**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 SEPTEMBER 30, 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.)**4660
                  La Jolla Village Drive, Suite 540**
                **San
                  Diego, CA 92122**(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: 4,953,356 shares of common stock, $0.001
        par
        value per share, issued and outstanding at November 15, 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
              17ITEM
                  3.
              CONTROLS
                  AND PROCEDURES
              28PART
                  II.
              OTHER
                  INFORMATION
              29ITEM
                  1.
              LEGAL
                  PROCEEDINGS
              29ITEM
                  2.
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS
              29ITEM
                  3.
              DEFAULTS
                  UPON SENIOR SECURITIES
              30ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS
              30ITEM
                  5.
              OTHER
                  INFORMATION
              31ITEM
                  6.
              EXHIBITS
              35
 
 
  IMCOR
        PHARMACEUTICAL CO. AND SUBSIDIARY
 (A
        Development Stage Company)
 CONSOLIDATED
        BALANCE SHEETS
 (Unaudited)
 December
                      31,
                  
                  September
                      30,ASSETS
                  
                  2004
                  
                  2005Current
                      assets:Cash
                      and cash equivalents
                  
                  $
                  4,721,456
                  
                  $
                  869,246Accounts
                      receivable
                  
                  
                  33,916
                  
                  
                  –Prepaids
                  
                  
                  442,802
                  
                  
                  307,0985,198,174
                  
                  
                  1,176,344Property
                      and equipment, net
                  
                  
                  4,427,043
                  
                  
                  –Other
                      assets:Purchased
                      technology, net
                  
                  
                  13,676,750
                  
                  
                  12,699,366Technology
                      license, net
                  
                  
                  696,408
                  
                  
                  –Deferred
                      royalties, net
                  
                  
                  458,333
                  
                  
                  427,083Deposits
                  
                  
                  324,750
                  
                  
                  –15,156,241
                  
                  
                  13,126,449Total
                      Assets
                  
                  $
                  24,781,458
                  
                  $
                  14,302,793LIABILITIES
                      AND SHAREHOLDERS’ EQUITYCurrent
                      liabilities:Notes
                      payable unsecured
                  
                  $
                  192,233
                  
                  $
                  192,233Current
                      portion of license revenue
                  
                  
                  696,307
                  
                  
                  813,379Accounts
                      payable
                  
                  
                  1,916,551
                  
                  
                  1,896,219Accrued
                      expenses and assumed acquisition liabilities
                  
                  
                  2,191,301
                  
                  
                  1,918,820Accrued
                      royalty fees
                  
                  
                  400,000
                  
                  
                  401,946Accrued
                      equipment lease obligation
                  
                  
                  492,984
                  
                  
                  492,984Total
                      current liabilities
                  
                  
                  5,889,376
                  
                  
                  5,715,581Deferred
                      license revenue
                  
                  
                  6,948,753
                  
                  
                  7,509,451Commitments
                      and contingencies
                  
                  
                  –
                  
                  
                  –Shareholders'
                      equity:Preferred
                      stock, $.01 par value; 5,000,000 shares authorized Series A
                      preferred
                      stock: 4,500 shares authorized, issued and outstanding; $1,000
                      liquidation
                      preference per share, $4,500,000 in aggregate
                  
                  
                  45
                  
                  
                  45Common
                      stock, $.001 par value; 200,000,000 shares authorized; 4,000,916
                      and
                      4,953,356 shares issued and outstanding as of December 31,
                      2004 and
                      September 30, 2005, respectively
                  
                  
                  4,001
                  
                  
                  4,953Additional
                      paid-in capital
                  
                  
                  84,020,364
                  
                  
                  87,279,720Common
                      stock to be issued
                  
                  
                  1,120,752
                  
                  
                  659,161Unearned
                      compensation
                  
                  
                  (10,500
                  )
                  
                  –Deficit
                      accumulated during the development stage
                  
                  
                  (73,191,333
                  )
                  
                  (86,866,118
                  )11,943,329
                  
                  
                  1,077,761$
                  24,781,458
                  
                  $
                  14,302,793
 See
        notes
        to consolidated financial statements.
  -1-
 IMCOR
        PHARMACEUTICAL CO. AND SUBSIDIARY
 (A
        Development Stage Company)
 CONSOLIDATED
        STATEMENTS OF OPERATIONS
 (Unaudited)
 Period
                  fromInceptionThree
                  Months Ended
              
              Three
                  Months Ended
              
              Nine
                  Months Ended
              
              Nine
                  Months Ended
              
              (November
                  3,
                1996)
                  toSeptember
                  30, 2004
              
              September
                  30, 2005
              
              September
                  30, 2004
              
              September
                  30, 2005
              
              September
                  30, 2005License
                  revenue
              
              $
              84,524
              
              $
              174,076
              
              $
              210,714
              
              $
              522,230
              
              $
              877,170Operating
                  expenses:Research
                  and development
              
              
              962,604
              
              
              53,695
              
              
              2,849,511
              
              
              1,409,421
              
              
              12,089,800Sales,
                  general and administrative
              
              
              3,334,111
              
              
              878,454
              
              
              11,165,872
              
              
              8,682,770
              
              
              54,961,422Restructuring
                  charges
              
              
              –
              
              
              –
              
              
              –
              
              
              –
              
              
              1,541,455Provision
                  for future lease payments
              
              
              –
              
              
              –
              
              
              –
              
              
              –
              
              
              1,264,208Loss
                  on sale of equipment
              
              
              –
              
              
              –
              
              
              –
              
              
              248,599
              
              
              248,599Impairment
                  losses
              
              
              –
              
              
              –
              
              
              –
              
              
              3,835,813
              
              
              4,110,292Total
                  operating expenses
              
              
              4,296,715
              
              
              932,149
              
              
              14,015,383
              
              
              14,176,603
              
              
              74,215,776Operating
                  loss
              
              
              (4,212,191
              )
              
              (758,073
              )
              
              (13,804,669
              )
              
              (13,654,373
              )
              
              (73,338,606
              )Loss
                  from joint venture
              
              
              –
              
              
              –
              
              
              (2,213,646
              )
              
              –
              
              
              (14,518,000
              )Investment
                  and other income
              
              
              31,074
              
              
              3,388
              
              
              274,546
              
              
              40,557
              
              
              1,492,556Interest
                  expense
              
              
              (21,145
              )
              
              (16,433
              )
              
              (617,898
              )
              
              (60,969
              )
              
              (1,602,719
              )Loss
                  from continuing operations
              
              
              (4,202,262
              )
              
              (771,118
              )
              
              (16,361,667
              )
              
              (13,674,785
              )
              
              (87,966,769
              )Discontinued
                  operations:Operating
                  loss from therapeutic business
              
              
              –
              
              
              –
              
              
              –
              
              
              –
              
              
              (10,679,101
              )Gain
                  from split-off of therapeutic business
              
              
              –
              
              
              –
              
              
              –
              
              
              –
              
              
              11,779,752–
              
              
              –
              
              
              –
              
              
              –
              
              
              1,100,651Net
                  loss
              
              
              (4,202,262
              )
              
              (771,118
              )
              
              (16,361,667
              )
              
              (13,674,785
              )
              $
              (86,866,118
              )Dividends
                  on preferred stock
              
              
              –
              
              
              –
              
              
              (498,030
              )
              
              –Net
                  loss available to common shareholders
              
              $
              (4,202,262
              )
              $
              (771,118
              )
              $
              (16,859,697
              )
              $
              (13,674,785
              )Basic
                  & diluted loss per common share from continuing
                  operations
              
              $
              (1.05
              )
              $
              (0.11
              )
              $
              (7.73
              )
              $
              (2.40
              )Basic
                  & diluted loss per common share from discontinued
                  operations
              
              $
              –
              
              $
              –
              
              $
              –
              
              $
              –Basic
                  & diluted net loss per common share
              
              $
              (1.05
              )
              $
              (0.11
              )
              $
              (7.73
              )
              $
              (2.40
              )Weighted
                  average number of common shares outstanding- basic and
                  diluted
              
              
              3,998,957
              
              
              6,962,269
              
              
              2,181,601
              
              
              5,693,923
 See
        notes to consolidated financial statements
  -2-
  IMCOR
        PHARMACEUTICAL CO. AND SUBSIDIARY
 (A
        Development Stage Company)
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 (Unaudited)
 Period
                  fromInceptionNine
                  Months
              
              Nine
                  Months
              
              (November
                  3,Ended
                  September 30,
              
              Ended
                  September 30,
              
              1996)
                  to September 30,2004
              
              2005
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (16,361,667
              )
              $
              (13,674,785
              )
              $
              (86,866,118
              )Less
                  gain from discontinued operations
              
              
              –
              
              
              –
              
              
              (1,100,651
              )Adjustments
                  to reconcile net loss to cash used by operating
                  activities:Depreciation
                  and amortization
              
              
              2,392,476
              
              
              1,594,873
              
              
              8,080,557Loss
                  on disposal of property and equipment
              
              
              –
              
              
              248,599
              
              
              284,823Gain
                  on sale of marketable securities
              
              
              –
              
              
              –
              
              
              (18,503
              )United
                  States Treasury Notes amortization
              
              
              –
              
              
              –
              
              
              12,586Stock
                  option compensation
              
              
              813,724
              
              
              1,087,874
              
              
              4,971,493Gain
                  from equipment lease settlement
              
              
              (126,257
              )
              
              –
              
              
              (126,257
              )License
                  revenue deferred
              
              
              2,000,000
              
              
              1,000,000
              
              
              9,000,000Recognition
                  of deferred license revenue
              
              
              (210,714
              )
              
              (522,230
              )
              
              (877,170
              )Amortization
                  of deferred royalty expense
              
              
              21,071
              
              
              31,250
              
              
              72,917Valuation
                  impairment allowances
              
              
              –
              
              
              3,835,812
              
              
              4,110,291Beneficial
                  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
              
              
              127,261
              
              
              10,500
              
              
              445,814Issuance
                  of stock for interest payments and penalties
              
              
              521,681
              
              
              1,668,593
              
              
              3,179,411Equity
                  in loss of affiliate
              
              
              2,213,646
              
              
              –
              
              
              14,518,000Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (27,843
              )
              
              33,916
              
              
              –Prepaid
                  expenses
              
              
              43,729
              
              
              135,705
              
              
              (307,098
              )Deferred
                  royalty expense
              
              
              (400,000
              )
              
              –
              
              
              (500,000
              )Accounts
                  payable
              
              
              231,492
              
              
              (20,332
              )
              
