-described
      strategic revenues collected through September 2005, as well as the derivative
      royalties obligation owed to Schering AG pursuant to the Kyosei product license
      agreement, were inextricably related to one another, the accounting policies
      had
      initially been implemented with the primary objective being to match the
      recognition of license/cross-license revenue and royalties expense to the
      amortization of the Purchased Technology. Therefore, up to December 31, 2005,
      the related license fees and royalties were deferred and only partially
      recognized on a straight-line basis into license revenue and royalties expense,
      based on schedules which commence on the dates the respective transactions
      were
      concluded, and over the remaining estimated useful lives of the underlying
      technology.




Furthermore,
      because the Company could not predict during the initial stages of its
      restructuring activities, particularly in light of the then ongoing negotiations
      with Amersham and Alliance, it was not possible to project what additional
      arrangements might be made with potential business partners for *Imagent* ,
      financial or otherwise. As a result, the Company was unable estimate potential
      changes to the fair market value of the Purchased Technology, together with
      the
      related deferred royalties asset and deferred revenue credits carried on the
      Company’s balance sheet at December 31, 2005.




However,
      the Company’s management determined at December 31 2005, after the Amersham and
      Alliance negotiations had been concluded and agreements executed, that the
      amount of carrying value of the *Imagent* assets
      could more readily be assessed, based on the reduced uncertainty associated
      with
      the previously described matters and an estimate of potential license fees
      related to a possible adjustment of the Kyosei agreement, for which negotiations
      were underway but could not be disclosed with any specificity at that date.
      Based on all factors then available, the *Imagent* asset
      was written down to its then-estimated fair value of $1,000,000 through the
      establishment of an allowance for valuation impairment. At the same time, the
      Company accordingly also concluded that the remaining deferred revenues and
      related deferred royalties assets, should be recognized at that date, rather
      than amortized into future operations, due to the lack of adequate capital
      and a
      full-time staff, which make it impracticable to continue normal operating
      activities.




The
      Kyosei product license agreement contemplated certain ongoing collaborative
      activities between the Company and Kyosei, enabling the Company to achieve
      future payments upon the fulfillment of prospective performance obligations
      by
      each party, but there is no ongoing performance obligation as such related
      to
      prior amounts received. The two technology cross-license agreements with BMSMI
      and Amersham likewise do not contemplate any future performance obligations
      in
      the furtherance of the respective agreements.




69




The
      Company entered into an amended and restated license agreement with Kyosei
      effective as of November 13, 2006. Under the terms of the revised agreement
      the
      Company has been relieved of its obligation under the original agreement to
      manufacture and supply Imagent for Kyosei and assigned Kyosei certain patents
      and a trademark for use in Japan. Kyosei paid a total fee of $1,300,000. In
      accordance with the terms of the Settlement Agreement between the Company and
      Alliance dated as of September 19, 2005 an aggregate of $100,000 (approximately
      $91,000 net, after deducting Alliance’s allocated share of direct expenses) of
      the consideration due from Kyosei was paid to Alliance. In addition, after
      taking into account direct expenditures attributed to this transaction for
      which
      the Company had remaining responsibility, and which totaled approximately
      $104,000 (including agent commission fees and incremental royalty obligations
      to
      Schering AG), the company received net approximately $1,096,000.




An
      additional assessment of the remaining carrying value of the *Imagent* Purchased Technology of $1,000,000 was made at December 31, 2006, and in light
      of all relevant factors available to management, a final write-off of this
      remaining carrying value was recorded as an additional charge to “impairment
      losses” as of that date.




As
      the
      Company’s 2005 restructuring activities continued during the balance of 2005 and
      into 2006, the efforts have continually focused on seeking additional
      alternatives as to how best maximize the value in the Company’s significant
      remaining asset the Purchased Technology, while at the same time minimizing
      and
      eliminating additional significant contingent claims, including those which
      might have been made had the Company not been able to negotiate to satisfactory
      conclusions matters related to (a) the ongoing patent litigation, (b) the
      related disputes with Alliance and (c) the facilities lease
      termination.




The
      Company continues to evaluate its alternatives with respect to efforts to sell
      or otherwise maximize asset values related to the Purchased Technology, for
      the
      benefit of its creditors and shareholders, and will continue to consider as
      alternatives the sale or license of its remaining assets, a merger or other
      material transaction. Such a transaction may include selling the Purchased
      Technology, a license or sale of the patent portfolio underlying the Purchased
      Technology, a manufacturing rights agreement, or another form of transaction.
      To
      date, efforts to fashion additional arrangements have yielded only
      preliminary results; however, the Company continues to explore transactional
      possibilities with potentially interested parties. Although there remains some
      potential for a sale, license, development agreement or comparable transaction,
      no such transaction appears likely for the near term as of December 31,
      2006.




The
      Company also faces certain continuing challenges to preserve and optimize the
      value of its Purchased Technology for the benefits of creditors and
      shareholders, not the least of which is the current lack of a full-time staff
      and reduced financial resources. For example, without an immediate capability
      to
      manufacturing the *Imagent* product,
      the Company can no longer support the prospective aspects of the Kyosei product
      license agreement as was originally executed, therefore putting out of practical
      reach any portion of the future potential payments totaling $6 million which
      might have otherwise flowed from this contract. In addition, it is similarly
      unlikely that the Company could readily restart the production of *Imagent* without
      first commencing a lengthy and costly process to reestablish manufacturing
      capabilities, which also puts out of reach for the time being the additional
      possibility of *Imagent* product
      sales. Continued protection of the value of the Company’s patent portfolio may
      represent another potential source of revenues for the Company, if factors
      warrant and the underlying cost-benefit analysis supports such action(s). And
      while the Company’s history of enforcing its rights in patents indicates that
      there is merit in this approach, patent protection, enforcement and/or possible
      litigation activities can be costly, time consuming and the results are
      inherently uncertain, so there can be no assurance that this business strategy
      will result in net benefits to the Company.




70




As
      a
      result of those adjustments and other asset impairment transactions described
      elsewhere in these “Notes to Consolidated Financial Statements,” the Company has
      recorded net impairment losses for each of the years ending December 31, 2005
      and 2006 as summarized below:





2005
            
            2006Impairment
                losses:Purchased
                Technology write down
            
            $
            11,373,572
            
            $
            1,000,000Add
                recognition of remaining deferred royalties
            
            
            416,666
            
            
            —Less
                recognition of remaining deferred revenues
            
            
            (8,119,485
            )
            
            —Net
                impairment attributed to Purchased Technology and related deferred
                license
                revenues and royalties
            
            
            3,670,753
            
            
            1,000,000Patents
            
            
            —
            
            
            —Technology
                license
            
            
            570,321
            
            
            —Leasehold
                improvement
            
            
            3,072,315
            
            
            —Furniture,
                fixtures and equipment
            
            
            193,177
            
            
            —$
            7,506,566
            
            $
            1,000,000





The
      Company’s subsidiary, Sentigen, Ltd., a Bermuda entity, currently has no
      operations. It is likely to be administratively dissolved by the Bermuda
      authorities.




**14.
      Deferred Revenue:**




In
      December 2003, the Company entered into a product license agreement with Kyosei
      for the development and marketing of *Imagent* in Japan
      for all radiology and cardiology indications. Terms of the agreement call for
      the payment to the Company of up to $10,000,000 in fees and development
      milestone payments plus royalties on commercial sales. Kyosei will also pay
      the
      Company to manufacture *Imagent* for
      Kyosei’s clinical and commercial requirements. The Company received gross
      payments of $2,000,000 each in December 2003 and April 2004. These milestone
      payments have been amortized into income through December 31, 2005 over the
      remaining life of the related patents at the time each payment is received,
      which was approximately 12 years. The Company has recognized cumulative license
      revenue related to this agreement totaling $633,333, including $338,095 for
      2005, prior to considering the additional adjustment made in accordance with
      the
      Purchased Technology valuation assessment more fully discussed in Note
      13.




On
      October 29, 2004, the Company received $4,000,000 related to the cross-licensing
      provisions of a technology cross-licensing and securities purchase agreement
      with Bristol-Meyers Squibb Medical Imaging, Inc. (“BMSMI”) covering ultrasound
      contrast agent patents. The agreement provides both BMSMI and the Company the
      right to further develop and commercialize their respective ultrasound contrast
      imaging agents without risk of infringing upon the other company’s patent
      rights. This payment has been amortized into income through December 31, 2005
      over the remaining life of the related patents, which was approximately 11
      years
      at the time of the agreement. The Company has recognized cumulative license
      revenue related to this agreement totaling $417,914, including $358,212 for
      2005, prior to considering the additional adjustment made in accordance with
      the
      Purchased Technology valuation assessment more fully discussed in Note
      13.




71




On
      September 19, 2005 the Company entered into a Settlement Agreement and License
      with Amersham, Alliance and Molecular Biosystems, Inc. The Amersham Settlement
      resolved the parties’ claims arising under the litigation - see Note 8. Under
      the terms of the Amersham Settlement, the Company received a technology
      cross-license which was valued at $1,200,000 in favor of the Company, for which
      the Company received $1,000,000 directly from Amersham. The balance, or
      $200,000, was paid directly by Amersham to Alliance which served as the cash
      consideration to Alliance under the separate but concurrent Alliance Settlement
      more fully discussed in Note 3. The parties dismissed their litigation and
      granted each other fully paid-up, irrevocable, royalty-free, non-exclusive
      cross-licenses, with the right to sub-license, and mutual releases.




The
      Company recorded $1,200,000 attributed to the Amersham technology cross-license
      to deferred revenue, which it then began to amortize into income through
      December 31, 2005 over the remaining life of the related patents, which was
      approximately 101⁄4 years at the time of the agreement. The Company recognized
      cumulative license revenue related to this agreement totaling $29,268, all
      of
      which is attributable to 2005, prior to considering the additional adjustment
      made in accordance with the Purchased Technology valuation assessment more
      fully
      discussed in Note 13.




As
      more
      fully discussed in Note 13, the Company recognized the balance of the deferred
      revenue at December 31, 2005, totaling $8,119,485 ($3,366,667 related to the
      original Kyosei product license, $3,582,086 related to the BMSMI technology
      cross-license and $1,170,732 related to the Amersham technology cross-license),
      taken into operations as a reduction of “Impairment losses” recorded in
      connection with its restructuring activities.




