**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**




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





**FOR
      THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006**





**OR**





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





**FOR
      THE TRANSITION PERIOD FROM  _____________ TO
      _____________**





**Commission
      File Number 0-23553**





**IMCOR
      PHARMACEUTICAL CO.**


(Exact
      name of small business issuer as specified in its charter)




**NEVADA**
            
            **62-1742885**(State
                or other jurisdiction of incorporation or
                organization)
            
            (I.R.S.
                Employer Identification No.)





**4660
      La Jolla Village Drive, Suite 500**


**San
      Diego, CA 92122**


(Address
      of principal executive offices) (Zip Code)





**858/546-2955**


(Issuer's
      telephone number, including area code)




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




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date: 6,962,456 shares of common stock, $0.001
      par
      value per share, issued and outstanding at November 18, 2006.




Transitional
      Small Business Disclosure Format (check one): Yes o No x










**INDEX**





PagePart
                I.
            Financial
                Information
            1Item
                1.
            Financial
                Statements (Unaudited)
            1Item
                2.
            Management’s
                Discussion and Analysis or Plan of Operation
            15Item
                3.
            Controls
                and Procedures
            27Part
                II.
            Other
                Information
            28Item
                1.
            Legal
                Proceedings
            28Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            28Item
                3.
            Defaults
                Upon Senior Securities
            28Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            28Item
                5.
            Other
                Information
            28Item
                6.
            Exhibit
                Index
            33




(i)





IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY


(A
      Development Stage Company)


CONSOLIDATED
      BALANCE SHEETS


(Unaudited)




December
                31,
              2005
            
            September
                30,
              2006ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            717,024
            
            $
            242,040Prepaid
                expenses
            
            
            144,535
            
            
            61,248Total
                current assets
            
            
            861,559
            
            
            303,288Purchased
                technology, net
            
            
            1,000,000
            
            
            1,000,000Total
                assets
            
            $
            1,861,559
            
            $
            1,303,288LIABILITIES
                AND SHAREHOLDERS' DEFICITCurrent
                liabilities:Notes
                payable unsecured
            
            $
            192,233
            
            $
            192,233Accounts
                payable
            
            
            1,841,667
            
            
            1,544,620Accrued
                expenses and assumed acquisition obligations
            
            
            1,888,161
            
            
            1,960,557Accrued
                royalty fees
            
            
            401,946
            
            
            401,946Accrued
                equipment lease obligation
            
            
            492,984
            
            
            492,984Total
                current liabilities
            
            
            4,816,991
            
            
            4,592,340Commitments
                and contingencies (Note 10)
            
            
            —
            
            
            —SHAREHOLDERS'
                DEFICITPreferred
                stock, $.01 par value; 5,000,000 shares authorized Series A preferred
                stock:
              4,500
                shares authorized, issued and outstanding; $1,000 liquidation preference
                per
              share,
                $4,500,000 in aggregate
            
            
            45
            
            
            45Common
                stock, $.001 par value; 200,000,000 shares authorized; 6,962,456
                shares
                issued and outstanding as of December 31, 2005 and September 30,
                2006
            
            
            6,962
            
            
            6,962Additional
                paid-in capital
            
            
            87,926,777
            
            
            87,973,306Deficit
                accumulated during the development stage
            
            
            (90,889,216
            )
            
            (91,269,365
            )Total
                shareholders' deficit
            
            
            (2,955,432
            )
            
            (3,289,052
            )Total
                liabilities and shareholders' deficit
            
            $
            1,861,559
            
            $
            1,303,288




See
      notes
      to consolidated financial statements.


-1-


IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF OPERATIONS


(Unaudited)




Three
                Months
              Ended
              September
                30,
              2005
            
            
            Three
                Months Ended
              September
                30,
              2006
            
            
            Nine
                Months
              Ended
              September
                30,
              2005
            
            
            Nine
                Months
              Ended
              September
                30,
              2006
            
            
            Period
                from
              Inception
              (November
                3,
              1996)
                to
              September
                30,
              2006License
                revenue
            
            $
            174,076
            
            $
            —
            
            $
            522,230
            
            $
            —
            
            $
            1,080,515Operating
                expenses:Research
                and development
            
            
            53,695
            
            
            37,441
            
            
            1,409,421
            
            
            110,661
            
            
            12,240,189Sales,
                general and administrative
            
            
            878,454
            
            
            78,412
            
            
            8,682,770
            
            
            474,408
            
            
            56,050,958Restructuring
                charges
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,541,455Provision
                for future lease payments
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,264,208Loss
                on disposal of property, plant & equipment
            
            
            —
            
            
            —
            
            
            248,599
            
            
            —
            
            
            226,305Impairment
                losses, net
            
            
            —
            
            
            —
            
            
            3,835,813
            
            
            —
            
            
            7,781,045Total
                operating expenses
            
            
            932,149
            
            
            115,853
            
            
            14,176,603
            
            
            585,069
            
            
            79,104,160Operating
                loss
            
            
            (758,073
            )
            
            (115,853
            )
            
            (13,654,373
            )
            
            (585,069
            )
            
            (78,023,645
            )Loss
                from joint venture
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (14,518,000
            )Investment
                and other income
            
            
            3,388
            
            
            1,397
            
            
            40,557
            
            
            7,016
            
            
            1,501,890Gain
                on extinguishment of debt
            
            
            —
            
            
            24,683
            
            
            —
            
            
            270,300
            
            
            374,742Interest
                expense
            
            
            (16,433
            )
            
            (24,792
            )
            
            (60,969
            )
            
            (72,396
            )
            
            (1,705,003
            )Loss
                from continuing operations
            
            
            (771,118
            )
            
            (114,565
            )
            
            (13,674,785
            )
            
            (380,149
            )
            
            (92,370,016
            )Discontinued
                operations:Operating
                loss from therapeutic business
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (10,679,101
            )Gain
                from split-off of therapeutic business
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            11,779,752Discontinued
                operations, net
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,100,651Net
                loss attributable to common shareholders
            
            $
            (771,118
            )
            $
            (114,565
            )
            $
            (13,674,785
            )
            $
            (380,149
            )
            $
            (91,269,365
            )Basic
                and diluted loss per common share
            
            $
            (0.11
            )
            $
            (0.02
            )
            $
            (2.40
            )
            $
            (0.05
            )Weighted
                average number of common shares outstanding- basic &
                diluted
            
            
            6,962,269
            
            
            6,962,456
            
            
            5,693,923
            
            
            6,962,456





See
      notes to consolidated financial statements


-2-




IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Unaudited)




Nine
                Months
              Ended
              September
                30,
              2005
            
            Nine
                Months
              Ended
              September
                30,
              2006
            
            Period
                from
              Inception
              (November
                3,
              1996)
                to
              September
                30,
              2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (13,674,785
            )
            $
            (380,149
            )
            $
            (91,269,365
            )Less
                gain from discontinued operations
            
            
            —
            
            
            —
            
            
            (1,100,651
            )Adjustments
                to reconcile net loss to cash used by operating
                activities:Depreciation
                and amortization
            