              2,039,858Accrued
                  expenses
              
              
              191,447
              
              
              (28,285
              )
              
              (383,298
              )Accrued
                  equipment lease obligation
              
              
              –
              
              
              –
              
              
              1,050,589Other
              
              
              –
              
              
              –
              
              
              10,000Net
                  cash used in continuing operating activities
              
              
              (8,569,954
              )
              
              (4,598,511
              )
              
              (35,870,752
              )Net
                  cash used in discontinued operations
              
              
              –
              
              
              –
              
              
              (10,679,101
              )
 
 
  -3-
  IMCOR
        PHARMACEUTICAL CO. AND SUBSIDIARY
 (A
        Development Stage Company)
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS (Continued)
 (Unaudited)
 Period
                  fromInceptionNine
                  Months
              
              Nine
                  Months
              
              (November
                  3,Ended
                  September 30,
              
              Ended
                  September 30,
              
              1996)
                  to
                September
                  30,2004
              
              2005
              
              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
              
              
              (83,287
              )
              
              (3,040
              )
              
              (754,674
              )Proceeds
                  from sale of property and equipment
              
              
              2,200
              
              
              322,091
              
              
              469,842Proceeds
                  from sale of technology license
              
              
              –
              
              
              102,500
              
              
              102,500Patent
                  acquisition costs
              
              
              –
              
              
              –
              
              
              (237,335
              )Investment
                  in and advances to affiliate
              
              
              –
              
              
              –
              
              
              (15,107,468
              )Increase
                  in note receivable
              
              
              –
              
              
              –
              
              
              (1,255,000
              )Decrease
                  (increase) in deposits
              
              
              –
              
              
              324,750
              
              
              (439,370
              )Purchase
                  of Imagent business
              
              
              –
              
              
              –
              
              
              (5,074,761
              )Net
                  cash (used in) provided by investing activities
              
              
              (81,087
              )
              
              746,301
              
              
              (21,193,194
              )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
              
              
              9,325,000
              
              
              –
              
              
              54,004,340Capital
                  contributions from shareholders
              
              
              –
              
              
              –
              
              
              1,958,364Principal
                  payments on acquisition debt
              
              
              (1,250,000
              )
              
              –
              
              
              (2,500,000
              )Principal
                  payments on other debt
              
              
              (2,164,283
              )
              
              –
              
              
              (3,350,641
              )Proceeds
                  from issuance of debt
              
              
              3,001,223
              
              
              –
              
              
              20,544,721Payments
                  on lease settlement obligation
              
              
              (75,000
              )
              
              –
              
              
              (75,000
              )Cost
                  of recapitalization
              
              
              –
              
              
              –
              
              
              (371,111
              )Net
                  cash provided by financing activities
              
              
              8,836,940
              
              
              –
              
              
              69,918,969NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              185,899
              
              
              (3,852,210
              )
              
              869,246CASH
                  AND CASH EQUIVALENTS, BEGINNING OF YEAR
              
              
              1,657,594
              
              
              4,721,456
              
              
              –CASH
                  AND CASH EQUIVALENTS, END OF PERIOD
              
              $
              1,843,493
              
              $
              869,246
              
              $
              869,246SUPPLEMENTAL
                  SCHEDULE OF CASH FLOWS INFORMATION:Interest
                  paid
              
              $
              –
              
              $
              –
              
              $
              481,769
 
 **NON-CASH
        OPERATING, INVESTING AND FINANCING ACTIVITIES:**
 **NINE
        MONTHS ENDED SEPTEMBER 30, 2005:**
 In
        February 2005, the Company issued modified options in further settlement
        of
        claims by a former employee. The modification of the options resulted in
        a
        $42,250 decrease of accrued expenses with a corresponding increase in additional
        paid-in capital.
 In
        September 2005, the Company entered into two simultaneous agreements with
        GE
        Healthcare Ltd. and Alliance Pharmaceutical Corp., for among other things,
        a
        technology cross license valued at $1,200,000 in favor of the Company, for
        which
        the Company received $1,000,000. By agreement, the balance, or $200,000,
        was
        paid directly by GE Healthcare Ltd. to Alliance Pharmaceutical Corp., resulting
        in an increase in license revenue deferred and a decrease in assumed acquisition
        liabilities.
  -4-
 
 **NINE
        MONTHS ENDED SEPTEMBER 30, 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.
 In
        the
        quarter ended June 30, 2004, the Company recorded accrued prepaid royalties
        of
        $400,000 which relate to deferred revenues received of $4,000,000 during
        2003
        and 2004.
 In
        the
        quarter ended June 30, 2004, the mezzanine equity value of $12,015,000 was
        reclassified into shareholders’ equity upon the exchange of the Series A
        Preferred Stock for 9,763 of common stock.
 In
        the
        quarter ended June 30, 2004, an additional increase in shareholders’ equity
        totaling $146,447, attributed to the above-referenced 9,763 shares of common
        stock recorded at fair market value (and which represented the 19.9% minority
        interest in the Sentigen joint venture), together with the Company’s 80.1%
        majority interest in the Sentigen joint venture, amounting to $589,469 (after
        reflecting an additional charge off in the joint venture investment of
        $2,213,646, recorded as “Loss from Joint Venture”), were recorded and
        reclassified, respectively, as “Technology License” asset totaling $735,916,
        before amortization.
 In
        the
        quarter ended June 30, 2004, the Company issued promissory notes in part
        for
        $1,778,447 in exchange for 80,600 puttable shares of Xmark Fund Ltd. and
        Xmark
        Fund L.P. valued at $1,611,989 and the release from additional obligations
        to
        issue additional shares, valued at $166,458, representing accrued interest
        ($74,263) and late registration penalties ($92,195).
 In
        the
        quarter ended June 30, 2004, the Company issued 1,687,034 common shares in
        settlement of $13,496,269 in promissory notes and accrued interest previously
        due to Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and Mi3,
        L.P.
  See
        notes to consolidated financial
        statements
 -5-
 **IMCOR
        Pharmaceutical Co. and Subsidiary**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **(Unaudited)**
 
 **1.
        Basis of Presentation:**
  The
        accompanying unaudited consolidated financial statements of IMCOR Pharmaceutical
        Co. and Subsidiary (Sentigen, Ltd., or “Sentigen”) (together, the “Company”),
        have been prepared without audit in accordance with generally accepted
        accounting principles in the United States of America for interim financial
        information. Accordingly, they do not include all of the information and
        footnotes required by generally accepted accounting principles in the United
        States of America for complete financial statements. 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, as amended, which has been filed with the SEC.
  In
        the
        opinion of management, all adjustments considered necessary for a fair
        presentation of the results of these interim periods have been included.
        The
        results of operations for the three months and nine months ended September
        30,
        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 generally accepted
        accounting principles in the United States of America requires management
        to
        make estimates and assumptions that affect the reported amounts of assets
        and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements, and the reported amounts of income and expenses
        during
        the reporting period. Actual results could differ from those estimates or
        assumptions. The more significant estimates reflected in these financial
        statements relate to the Company’s review of the fair value of its 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 $86,866,118. As previously reported at March 31, 2005, the Company lacked
        sufficient working capital to fund operations at the then current level for
        the
        entire fiscal year ending December 31, 2005.
  During
        the second quarter of 2005, the Company’s board of directors concluded that
        substantial additional capital resources required to fund its ongoing operations
        would not be forthcoming, and as more further described in Note 11, the Company
        has adopted and implemented a restructuring plan that resulted in cessation
        or
        suspension of substantially all operations, including significant employee
        reduction-in-force, sale of excess equipment, suspension of manufacturing
        and
        clinical activities, cessation of current selling activities, vacating its
        premises, and the sale of certain of its technology. As further described
        in
        Note 9, the Company also entered into a technology cross-license to settle
        certain litigation and resolved certain disputes with another
        party.
  -6-
  To
        the
        extent that the Company has been able to estimate with reasonable certainty
        the
        fair value of certain assets as a result of its restructuring activities,
        it has
        previously provided for certain valuation impairment allowances during the
        second quarter ended June 30, 2005 where necessary to reflect those certain
        assets at such estimated fair values, including property, leasehold
        improvements, and equipment and technology license. However, the Company
        is not
        yet able to make a determination with respect to a potential impairment of
        the
        fair market value of the Purchased Technology (defined as the assets acquired
        on
        June 18, 2003 from Alliance Pharmaceutical Corp. (“Alliance”) which relate to
        the medical imaging business, including *Imagent* ®
        (perflexane lipid microspheres), an FDA-approved product), together with
        the
        related deferred royalty asset and the deferred license revenue.
  The
        Company is evaluating its alternatives with respect to efforts to sell or
        otherwise maximize asset values related to the Purchased Technology, and
        will
        continue to consider as alternatives the sale or license of its remaining
        assets, a merger or other material transaction. Such a transaction may include
        selling the Purchased Technology, a license or sale of the patent portfolio
        underlying the Purchased Technology, a manufacturing rights agreement, or
        another form of transaction. To date, efforts to solicit interest in such
        an
        arrangement have not been successful. However, the Company is still contacting
        other interested or potentially interested parties, and there remains some
        potential for a sale, license, development agreement or comparable
        transaction.
  Subject
        to the availability of capital, the Company intends to protect its patent
        portfolio, and seek additional value for the benefit of creditors and
        shareholders if factors warrant and the underlying cost-benefit analysis
        supports such action(s). While the Company’s history of enforcing its rights in
        patents indicates that there is merit in this approach, patent protection,
        enforcement and/or possible litigation activities can be costly, time consuming
        and the results are inherently uncertain, so there can be no assurance that
        this
        business strategy will result in net benefits to the Company. Nevertheless,
        this
        additional investigation must be conducted before the Company and its board
        of
        directors can reach any definitive conclusions as to the net carrying values
        of
        the Purchased Technology and the corresponding deferred royalties and deferred
        revenues.
  The
        Company is currently unable to operate in a manner that would allow it to
        further develop or promote the *Imagent* product.
        In August 2005, the Company notified the FDA that it suspended any activity
        related to the Investigational New Drug Application. During the next several
        months, the Company will focus its limited resources primarily on preserving
        the
        value of the Purchased Technology, to the extent possible, and exploring
        various
        options concerning the Company’s business, including joint venturing, licensing
        or selling the Company’s Purchased Technology and other possible strategic
        transactions. The Company no longer has current human, financial and other
        resources available to it at this time to carry out the Company’s original
        business plan or fully develop and commercialize *Imagent* on its
        own.
  Furthermore,
        to date the board of directors has only authorized activities in support
        of the
        restructuring plan in order to maximize asset value to creditors and
        shareholders, as noted above; it has not made any determination as to the
        ultimate outcome for the Company.
  Therefore,
        the financial statements do not include any adjustment to reflect the possible
        future effects on the recoverability and classification of the Purchased
        Technology and deferred royalty assets ($12,699,366 and $427,083, respectively,
        totaling $13,126,449) or the amount and classification of liabilities and
        deferred license revenue (totaling $8,322,830, of which $813,379 is classified
        as current) that may result from the outcome of these uncertainties, or any
        other adjustments that might be necessary if the Company is unable to continue
        as a going concern.
  -7-
 **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 September 30 of
        each
        year are as follows:
  2004
              
