**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 MARCH 31, 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.)**P.O.
                  Box 2389**
                **La
                  Jolla, CA 92037**(Address
                  of principal executive offices) (Zip Code)**858/410-5601**(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: 6,962,455 shares of common stock, $0.001
        par
        value per share, issued and outstanding at May 19, 2006.
  Transitional
        Small Business Disclosure Format (check one): Yes o No x
  
  **INDEX**
 
 PART
                  I.
              FINANCIAL
                  INFORMATION
              1ITEM
                  1.
              FINANCIAL
                  STATEMENTS
              1ITEM
                  2.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              15ITEM
                  3.
              CONTROLS
                  AND PROCEDURES
              23PART
                  II.
              OTHER
                  INFORMATION
              23ITEM
                  1.
              LEGAL
                  PROCEEDINGS
              23ITEM
                  2.
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              24ITEM
                  3.
              DEFAULTS
                  UPON SENIOR SECURITIES
              24ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              24ITEM
                  5.
              OTHER
                  INFORMATION
              24ITEM
                  6.
              EXHIBITS
              29
  (i)
  IMCOR
        PHARMACEUTICAL CO. AND SUBSIDIARY
 (A
        Development Stage Company)
 CONSOLIDATED
        BALANCE SHEETS
 (Unaudited)
 
 **December**
                  **31,
                    2005**
              ****
              ****
              **March**
                  **31,
                    2006**ASSETSCurrent
                assets:Cash
                  and cash equivalents
              
              $
              717,024
              
              $
              489,517Prepaid
                  expenses
              
              
              144,535
              
              
              130,345Total
                  current assets
              
              
              861,559
              
              
              619,862Purchased
                  technology, net
              
              
              1,000,000
              
              
              1,000,000Total
                  Assets
              
              $
              1,861,559
              
              $
              1,619,862LIABILITIES
                  AND SHAREHOLDERS’ EQUITY (DEFICIT)Current
                  liabilities:Notes
                  payable unsecured
              
              $
              192,233
              
              $
              192,233Accounts
                  payable
              
              
              1,841,667
              
              
              1,670,605Accrued
                  expenses and assumed acquisition obligations
              
              
              1,888,161
              
              
              1,911,586Accrued
                  royalty fees
              
              
              401,946
              
              
              401.946Accrued
                  equipment lease obligation
              
              
              492,984
              
              
              492,984Total
                  current liabilities
              
              
              4,816,991
              
              
              4,669,354Commitments
                  and contingencies (Note 10)SHAREHOLDERS’
                  EQUITY (DEFICIT)Preferred
                  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; 6,962,455
                  shares
                  issued and outstanding as of December 31, 2005 and March 31,
                  2006
              
              
              6,962
              
              
              6,962Additional
                  paid-in capital
              
              
              87,926,777
              
              
              87,965,103Deficit
                  accumulated during the development stage
              
              
              (90,889,216
              )
              
              (91,021,602
              )Total
                  shareholders’ equity (deficit)
              
              
              (2,955,432
              )
              
              (3,049,492
              )Total
                  Liabilities and Shareholders’ Equity (Deficit)
              
              $
              1,861,559
              
              $
              1,619,862
 
 See
        notes
        to consolidated financial statements.
  1
 
 IMCOR
        PHARMACEUTICAL CO. AND SUBSIDIARY
 (A
        Development Stage Company)
 CONSOLIDATED
        STATEMENTS OF OPERATIONS
 (Unaudited)
  **Three
                    Months
                    Ended****March 31,
                  2005**
              ****
              **Three
                    Months
                    Ended****March 31,
                  2006**
              ****
              **Period
                        from****Inception****(November
                    3,**
                  **1996)
                    to****March 31, 2006**License
                  revenue
              
              $
              174,077
              
              $
              --
              
              $
              1,080,515Operating
                  expenses:Research
                  and development
              
              
              857,750
              
              
              20,458
              
              
              12,149,986Sales,
                  general and administrative
              
              
              4,171,484
              
              
              238,669
              
              
              55,815,219Restructuring
                  charges
              
              
              --
              
              
              --
              
              
              1,541,455Provision
                  for future lease payments
              
              
              --
              
              
              --
              
              
              1,264,208Loss
                  on disposal of property, plant and equipment
              
              
              --
              
              
              --
              
              
              226,305Impairment
                  losses, net
              
              
              --
              
              
              --
              
              
              7,781,045Total
                  operating expenses
              
              
              5,029,234
              
              
              259,127
              
              
              78,778,218Operating
                  loss
              
              
              (4,855,157
              )
              
              (259,127
              )
              