            
            1,594,873
            
            
            —
            
            
            8,406,351Loss
                on disposal of property, plant and equipment
            
            
            248,599
            
            
            —
            
            
            262,529Gain
                on sale of marketable securities
            
            
            —
            
            
            —
            
            
            (18,503
            )United
                States Treasury Notes amortization
            
            
            —
            
            
            —
            
            
            12,586Stock
                based compensation
            
            
            1,087,874
            
            
            46,529
            
            
            5,007,928Gain
                on extinguishment of debt
            
            
            —
            
            
            (270,300
            )
            
            (374,742
            )Gain
                from equipment lease settlement
            
            
            —
            
            
            —
            
            
            (126,257
            )License
                revenue deferred
            
            
            1,000,000
            
            
            —
            
            
            9,000,000Recognition
                of deferred license revenue
            
            
            (522,230
            )
            
            —
            
            
            (1,080,515
            )Amortization
                of deferred royalty expense
            
            
            31,250
            
            
            —
            
            
            83,334Valuation
                impairment allowances
            
            
            3,835,812
            
            
            —
            
            
            7,781,045Beneficial
                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
            
            
            1,668,593
            
            
            —
            
            
            3,179,410Equity
                in loss of affiliate
            
            
            —
            
            
            —
            
            
            14,518,000Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            33,916
            
            
            —
            
            
            —Prepaid
                expenses
            
            
            135,705
            
            
            83,287
            
            
            (61,248
            )Deferred
                royalties expense
            
            
            —
            
            
            —
            
            
            (500,000
            )Accounts
                payable
            
            
            (20,332
            )
            
            (26,747
            )
            
            2,063,001Accrued
                expenses and assumed acquisition obligations
            
            
            (28,285
            )
            
            72,396
            
            
            (341,561
            )Accrued
                equipment lease obligation
            
            
            —
            
            
            —
            
            
            1,050,589Other
            
            
            —
            
            
            —
            
            
            10,000Net
                cash used in continuing operating activities
            
            
            (4,598,511
            )
            
            (474,984
            )
            
            (36,520,251
            )Net
                cash used in discontinued operations
            
            
            —
            
            
            —
            
            
            (10,679,101
            )




-3-


IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF CASH FLOWS (Continued)


(Unaudited)




Nine
                Months
              Ended
              September
                30,
              2005
            
            Nine
                Months
              Ended
              September
                30,
              2006
            
            Period
                from
              Inception
              (November
                3,
              1996)
                to
              September
                30,
              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
            
            
            322,091
            
            
            —
            
            
            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
            
            
            746,301
            
            
            —
            
            
            (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
            
            
            (3,852,210
            )
            
            (474,984
            )
            
            242,040CASH
                AND CASH EQUIVALENTS, BEGINNING OF YEAR
            
            
            4,721,456
            
            
            717,024
            
            
            —CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            869,246
            
            $
            242,040
            
            $
            242,040SUPPLEMENTAL
                SCHEDULE OF CASH FLOWS INFORMATION:Interest
                paid
            
            $
            —
            
            $
            —
            
            $
            —




-4-


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




**NINE
      MONTHS ENDED SEPTEMBER 30, 2006:**




None.





**NINE
      MONTHS ENDED SEPTEMBER 30, 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 an increase in license revenue deferred and a decrease in assumed acquisition
      liabilities.




See
      notes
      to consolidated financial statements


-5-


**IMCOR
      Pharmaceutical Co. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**





**1.
      Basis of Presentation:**




The
      accompanying unaudited consolidated financial statements of IMCOR Pharmaceutical
      Co. and Subsidiary (Sentigen, Ltd., or “Sentigen”) (together, the “Company”),
      have been prepared without audit in accordance with generally accepted
      accounting principles in the United States of America for interim financial
      information. Accordingly, they do not include all of the information and
      footnotes required by generally accepted accounting principles in the United
      States of America for complete financial statements. The consolidated balance
      sheet as of December 31, 2005 was derived from the Company's audited financial
      statements. These statements should be read in conjunction with the consolidated
      financial statements and notes thereto included in the Company's Annual Report
      on Form 10-KSB for the year ended December 31, 2005, which has been filed with
      the Securities and Exchange Commission (“SEC”).




In
      the
      opinion of management, all adjustments considered necessary for a fair
      presentation of the results of these interim periods have been included. The
      results of operations for the nine months ended September 30, 2006 may not
      be
      indicative of the results that may be expected for the full fiscal
      year.




The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States of America requires management to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of income and expenses during
      the reporting period. Actual results could differ from those estimates or
      assumptions. The more significant estimates reflected in these financial
      statements relate to the Company's review of the fair value of its 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).




**2.
      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 $91,269,365 and as of September 30, 2006, has a working capital
      deficit of $ 4,289,052 .
      In
      addition, as indicated in more detail in Note 12, a restructuring plan was
      implemented commencing in the second quarter of 2005. Efforts to implement
      this
      restructuring plan are ongoing, as the Company seeks to maximize the value
      of
      its remaining technology assets.




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.




-6-





**3.
      Recent Accounting Pronouncements:**





On
      June
      7, 2005, the Financial Accounting Standards Board (“FASB”) issued Statement No.
      154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No,
      20, Accounting Changes and Statement No. 3 Reporting Accounting Changes in
      Interim Financial Statements” (“SFAS No. 154”). SFAS No. 154 changes the
      requirements for the accounting for, and reporting of, a change in accounting
      principle. Previously most voluntary changes in accounting principles were
      required to be recognized by way of a cumulative effect adjustment within net
      income during the period of the change. SFAS No. 154 requires retrospective
      application to prior periods' financial statements, unless it is impracticable
      to determine either the period-specific effects or the cumulative effect of
      the
      change. SFAS No. 154 is effective for accounting changes made in years beginning
      after December 15, 2005; however, SFAS No. 154 does not change the transition
      provisions of any existing accounting pronouncements. The adoption of SFAS
      No.
      154 during the nine months ended September 30, 2006 did not have a material
      effect on our financial statements or results of operations.




In
      February 2006, the FASB issued Statement No. 155, “Accounting for Certain Hybrid
      Financial Instruments, an amendment of FASB statements No. 133 and 140” (“SFAS
      No. 155”). This statement permits fair value measurement for any hybrid
      financial instrument that contains an embedded derivative that otherwise would
      require bifurcation. This statement is effective for all financial instruments
      acquired or issued after the beginning of an entity's first full fiscal year
      that begins after September 15, 2006. Earlier adoption is permitted as of the
      beginning of an entity's fiscal year. We do not expect that the adoption of
      SFAS
      No. 155 will have a material effect on our financial statements or our results
      of operations.




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.




-7-





In
      September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB
      Statements No. 87, 88, 106, and 132(R)” (“SFAS No. 158”). SFAS 158 requires a
      business entity employer to recognize the funded status of a benefit plan (i.e.,
      “over-funded” or “under-funded”), measures defined plan benefit plan assets and
      liabilities as of the related fiscal year end, and provides additional guidance
      on matters related to income statement recognition and disclosure in the
      financial statement notes. SFAS No. 158 is effective for the Company beginning
      in the current year ending December 31, 2006; however, the standard is not
      expected to have any impact on the Company's financial position, results of
      operation or cash flows, as the Company does not have any such plans or related
      obligations.





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 108is
      effective for fiscal years ending after November 15, 2006. The Company is
      currently evaluating the impact of adopting SAB 108on its
      financial statements.