              2005Options
                  pursuant to plans
              
              
              520,011
              
              
              182,768Options
                  outside of plans, net of cashless component
              
              
              15,727
              
              
              34,977Warrants
              
              
              753,505
              
              
              819,736Issuable
                  upon conversion of preferred stock
              
              
              –
              
              
              833,334Total
              
              
              1,289,243
              
              
              1,870,815
 
 Basic
        and
        diluted loss per common share in 2005 includes approximately 2,009,000 shares
        to
        be issued.
  **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 Statement of Financial
        Accounting Standards (“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, the Company only issued options to acquire 95,000 common shares
        in the nine months ended September 30, 2005.
  -8-
  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 nine months
        ended
        September 30, 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 and nine month periods ended
        September 30:
  Three
                  Months
                Ended
                September
                  30, 2004
              
              Three
                  Months
                Ended
                September
                  30, 2005
              
              Nine
                  Months
                Ended
                September
                  30, 2004
              
              Nine
                  Months
                Ended
                September
                  30, 2005Applicable
                  to common stockholders:Net
                  loss, as reported
              
              $
              (4,202,262
              )
              $
              (771,118
              )
              $
              (16,859,697
              )
              $
              (13,674,785
              )Add
                  stock based compensation expenseincluded
                  in reported net loss
              
              
              151,595
              
              
              10,094
              
              
              813,724
              
              
              1,087,874Less
                  total stock-based employeecompensation
                  expense determined underthe
                  fair-value based method for all awards
              
              
              (509,668
              )
              
              (1,418
              )
              
              (1,493,300
              )
              
              (3,650,884
              )Pro
                  forma net loss
              
              $
              (4,560,335
              )
              $
              (762,442
              )
              $
              (17,539,273
              )
              $
              (16,237,795
              )Net
                  loss per common share (basic and diluted):Reported
              
              $
              (1.05
              )
              $
              (0.11
              )
              $
              (7.73
              )
              $
              (2.40
              )Pro
                  forma
              
              $
              (1.14
              )
              $
              (0.11
              )
              $
              (8.04
              )
              $
              (2.85
              )
 
 **6.
        Property and Equipment**
 
 Property
        and equipment consist of the following at:
 December
                  31,
              
              September
                  30,2004
              
              2005Leasehold
                  improvements
              
              $
              5,287,738
              
              $
              –Furniture,
                fixtures and equipment
              
              
              1,824,819
              
              
              –Total
              
              
              7,112,557
              
              
              –Less
                  allowance for valuation impairment
              
              
              –
              
              
              –Accumulated
                  depreciation and amortization
              
              
              (2,685,514
              )
              
              –Property
                  and equipment, net
              
              $
              4,427,043
              
              $
              –
 
 In
        June
        2005, the Company sold excess equipment with a net book value of $519,470
        ($1,282,901 cost basis, less $763,431 accumulated depreciation) at a loss
        of
        $248,599, with proceeds totaling $270,871.
  -9-
  In
        July
        2005, the Company sold the
        remainder of its equipment with a net book value of $31,220 ($544,958 cost
        basis, less accumulated depreciation of $320,561 and allowance for valuation
        impairment of $193,177) at no gain or loss for $31,220.
  In
        July 2005 ,
        the
        Company concluded its negotiated settlement with its former landlord and
        abandoned its leasehold improvements with a net book value of $20,000
        ($5,287,738 cost basis less accumulated amortization of $2,195,423 and allowance
        for valuation impairment of $3,072,315), but was reimbursed $20,000 by the
        successor tenant for certain leasehold improvements, resulting in no gain
        or
        loss.
  **7.
        Intangible Assets and Deferred Expenses:**
 
 The
        cost
        and accumulated amortization of intangible assets and deferred expenses are
        as
        follows:
 
 December
                  31,
              
              September
                  30,2004
              
              2005Purchased
                  technology:Cost
              
              $
              15,638,146
              
              $
              15,638,146Accumulated
                  amortization
              
              
              (1,961,396
              )
              
              (2,938,780
              )$
              13,676,750
              
              $
              12,699,366Patents:Cost
              
              $
              500,000
              
              $
              500,000Less
                  allowance for valuation impairment
              
              
              (274,479
              )
              
              (274,479
              )Accumulated
                  amortization
              
              
              (225,521
              )
              
              (225,521
              )$
              –
              
              $
              –Technology
                  license:Cost
              
              $
              735,916
              
              $
              –Less
                  allowance for valuation impairment
              
              
              –
              
              
              –Accumulated
                  amortization
              
              
              (39,508
              )
              
              –$
              696,408
              
              $
              –Deferred
                  royalties:Cost
              
              $
              500,000
              
              $
              500,000Accumulated
                  amortization
              
              
              (41,667
              )
              
              (72,917
              )$
              458,333
              
              $
              427,083
 
 In
        the
        quarter ended September 30, 2005, the Company sold all assets related to
        the
        technology license for N1177 and PH-50, with a net book value of $102,500
        ($735,916 cost basis, less accumulated amortization of $63,095 and allowance
        for
        valuation impairment of $570,321) at no gain or loss for $102,500.
  **8.
        Accrued Expenses and Assumed Acquisition Obligations:**
  December
                  31,
              
              September
                  30,2004
              
              2005Assumed
                  acquisition obligations
              
              $
              1,179,051
              
              $
              924,784Accrued
                  payroll, deferred bonuses and related compensation
                  expenses
              
              
              723,707
              
              
              527,656Other
                  accrued expenses
              
              
              288,543
              
              
              466,380$
              2,191,301
              
              $
              1,918,820
  During
        the quarter ended September 30, 2005, the Company reduced its “Assumed
        acquisition obligations” by $200,000 as a result of reaching overall settlements
        in litigation and other disputes involving the Purchased Technology. See
        Note
        9.
  -10-
  **9.
        Litigation:** ******
  On
        June
        18, 2003, the Company, together with Alliance, the prior owner of
        the ** Purchased
        Technology, filed a complaint against Amersham Health, Inc. and two other
        Amersham affiliates (now known as GE Healthcare Ltd.) (collectively, “Amersham”)
        alleging that certain Amersham products infringe on claims in the patents
        covering *Imagent* .
        The
        complaint alleged that principally through the Optison® product, Amersham
        infringed on eight patents owned by the Company. The Company further alleged
        misappropriation of trade secrets as well as other state law claims against
        Amersham.
  Amersham
        denied the material allegations of the Company’s claims and asserted certain
        affirmative defenses and counterclaims. Amersham’s counterclaims included claims
        of patent infringement of the fifteen Amersham patents, breach of contract,
        breach of good faith and fair dealing, and tortious interference with contract.
        The Company and Alliance, as well as Amersham, also amended their respective
        complaints to include allegations of antitrust violations by the other
        parties.
  The
        Company entered into a Settlement Agreement and License (the “Amersham
        Settlement”) dated as of September 19, 2005 with Amersham, Alliance and
        Molecular Biosystems, Inc. The Amersham Settlement resolved the parties’ claims
        arising under the case described above. Under the terms of the Amersham
        Settlement, the Company’s technology cross license was valued at $1,200,000 in
        favor of the Company, for which the Company received $1,000,000 directly
        from
        Amersham. The balance, or $200,000, was paid directly by Amersham to Alliance
        which served as the cash consideration to Alliance under the separate but
        concurrent Alliance Settlement discussed below. The parties dismissed their
        litigation and granted each other fully paid-up, irrevocable, royalty-free,
        non-exclusive cross-licenses, with the right to sublicense, and mutual releases.
  In
        addition, the Company entered into a Settlement Agreement with Alliance (the
        “Alliance Settlement”) dated as of September 19, 2005 pursuant to which: (i)
        each party’s respective ongoing obligations to one another under the Asset
        Purchase Agreement dated June 10, 2003 between the Company and Alliance were
        terminated, (ii) each party granted the other a mutual general release (which
        resolved, among other things, the parties’ claims against one another for
        various accumulated post-closing payments), and (iii) the parties agreed
        to
        share in the proceeds of future transactions involving the disposition of
        the
        Company’s *Imagent* asset in
        accordance with the following schedule:
  **Proceeds**
              **Alliance
                  Percentage**
              **IMCOR
                  Percentage**$1
                  to $1,450,0000
              10%,
                  not to exceed $100,000
              90%$1,450,001
                  to $5,000,000
              30%
              70%$5,000,001
                  and above
              33.3%
              66.7%
   -11-
  On
        May
        11, 2005, the Company was served with an unlawful detainer lawsuit by
        EOP-Industrial Portfolio, LLC (“EOP”) regarding the Company’s default on its
        building lease to pay $84,641 of rent that was due April 1, 2005. The future
        minimum rents due on this lease were approximately $2,490,000 as of March
        31,
        2005. EOP continued to hold a $297,330 security deposit related to this lease
        at
        June 30, 2005. EOP asserted in this lawsuit it was entitled to terminate
        the
        lease, demand all past due amounts under the lease immediately due and payable,
        repossess the premises, demand payment for all related costs and expenses,
        and/or assert any other rights that may be available in law or in equity.
        As
        described in Note 11, as part of a restructuring plan adopted in April and
        May
        2005, the Company has vacated the premises.
  On
        July
        19, 2005, the Company concluded two concurrent, interdependent negotiations
        with
        both EOP and a new tenant, resulting in the execution of a lease termination
        agreement with EOP on that date. Pursuant to the terms of this agreement,
        the
        Company was allowed to occupy the premises until July 31, 2005, with the
        only
        consideration being the surrender of the lease deposit totaling $297,330.
        The
        Company was further released from all other obligations, including past due
        rents totaling approximately $331,292 at July 31, 2005 (approximately $248,469
        at June 30, 2005), late payment fees and any future lease payments, commitments
        and/or contingencies.
  **10.
        Shareholders’ Equity:**
 