              (77,697,703
              )Loss
                  from joint venture
              
              
              --
              
              
              --
              
              
              (14,518,000
              )Investment
                  and other income
              
              
              27,829
              
              
              3,467
              
              
              1,498,341Gain
                  on extinguishment of debt
              
              
              --
              
              
              146,699
              
              
              251,141Interest
                  expense
              
              
              (22,355
              )
              
              (23,425
              )
              
              (1,656,032
              )Loss
                  from continuing operations
              
              
              (4,849,683
              )
              
              (132,386
              )
              
              (92,122,253
              )Discontinued
                  operations:Operating
                  loss from therapeutic business
              
              
              --
              
              
              --
              
              
              (10,679,101
              )Gain
                  from split-off of therapeutic business
              
              
              --
              
              
              --
              
              
              11,779,752--
              
              
              --
              
              
              1,100,651Net
                  loss attributable to common shareholders
              
              $
              (4,849,683
              )
              $
              (132,386
              )
              $
              (91,021,602
              )Basic and
                  diluted loss per common share
              
              $
              (1.06
              )
              $
              (0.02
              )Weighted
                  average number of common shares outstanding- basic and
                  diluted
              
              
              4,584,150
              
              
              6,962,455
 
 See
        notes to consolidated financial statements
  2
  IMCOR
        PHARMACEUTICAL CO. AND SUBSIDIARY
 (A
        Development Stage Company)
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 (Unaudited)
  **Three
                      Months****Ended**
                  **March
                    31,****2005**
              ****
              **Three
                      Months****Ended**
                  **March
                    31,****2006**
              ****
              **Period
                          from****Inception****(November
                      3,****1996) to**
                  **March
                    31,****2006**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (4,849,683
              )
              $
              (132,386
              )
              $
              (91,021,602
              )Less
                  gain from discontinued operations
              
              
              --
              
              
              --
              
              
              (1,100,651
              )Adjustments
                  to reconcile net loss to cash used by operating
                  activities:Depreciation
                  and amortization
              
              
              788,892
              
              
              --
              
              
              8,406,351Loss
                  on disposal of property, plant and equipment
              
              
              --
              
              
              --
              
              
              262,529Gain
                  on sale of marketable securities
              
              
              --
              
              
              --
              
              
              (18,503
              )United
                  States Treasury Notes amortization
              
              
              --
              
              
              --
              
              
              12,586Stock
                  option compensation
              
              
              233,955
              
              
              38,326
              
              
              4,999,725Gain
                  from equipment lease settlement
              
              
              --
              
              
              --
              
              
              (126,257
              )License
                  revenue deferred
              
              
              --
              
              
              --
              
              
              9,000,000Recognition
                  of deferred license revenue
              
              
              (174,077
              )
              
              --
              
              
              (1,080,515
              )Amortization
                  of deferred royalty expense
              
              
              10,417
              
              
              --
              
              
              83,334Valuation
                  impairment allowances
              
              
              --
              
              
              --
              
              
              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
              
              
              105,635
              
              
              --
              
              
              445,814Issuance
                  of stock for interest payments and penalties
              
              
              983,325
              
              
              --
              
              
              3,179,410Equity
                  in loss of affiliate
              
              
              --
              
              
              --
              
              
              14,518,000Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              2,534
              
              
              --
              
              
              --Prepaid
                  expenses
              
              
              (136,162
              )
              
              14,190
              
              
              (130,345
              )Deferred
                  royalties expense
              
              
              --
              
              
              --
              
              
              (500,000
              )Accounts
                  payable
              
              
              (173,389
              )
              
              (171,062
              )
              
              1,814,244Accrued
                  expenses and assumed acquisition obligations
              
              
              (227,072
              )
              
              23,425
              
              
              (390,532
              )Accrued
                  equipment lease obligation
              
              
              --
              
              
              --
              
              
              1,050,589Other
              
              
              --
              
              
              --
              
              
              10,000Net
                  cash used in continuing operating activities
              
              
              (3,435,625
              )
              
              (227,507
              )
              
              (36,272,774
              )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)
  **Three
                      Months****Ended**
                  **March
                    31,****2005**
              
              **Three
                      Months****Ended**
                  **March
                    31,****2006**
              
              **Period
                          from****Inception****(November
                      3,****1996) to**
                  **March
                    31,****2006**CASH
                  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
              
              
              --
              
              
              --
              
              
              492,135Proceeds
                  from disposal of technology license
              
              
              --
              
              
              --
              
              
              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
              
              
              --
              
              
              --
              
              
              (439,370
              )Purchase
                  of Imagent business
              
              
              --
              
              
              --
              
              
              (5,074,761
              )Net
                  cash (used in) provided by investing activities
              