**4.
      Reclassification:**





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





**5.
      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 September 30 of each
      year are as follows:




2005
            
            2006Options
                pursuant to plans
            
            
            182,768
            
            
            138,599Options
                outside of plans, net of cashless component
            
            
            34,977
            
            
            34,977Warrants
            
            
            819,736
            
            
            819,736Issuable
                upon conversion of preferred stock
            
            
            833,334
            
            
            833,334Total
            
            
            1,870,815
            
            
            1,826,646




**6.
      Accounting for Stock-based Compensation** :





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. During the nine months
      ended September 30, 2006, the Company recognized stock-based compensation of
      $46,529 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.




-8-





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 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 September 30 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).




Three
                Months Ended
            
            Three
                Months Ended
            
            Nine
                Months Ended
            
            Nine
                Months EndedSeptember
                30,2005
            
            September
                30, 2006
            
            September
                30, 2005
            
            September
                30, 2006Attributable
                to common stockholders:Net
                loss, as reported
            
            $
            (771,118
            )
            $
            (114,565
            )
            $
            (13,674,785
            )
            $
            (380,149
            )Add
                stock based included in reported net loss
            
            
            10,094
            
            
            —
            
            
            1,087,874
            
            
            46,529Less
                total stock-basedCompensation
                expense determined underthe
                fair-value based method for all awards
            
            
            (1,418
            )
            
            —
            
            
            (3,650,884
            )
            
            (46,529
            )Pro
                forma net loss
            
            $
            (762,442
            )
            $
            (114,565
            )
            $
            (16,237,795
            )
            $
            (380,149
            )Net
                loss per common share (basic and diluted):Reported
            
            $
            (0.11
            )
            $
            (0.02
            )
            $
            (2.40
            )
            $
            (0.05
            )Pro
                Forma
            
            $
            (0.11
            )
            $
            (0.02
            )
            $
            (2.85
            )
            $
            (0.05
            )




-9-




For
      purposes of the above table, the fair value of each option granted is estimated
      as of the date of grant using the Black-Scholes option-pricing model using
      the
      weighted-average information for the following assumptions for the nine months
      ended September 30, 2005. There were no grants during the nine months ended
      September 30, 2006:





Weighted-average
                fair value of options granted
            
            $
            1.60Expected
                dividend yield-
            
            $
            —Risk-free
                interest rate at grant date
            
            
            3.44
            %Expected
                stock price volatility
            
            
            233.16
            %Expected
                option lives (years)
            
            
            5




As
      of
      September 30, 2006, the Company had unrecognized compensation costs of $81,804
      related to unvested stock options. This cost is expected to be recognized over
      a
      weighted average period of approximately 0.9 years.





The
      following summarizes the stock option activity for the nine months ended
      September 30, 2006:




Shares
            
            Weighted
                Average
              Exercise
                Price
            
            Weighted
                Average
              Contractual
                TermsOutstanding
                December 31, 2005
            
            
            167,017
            
            $
            70.49
            
            
            6.98Options
                granted
            
            
            —
            
            
            —
            
            
            —Options
                reinstated
            
            
            —
            
            
            —
            
            
            —Options
                exercised
            
            
            —
            
            
            —
            
            
            —Options
                forfeited or expired
            
            
            (28,418
            )
            $
            (48.00
            )Outstanding
                September 30, 2006
            
            
            138,599
            
            $
            75.10
            
            
            6.58Options
                exercisable September 30, 2006
            
            
            89,849
            
            $
            111.51
            
            
            5.59




**7.
      Property, Plant and Equipment:**





In
      connection with its restructuring activities during the year ended December
      31,
      2005 the Company sold, disposed or wrote off all previously recorded property,
      plant and equipment. As a result of this activity the Company recorded a loss
      on
      disposal of equipment of approximately $249,000, and impairment charges related
      to equipment and leasehold improvements totaling approximately $3,265,000 during
      the nine months ended September 30, 2005.




**8.
      Intangible Assets:**





**Purchased
      Technology**





The
      cost
      and accumulated amortization of intangible assets and deferred expenses are
      as
      follows:





December
                31, 2005
            
            September
                30, 2006Purchased
                technology:Cost
            
            $
            15,638,146
            
            $
            15,638,146Less
                allowance for valuation impairment
            
            
            (11,373,572
            )
            
            (11,373,572
            )Accumulated
                amortization
            
            
            (
                3,264,574
            )
            
            (
                3,264,574
            )$
            1,000,000
            
            $
            1,000,000





-10-





The
      carrying values of the Purchased Technology had been amortized on a
      straight-line basis over their estimated useful lives ranging from 10-12 years
      through December 31, 2005. However, in light of the additional considerations
      addressed by the Company associated with its continuing restructuring
      activities, management determined as of December 31, 2005 that an impairment
      allowance of $11,373,572 for the Purchased Technology was
      appropriate.




The
      Purchased Technology is being held in contemplation of reaching one or more
      alternative transactions which, if successful, will result in net cash payments
      to the Company that will meet or exceed the Company's current estimate of value
      for this asset as recorded at December 31, 2005 and September 30,
      2006.





**Technology** **License**





During
      the nine months ended September 30, 2005 the Company sold its technology license
      assets and recorded an impairment charge of
      approximately $570,000. Following the sale and recording of the impairment
      charge, the net carrying value of the technology license assets was
      zero.





**9.
      Accrued Expenses and Assumed Acquisition Obligations:**





December
                31, 2005
            
            September
                30, 2006Assumed
                acquisition obligations
            
            $
            924,785
            
            $
            924,785Accrued
                payroll, deferred bonuses and related compensation
            
            
            512,656
            
            
            512,656Accrued
                legal fees
            
            
            139,153
            
            
            139,153Accrued
                interest
            
            
            121,567
            
            
            193,963Other
                accrued expenses
            
            
            190,000
            
            
            190,000$
            1,888,161
            
            $
            1,960,557





The
      “assumed acquisition obligations” relates primarily to past due payment
      obligations owed to several parties totaling $622,750 at December 31, 2005
      and
      September 30, 2006.




During
      the quarter ended June 30, 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, have been paid; such amounts
      are included in “accrued payroll, deferred bonuses and related expenses” at
      December 31, 2005 and September 30, 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 nine 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.”




-11-




Incurred
          but unpaid interest totaling $121,567 and $193,963 at December 31, 2005
          and
          September 30, 2006, respectively, which represents an increase of $72,396
          during
          this period ending September 30, 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 ($401,946) and
          various payable obligations associated with the “assumed acquisition
          obligations” referenced above ($622,750).
 