 The
        following is a summary of stock transactions during the nine months ended
        September 30, 2005:
  The
        Company issued 105,610 shares of common stock valued at $269,865 to consultants
        and attorneys which had been classified as “Common Stock 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 had originally 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 were recorded as “Common Stock To Be
        Issued” related to $95,135 of services, which had been expensed through that
        date. However, during the quarter ended June 30, 2005, the law firm advised
        the
        Company that it preferred to be compensated for these services in cash payment,
        to the extent the Company is ultimately able to pay. The Company agreed to
        this
        request and has accordingly reclassified the $95,135 from “Common Stock To Be
        Issued” to accrued expenses.
  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 during the three months ended March 31, 2005, and an additional
        454,149 shares of common stock valued at $666,543 due to shareholders for
        late
        registration of their shares during the three months ended June 30,
        2005.
  -12-
  The
        Company has recorded $659,161 of additional penalties and late fees due to
        shareholders for late registration of their shares, representing approximately
        2,008,913 shares of common stock, which are classified as “Common Stock To Be
        Issued” at September 30, 2005. (As of December 31, 2004, 317,262 shares valued
        at $850,887 for penalties and fees were recorded and classified as “Common Stock
        To Be Issued.”)
  These
        shares are collectively issuable to Oxford Bioscience Partners, L.P., MRNA
        Fund
        II, L.P. and Mi3 L.P. to satisfy additional late registration penalty
        obligations calculated through June 30, 2005. In July, 2005, the Company
        negotiated an agreement with these three parties to cease, effective as of
        June
        30, 2005, the accrual of shares of the Company’s common stock to be delivered to
        those investors as a penalty for the Company’s failure to have an effective
        registration statement in place under the terms of the registration rights
        agreements dated April 19, 2004 between the Company and those
        investors.
  All
        of
        the shares issued in January through April 2005 were subject to pending
        registration statements which are not currently effective. The effectiveness
        of
        the registration statements was delayed while the Company responded to the
        SEC’s
        various comments which arose during the comment process. Given the Company’s
        current financial circumstances and its goal to maximize the funds available
        to
        its creditors, the Company’s board of directors has determined that the Company
        will not continue to pursue its efforts to effect the Company’s registration
        statements currently on file with the SEC (File Nos. 333-122625 and 333-117907).
        Those registration statements, which are not currently effective, will be
        withdrawn.
  The
        Company has stopped accruing penalty shares for the security holders who
        received shares subject to that certain registration rights agreement dated
        as
        of April 14, 2004 because without an effective registration statement the
        Company is unable to abide by the contractual requirement that the penalty
        shares such parties receive are freely tradable shares. In addition, the
        Company's obligation to accrue penalty shares stops when the stock has been
        held
        for two years and is freely tradable under Rule 144 of the Securities Act
        of
        1933. Because the shares originally issued to the investors have been held
        for
        one year, they are tradable subject to the provisions of Rule 144. Therefore,
        the investors have liquidity despite the absence of an effective registration
        statement and some investors have already sold under Rule 144.
  On
        January 24, 2005, the Company amended its Articles of Incorporation to increase
        the number of common shares authorized from 150,000,000 to 200,000,000
        shares.
  On
        March
        4, 2005, the Company effected a 1-for-20 reverse stock split of its common
        stock. All share and per share amounts related to common stock in the
        consolidated financial statements have been retroactively adjusted for all
        periods presented to give effect to this reverse stock split.
  **11.
        Restructuring Plan:**
  In
        April
        2005, the Company adopted an initial restructuring plan which initially included
        a reduction-in-force of a majority of the full-time employees and part-time
        employees or consultants who perform administrative support, manufacturing
        and
        related functions. In addition, a limited number of full-time employees were
        transferred to part-time positions to assist the Company with the actions
        necessary to curtail its operations. The Company also temporarily suspended
        its
        manufacturing operations.
  -13-
  The
        Company’s board of directors later concluded that, for a variety of factors,
        including some of which are cited in Notes 2 and 9, it was not probable that
        the
        Company would obtain additional cash funds to continue operating even on
        a
        limited basis in the near term. Therefore, during May 2005, the Company modified
        its restructuring plan to include the disposition of its furniture, fixtures
        and
        equipment, to vacate its premises, and other steps to effect an orderly
        cessation or suspension of operations other than those necessary to facilitate
        completion of the restructuring plan.
  The
        Company incurred approximately $34,000 in cash disbursements for severance
        pay
        associated with this restructuring plan during the nine months ended September
        30, 2005, and also paid approximately $191,000 in previously accrued vacation
        obligations, primarily to terminated employees (which is required under
        California employment laws). The Company also terminated its vacation benefit
        program, and vacation is no longer accrued for remaining employees. In addition,
        the Company negotiated two cash retention bonuses totaling $80,000 with two
        employees deemed integral to the restructuring efforts of the Company as
        part of
        this restructuring plan; however, one of the employees, as consideration,
        also
        waived any further claim he had to a previously earned, accrued but unpaid
        bonus
        of $60,000 from 2003. Accordingly, the Company recognized on a net basis
        only
        $20,000 bonus expense in the quarter ended June 30, 2005. The retention bonus
        obligations were paid as follows: $30,000 during the quarter ended June 30,
        2005, $35,000 during the quarter ended September 30, 2005 and the remainder
        of
        $15,000, owed to one individual and accrued as of September 30, 2005, was
        subsequently paid in November 2005. All efforts required of these two
        individuals were largely concluded by September 30, 2005.
  As
        part
        of the employee reduction plan, the employment of the Company’s CEO and
        President was terminated effective May 31, 2005. A reserve for severance
        (equal
        to one year’s salary, as required by this individual’s employment contract),
        amounting to $275,000, was recorded as expense during the quarter ending
        June
        30, 2005, but remains unpaid and is accordingly included in accrued expenses
        at
        September 30, 2005.
  As
        also
        discussed in Note 9, the Company concluded a successful negotiation with
        EOP,
        the lessor of the Company’s facility at 6175 Lusk Boulevard, San Diego,
        California. In conformity with the terms of this agreement, the Company vacated
        the premises on or about July 31, 2005 and surrendered its lease security
        deposit totaling $297,330. The Company was released from all other obligations,
        including past due rents totaling approximately $331,292 at July 31, 2005
        (approximately $248,469 at June 30, 2005), as well as late payment fees and
        any
        future lease payments, commitments and/or contingencies. Future minimum lease
        payments at June 30, 2005 eliminated as result of the lease termination
        agreement totaled approximately $2,285,000 at that date. In addition, Alliance,
        which was the lease guarantor, was also released from any and all claims,
        commitments and contingencies.
  As
        a
        result of the successful adoption of the plan to vacate the premises, the
        Company recorded a leasehold valuation impairment allowance of approximately
        $3,072,000 in the quarter ending June 30, 2005, leaving a net carrying value
        of
        leasehold improvements as of June 30, 2005 totaling $20,000.
  On
        June
        16, 2005, the Company sold the majority of its excess equipment at a public
        auction, which netted the Company $270,820, $175,000 of which was received
        by
        June 30, 2005. The balance of $95,820 was recorded as accounts receivable
        on
        that date, and was subsequently received during the quarter ended September
        30,
        2005. At June 30, 2005 the Company recorded an equipment valuation impairment
        allowance of approximately $193,000, leaving a net carrying value of $31,220
        for
        unsold equipment remaining as of that date.
  -14-
  The
        remainder of the Company’s equipment and leasehold interest was subsequently
        sold during the quarter ended September 30, 2005 for $51,220 and, accordingly,
        all carrying values of related assets, accumulated depreciation and
        amortization, and valuation impairment allowances have been adjusted to zero
        as
        of September 30, 2005.
  During
        the quarter ending June 30, 2005, the Company solicited interest from several
        parties regarding its technology license asset, which relates to the Company’s
        N1177 compound and PH-50, the same or substantially same compound for a
        different indication. An agreement in principle was reached with a party
        to
        acquire these related assets for $102,500, net of third party intermediary
        compensation costs. Accordingly, the Company recorded a technology license
        valuation impairment allowance of approximately $570,000 in the quarter ending
        June 30, 2005, leaving a net carrying value of technology license as of June
        30,
        2005 of $102,500.
  During
        the quarter ended September 30, 2005, the Company and the third party completed
        the asset purchase agreement for the sale of the Company’s assets exclusively
        related to N1177 and PH-50. The sale includes certain patent rights related
        to
        N1177 and PH-50 and other intellectual property, including the Company’s
        technology license asset. The agreement called for an aggregate purchase
        price
        (net of a third party intermediary fee, of $102,500) which was due in two
        payments, the first of which was $71,500 and was paid at closing and the
        balance
        of $31,000 was paid prior to September 30, 2005 upon satisfactory conclusion
        of
        certain required follow-on activities. Accordingly, all carrying values of
        this
        technology license related to its cost, accumulated amortization and valuation
        allowance have been adjusted to zero as of September 30, 2005.
  As
        a
        result of the above activities involving the facilities lease termination,
        sale
        of equipment and sale of the technology license, the Company recorded asset
        impairment losses totaling $3,835,813 through September 30, 2005.
  As
        discussed in Note 9, the Company entered into the Amersham Settlement dated
        as
        of September 19, 2005 with Amersham, Alliance and Molecular Biosystems, Inc.
        The
        Amersham Settlement resolved the parties’ claims arising under the case
        described above. Under the terms of the Amersham Settlement, the Company’s
        technology cross license was valued at $1,200,000 in favor of the Company,
        for
        which the Company received $1,000,000 directly from Amersham. The balance,
        or
        $200,000, was paid directly by Amersham to Alliance which served as the cash
        consideration to Alliance under the separate but concurrent Alliance Settlement
        discussed below. The parties dismissed their litigation and granted each
        other
        fully paid-up, irrevocable, royalty-free, non-exclusive cross-licenses, with
        the
        right to sublicense, and mutual releases.
  In
        addition, the Company entered into the Alliance Settlement with Alliance
        dated
        as of September 19, 2005 pursuant to which: (i) each party’s respective ongoing
        obligations to one another under the Asset Purchase Agreement dated June
        10,
        2003 between the Company and Alliance were terminated, (ii) each party granted
        the other a mutual general release (which resolved, among other things, the
        parties’ claims against one another for various accumulated post-closing
