**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549**




**FORM
10-QSB**




**ý**
    
    **QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934****FOR
      THE QUARTERLY PERIOD ENDED MARCH 31, 2005****OR****o**
    
    **TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934****FOR
      THE TRANSITION PERIOD FROM
                     
      TO****Commission
      File Number 0-23553****IMCOR
      PHARMACEUTICAL CO.**(Exact
      name of small business issuer as specified in its
  charter)**NEVADA**
    
    **62-1742885**(State
      or other jurisdiction of
      incorporation
      or organization)
    
    (I.R.S.
      Employer Identification No.)**6175
      Lusk Boulevard**
      **San
      Diego, CA 92121**(Address
      of principal executive offices) (Zip Code)**858/410-5601**(Issuer’s
      telephone number, including area code)




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities 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 ý No o




State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 4,955,703 shares of common stock, $0.001 par
value per share, issued and outstanding at April 30, 2005.




Transitional
Small Business Disclosure Format (check one):




Yes o No ý









**INDEX**




PART
      I.
    FINANCIAL
      INFORMATION
    1ITEM
      1.
    FINANCIAL
      STATEMENTS
    1ITEM
      2.
    MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
    16ITEM
      3.
    CONTROLS
      AND PROCEDURES
    20PART
      II.
    OTHER
      INFORMATION
    21ITEM
      1.
    LEGAL
      PROCEEDINGS
    21ITEM
      2.
    UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    21ITEM
      3.
    DEFAULTS
      UPON SENIOR SECURITIES
    22ITEM
      4.
    SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
    22ITEM
      5.
    OTHER
      INFORMATION
    22ITEM
      6.
    EXHIBITS
    31





i




IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY
      (A
      Development Stage Company)
      CONSOLIDATED
      BALANCE SHEETSDecember
      31,
    
    March
      31,ASSETS
    
    2004
    
    2005Current
      Assets
    
    
    
    (Unaudited)Cash
      and cash equivalents
    
    $
    4,721,456
    
    $
    1,282,791Accounts
      receivable
    
    
    33,916
    
    
    31,382Prepaids
    
    
    442,802
    
    
    578,9645,198,174
    
    
    1,893,137Property
      and equipment, net
    
    
    4,427,043
    
    
    3,984,676Other
      assets:Purchased
      technology, net
    
    
    13,676,750
    
    
    13,350,956Technology
      license, net
    
    
    696,408
    
    
    678,717Deferred
      royalties, net
    
    
    458,333
    
    
    447,916Deposits
    
    
    324,750
    
    
    324,75015,156,241
    
    
    14,802,339Total
      Assets
    
    $
    24,781,458
    
    $
    20,680,152LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      Liabilities:Notes
      payable unsecured
    
    $
    192,233
    
    $
    192,233Current
      portion of license revenue
    
    
    696,307
    
    
    696,307Accounts
      payable
    
    
    1,916,551
    
    
    1,743,162Accrued
      expenses and assumed acquisition liabilities
    
    
    2,191,301
    
    
    1,919,247Accrued
      royalty fees
    
    
    400,000
    
    
    402,732Accrued
      equipment lease obligation
    
    
    492,984
    
    
    492,984Total
      current liabilities
    
    
    5,889,376
    
    
    5,446,665Deferred
      license revenue
    
    
    6,948,753
    
    
    6,774,676Commitments
      and contingenciesSHAREHOLDERS'
      EQUITY:Preferred
      stock, $.01 par value; 5,000,000 shares authorizedSeries
      A preferred stock: 4,500 shares authorized, issuedand
      outstanding; $1,000 liquidation preference pershare,
      $4,500,000 in aggregate
    
    
    45
    
    
    45Common
      stock, $.001 par value; 200,000,000 shares authorized;4,000,916
      and 4,499,207 shares issued and outstandingas
      of December 31, 2004 and March 31, 2005, respectively
    
    
    4,001
    
    
    4,499Additional
      paid-in capital
    
    
    84,020,364
    
    
    85,759,711Common
      stock to be issued
    
    
    1,120,752
    
    
    735,572Unearned
      compensation
    
    
    (10,500
    )
    
    --Deficit
      accumulated during the development stage
    
    
    (73,191,333
    )
    
    (78,041,016
    )11,943,329
    
    
    8,458,811$
    24,781,458
    
    $
    20,680,152





See notes
to consolidated financial statements.







1







IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF OPERATIONS
      (Unaudited)Period
      fromInceptionThree
      Months
    
    Three
      Months
    
    (November
      3,Ended
      March 31,
    
    Ended
      March 31,
    
    1996)
      to2004
    
    2005
    
    March
      31, 2005License
      revenue
    
    $
    41,667
    
    $
    174,077
    
    $
    529,017Operating
      expenses:Research
      and development
    
    
    960,831
    
    
    857,750
    
    
    11,538,129Sales,
      general and administrative
    
    
    3,689,106
    
    
    4,171,484
    
    
    50,450,136Restructuring
      charges
    
    
    --
    
    
    --
    
    
    1,541,455Provision
      for future lease payments
    
    
    --
    
    
    --
    
    
    1,264,208Impairment
      losses
    
    
    --
    
    
    --
    
    
    274,479Total
      operating expenses
    
    
    4,649,937
    
    
    5,029,234
    
    
    65,068,407Operating
      loss
    
    
    (4,608,270
    )
    
    (4,855,157
    )
    
    (64,539,390
    )Loss
      from joint venture
    
    
    (195,897
    )
    
    --
    
    
    (14,518,000
    )Investment
      and other income
    
    
    224,236
    
    
    27,829
    
    
    1,479,828Interest
      expense
    
    
    (267,420
    )
    
    (22,355
    )
    
    (1,564,105
    )Loss
      from continuing operations
    
    
    (4,847,351
    )
    
    (4,849,683
    )
    
    (79,141,667
    )Discontinued
      operations:Operating
      loss from therapeutic business
    
    
    --
    
    
    --
    
    
    (10,679,101
    )Gain
      from split-off of therapeutic business
    
    
    --
    
    
    --
    
    
    11,779,752--
    
    
    --
    
    
    1,100,651Net
      loss
    
    
    (4,847,351
    )
    
    (4,849,683
    )
    $
    (78,041,016
    )Dividends
      on preferred stock
    
    
    (276,870
    )
    
    --Net
      loss available to common shareholders
    
    $
    (5,124,221
    )
    $
    (4,849,683
    )Basic
      and diluted loss per common share fromcontinuing
      operations
    
    $
    (4.77
    )
    $
    (1.06
    )Basic
      and diluted income (loss) per common sharefrom
      discontinued operations
    
    $
    --
    
    $
    --Basic
      and diluted net loss per common share
    
    $
    (4.77
    )
    $
    (1.06
    )Weighted
      average number of common sharesoutstanding-
      basic and diluted
    
    
    1,073,959
    
    
    4,584,150





See notes
to consolidated financial statements .






2




IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER’S EQUITY
      (Unaudited)


DeficitCommon
    
    
    
    
    
    AccumulatedPreferred
      Stock
    
    
    
    
    
    Stock
    
    Unearned
    
    Additional
    
    During
      TheSeries
      A
    
    Series
      B
    
    Common
      Stock
    
    Members'
    
    To
      Be
    
    Compen-
    
    Paid-in
    
    DevelopmentShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Issued
    
    sation
    
    Capital
    
    Stage
    
    TotalContribution
      of capital
    
    
    --
    
    $
    --
    
    
    --
    
    $
    --
    
    
    --
    
    $
    --
    
    $
    7,268
    
    $
    --
    
    $
    --
    
    $
    --
    
    $
    --
    
    $
    7,268Net
      loss for the period ended December 31, 1996
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (1,779
    )
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (1,779
    )**Balance,
      at December 31, 1996**
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    **5,489**
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    **5,489**Contribution
      of capital
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --Net
      loss for the period January 1, 1997 to May 15, 1997
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    3,511
    
    
    --
    
    
    --
    
    
    --
    
    
    (3,511
    )
    
    --**Balance,
      at May 15, 1997**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **9,000**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **(3,511**
    **)**
    
    **5,489**Issuance
      of common stock
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    78,910
    
    
    79
    
    
    --
    
    
    --
    
    
    --
    
    
    1,803,371
    
    
    --
    
    
    1,803,450Effect
      of recapitalization and merger
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    371,090
    
    
    371
    
    
    (9,000
    )
    
    --
    
    
    --
    
    
    1,210,816
    
    
    1,732
    
    
    1,203,919Cost
      associated with recapitalization and merger
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (371,111
    )
    
    --
    
    
    (371,111
    )Net
      loss for the period May 16, 1997 to December 31, 1997
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (554,702
    )
    
    (554,702
    )**Balance,
      at December 31, 1997**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **450,000**
    
    
    **450**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **2,643,076**
    
    
    **(556,481**
    **)**
    
    **2,087,045**Issuance
      of common stock
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    10,938
    
    
    11
    
    
    --
    
    
    --
    
    
    --
    
    
    6,999,989
    
    
    --
    
    
    7,000,000Costs
      associated with common stock issuance
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (50,000
    )
    
    --
    
    
    (50,000
    )Options
      issued to consultants
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    45,446
    
    
    --
    
    
    45,446Net loss for the year ended December 31,  1998
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (1,973,913
    )
    
    (1,973,913
    )**Balance,
      at December 31, 1998**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **460,938**
    
    
    **461**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **9,638,511**
    
    
    **(2,530,394**
    **)**
    
    **7,108,578**
   3
 IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER’S EQUITY (Continued)
      (Unaudited)
 DeficitCommon
    
    
    
    
    
    AccumulatedPreferred
      Stock
    
    
    
    
    
    Stock
    
    Unearned
    
    Additional
    
    During
      TheSeries
      A
    
    Series
      B
    
    Common
      Stock
    
    Members'
    
    To
      Be
    
    Compen-
    
    Paid-in
    
    DevelopmentShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Issued
    
    sation
    
    Capital
    
    Stage
    
    Total
 Exercise
      of stock options
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    56
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    50,063
    
    
    --
    
    
    50,063Issuance
      of warrants and options
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    3,664,749
    
    
    --
    
    
    3,664,749Issuance
      of common stock
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    6,298
    
    
    6
    
    
    --
    
    
    --
    
    
    --
    
    
    6,082,648
    
    
    --
    
    
    6,082,654Issuance
      of preferred stock
    
    
    12,015
    
    
    120
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    11,578,839
    
    
    --
    
    
    11,578,959Reclassification
      of Series A shares as mezzanine equity in accordance with EITF D-98
    
    
    (12,015
    )
    
    (120
    )
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (11,578,839
    )
    
    --
    
    
    (11,578,959
    )Net
      loss for the year ended December 31,  1999
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (6,052,841
    )
    
    (6,052,841
    )**Balance,
      at December 31, 1999**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **467,292**
    
    
    **467**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **19,435,971**
    
    
    **(8,583,235**
    **)**
    
    **10,853,203**Stock
      option compensation
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    125,020
    
    
    --
    
    
    125,020Issuance
      of warrants and options
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    1,366,050
    