 Incurred
          but unpaid board of directors fees at December 31, 2005 and September 30,
          2006,
          including related fees for service on various committees, totaled $180,000
          and
          are included in “other accrued expenses.” The respective amounts of **** $79,000
          and $101,000, which comprise this balance, were incurred during the years
          ending
          December 31, 2004 and 2005.
  **10.
          Commitments and Contingencies:** ******
  In
          connection with litigation filed in 2003 by the Company and Alliance against
          Amersham Health, Inc. and two of its affiliates (collectively, “Amersham”), the
          Company entered into a Settlement Agreement and License (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 a Settlement Agreement with Alliance
          (the
“Alliance Settlement”) 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 in
          accordance with the following schedule:
 
 Proceeds
                
                Alliance
                    Percentage
                
                IMCOR
                    Percentage$1
                    to $1,450,0000
                
                
                10%,
                    not to exceed
                  $100,000
                
                
                90
                %$1,450,001
                    to $5,000,000
                
                
                30
                %
                
                70
                %$5,000,001
                    and above
                
                
                33.3
                %
                
                66.7
                %
  **11.
          Shareholders' Deficit:**
 
 The
          Company has not had any stock transactions during the nine months ended
          September 30, 2006.
  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, the Company's board of directors has determined that the
          Company
          will not continue to pursue its efforts to effect the Company's registration
          statements currently on file with the SEC (File Nos. 333-122625 and 333-117907).
          Those registration statements, which are not currently effective, have
          been
          withdrawn.
  -12-
  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 are freely tradable shares. In addition, the
          Company's obligation to accrue penalty shares stops when the stock has
          been held
          for two years and is freely tradable under Rule 144 of the Securities Act
          of
          1933. Because the shares originally issued to the investors have been held
          for
          one year, they are tradable subject to the provisions of Rule 144. Therefore,
          the investors have liquidity despite the absence of an effective registration
          statement and some investors have already sold under Rule 144.
 
 On
          January 24, 2005, the Company amended its Articles of Incorporation to
          increase
          the number of common shares authorized from 150,000,000 to 200,000,000
          shares.
  On
          March
          4, 2005, the Company effected a 1-for-20 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 this reverse stock split.
  **12.
          Restructuring Plan:**
  In
          April
          2005, the Company adopted an initial 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.
  The
          Company's board of directors later concluded that, for a variety of factors,
          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. All of the
          above
          objectives have been met and concluded by December 31, 2005.
  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
          September 30, 2006.
  -13-
 
 As
          part
          of the Company’s restructuring plan, the Company concluded an agreement with the
          lessor of the Company's previously occupied administrative and manufacturing
          facility in San Diego, California. Under the terms of this agreement, the
          Company vacated the premises on or about July 31, 2005 and surrendered
          its lease
          security deposit totaling $297,330. 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 approximately $2,285,000 at that date. In addition, Alliance,
          which was the lease guarantor, was also released from any and all claims,
          commitments and contingencies.
  As
          discussed in Note 10, 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.
  The
          Company is evaluating its 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 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. In this regard, effective as of November 13,
          2006,
          IMCOR has amended and restated its agreement with Kyosei Pharmaceutical
          Co. Ltd.
          (See Note 14. Subsequent Events). The Company is still contacting other
          interested or potentially interested parties, and there remains some potential
          for a sale, license, development agreement or comparable transaction in
          other
          territories.
 
 The
          Company is not currently able to predict what additional arrangements,
          if any,
          might ultimately be made with other potential business partners for *Imagent* ,
          financial or otherwise. Accordingly, the Company is unable to make any
          estimates
          for further potential changes to the fair market value of the Purchased
          Technology, which was written down to $1,000,000 at December 31, 2005,
          and which
          is accordingly carried at the same balance on the Company's balance sheet
          at
          September 30, 2006.
  Subject
          to the availability of capital, the Company intends to protect its 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 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.
  -14-
 
 Our
          subsidiary, Sentigen, Ltd., a Bermuda entity, currently has no operations.
          It is
          likely to be administratively dissolved by the Bermuda authorities.
  **13.
          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 nine months
          ended
          September 30, 2006, the Company paid $30,145 to settle total obligations
          amounting to $300,445, resulting in a gain on extinguishment of debt totaling
          $270,300.
 
 **14.
          Subsequent Events:**
 
 The
          Company entered into an Amended and Restated License Agreement with Kyosei
          Pharmaceutical Co., Ltd. (“Kyosei”), effective as of November 13, 2006, pursuant
          to which the Company has been relieved of its obligation under the original
          agreement to manufacture and supply *Imagent* for
          Kyosei and Kyosei has been granted certain patent and trademark rights
          for use
          in Japan. Under the terms of the amended agreement, Kyosei will pay 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 is to be paid to Alliance.
          In
          addition, after taking into account direct expenditures attributed to this
          transaction for which the Company has remaining responsibility, and which
          totaled approximately $104,000 (including agent commission fees and incremental
          royalty obligations to Schering AG), the Company will net approximately
          $1,096,000. As of November 17, 2006, $800,000 was funded, representing
          the first
          of two payments due from Kyosei. IMCOR made partial payments as of that
          date to
          certain parties with contractual rights to a portion of those Kyosei proceeds,
          netting $688,000 to the Company.
 
 Given
          the
          Company’s current financial circumstances and its related goal to maximize funds
          available to creditors, the board of directors determined to withdraw the
          Company’s pending Registration Statement with the SEC (File No. 333-122625) and
          to terminate the Company’s Registration Statement (File No. 333-117907) which
          had not been updated as required pursuant to Item 512 of Regulation S-B.
          The
          required filings with the SEC were made on October 11, 2006.
 
 **ITEM
          2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
          OPERATION**
  Portions
          of the discussion in this Form 10-QSB contain forward-looking statements
          and are
          subject to the “Risk Factors” described below. All forward-looking statements
          included in this Form 10-QSB are based on information available to the
          Company
          on the date hereof, and the Company assumes no obligation to update any
          such
          forward-looking statements. The Company's 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-QSB.
  -15-
  The
        following should be read in conjunction with the Company's unaudited financial
        statements included above. References to the “Company,” “IMCOR,” “we,” “us,” or
“our” are to IMCOR Pharmaceutical Co. and, where appropriate, our subsidiary,
        Sentigen, Ltd. (“Sentigen”). References to the “Purchased Technology” are to the
        medical imaging business of Alliance Pharmaceutical Corp. (“Alliance”) that the
        Company acquired on June 18, 2003. *Imagent* ®
        (perflexane lipid microspheres) is a registered trademark owned by
        IMCOR.
  **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 The
        independent registered public accounting firm's report dated April 14, 2006
        included in our December 31, 2005 Annual Report on Form 10-KSB, 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's recurring losses from operations and requirement
        for additional funding raise substantial doubt about its ability to continue
        as
        a going concern. Management's plans concerning these matters are described
        in Notes 12 and 13. The financial statements do not include any adjustments
        that
        might result from the outcome of this uncertainty.
 
 At
        September 30, 2006, the Company had cash and cash equivalents of $242,040
        and
        negative working capital of $4,289,052.
 
 During
        the nine month period ended September 30, 2006, our board of directors continued
        to implement our restructuring plan that had previously 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 manufacturing and selling activities, vacating
        our premises, and the sale of certain of our technology.
 
 From
        January 1, 2006 through September 30, 2006, significant net uses of our cash,
        totaling approximately $475,000 (listed below), leaving us a net cash amount
        of
        approximately $242,000 at September 30, 2006 (all amounts
        approximate):
  ·
              $30,000
                  to settle and release claims of certain of our unsecured creditors
                  totaling $300,000 for a gain on extinguishment of debt of $270,000
                  (this
                  is part of our total debt, of which approximately $4,592,000 remains
                  unpaid at September 30, 2006);·
              $26,000
                  as a partial payment on certain other accounts payable obligations;
                  and·
              $419,000
                  for several categories including: legal and intellectual property
                  matters
                  ($177,000), consultant fees ($81,000), audit and accounting review
                  and
                  related tax compliance fees ($59,000), facilities costs ($10,000)
                  and
                  director and officer insurance to mitigate the Company's obligation
                  to
                  provide mandatory indemnification pursuant to our articles of
                  incorporation and bylaws ($76,000).
 