              
              (3,040
              )
              
              --
              
              
              (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
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (3,438,665
              )
              
              (227,507
              )
              
              489,517CASH
                  AND CASH EQUIVALENTS, BEGINNING OF YEAR
              
              
              4,721,456
              
              
              717,024
              
              
              --CASH
                  AND CASH EQUIVALENTS, END OF PERIOD
              
              $
              1,282,791
              
              $
              489,517
              
              $
              489,517SUPPLEMENTAL
                  SCHEDULE OF CASH FLOWS INFORMATION:Interest
                  paid
              
              $
              --
              
              $
              --
              
              $
              481,769
  **NON-CASH
        INVESTING AND FINANCING ACTIVITIES:**
 **THREE
        MONTHS ENDED MARCH 31, 2006:**
 NONE
 
 **THREE
        MONTHS ENDED MARCH 31, 2005:**
 In
        February 2005, the Company issued modified options in further settlement
        of
        claims by a former employee. The modification of the options resulted in
        a
        $42,250 decrease of accrued expenses with a corresponding increase in additional
        paid-in capital.
 
 See
        notes
        to consolidated financial statements
  4
  **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 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 three months ended March 31, 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 $91,021,602 and as of March 31, 2006, has a working capital
        deficit
        of approximately $4,049,492. In addition, and as indicated above and 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.
  **3.
        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
          $38,326 during the three months ended March 31, 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. Our adoption of SFAS No. 154 during the three
          months
          ended March 31, 2006 did not have a material effect on our financial
          statements or results of operations.
  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.
 **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
 
 **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 March 31 of each
        year
        are as follows:
  **2005**
              ****
              **2006**Options
                  pursuant to plans
              
              
              608,378
              
              
              159,642Options
                  outside of plans, net of cashless component
              
              
              34,977
              
              
              34,977Warrants
              
              
              819,736
              
              
              819,736Issuable
                  upon conversion of preferred stock
              
              
              833,334
              
              
              833,334Total
              
              
              2,296,425
              
              
              1,847,689
 
 **6.
        Accounting for Stock-based Compensation** :
 
 Effective
        December 31, 2005, the Company adopted the provisions of Financial Accounting
        Standards Board Statement of Financial Accounting Standard (“SFAS”) No. 123(R),
“Share-Based Payments,” 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 December 31, 2005 have not been restated. During the three months
        ended
        March 31, 2006, the Company recognized stock-based compensation of $38,326
        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.
 
 Prior
        to
        December 31, 2005, the Company accounted for stock-based compensation in
        accordance with provisions of Accounting Principles Board Opinion No. 25
        (“APB
        No. 25”), “Accounting for Stock Issued to Employees,” 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 March 31 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).
  6
  **2005**
              ****
              **2006**Attributable
                  to common stockholders:Net
                  loss, as reported
              
              $
              (4,849,683
              )
              $
              (132,386
              )Add
                  stock based compensation expenseincluded
                  in reported net loss
              
              
              233,955
              
              
              38,326Less
                  total stock-based employeecompensation
                  expense determined underthe
                  fair-value based method for all awards
              
              
              (276,876
              )
              
              (38,326
              )Pro
                  forma net loss
              
              $
              (4,892,604
              )
              $
              (132,386
              )Net
                  loss per common share (basic and diluted):Reported
              
              $
              (1.06
              )
              $
              (0.02
              )Pro
                  forma
              
              $
              (1.07
              )
              $
              (0.02
              )
 
 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 three
        months
        ended March 31, 2005 (there were no grants during the three months ended
        March
        31, 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
        March 31, 2006, the Company had unrecognized compensation costs of $90,007
        related to unvested stock options. This cost is expected to be recognized
        over a
        weighted average period of approximately 1.3 years.
 
 The
        following summarizes the stock option activity for the three months ended
        March
        31, 2006:
  **Shares**
              ****
              **Weighted
                  Average Exercise Price**
              ****
              **Weighted
                  Average Contractual Terms**Outstanding,
                  December 31, 2005
              
              
              167,017
              
              $
              70.49
              
              
              6.98Options
                  granted
              
              
              --
              
              
              --
              
              
              --Options
                  reinstated
              
              
              --
              
              
              --
              
              
              --Options
                  exercised
              
              
              --
              
              
              --
              
              
              --Options
                  forfeited or expired
              
              
              (7,375
              )
              $
              (22.45
              )
              