**15.
      Gain on Extinguishment of Debt**




Beginning
      in December 2005, the Company began to negotiate with certain creditors who
      were
      willing to settle and provide a full release of claims against the Company,
      in
      exchange for significantly discounted payments. During the years ended December
      31, 2005 and 2006, the Company paid $10,360 and $36,321, respectively, to settle
      claims totaling $114,802 and $361,242, respectively. This resulted in the
      Company recognizing gains on extinguishment of debt in the amounts of $104,442
      and $324,921, respectively.




72




**16.
      Income Taxes**




As
      of
      December 31, 2005 and 2006, the Company has net operating loss (“NOL”)
      carryforwards for federal income tax purposes of approximately $41,701,000
      and
      $42,052,000, respectively, that expire from 2023 through 2026, and $35,599,000
      and $35,950,000, respectively, for California state income tax purposes that
      expire in 2013, 2014, 2015 and 2016. The Tax Reform Act of 1996 contains
      provisions that may limit the utilization of NOL carryforwards available to
      be
      used in any given year in the event of significant changes in ownership
      interests as defined in the act. Management has provided a valuation allowance
      in the amount of $27,493,000 as of December 31, 2006 due to the uncertainty
      of
      the future realization of the deferred tax asset. The net change in valuation
      allowance for 2006 was a decrease of $2,328,000.




The
      expected income tax provision, computed based on the Company’s pre-tax income
      and the statutory Federal income tax rate, is reconciled to the actual tax
      provision reflected in the accompanying consolidated financial statements as
      follows:





2005
            
            2006Expected
                federal income tax benefit
            
            $
            (6,017,000
            )
            $
            (119,000
            )Expected
                state income tax benefit, net of federal benefit
            
            
            (1,033,000
            )
            
            (20,000
            )Increase
                in valuation allowance
            
            
            6,622,000
            
            
            (2,328,000
            )Losses
                for which no benefit recognized
            
            
            429,000
            
            
            17,000Other
            
            
            (1,000
            )
            
            —Change
                in estimate
            
            
            —
            
            
            2,450,000Provision
                for income tax expense
            
            $
            —
            
            $
            —




The
      following is a schedule of the significant components of the Company’s net
      deferred tax assets as of each of the years ended December 31,:




2005
            
            2006Net
                operating loss carryforwards
            
            $
            19,607,000
            
            $
            16,395,000Deferred
                revenue
            
            
            —
            
            
            —Amortization
                of intangible assets
            
            
            242,000
            
            
            (139,000
            )Impairment
                in asset valuations
            
            
            4,640,000
            
            
            5,038,000Equity
                in loss of affiliate
            
            
            5,081,000
            
            
            5,799,000Other
                temporary timing differences
            
            
            251,000
            
            
            400,000Deferred
                tax asset
            
            
            29,821,000
            
            
            27,493,000Less
                valuation allowance
            
            
            (29,821,000
            )
            
            (27,493,000
            )$
            —
            
            $
            —




73





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




None.




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




In
      September 2004, our management concluded that there were certain reportable
      conditions and material weaknesses in our internal controls and procedures.
      As
      noted in our Annual Report on Form 10-KSB for the year ended December 31, 2004,
      as amended, we had taken steps and had started to implement remediation
      procedures to address the identified reportable conditions and material
      weaknesses. However, based on our limited capital resources and the adoption
      of
      a restructuring plan in April 2005, which included a reduction-in-force of
      our
      full-time employees and part-time employees or consultants who perform
      administrative support, manufacturing and related functions, we have been unable
      to complete the previously identified remediation plans. As a result, certain
      of
      the previously identified reportable conditions and material weaknesses,
      particularly those related to the small size of our accounting staff and the
      limited number of our financial and accounting personnel, still
      exist.




Although
      certain material weaknesses in internal controls and procedures previously
      disclosed have not been fully remediated, we believe that changes and procedures
      that were implemented and remain in place, mitigate and reduce the likelihood
      of
      material misstatements or improper disclosures in our financial statements
      and
      reports. These changes and procedures include (i) engaging of Larry D. Grant
      as
      a financial consultant, (ii) adding Darlene Deptula-Hicks to our Audit
      Committee, (iii) requiring the Executive Committee of the Board to ratify
      routine and/or recurring expenditures and approve significant commitments and
      non-routine expenditures and payments, (iv) requiring both Larry D. Grant and
      our other senior executives to review and approve the incurrence of all
      significant obligations and remittance of payments, (v) adopting separate Codes
      of Ethics for all employees and for senior executives and finance personnel,
      (vi) adopting or updating the charters of our Audit and Compensation Committees,
      and (vii) creating a Disclosure Committee and adopting a Disclosure Committee
      Charter. In addition, the cessation of operations and discharge of employees
      simplifies the complexity and reduces the number of transactions we must
      monitor, thereby significantly simplifying the internal control
      process.




Our
      senior executive officers have previously consulted with Larry D. Grant and
      have
      participated in the evaluation of our disclosure controls (as defined in Rules
      13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended
      (the
“Exchange Act”)) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of
      December 31, 2006 and, based on that evaluation, concluded that due to
      insufficient staff our disclosure controls and procedures were not fully
      effective to ensure timely collection, evaluation and disclosure of information
      relating to the Company that would potentially be subject to disclosure under
      the Exchange Act, and the rules and regulations thereunder. However, to the
      extent corrections and improvements in internal controls and disclosure controls
      and procedures cannot be implemented and/or maintained, management believes
      appropriate oversight and review is currently in place in light of the minimal
      transactions conducted during this fiscal year to prevent material
      misstatements in our annual financial reporting.




74




***ITEM
      8B. OTHER INFORMATION.***




None.




***PART
      III.***





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




**Directors.** The
      table below sets forth our seven directors and information concerning their
      age
      and position with the company as of March 31, 2006. Except for Mr. Fleming
      (who
      is a director of Memory Pharmaceuticals Corp.) and Ms. Deptula-Hicks (who is
      a
      director of Technest Holdings Inc.), none of these individuals is a director
      of
      any other company subject to the reporting requirements under the federal
      securities laws.




**Name**
            
            **Age**
            
            **Position**Brian
                M. Gallagher, Ph.D.(1)
            
            59
            
            Director,
                Chairman of the BoardTaffy
                J. Williams, Ph.D.(1)
            
            57
            
            DirectorRobert
                A. Ashley(2)
            
            49
            
            DirectorRichard
                T. Dean, Ph.D.(2)(3)
            
            59
            
            DirectorDarlene
                M. Deptula-Hicks, M.B.A.(2)
            
            49
            
            DirectorJonathan
                J. Fleming(1)(3)
            
            49
            
            DirectorAlan
                D. Watson, Ph.D., M.B.A.(3)
            
            54
            
            Director




(1)  Member
      of
      the Executive Committee




(2)  Member
      of
      the Audit Committee




(3)  Member
      of
      the Compensation Committee




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




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




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




75




**Taffy
      J. Williams, Ph.D.** served
      as our President, Chief Executive Officer and a director between May 17,
      2000 and May 31, 2005, when his employment as our President and CEO terminated
      as part of our employee reduction plan. Prior to joining the company, Dr.
      Williams served as CEO and President of PANAX Pharmaceuticals for two and half
      years and President of InKine Pharmaceuticals for two years. He received his
      Bachelor of Science in Chemistry from the University of Notre Dame and his
      Ph.D.
      in Chemistry from the University of South Carolina.




**Robert
      A. Ashley** began
      serving **** as
      a
      director following his election at the annual stockholders’ meeting held on
      January 20, 2005. Mr. Ashley received his MA in Biochemistry from St. Peter’s
      College, Oxford University. He is currently the chief executive officer of
      Ashley BioPharm. From 2004 until March 2007, he served as President, Chief
      Executive Officer and Chairman of the Board of Amplimed Corporation. From 1994
      to 2003, he served in various capacities with CollaGenex
      Pharmaceuticals Inc., including as Senior Vice President, Vice President of
      Commercial Development and Managing Director of CollaGenex
      International Ltd.




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




**Darlene
      M. Deptula-Hicks, M.B.A.** has
      served as a director since July 22, 2004. Ms. Deptula-Hicks received her
      B.S. in accounting from New Hampshire College and her M.B.A. from Rivier
      College. She is currently the Executive Vice President of Finance and Chief
      Financial Office of iCAD Inc., a provider of computer-aided detection products
      for cancer detection and a Director of Technest Holding, Inc., a public defense
      and homeland security company. From 2002 until 2006, she served as Executive
      Vice President and Chief Financial Officer of ONI Medical Systems, Inc.
      Prior to that, she was the Executive Vice President, Chief Financial Officer
      and
      Treasurer of Implant Sciences Corporation from 1998 to 2001. Ms. Deptula-Hicks
      has over 20 years of experience in financial management positions,
      primarily in the life sciences sector.




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




76




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




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




**Jack
      DeFranco** ,
      age 61,
      has served as Chief Operating Officer since January 20, 2005 and is currently
      providing services to the company as a consultant. From June 18, 2003 until
      January 20, 2005, he served as our Senior Vice President of Business Development
      and Marketing. For the ten years prior to joining the company, Mr. DeFranco
      served as Vice President of Marketing and Business Development for Alliance
      Pharmaceutical Corp., and he is currently employed with Alliance again as its
      President and Chief Operating Officer.   Mr. DeFranco received his
      B.S. from Stephen F. Austin University and an M.B.A. and M.A. from Fairleigh
      Dickenson University.




**Larry
      D. Grant** ,
      age 55,
      has served as a financial consultant to the company since May 11, 2004. Mr.
      Grant is an independent consultant to the company who provides concentrated
      interim chief financial officer services, generally to technology companies,
      for
      extended periods of time. Unrelated to the company, since 2005, Mr. Grant has
      also been a Partner in Tatum, LLC, an executive services and consulting firm.
      From May 2003 to May 2004, Mr. Grant represented the Investors and Board of
      Directors of Molecular Reflections, Inc. From April 2003 to December 2003,
      Mr.
      Grant represented the Investors and Board of Directors of QED Solutions, Inc.
      From July 2002 to April 2003, Mr. Grant served as acting Chief Financial Officer
      with Voxiva, Inc. From February 2001 to July 2002, Mr. Grant served as Executive
      Vice President and Chief Financial Officer with SymRx, Inc. From August 1999
      to
      February 2001, Mr. Grant served as Executive Vice President and Chief Financial
      Officer with JFX Software, Inc. Mr. Grant is a certified public accountant
      and
      has 33 years of experience in providing accounting and financial
      services.