    
    --
    
    
    1,366,050Issuance
      of preferred stock dividend
    
    
    841
    
    
    8
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (8
    )
    
    --
    
    
    --Issuance
      of preferred stock
    
    
    --
    
    
    --
    
    
    337,056
    
    
    3,370
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    5,272,970
    
    
    --
    
    
    5,276,340Beneficial
      accretion of Series A shares reclassified as mezzanine
    equity
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (240,464
    )
    
    --
    
    
    (240,464
    )Net
      loss for the year ended December 31,  2000
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (10,787,062
    )
    
    (10,787,062
    )**Balance,
      at December 31, 2000**
    
    
    **841**
    
    
    **8**
    
    
    **337,056**
    
    
    **3,370**
    
    
    **467,292**
    
    
    **467**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **25,959,539**
    
    
    **(19,370,297**
    **)**
    
    **6,593,087**
   4
 
  IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER’S EQUITY (Continued)
      (Unaudited)
 DeficitCommon
    
    
    
    
    
    AccumulatedPreferred
      Stock
    
    
    
    
    
    Stock
    
    Unearned
    
    Additional
    
    During
      TheSeries
      A
    
    Series
      B
    
    Common
      Stock
    
    Members'
    
    To
      Be
    
    Compen-
    
    Paid-in
    
    DevelopmentShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Issued
    
    sation
    
    Capital
    
    Stage
    
    Total
 Stock
      option compensation
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    64,729
    
    
    --
    
    
    64,729Issuance
      of common stock for cash
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    2,462
    
    
    2
    
    
    --
    
    
    --
    
    
    --
    
    
    418,721
    
    
    --
    
    
    418,723Issuance
      of common stock in satisfaction of anti-dilution provision
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    9,543
    
    
    10
    
    
    --
    
    
    --
    
    
    --
    
    
    (10
    )
    
    --
    
    
    --Issuance
      of preferred stock dividend
    
    
    --
    
    
    --
    
    
    20,224
    
    
    202
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (202
    )
    
    --
    
    
    --Beneficial
      accretion of Series A shares reclassified as mezzanine
    equity
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (195,577
    )
    
    --
    
    
    (195,577
    )Net
      loss for the year ended December 31,  2001
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (9,723,016
    )
    
    (9,723,016
    )**Balance,
      at December 31, 2001**
    
    
    **841**
    
    
    **8**
    
    
    **357,280**
    
    
    **3,572**
    
    
    **479,297**
    
    
    **479**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **26,247,200**
    
    
    **(29,093,313**
    **)**
    
    **(2,842,054**
    **)**Stock
      option compensation
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    73,870
    
    
    --
    
    
    73,870Issuance
      of warrants for service
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    322,000
    
    
    --
    
    
    322,000Issuance
      of options in settlement of lawsuit
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    806,415
    
    
    --
    
    
    806,415Employee
      compensation from stock options
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    988,184
    
    
    --
    
    
    988,184Issuance
      of preferred stock dividends
    
    
    --
    
    
    --
    
    
    40,194
    
    
    402
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (402
    )
    
    --
    
    
    --Conversion
      of Series B to common stock
    
    
    --
    
    
    --
    
    
    (397,474
    )
    
    (3,974
    )
    
    21,116
    
    
    21
    
    
    --
    
    
    --
    
    
    --
    
    
    3,953
    
    
    --
    
    
    --Beneficial
      inducement costs for convertible debt converted
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    206,348
    
    
    --
    
    
    206,348Conversion
      of line of credit with Élan to common stock
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    6,422
    
    
    6
    
    
    --
    
    
    --
    
    
    --
    
    
    3,082,481
    
    
    --
    
    
    3,082,487Conversion
      of line of credit with entity controlled by director of company to common
      stock
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    115,741
    
    
    116
    
    
    --
    
    
    --
    
    
    --
    
    
    2,499,884
    
    
    --
    
    
    2,500,000
   5
  IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER’S EQUITY (Continued)
      (Unaudited)
 DeficitCommon
    
    
    
    
    
    AccumulatedPreferred
      Stock
    
    
    
    
    
    Stock
    
    Unearned
    
    Additional
    
    During
      TheSeries
      A
    
    Series
      B
    
    Common
      Stock
    
    Members'
    
    To
      Be
    
    Compen-
    
    Paid-in
    
    DevelopmentShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Issued
    
    sation
    
    Capital
    
    Stage
    
    Total
 Retirement
      of common stock returned in shareholder transaction
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (256,855
    )
    
    (257
    )
    
    --
    
    
    --
    
    
    --
    
    
    (12,226,062
    )
    
    --
    
    
    (12,226,319
    )Issuance
      of common stock for cash
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    441,153
    
    
    441
    
    
    --
    
    
    --
    
    
    --
    
    
    9,141,460
    
    
    --
    
    
    9,141,901Netlossfor the year ended December  31, 2002
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    348,119
    
    
    348,119**Balance,
      at December  31, 2002**
    
    
    **841**
    
    
    **8**
    
    
    **--**
    
    
    **--**
    
    
    **806,874**
    
    
    **806**
    
    
    **--**
    
    
    **--**
    
    
    **--**
    
    
    **31,145,331**
    
    
    **(28,745,194**
    **)**
    
    **2,400,951**Issuance
      of common stock for cash
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    1,389
    
    
    1
    
    
    --
    
    
    --
    
    
    --
    
    
    29,999
    
    
    --
    
    
    30,000Issuance
      of common stock for standstill agreement
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    37,500
    
    
    38
    
    
    --
    
    
    --
    
    
    --
    
    
    1,173,712
    
    
    --
    
    
    1,173,750Conversion
      of Series B to common stock
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    5
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --Options
      issued to consultants for services
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    9,200
    
    
    --
    
    
    9,200Shares
      issued to consultant for services
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    3,438
    
    
    4
    
    
    --
    
    
    --
    
    
    --
    
    
    132,258
    
    
    --
    
    
    132,262Employee
      compensation from stock options
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    1,236,566
    
    
    --
    
    
    1,236,566Shares
      issued in Technology Purchase
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    109,907
    
    
    110
    
    
    --
    
    
    --
    
    
    --
    
    
    5,583,158
    
    
    --
    
    
    5,583,268Shares
      to be issued in Technology Purchase
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    5,043,226
    
    
    --
    
    
    --
    
    
    --
    
    
    5,043,226Shares
      previously subject to rescission
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    6,231
    
    
    6
    
    
    --
    
    
    --
    
    
    --
    
    
    649,994
    
    
    --
    
    
    650,000Shares
      issued to Xmark for penalties
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    4,941
    
    
    5
    
    
    --
    
    
    --
    
    
    --
    
    
    163,671
    
    
    --
    
    
    163,676Shares
      issued to Xmark for interest
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    1,082
    
    
    1
    
    
    --
    
    
    --
    
    
    --
    
    
    48,596
    
    
    --
    
    
    48,597Shares
      to be issued to Xmark  and other former Alliance creditors for
      interest and penalties
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    76,933
    
    
    --
    
    
    --
    
    
    --
    
    
    76,933
   6
  IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER’S EQUITY (Continued)
      (Unaudited)
 DeficitCommon
    
    
    
    
    
    AccumulatedPreferred
      Stock
    
    
    
    
    
    Stock
    
    Unearned
    
    Additional
    
    During
      TheSeries
      A
    
    Series
      B
    
    Common
      Stock
    
    Members'
    
    To
      Be
    
    Compen-
    
    Paid-in
    
    DevelopmentShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Issued
    
    sation
    
    Capital
    
    Stage
    
    Total
 Options
      exercised through cashless exercise
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    1,861
    
    
    2
    
    
    --
    
    
    --
    
    
    --
    
    
    (2
    )
    
    --
    
    
    --Xmark
      puttable shares classified as mezzanine equity
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (1,969,668
    )
    
    --
    
    
    (1,969,668
    )Net
      loss for the year ended December  31, 2003
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (22,773,504
    )
    
    (22,773,504
    )**Balance,
      at December  31, 2003**
    
    
    **841**
    
    
    **8**
    
    
    **--**
    
    
    **--**
    
    
    **973,228**
    
    
    **973**
    
    
    **--**
    
    
    **5,120,159**
    
    
    **--**
    
    
    **38,202,815**
    
    
    **(51,518,698**
    **)**
    
    **(8,194,743**
    **)**Shares
      issued to consultant for services
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    11,562
    
    
    12
    
    
    --
    
    
    --
    
    
    (10,500
    )
    
    43,675
    
    
    --
    
    
    33,187Shares
      to be issued for legal fees
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    247,865
    
    
    --
    
    
    --
    
    
    --
    
    
    247,865Employee
      compensation from stock options
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    959,283
    
    
    --
    
    
    959,283Shares
      issued in*Imagent*Business purchase
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    99,276
    
    
    99
    
    
    --
    
    
    (5,043,226
    )
    
    --
    
    
    5,043,127
    
    
    --
    
    
    --Shares
      issued for penalties
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    8,935
    
    
    9
    
    
    --
    
    
    (107,513
    )
    
    --
    
    
    244,460
    
    
    --
    
    
    136,956Shares
      to be issued to Xmark and secured creditors for interest and
      penalties
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    252,357
    
    
    --
    
    
    --
    
    
    --
    
    
    252,357Shares
      issued as payment for promissory notes
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    1,679,173
    
    
    1,679
    
    
    --
    
    
    --
    
    
    --
    
    
    13,431,705
    
    
    --
    
    
    13,433,384Shares
      issued for cash, net
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    1,268,750
    
    
    1,269
    
    
    --
    
    
    --
    
    
    --
    
    
    9,323,731
    
    
    --
    
    
    9,325,000Shares
      to be issued to investors for late registration
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    832,300
    
    
    --
    
    
    --
    
    
    --
    
    
    832,300Issuance
      of stock in settlement of lease
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    30,829
    
    
    31
    
    
    --
    
    
    --
    
    
    --
    
    
    586
    
    
    --
    
    
    617Xmark
      puttable shares issued from mezzanine equity
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    1,969,668
    
    
    --
    
    
    1,969,668Conversion
      of Series A to common stock
    
    
    (841
    )
    
    (8
    )
    
    --
    
    
    --
    
    
    9,763
    
    
    10
    
    
    --
    
    
    --
    
    
    --
    
    
    12,161,445
    
    
    --
    
    
    12,161,447Retirement
      of puttable shares
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (80,600
    )
    
    (81
    )
    
    --
    
    
    (203,190
    )
    
    --
    
    
    (1,575,176
    )
    
    --
    
    
    (1,778,447
    )
   7
  IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF SHAREHOLDER’S EQUITY (Continued)
      (Unaudited)
 DeficitCommon
    
    
    
    
    
    AccumulatedPreferred
      Stock
    
    
    
    
    
    Stock
    
    Unearned
    
    Additional
    
    During
      TheSeries
      A
    
    Series
      B
    
    Common
      Stock
    
    Members'
    