              --Outstanding
                  March 31, 2006
              
              
              159,642
              
              $
              72.71
              
              
              6.16Options
                  exercisable, March 31, 2006
              
              
              109,267
              
              $
              102.56
              
              
              4.91
  7
  **7.
        Property, Plant and Equipment:**
 
 During
        the year ended December 31, 2005, furniture, fixtures and equipment with
        a net
        book value of $550,689 ($1,827,859 cost, less $1,083,993 accumulated
        depreciation and amortization and less $193,177 allowance for impairment
        reserve) was sold or otherwise disposed of for $324,384 in net proceeds,
        resulting in a loss on disposal of equipment totaling $226,305.
  On
        July
        19, 2005, and as part of its continued restructuring activities, the Company
        concluded two concurrent, interdependent negotiations with EOP-Industrial
        Portfolio, LLC, its lessor of the Company's leased facilities property located
        at 6175 Lusk Boulevard in San Diego, California, and a new tenant for this
        property. As a result of these negotiations, the Company executed a lease
        termination agreement, involving among other things, a surrender of the facility
        and the underlying leasehold improvements with a net book value of $20,000
        ($5,287,738 cost, less $2,195,423 accumulated amortization and less $3,072,315
        allowance for impairment reserve). Concurrent with that transaction and pursuant
        to an agreement with the new tenant, the Company received $20,000 from the
        new
        tenant, resulting in no gain or loss in the leasehold improvements, other
        than
        to the extent of the previously recorded impairment allowance noted
        above.
  **8.
        Intangible Assets:**
 
 The
        cost
        and accumulated amortization of intangible assets and deferred expenses are
        as
        follows:
 
 **December
                    31,****2005**
              
              **March
                    31,****2006**Purchased
                  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
 
 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 March 31, 2006.
  8
  **9.
        Accrued Expenses and Assumed Acquisition Obligations:**
  **December
                    31,****2005**
              
              **March
                    31,****2006**Assumed
                  acquisition obligations
              
              $
              924,784
              
              $
              924,784Accrued
                  payroll, deferred bonuses and related compensation
                  expenses
              
              
              512,656
              
              
              512,656Accrued
                  legal fees
              
              
              139,153
              
              
              139,153Accrued
                  interest
              
              
              121,568
              
              
              144,993Other
                  accrued expenses
              
              
              190,000
              
              
              190,000$
              1,888,161
              
              $
              1,911,586
  During
        the quarter ended September 30, 2005, the Company reduced its “Assumed
        acquisition obligations” by $200,000 as a result of reaching overall settlements
        in litigation and other disputes involving the Purchased Technology. The
        remainder of the “Assumed acquisition obligations” relates primarily to past due
        payment obligations owed to several parties totaling $622,750 at December
        31,
        2005 and March 31, 2006.
  During
        2005, the Company also paid out $353,884 in salary-related costs which had
        been
        accrued at December 31, 2004 in “Accrued payroll, deferred bonuses and related
        expenses,” including $156,172 in accrued salary, $159,787 in earned vacation and
        $37,925 in the remainder of a severance obligation for a former
        employee.
  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, has been paid; such amounts
        are
        included in “Accrued payroll, deferred bonuses and related expenses” at December
        31, 2005 and March 31, 2006.
  One
        of
        the Company's law firms had originally agreed to accept shares of the Company's
        common stock for a portion of their services rendered during the six months
        ending June 30, 2005. However, prior to the end of this period, the law firm
        advised the Company that it preferred to be compensated for these services
        in
        cash payment, to the extent the Company is ultimately able to pay. The Company
        agreed to this request and has accordingly recorded this obligation, totaling
        $139,153, to “Accrued legal fees.”
  Incurred
        but unpaid interest totaling $121,568 and $144,993 at December 31, 2005 and
        March 31, 2006, respectively, which represents an increase of $23,425 during
        this period ending March 31, 2006, is included in “Accrued interest,” and is
        associated with various interest-bearing obligations, including “Notes payable
        unsecured” ($192,233), “Accrued royalty fees” owed to Schering AG ($401,946) and
        various payable obligations associated with the “Assumed acquisition
        obligations” referenced above ($622,750).
  Incurred
        but unpaid Board fees at December 31, 2005 and March 31, 2005, including
        related
        fees for service on various committees, totaled $180,000 and were in the
        amounts
        of $79,000 and $101,000 during the years ending December 31, 2004 and 2005,
        respectively, and are included in “Other accrued expenses.”
  9
  **10.
        Litigation:** ******
  On
        June
        18, 2003, the Company, together with Alliance, the prior owner of
        the ** Purchased
        Technology, filed a complaint against Amersham Health, Inc. and two other
        Amersham affiliates (now known as GE Healthcare Ltd.) (collectively, “Amersham”)
        alleging that certain Amersham products infringe on claims in the patents
        covering *Imagent* .
        The
        complaint alleged that principally through the Optison® product, Amersham
        infringed on eight patents owned by the Company. The Company further alleged
        misappropriation of trade secrets as well as other state law claims against
        Amersham.
  Amersham
        denied the material allegations of the Company’s claims and asserted certain
        affirmative defenses and counterclaims. Amersham’s counterclaims included claims
        of patent infringement of the fifteen Amersham patents, breach of contract,
        breach of good faith and fair dealing, and tortious interference with contract.
        The Company and Alliance, as well as Amersham, also amended their respective
        complaints to include allegations of antitrust violations by the other
        parties.
  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%
  10