        payments), and (iii) the parties agreed to share in the proceeds of future
        transactions involving the disposition of the Company’s *Imagent* asset.
  -15-
  The
        Company is evaluating its alternatives with respect to efforts to sell or
        otherwise maximize asset values related to the Purchased Technology, and
        will
        continue to consider as alternatives the sale or license of its remaining
        assets, a merger or other material transaction. Such a transaction may include
        selling the Purchased Technology, a license or sale of the patent portfolio
        underlying the Purchased Technology, a manufacturing rights agreement, or
        another form of transaction. To date, efforts to solicit interest in such
        an
        arrangement have not been successful. However, the Company is still contacting
        other interested or potentially interested parties, and there remains some
        potential for a sale, license, development agreement or comparable
        transaction.
  The
        Company is not currently able to predict what types of arrangements might
        ultimately be made with potential business partners for *Imagent* ,
        financial or otherwise. Accordingly, the Company is unable to make any estimates
        for potential changes to the fair market value of the Purchased Technology,
        together with the related deferred royalty asset and deferred revenue credits
        carried on the Company’s balance sheet at September 30, 2005.
  Subject
        to the availability of capital, the Company intends to protect its patent
        portfolio, and seek additional value for the benefit of creditors and
        shareholders if factors warrant and the underlying cost-benefit analysis
        supports such action(s). While the Company’s history of enforcing its rights in
        patents indicates that there is merit in this approach, patent protection,
        enforcement and/or possible litigation activities can be costly, time consuming
        and the results are inherently uncertain, so there can be no assurance that
        this
        business strategy will result in net benefits to the Company. Nevertheless,
        this
        additional investigation must be conducted before the Company and its board
        of
        directors can reach any definitive conclusions as to the net carrying values
        of
        the Purchased Technology and the corresponding deferred royalties and deferred
        revenues.
  Our
        subsidiary, Sentigen, Ltd., a Bermuda entity, currently has no operations.
        It is
        likely to be administratively dissolved by the Bermuda authorities.
  **12.
        Subsequent Event:**
  Mr.
        Jack
        DeFranco (our acting Principal Executive Officer) was a part-time employee
        of
        the Company until October 2005. Mr. DeFranco became a consultant to the Company
        in November 2005 and is engaged on a part-time, as needed basis through April
        30, 2006.
   -16-
  **ITEM
        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
        OPERATION**
  Portions
        of the discussion in this Form 10-QSB contain forward-looking statements
        and are
        subject to the “Risk Factors” described below. All forward-looking statements
        included in this Form 10-QSB are based on information available to the Company
        on the date hereof, and the Company assumes no obligation to update any such
        forward-looking statements. The Company’s actual results could differ materially
        from those anticipated in these forward-looking statements as a result of
        a
        number of factors, including those set forth in the section captioned “RISK
        FACTORS” and elsewhere in this Form 10-QSB.
  The
        following should be read in conjunction with the Company’s unaudited financial
        statements included above. References to the “Company,”“IMCOR,”“we,”“us,” or
“our” are to IMCOR Pharmaceutical Co. and, where appropriate, our subsidiary,
        Sentigen, Ltd. (“Sentigen”). References to the “Purchased Technology” are to the
        medical imaging business of Alliance Pharmaceutical Corp. (“Alliance”) that the
        Company acquired on June 18, 2003. *Imagent* ®
        (perflexane lipid microspheres) is a registered trademark owned by
        IMCOR.
  **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 The
        independent auditors’ report dated March 19, 2005 included in our December 31,
        2004 Annual Report on Form 10-KSB, as amended, contained the following
        explanatory paragraph:
  The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As discussed in Note 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. However, we had previously reported that without obtaining additional
        debt or equity financing or funds from other sources we would not be able
        to
        continue to fund operations beyond May 31, 2005 without significantly curtailing
        operations or disposing of assets. (At March 31, 2005, we had cash and cash
        equivalents totaling $1,282,791.) Our goal since March 31, 2005 has been
        to
        maximize asset values for the benefit of creditors and
        shareholders.
  At
        September 30, 2005, the Company had cash and cash equivalents of $869,246
        and
        negative working capital of $4,539,237.
  During
        the three month period ended September 30, 2005, our board of directors
        continued to implement our restructuring plan that resulted in cessation
        or
        suspension of substantially all operations, including significant employee
        reduction-in-force, sale of excess equipment, suspension of manufacturing
        and
        clinical activities, cessation of manufacturing and selling activities, vacating
        our premises, and the sale of certain of our technology.
  -17-
  We
        entered into a Settlement Agreement and License (the “Amersham Settlement”)
        dated as of September 19, 2005 with GE Healthcare Ltd. (f/k/a Amersham plc,
        Amersham Health, Inc. and Amersham Health AS) (collectively “Amersham”),
        Alliance and Molecular Biosystems, Inc. (“MBI”). The Amersham Settlement
        resolves the parties’ claims arising under the case captioned *IMCOR
        Pharmaceutical Co., Alliance Pharmaceutical Corp. and Molecular Biosystems
        Inc.
        v. Amersham Health Inc., Amersham Health AS and Amersham plc.* ,
        Civil
        Action No. 03-2853 (SRC) filed in the United States District Court, District
        of
        New Jersey. Under the terms of the Amersham Settlement, the Company’s technology
        cross license was valued at $1,200,000 in favor of the Company, for which
        the
        Company received $1,000,000 directly from Amersham. The balance, or $200,000,
        was paid directly by Amersham to Alliance which served as the cash consideration
        to Alliance under the separate but concurrent Alliance Settlement discussed
        below. The parties granted each other fully paid-up, irrevocable, royalty-free,
        non-exclusive cross-licenses, with the right to sublicense, and mutual releases.
  In
        addition, we entered into a Settlement Agreement with Alliance (the “Alliance
        Settlement”) dated as of September 19, 2005 pursuant to which: (i) each party’s
        respective ongoing obligations to one another under the Asset Purchase Agreement
        dated as of June 10, 2003 between IMCOR and Alliance were terminated, (ii)
        each
        party granted the other a mutual general release (which resolved, among other
        things, the parties’ claims against one another for various accumulated
        post-closing payments), and (iii) the parties agreed to share in the proceeds
        of
        future transactions involving the disposition of our *Imagent®* (perflexane lipid microspheres) asset. As a result of the Alliance Settlement,
        a
        variety of receivables, payables and other obligations between us and Alliance
        were settled without any additional payment from us during the quarter ended
        September 30, 2005.
  The
        $1,000,000 that we received directly from Amersham has been utilized and/or
        allocated for future use as follows:
  ·
              $93,500
                  for payment of patent and other legal work that we incurred during
                  the
                  final steps of settlement negotiations with Amersham and Alliance,
                  which
                  was critical and integral to reaching a satisfactory conclusion
                  to those
                  disputes;
  ·
              $150,000
                  as a reserve for payment of short-term patent related costs if
                  necessary
                  as part of our efforts to preserve the value of the Purchased Technology
                  while we attempt to sell, license or enter a comparable transaction;
  ·
              $60,000
                  as a reserve to investigate the commercial activities of third
                  parties to
                  protect our patents that are part of the Purchased
                  Technology;
  ·
              up
                  to $225,000 for accounting, legal, and other administrative expenses
                  necessary to prepare filings, audits, and to meet our other compliance
                  and
                  reporting requirements under the Securities and Exchange Commission
                  rules
                  while we consider and pursue our alternatives concerning our remaining
                  assets, and as we manage the process of dealing with our creditors
                  and
                  otherwise undertake activities to maximize value for our creditors
                  and
                  shareholders on a fair pro rata and appropriate priority basis;
                  and
  ·
              $471,500
                  as a pool of cash to satisfy first our unsecured creditors whose
                  claims as
                  of September 30, 2005 totaled approximately $4,900,000. As of September
                  30, 2005, we have no secured debt.
   -18-
  As
        conditions may warrant from time to time, we may modify and adjust these
        allocations for any remaining proceeds.
  We
        do not
        expect to receive any additional significant cash infusions in the short
        term,
        and it remains unlikely that any cash can be generated from the Purchased
        Technology by December 31, 2005.
  We
        are
        still considering our alternatives with respect to efforts to sell or otherwise
        maximize asset values related to the Purchased Technology, and will continue
        to
        consider as alternatives the sale or license of our remaining assets, a merger
        or other material transaction. Such a transaction may include selling the
        Purchased Technology, a license or sale of the patent portfolio underlying
        the
        Purchased Technology, a manufacturing rights agreement, or another form of
        transaction.
  We
        are
        not currently able to predict what arrangements, if any, might ultimately
        be
        made with potential business partners for *Imagent* ,
        financial or otherwise, and do not currently have sufficient evidence to
        require, or support for making any estimates for potential changes to the
        fair
        market value of the Purchased Technology, together with the related deferred
        royalty asset and deferred revenue credits carried on our balance sheet at
        September 30, 2005.
  Therefore,
        we have not made any adjustment to reflect the possible future effects on
        the
        recoverability and classification of assets or the amount and classification
        of
        liabilities related to our remaining assets that may result from this continuing
        uncertainty.
  **RESULTS
        OF OPERATIONS**
 **Three
        Months Ended September 30, 2004 and 2005**
  **As
        a result of the restructuring plans adopted in April and May of 2005, and
        which
        continue to be carried out through September 30, 2005, the results of the
        third
        quarter of 2005 are not likely to be indicative of the remaining quarter
        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 and the cessation
        of
        manufacturing operations related to the closing of our FDA-approved
        manufacturing facility. 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
        late 2003, 2004 and 2005. The increase in license revenue relates to the
        amortization of the additional license revenue deferred primarily in October
        2004 ($4,000,000).
  **Research
        and Development**
 Essentially
        all of our research expenses since the third quarter of 2004 until early
        second
        quarter 2005 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. During the
        third quarter of 2005 (presented below), the majority of the costs have been
        expended with a focus on patent considerations only, in keeping with our
        overall
        objective to preserve net asset values for the benefit of creditors and
        shareholders. Our regulatory and clinical operations were discontinued by
        the
        beginning of the quarter ended September 30, 2005 as part of our restructuring
        plan.
  -19-
 The
        following is a summary of our major research and development cost categories
        (all amounts approximate):
 