**Section
      16(a) Beneficial Ownership Reporting Compliance.** Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
      our executive officers, directors and persons who beneficially own more than
      10%
      of our common stock to file initial reports of ownership and changes in
      ownership with the SEC. Those persons are required by SEC regulations to furnish
      us with copies of all Section 16(a) forms that they file. To our knowledge,
      based solely on a review of the copies of those reports furnished to us during
      the fiscal year ended December 31, 2006, we believe that our executive officers,
      directors and beneficial owners of more than 10% of our common stock complied
      with all Section 16(a) filing requirements.




**Code
      of Ethics** .
      As of
      December 31, 2004, we have adopted a code of ethics for principal executives
      and
      senior financial officers, which includes our principal executive officer,
      principal financial officer, principal accounting officer or controller, or
      persons performing similar functions, as required by sections 406 and 407 of
      the
      Sarbanes-Oxley Act of 2002. Our Code of Ethics for Senior Executives and
      Financial Personnel is referenced as Exhibit 14 and a copy will be provided
      without charge following the receipt of a written request to Larry D. Grant,
      IMCOR Pharmaceutical Co., 4660 LaJolla Drive, Suite 500, San Diego, CA
      92122.




77




**ITEM
      10. EXECUTIVE COMPENSATION.**




**Executive
      Compensation.** The
      following executive compensation disclosure reflects all compensation awarded
      to, earned by or paid to the Named Executive Officers (as defined below) for
      the
      fiscal years ended December 31,  2005 and 2006. The named executive
      officers (“Named Executive Officers”) are the company’s Principal Executive
      Officer and the other executive officers of the company who each received in
      excess of $100,000 in total salary and bonus for the fiscal year 2006.
      Compensation is shown in the following table:




78





**SUMMARY
      COMPENSATION TABLE**


Name
                and
                Principal
                Position
              
              Year
              
              Salary
                ($)
              
              Bonus
                ($)
              
              Stock
                Awards
                ($)
              
              Option
                Awards
                ($)
                  (10)
              
              Non-Equity
                Incentive
                Plan
                Compen-
                sation
                  ($)
              
              Nonqualified
                Deferred
                Compensa-
                tion
                  Earnings
                ($)
              
              All
                  Other
                Compen-
                sation
                Compen-
                sation
                ($)
              
              Total
                ($)Brian
                  M. Gallagher, acting principal financial officer and Chairman of
                  the Board
                  of Directors
              
              2006
                2005
              
              $
                  -0-(1)
                $120,000(1)
              
              $
                  -0-
                -0-
              
              $
                  -0-
                -0-
              
              $
                  41,696(2)(3)
                -0-(2)(3)
              
              $
                  -0-
                -0-
              
              $
                  -0-
                -0-
              
              $
                  -0-
                -X
              
              $
                  41,696(3)
                120,000(1)Jack
                  DeFranco
                former
                  President
                and
                  Chief
                Executive
                  Officer(8)(9)
              
              2006
                2005
              
              $
                  21,189 (4)
                237,238
                  (5)
              
              $
                  -0-
                60,000
                  (6)
              
              $
                  -0-
                -0-
              
              $
                  -0-(3)
                -0-(3)
              
              $
                  -0-
                -0-
              
              $
                  -0-
                -0-
              
              $
                  -0-
                -0-
              
              $
                  21,189(4)
                297,238(5)(6)Larry
                  D. Grant
                financialconsultant
                  and
                AssistantSecretary
              
              2006
                2005
              
              $
                  76,313 (7)
                177,600
                  (7)
              
              $
                  -0-
                -0-
              
              $
                  -0-
                -0-
              
              $
                  -0-
                -0-
              
              $
                  -0-
                -0-
              
              $
                  -0-
                -0-
              
              $
                  -0-
                -0-
              
              $
                  76,313 (7)
                177,600
                  (7)


(1)
              We
                  entered into a letter agreement with Dr. Gallagher, the Chairman
                  of our
                  Board of Directors, to receive $10,000 per month in his capacity
                  as
                  Chairman of the Board; however, he has not claimed any monthly
                  compensation for all of 2006, and $80,000 remains unpaid for the
                  months
                  May-December, 2005. Dr. Gallagher is entitled to reimbursement
                  for normal
                  and necessary out-of-pocket business expenses.(2)
              Pursuant
                  to Dr. Gallagher’s agreement regarding his status as Chairman of the Board
                  of Directors, he has received an option award to purchase 100,000
                  shares
                  of common stock subject to vesting over a four year period. On
                  each
                  anniversary of Dr. Gallagher’s continued election as the Chairman of the
                  Board he was to receive a new option to purchase 100,000 shares
                  of common
                  stock at the market price on the date of the grant, to vest over
                  a four
                  year period. However, no options have been granted since February
                  2005.(3)
              Expense
                  reported in 2006 in accordance with Statement of Financial Accounting
                  Standard No. 123R, Share Based Payment (SFAS 123(R)). Expense reported
                  in
                  2005 in accordance with Accounting Principles Board Opinion No.
                  25,
                  “Accounting for Stock Issued to Employer,” (“APB No. 25”) and related
                  interpretations. See the notes to the financial statements contained
                  elsewhere herein for additional information. In 2005, option compensation
                  expense for Brian M. Gallagher was calculated on a pro forma basis
                  as if
                  the company had applied the fair value recognition provisions of
                  SFAS No.
                  123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”), amounted
                  to $103,446. In 2005, option expense for Jack DeFranco, similarly
                  calculated for those options which had vested prior to his employment
                  termination date, amounted to $32,614. Mr. DeFranco’s options have expired
                  without being exercised. Mr. Gallagher’s options have not been
                  exercised.(4)
              Reflects
                  consulting fees totaling $21,829.(5)
              Includes
                  $44,424 of previously unpaid but accrued vacation.(6)
              Reflects
                  a retention bonus which was paid as an inducement to retain his
                  services
                  as an employee (See Note (2)).(7)
              Reflects
                  consulting fees totaling $122,900 directly and another $34,000
                  paid by a
                  stockholder on behalf of the company in 2004. In 2005 and 2006
                  the amounts
                  were related to consulting fees and were paid directly by the
                  company.(8)
              Dr.
                  Williams and Mr. DeFranco were entitled to severance if their employment
                  was terminated without cause, as discussed below.  As part of the
                  employee reduction plan, Dr. Williams was terminated effective
                  May 31,
                  2005. Mr. DeFranco became a consultant to the Company in November
                  2005,
                  and is engaged on a part-time, as-needed basis through June 30,
                  2007.(9)
              Mr.
                  DeFranco joined the company on June 18, 2003 as part of the
                  acquisition of the Imagent Business. He served as Chief Operating
                  Officer
                  since January 20, 2005 and served as our Senior Vice President
                  of Business
                  Development and Marketing from June 18, 2003 until January 20, 2005.
                  He became a consultant to the Company in November 2005 and is engaged
                  on a
                  part-time, as-needed basis through June 30, 2007.(10)
              Reflects
                  a one-for-twenty reverse split which occurred in March,
                  2005.
 79




**Stock
      Options.** We did
      not grant any stock options during the 2005 or 2006 fiscal years under our
      2000
      Long Term Incentive Compensation Plan.




The
      following table sets forth information about the Named Executive Officers
      concerning the exercise of options during the last fiscal year and unexercised
      options held as of the end of the 2006 fiscal year.




**O** **UTSTANDING
      EQUITY AWARDS AT FISCAL YEAR END**


Option
                  Awards
              
              Stock
                  AwardsName
              
              Number
                of
                Securities
                Underlying
                Unexercised
                Options
                (#)
                Exercisable
              
              Number
                of
                Securities
                Underlying
                Unexercised
                Options
                (#)
                Unexercisable
              
              Equity
                  Incentive
                Plan
                Awards:
                Number
                  of
                Securities
                Underlying
                Unexercised
                Unearned
                Options
                (#)
              
              Option
                  Exercise Price
                ($)
              
              Option
                Expiration
                Date
              
              Number
                of
                  Shares
                or
                  Units
                of
                  Stock
                That
                  Have
                Not
                Vested
                (#)
              
              Market
                Value
                  of
                Shares
                  or
                Units
                  of
                Stock
                That
                  Have
                Not
                  Vested
                ($)
              
              Equity
                Incentive
                Plan
                  Awards:
                Number
                  of
                Unearned
                Shares,
                Units
                  or
                Other
                  Rights
                That
                  Have
                Not
                  Vested
                (#)
              
              Equity
                Incentive
                Plan
                Awards:
                Market
                  or
                Payout
                Value
                  of
                Unearned
                Shares,
                Units
                  or
                Other
                  Rights
                That
                  Have
                Not
                  Vested
                ($)Brian
                  M. Gallagher
              
              51,250
              
              48,750
              
              -0-
              
              $8.00
              
              (1)
              
              -0-
              
              $-0-
              
              -0-
              
              $-0-Jack
                  DeFranco
              
              -0-
              
              -0-
              
              -0-
              
              -0-
              
              --
              
              -0-
              
              -0-
              
              -0-
              
              -0-Larry
                  D. Grant
              
              -0-
              
              -0-
              
              -0-
              
              -0-
              
              --
              
              -0-
              
              -0-
              
              -0-
              
              -0-
   (1)
          5,000
          expire on June 30, 2014 and 95,000 expire on March 4, 2015.


Mr.
      DeFranco is currently a consultant to the company. Mr. DeFranco is bound by
      his
      Employee Confidentiality, Inventions and Noncompetition Agreements, as amended
      (the “Confidentiality Agreement”). The Confidentiality Agreement provides that
      while we employ Mr. DeFranco and for a period of two years after termination
      he
      will not engage in activities that compete with our business. The
      Confidentiality Agreement also requires Mr. DeFranco to disclose to our board
      of
      directors all inventions or other intellectual property discovered or made
      by
      him during his employment and twelve months thereafter, if those inventions
      are
      related to or useful in our business, or result from duties assigned to that
      individual or from the use of any of our assets or facilities.