On
        May
        11, 2005, the Company was served with an unlawful detainer lawsuit by
        EOP-Industrial Portfolio, LLC (“EOP”) regarding the Company’s default on its
        building lease to pay $84,641 of rent that was due April 1, 2005. The future
        minimum rents due on this lease were approximately $2,490,000 as of March
        31,
        2005. EOP continued to hold a $297,330 security deposit related to this lease
        at
        June 30, 2005. EOP asserted in this lawsuit it was entitled to terminate
        the
        lease, demand all past due amounts under the lease immediately due and payable,
        repossess the premises, demand payment for all related costs and expenses,
        and/or assert any other rights that may be available in law or in equity.
        As
        described in Note 12, as part of a restructuring plan adopted in April and
        May
        2005, the Company has vacated the premises.
  On
        July
        19, 2005, the Company concluded two concurrent, interdependent negotiations
        with
        both EOP and a new tenant, resulting in the execution of a lease termination
        agreement with EOP on that date. Pursuant to the terms of this agreement,
        the
        Company was allowed to occupy the premises until July 31, 2005, with the
        only
        consideration being the surrender of the lease deposit totaling $297,330.
        The
        Company was further released from all other obligations, including past due
        rents totaling approximately $331,292 at July 31, 2005 (approximately $248,469
        at June 30, 2005), late payment fees and any future lease payments, commitments
        and/or contingencies.
  **11.
        Shareholders’ Equity (Deficit):**
 
 The
        Company has not had any stock transactions during the three months ended
        March
        31, 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, will be
        withdrawn.
  The
        Company has stopped accruing penalty shares for the security holders who
        received shares subject to that certain registration rights agreement dated
        as
        of April 14, 2004 because without an effective registration statement the
        Company is unable to abide by the contractual requirement that the penalty
        shares such parties receive 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.
  11
  **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.
  The
        Company incurred approximately $34,000 in cash disbursements for severance
        pay
        associated with this restructuring plan during the nine months ended September
        30, 2005, and also paid approximately $191,000 in previously accrued vacation
        obligations, primarily to terminated employees (which is required under
        California employment laws). The Company also terminated its vacation benefit
        program, and vacation is no longer accrued for remaining employees. In addition,
        the Company negotiated two cash retention bonuses totaling $80,000 with two
        employees deemed integral to the restructuring efforts of the Company as
        part of
        this restructuring plan; however, one of the employees, as consideration,
        also
        waived any further claim he had to a previously earned, accrued but unpaid
        bonus
        of $60,000 from 2003. Accordingly, the Company recognized on a net basis
        only
        $20,000 bonus expense in the quarter ended June 30, 2005. The retention bonus
        obligations were paid as follows: $30,000 during the quarter ended June 30,
        2005, $35,000 during the quarter ended September 30, 2005 and the remainder
        of
        $15,000, owed to one individual and accrued as of September 30, 2005, was
        subsequently paid in November 2005. All efforts required of these two
        individuals were largely concluded by September 30, 2005.
  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
        March 31, 2006.
  As
        also
        discussed in Note 10, the Company concluded a successful negotiation with
        EOP,
        the lessor of the Company’s facility at 6175 Lusk Boulevard, San Diego,
        California. In conformity with the terms of this agreement, the Company vacated
        the premises on or about July 31, 2005 and surrendered its lease security
        deposit totaling $297,330. 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.
  12
  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. To date, efforts to solicit interest in such
        an
        arrangement have not been successful. However, 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.
  The
        Company is not currently able to predict what types of arrangements (if any)
        might ultimately be made with 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
        March 31, 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. Nevertheless,
        this
        additional investigation must be conducted before the Company and its board
        of
        directors can reach any definitive conclusions as to the net carrying values
        of
        the Purchased Technology and the corresponding deferred royalties and deferred
        revenues.
  13
  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 three months ended
        March 31, 2006, the Company paid $16,818 to settle total obligations amounting
        to $163,517, resulting in a gain on extinguishment of debt totaling
        $146,699.
  14
  **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.
  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 2 and 13. The financial statements do not include any adjustments
        that
        might result from the outcome of this uncertainty.
 