 -16-
  Subsequent
        to September 30, 2006 and through November 17, 2006, we have additionally
        expended approximately $72,000, a portion of which related to expenses incurred
        during the quarter ending September 30, 2006, but which remained unpaid as
        of
        that date. The most significant expenses paid subsequent to September 30,
        2006
        (all numbers approximate) relate to intellectual property and patent protection
        matters ($30,000), accounting and tax compliance matters ($19,000),
        extinguishment of debt ($6,000 expended, yielding a gain thereon of $55,000),
        and a portion of direct costs attributed to the conclusion of our Amended
        and Restated License Agreement with Kyosei Pharmaceutical Co., Ltd. ($7,000)
        (see Note 14 to Financial Statements).
 
 However,
        and as noted in Note 14 to our Financial Statements included herein, in November
        2006 we entered into an Amended
        and Restated License Agreement with Kyosei Pharmaceutical Co., Ltd., which
        will
        result in additional payments aggregating $1,300,000 from Kyosei
        Pharmaceutical Co., Ltd. (“Kyosei”). Pursuant to the terms of our Settlement
        Agreement with Alliance dated
        as
        of September 19, 2005 (the
        “Alliance Settlement”) an
        aggregate of $100,000 (approximately $91,000 net, after deducting Alliance’s
        allocated share of direct expenses) of the consideration due from Kyosei
        is to
        be paid to Alliance. We will net approximately $1,096,000 after deducting
        our
        proportionate share of directly allocable expenditures amounting to
        approximately $104,000.
 
 As
        of
        November 17, 2006, we received net proceeds of $688,000 as a result of Kyosei’s
        first payment of $800,000. Therefore, at this date our cash reserves have
        been
        increased to approximately $858,000, after giving consideration to the above
        described operating expense disbursements totaling approximately $72,000
        made
        subsequent to September 30, 2006. We estimate that we will receive an additional
        $439,000 in net cash proceeds upon the disbursement of the final $500,000
        from
        Kyosei, which is due prior to December 31, 2006, and after disbursing our
        share
        of remaining related transaction costs.
 
 Based
        on
        potential transaction values which might be concluded in the near term (one
        year
        or less), we previously determined at December 31, 2005 that the carrying
        value
        of the *Imagent* assets
        would be written down as of that date, through the establishment of an allowance
        for valuation impairment, to its currently estimated fair value of $1,000,000.
        As a result of the transaction completed with Kyosei subsequent to September
        30,
        2006, and for which we will have received net proceeds aggregating approximately
        $1,096,000, after giving consideration to required distributions of a portion
        of
        such proceeds related to various contractual obligations, we anticipate that
        will write down this $1,000,000 carrying value by December 31, 2006 due to
        the
        uncertainty of any additional future value.
 
 Inasmuch
        as the lack of adequate capital and a full-time staff make it impracticable
        to
        continue normal operating activities, we believe that any potential additional
        value which might be realized from our intellectual property assets, over
        and
        above that realized in the Kyosei transaction, will most likely result from
        other strategic technology transactions which might be developed from time
        to
        time as circumstances warrant.
  Therefore
        we are still considering our alternatives and additional 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 in territories other than
        Japan.
        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.
 
 -17-
  In
        the
        meantime we expect to expend a portion of our available resources toward
        the
        objective of promoting and protecting the value of our intellectual property
        assets.
  **RESULTS
        OF OPERATIONS**
 **Three
        Months Ended September 30, 2005 and 2006**
 
 **Revenue
        and License Fees**
  We
        did
        not generate significant product revenues during the three months ending
        September 30, 2005 and accordingly, any sales of products during the 2005
        period
        are included in our financial statements under “investment and other income.” No
        such revenue was recognized during the three months ending September 30,
        2006
        due to capital constraints which forced us to limit and ultimately curtail
        our
        sales, marketing and marketing activities during 2005.
  License
          revenue recognized during the three months September 30, 2005, totaling
          approximately $174,000, relates to the amortization of the deferred license
          revenue previously received in 2003 and 2004. During the three months ended
          September 30, 2006, no license revenue was recognized as a result of writing
          down deferred revenue balances to zero at December 31, 2005.
  **Research
          and Development**
  Essentially
          all of our research expenses since the third quarter of 2004 until early
          second
          quarter 2005 were directed toward infrastructure and expenses associated
          with
          regulatory compliance and continued development of *Imagent* for new
          indications and the maintenance of our manufacturing capability. During
          the
          third quarter of 2006 (presented below), the only costs incurred related
          to
          patent considerations, in keeping with our overall objective to preserve
          net
          asset values for the benefit of creditors and shareholders, as our regulatory
          and clinical operations were discontinued in their entirety by the beginning
          of
          the quarter ended September 30, 2005 as part of our restructuring
          plan.
  The
          following is a summary of our major research and development expenses (all
          amounts approximate) for the respective periods:
 
 Three
                    Months ended
                  September
                    30, 2005
                
                Three
                    Months ended
                  September
                    30, 2006
                
                Increase/(Decrease)
                  2005
                    to 2006Contract
                    consultants
                
                $
                (4,000
                )
                $
                —
                
                $
                4,000Patent
                    costs
                
                
                24,500
                
                
                38,000
                
                
                13,500Supplies
                
                
                1,000
                
                
                —
                
                
                (1,000
                )Other
                
                
                32,500
                
                
                —
                
                
                (32,500
                )Total
                
                $
                54,000
                
                $
                38,000
                
                $
                (16,000
                )
  -18-
  **Selling,
          General and Administrative Expense**
 
 The
          following is a summary of the selling general and administrative expenses
          (all
          amounts approximate) for the respective periods:
  Three
                    Months ended
                  September
                    30, 2005
                
                Three
                    Months ended
                  September
                    30, 2006
                
                Increase/(Decrease)
                  2005
                    to 2006Personnel
                
                $
                78,000
                
                $
                —
                
                $
                (78,000
                )Contract
                    consultants
                
                
                117,000
                
                
                13,000
                
                
                (104,000
                )Stock
                    options
                
                
                10,000
                
                
                —
                
                
                (10,000
                )Legal
                    and accounting
                
                
                94,000
                
                
                32,000
                
                
                (62,000
                )Facilities
                    costs
                
                
                50,000
                
                
                1,000
                
                
                (49,000
                )Insurance
                
                
                90,000
                
                
                22,000
                
                
                (68,000
                )Amortization
                    - purchase
                  technology
                
                
                325,000
                
                
                —
                
                
                (325,000
                )Other
                
                
                114,000
                
                
                10,000
                
                
                (104,000
                )Total
                
                $
                878,000
                
                $
                78,000
                
                $
                (800,000
                )
 
 Personnel
          costs were zero in 2006 as a direct result of our restructuring activities;
          we
          have had no employees since October, 2005.
  Contract
          consultant charges decreased dramatically from the three months ended September
          30, 2005 to the comparable 2006 period due to the restructuring plan commenced
          in the second quarter of 2005 and continued through September 30, 2006,
          and have
          been focused on the most pertinent activities we believe necessary to preserve
          overall asset values for the benefit of creditors and shareholders and
          maintaining compliance with our ongoing duties to maintain our public filings
          with the Securities and Exchange Commission (“SEC”).
  Stock
          option expense decreased primarily due to the reductions of personnel as
          part of
          our overall restructuring plan and related activities. The costs incurred
          in the
          three months ended September 30, 2005 were calculated on the intrinsic
          method
          for option grants previously issued with exercise prices below the then
          fair
          market value, which had not yet vested, and which by their terms had not
          yet
          expired. The costs all comparable periods in 2006 were calculated on the
          fair
          value method, utilizing values in effect at the respective grant dates.
          However,
          there were options which vested during the third quarter 2006, and accordingly
          there was no such expense recognized.
  Legal
          and
          accounting expense decreased from the three months ended September 30,
          2005 to
          the comparable 2006 period. Costs incurred in 2005 were significantly higher,
          primarily as a result of the then ongoing litigation, increased activities
          associated with the amendments of previous annual and quarterly filings
          with the
          SEC and various registration statement filings with the SEC.
 