Mr.
      DeFranco was eligible to receive typical health, life and disability insurance
      benefits that are available to our other salaried employees and to defer a
      portion of their salary through our 401(k) plan, but we did not match or make
      any contributions to the 401(k) plan during the 2005 fiscal year. We do not
      maintain a pension plan other than our 401(k) plan, and all of our employee
      benefit plans were terminated as part of our restructuring plan.




Through
      May, 2005, Mr. Grant provided services to us under a consulting agreement that
      required us to pay him consulting fees at a rate of $925 per day, plus pay
      for
      his reasonable out-of-pocket expenses, and certain transportation expenses
      between San Diego and the East Coast, and to provide modest interim living
      accommodations in San Diego. For the balance of 2005 and all of 2006, Mr. Grant
      continued to provide services to us under the consulting agreement but worked
      from the East Coast. During 2005, we paid Mr. Grant consulting fees totaling
      $177,600. In return, during 2005 Mr. Grant provided us with financial and
      accounting advisory services and spent an average of at least five days per
      week
      and at least eight hours per day devoted to our business through May, 2005.
      For
      the balance of 2005, Mr. Grant continued to advise the company on average of
      two
      days per week. In 2006 Mr. Grant’s time commitment was further reduced to
      approximately 20 days per quarter on average, during which period we paid Mr.
      Grant consulting fees totaling $76,313.




Officers
      generally serve at the discretion of the board of directors. We do not have
      any
      compensatory plans or arrangements resulting from resignation, retirement or
      any
      other termination of an executive officer’s employment with us.




As
      part
      of the employee reduction plan, the employment of our CEO and President was
      terminated effective May 31, 2005. We recorded a reserve for severance (equal
      to
      one year’s salary, as required by this individual’s employment contract),
      amounting to $275,000, as expense during the quarter ending June 30, 2005.
      This
      obligation remains unpaid and is accordingly included in accrued expenses at
      December 31, 2006.




80




**DIRECTOR
      COMPENSATION**


Name
              
              Fees
                  Earned or
                Paid
                  in Cash ($)
              
              Stock
                  Awards
                ($)
              
              Option
                  Awards
                ($)
              
              Non-Equity
                Incentive
                  Plan
                Compensation
                ($)
              
              Non-Qualified
                Deferred
                Compensation
                Earnings
                  ($)
              
              All
                  Other
                Compensation
                ($)
              
              Total
                  ($)Brian
                  M. Gallagher, Ph.D.
              
              $-0-
                  (1)
              
              $-0-
              
              $-0-
                  (2)
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-Darlene
                  M. Deptula-Hicks
              
              $-0-
                  (3)
              
              $-0-
              
              $-0-
                  (4)
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-Alan
                  D. Watson
                Ph.D.
              
              $-0-
                  (5)
              
              $-0-
              
              $-0-
                  (6)
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-Jonathan
                  Fleming
              
              $-0-
                  (7)
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-Richard
                  Dean Ph.D.
              
              $-0-
                  (8)
              
              $-0-
              
              $-0-
                  (9)
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-Robert
                  A. Ashley
              
              $-0-
                  (10)
              
              $-0-
              
              $-0-
                  (11)
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-Taffy
                  J. Williams Ph.D.
              
              $-0-
                  (12)
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-
              
              $-0-
  (1) We
        entered
        into a letter agreement with Dr. Gallagher, the Chairman of our Board of
        Directors, to receive $10,000 per month; however, he has not claimed any
        monthly
        compensation for all of 2006, and $80,000 remains unpaid for the months
        May-December, 2005. Dr. Gallagher is entitled to reimbursement for normal
        and
        necessary out-of-pocket business expenses.
 
 (2)
        Pursuant to Dr. Gallagher’s agreement, he has received an option award to
        purchase 100,000 shares of common stock subject to vesting over a four year
        period. On each anniversary of Dr. Gallagher’s continued election as the
        Chairman of the Board he was to receive a new option to purchase 100,000
        shares
        of common stock at the market price on the date of the grant, to vest over
        a
        four year period. However, no options have been granted since February
        2005.
 
 (3)
        Ms.
        Deptula-Hicks is entitled to receive an annual fee of $20,000 and an additional
        annual fee of $5,000 for membership on the Audit Committee; however, no claims
        for compensation have been made or accrued for 2006. Ms. Deptula-Hicks is
        reimbursed for normal and necessary out-of-pocket business
        expenses.
 
 (4)
        Ms.
        Deptula-Hicks is entitled to a bi-annual option grant to acquire 3,000 shares
        of
        common stock, subject to quarterly vesting, but no options have been granted
        since October 2004.
 
 (5)
        Mr.
        Watson is entitled to receive an annual fee of $20,000 and an additional
        annual
        fee of $3,000 for membership on the Compensation Committee; however, no claims
        for compensation have been made or accrued for in 2006. Mr. Watson is reimbursed
        for normal and necessary out-of-pocket business expenses.
 
 (6)
        Mr.
        Watson is entitled to a bi-annual option grant to acquire 3,000 shares of
        common
        stock, subject to quarterly vesting, but no options have been granted since
        December 2003.
 
 (7)
        Mr.
        Fleming has declined to receive any compensation for his participation on
        the
        Board or any of its committees.
 
 (8)
        Dr.
        Dean is entitled to receive an annual fee of $20,000 and an additional fee
        of
        $5,000 for membership on the Audit Committee and $3,000 for membership on
        the
        Compensation Committee, however, no claims for compensation have been made
        or
        accrued for 2006. Dr. Dean is entitled to reimbursement of normal and necessary
        out-of-pocket business expenses.
 
 (9)
        Dr.
        Dean is entitled to receive a bi-annual option grant to acquire 3,000 shares
        of
        common stock, subject to quarterly vesting, but no options have been granted
        since December 2003.
 
 (10)
        Mr.
        Ashley is entitled to receive an annual fee of $20,000 and an additional
        annual
        fee of $5,000 for membership on the Audit Committee; however, no claims for
        compensation have been made or accrued for 2006. Mr. Ashley is reimbursed
        for
        normal and necessary out-of-pocket business expenses.
 
 (11)
        Mr.
        Ashley is entitled to receive 3,000 options vesting over two years; however,
        these options have not been issued to date.
 
 (12)
        Dr.
        Williams does not receive any separate compensation for his Board membership
        or
        for his Executive Committee membership.


81




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.**




**Security
      Ownership of Certain Beneficial Owners and Management.** The
      following table sets forth the approximate beneficial ownership of our common
      stock as of on March 31, 2007 by directors and executive officers of the
      Company and any person or group known to us to be the owner of more than five
      percent of our common stock. Shares beneficially owned by the individuals below
      through family partnerships or other entities they control are included in
      the
      number of shares listed in the table below for that individual.




**Name
                and Address**
              **of
                Beneficial Owner(1)**
            
            **Shares
                of**
              **Common**
              **Stock**
              **Beneficially**
              **Owned(2)**
            
            **Percent
                of**
              **Class**
              **Outstanding(3)****EXECUTIVE
                OFFICERS AND DIRECTORS:**Robert
                A. Ashley
            
            
            -0-
            
            
            *Richard
                T. Dean
            
            
            3,000
            (4)
            
            *Jack
                DeFranco
            
            
            -0-
            
            
            *Darlene
                M. Deptula-Hicks, M.B.A.
            
            
            3,000
            (5)
            
            *Jonathan
                Fleming/Oxford Bioscience
              Partners
                IV L.P.
              225
                Berkeley St., Suite 1650
              Boston,
                MA 02216
            
            
            4,790,470
            (6)
            
            67.5Brian
                M. Gallagher, Ph.D.
            
            
            75,000
            (7)
            
            1.1Alan
                D. Watson, Ph.D.
            
            
            4,750
            (8)
            
            *Taffy
                J. Williams, Ph.D.
            
            
            -0-
            
            
            *All
                directors and executive officers as a group--2006 fiscal year
                (8 persons)
            
            
            4,876,220
            
            
            67.9




**OTHER
                SHAREHOLDERS:**Oxford
                Bioscience Partners IV L.P.
              225
                Berkeley Street, Suite 1650
              Boston,
                MA 02216
            
            
            See
                above.




***
            Constitutes
                one percent or less of the percent of class
                outstanding.





*(1)*
            Unless
                otherwise indicated, the address of each person named in the table
                is c/o:
                IMCOR Pharmaceutical Co., 4660 La Jolla Drive, Suite 500, San Diego,
                CA
                92122.




82




*(2)*
            With
                respect to directors and executive officers, based on information
                furnished by the director or executive officer
                listed.





*(3)*
            The
                percent of class outstanding includes common stock outstanding as
                of March
                31, 2007, and the shares of common stock issuable upon exercise of
                warrants and options or conversion of other securities within 60
                days of
                March 31, 2007.





*(4)*
            Includes
                3,000 options exercisable within 60 days of March 31,
                2007.





*(5)*
            Includes
                3,000 options exercisable within 60 days of March 31,
                2007.





*(6)*
            Includes
                46,223 shares and 1,366 warrants held by MRNA Fund II L.P. and 4,606,746
                shares and 136,135 warrants held by Oxford Bioscience Partners IV
                L.P.,
                which Mr. Fleming may be deemed to control. Mr. Fleming disclaims
                beneficial ownership of these shares for all other
                purposes.





*(7)*
            Includes
                75,000 options exercisable within 60 days of March 31,
                2007.





*(8)*
            Includes
                1,250 shares of common stock and options to acquire 3,500 shares
                of common
                stock exercisable within 60 days of March 31,
                2007.




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




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





The
      information provided in the following table is as of December 31,
      2006.