    To
      Be
    
    Compen-
    
    Paid-in
    
    DevelopmentShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Issued
    
    sation
    
    Capital
    
    Stage
    
    Total
 Adjust
      shares for prior rounding
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --Shares
      to be issued to consultants for services
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    22,000
    
    
    --
    
    
    --
    
    
    --
    
    
    22,000Shares
      issued for cash, net
    
    
    4,500
    
    
    45
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    4,139,955
    
    
    --
    
    
    4,140,000Proceeds
      from contribution by shareholder
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    46,690
    
    
    --
    
    
    46,690Warrants
      issued for services rendered
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    28,400
    
    
    --
    
    
    28,400Net
      loss for the year ended December  31, 2004
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (21,672,635
    )
    
    (21,672,635
    )**Balance
      December 31, 2004**
    
    
    **4,500**
    
    
    **45**
    
    
    **--**
    
    
    **--**
    
    
    **4,000,916**
    
    
    **4,001**
    
    
    **--**
    
    
    **1,120,752**
    
    
    **(10,500**
    **)**
    
    **84,020,364**
    
    
    **(73,191,333**
    **)**
    **11,943,329**Shares
      issued for services
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    105,610
    
    
    106
    
    
    --
    
    
    (269,865
    )
    
    10,500
    
    
    269,759
    
    
    --
    
    10,500Shares
      to be issued for legal fees
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    95,135
    
    
    --
    
    
    --
    
    
    --
    
    95,135Employee
      compensation from stock options
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    233,955
    
    
    --
    
    233,955Shares
      issued for penalties
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    392,681
    
    
    392
    
    
    --
    
    
    (850,887
    )
    
    --
    
    
    1,193,383
    
    
    --
    
    342,888Shares
      to be issued to investors for late registration
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    640,437
    
    
    --
    
    
    --
    
    
    --
    
    640,437Options
      issued in settlement of claim
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    42,250
    
    
    --
    
    42,250Net
      loss for the three months ended March 31, 2005
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (4,849,683
    )
    (4,849,683)**Balance
      March 31, 2005**
    
    
    **4,500**
    
    **$**
    **45**
    
    
    **--**
    
    **$**
    **--**
    
    
    **4,499,207**
    
    **$**
    **4,499**
    
    **$**
    **--**
    
    **$**
    **735,572**
    
    **$**
    **--**
    
    **$**
    **85,759,711**
    
    **$**
    **(78,041,016**
    **)**
    **$8,458,811**







See notes
to consolidated financial statements .





8




IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY
      (A
      Development Stage Company)
      CONSOLIDATED
      STATEMENTS OF CASH FLOWS
      (Unaudited)
  Period
      fromInceptionThree
      Months
    
    Three
      Months
    
    (November
      3,Ended
      March 31,
    
    Ended
      March 31,
    
    1996)
      to2004
    
    2005
    
    March
      31, 2005CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
    
    $
    (4,847,351
    )
    $
    (4,849,683
    )
    $
    (78,041,016
    )Less
      income from discontinued operations
    
    
    --
    
    
    --
    
    
    (1,100,651
    )Adjustments
      to reconcile net loss to cash used by operating
activities:Depreciation
      and amortization
    
    
    786,331
    
    
    788,892
    
    
    7,274,576Loss
      on disposal of property and equipment
    
    
    --
    
    
    --
    
    
    36,224Gain
      on sale of marketable securities
    
    
    --
    
    
    --
    
    
    (18,503
    )United
      States Treasury Notes amortization
    
    
    --
    
    
    --
    
    
    12,586Stock
      option compensation
    
    
    633,651
    
    
    233,955
    
    
    4,117,574Gain
      from equipment lease settlement
    
    
    --
    
    
    --
    
    
    (126,257
    )License
      revenue deferred
    
    
    --
    
    
    --
    
    
    8,000,000Recognition
      of deferred license revenue
    
    
    (41,667
    )
    
    (174,077
    )
    
    (529,017
    )Amortization
      of deferred royalty expense
    
    
    --
    
    
    10,417
    
    
    52,084Valuation
      impairment allowances
    
    
    --
    
    
    --
    
    
    274,479Beneficial
      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
    
    
    7,689
    
    
    105,635
    
    
    540,949Issuance
      of stock for interest payments and penalties
    
    
    200,723
    
    
    983,325
    
    
    2,494,143Equity
      in loss of affiliate
    
    
    195,896
    
    
    --
    
    
    14,518,000Changes
      in operating assets and liabilities:Accounts
      receivable
    
    
    (17,500
    )
    
    2,534
    
    
    (31,382
    )Prepaid
      expenses
    
    
    158,643
    
    
    (136,162
    )
    
    (578,964
    )Deferred
      royalty expense
    
    
    --
    
    
    --
    
    
    (500,000
    )Accounts
      payable
    
    
    217,041
    
    
    (173,389
    )
    
    1,886,801Accrued
      expenses
    
    
    (460,196
    )
    
    (227,072
    )
    
    (582,085
    )Accrued
      equipment lease obligation
    
    
    --
    
    
    --
    
    
    1,050,589Other
    
    
    --
    
    
    --
    
    
    10,000Net
      cash used in continuing operating activities
    
    
    (3,166,740
    )
    
    (3,435,625
    )
    
    (34,707,866
    )Net
      cash used in discontinued operations
    
    
    --
    
    
    --
    
    
    (10,679,101
    )








9




**IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY**
      **(A
      Development Stage Company)**
      **CONSOLIDATED
      STATEMENTS OF CASH FLOWS (Continued)**
      **(Unaudited)**
  Period
      fromInceptionThree
      Months
    
    Three
      Months
    
    (November
      3,Ended
      March 31,
    
    Ended
      March 31,
    
    1996)
      to2004
    
    2005
    
    March
      31, 2005CASH
      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 and equipment
    
    
    (4,520
    )
    
    (3,040
    )
    
    (754,674
    )Proceeds
      from sale of property and equipment
    
    
    --
    
    
    --
    
    
    147,751Patent
      acquisition costs
    
    
    --
    
    
    --
    
    
    (237,335
    )Investment
      in and advances to affiliate
    
    
    --
    
    
    --
    
    
    (15,107,468
    )Increase
      in note receivable
    
    
    --
    
    
    --
    
    
    (1,255,000
    )Decrease
      (increase) in deposits
    
    
    (100,000
    )
    
    --
    
    
    (764,120
    )Purchase
      of Imagent business
    
    
    --
    
    
    --
    
    
    (5,074,761
    )Net
      cash used in investing activities
    
    
    (104,520
    )
    
    (3,040
    )
    
    (21,942,535
    )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
    
    
    1,689,900
    
    
    --
    
    
    20,544,721Payments
      on lease settlement obligation
    
    
    --
    
    
    --
    
    
    (75,000
    )Cost
      of recapitalization
    
    
    --
    
    
    --
    
    
    (371,111
    )Net
      cash provided by financing activities
    
    
    1,689,900
    
    
    --
    
    
    69,918,969NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (1,581,360
    )
    
    (3,438,665
    )
    
    1,282,791CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    1,657,594
    
    
    4,721,456
    
    
    --CASH
      AND CASH EQUIVALENTS, END OF YEAR
    
    $
    76,234
    
    $
    1,282,791
    
    $
    1,282,791SUPPLEMENTAL
      SCHEDULE OF CASH FLOWS INFORMATION:Interest
      paid
    
    $
    --
    
    $
    --
    
    $
    481,769


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


**THREE
MONTHS ENDED MARCH 31, 2005:**


In
February 2005 the Company 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.


**THREE
MONTHS ENDED MARCH 31, 2004:**


In March
2004, the Company issued 99,276 shares of common stock at a value of $5,043,226
related to the purchase of *Imagent* in June 2003. These shares had been
classified in Common Stock to be Issued.


The holder
of puttable shares sold a portion of the shares, thereby extinguishing $190,000
of the put feature. This resulted in a $190,000 decrease in puttable shares and
a $190,000 increase in shareholder equity.





See notes
to consolidated financial statements .






10







**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 (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.
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, 2004, which has been filed
with the SEC.




In the
opinion of management, all adjustments, consisting of normal, recurring
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, 2005 may not be indicative of the results that may be
expected for the full fiscal year.




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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 relates to the Company’s review of the fair value of its long-lived
assets.




**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 $78,041,016. At March 31, 2005 the Company
lacks sufficient working
capital to fund operations for the entire fiscal year ending
December 31, 2005. Substantial additional capital resources will be
required to fund its ongoing operations. As described in Note 11, the Company
has adopted a restructuring plan that includes employee layoffs, sale of excess
equipment, suspending manufacturing and clinical activities, and vacating its
premises. The Company is still considering its alternatives with respect to
efforts to raise additional funds for its operating and development plans and
may make further adjustments to such plans, as necessary. Among the alternatives
that the Company may consider is a further reduction in employees and
consultants, the sale or license of some or all of its assets, a merger or other
material transaction.







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




****


**3.
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.





**4.
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 antidilutive.
Potential common shares excluded from the calculation at March 31 of each
year are as follows:





2004
    
    2005Options
      pursuant to plans
    
    
    333,729
    
    
    608,378Options
      outside of plans, net of cashless component
    
    
    15,727
    
    
    34,977Warrants
    
    
    18,874
    
    
    819,736Issuable
      upon conversion of preferred stock
    
    
    9,669
    
    
    833,334Total
    
    
    377,999
    
    
    2,296,425





Basic and
diluted loss per common share in 2005 includes approximately 443,000 shares to
be issued.





11
 
 **IMCOR
Pharmaceutical Co. and Subsidiary**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 **(Unaudited)**




**5.
Accounting for Stock-based Compensation** :





The
Company’s stock option plans are accounted for using the intrinsic-value method
of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock
Issued to Employees”, and related interpretations. The intrinsic-value method
requires that compensation expense, if any, be determined by calculating the
difference between the fair value of the Company’s common stock and the option’s
strike price at a measurement date. The measurement date is generally when the
number of shares and the option strike price are known. The Company uses the
fair-value method to account for non-employee stock-based compensation. The
Company has also adopted the disclosure requirements of SFAS No. 148,
“Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment
to FASB Statement No. 123”. Options issued to non-employees are accounted for
using the recognition provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation”, using the fair value-based method.





Other
than a modification to options granted to a former employee in final settlement
of all claims that are exercisable into 21,125 net shares of common stock at a
price of zero as noted in Note 10, the Company did not issue any options in the
three months ended March 31, 2005.