 Three
                  months ended September 30,2004
              
              Three
                  months ended September 30,2005
              
              Increase/
                  (Decrease)
                2004
                  to 2005Personnel
              
              $
              516,000
              
              $
              –
              
              $
              (516,000
              )Contract
                  consultants
              
              
              292,000
              
              
              (4,000
              )
              
              (296,000
              )Patent
                  costs
              
              
              52,000
              
              
              24,500
              
              
              (27,500
              )Production
                  facilities costs
              
              
              50,000
              
              
              –
              
              
              (50,000
              )Supplies
              
              
              42,000
              
              
              1,000
              
              
              (41,000
              )Gain
                  on equipment lease settlement
              
              
              –
              
              
              –
              
              
              –Other
              
              
              11,000
              
              
              32,500
              
              
              21,500Total
              
              $
              963,000
              
              $
              54,000
              
              $
              (909,000
              )
  Personnel,
        contract consultants, patent, production facilities costs and supplies all
        decreased from the quarter ended September 30, 2004 to negligible amounts
        during
        the comparable 2005 period, primarily due to our cessation of operations
        and
        implementation of other aspects of our restructuring plan, which had commenced
        in the prior quarter ending June 30, 2005.
  **Selling,
        General and Administrative Expense**
 The
        following is a summary of the major cost categories in selling general and
        administrative expenses (all amounts approximate):
 Three
                  months ended
                September
                  30, 2004
              
              Three
                  months ended
                September
                  30, 2005
              
              Increase/
                  (Decrease)
                2004
                  to 2005Personnel
              
              $
              324,000
              
              $
              78,000
              
              $
              (246,000
              )Contract
                  consultants
              
              
              429,000
              
              
              117,000
              
              
              (312,000
              )Stock
                  options
              
              
              152,000
              
              
              10,000
              
              
              (142,000
              )Legal
                  and accounting
              
              
              560,000
              
              
              94,000
              
              
              (466,000
              )Fees
              
              
              248,000
              
              
              –
              
              
              (248,000
              )Facilities
                  costs
              
              
              413,000
              
              
              50,000
              
              
              (363,000
              )Insurance
              
              
              185,000
              
              
              90,000
              
              
              (95,000
              )Depreciation
                  & amortization
              
              
              486,000
              
              
              –
              
              
              (486,000
              )Amortization-purchase
                  technology
              
              
              326,000
              
              
              325,000
              
              
              (1,000
              )Other
              
              
              211,000
              
              
              114,000
              
              
              (97,000
              )Total
              
              $
              3,334,000
              
              $
              878,000
              
              $
              (2,456,000
              )
 
  -20-
  All
        costs, except non-cash amortization of Purchased Technology, decreased
        significantly from 2004 to 2005 largely as a result of our cessation of
        operations and implementation of all other aspects of our restructuring plan,
        which had commenced in the prior quarter ending June 30, 2005.
  Contract
        consultant charges decreased from the quarter ended September 30, 2004 to
        the
        comparable 2005 period due to the restructuring plan commenced in the second
        quarter of 2005, and have been focused on the most pertinent activities
        necessary to preserve overall asset values for the benefit of creditors and
        shareholders and maintaining compliance with the Company’s ongoing duties to
        maintain its public filings with the Securities and Exchange Commission.
        In
        addition, the 2004 contract consultant charges included product marketing
        costs
        for the *Imagent* product
        incurred with a third party, whose contract was cancelled in December
        2004.
  Stock
        option expense decreased primarily due to the reductions of personnel on
        the
        Company’s roles as part of the overall restructuring plan, resulting in the
        early termination of unvested stock options which had previously been issued
        at
        then below market strike prices to certain former employees.
  Legal
        and
        accounting expense decreased from the quarter ended September 30, 2004 to
        the
        comparable 2005 period, primarily due to decreased legal fees associated
        with
        litigation as a result of the stay of the litigation, pending settlement
        discussions which successfully concluded by September 30, 2005.
  There
        were no fees incurred in the third quarter 2005 related to late registration
        penalties that began accruing in January 2005 for shares for which the Company
        has filed two registration statements, one of which was declared effective,
        but
        then was suspended because updated information was required, and the second
        of
        which has never been declared effective. We have stopped accruing penalty
        shares
        for the security holders who received shares subject to that certain
        registration rights agreement dated as of April 14, 2004 because without
        an
        effective registration statement we are unable to abide by the contractual
        requirement that the penalty shares such parties receive are freely tradable
        shares. In general, privately issued shares held by the investors for one
        year
        may be sold under Rule 144.
  Fees
        incurred in the third quarter of 2004 related primarily to late registration
        penalties associated with our equity transaction concluded with investors
        on
        June 30, 2004.
  Depreciation
        and amortization of equipment, leasehold improvements and Technology License
        was
        non-existent in 2005, as these assets were taken out of service and/or impaired
        as to remaining valuations at June 30, 2005, and have since been completely
        conveyed and/or abandoned by September 30, 2005.
  Amortization
        of Purchased Technology did not change between periods, as we continue to
        amortize this asset pending making an ultimate determination as to its carrying
        value and alternative transactions which might give rise to additional liquidity
        associated with this asset.
  -21-
  **Investment
        and Other Income**
 Investment
        and other income in the third quarter of 2005 decreased from the comparable
        period in 2004, primarily due to the lack of revenues from sales of our *Imagent* product
        as a result of our curtailing of marketing efforts in 2005 as part of our
        restructuring plan.
  **Interest
        Expense**
 Interest
        expense in the third quarter of 2005 decreased by nominally compared to the
        comparable period in 2004, due to the reduction of the Company’s notes payable
        and other interest bearing obligations during the second through fourth quarters
        of 2004.
  **Nine
        Months Ended September 30, 2004 and 2005**
 
 **As
        a result of the restructuring plans adopted in April and May of 2005, and
        which
        continue to be carried out through September 30 2005, the results of the
        nine
        months ending September 30, 2005 are not likely to be indicative of the
        remaining quarter 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
        additional 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 until early
        second
        quarter 2005 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. Since early
        in
        the second quarter of 2005, the majority of the costs have been expended
        with a
        focus on patent, regulatory and clinical considerations in keeping with our
        overall objective to preserve net asset values. In August 2005, we notified
        the
        FDA that we suspended any activity related to the Investigational New Drug
        Application.
  The
        following is a summary of our major research and development cost categories
        (all amounts approximate):
 Nine
                      months ended
                    September
                      30, 2004
                  
                  Nine
                      months ended
                    September
                      30, 2005
                  
                  Increase/
                      (Decrease)
                    2004
                      to 2005Personnel
                  
                  $
                  1,667,000
                  
                  $
                  746,000
                  
                  $
                  (921,000
                  )
 Contract
                      consultants
                  
                  
                  581,000
                  
                  
                  341,000
                  
                  
                  (240,000
                  )Patent
                      costs
                  
                  
                  259,000
                  
                  
                  108,500
                  
                  
                  (150,500
                  )Production
                      facilities costs
                  
                  
                  236,000
                  
                  
                  27,000
                  
                  
                  (209,000
                  )Supplies
                  
                  
                  180,000
                  
                  
                  17,000
                  
                  
                  (163,000
                  )Gain
                      - equipment lease settlement
                  
                  
                  (126,000
                  )
                  
                  –
                  
                  
                  126,000Other
                  
                  
                  53,000
                  
                  
                  169,500
                  
                  
                  116,500Total
                  
                  $
                  2,850,000
                  
                  $
                  1,409,000
                  
                  $
                  (1,441,000
                  )
 
  -22-
  Personnel,
        contract consultants, patent, production facilities costs and supplies all
        decreased from the nine months ended September 30, 2004 to the comparable
        2005
        period, primarily due to our efforts to cut expenses and implement our
        restructuring plan. The majority of these 2005 costs were incurred in the
        six
        months ended June 30, 2005 related to our efforts to initially commence our
        Phase II clinical trials for a new indication for *Imagent* (primarily incurred January - mid-April 2005), and then, upon the Board’s
        decision to implement our restructuring plan, since mid-April 2005 converting
        our efforts to preserve asset values for the benefit of creditors and
        shareholders.
  **Selling,
        General and Administrative Expense**
 The
        following is a summary of the major cost categories in selling general and
        administrative expenses (all amounts approximate):
 Nine
                  months ended
                September
                  30, 2004
              
              Nine
                  months ended
                September
                  30, 2005
              
              Increase/
                  (Decrease)
                2004
                  to 2005Personnel
              