**Plan
                Category**
            
            **Number
                of**
              **securities
                to be**
              **issued
                upon**
              **exercise
                of**
              **outstanding**
              **options,
                warrants**
              **and
                rights (a)**
            
            **Weighted-average
                exercise price of outstanding**
              **options,
                warrants**
              **and
                rights (b)**
            
            **Number
                of**
              **securities**
              **remaining
                available**
              **for
                future issuance**
              **under
                equity**
              **compensation
                plans (excluding**
              **securities**
              **reflected
                in column**
              **(a))
                (c)**Equity
                compensation plans approved by security holders
            
            
            110,671
            
            $
            12.29
            
            
            1,464,272Equity
                compensation plans not approved by security holders
            
            
            -0-
            
            $
            -0-
            
            
            -0-TOTAL
            
            
            110,671
            
            $
            12.29
            
            
            1,464,272




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




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






83




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




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




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




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




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





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




**Certain
      Relationships and Related Transactions.** Mi3,
      Oxford and MRNA purchased shares in the institutional financing which closed
      in
      April and June 2004. Jonathan Fleming (a director) is General Partner of OBP
      Management IV L.P. which is the general partner of Oxford and MRNA. William
      McPhee (a director at that time) was president of Mi3 Services L.L.C., the
      general partner of Mi3. These investors also provided capital to us evidenced
      by
      secured notes, which were converted into shares of our common stock at $8.00
      per
      share in connection with the April/June 2004 financing. We filed registration
      statements covering the resale of shares held by these stockholders (which
      have
      terminated since then), and we issued additional late registration shares to
      them as required by the applicable registration rights agreements. We owed
      Oxford and MRNA $192,233 as of December 31, 2006 pursuant to unsecured notes,
      plus unpaid interest. The notes bear interest at eight percent annually.





84





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




(a)  Exhibits




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




**EXHIBIT**
              **NO.**
            
            **DESCRIPTION**+2.1
            
            Asset
                Purchase Agreement dated as of June 10, 2003 by and between IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Alliance
                Pharmaceutical Corp. (Filed as Exhibit 2.1 to the company’s
                Form 8-K dated June 20, 2003 and incorporated herein by
                reference.)+3.1
            
            Articles
                of Incorporation of IMCOR Pharmaceutical Co., as amended. (Filed
                as
                Exhibit 3.1 to the company’s Form 10-KSB dated March 31, 2005 and
                incorporated herein by reference.)+3.2
            
            Certificate
                of Designation, Preferences and Rights of Series A Preferred Stock.
                (Filed as part of Exhibit 3.1 to the company’s 8-K filed on November
                11, 2004 and incorporated herein by reference.)+3.3
            
            Amended
                and Restated Bylaws of IMCOR Pharmaceutical Co. (Filed as Exhibit C
                to the company’s Information Statement on Form DEF 14C dated
                December 23, 2002 and incorporated herein by
                reference.)




+4.1
            
            Form
                of Registration Rights Agreement entered into by and between IMCOR
                Pharmaceutical Co. and each purchaser signatory thereto dated April
                14,
                2004. (Filed as Exhibit 4.13 to the company’s 10-QSB for the quarter ended
                March 31, 2004 and incorporated herein by reference.)+4.2
            
            Form
                of Warrant Agreement entered into by and between IMCOR Pharmaceutical
                Co.
                and each purchaser signatory thereto dated as of April 14, 2004.
                (Filed as
                Exhibit 4.12 to the company’s 10-QSB for the quarter ended March 31, 2004
                and incorporated herein by reference.)+4.3
            
            Form
                of Registration Rights Agreement entered into by and among IMCOR
                Pharmaceutical Co. Oxford Bioscience Partners IV L.P., MRNA Fund
                II L.P.
                and Mi3 LP dated April 19, 2004. (Filed as Exhibit 4.15 to the company’s
                10-QSB for the quarter ended March 31, 2004 and incorporated herein
                by
                reference.)+4.4
            
            Form
                of Registration Rights Agreement entered into by and between IMCOR
                Pharmaceutical Co. and Bristol-Myers Squibb Medical Imaging, Inc.
                dated as
                of October 29, 2004. (Filed as Exhibit 10.3 to the company’s 8-K filed on
                November 4, 2004 and incorporated herein by
                reference.)




85




+4.5
            
            Registration
                Rights Agreement entered into as of November 12, 2002 by and among
                IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Mi3
                L.P.,
                Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and Tannebaum,
                LLC. (Filed as Exhibit D to the company’s Proxy Statement on
                Form DEFM 14A dated September 12, 2002 and incorporated
                herein by reference.)+4.6
            
            Form
                of Registration Rights Agreement dated as of December 30, 2002
                entered into by and between IMCOR Pharmaceutical Co. (f/k/a Photogen
                Technologies, Inc.) and each of Oxford Bioscience Partners IV
                L.P., MRNA Fund II L.P., DMG Legacy Institutional Fund LLC, DMG
                Legacy Fund LLC, and DMG Legacy International Ltd. (Filed as
                Exhibit 10.7 to the company’s Annual Report on Form 10-K for
                dated December 31, 2002 and incorporated herein by
                reference.)+4.7
            
            Incentive
                Stock Option Award Agreement entered into by and between IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and
                Taffy J. Williams, Ph.D. dated May 17, 2000. (Filed as
                Exhibit 10.4 to the company’s Current Report on Form 8-K dated
                May 17, 2001 and incorporated herein by
                reference.)+4.8
            
            Incentive
                Stock Option Award Agreement entered into by IMCOR Pharmaceutical
                Co.
                (f/k/a Photogen Technologies, Inc.) and Brooks Boveroux dated
                August 1, 2000. (Filed as Exhibit 10.13 to the company’s Annual
                Report on Form 10-K dated December 31, 2000 and incorporated
                herein by reference.)+4.9
            
            Warrant
                to Purchase Shares of Common Stock dated October 20, 1999 between
                IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and
Élan
                International Services, Ltd. (Filed as Exhibit 10.9 to the company’s
                Quarterly Report on Form 10-QSB for the quarter ended
                September 30, 1999 and incorporated herein by
                reference.)




+4.10
            
            Warrant
                Agreement dated as of November 12, 2002 between Broadmark Capital LLC
                and IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.).
                (Filed as Exhibit 10.27 to the company’s Annual Report on
                Form 10-K for the year ended December 31, 2002 and incorporated
                herein by reference.)+4.11
            
            Non-Qualified
                Stock Option Award Agreement dated as of January 14, 2004 by and
                between IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.)
                and
                Taffy J. Williams, Ph.D. (Filed as Exhibit 4.11 to the company’s
                Annual Report on Form 10-KSB for the year ended December 31, 2003
                and
                incorporated herein by reference.)+4.12
            
            Form
                of Senior Secured Promissory Note dated June 4, 2004 between IMCOR
                Pharmaceutical Co. and Xmark Fund, L.P. (Filed as Exhibit 4.12 to
                the
                company’s registration statement on Form SB-2 filed on August 3, 2004 and
                incorporated herein by reference.)




86




+4.13
            
            Form
                of Senior Secured Promissory Note dated June 4, 2004 between IMCOR
                Pharmaceutical Co. and Xmark Fund, Ltd. (Filed as Exhibit 4.13 to
                the
                company’s registration statement on Form SB-2 filed on August 3, 2004 and
                incorporated herein by reference.)+9.1
            
            Voting,
                Drag-Along and Right of First Refusal Agreement entered into as of
                November 12, 2002 by and among Robert J. Weinstein, M.D.,
                Stuart P. Levine, Tannebaum, LLC, Mi3 L.P., Oxford Bioscience
                Partners IV L.P. and MRNA Fund II L.P. (Filed as Exhibit G
                to the company’s Proxy Statement on Form DEFM 14A dated
                September 12, 2002 and incorporated herein by
                reference.)+10.1
            
            Letter
                Agreement entered into as of August 29, 2002 by and between IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Clinical
                Regulatory Strategies, LLC (Filed as Exhibit 10.2 to the company’s
                quarterly report on Form 10-Q for the quarter ended
                September 30, 2002 and incorporated herein by
                reference.)+10.3
            
            Form
                of Indemnification Agreement entered into by and between IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and each
                Director and Senior Vice President of the company. (Filed as
                Exhibit 10.13 to the company’s Annual Report on Form 10-K for
                dated December 31, 2002 and incorporated herein by
                reference.)+10.5
            
            License
                Agreement effective as of September 30, 1999 between The General
                Hospital Corporation and Photogen, Inc. (Filed as Exhibit 10.7
                to the company’s Quarterly Report on Form 10-QSB for the quarter
                ended September 30, 1999 and incorporated herein by reference.)
                Confidential portions of this exhibit were redacted.+10.6
            
            Forbearance
                Agreement dated June, 2004 by and between IMCOR Pharmaceutical Co.
                and
                Philips Medical Capital, LLC. (Filed as Exhibit 10.22 to the company’s
                registration statement on Form SB-2 filed on August 3, 2004 and
                incorporated herein by reference.)+10.7
            
            Exchange
                Agreement dated as of June 4, 2004 by and among IMCOR Pharmaceutical
                Co.,
                Xmark Fund, L.P., Xmark Fund Ltd., Oxford Bioscience Partners IV
                L.P.,
                MRNA Fund II, L.P. and Mi3 L.P. (Filed as Exhibit 10.23 to the company’s
                registration statement on Form SB-2 filed on August 3, 2004 and
                incorporated herein by reference.)




+10.8
            
            Single-Tenant
                Industrial Lease dated November 7, 1997 by and between WHAMC Real
                Estate
                Limited Partnership and Alliance Pharmaceutical Co. (Filed as Exhibit
                10.1
                to the company’s quarterly report on Form 10-QSB for the quarter ended
                September 30, 2004 and incorporated herein by
                reference.)