The
Company has computed the pro forma disclosures required by SFAS No. 123,
“Accounting for Stock-Based Compensation”, for options granted using the
Black-Scholes option-pricing model prescribed by SFAS No. 123. The assumption
used and weighted-average information are as follows for the three months ended
March 31, 2005:





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





If the
Company had elected to recognize compensation expense based on the fair value at
the grant dates, consistent with the method prescribed by SFAS No. 123, net loss
per basic and diluted share would have been changed to the pro forma amount
indicated below for each of the three month periods ended March 31:







2004
    
    2005Applicable
      to common stockholders:Net
      loss, as reported
    
    $
    (5,124,221
    )
    $
    (4,849,683
    )Add
      stock based compensation expenseincluded
      in reported net loss
    
    
    633,651
    
    
    233,955Less
      total stock-based employeecompensation
      expense determined underthe
      fair-value based method for all awards
    
    
    (660,422
    )
    
    (485,120
    )Pro
      forma net loss
    
    $
    (5,150,992
    )
    $
    (5,100,848
    )Net
      loss per common share (basic and diluted):Reported
    
    $
    (
      4.77
    )
    $
    (1.06
    )Pro
      forma
    
    $
    (
      4.80
    )
    $
    (1.11
    )




12
 **IMCOR
Pharmaceutical Co. and Subsidiary**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 **(Unaudited)**







**6.
Property and Equipment**







Property
and equipment consist of the following at:







December
      31,
    
    March
      31,2004
    
    2005Leasehold
      improvements
    
    $
    5,287,738
    
    $
    5,287,738Furniture,
      fixtures and equipment
    
    
    1,824,819
    
    
    1,827,859Total
    
    
    7,112,557
    
    
    7,115,597Accumulated
      depreciation and amortization
    
    
    (2,685,514
    )
    
    (3,130,921
    )Property
      and equipment, net
    
    $
    4,427,043
    
    $
    3,984,676





**7.
Intangible Assets and Deferred Expenses:**





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





December
      31
    
    March
      31,2004
    
    2005Purchased
      technology:Cost
    
    $
    15,638,146
    
    $
    15,638,146Accumulated
      amortization
    
    
    (1,961,396
    )
    
    (2,287,190
    )$
    13,676,750
    
    $
    13,350,956Patents:Cost
    
    $
    500,000
    
    $
    500,000Less
      allowance for valuation impairment
    
    
    (274,479
    )
    
    (274,479
    )Accumulated
      amortization
    
    
    (225,521
    )
    
    (225,521
    )$
    --
    
    $
    --Technology
      license:Cost
    
    $
    735,916
    
    $
    735,916Accumulated
      amortization
    
    
    (39,508
    )
    
    (57,199
    )$
    696,408
    
    $
    678,717Prepaid
      royalty:Cost
    
    $
    500,000
    
    $
    500,000Accumulated
      amortization
    
    
    (41,667
    )
    
    (52,084
    )$
    458,333
    
    $
    447,916





**8.
Accrued Expenses and Assumed Acquisition Obligations:**









December
      31,
    
    March
      31,2004
    
    2005Assumed
      acquisition obligations- Alliance
    
    $
    1,179,051
    
    $
    1,136,295Accrued
      payroll, deferred bonuses and related expenses
    
    
    723,707
    
    
    600,203Other
      accrued expenses
    
    
    288,543
    
    
    182,749$
    2,191,301
    
    $
    1,919,247






13
 **IMCOR
Pharmaceutical Co. and Subsidiary**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 **(Unaudited)**







9. Litigation:**




On
June 18, 2003, the Company filed a complaint against Amersham Health, Inc.
and two other Amersham affiliates alleging that certain Amersham products
infringe on claims in the patents covering *Imagent* . The
complaint alleged that principally through the Optison® product, Amersham Health
Inc. and related Amersham entities infringe on eight patents owned by the
Company. The Company is also seeking a declaration that the claims of fifteen
Amersham patents are invalid and are not
infringed by the
Company’s *Imagent* product.
The Company has further alleged misappropriation of trade secrets as well as
other state law claims against Amersham. The Company is seeking damages, an
injunction against Amersham, a declaratory judgment and other
relief.







Amersham
denied the material allegations of the Company’s claims and asserted certain
affirmative defenses and counterclaims. Amersham’s counterclaims include claims
of patent infringement of the fifteen Amersham patents, breach of contract,
breach of good faith and fair dealing, and tortious interference with contract.
Both parties have amended their complaints to include allegations of antitrust
violations by the other party.





The case
was dismissed on May 5, 2005 without prejudice while the parties engage in
settlement discussions. If the settlement negotiations are not successful, each
party will have the right to reassert its respective claims against the other.
Therefore, it is not
presently feasible to determine whether there is a reasonable possibility that
the assets have been impaired for purposes of Statement of Financial Accounting
Standards No. 5, or the extent of damages or gain, if any, that might result
depending on whether or not the Company prevails. If the Company refiles its
claims against Amersham, the Company will continue to incur litigation costs as
it prosecutes claims in the litigation.





On May
11, 2005, the Company was served with an unlawful detainer lawsuit 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. Lessor holds a $297,000 security deposit related to this lease. The
lessor asserts in this lawsuit it is entitled to terminate the lease, demand all
outstanding 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 11,
as part of a restructuring plan adopted in April and May 2005, the Company has
decided to vacate the premises. The Company is currently negotiating with the
lessor to allow for an orderly transition from the premises.







**10.
Shareholders’ Equity** **:**







The
following is a summary of stock transactions during the three months ended March
31, 2005:





The
Company issued 105,610 shares of common stock valued at $269,865 to consultants
and attorneys which had been classified as Shares-To-Be-Issued as of December
31, 2004. In conjunction with the issuance of these shares, the Company recorded
$10,500 of compensation for a consultant.





One of
the Company’s law firms agreed to accept shares of the Company’s common stock
for a portion of their services rendered during the period. As of March 31,
2005, approximately 33,000 shares are issuable related to $95,135 of services,
which were expensed.





The
Company issued 392,681 shares of common stock valued at $1,193,775 to
shareholders for penalties and fees due to shareholders for late registration of
their shares. As of December 31, 2004, 317,262 shares valued at $850,887 for
these penalties and fees were recorded and classified as
Shares-To-Be-Issued.





The
Company recorded $640,437 of additional penalties and late fees due to
shareholders for late registration of their shares, representing approximately
410,000 shares of common stock, which are classified at Shares-To-Be-Issued at
March 31, 2005.





On
February 10, 2005, in final settlement of further and all claims from a former
employee, the Company modified existing options for 1,875 shares to make them
effectively exercisable into 21,125 net shares at an exercise price equal to
zero. The $42,250 of expense related to this modification was accrued in 2004
and reflected in the balance sheet as accrued expense at December 31,
2004.





14
 
 **IMCOR
Pharmaceutical Co. and Subsidiary**
 **(A
Development Stage Company)**
 **Notes
to Consolidated Financial Statements (Continued)**
 **(Unaudited)**


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.
Subsequent Events:**





In April
2005 the Company adopted a restructuring plan which initially included a lay-off
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 estimates that it will incur approximately $35,000 to
$70,000 of one-time termination costs associated with this cost reduction plan
(primarily severance pay) that will be paid in the second quarter of 2005. The
Company also temporarily suspended its manufacturing operations.





In May
2005 the Company modified its restructuring plan to include the disposition of
its excess furniture, fixtures and equipment and to vacate its premises. The
Company plans to vacate the premises as early as possible, but no later than
August 31, 2005. The
Company is actively seeking other third parties to lease the premises in
order to minimize its ongoing lease obligations. The future minimum rents
due on the lease as of March 31, 2005 are $2,490,000, of which $297,330 has
already been paid to the lessor as a security deposit.





As a
result of the adoption of this plan to vacate the premises, the Company
estimates it will record a valuation impairment allowance of approximately
$3,190,000 in the quarter ending June 30, 2005, which represents the carrying
value of leasehold improvements as of March 31, 2005.











15


**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" or "our"
are to IMCOR Pharmaceutical Co. and, where appropriate, our subsidiary,
Sentigen, Ltd. ("Sentigen"). References to the " *Imagent* Business"
are to the medical imaging business of Alliance Pharmaceutical Corp.
("Alliance") the Company acquired on June 18, 2003. *Imagent* ®
(perflexane lipid microspheres) is a registered trademark owned by
IMCOR.





**LIQUIDITY
AND CAPITAL RESOURCES**





The
independent auditors' report dated March 19, 2005 included in our December 31,
2004 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 1 to the financial
statements, the Company has reported accumulated losses since inception of
$73,191,333, which raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





The
accompanying financial statements have been prepared assuming we are a going
concern. Without obtaining additional debt or equity financing or funds from
other sources we will not be able to continue to fund operations beyond May 31,
2005 without significantly curtailing operations or disposing of assets. The
accompanying financial statements do not include any adjustment to reflect the
possible future effects on the recoverability and classification of assets or
the amount and classification of liabilities that may result from this
uncertainty.





At
March 31, 2005, we had cash and cash equivalents totaling $1,282,791, which
is a $3,438,665 decrease from the $4,721,456 balance at December 31, 2004. This
decrease was primarily the result of the cash used in continuing
operations.





On April
18, 2005 the Company’s board of directors implemented a cost reduction plan
which initially involved the lay-off of a majority of the full-time employees
and part-time employees or consultants who performed 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 estimates that it will
incur approximately $35,000 to $70,000 of one-time termination costs associated
with this cost reduction plan (primarily severance pay) that will be paid in the
second quarter of 2005. In May 2005 we modified our restructuring plan to
include disposing of excess furniture, fixtures and equipment and to vacate our
leased premises. We plan to vacate the premises as early as possible, but no
later than August 31, 2005. We are actively
seeking other third parties to lease the premises so we can minimize our ongoing
lease obligations. The future minimum rents due on the lease as of March 31,
2005 are $2,490,000, of which $297,000 has already been paid to the lessor as a
security deposit. As a result of the adoption of this plan to vacate the
premises, we estimate we will record a valuation impairment allowance of
approximately $3,190,000 in the quarter ending June 30, 2005, which represents
the carrying value of leasehold improvements as of March 31, 2005.





In April
2005, we suspended our manufacturing operations. We currently have sufficient
stock of *Imagent* available to meet our sales and clinical trial needs for the foreseeable future.
However, as a result of the plan to vacate the premises, we are uncertain if we
will be able to obtain sufficient funds to restart manufacturing operations in
the future.





On May
11, 2005, we were served with an unlawful detainer lawsuit by EOP-Industrial
Portfolio, LLC (“EOP”), the lessor of the Company’s premises, for the Company’s
failure 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
holds a $297,000 security deposit related to this lease. EOP asserts in this
lawsuit it is entitled to terminate the lease, demand all outstanding 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. The Company is currently negotiating with
EOP to allow for an orderly transition from the premises.





16


We are
still considering our alternatives with respect to efforts to raise additional
funds for operating and development plans and we may make further adjustments to
such plans, as necessary. Among the alternatives that we may consider is a
further reduction in employees and consultants, the sale or license of some or
all of our assets, a merger or other material transaction.





**RESULTS
OF OPERATIONS**


**Three
Months Ended March 31, 2004 and 2005**





As a
result of the restructuring plans adopted in April and May of 2005, the results
of the first quarter of 2005 are not likely to be indicative of the remaining
quarters of the fiscal year.





**Revenue
and License Fees**


We have
not generated significant product revenues during 2004 or 2005 due to capital
constraints limiting our sales and marketing capability. Any sales of products
are therefore included in our financial statements under “investment and other
income.”