              $
              1,214,000
              
              $
              825,000
              
              $
              (389,000
              )Contract
                  consultants
              
              
              1,525,000
              
              
              564,000
              
              
              (961,000
              )Stock
                  options
              
              
              814,000
              
              
              1,088,000
              
              
              274,000Legal
                  and accounting
              
              
              1,468,000
              
              
              1,302,000
              
              
              (166,000
              )Fees
              
              
              1,000,000
              
              
              1,677,000
              
              
              677,000Facilities
                  costs
              
              
              1,209,000
              
              
              836,000
              
              
              (373,000
              )Insurance
              
              
              532,000
              
              
              389,000
              
              
              (143,000
              )Depreciation
                  & amortization
              
              
              1,414,000
              
              
              617,000
              
              
              (797,000
              )Amortization
                  of purchase technology
              
              
              978,000
              
              
              977,000
              
              
              (1,000
              )Other
              
              
              1,012,000
              
              
              408,000
              
              
              (604,000
              )Total
              
              $
              11,166,000
              
              $
              8,683,000
              
              $
              (2,483,000
              )
  Personnel,
        contract consultants, facilities and insurance expenses decreased from the
        nine
        months ended September 30, 2004 to the comparable 2005 period, primarily
        due to
        our efforts to cut expenses and implement our restructuring plan.
  Personnel
        costs incurred during the nine months ended September 30, 2004 include a
        contractually obligated bonus of $206,250 to our then chief executive officer,
        which remains unpaid in its entirety at September 30, 2005. In addition,
        the
        personnel costs incurred for the nine months ended June 30, 2005 include
        approximately $329,000 in net one-time charges for severance and incentive
        retention bonuses. Gross charges incurred during the nine months ended June
        30,
        2005 totaled $389,000, but were offset by the waiver of a previously granted
        but
        unpaid bonus of $60,000 negotiated as part of the retention bonus arrangement
        made with our chief operating officer. Of the gross charges of $389,000,
        $34,000
        represented nominal severance incentives paid to former staff in order to
        induce
        an orderly restructuring of our affairs as they transitioned from our employ, $275,000
        reflects the accrual of a one year salary severance obligation contractually
        owed to our former chief executive officer whose employment with us ended
        on May
        31, 2005 (and which also remains unpaid in its entirety at September 30,
        2005)
        and $80,000 in incentive retention bonuses issued in favor of our chief
        operating officer and one other employee who are both deemed integral to
        conducting the orderly restructuring of our operations in a manner necessary
        to
        preserve net asset values for creditors and shareholders. Of this $80,000,
        $30,000 was paid during the quarter ending June 30, 2005, another $35,000
        was
        paid in the quarter ending September 30, 2005, and $15,000 remains accrued
        as of
        September 30, 2005. (This final $15,000 has been paid out subsequent to
        September 30, 2005.)
  -23-
  Contract
        consultant charges decreased significantly from the nine months ended September
        30, 2004 for the comparable 2005 period, due to the restructuring plan commenced
        in the second quarter of 2005 and our cancellation in December 2004 of a
        contract we had with a third party to market the *Imagent* product
        in December 2004.
  Stock
        option expense increased during the nine month period ended September 30,
        2005
        over the comparable 2004 period, primarily due to the accelerated expense
        recognition of approximately 88,290 option-shares which had previously been
        issued at then below market strike prices to our former chief executive officer,
        but which became 100% vested on his employment termination date of May 31,
        2005.
        (Total option-shares vesting in favor of our former chief executive officer
        on
        May 31, 2005 totaled approximately 315,594, but the additional option-shares
        had
        been issued at strike prices at least equal to fair market value or had been
        previously expensed, all for no current effect.)
  Legal
        and
        accounting expense did not vary significantly from the nine months ended
        September 30, 2005 from the comparable period in 2004. Costs incurred during
        the
        first six months of 2005 were relatively higher, primarily due to increased
        legal fees associated with litigation and various registration statement
        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, as amended.
        However, as a result of completing or curtailing these activities, costs
        for
        these items were lower in the third quarter of 2005.
  Fees
        incurred during the nine months ended September 30, 2005 relate almost entirely
        to late registration penalties that began accruing in January 2005 for shares
        for which we have filed two registration statements, one of which was declared
        effective, but then was suspended because updated information was required,
        and
        the second of which has never been declared effective. We have stopped accruing
        penalty shares for the security holders who received shares subject to that
        certain registration rights agreement dated as of April 14, 2004 because
        without
        an effective registration statement we are unable to abide by the contractual
        requirement that the penalty shares such parties receive are freely tradable
        shares. In general, privately issued shares held by the investors for more
        than
        one year may be sold under Rule 144.
  Fees
        incurred during the nine months ended September 30, 2004 related primarily
        to a)
        carrying costs associated with various Xmark obligations, a former note holder
        and investor which held a secured blanket position in our assets, which was
        released when the obligations were extinguished in the fourth quarter of
        2004
        and b) the commencement of the incurrence of late registration penalties
        associated with obligations arising from the Company’s equity transaction
        previously concluded June 30, 2004, and for which the Company was unable
        to meet
        its registration requirements to those shareholders.
  Depreciation
        and amortization costs decreased from the nine months ended September 30,
        2004
        for the comparable 2005 period by more than 50%, as we terminated the recording
        of depreciation after April 2005, at which time we took equipment out of
        use and
        prepared it for our public auction conducted in June 2005.
  -24-
  **Loss
        on Sale of Equipment**
 In
        the
        nine months ended September 30, 2005, we incurred a loss of $248,599 on excess
        equipment which was primarily sold at public auction in June 2005. Net book
        value for this equipment totaled $519,470 ($1,282,901 cost basis, less $763,431
        accumulated depreciation), with cash proceeds totaling $270,871.
  **Impairment
        Losses**
 In
        the
        nine months ended September 30, 2005, we recorded the impairment losses totaling
        $3,835,813 in order to reflect fair market value of certain assets for which
        were able to make reasonable estimations, all as a result of our restructuring
        activities:
  ·
              Leasehold
                  improvements - approximately $3,072,500 (reduced to carrying value
                  $20,000);
  ·
              Equipment
                  - approximately $193,000 (reduced to a carrying value $31,220);
                  and
  ·
              Technology
                  license - approximately $570,500 (reduced to a carrying value
                  $102,500).
  **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 totaling
        $2,213,646 consisted of our share of the joint venture’s amortization of its
        technology license costs up to the termination date, plus the write-down
        to a
        new implicit value derived from the then fair value of the underlying common
        shares issued in consideration of the surrender of the former joint venture
        partner’s minority 19.9% interest therein.
  **Investment
        and Other Income**
 Investment
        and other income for the nine months ended September 30, 2005 decreased from
        the
        comparable period in 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. In addition, revenues from sales of our *Imagent* product
        were lower in 2005 as a result of our curtailing of marketing efforts in
        2005 as
        part of the implementation of our restructuring plan.
  **Interest
        Expense**
 Interest
        expense for the nine months ending September 30, 2005 decreased by $556,929
        compared to the comparable period in 2004, due to the reduction of our notes
        payable and other interest bearing obligations during the second through
        fourth
        quarters of 2004.
  -25-
 **Plan
        of Operation**
 In
        April
        and May 2005, we
        adopted a restructuring plan that
        resulted in cessation or suspension of substantially all operations, including
        significant employee reduction-in-force, sale of excess equipment, suspension
        of
        manufacturing and clinical activities,
        cessation of current selling activities, vacating its premises, and the sale
        of
        certain of our technology .
        We were
        also successful in helping locate a third party to occupy our facility, and
        accordingly were able to successfully negotiate a lease termination agreement
        which was concluded in July 2005. However, abandoning our facility resulted
        in
        us no longer being able to manufacture *Imagent* ourselves.
  We
        have
        also sold our equipment and other licensed technology assets except for the *Imagent* Purchased Technology.
  Therefore,
        we are currently unable to operate in a manner that would allow us to further
        develop or promote the *Imagent* product.
        In August 2005, we notified the FDA that we suspended any activity related
        to
        the Investigational New Drug Application. During the next several months,
        we
        will focus our limited resources primarily on preserving the value of the
        Purchased Technology, to the extent possible, and exploring various options
        concerning our business, including joint venturing, licensing or selling
        our
        Imagent Purchased Technology and other possible strategic transactions. We
        no
        longer have current human, financial and other resources available to us
        at this
        time to carry out our original business plan or fully develop and
        commercialize *Imagent* on our
        own.
  **Contractual
        Obligations**
 The
        following table summarizes our approximate contractual obligations as of
        September 30, 2005 and the effect such obligations are expected to have on
        our
        liquidity and cash flow for future periods:
  TotalObligations
                
                RemainderAll
                    Years
                
                2005
                
                2006
                
                2007
                
                2008Operating
                    lease obligations
                
                $
                113,000
                
                $
                40,000
                
                $
                73,000
                
                $
                –
                
                $
                –Notes
                    payable
                
                
                192,000
                
                
                192,000
                
                
                –
                
                
                –
                
                
                –Other
                    liabilities- past due
                
                
                2,411,000
                
                
                2,411,000
                
                
                –
                
                
                –
                
                
                –Accounts
                    payable- past due
                
                
                1,896,000
                
                
                1,896,000
                
                
                –
                
                
                –
                
                
                –Total
                    contractual cash obligations
                
                $
                4,612,000
                
                $
                4,539,000
                
                $
                73,000
                
                $
                –
                
                $
                –
  We
        have
        been released from operating lease obligations totaling approximately
        $2,285,000, which were related to our facilities lease at 6175 Lusk Boulevard
        in
        San Diego, pursuant to a lease termination agreement executed July 19, 2005
        and
        made effective on or about July 31, 2005.
  As
        of
        September 30, 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.
  -26-
  **Recent
        Accounting Pronouncements**
 In
        December 2004, the FASB issued revised Statement of Financial Accounting
        Standards 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.
  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 did not
        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.
  -27-
  **ITEM
        3. CONTROLS AND PROCEDURES**
  In
        September 2004, our management concluded that there were certain reportable
        conditions and material weaknesses in our internal controls and procedures.
        As
        noted in our Annual Report on Form 10-KSB for the year ended December 31,
        2004,
        as amended, we believe we had taken steps and had started to implement
        remediation procedures to address the identified reportable conditions and
        material weaknesses. However, based on our limited capital resources and
        the
        adoption of a restructuring plan in April 2005, which included a
        reduction-in-force of a majority of our full-time employees and part-time
        employees or consultants who perform administrative support, manufacturing
        and
        related functions, we have been unable to complete the previously identified
        remediation plans. As a result, certain of the previously identified reportable
        conditions and material weaknesses, particularly those related to the small
        size
        of our accounting staff and the limited number of our financial and accounting
        personnel still exist.
  Although
        certain material weaknesses in internal controls and procedures previously
        disclosed have not been fully remediated, we believe that changes and procedures
        that were implemented and remain in place, including (i) engaging of Larry
        D.
        Grant as a financial consultant, (ii) adding Darlene Deptula-Hicks to our
        Audit
        Committee, (iii) requiring the Executive Committee of the Board to ratify
        routine and/or recurring expenditures and approve significant commitments
        and
        non-routine expenditures and payments, (iv) requiring both Larry D. Grant
        and
        our Principal Executive Officer review and approve incurring all significant
        obligations and remitting payments, (v) adopting of separate Codes of Ethics
        for
        all employees and for senior executives and finance personnel, (vi) adopting
        or
        updating of the charters of our Audit and Compensation Committees, and (vii)
        creating of a Disclosure Committee and adopting of a Disclosure Committee
        Charter, mitigate and reduce the likelihood of material misstatements or
        improper disclosures in our financial statements and reports. In
        addition, the cessation of operations and discharge of employees simplifies
        the
        complexity and reduces the number of transactions we must monitor, thereby
        significantly simplifying the internal control process.
  Our
        Principal Executive Officer (who was a part-time employee of the Company
        until
        October 2005 but remains available under a consulting agreement) has
        previously 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 (the “Exchange Act”)) required by
        paragraph (b) of Rule 13a-15 or Rule 15d-15, as of September 30, 2005 and,
        based
        on that evaluation, concluded that due to insufficient staff our disclosure
        controls and procedures were not fully effective to ensure timely collection,
        evaluation and disclosure of information relating to the Company that would
        potentially be subject to disclosure under the Exchange Act, and the rules
        and
        regulations thereunder. However, to the extent corrections and improvements
        in
        internal controls and disclosure controls and procedures cannot be implemented
        and/or maintained, management believes appropriate oversight and review is
        currently in place in light of the minimal transactions conducted during
        this
        quarter to prevent material misstatements in our interim financial
        reporting.
   -28-
  **PART
        II. OTHER INFORMATION**
  **ITEM
        1. LEGAL PROCEEDINGS**
  In
        2003,
        IMCOR, together with Alliance, the prior owner of the Purchased Technology,
        filed a complaint against Amersham, alleging that certain Amersham products
        infringe on claims in patents covering *Imagent* .
        The
        case was 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 alleged that principally through their Optison®
        product, Amersham infringed on eight patents owned by us. The complaint further
        alleged misappropriation of trade secrets as well as other state law claims
        against Amersham.
  Amersham
        denied the material allegations of the claims and asserted certain affirmative
        defenses and counterclaims. Amersham’s counterclaims against us included claims
        of patent infringement of the fifteen Amersham patents, breach of contract,
        breach of good faith and fair dealing, and tortious interference with contract.
        IMCOR and Alliance, as well as Amersham, also amended their complaints to
        include allegations of antitrust violations by the other parties.
  We
        entered into the Amersham Settlement dated as of September 19, 2005 with
        Amersham, Alliance and MBI. The Amersham Settlement resolved the parties
        claims
        arising under the case described above. Under the terms of the Amersham
        Settlement, the Company’s technology cross license was valued at $1,200,000 in
        favor of the Company, for which the Company received $1,000,000 directly
        from
        Amersham. The balance, or $200,000, was paid directly by Amersham to Alliance
        which served as the cash consideration to Alliance under the separate but
        concurrent Alliance Settlement discussed below. The parties dismissed their
        litigation, granted each other fully paid-up, irrevocable, royalty-free,
        non-exclusive cross-licenses, with the right to sublicense, and mutual releases.
  In
        addition, we entered into the Alliance Settlement dated as of September 19,
        2005
        with Alliance pursuant to which: (i) each party’s respective ongoing obligations
        to one another under the Asset Purchase Agreement dated as of June 10, 2003
        between IMCOR and Alliance were terminated, (ii) each party granted the other
        a
        mutual general release (which resolved, among other things, the parties’ claims
        against one another for various accumulated post-closing payments), and (iii)
        the parties agreed to share in the proceeds of future transactions involving
        the
        disposition of our *Imagent* asset.
  **ITEM
        2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS**
  During
        the nine months ending September 30, 2005, we issued 952,440 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 common 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 penalties4/11/2005
              