 At
        March
        31, 2006, the Company had cash and cash equivalents of $489,517 and negative
        working capital of $4,049,492.
 
 During
        the three month period ended March 31, 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.
  We
        entered into a Settlement Agreement and License (the “Amersham Settlement”)
        dated as of September 19, 2005 with GE Healthcare Ltd. (f/k/a Amersham plc,
        Amersham Health, Inc. and Amersham Health AS) (collectively “Amersham”),
        Alliance and Molecular Biosystems, Inc. (“MBI”). The Amersham Settlement
        resolves the parties’ claims arising under the case captioned *IMCOR
        Pharmaceutical Co., Alliance Pharmaceutical Corp. and Molecular Biosystems
        Inc.
        v. Amersham Health Inc., Amersham Health AS and Amersham plc.* ,
        Civil
        Action No. 03-2853 (SRC) filed in the United States District Court, District
        of
        New Jersey.
  15
  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
        granted each other fully paid-up, irrevocable, royalty-free, non-exclusive
        cross-licenses, with the right to sublicense, and mutual releases.
  In
        addition, we 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 as of June 10, 2003 between IMCOR 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 our *Imagent®* (perflexane lipid microspheres) asset. As a result of the Alliance Settlement,
        a
        variety of receivables, payables and other obligations between us and Alliance
        were settled without any additional payment from us during the quarter ended
        September 30, 2005.
  We
        received $1,000,000 directly from Amersham, of which the following items
        were
        immediately paid (leaving us a net cash amount of $831,562 from this $1,000,000)
        (all amounts approximate):
  ·
            $48,000
                for legal expenses necessary to prepare filings, audits, and to meet
                our
                other compliance and reporting requirements under the Securities
                and
                Exchange Commission rules; and 
 ·
            $120,000
                for payment of patent and other legal work that we incurred during
                the
                final steps of settlement negotiations with Amersham and Alliance,
                which
                was critical and integral to reaching a satisfactory conclusion to
                those
                disputes.  From
        September 21, 2005 through December 31, 2005, significant uses of our cash
        were
        (leaving us a net cash amount of $717,024 at December 31, 2005) (all amounts
        approximate):
  ·
            $10,000
                to settle and release claims of certain of our unsecured creditors
                totaling $115,000 for a gain on extinguishment of debt of $105,000
                (this
                is part of our $5,200,000 of debt); and 
 ·
            $169,000
                for several categories including: additional legal fees ($27,000),
                outside
                accountants ($15,000), consultant fees ($32,500), compliance with
                reporting requirements under the Securities and Exchange Commission
                rules
                ($27,000), and final payroll and retention bonuses
                ($44,000).  From
        January 1, 2006 through March 31, 2006, significant uses of our cash were
        as
        listed below (leaving us a net cash amount of approximately $490,000 at March
        31, 2006) (all amounts approximate):
  ·
            $17,000
                to settle and release claims of certain of our unsecured creditors
                totaling $164,000 for a gain on extinguishment of debt of $147,000
                (this
                is part of our total debt, of which approximately $4,669,000 remains
                unpaid at March 31, 2006);  16
  ·
            $26,000
                as a partial payment on certain other accounts payable obligations;
                and 
 ·
            $188,000
                for several categories including: legal and intellectual property
                matters
                ($26,000), consultant fees ($29,000), audit fees ($35,000), and
                director and officer insurance to mitigate the Company’s obligation to
                provide mandatory indemnification pursuant to our articles of
                incorporation and bylaws ($75,000).  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.
        Furthermore, inasmuch as the lack of adequate capital and a full-time staff
        make
        it impracticable to continue normal operating activities, we recognize that
        additional value will most readily be created only through opportunistic
        circumstances related to strategic technology transactions with others.
  We
        are
        still considering our alternatives with respect to efforts to sell or otherwise
        maximize asset values related to the Purchased Technology, and will continue
        to
        consider as alternatives the sale or license of our remaining assets, a merger
        or other material transaction. Such a transaction may include selling the
        Purchased Technology, a license or sale of the patent portfolio underlying
        the
        Purchased Technology, a manufacturing rights agreement, or another form of
        transaction.
 