 Insurance
          costs decreased primarily as a result of lower D&O insurance premium costs
          resulting from reduced coverage for the policy renewal period commencing
          March
          31, 2006.
  Depreciation
          and amortization of property, plant and equipment (including leasehold
          improvements) and technology license decreased from amounts recorded during
          the
          three months ended September 30, 2005 to zero in the comparable period
          in 2006,
          because all such assets were taken out of service and/or ultimately disposed
          of
          or otherwise abandoned as part of our restructuring activities.
  -19-
  Amortization
        of Purchased Technology ceased in 2005, as we wrote down the carrying value
        to
        $1,000,000, which we estimate to be potentially recoverable in the near term
        (one year or less) if one or more possible strategic transactions can be
        successfully negotiated. One such transaction was entered into subsequent
        to
        September 30, 2006, for which the net realizable cash value accruing to us
        exceeds this carrying value (see Note 14 to Financial Statements and Liquidity
        and Capital Resources for additional discussion).
  **Loss
        on Disposal of Property, Plant & Equipment; Impairment Losses,
        net**
  There
        were no expenses related to impairment losses and/or loss on disposal of
        property, plant and equipment for the quarters ended September 30, 2005 and
        2006.
  **Investment
        and Other Income**
  Investment
        and other income in the third quarter of 2006 decreased from the comparable
        period in 2005, primarily due to the decreasing amount of excess cash held
        in
        interest-bearing accounts.
  **Gain
        on Extinguishment of Debt**
  In
        late
        2005, we began to negotiate with certain creditors who were willing to settle
        and provide a full release of claims on amounts we owed them, at a significant
        discount, in exchange for nominal payments. During the three months ending
        September 30, 2006, we paid $2,743, resulting in a gain on extinguishment
        of
        debt totaling $24,683.
 
 **Interest
        Expense**
  Interest
        expense in the three months ending September 30, 2006 increased by approximately
        $8,000 over that of the comparable 2005 period, primarily as a result of
        increased interest rates on one underlying interest bearing obligation related
        to unpaid royalties; all other interest rate accruals have not increased
        on our
        notes payable and other remaining interest bearing obligations have not been
        increased or decreased during the intervening periods, as those interest
        rates
        are fixed and the underlying principal balances remain unchanged.
  **RESULTS
        OF OPERATIONS**
 **Nine
        months Ended September 30, 2005 and 2006**
  **Revenue
        and License Fees**
  We
        did
        not generate significant product revenues during the nine months ending
        September 30, 2005 and accordingly, any sales of products during the 2005
        period
        are included in our financial statements under “investment and other income.” No
        such revenue was recognized during the nine months ending September 30, 2006
        due
        to capital constraints which forced us to limit and ultimately curtail our
        sales, marketing and manufacturing activities during 2005.
  -20-
  License
        revenue recognized during the nine months September 30, 2005, totaling
        approximately $522,000, relates to the amortization of the deferred license
        revenue previously received in 2003 and 2004. During the nine months ended
        September 30, 2006, no license revenue was recognized as a result of writing
        down deferred revenue balances to zero at December 31, 2005.
  **Research
        and Development**
  Essentially
        all of our research expenses since the third quarter of 2004 until early
        second
        quarter 2005 were directed toward infrastructure and expenses associated
        with
        regulatory compliance and continued development of *Imagent* for new
        indications and the maintenance of our manufacturing capability. During the
        first nine months of 2006 (presented below), the only costs incurred related
        to
        patent considerations, in keeping with our overall objective to preserve
        net
        asset values for the benefit of creditors and shareholders, as our regulatory
        and clinical operations were discontinued in their entirety by the beginning
        of
        the quarter ended September 30, 2005 as part of our restructuring
        plan.
 
 The
        following is a summary of our major research and development expenses (all
        amounts approximate) for the respective periods:
  Nine
                  Months ended
              
              Nine
                  Months ended
              
              Increase/(Decrease)September
                  30, 2005
              
              September
                  30, 2006
              
              2005
                  to 2006Personnel
              
              $
              746,000
              
              $
              —
              
              $
              (746,000
              )Contract
                  consultants
              
              
              341,000
              
              
              —
              
              
              (341,000
              )Patent
                  costs
              
              
              108,500
              
              
              111,000
              
              
              2,500Production
                  facilities costs
              
              
              27,000
              
              
              —
              
              
              (27,000
              )Supplies
              
              
              17,000
              
              
              —
              
              
              (17,000
              )Other
              
              
              169,500
              
              
              —
              
              
              (169,500
              )Total
              
              $
              1,409,000
              
              $
              111,000
              
              $
              (1,298,000
              )
  **Selling,
        General and Administrative Expense**
  The
        following is a summary of selling general and administrative expenses (all
        amounts approximate) for the respective periods:
  Nine
                  Months ended
              
              Nine
                  Months ended
              
              Increase/(Decrease)September
                  30, 2005
              
              September
                  30, 2006
              
              2005
                  to 2006Personnel
              
              $
              825,000
              
              $
              —
              
              $
              (825,000
              )Contract
                  consultants
              
              
              564,000
              
              
              81,000
              
              
              (483,000
              )Stock
                  options
              
              
              1,088,000
              
              
              47,000
              
              
              (1,041,000
              )Legal
                  and accounting
              
              
              1,302,000
              
              
              155,000
              
              
              (1,147,000
              )Fees
              
              
              1,677,000
              
              
              —
              
              
              (1,677,000
              )Facilities
                  costs
              
              
              836,000
              
              
              10,000
              
              
              (826,000
              )Insurance
              
              
              389,000
              
              
              155,000
              
              
              (234,000
              )Depreciation
                  & amortization
              
              
              617,000
              
              
              —
              
              
              (617,000
              )Amortization-purchase
                  technology
              
              
              977,000
              
              
              —
              
              
              (977,000
              )Other
              
              
              408,000
              
              
              26,000
              
              
              (382,000
              )Total
              
              $
              8,683,000
              
              $
              474,000
              
              $
              (8,209,000
              )
  -21-
  Personnel
        costs were zero in 2006 as a direct result of our restructuring activities;
        we
        have had no employees since October, 2005.
 