License
revenue relates to the amortization of the deferred license revenue received in
2004 and 2005. The increase in license revenue relates to the amortization of
the license revenue deferred in April 2004 ($2,000,000) and October 2004
($4,000,000).





**Research
and Development**


Essentially
all of our research expenses since the third quarter of 2004 have been directed
toward infrastructure and expenses associated with regulatory compliance and
continued development of *Imagent* for new
indications and the maintenance of our manufacturing capability.





The
following is a summary of our major research and development cost categories
(all amounts approximate):





2004
    
    2005
    
    ChangePersonnel
    
    $
    611,000
    
    $
    519,000
    
    $
    (92,000
    )Contract
      consultants
    
    
    135,000
    
    
    189,000
    
    
    54,000Patent
      costs
    
    
    32,000
    
    
    69,000
    
    
    37,000Production
      facilities costs
    
    
    86,000
    
    
    21,000
    
    
    (65,000
    )Supplies
    
    
    85,000
    
    
    11,000
    
    
    (74,000
    )Other
    
    
    12,000
    
    
    49,000
    
    
    37,000Total
    
    $
    961,000
    
    $
    858,000
    
    $
    (103,000
    )





Personnel,
production facilities costs and supplies all decreased primarily due to the
Company efforts to cut expenses. Contract consultant costs increased related to
the Company’s efforts to commence its Phase II clinical trials for a new
indication for *Imagent* .





**Selling,
General and Administrative Expense**


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





2004
    
    2005
    
    ChangePersonnel
    
    $
    371,000
    
    $
    257,000
    
    $
    (114,000
    )Contract
      consultants
    
    
    471,000
    
    
    271,000
    
    
    (200,000
    )Stock
      options
    
    
    634,000
    
    
    234,000
    
    
    (400,000
    )Legal
      and accounting
    
    
    254,000
    
    
    879,000
    
    
    625,000Fees
    
    
    494,000
    
    
    991,000
    
    
    497,000Facilities
      costs
    
    
    386,000
    
    
    420,000
    
    
    34,000Insurance
    
    
    162,000
    
    
    163,000
    
    
    1,000Depreciation
      and amortization
    
    
    454,000
    
    
    463,000
    
    
    9,000Amortization
      of purchase technology
    
    
    326,000
    
    
    326,000
    
    
    --Other
    
    
    137,000
    
    
    167,000
    
    
    30,000Total
    
    $
    3,689,000
    
    $
    4,171,000
    
    $
    482,000






17


Personnel
and contract consultant expenses decreased primarily due to the Company’s
efforts to cut expenses. The Company cancelled its contract with a third party
to market the *Imagent* product
in December 2004, which resulted in a $205,000 reduction in 2005.





Stock
option expense decreased primarily due to unvested options that were cancelled
in 2005.





Legal and
accounting expense increased primarily due to increased legal fees associated
with litigation and filings with the Securities Exchange Commission and an
increase in the audit fees for the Company’s 2004 Annual Report on Form 10-KSB
filed in March 2005.





Fees
increased due to late registration penalties that became effective starting in
January 2005 for shares for which the Company has filed a registration statement
that is not yet effective. The Company’s obligation for these penalties accrue
at approximately $160,000 per month, will cease once the registration statement
becomes effective, and are settled on a non-cash basis through the issuance of
additional shares of our common stock.





**Loss
from Joint Venture**


The
Sentigen joint venture was terminated June 10, 2004 and Sentigen became a wholly
owned subsidiary of the Company. The loss from joint venture in 2004 primarily
consisted of the Company’s share of the joint venture’s amortization of its
technology license costs.





**Investment
and Other Income**


Investment
and other income in 2005 decreased from 2004 primarily due to income recorded
related to the settlement of a lease obligation in 2004 for an amount less than
the original loss provision recorded in 2003.





**Interest
Expense**


Interest
expense in 2005 decreased by $245,065 due to the reduction of the Company’s
notes payable and other interest bearing obligations during the second through
fourth quarters of 2004.





**Plan
of Operation**





In April
and May 2005 we adopted a restructuring plan which includes laying off most of
the employees, suspending manufacturing operations, indefinitely postponing
clinical trials, vacating our leased premises and selling excess furniture,
fixtures and manufacturing equipment. We are actively seeking other third
parties to occupy our space, thereby reducing our ongoing lease obligation to
the landlord. Although it is most likely we will need to abandon all
improvements at our existing premises, there is a remote possibility that a new
tenant will allow us to continue to maintain our manufacturing facilities on
site. The manufacturing portion of our premises comprises approximately 10,000
square feet of the 53,000 square feet that we occupy.





During
the next several months we will focus our efforts primarily on exploring various
options concerning our business, including obtaining additional financing, joint
ventures, licensing or selling all or a portion of our technology and other
possible strategic transactions. Our ability to resume clinical development
of *Imagent* depends
on the successful implementation of one or more of these transactions because
our currently available capital is not sufficient to carry out our business plan
or fully develop and commercialize *Imagent* .





If we are
able to obtain sufficient funds, we intend to focus our operating efforts on the
clinical development of *Imagent* for the
detection of myocardial perfusion for the diagnosis of coronary artery disease
(“CAD”) during a normal resting echo procedure. Excluding amounts we may need to
satisfy our existing creditors and without manufacturing operations, we estimate
we would need approximately $6,000,000 to operate for the next twelve months,
which includes approximately $3,200,000 of costs associated with the Phase II
clinical trials. Although
we believe we have sufficient stock of *Imagent* product
for purposes of supporting our Phase II clinical testing as well as product
required by our licensee, we will likely not have sufficient *Imagent* product
to proceed into Phase III clinical trials. Therefore, if we were successful in
the Phase II clinical trials and we planned to proceed into Phase III clinical
trials, we would either have to establish another manufacturing facility or
contract with a third party to manufacture our product. We estimate that it
would cost between $3 million and $5 million to establish another manufacturing
facility and that the construction would take a period of 12-18 months.
Currently, there is no third party manufacturer set up to produce a product
similar to *Imagent* .





If we
raise additional funds by issuing equity securities, substantial dilution to
existing stockholders may result. However, there can be no assurance that such
capital will be available under acceptable terms, if at all. See “ *Risk
Factors - We must raise additional financing in the future and our inability to
do so will prevent us from continuing as a going concern and implementing our
business plan* ,”
below.


18


See
“ *Risk
Factors - We must obtain additional financing in the future and our
inability to do so will prevent us from continuing as a going concern and
implementing our business plan* .” If we are
not able to raise sufficient funds to proceed with clinical development of *Imagent* , we may
be forced to dispose of our remaining assets in an attempt to satisfy creditors.
To maximize the value of the our technology, even if we have to abandon the
clinical program, we will have to incur costs to maintain the patent portfolio,
maintain the FDA approval to sell *Imagent* , and
maintain the FDA approval to conduct clinical research on *Imagent* in a new
indication. If we are no longer able to support *Imagent* , we may
not be entitled to any more payments pursuant to a product license agreement. Our
financial statements, including those contained in this Form 10-QSB, do not
include any adjustment to reflect the possible future effects on the
recoverability and classification of assets or the amount and classification of
liabilities that may result from the outcome of this uncertainty.





**Contractual
Obligations:**





The
following table summarizes our approximate contractual obligations as of March
31, 2005 and the effect such obligations are expected to have on our liquidity
and cash flow for future periods:





Total
    
    
    
    2006
    
    2008
    
    2010Obligations
    
    Remainder
    
    Through
    
    Through
    
    ThroughAll
      Years
    
    2005
    
    2007
    
    2009
    
    2011Operating
      lease obligations
    
    $
    2,684,000
    
    $
    738,000
    
    $
    921,000
    
    $
    878,000
    
    $
    147,000Notes
      payable
    
    
    192,000
    
    
    192,000
    
    
    --
    
    
    --
    
    
    --Other
      liabilities- past due
    
    
    1,985,000
    
    
    1,985,000
    
    
    --
    
    
    --
    
    
    --Accounts
      payable- past due
    
    
    1,093,000
    
    
    1,093,000
    
    
    --
    
    
    --
    
    
    --Total
      contractual cash obligations
    
    $
    5,954,000
    
    $
    4,008,000
    
    $
    921,000
    
    $
    878,000
    
    $
    147,000





As of
March 31, 2005 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, including those
related to evaluation of impairment analysis of long-lived assets. We based our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. We believe our most
significant estimates relate to the impairment analysis we perform on long-lived
assets to assess when a change in circumstances indicates that the carrying
value may not be recoverable and we estimate the probable future cash flows
related to that asset. We base
our valuation assumptions on currently available information including estimates
of market size and penetration, pricing, competitive threats and general
operating expenses. These estimates may change and such changes may impact
future estimates of carrying value.





**Recent
Accounting Pronouncements**





In
December 2004, the FASB issued revised SFAS No. 123 (SFAS No. 123R), Share-Based
Payment. This standard 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. Currently, the Company discloses the pro forma net income and
related pro forma income per share information in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for
Stock-Based Compensation Costs--Transition and Disclosure. The Company is
evaluating the impact of this statement, which could have a material impact on
its results of operations.





19


In
December 2004, the FASB issued FAS 153, Exchanges of Non-monetary Assets. The
provisions of this Statement are effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The provisions of
this Statement should be applied prospectively, and eliminates the exception
from fair value measurement for non-monetary exchanges of similar productive
assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Non-monetary
Transactions, and replaces it with an exception for exchanges that do not have
commercial substance. The adoption of this accounting pronouncement is not
expected to have a material effect on the consolidated financial
statements.





In
November 2004, the FASB issued SFAS No. 151, Inventory Costs - an Amendment of
ARB No. 43, Chapter 4. The standard requires abnormal amounts of idle facility
and related expenses to be recognized as current period charges and also
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
No. 151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The Company does not believe adoption of this statement
will have a material impact on the Company's financial statements.







**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 the Company’s Annual Report on Form 10-KSB for the year ended December
31, 2004, the Company believes it has taken steps and implemented procedures to
address the reportable conditions and material weaknesses with the exception of
the primary material weakness related to the small size of our accounting staff
resulting in an inadequate segregation of duties. We do not plan to expand our
accounting staff or convert our full time financial consultant (Larry D. Grant)
into a full time chief financial officer unless the Company is successful in
obtaining adequate financing.





Our Chief
Executive Officer (who is our acting Principal Financial Officer while we are
without a replacement for our former Chief Financial Officer) has consulted with
Larry D. Grant and has 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) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of
March 31, 2005 and, based on that evaluation, concluded that our disclosure
controls and procedures overall were effective to ensure timely collection,
evaluation and disclosure of information relating to the Company that would
potentially be subject to disclosure under the Securities Exchange Act of 1934,
and the rules and regulations thereunder. To the extent corrections and
improvements in internal controls and disclosure controls and procedures cannot
be immediately implemented, management believes appropriate oversight and review
is currently in place to prevent material misstatements in our interim financial
reporting.