 **RESULTS
        OF OPERATIONS**
 **Three
        Months Ended March 31, 2005 and 2006**
 
 **As
        a result of the restructuring plans adopted in April and May of 2005, and
        which
        continue to be carried out through March 31, 2006, the results of the first
        quarter of 2006 may not be indicative of the remainder of the fiscal
        year.**
  **Revenue
        and License Fees**
 We
        did
        not generate significant product revenues during the three months ending
        March
        31, 2005 and none during the three months ending March 31, 2006 due to capital
        constraints which forced us to limit and ultimately curtail our sales and
        marketing capability and the cessation of manufacturing operations related
        to
        the closing of our FDA-approved manufacturing facility during 2005. Any sales
        of
        products during the 2005 period are therefore included in our financial
        statements under “investment and other income.”
  License
        revenue recognized during the three months March 31, 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
        March 31, 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 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. (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.
  17
  The
        following is a summary of our major research and development cost categories
        (all amounts approximate):
 
 **Three
                  months**
                **ended
                  March 31,**
                **2005**
              
              **Three
                  months**
                **ended
                  March 31,**
                **2006**
              
              **Increase/**
                **(Decrease)**
                **2005
                  to 2006**Personnel
              
              $
              519,000
              
              $
              --
              
              
              (519,000
              )Contract
                  consultants
              
              
              189,000
              
              
              --
              
              
              (189,000
              )Patent
                  costs
              
              
              69,000
              
              
              20,000
              
              
              (49,000
              )Production
                  facilities costs
              
              
              21,000
              
              
              --
              
              
              (21,000
              )Supplies
              
              
              11,000
              
              
              --
              
              
              (11,000
              )Other
              
              
              49,000
              
              
              --
              
              
              (49,000
              )Total
              
              $
              858,000
              
              $
              20,000
              
              $
              (838,000
              )
  Personnel,
        contract consultant charges, production facilities costs, supplies and other
        costs all decreased from the quarter ended March 31, 2005 to zero amounts
        during
        the comparable 2006 period, primarily due to our cessation of operations
        and
        implementation of other aspects of our restructuring plan.
  Patent
        related costs decreased, but are still being incurred as a necessary part
        of our
        strategy to protect the *Imagent* asset
        value.
  **Selling,
        General and Administrative Expense**
 The
        following is a summary of the major cost categories in selling general and
        administrative expenses (all amounts approximate):
 
 **Three
                  months******
                **ended****March
                  31,**
                **2005**
              
              **Three
                  months**
                **ended****March
                  31,**
                **2006**
              
              **Increase/**
                **(Decrease)**
                **2005
                  to 2006**Personnel
              
              $
              257,000
              
              $
              --
              
              $
              (257,000
              )Contract
                  consultants
              
              
              271,000
              
              
              29,000
              
              
              (242,000
              )Stock
                  options
              
              
              234,000
              
              
              38,000
              
              
              (196,000
              )Legal
                  and accounting
              
              
              879,000
              
              
              62,000
              
              
              (817,000
              )Fees
              
              
              991,000
              
              
              --
              
              
              (991,000
              )Facilities
                  costs
              
              
              420,000
              
              
              10,000
              
              
              (410,000
              )Insurance
              
              
              163,000
              
              
              87,000
              
              
              (76,000
              )Depreciation
                  & amortization
              
              
              463,000
              
              
              --
              
              
              (463,000
              )Amortization-purchase
                  technology
              
              
              326,000
              
              
              --
              
              
              (326,000
              )Other
              
              
              167,000
              
              
              13,000
              
              
              (154,000
              )Total
              
              $
              4,171,000
              
              
              239,000
              
              $
              (3,932,000
              )
  18
  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 March
        31,
        2005 to the comparable 2006 period due to the restructuring plan commenced
        in
        the second quarter of 2005 and continued through March 31, 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 March 31, 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 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 quarter, and
        which
        are held by two current members of our Board of Directors.
  Legal
        and
        accounting expense decreased from the three months ended March 31, 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 quarter 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.
  Depreciation
        and amortization of property, plant and equipment (including leasehold
        improvements) and technology license decreased from amounts recorded during
        the
        three months ended March 31, 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. However, we cannot provide assurances that we can
        enter
        into such a transaction.
  19
  **Investment
        and Other Income**
 Investment
        and other income in the first quarter 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**
 Beginning
        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 three months ending March 31, 2006, we
        paid
        $16,818 to settle $163,517 in vendor claims, resulting in a gain on
        extinguishment of debt totaling $146,699. From March 31, 2006 through May
        12,
        2006, we have continued to reach settlements, resulting in an additional
        gain of
        approximately $99,000, by paying out approximately $11,000 to settle an
        additional $110,000 in vendor claims. Therefore, total gains through May
        12,
        2006 related to settlements with creditors are approximately $351,000,
        based on paying out approximately $38,000 to settle approximately $389,000
        in
        total claims.)
 