 Contract
        consultant charges decreased dramatically from the nine months ended September
        30, 2005 to the comparable 2006 period due to the restructuring plan commenced
        in the second quarter of 2005 and continued through September 30, 2006, and
        have
        been focused on the most pertinent activities we believe necessary to preserve
        overall asset values for the benefit of creditors and shareholders and
        maintaining compliance with our ongoing duties to maintain our public filings
        with the Securities and Exchange Commission (“SEC”).
  Stock
        option expense decreased primarily due to the reductions of personnel as
        part of
        our overall restructuring plan and related activities. The costs incurred
        in the
        nine months ended September 30, 2005 were calculated on the intrinsic method
        for
        option grants previously issued with exercise prices below the then fair
        market
        value, which had not yet vested, and which by their terms had not yet expired.
        Included in stock option expense for the three months ended September 30,
        2005
        was the recognition of expense attributed to 88,290 options-shares which
        had
        previously been issued at then below market process to our former chief
        executive officer, but which became 100% vested on his employment termination
        date of May 31, 2005. The costs in the comparable period in 2006 were calculated
        on the fair value method, utilizing values in effect at the respective grant
        dates. The 2006 charges only relate to those options vesting during the first
        and second quarter, and which are held by two current members of our Board
        of
        Directors.
  Legal
        and
        accounting expense decreased from the nine months ended September 30, 2005
        to
        the comparable 2006 period. Costs incurred in 2005 were significantly higher,
        primarily as a result of the then ongoing litigation, increased activities
        associated with the amendments of previous annual and quarterly filings with
        the
        SEC and various registration statement filings with the SEC.
  There
        were no fees incurred in the first nine months of 2006, which in the comparable
        2005 period related almost entirely to late registration penalties that began
        accruing in January 2005 for shares for which we had filed two registration
        statements. One was declared effective, which we decided to suspend because
        updated information was required, and the second of which has never been
        declared effective. We have 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 we are unable to abide by the contractual requirement that the
        penalty
        shares such parties receive are 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 the investors for one year may be sold under
        Rule 144.
  -22-
  Insurance
        costs decreased primarily as a result of lower D&O insurance premium costs
        resulting from reduced coverage for the policy renewal period commencing
        March
        31, 2006.
  Depreciation
        and amortization of property, plant and equipment (including leasehold
        improvements) and technology license decreased from amounts recorded during
        the
        nine months ended September 30, 2005 to zero in the comparable period in
        2006,
        because all such assets were taken out of service and/or ultimately disposed
        of
        or otherwise abandoned as part of our restructuring activities.
  Amortization
        of Purchased Technology ceased in 2005, as we wrote down the carrying value
        to
        $1,000,000, which we estimate to be potentially recoverable in the near term
        (one year or less) if one or more possible strategic transactions can be
        successfully negotiated. One such transaction was entered into subsequent
        to
        September 30, 2006, for which the net realizable cash value accruing to us
        exceeds this carrying value (see Note 14 to Financial Statements and Liquidity
        and Capital Resources for additional discussion).
 
 **Loss
        on Disposal of Property, Plant & Equipment; Impairment Losses,
        net**
  Expenses
        related to the $3,836,000 approximate impairment losses and $249,000 approximate
        loss on disposal of property, plant and equipment (all numbers approximate)
        for
        the nine months ended September 30, 2005 decreased to zero during the nine
        months ended September 30, 2006 because all corresponding write-offs were
        taken
        during the year ending December 31, 2005 and, therefore, no additional
        write-offs were required in 2006.
  **Investment
        and Other Income**
  Investment
        and other income in the first nine months of 2006 decreased from the comparable
        period in 2005, primarily due to the lack of revenues from sales of
        our *Imagent* product
        as a result of our curtailing of marketing efforts in 2006 as part of our
        restructuring plan.
  **Gain
        on Extinguishment of Debt**
  In
        late
        2005, we began to negotiate with certain creditors who were willing to settle
        and provide a full release of claims on amounts we owed them, at a significant
        discount, in exchange for nominal payments. Through December 31, 2005, we
        had
        settled on approximately $115,000 in vendor claims in exchange for approximately
        $10,000. During the nine months ending September 30, 2006, we paid approximately
        $30,000 to settle approximately $300,000 in vendor claims, resulting in a
        gain
        on extinguishment of debt totaling $270,000.
 
 **Interest
        Expense**
  Interest
        expense in the nine months ending September 30, 2006 increased by approximately
        $11,000 over that of the comparable 2005 period, primarily as a result of
        increased interest rates on one underlying interest bearing obligation related
        to unpaid royalties; all other interest rate accruals have not increased
        on our
        notes payable and other remaining interest bearing obligations have not been
        increased or decreased during the intervening periods, as those interest
        rates
        are fixed and the underlying principal balances remain unchanged.
  -23-
  **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 were also successful
        in
        helping locate a third party to occupy our facility, and accordingly were
        able
        to successfully 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
        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. During the next several months,
        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
        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.
  **Contractual
        Obligations**
  The
        following table summarizes our approximate contractual obligations as of
        September 30, 2006 and the effect such obligations are expected to have on
        our
        liquidity and cash flow for future periods:
  Total
                  Obligations
                All
                  Years
              
              2006
              
              2007
              
              2008
              
              2009*Imagent*purchase obligations and related
                notes
                  (remaining)
              
              $
              808,000
              
              $
              808,000
              
              $
              —
              
              $
              —
              
              $
              —Notes
                  payable
              
              
              192,000
              
              
              192,000
              
              
              —
              
              
              —
              
              
              —Accrued
                  royalty liabilities
              
              
              402,000
              
              
              402,000
              
              
              —
              
              
              —
              
              
              —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
              
              
              671,000
              
              
              671,000
              
              
              —
              
              
              —
              
              
              —Accounts
                  payable - past due
              
              
              1,545,000
              
              
              1,545,000
              
              
              —
              
              
              —
              
              
              —Total
                  contractual cash
              
              $
              4,592,000
              
              $
              4,592,000
              
              $
              —
              
              $
              —
              
              $
              —
  We
        have
        been 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.
  -24-
  As
        of
        September 30, 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 accounting principles generally accepted 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 on-going basis, we evaluate our estimates and judgments. 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 our
        Purchased Technology 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. These estimates may change and such
        changes may impact future estimates of carrying value.
 
 **Recent
        Accounting Pronouncements**
 
 In
        December 2004, the FASB issued revised SFAS No. 123 (SFAS No. 123R),
“Share-Based Payment.” This statement eliminates the ability to account for
        share-based compensation transactions using the intrinsic value-based method
        under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
        to Employees,” and requires instead that such transactions be accounted for
        using a fair-value-based method. SFAS No. 123R is effective for Small Business
        Issuers for financial statements issued for the first interim period beginning
        after December 15, 2005. In connection with our adoption of SFAS No. 123R,
        effective January 1, 2006, utilizing the modified prospective method of
        transition, we recognized stock based compensation expense in the amount
        of
        $46,529 during the nine months ended September 30, 2006.
  On
        June
        7, 2005, FASB issued Statement No. 154, “Accounting Changes and Error
        Corrections, a replacement of APB Opinion No, 20, Accounting Changes and
        Statement No. 3 Reporting Accounting Changes in Interim Financial Statements”
(“SFAS No. 154”). SFAS No. 154 changes the requirements for the accounting for,
        and reporting of, a change in accounting principle. Previously most voluntary
        changes in accounting principles were required to be recognized by way of
        a
        cumulative effect adjustment within net income during the period of the change.
        SFAS No. 154 requires retrospective application to prior periods' financial
        statements, unless it is impracticable to determine either the period-specific
        effects or the cumulative effect of the change. SFAS No. 154 is effective
        for
        accounting changes made in years beginning after December 15, 2005; however,
        SFAS No. 154 does not change the transition provisions of any existing
        accounting pronouncements. We do not expect our adoption of SFAS No. 154
        during
        the nine months ended September 30, 2006 will have a material effect on our
        financial statements or results of operations.
  -25-
  In
        February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments, an amendment of FASB statements No. 133 and 140” (“SFAS
        No. 155”). This statement permits fair value measurement for any hybrid
        financial instrument that contains an embedded derivative that otherwise
        would
        require bifurcation. This statement is effective for all financial instruments
        acquired or issued after the beginning of an entity's first full fiscal year
        that begins after September 15, 2006. Earlier adoption is permitted as of
        the
        beginning of an entity's fiscal year. We do not expect that the adoption
        of SFAS
        No. 155 will have a material effect on our financial statements or our results
        of operations.
  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 us beginning January 1, 2008, including any interim reporting
        periods. We are currently evaluating the impact of adopting SFAS No. 157
        on our
        financial statements.
 