20





**PART
II. OTHER INFORMATION**




**ITEM
1.**  **LEGAL
PROCEEDINGS**




In 2003,
we filed a complaint against Amersham and two other Amersham affiliates alleging
that certain Amersham products infringe on claims in its patents covering *Imagent* . The
case is captioned as IMCOR Pharmaceutical Co *. and
Alliance Pharmaceutical Corp. v. Amersham Health Inc. et. al.* , Civil
Action No. 03CV2853 (SRC), in the United States District Court for the District
of New Jersey. Our complaint alleges that principally through their Optison®
product, Amersham and related Amersham entities infringe on eight patents owned
by us. We are also seeking a declaration that the claims of fifteen Amersham
patents are invalid and are not infringed by our *Imagent* product.
We have further alleged misappropriation of trade secrets as well as other state
law claims against Amersham. Amersham denied the material allegations of our
claims and asserted certain affirmative defenses and counterclaims. Amersham's
counterclaims against us include claims of patent infringement of the fifteen
Amersham patents, breach of contract, breach of good faith and fair dealing, and
tortious interference with contract. Both parties amended their complaints to
include allegations of antitrust violations by the other party.





The case
was dismissed on May 5, 2005 without prejudice while the parties engage in
settlement discussions. If the settlement discussions are not
successful each party will have the right to reasert its respective claims
against the other. Therefore,  it is not presently feasible to determine
whether there is a reasonable possibility that the assets have been impaired for
purposes of Statement of Financial Accounting Standards No. 5, or the extent of
damages or gain, if any, that might result depending on whether or not we
prevail. In any event, we may continue to incur litigation costs if the
settlement discussions are not successful and either party reasserts its
respective claim against the other.





See *“Risk
Factors—We filed a suit against Amersham for patent infringement, which, if
resolved unfavorably, could impede our ability to utilize our patents for
Imagent* ,”
below.




On May
11, 2005, the Company was served with an unlawful detainer lawsuit that was
filed in Superior Court of California, San Diego County by EOP-Industrial
Portfolio, LLC (“EOP”), the lessor of the Company’s premises, for the Company’s
failure 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
holds a $297,000 security deposit related to this lease. EOP asserts in this
lawsuit it is entitled to terminate the lease, demand all outstanding 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. The Company is currently negotiating with
the lessor to allow for an orderly transition from the premises.





**ITEM
2.**  **UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**




During
the quarter ending March 31, 2005, we issued 498,291 shares of our common stock
as compensation for past services and to satisfy late registration penalties,
without registration under the Securities Act. These securities were offered and
sold by us in reliance upon exemptions from the registration requirements
provided by Section 4(2) of the Securities Act and Regulation D under
the Securities Act relating to sales not involving any public offering, and/or
Rule 701 under the Securities Act relating to transactions occurring under
compensatory benefit plans. We relied on representations and warranties from the
purchaser of the securities that they were acquiring the securities for their
own account and not with a view to, or for sale in connection with, any
distribution of the securities in violation of the Securities Act. The following
is a summary of the shares issued:




Date
    
    Shares
    
    Description1/11/2005
    
    
    328,053
    
    
    Late
      registration penalties1/20/2005
    
    
    101,378
    
    
    Legal
      services performed2/8/2005
    
    
    4,232
    
    
    Consulting
      services performed2/8/2005
    
    
    64,628
    
    
    Late
      registration penalties





On April
11, 2005, 454,149 shares of our common stock were issued to satisfy additional
late registration penalty obligations.





All of
the shares issued in January through April 2005 are subject to pending
registration statements.





21


**ITEM
3.**  **DEFAULTS
UPON SENIOR SECURITIES**




NONE




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





We held
our annual meeting of shareholders on January 20, 2005. The matters voted on the
meeting were as follows:


1.
Ratification of the $10,150,000 financing completed in June 2004


2. Amend
the 2000 Long Term Incentive Compensation Plan to increase the number of shares
of common stock reserved for issuance to 1,500,000 shares (post-split), provide
for the cashless exercise of options, and provide that the acceleration of
vesting of options in the event of a change of control is discretionary and not
mandatory.


3.
Increase shares of common stock authorized from 150,000,000 to 200,000,000
shares (post reverse stock split)


4.
Authorize Board of Directors to effect one or more reverse stock
splits


5.
Election of Directors





The
following is a summary of the results of the shares voted for each matter
(adjusted for effect of one-for-twenty reverse stock split):





Matter
      Voted Upon
    
    For
    
    Against
    
    Abstain1.
      Ratification of 2004 financing
    
    
    752,744
    
    
    806
    
    
    1042.
      Modification of incentive compensation plan
    
    
    2,667,601
    
    
    186,521
    
    
    1103.
      Increase shares authorized
    
    
    3,025,847
    
    
    1,358
    
    
    924.
      Authority for stock splits
    
    
    2,963,387
    
    
    1,378
    
    
    62,5335.
      Election of Directors:Brian
      M. Gallagher
    
    
    3,023,910
    
    
    --
    
    
    3,387Taffy
      J. Williams
    
    
    3,014,953
    
    
    --
    
    
    12,314Robert
      A. Ashley
    
    
    3,023,916
    
    
    --
    
    
    3,381Richard
      T. Dean
    
    
    3,023,916
    
    
    --
    
    
    3,381Darlene
      M. Deptula-Hicks
    
    
    3,023,909
    
    
    --
    
    
    3,388Jonathan
      J. Fleming
    
    
    3,014,789
    
    
    --
    
    
    12,508Alan
      D. Watson
    
    
    3,014,790
    
    
    --
    
    
    12,507





**ITEM
5.**  **OTHER
INFORMATION**





**RISK
FACTORS**


**RISKS
RELATED TO OUR FINANCING AND OPERATIONS**





**We
must raise additional financing and our inability to do so will prevent us from
continuing as a going concern and implementing our business
plan.**





Our cash
and cash equivalents at March 31, 2005 was $1,282,791. At March 31, 2005,
we had current liabilities of approximately $5,446,665, which includes the
current portion of deferred licensing revenue of $696,307.





In April
and May 2005 we adopted a restructuring plan which includes laying off most of
the employees, suspending manufacturing operations, indefinitely postponing
clinical trials, vacating our leased premises and selling excess furniture,
fixtures and manufacturing equipment. We are actively seeking other third
parties to occupy our space, thereby reducing our ongoing lease obligation to
the landlord.





During
the next several months we will focus our efforts primarily on exploring various
options concerning our business, including obtaining additional financing, joint
ventures, licensing or selling all or a portion of our technology and other
possible strategic transactions. Our ability to resume clinical development
of *Imagent* depends
on the successful implementation of one or more of these transactions because
our currently available capital is not sufficient to carry out our business plan
or fully develop and commercialize *Imagent* . Without
obtaining additional debt or equity financing or funds from other sources, we
will not be able to continue to fund operations beyond May 31, 2005 without
significantly curtailing operations or disposing of assets.


If we are
able to obtain sufficient funds, we intend to focus our operating efforts on the
clinical development of *Imagent* for the
detection of myocardial perfusion for the diagnosis of coronary artery disease
(“CAD”) during a normal resting echo procedure. Excluding amounts we may need to
satisfy our existing creditors and without manufacturing operations, we estimate
we would need approximately $6,000,000 to operate for the next twelve months,
which includes approximately $3,200,000 of costs associated with the Phase II
clinical trials. Although
we believe we have sufficient stock of *Imagent* product
for purposes of supporting our Phase II clinical testing as well as product
required by our licensee, we will most likely not have sufficient *Imagent* product
to proceed into Phase III clinical trials. Therefore, if we were successful in
the Phase II clinical trials and we planned to proceed into Phase III clinical
trials, we would either have to establish another manufacturing facility or
contract with a third party to manufacture our product. We estimate that it
would cost between $3 million and $5 million to establish another manufacturing
facility and that the construction would take a period of 12-18 months.
Currently, there is no third party manufacturer set up to produce a product
similar to *Imagent* .





22


If we are
not able to raise sufficient funds to proceed with clinical development of *Imagent* , we may
be forced to dispose of all of our remaining assets in an orderly fashion in an
attempt to satisfy creditors. To maximize the value of the our technology, even
if we have to abandon the clinical program, we will have to incur costs to
maintain the patent portfolio, maintain the FDA approval to sell *Imagent* , and
maintain the FDA approval to conduct clinical research on *Imagent* in a new
indication. Our
financial statements, including those contained in this Form 10-QSB, do not
include any adjustment to reflect the possible future effects on the
recoverability and classification of assets or the amount and classification of
liabilities that may result from the outcome of this uncertainty.





**We
have a history of losses, and we may not 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, 2005, we
have incurred cumulative net losses (before dividends on preferred stock) of
approximately $78,041,016. We expect our losses to increase in the future as our
financial resources are used for litigation, manufacturing, marketing, research
and development, preclinical and clinical development, regulatory activities,
and other related expenses. We may not be able to achieve or maintain
profitability in the future.





We intend
to retain future earnings, if any, for use in the operation and expansion of our
business. We do not anticipate paying any dividends on our common stock in the
foreseeable future.





**We
do not have any material revenue collections from product
sales.**





Our
company and our technologies, other than *Imagent* , are in
early stages of development. We began our business as a pharmaceutical company
in 1997. To date, we have not generated material product revenues from sales
activities. Our earned revenues have come from the amortization of previously
received product and technology license fees. If we obtain adequate funding, we
expect to generate revenue from future sales of *Imagent* , but
there can be no assurance that we will be able to generate enough revenue from
such sales to be profitable for at least several years, if at all. Our future
profitability will be affected by royalty and similar obligations we may have to
third parties with respect to *Imagent* (Schering AG and Alliance) and N1177 and/or PH-50 (Massachusetts General
Hospital, Élan and Gerald Wolf).





**Our
inability to expand the label indication of** ***Imagent*** **for the detection of coronary artery disease may impede our ability to raise
capital.**





We are
seeking to expand the label indication of *Imagent* for
myocardial perfusion imaging for the detection of coronary artery disease (CAD)
using a novel technique called Phasic Changes. We believe that development
of *Imagent* for the
detection of CAD and, in particular, using the Phasic Changes technique will be
important to our ability to attract capital and achieve future profitability.
However, due to insufficient funds, we temporarily suspended clinical trials in
May 2005. We have also deferred further clinical development of PH-50 and N1177
and are seeking partners to develop those technologies.





Even if
we currently had sufficient funding to continue clinical trials, there are a
number of potential obstacles to these goals:





We may
not have sufficient capital to complete the clinical trials and other tasks
necessary to obtain regulatory approval,





The
results of studies on *Imagent* for the
Phasic Changes technique are preliminary. Future clinical studies
for *Imagent* may not
provide sufficient data to show efficacy and safety for FDA
approval,





We may
not be able to enter into a license or development agreement for N1177 or
PH-50,





We may
not attract capital or achieve profitability even if we successfully
introduce *Imagent* for the
additional indication or if we license or enter into a development agreement for
PH-50 or N1177, and





23


As a
result of changing economic considerations, market, clinical or regulatory
conditions, or clinical trial results, we may shift our focus or determine not
to continue one or more of the product development projects we are currently
pursuing.