 **Interest
        Expense**
 Interest
        expense in the three months ending March 31, 2006 did not effectively change
        as
        the amount of our notes payable and other interest bearing obligations have
        not
        been increased or decrease during the intervening periods.
  **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.
  20
  **Contractual
        Obligations**
 The
        following table summarizes our approximate contractual obligations as of
        March
        31, 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)
              
              $
              807,000
              
              $
              807,000
              
              $
              0
              
              $
              0
              
              $
              0Notes
                  payable
              
              
              192,000
              
              
              192,000
              
              
              0
              
              
              0
              
              
              0Accrued
                  royalty liabilities
              
              
              402,000
              
              
              402,000
              
              
              0
              
              
              0
              
              
              0Severance
                  and unpaid bonus to former CEO
              
              
              481,000
              
              
              481,000
              
              
              0
              
              
              0
              
              
              0Settlement
                  amounts owed and guaranteed pursuant to equipment lease
                  settlement
              
              
              493,000
              
              
              493,000
              
              
              0
              
              
              0
              
              
              0Other
                  liabilities- past due
              
              
              623,000
              
              
              623,000
              
              
              0
              
              
              0
              
              
              0Accounts
                  payable- past due
              
              
              1,671,000
              
              
              1,671,000
              
              
              0
              
              
              0
              
              
              0Total
                  contractual cash obligations
              
              $
              4,669,000
              
              $
              4,669,000
              
              $
              0
              
              $
              0
              
              $
              0
 
 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.
  As
        of
        March 31, 2006, we have not entered into any purchase orders for capital
        equipment.
  **Significant
        Estimates**
 Our
        discussion and analysis of our financial condition and results of operations
        are
        based on our consolidated financial statements, which have been prepared
        in
        accordance with 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.
  21
  **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
        $38,326 during the three months ended March 31, 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. Our adoption of SFAS No. 154 during the three
        months
        ended March 31, 2006 did not have a material effect on our financial
        statements or results of operations.
  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.
  22
  **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
        March 31, 2006 and, based on that evaluation, concluded that due to insufficient
        staff our disclosure controls and procedures were not fully effective to
        ensure
        timely collection, evaluation and disclosure of information relating to the
        Company that would potentially be subject to disclosure under the Exchange
        Act,
        and the rules and regulations thereunder. However, to the extent corrections
        and
        improvements in internal controls and disclosure controls and procedures
        cannot
        be implemented and/or maintained, management believes appropriate oversight
        and
        review is currently in place in light of the minimal transactions conducted
        during this fiscal quarter to prevent material misstatements in our annual
        financial reporting.
  **PART
        II. OTHER INFORMATION**
  **ITEM
        1. LEGAL PROCEEDINGS******
  During
        the quarter ended March 31, 2006, we had no legal proceedings described in
        Item
        103 of Regulation S-B.
  23
  **ITEM
        2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS** ****
  During
        the three months ending March 31, 2006, we did not issue any shares of our
        common stock.
  Given
        our
        current financial circumstances and its goal to maximize the funds available
        to
        our creditors, our board of directors has determined that we will not continue
        to pursue our efforts to effect our registration statements currently on
        file
        with the SEC (File Nos. 333-122625 and 333-117907). Those registration
        statements, which are not currently effective, will be withdrawn. 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 March 31, 2006 was approximately $489,517. At March
        31,
        2006, we had current liabilities totaling approximately $4,669,354.
  **If
        we are unable to find a partner or buyer of our remaining assets at acceptable
        prices we will continue to be unable to meet our obligations to our creditors
        and may enter into bankruptcy proceedings, or liquidate and dissolve under
        applicable state laws.**
  We
        have
        implemented a restructuring plan which resulted in a reduction-in-force of
        all
        our employees, terminating sales efforts and manufacturing operations,
        terminating clinical development, vacating our leased premises, selling our
        furniture, fixtures and manufacturing equipment, and selling our rights to
        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.
  24
  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.
  **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 March 31, 2006,
        we
        have incurred cumulative net losses (before dividends on preferred stock)
        of
        approximately $91,021,602. 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.
  25


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. All of the above
      has
      prevented us from being able to fulfill certain of our contractual obligations
      to provide product (including fulfilling our obligations under our license
      agreement with Kyosei).




**We
      no longer maintain any internal quality control and stability program for
      Imagent.**




Since
      we
      have suspended manufacturing operations and vacated our leased manufacturing
      facility located in San Diego, California, we 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.* ”




26




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 October 30, 2006. 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.




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




27




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




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




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




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




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




28




**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.)*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.




**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:
              May 19, 2006
            **IMCOR
                Pharmaceutical Co.**/s/ Brian
              GallagherBrian
              Gallagher(Chairman
                of the Board and Acting Principal
              Financial
                Officer)





29


**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.)*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.




30