 In
        September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for
        Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB
        Statements No. 87, 88, 106, and 132(R)” (“SFAS No. 158”). SFAS 158 requires a
        business entity employer to recognize the funded status of a benefit plan
        (i.e.,
“over-funded” or “under-funded”), measures defined plan benefit plan assets and
        liabilities as of the related fiscal year end, and provides additional guidance
        on matters related to income statement recognition and disclosure in the
        financial statement notes. SFAS No. 158 is effective for us beginning in
        the
        current year ending December 31, 2006; however, the standard is not expected
        to
        have any impact on our financial position, results of operation or cash flows,
        as we do not have any such plans or related obligations.
 
 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 Company is currently evaluating
        the impact of adopting SAB 108 on its financial statements.
  -26-
 
 **ITEM
        3. 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, the
        previously identified reportable conditions and material weaknesses still
        exist.
  Although
        weaknesses in internal controls and procedures previously disclosed have
        not
        been 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 officers review and approve incurring all significant obligations
        and
        remitting 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 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
        September 30, 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 quarter to prevent material
        misstatements in our annual financial reporting.
  -27-
 
 **PART
        II. OTHER INFORMATION**
 
 **ITEM
        1. LEGAL PROCEEDINGS**
  During
        the quarter ended September 30, 2006, we had no legal proceedings described
        in
        Item 103 of Regulation S-B.
 
 **ITEM
        2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS**
  During
        the nine months ending September 30, 2006, we did not issue any shares of
        our
        common stock.
  Given
        our
        current financial circumstances and our goal to maximize the funds available
        to
        our creditors, our board of directors determined to withdraw our pending
        Registration Statement with the SEC (File No. 333-122625) and to terminate
        our
        Registration Statement (File No. 333-117907) which had not been updated as
        required pursuant to Item 512 of Regulation S-B. The required filings with
        the
        SEC were made on October 11, 2006. We have 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 we are unable to abide by the contractual requirement
        that the penalty shares such parties receive freely tradable shares. In general,
        privately issued shares held by investors for more than one year may be sold
        under Rule 144.
  Many
        of
        our investors have held their shares in the Company for more than a year
        and are
        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 our current financial situation, at some point in 2006
        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.
 
 **ITEM
        3. DEFAULTS UPON SENIOR SECURITIES**
  NONE
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
  NONE
 
 **ITEM
        5. OTHER INFORMATION**
  **RISK
        FACTORS**
  **We
        currently have insufficient funds available to pay all of our
        liabilities.**
  Our
        cash
        and cash equivalents at September 30, 2006 was approximately $242,000. At
        September 30, 2006, we had current liabilities totaling approximately
        $4,592,000.
  **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.**
  -28-
  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
        N1177
        (an iodine-based nanoparticulate contrast agent) and PH-50, which is the
        same or
        substantially similar compound as N1177 for a different indication. 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.
  **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
        2006 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.
  -29-
 
 **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 September 30,
        2006,
        we have incurred cumulative net losses (before dividends on preferred stock)
        of
        approximately $91,269,000. 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.**
  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.
  **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 entered into an agreement with
        Cardinal Health, Inc. to maintain and conduct our stability samples. On August
        17, 2005, we terminated this agreement and consequently the testing program,
        resulting in the inability 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.
        In
        September 2004, we and our independent registered public accounting firm
        concluded that our internal controls and procedures had certain material
        weaknesses and reportable conditions. For further information concerning
        our
        controls, see “ *Part
        I. Financial Information, Item 3. Controls and Procedures.* ”
  -30-
  Beginning
        in May 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 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.
  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. In addition,
        if we
        fail to maintain the adequacy of our internal controls, we may not be able
        to
        ensure that we can conclude on an ongoing basis that we have effective internal
        controls over financial reporting in accordance with Section 404 of the
        Sarbanes-Oxley Act.
  **We
        depend on a small number of 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
        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.
  -31-
  **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
        September 30, 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
        September 30, 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.
  -32-


**ITEM
        6. EXHIBITS**
  The
        following is a list of exhibits filed as part of this Form 10-QSB. Exhibits
        that
        were previously filed are incorporated by reference. For exhibits incorporated
        by reference, the location of the exhibit in the previous filing is indicated
        in
        parenthesis.
  **EXHIBIT
                  NO.**
              
              **DESCRIPTION**+3.1
              
              Restated
                  Articles of Incorporation of IMCOR Pharmaceutical Co., as amended,
                  including Certificate of Designation, Preferences and Rights of
                  Series A
                  Convertible Preferred Stock. (Filed as Exhibit 3.1 to the Company's
                  Annual
                  Report on Form 10-KSB for the year ended December 31, 2004 and
                  incorporated herein by reference.)+3.2
              
              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.)*10.1
              
              Amended
                  and Restated License Agreement dated as of November 13, 2006 by
                  and
                  between Kyosei Pharmaceutical Co., Ltd. and IMCOR Pharmaceutical
                  Co.
                  Confidential portions of this exhibit have been redacted and filed
                  separately with the Securities and Exchange Commission.*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.
  -33-
 
 **Signatures**
  In
        accordance with the requirements of the Exchange Act, the registrant has
        caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  Date:
                  November 17, 2006
              **IMCOR
                  Pharmaceutical Co.**/s/
                Brian GallagherBrian
                GallagherChairman
                  of the Board and Acting Principal Financial
                  Officer
  
 
 **EXHIBIT
        INDEX**
 **EXHIBIT
                    NO.**
                
                **DESCRIPTION**+3.1
                
                Restated
                    Articles of Incorporation of IMCOR Pharmaceutical Co., as amended,
                    including Certificate of Designation, Preferences and Rights
                    of Series A
                    Convertible Preferred Stock. (Filed as Exhibit 3.1 to the Company's
                    Annual
                    Report on Form 10-KSB for the year ended December 31, 2004 and
                    incorporated herein by reference.)+3.2
                
                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.)*10.1
                
                Amended
                    and Restated License Agreement dated as of November 13, 2006
                    by and
                    between Kyosei Pharmaceutical Co., Ltd. and IMCOR Pharmaceutical
                    Co.
                    Confidential portions of this exhibit have been redacted and
                    filed
                    separately with the Securities and Exchange Commission.*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.