**Many
of our competitors have greater resources and have products that are in more
advanced stages of development than we do, which may give them a competitive
advantage over us.**





The
markets for imaging products are extremely competitive. In addition
to *Imagent,* there
are currently two FDA approved ultrasound contrast agents being marketed in the
U.S. by Amersham Health, Inc. and Bristol-Myers Squibb for the same
indication for sub-optimal ultrasound images as *Imagent* . In
addition, Bracco International has filed a New Drug Application with the FDA
seeking approval to market its product in the U.S. Two other companies (POINT
Biomedical Corp. and Acusphere, Inc.) are in advanced clinical development for
the use of ultrasound contrast agents for myocardial perfusion. We are
distributing *Imagent* on a
limited basis and we cannot predict whether it will compete successfully with
these other products. Existing or future pharmaceutical and device companies,
government entities and universities may create developments that accomplish
similar functions to our technologies in ways that are less expensive, receive
faster regulatory approval or receive greater market acceptance than our
potential products.





**We
filed a suit against Amersham for patent infringement and theft of trade
secrets, and Amersham has counterclaimed for patent infringement. This case, if
resolved unfavorably, could impede our ability to market** ***Imagent*** **.**





We filed
a complaint against Amersham Health, Inc. and two other Amersham affiliates
alleging that certain Amersham products infringe on claims in our patents. 
We have also alleged theft of trade secrets and also seek a declaration that our
products do not infringe on Amersham's patents.  Alliance joined as a
plaintiff in this suit.  Amersham filed an answer denying the material
allegations of our claims and asserting certain counterclaims.  Both
parties amended their complaints to include certain antitrust claims. The case
was dismissed on May 5, 2005 without prejudice while the parties engage in
settlement discussions. If the
settlement discussions are not successful, Amersham reasserts its counterclaims
and they are resolved unfavorably to us, it may be difficult or impossible to
implement our commercialization strategy for *Imagent* .





Intellectual
property disputes are often settled through licensing arrangements that could be
costly to us.  In any intellectual property litigation, it is possible that
those licenses necessary to settle the dispute would not be available on
commercially reasonable terms or that we would not be able to redesign out
technologies to avoid any claimed infringement thus resulting in our inability
to sell the product.





**If
we do not obtain and maintain patent or other protection
for** ***Imagent*** **,
PH-50 and N1177, we may have difficulty commercializing products using these
technologies.**





Our
success depends in part on our ability to obtain, assert and defend our patents,
protect trade secrets and operate without infringing the intellectual property
of others. Among the important risks in this area are:





Our
patent applications may not result in issued patents. Moreover, any issued
patents may not provide us with adequate protection of our intellectual property
or competitive advantages, and the law on the scope of patent coverage is
continually changing. We filed patent applications on the intellectual property
associated with the use of *Imagent* for
Phasic Changes, but these applications may not result in patents,





Various
countries limit the subject matter that can be patented and limit the ability of
a patent owner to enforce patents in the medical field. This may limit our
ability to obtain or utilize those patents internationally,





Existing
or future patents or patent applications (and the products or methods they
cover) of our competitors (or others, such as research institutions or
universities) may interfere, invalidate, conflict with or infringe our patents
or patent applications. Similarly, the use of the methods or technologies
contained in our patents, patent applications and other intellectual property
may conflict with or infringe the rights of others, and





If an
advance is made that qualifies as a joint invention, the joint inventor or his
or her employer may have rights in the invention.





We will
be able to protect our proprietary rights from unauthorized use by third parties
only to the extent that these rights are covered by valid and enforceable
patents or effectively maintained as trade secrets. The patent position of
pharmaceutical companies involves complex legal and factual questions and
therefore we cannot assure the enforceability of these patents. A third party
might successfully challenge the validity or enforceability of our patents or if
issued, patents that would result from its patent applications. The patents
might not provide protection against competitive products or otherwise be
commercially valuable, and applications filed by others might result in patents
that would be infringed by the manufacture, use or sale of our products.
Intellectual property disputes relating to *Imagent* could be
costly to resolve and could affect our ability to commercialize products with
those technologies.





24


Litigation
over patents and other intellectual property rights occurs frequently in our
industry and there is a risk that we may not prevail in disputes over the
ownership of intellectual property. Further, an interference proceeding with the
Patent and Trademark Office may be instituted over the rights to certain
inventions, and there is a risk that we may not prevail in such an interference
proceeding. Those disputes can be expensive and time consuming, even if we
prevail. Intellectual property disputes are often settled through licensing
arrangements that could be costly to us. In any intellectual property
litigation, it is possible that licenses necessary to settle the dispute would
not be available on commercially reasonable terms or that the company would not
be able to redesign its technologies to avoid any claimed infringement thus
resulting in its inability to sell the product.





Confidentiality
agreements covering our intellectual property may be violated, and we may not
have adequate remedies for any violation. Our trade secret intellectual property
may in other ways become known or be independently discovered by competitors. In
addition, where intellectual property results from a research project supported
by government funding, the government has limited rights to use the intellectual
property without paying us a royalty. However, we cannot assure that these
agreements will afford significant protection against or adequate compensation
for misappropriation or unauthorized disclosure of inventions or our trade
secrets.





To the
extent we use intellectual property through licenses or sub-licenses, as is the
case for some of its lymphography technology, our rights are subject to us
performing the terms of the license or sub-license agreement with third parties.
Our rights are also subject to the actions of third parties we may not be able
to control, such as its sub-licensor complying with the terms of its license
with the patent owner and the patent owner maintaining the patent.





**Our
proposed products are subject to extensive testing and government approval and
post-market requirements, and we may not obtain or maintain the approvals
necessary to sell our proposed products.**





Other
than *Imagent* for its
current indication, none of our proposed imaging products has received the FDA's
approval for commercial sales. An extensive series of clinical trials, data
collection and verification, and other regulatory requirements, must be
completed before our proposed products can be approved and sold in the U.S. or
other countries. Requirements for FDA approval of a product include preclinical
safety testing in animals and clinical testing for effective use and safety in
humans, which can be extremely costly. The time frame necessary to perform these
tasks for any individual product is long and uncertain, and we may encounter
problems or delays that we cannot predict at this time. Our lack of adequate
capital will contribute to delays in this process. We must also obtain
regulatory approvals comparable to those required in the U.S. to market our
products in other countries. Even if testing is successful, our proposed
products may not demonstrate sufficient effectiveness or safety to warrant
approval by the FDA or other regulatory authorities.





Development
of our nanoparticulate formulations has been limited primarily to laboratory
experiments and animal testing. Only the injectable nanoparticulate formulation
of N1177 for lymphography has completed Phase I human clinical trials. We have
not yet conducted substantive studies of our compounds in development to
evaluate their effectiveness on human patients. Results from early clinical
trials may not predict results that we will obtain in large-scale clinical
trials, as even after promising results in early trials, a number of companies
have suffered significant setbacks in advanced clinical trials.





We may
not conduct additional Phase II or Phase III clinical trials for our products
and such trials, if begun, may not demonstrate any efficacy or may not be
completed successfully in a timely manner, if at all. The rate of completion of
our clinical trials depends upon, among other things, the rate of patient
enrollment. Patient enrollment is a function of many factors, including the size
of the patient population for a particular indication, the nature of the
clinical protocol under which our products will be studied, the proximity of the
patient to a clinical site and the eligibility criteria for the study. Delays in
planned patient enrollment may result in increased costs, regulatory filing
delays, or both. Furthermore, we, the FDA or other regulatory authorities may
alter, suspend or terminate clinical trials at any time. If we do not
successfully complete clinical trials and obtain regulatory approval for a
product or an indication, we will not be able to market that product or
indication.





Once
issued, the FDA may withdraw a product approval if we do not comply with the
regulatory requirements and standards, or if problems occur after the product
reaches the market. If the FDA grants approval of a product, the approval may
impose limitations, including limits on the indicated uses for which we may
market a product. In addition, the FDA may require additional testing and
surveillance programs to monitor the safety and/or effectiveness of approved
products that have been commercialized, and the agency has the power to prevent
or limit further marketing of a product based on the results of these
post-marketing programs. Further, later discovery of previously unknown problems
with a product may result in restrictions on the product, including its
withdrawal from the market.





25


Our FDA
approved product, *Imagent* , is
subject to post-market approval requirements by regulatory authorities. These
requirements include a safety surveillance study, a clinical study in a
pediatric patient population, an animal study to determine the safety of use of *Imagent* in a
special population, and a non-clinical study to determine the persistence of the
microbubble. We have successfully completed one animal study in an obstructed
lung model, which represents use in patients with chronic lung disease as a part
of this post-marketing commitment. We cannot predict the success of the other
post-marketing studies. If we do not have the funds to conduct these studies, we
may lose our FDA approval.





We and
certain of our suppliers are subject to inspection and marketing surveillance by
the FDA to determine compliance with regulatory requirements with respect to any
approved products or raw materials. If the FDA determines that we or a supplier
have failed to comply, it can institute a wide variety of enforcement actions,
ranging from a public warning letter to more severe sanctions such as: recall or
seizure of products; fines, injunctions, civil penalties; operating
restrictions, partial suspension or total shutdown of production; and criminal
prosecution. Any enforcement action by the FDA may also affect our ability to
commercially distribute our products in the U.S.





**Some
of the key raw materials for our products are with single source suppliers, and
an interruption in availability of those materials would impair our ability to
market or test those products.**





We
assumed the rights and obligations of Alliance under the terms of the long-term
supply agreement for the principal raw material for *Imagent.* Raw
materials used in *Imagent* cannot
be changed without equivalency testing of any new material by us and approval of
the FDA. Some raw materials for *Imagent* are
currently qualified from only one source and, although we have some inventory,
we will attempt to acquire additional inventory of these materials and to
negotiate long-term supply arrangements. The raw material for N1177 and PH-50
are from a single source supplier and no contract currently exists for these
supplies. There can be no assurance that we will be successful in negotiating
alternative long term or other supply agreements.





To make
any significant change in the manufacturing process or change in suppliers, we
must conduct certain validation studies, which may require review and/or
approval by the FDA. Considerable delays in our research and development
programs for our products could result from having to change to a different
supplier. There can be no assurance that our current supplier will continue to
supply us with the raw materials that we need in a timely manner on conditions
that are acceptable to us.





**We
may encounter difficulties restarting our manufacturing
operations.**





We lease
a single facility located in San Diego, California, a portion of which houses
our manufacturing operations. Since we have suspended manufacturing operations
and adopted a plan to vacate these premises as early as possible, but no later
than August 31, 2005, we will be required to commit a significant amount of time
and expense to move to a new facility that meets FDA requirements, assuming we
continue to maintain internal manufacturing capabilities. We cannot assure that
the FDA would approve the new facility on a timely basis or deem any new
facility to which we relocate to be compliant with FDA manufacturing standards.
In the event that we relocate to a new manufacturing facility, a change to the
chemistry, manufacturing, and controls section of our NDA would be required to
be submitted to the FDA for approval. Timing of this event, should it occur,
could affect the timeliness of the clinical trials and the sNDA
submission.