87




+10.9
            
            Landlord
                Consent to Assignment and Assumption dated as of June 18, 2003 by
                and
                among IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.),
                EOP-Industrial Portfolio, L.L.C. and Alliance Pharmaceutical Corp.
                (Filed
                as Exhibit 10.2 to the company’s quarterly report on Form 10-QSB for the
                quarter ended September 30, 2004 and incorporated herein by
                reference.)+10.10
            
            Equipment
                Lease between Picker Financial Group, L.L.C. and Photogen, Inc. dated
                October 25, 1999. (Filed as Exhibit 10.37 to the company’s
                Annual Report on Form 10-KSB for the year ended December 31,
                1999 and incorporated herein by reference.)+10.11
            
            Going
                Forward Agreement dated as of May 2, 2003 by and among IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund,
                L.P., and Xmark Fund, Ltd. (Filed as Exhibit 10.1 to the company’s
                8-K filed on June 20, 2003 and incorporated herein by
                reference.)+10.12
            
            Security
                Agreement dated as of June 18, 2003 by and among IMCOR Pharmaceutical
                Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund, L.P. and Xmark
                Fund, Ltd. (Filed as Exhibit 10.2 to the company’s 8-K filed on
                June 20, 2003 and incorporated herein by
                reference.)+10.13
            
            Patent
                and Trademark Security Agreement dated as of June 18, 2003 by and
                among IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.),
                Xmark Fund, L.P., and Xmark Fund, Ltd. (Filed as Exhibit 10.3 to the
                company’s 8-K filed on June 20, 2003 and incorporated herein by
                reference.)+10.14
            
            Security
                Agreement dated as of June 18, 2003 by and among IMCOR Pharmaceutical
                Co. (f/k/a Photogen Technologies, Inc.), Oxford Bioscience
                Partners IV L.P., MRNA Fund II L.P. and Mi3 LP. (Filed as
                Exhibit 10.5 to the company’s 8-K filed on June 20, 2003
                and incorporated herein by reference.)+10.15
            
            Patent
                and Trademark Security Agreement dated as of as of June 18, 2003 by
                and among IMCOR Pharmaceutical Co. (f/k/a Photogen
                Technologies, Inc.), Oxford Bioscience Partners IV L.P., MRNA
                Fund II L.P. and Mi3 LP. (Filed as Exhibit 10.6 to the company’s
                8-K filed on June 20, 2003 and incorporated herein by
                reference.)+10.16
            
            Equipment
                Lease dated as of June 18, 2003 by and between IMCOR Pharmaceutical
                Co. (f/k/a Photogen Technologies, Inc.) and Baxter Healthcare
                Corporation. (Filed as Exhibit 10.8 to the company’s 8-K filed on
                June 20, 2003 and incorporated herein by
                reference.)+10.17
            
            Letter
                Agreement dated as of August 18, 2003 by and among IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund,
                Ltd. and Xmark Fund, L.P. (Filed as Exhibit 10.1 to the company’s
                Form 8-K filed on August 20, 2003 and incorporated herein by
                reference.)




88




+10.18
            
            Amended
                and Restated Letter Agreement dated February 8, 2005 by and between
                IMCOR
                Pharmaceutical Co. and Jack DeFranco. (Filed as Exhibit 10.18 to
                the
                company’s Form 10-KSB dated March 31, 2005 and incorporated herein by
                reference.)+10.19
            
            Letter
                Agreement dated July 23, 2003 by and between IMCOR Pharmaceutical Co.
                (f/k/a Photogen Technologies, Inc.) and Taffy J. Williams, Ph.D.
                (Filed as Exhibit 10.5 to the company’s Form 10-QSB for the
                quarter ended September 30, 2003 and incorporated herein by
                reference).+10.20
            
            Form
                of Letter Agreement by and between IMCOR Pharmaceutical Co. (f/k/a
                Photogen Technologies, Inc.) and each outside director. (Filed as
                Exhibit 10.20 to the Company’s Form 10-KSB for the year ended December 31,
                2003 and incorporated herein by reference.)+10.21
            
            License
                Agreement dated December 16, 2003 by and between IMCOR Pharmaceutical
                Co. (f/k/a Photogen Technologies, Inc.) and Kyosei Pharmaceutical
                Co. Ltd.
                Confidential portions of this exhibit were redacted. (Filed as
                Exhibit 10.1 to the company’s report on Form 8-K filed on
                December 18, 2003 and incorporated herein by
                reference.)+10.22
            
            Termination
                Agreement dated June 9, 2004 by and among IMCOR Pharmaceutical Co.
                (f/k/a/
                Photogen Technologies, Inc.), Élan Corporation, plc, Élan Pharma
                International Ltd., Élan International Services, Ltd., and Sentigen, Ltd.
                Confidential portions of this exhibit were redacted. (Filed as Exhibit
                10.11 to the company’s quarterly report on Form 10-QSB for the quarter
                ended September 30, 2004 and incorporated herein by
                reference.)+10.23
            
            License
                Agreement dated June 9, 2004 between IMCOR Pharmaceutical Co. (f/k/a
                Photogen Technologies, Inc.) and Élan Pharma International Ltd.
                Confidential portions of this exhibit were redacted. (Filed as Exhibit
                10.12 to the company’s quarterly report on Form 10-QSB for the quarter
                ended September 30, 2004 and incorporated herein by
                reference.)+10.24
            
            Letter
                Agreement dated June 9, 2004 by and among IMCOR Pharmaceutical Co.
                (f/k/a
                Photogen Technologies, Inc.), Élan Drug Delivery, Inc. and Élan Pharma
                International Ltd. Confidential Portions of this exhibit were redacted.
                (Filed as Exhibit 10.13 to the company’s quarterly report on Form 10-QSB
                for the quarter ended September 30, 2004 and incorporated herein
                by
                reference.)+10.25
            
            Letter
                Agreement dated June 27, 2004 by and between IMCOR Pharmaceutical
                Co. and
                Brian M. Gallagher. (Filed as Exhibit 10.14 to the company’s quarterly
                report on Form 10-QSB for the quarter ended June 30,
                2004.)+10.26
            
            Cross
                License Agreement dated as of October 29, 2004 by and between
                Bristol-Myers Squibb Medical Imaging, Inc. and IMCOR Pharmaceutical
                Co.
                Confidential portions of this exhibit were redacted. (Filed as Exhibit
                10.1 to the company’s 8-K filed on November 4, 2004 and incorporated
                herein by reference.)




89




+10.27
            
            License
                Agreement originally dated as of September 23, 1997 amended and restated
                in its entirety as of February 22, 2002 by and between Alliance
                Pharmaceutical Corp. and Schering Aktiengesellschaft. Confidential
                portions of this exhibit were redacted. (Filed as Exhibit 10.1 to
                the
                company’s quarterly report on Form 10-QSB for the quarter ended September
                30, 2004 and incorporated herein by reference.)+10.28
            
            Settlement
                and Worldwide License Agreement dated as of January 31, 2001 by and
                among
                Bracco International B.V., Schering Aktiengesellschaft and Alliance
                Pharmaceutical Corp. Confidential portions of this exhibit were redacted.
                (Filed as Exhibit 10.2 to the company’s quarterly report on Form 10-QSB
                for the quarter ended September 30, 2004 and incorporated herein
                by
                reference.)+10.29
            
            Amended
                and Restated Supply Agreement dated as of October 8, 2003 by and
                between
                Genzyme Corporation and IMCOR Pharmaceutical Co. (f/k/a Photogen
                Technologies, Inc.). (Filed as Exhibit 10.29 to the company’s report on
                Form 10-KSB/A for the year ended December 31, 2004 and incorporated
                herein
                by reference. Certain information in this exhibit was omitted and
                filed
                separately with the Securities and Exchange Commission pursuant to
                a
                confidential treatment request under Rule 24B-2 of the Securities
                Exchange
                Act of 1934, as amended.)+10.30
            
            Amendment
                and Assignment Agreement dated as of August 18, 2003 by and among
                IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Cardinal
                Health
                411, Inc., Cardinal Health 105, Inc. (f/k/a CORD Logistics, Inc.,
                n/k/a
                Cardinal Specialty Pharmacy Distribution) and Alliance Pharmaceutical
                Co.
                Confidential portions of this exhibit were redacted. (Filed as Exhibit
                10.4 to the Company’s 10-QSB filed on November 20,
                2003.)+10.31
            
            Exclusive
                Distribution Agreement dated as of April 1, 2002 by and between Alliance
                Pharmaceutical Co. and CORD Logistics, Inc. (n/k/a Cardinal Specialty
                Pharmacy Distribution). (Filed as Exhibit 10.31 to the company’s report on
                Form 10-KSB/A for the year ended December 31, 2004 and incorporated
                herein
                by reference. Certain information in this exhibit was omitted and
                filed
                separately with the Securities and Exchange Commission pursuant to
                a
                confidential treatment request under Rule 24B-2 of the Securities
                Exchange
                Act of 1934, as amended.)+10.32
            
            Amended
                and Restated License Agreement dated as of November 13, 2006 by and
                between Kyosei Pharmaceutical Co., Ltd. and IMCOR Pharmaceutical
                Co.
                (Filed as Exhibit 10.1 to the company’s 10-QSB for the quarter ended
                September 30, 2006 and incorporated herein by reference. Confidential
                information in this exhibit was omitted and filed separately with
                the
                Securities and Exchange Commission pursuant to a confidential treatment
                request under Rule 24B-2 of the Securities Exchange Act of 1934,
                as
                amended.




90




+14
            
            Code
                of Ethics for Principal Executive and Senior Financial Officers effective
                as of December 31, 2004. (Filed as Exhibit 14 to the company’s Form 10-KSB
                dated March 31, 2005 and incorporated herein by
                reference.)+21
            
            List
                of subsidiaries of the company (Filed as Exhibit 21 to the company’s
                Form 10-K for the year ended December 31, 2002 and incorporated
                herein by reference.)*31.1
            
            Certification
                of Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.*31.2
            
            Certification
                of Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.*32.1
            
            Certification
                of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.*32.2
            
            Certification
                of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.+
                Incorporated by Reference.*
                Filed herewith.




(b)  Reports
      on Form 8-K.





On
      November 28, 2006 the company filed an 8-K announcing the merger of its
      independent accounting firm, Peterson & Co., LLP with Squar, Milner, Miranda
& Williamson, LLP.




On
      December 8, 2006 the company filed an amendment to the 8-K filed on November
      28,
      2006 to satisfy technical Securities and Exchange Commission requirements
      relating to the disclosure of the merger between Peterson & Co., LLP and
      Squar, Milner, Miranda & Williamson, LLP.





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




**Independent
      Auditors’ Fees**




The
      aggregate fees billed for professional services rendered by the principal
      accountant for each of the fiscal years ended December 31, 2005 and 2006 for
      the
      audit of the Company’s annual financial statements and review of the financial
      statements included in our quarterly reports on Form 10-QSB, and services that
      are normally provided by the accountant in connection with statutory and
      regulatory filings (including review of registration statements under “Audit
      Related Fees”) or engagements for these fiscal periods, were as
      follows:




Year
                ended December 31, 2005
            
            Year
                ended December 31, 2006Audit
                Fees
            
            $
            183,795
            
            $
            79,947Audit
                Related Fees
            
            $
            7,050
            
            
            NoneTax
                Fees
            
            
            None
            
            $
            19,094All
                Other Fees
            
            
            None
            
            
            NoneTotal
            
            $
            190,845
            
            $
            99,041




91




**Audit
      Committee Pre-Approval Policy.** Pursuant
      to the terms of our Audit Committee’s charter, our Audit Committee pre-approves
      all auditing services (which may entail providing comfort letters in connection
      with securities underwritings) and non-audit services proposed to be provided
      by
      the Company’s independent certified public accountant, except for non-audit
      services within the de minimus exception under Section 10A(i)(B) of the Exchange
      Act. In this connection, the Audit Committee has the authority to appoint one
      or
      more of its members to approve services, provided that the decisions made by
      such designees between meetings of the Audit Committee shall be presented to
      the
      full Audit Committee at the next meeting thereof. All of the services provided
      to the Company by Squar, Milner, Peterson, Miranda & Williamson, LLP
      (formerly Peterson & Co., LLP) during the fiscal years ended December 31,
      2005 and December 31, 2006 were pre-approved by the Audit
      Committee.





92





**** **SIGNATURES**





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


**IMCOR
                PHARMACEUTICALS CO.**Date: Apri1
              16, 2007
            By:
            /s/ Brian
              GallagherBrian
                Gallagher
              *(Chairman
                  of the Board and Acting Principal Financial Officer)*




93




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




**Signature**
            
            **Title**
            
            **Date**By:
            
            /s/
                Taffy J. Williams,
                Ph.D.
            
            Director
            
            April
                16, 2007Taffy
                J. Williams, Ph.D.By:
            
            /s/
                Darlene M. Deptula-Hicks
            
            Director
            
            April
                16, 2007Darlene
                M. Deptula - HicksBy:
            
            /s/
                Alan D. Watson,
                Ph.D.
            
            Director
            
            April
                16, 2007Alan
                D. Watson, Ph.D.By:
            
            /s/
                Jonathan
                Fleming
            
            Director
            
            April
                16, 2007Jonathan
                FlemingBy:
            
            /s/
                Richard Dean,
                Ph.D.
            
            Director
            
            April
                16, 2007Richard
                Dean, Ph.D.By:
            
            /s/
                Robert A.
                Ashley
            
            Director
            
            April
                16, 2007Robert
                A. AshleyBy:
            
            /s/
                Brian M. Gallagher, Ph.D.
            
            Director
            
            April
                16, 2007Brian
                M. Gallagher, Ph.D.




94





**EXHIBIT
      INDEX**




**EXHIBIT**
              **NO.**
            
            **DESCRIPTION**+2.1
            
            Asset
                Purchase Agreement dated as of June 10, 2003 by and between IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Alliance
                Pharmaceutical Corp. (Filed as Exhibit 2.1 to the company’s
                Form 8-K dated June 20, 2003 and incorporated herein by
                reference.)+3.1
            
            Articles
                of Incorporation of IMCOR Pharmaceutical Co., as amended. (Filed
                as
                Exhibit 3.1 to the company’s Form 10-KSB dated March 31, 2005 and
                incorporated herein by reference.)+3.2
            
            Certificate
                of Designation, Preferences and Rights of Series A Preferred Stock.
                (Filed as part of Exhibit 3.1 to the company’s 8-K filed on November
                11, 2004 and incorporated herein by reference.)+3.3
            
            Amended
                and Restated Bylaws of IMCOR Pharmaceutical Co. (Filed as Exhibit C
                to the company’s Information Statement on Form DEF 14C dated
                December 23, 2002 and incorporated herein by
                reference.)




+4.1
            
            Form
                of Registration Rights Agreement entered into by and between IMCOR
                Pharmaceutical Co. and each purchaser signatory thereto dated April
                14,
                2004. (Filed as Exhibit 4.13 to the company’s 10-QSB for the quarter ended
                March 31, 2004 and incorporated herein by reference.)+4.2
            
            Form
                of Warrant Agreement entered into by and between IMCOR Pharmaceutical
                Co.
                and each purchaser signatory thereto dated as of April 14, 2004.
                (Filed as
                Exhibit 4.12 to the company’s 10-QSB for the quarter ended March 31, 2004
                and incorporated herein by reference.)+4.3
            
            Form
                of Registration Rights Agreement entered into by and among IMCOR
                Pharmaceutical Co. Oxford Bioscience Partners IV L.P., MRNA Fund
                II L.P.
                and Mi3 LP dated April 19, 2004. (Filed as Exhibit 4.15 to the company’s
                10-QSB for the quarter ended March 31, 2004 and incorporated herein
                by
                reference.)+4.4
            
            Form
                of Registration Rights Agreement entered into by and between IMCOR
                Pharmaceutical Co. and Bristol-Myers Squibb Medical Imaging, Inc.
                dated as
                of October 29, 2004. (Filed as Exhibit 10.3 to the company’s 8-K filed on
                November 4, 2004 and incorporated herein by reference.)+4.5
            
            Registration
                Rights Agreement entered into as of November 12, 2002 by and among
                IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Mi3
                L.P.,
                Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and Tannebaum,
                LLC. (Filed as Exhibit D to the company’s Proxy Statement on
                Form DEFM 14A dated September 12, 2002 and incorporated
                herein by reference.)




95




+4.6
            
            Form
                of Registration Rights Agreement dated as of December 30, 2002
                entered into by and between IMCOR Pharmaceutical Co. (f/k/a Photogen
                Technologies, Inc.) and each of Oxford Bioscience Partners IV
                L.P., MRNA Fund II L.P., DMG Legacy Institutional Fund LLC, DMG
                Legacy Fund LLC, and DMG Legacy International Ltd. (Filed as
                Exhibit 10.7 to the company’s Annual Report on Form 10-K for
                dated December 31, 2002 and incorporated herein by
                reference.)+4.7
            
            Incentive
                Stock Option Award Agreement entered into by and between IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and
                Taffy J. Williams, Ph.D. dated May 17, 2000. (Filed as
                Exhibit 10.4 to the company’s Current Report on Form 8-K dated
                May 17, 2001 and incorporated herein by
                reference.)+4.8
            
            Incentive
                Stock Option Award Agreement entered into by IMCOR Pharmaceutical
                Co.
                (f/k/a Photogen Technologies, Inc.) and Brooks Boveroux dated
                August 1, 2000. (Filed as Exhibit 10.13 to the company’s Annual
                Report on Form 10-K dated December 31, 2000 and incorporated
                herein by reference.)+4.9
            
            Warrant
                to Purchase Shares of Common Stock dated October 20, 1999 between
                IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and
Élan
                International Services, Ltd. (Filed as Exhibit 10.9 to the company’s
                Quarterly Report on Form 10-QSB for the quarter ended
                September 30, 1999 and incorporated herein by
                reference.)




+4.10
            
            Warrant
                Agreement dated as of November 12, 2002 between Broadmark Capital LLC
                and IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.).
                (Filed as Exhibit 10.27 to the company’s Annual Report on
                Form 10-K for the year ended December 31, 2002 and incorporated
                herein by reference.)+4.11
            
            Non-Qualified
                Stock Option Award Agreement dated as of January 14, 2004 by and
                between IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.)
                and
                Taffy J. Williams, Ph.D. (Filed as Exhibit 4.11 to the company’s
                Annual Report on Form 10-KSB for the year ended December 31, 2003
                and
                incorporated herein by reference.)+4.12
            
            Form
                of Senior Secured Promissory Note dated June 4, 2004 between IMCOR
                Pharmaceutical Co. and Xmark Fund, L.P. (Filed as Exhibit 4.12 to
                the
                company’s registration statement on Form SB-2 filed on August 3, 2004 and
                incorporated herein by reference.)




96




+4.13
            
            Form
                of Senior Secured Promissory Note dated June 4, 2004 between IMCOR
                Pharmaceutical Co. and Xmark Fund, Ltd. (Filed as Exhibit 4.13 to
                the
                company’s registration statement on Form SB-2 filed on August 3, 2004 and
                incorporated herein by reference.)+9.1
            
            Voting,
                Drag-Along and Right of First Refusal Agreement entered into as of
                November 12, 2002 by and among Robert J. Weinstein, M.D.,
                Stuart P. Levine, Tannebaum, LLC, Mi3 L.P., Oxford Bioscience
                Partners IV L.P. and MRNA Fund II L.P. (Filed as Exhibit G
                to the company’s Proxy Statement on Form DEFM 14A dated
                September 12, 2002 and incorporated herein by
                reference.)+10.1
            
            Letter
                Agreement entered into as of August 29, 2002 by and between IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and Clinical
                Regulatory Strategies, LLC (Filed as Exhibit 10.2 to the company’s
                quarterly report on Form 10-Q for the quarter ended
                September 30, 2002 and incorporated herein by
                reference.)+10.3
            
            Form
                of Indemnification Agreement entered into by and between IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.) and each
                Director and Senior Vice President of the company. (Filed as
                Exhibit 10.13 to the company’s Annual Report on Form 10-K for
                dated December 31, 2002 and incorporated herein by
                reference.)+10.5
            
            License
                Agreement effective as of September 30, 1999 between The General
                Hospital Corporation and Photogen, Inc. (Filed as Exhibit 10.7
                to the company’s Quarterly Report on Form 10-QSB for the quarter
                ended September 30, 1999 and incorporated herein by reference.)
                Confidential portions of this exhibit were redacted.+10.6
            
            Forbearance
                Agreement dated June, 2004 by and between IMCOR Pharmaceutical Co.
                and
                Philips Medical Capital, LLC. (Filed as Exhibit 10.22 to the company’s
                registration statement on Form SB-2 filed on August 3, 2004 and
                incorporated herein by reference.)+10.7
            
            Exchange
                Agreement dated as of June 4, 2004 by and among IMCOR Pharmaceutical
                Co.,
                Xmark Fund, L.P., Xmark Fund Ltd., Oxford Bioscience Partners IV
                L.P.,
                MRNA Fund II, L.P. and Mi3 L.P. (Filed as Exhibit 10.23 to the company’s
                registration statement on Form SB-2 filed on August 3, 2004 and
                incorporated herein by reference.)




+10.8
            
            Single-Tenant
                Industrial Lease dated November 7, 1997 by and between WHAMC Real
                Estate
                Limited Partnership and Alliance Pharmaceutical Co. (Filed as Exhibit
                10.1
                to the company’s quarterly report on Form 10-QSB for the quarter ended
                September 30, 2004 and incorporated herein by
                reference.)