If we
restart a new manufacturing facility, we will face risks inherent in operating a
single facility for the manufacture of *Imagent.* Most
likely we will not have alternative production plans in place or alternative
facilities available should the San Diego manufacturing facility cease to
function. These risks include unforeseen plant shutdowns due to personnel,
equipment or other factors, delays and expense in restarting production in the
San Diego facility or finding alternatives, and the resulting inability to
produce product. We may attempt to secure long-term manufacturing arrangements
for our products but there can be no assurance that we will be successful in
negotiating long term supply agreements.





26
 
 ****
 **We
have to rely on third parties and collaborative relationships for distribution,
pre-clinical and clinical testing of** ***Imagent*** **and our proposed products, and it may be difficult to implement our business
plans without these collaborations.**


We have
had and expect to continue in the future to have a variety of research
agreements with universities and other research institutions to investigate
specific protocols for the preclinical development and testing of its products
or research activities related to other new potential products. We also contract
and expect to continue to contract with research organizations and other third
parties to manage clinical trials of our products. We must obtain and maintain
collaborative relationships with third parties for research and development,
preclinical and clinical testing, marketing and distribution of our proposed
products. Collaborative relationships may limit or restrict our operations or
may not result in an adequate supply of necessary resources. A collaborative
partner could also pursue alternative technologies as a means of developing or
marketing products for the diseases targeted by our collaborative program. If a
third party we are collaborating with fails to perform under its agreement or
fails to meet regulatory standards, this could delay or prematurely terminate
preclinical or clinical testing of our proposed products. Now that we have
indefinitely postponed clinical trials, we may not be able to renew our
contracts with these research organizations and other third
parties.





**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 Item 3 - “Controls and Procedures.”





Beginning
in May 2004 we began to implement steps to address our internal controls and
procedures. We have completed certain remediation steps; however, if we cannot
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,
increased general and administrative expenses and a diversion of management time
and attention from revenue-generating activities to 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.





**Our
operating results may fluctuate widely between reporting
periods.**





Our
operating results may vary significantly from quarter to quarter or year to
year, depending on factors such as timing of pharmaceutical development and
commercial adoption of products by our customers, the timing of increased
research and development and sales and marketing expenditures, the timing and
size of contracts and whether we introduce to the market new products or
processes. Consequently, revenues, profits or losses may vary significantly from
quarter-to-quarter or year-to-year, and revenue or profits in any period will
not necessarily be indicative of results in subsequent periods. These
period-to-period fluctuations in financial results may have a significant impact
on the market price of our securities.





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





Our
growth and success will depend upon market acceptance by physicians,
laboratories and health insurance providers of our products. This requires
acceptance of our products as clinically useful and cost-effective alternatives
to other medical imaging products and methods. In addition, physicians may
utilize imaging techniques other than those for which our products are being
developed (such as magnetic resonance imaging (MRI) and radionuclear imaging).
Our success will also depend, in part, on the extent to which health insurers,
managed care entities and similar organizations provide coverage or
reimbursement for using the medical procedures we have and plan to develop.
Failure by physicians, hospitals and other users of our products to obtain
sufficient reimbursement from third-party payers for the procedures in which our
products would be used or adverse changes in governmental and private
third-party payers' policies toward reimbursement for such procedures would have
a material adverse effect on our business.





27
 
 ****
 **Product
liability claims could increase our costs and adversely affect its results of
operations.**


The
marketing, sale and clinical testing of *Imagent* and our
other product candidates may expose us to product liability claims, and we may
experience material product liability losses in the future. We maintain certain
levels of product liability insurance, but our coverage may not continue to be
available on terms acceptable to us or adequate for liabilities we actually
incur. A successful claim brought against us in excess of available insurance
coverage, or any claim or product recall that results in significant adverse
publicity against us, may have a material adverse effect on our business and
results of operations.





**We
depend on a small number of employees and consultants to provide management
expertise, and the loss of this expertise may interfere with our operations or
delay our ability to implement our business plan.**





We
currently have two senior executive officers: our Chief Executive Officer (Dr.
Williams) and our Chief Operating Officer (Mr. DeFranco). We also have retained
consultants to advise us in regulatory affairs, product reimbursement, quality
assurance and control matters and other business matters. Larry D. Grant, a
consultant, provides advisory and management services on a full-time basis on
financial, operational and strategic matters. These individuals have entered
into employment or 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 could
suffer competitive disadvantage or loss of intellectual property protection,
and





We could
experience a delay in the implementation of our business plan until we arrange
for another individual or firm to fulfill the role.





**RISKS
RELATED TO OUR COMMON STOCK**





**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
April 30, 2005, two related stockholders controlled approximately 2,738,084
shares, or 55% of our issued and outstanding common stock at that date. These
stockholders are also entitled to receive additional shares related to the
Company’s obligation for late registration penalties until a remaining portion
of their shares are registered. 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.





**The
price and trading volume of our common stock fluctuates significantly, which may
make it difficult for us or a stockholder to sell common stock at a suitable
price and may cause dilution for existing stockholders when we issue additional
shares.**





During
the period from January 1, 2004 through March 31, 2005 the closing trade
price of our common stock ranged from $39 to $1.40 per share. Daily trading
volume during that period ranged from zero shares to approximately 41,000
shares.





The
market prices for securities of pharmaceutical companies in general have been
highly volatile and may continue to be highly volatile in the future. The
following factors may have an impact on the price of our common
stock:





·
    Sales
      performance of*Imagent,*


·
    Our
      liquidity,


·
    Announcements
      by us or others regarding scientific discoveries, technological
      innovations, commercial products, patents or proprietary
      rights,


·
    Announcements
      by us concerning the licensing or other transactions of its products or
      technologies,


·
    Private
      sales of a significant block of our common stock at a price below the then
      current market price of our common stock and the subsequent registration
      and sale of those shares,


·
    Public
      sales of our common stock pursuant to Rule 144 of the Securities Act of
      1933 or pursuant to registration statements for the resale of stock we
      previously issued,


·
    The
      progress of preclinical or clinical
testing,


·
    Developments
      or outcome of litigation concerning proprietary rights, including patents
      (and the uncertainty related to the Amersham
      litigation),


·
    Changes
      in government regulation,


·
    Public
      concern about the safety of devices or
drugs,


·
    Limited,
      if any, coverage by securities
analysts,


28
 ·
    The
      occurrence of any of the risk factors described in this
      section,


·
    Sales
      of large blocks of stock by an individual or
      institution,


·
    Changes
      in our financial performance from period to period, securities analysts'
      reports, and general market conditions,
and


·
    Economic
      and other external factors or a disaster or
  crisis,


·
    Our
      ability to minimize the claims of the lessor related to our vacating our
      premises prior to the expiration of the
lease.





**If
holders of substantial amounts of our common stock sell their stock in the
public market, the price of our stock could fall and it may be more costly for
us to raise capital.**





We have
recently registered the resale of 1,596,798 shares of our common stock (plus an
additional 735,881 shares of our common stock issuable upon the exercise of
warrants) we had previously sold in private transactions. We have also filed a
registration statement, which has not yet gone effective, covering the resale of
approximately 2,908,355 shares of our common stock. The use of these
registration statements may be temporarily suspended while the securities and
exchange commission processes post-effective amendments we file from time to
time to update the registration statements.  we may also register the
resale of shares issuable upon the conversion of our Series A Convertible
Preferred Stock, shares issuable pursuant to future financing transactions and
the exercise of options granted under our various option plans.  In
addition, some of our shares are eligible for sale in the public market free of
restriction under Rule 144 of the Securities Act.  Others shares of
our common stock are also subject to agreements requiring us to permit the
holders of the shares, under certain circumstances, to join in a public offering
of our stock or to demand that we register their shares for resale.  The
sale of these shares could place downward pressure on the overall market price
of our common stock.





**We
have issued a substantial number of securities convertible into shares of our
common stock and may issue additional shares of our common stock or other
securities convertible into shares of our common stock in connection with one or
more financings that will result in substantial dilution to the ownership
interests of our existing shareholders.**





As of
March 31, 2005, 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.
As of March 31, 2005 we have obligations to issue approximately 432,000 shares
of common stock for late registration penalties and legal services performed, of
which approximately 410,000 shares were issued in April 2005.





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.





We may
also engage in financing transactions which involve the issuance of additional
shares of our common stock or securities which are convertible into shares of
our common stock. The sale of such securities could result in significant
dilution to existing shareholders.





**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. Our appeal to NASDAQ to
reconsider its decision in 2004 to delist our shares was denied and for a
portion of 2004 our stock was quoted on the Pink Sheets. We are considering
options to seek relisting of our shares on an appropriate exchange, but it will
be a minimum of at least several months before we could meet the requirements
for listing. As such, 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.





29


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.





30


****


**ITEM
6.**  **EXHIBITS**





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




**EXHIBIT**
      **NO.**
    
    **DESCRIPTION**+3.1
    
    Restated
      Articles of Incorporation of IMCOR Pharmaceutical Co., as amended,
      including Certificate of Designation, Preferences and Rights of Series A
      Convertible Preferred Stock. (Filed as Exhibit 3.1 to the Company’s Annual
      Report on Form 10-KSB for the year ended December 31, 2004 and
      incorporated herein by reference.)+3.2
    
    Amended
      and Restated Bylaws of IMCOR Pharmaceutical Co. (Filed as Exhibit C
      to the Company’s Information Statement on Form DEF 14C dated December 23,
      2002 and incorporated herein by reference.)+10.1
    
    Amended
      and Restated Letter Agreement dated February 8, 2005 by and between
      IMCOR
      Pharmaceutical
      Co. and Jack DeFranco (Filed as Exhibit 10.18 to the Company’s Annual
      Report on Form 10-KSB for the year ended December 31, 2004 and
      incorporated 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.






31




**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
      16, 2005
    IMCOR
      Pharmaceutical Co./s/
      Taffy J. WilliamsTaffy
      J. Williams, Ph.D., President,
      Chief
      Executive Officer and Acting Principal Financial
Officer





32





**EXHIBIT
INDEX**




**EXHIBIT**
      **NO.**
    
    **DESCRIPTION**+3.1
    
    Restated
      Articles of Incorporation of IMCOR Pharmaceutical Co., as amended,
      including Certificate of Designation, Preferences and Rights of Series A
      Convertible Preferred Stock. (Filed as Exhibit 3.1 to the Company’s Annual
      Report on Form 10-KSB for the year ended December 31, 2004 and
      incorporated herein by reference.)+3.2
    
    Amended
      and Restated Bylaws of IMCOR Pharmaceutical Co. (Filed as Exhibit C
      to the Company’s Information Statement on Form DEF 14C dated December 23,
      2002 and incorporated herein by reference.)+10.1
    
    Amended
      and Restated Letter Agreement dated February 8, 2005 by and between IMCOR
      Pharmaceutical Co. and Jack DeFranco (Filed as Exhibit 10.18 to the
      Company’s Annual Report on Form 10-KSB for the year ended December 31,
      2004 and incorporated 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.




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