97




+10.9
            
            Landlord
                Consent to Assignment and Assumption dated as of June 18, 2003 by
                and
                among IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.),
                EOP-Industrial Portfolio, L.L.C. and Alliance Pharmaceutical Corp.
                (Filed
                as Exhibit 10.2 to the company’s quarterly report on Form 10-QSB for the
                quarter ended September 30, 2004 and incorporated herein by
                reference.)+10.10
            
            Equipment
                Lease between Picker Financial Group, L.L.C. and Photogen, Inc. dated
                October 25, 1999. (Filed as Exhibit 10.37 to the company’s
                Annual Report on Form 10-KSB for the year ended December 31,
                1999 and incorporated herein by reference.)+10.11
            
            Going
                Forward Agreement dated as of May 2, 2003 by and among IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund,
                L.P., and Xmark Fund, Ltd. (Filed as Exhibit 10.1 to the company’s
                8-K filed on June 20, 2003 and incorporated herein by
                reference.)+10.12
            
            Security
                Agreement dated as of June 18, 2003 by and among IMCOR Pharmaceutical
                Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund, L.P. and Xmark
                Fund, Ltd. (Filed as Exhibit 10.2 to the company’s 8-K filed on
                June 20, 2003 and incorporated herein by
                reference.)+10.13
            
            Patent
                and Trademark Security Agreement dated as of June 18, 2003 by and
                among IMCOR Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.),
                Xmark Fund, L.P., and Xmark Fund, Ltd. (Filed as Exhibit 10.3 to the
                company’s 8-K filed on June 20, 2003 and incorporated herein by
                reference.)+10.14
            
            Security
                Agreement dated as of June 18, 2003 by and among IMCOR Pharmaceutical
                Co. (f/k/a Photogen Technologies, Inc.), Oxford Bioscience
                Partners IV L.P., MRNA Fund II L.P. and Mi3 LP. (Filed as
                Exhibit 10.5 to the company’s 8-K filed on June 20, 2003
                and incorporated herein by reference.)+10.15
            
            Patent
                and Trademark Security Agreement dated as of as of June 18, 2003 by
                and among IMCOR Pharmaceutical Co. (f/k/a Photogen
                Technologies, Inc.), Oxford Bioscience Partners IV L.P., MRNA
                Fund II L.P. and Mi3 LP. (Filed as Exhibit 10.6 to the company’s
                8-K filed on June 20, 2003 and incorporated herein by
                reference.)+10.16
            
            Equipment
                Lease dated as of June 18, 2003 by and between IMCOR Pharmaceutical
                Co. (f/k/a Photogen Technologies, Inc.) and Baxter Healthcare
                Corporation. (Filed as Exhibit 10.8 to the company’s 8-K filed on
                June 20, 2003 and incorporated herein by
                reference.)+10.17
            
            Letter
                Agreement dated as of August 18, 2003 by and among IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Xmark Fund,
                Ltd. and Xmark Fund, L.P. (Filed as Exhibit 10.1 to the company’s
                Form 8-K filed on August 20, 2003 and incorporated herein by
                reference.)




98




+10.18
            
            Amended
                and Restated Letter Agreement dated February 8, 2005 by and between
                IMCOR
                Pharmaceutical Co. and Jack DeFranco. (Filed as Exhibit 10.18 to
                the
                company’s Form 10-KSB dated March 31, 2005 and incorporated herein by
                reference.)+10.19
            
            Letter
                Agreement dated July 23, 2003 by and between IMCOR Pharmaceutical Co.
                (f/k/a Photogen Technologies, Inc.) and Taffy J. Williams, Ph.D.
                (Filed as Exhibit 10.5 to the company’s Form 10-QSB for the
                quarter ended September 30, 2003 and incorporated herein by
                reference).+10.20
            
            Form
                of Letter Agreement by and between IMCOR Pharmaceutical Co. (f/k/a
                Photogen Technologies, Inc.) and each outside director. (Filed as
                Exhibit 10.20 to the Company’s Form 10-KSB for the year ended December 31,
                2003 and incorporated herein by reference.)+10.21
            
            License
                Agreement dated December 16, 2003 by and between IMCOR Pharmaceutical
                Co. (f/k/a Photogen Technologies, Inc.) and Kyosei Pharmaceutical
                Co. Ltd.
                Confidential portions of this exhibit were redacted. (Filed as
                Exhibit 10.1 to the company’s report on Form 8-K filed on
                December 18, 2003 and incorporated herein by
                reference.)+10.22
            
            Termination
                Agreement dated June 9, 2004 by and among IMCOR Pharmaceutical Co.
                (f/k/a/
                Photogen Technologies, Inc.), Élan Corporation, plc, Élan Pharma
                International Ltd., Élan International Services, Ltd., and Sentigen, Ltd.
                Confidential portions of this exhibit were redacted. (Filed as Exhibit
                10.11 to the company’s quarterly report on Form 10-QSB for the quarter
                ended September 30, 2004 and incorporated herein by
                reference.)+10.23
            
            License
                Agreement dated June 9, 2004 between IMCOR Pharmaceutical Co. (f/k/a
                Photogen Technologies, Inc.) and Élan Pharma International Ltd.
                Confidential portions of this exhibit were redacted. (Filed as Exhibit
                10.12 to the company’s quarterly report on Form 10-QSB for the quarter
                ended September 30, 2004 and incorporated herein by
                reference.)+10.24
            
            Letter
                Agreement dated June 9, 2004 by and among IMCOR Pharmaceutical Co.
                (f/k/a
                Photogen Technologies, Inc.), Élan Drug Delivery, Inc. and Élan Pharma
                International Ltd. Confidential Portions of this exhibit were redacted.
                (Filed as Exhibit 10.13 to the company’s quarterly report on Form 10-QSB
                for the quarter ended September 30, 2004 and incorporated herein
                by
                reference.)+10.25
            
            Letter
                Agreement dated June 27, 2004 by and between IMCOR Pharmaceutical
                Co. and
                Brian M. Gallagher. (Filed as Exhibit 10.14 to the company’s quarterly
                report on Form 10-QSB for the quarter ended June 30,
                2004.)




99




+10.26
            
            Cross
                License Agreement dated as of October 29, 2004 by and between
                Bristol-Myers Squibb Medical Imaging, Inc. and IMCOR Pharmaceutical
                Co.
                Confidential portions of this exhibit were redacted. (Filed as Exhibit
                10.1 to the company’s 8-K filed on November 4, 2004 and incorporated
                herein by reference.)+10.27
            
            License
                Agreement originally dated as of September 23, 1997 amended and restated
                in its entirety as of February 22, 2002 by and between Alliance
                Pharmaceutical Corp. and Schering Aktiengesellschaft. Confidential
                portions of this exhibit were redacted. (Filed as Exhibit 10.1 to
                the
                company’s quarterly report on Form 10-QSB for the quarter ended September
                30, 2004 and incorporated herein by reference.)+10.28
            
            Settlement
                and Worldwide License Agreement dated as of January 31, 2001 by and
                among
                Bracco International B.V., Schering Aktiengesellschaft and Alliance
                Pharmaceutical Corp. Confidential portions of this exhibit were redacted.
                (Filed as Exhibit 10.2 to the company’s quarterly report on Form 10-QSB
                for the quarter ended September 30, 2004 and incorporated herein
                by
                reference.)+10.29
            
            Amended
                and Restated Supply Agreement dated as of October 8, 2003 by and
                between
                Genzyme Corporation and IMCOR Pharmaceutical Co. (f/k/a Photogen
                Technologies, Inc.). (Filed as Exhibit 10.29 to the company’s report on
                Form 10-KSB/A for the year ended December 31, 2004 and incorporated
                herein
                by reference. Certain information in this exhibit was omitted and
                filed
                separately with the Securities and Exchange Commission pursuant to
                a
                confidential treatment request under Rule 24B-2 of the Securities
                Exchange
                Act of 1934, as amended.)+10.30
            
            Amendment
                and Assignment Agreement dated as of August 18, 2003 by and among
                IMCOR
                Pharmaceutical Co. (f/k/a Photogen Technologies, Inc.), Cardinal
                Health
                411, Inc., Cardinal Health 105, Inc. (f/k/a CORD Logistics, Inc.,
                n/k/a
                Cardinal Specialty Pharmacy Distribution) and Alliance Pharmaceutical
                Co.
                Confidential portions of this exhibit were redacted. (Filed as Exhibit
                10.4 to the Company’s 10-QSB filed on November 20,
                2003.)+10.31
            
            Exclusive
                Distribution Agreement dated as of April 1, 2002 by and between Alliance
                Pharmaceutical Co. and CORD Logistics, Inc. (n/k/a Cardinal Specialty
                Pharmacy Distribution). (Filed as Exhibit 10.31 to the company’s report on
                Form 10-KSB/A for the year ended December 31, 2004 and incorporated
                herein
                by reference. Certain information in this exhibit was omitted and
                filed
                separately with the Securities and Exchange Commission pursuant to
                a
                confidential treatment request under Rule 24B-2 of the Securities
                Exchange
                Act of 1934, as amended.)




100




+10.32
            
            Amended
                and Restated License Agreement dated as of November 13, 2006 by and
                between Kyosei Pharmaceutical Co., Ltd. and IMCOR Pharmaceutical
                Co.
                (Filed as Exhibit 10.1 to the company’s 10-QSB for the quarter ended
                September 30, 2006 and incorporated herein by reference. Confidential
                information in this exhibit was omitted and filed separately with
                the
                Securities and Exchange Commission pursuant to a confidential treatment
                request under Rule 24B-2 of the Securities Exchange Act of 1934,
                as
                amended.+14
            
            Code
                of Ethics for Principal Executive and Senior Financial Officers effective
                as of December 31, 2004. (Filed as Exhibit 14 to the company’s Form 10-KSB
                dated March 31, 2005 and incorporated herein by
                reference.)+21
            
            List
                of subsidiaries of the company (Filed as Exhibit 21 to the company’s
                Form 10-K for the year ended December 31, 2002 and incorporated
                herein by reference.)*31.1
            
            Certification
                of Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.*31.2
            
            Certification
                of Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.*32.1
            
            Certification
                of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.*32.2
            
            Certification
                of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




+
                Incorporated by Reference.*
                Filed herewith.





101