              
              454,149
              
              
              Late
                  registration penalties
   -29-
  As
        of
        June 30, 2005, an additional 2,008,913 shares of our common stock are
        collectively issuable to Oxford Bioscience Partners, L.P., MRNA Fund II,
        L.P.
        and Mi3 L.P. to satisfy additional late registration penalty obligations
        calculated through that date. In July, 2005 we negotiated an agreement with
        these three parties to cease, effective as of June 30, 2005, the accrual
        of
        shares of the Company’s common stock to be delivered to those investors as a
        penalty for the Company’s failure to have an effective registration statement in
        place under the terms of the registration rights agreements dated April 19,
        2004
        between the Company and those investors.
  All
        of
        the shares issued in January through April 2005 were subject to pending
        registration statements which are not currently effective. The effectiveness
        of
        the registration statements was delayed while we responded to the SEC’s various
        comments which arose during the comment process. Given our current financial
        circumstances and its goal to maximize the funds available to our creditors,
        our
        board of directors has determined that we will not continue to pursue our
        efforts to effect our registration statements currently on file with the
        SEC
        (File Nos. 333-122625 and 333-117907). Those registration statements, which
        are
        not currently effective, will be withdrawn.
  We
        have
        stopped accruing penalty shares for the security holders who received shares
        subject to that certain registration rights agreement dated as of April 14,
        2004
        because without an effective registration statement we are unable to abide
        by
        the contractual requirement that the penalty shares such parties receive
        freely
        tradable shares. In general, privately issued shares held by investors for
        more
        than one year may be sold under Rule 144.
  Many
        of
        our investors have held their shares in the Company for more than a year
        and
        will be qualified to sell their shares under Rule 144, subject to the
        restrictions set forth therein; ** indeed,
        several such investors have sold shares utilizing Rule 144. However, given
        our
        current financial situation, at some point in the fourth quarter of 2005
        or
        thereafter we may elect to cease reporting under the Exchange Act, and as
        a
        result, investors will no longer be eligible to resell their shares of our
        common stock under Rule 144.
  **ITEM
        3. DEFAULTS UPON SENIOR
        SECURITIES**
  NONE
  ITEM
        4.SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS
  NONE
  -30-
  ITEM
        5.OTHER
        INFORMATION
  **RISK
        FACTORS**
  **RISKS
        RELATED TO OUR FINANCING AND OPERATIONS AND COMMON STOCK**
  **We
        currently have insufficient funds available to pay all of our
        liabilities.**
  Our
        cash
        and cash equivalents at September 30, 2005 was $869,246. At September 30,
        2005,
        we had current liabilities, excluding the current portion of deferred licensing
        revenue of $813,379, totaling approximately $4,902,202.
  We
        have
        implemented a restructuring plan which resulted in a reduction-in-force of
        most
        of our employees, terminating sales efforts and manufacturing operations,
        terminating clinical development, vacating our leased premises, selling our
        furniture, fixtures and manufacturing equipment, and selling our rights to
        N1177
        (an iodine-based nanoparticulate contrast agent) and PH-50, which is the
        same or
        substantially similar compound as N1177 for a different indication. Our board
        of
        directors has authorized actions necessary to effectuate the restructuring
        plan **.**
  **If
        we are unable to find a partner or buyer of our remaining assets at acceptable
        prices we will continue to be unable to meet our obligations to our creditors
        and may enter into bankruptcy proceedings, or liquidate and dissolve under
        applicable state laws.**
  We
        plan
        to focus our efforts primarily on exploring various options concerning our
        business, including licensing or selling all or a portion of our remaining
        assets ( *Imagent* ),
        finding a partner with whom to pursue the clinical development and
        commercialization of *Imagent* and
        maintain our patent portfolio. To date, we have not been able to raise
        sufficient capital to operate the Company, and the difficulties and delays
        in
        settling the lawsuit with Amersham have resulted in our vacating our
        manufacturing facility, stopping the manufacturing of our *Imagent* product,
        and terminating clinical development. We need to find an acceptable buyer
        or
        partner for our *Imagent* assets
        in order to proceed with any type of development plan. If we are not able
        to
        find a buyer or partner for these assets in a timely manner and at acceptable
        prices, we will continue to not have sufficient funds to meet our obligations
        to
        our creditors and may be forced into voluntary or involuntary bankruptcy
        proceedings, or liquidate and dissolve under applicable state laws. The steps
        to
        sell or otherwise dispose of our assets (including negotiating agreements
        and
        obtaining shareholder approval to the extent required) are costly and will
        diminish the proceeds available for other purposes.
  **We
        expect to incur significant costs in connection with Securities Exchange
        Act of
        1934 compliance and may elect to remove the Company from the Securities Exchange
        Act of 1934 reporting requirements, which would make Rule 144 resales
        unavailable to investors.**
  We
        are
        currently subject to the rules of the Exchange Act and the related reporting
        requirements. Compliance with the reporting requirements of the Exchange
        Act
        requires the timely filing of Quarterly Reports on Form 10-QSB, Annual Reports
        on Form 10-KSB and Current Reports on Form 8-K, among other actions. Our
        compliance with the reporting requirements involves significant costs and
        expenditures of management’s time. Given our current financial position and the
        limited resources of our management, our board of directors may elect to
        remove
        the Company from the reporting obligations of the Exchange Act at some point
        in
        the fourth quarter of 2005 or thereafter. If we make such an election, investors
        would not be able to utilize Rule 144 in connection with the resale of their
        shares of our common stock (until the shares become freely tradable under
        Rule
        144(k)).
  -31-
  **Our
        current financial situation could lead to shareholder or creditor litigation
        which could result in substantial costs and distract our management from
        our
        restructuring efforts.**
  Historically,
        companies in financial situations similar to ours have often been the target
        of
        litigation by creditors or shareholders. We may become involved in this type
        of
        litigation as a result of the actions we have taken and/or our inability
        to meet
        our obligations to our creditors and others. As of November 15, 2005, no
        such
        lawsuits were pending. However, if such a lawsuit is filed against us, the
        litigation is likely to be expensive, and, even if we ultimately prevail,
        the
        process will divert our attention away from implementing our current
        restructuring plan. If we do not prevail in such a lawsuit, we may be liable
        for
        damages. We cannot predict the amount of such damages, but they may be
        significant and could further reduce our limited available cash.
  **We
        have a history of losses, and we do**  **not
        expect to achieve or maintain profitability in the future or pay cash
        dividends.**
  We
        have
        incurred losses since the beginning of our operations. As of September 30,
        2005,
        we have incurred cumulative net losses (before dividends on preferred stock)
        of
        approximately $86,866,118. We expect our losses to increase in the future
        as our
        financial resources are used to preserve the value of our assets and to the
        extent possible, pay creditors. It is unlikely that we will be able to achieve
        or maintain profitability in the future.
  We
        do not
        anticipate paying any dividends on our common stock in the foreseeable future,
        and, given our outstanding debt to creditors, it is unlikely that shareholders
        will receive funds from the Company if it is dissolved.
  **We
        no longer maintain a manufacturing facility and we may encounter difficulties
        restarting our manufacturing operations if we chose to do so in the future
        or
        contracting with a contract manufacturer.**
  We
        have
        suspended manufacturing operations and vacated our leased manufacturing facility
        located in San Diego, California. We do not have the resources to resume
        manufacturing at another facility ourselves and we cannot assume that a third
        party would be able to take over manufacturing. Any purchaser of *Imagent* or
        development or manufacturing partner will be required to comply with FDA
        manufacturing standards. A new manufacturing facility would require FDA
        submissions and approvals. Timing of this event, should it occur, would affect
        initiation of clinical trials and regulatory submissions. All of the above
        has
        prevented us from being able to fulfill certain of our contractual obligations
        to provide product (including fulfilling our obligations under our license
        agreement with Kyosei Pharmaceutical Co., Ltd.), which could result in disputes
        or claims against us and/or diminished license revenue.
  -32-
  **We
        no longer maintain any internal quality control and stability program for** ***Imagent*** **.**
  Since
        we
        have suspended manufacturing operations and vacated our leased manufacturing
        facility located in San Diego, California, we entered in to an agreement
        with
        Cardinal Health to maintain and conduct our stability samples. On August
        17,
        2005, we terminated this agreement and consequently the testing program,
        resulting in the inability to support any clinical testing of the product
        beyond
        its current expiry date of September 2005.
  **We
        no longer maintain any clinical or regulatory staff.**
  We
        are
        required to rely on the services of outside consultants for clinical and
        regulatory advice, and maintenance of the Investigational New Drug application
        (“IND”) and NDA. If we cannot maintain those contracts, the IND and NDA may have
        to be abandoned, significantly reducing the assets of the corporation. In
        August
        2005, we notified the FDA that we suspended any activity related to the
        IND.
  **Failure
        to achieve and maintain effective internal controls in accordance with Section
        404 of the Sarbanes-Oxley Act could have a material adverse effect on our
        business and operating results.**
  Effective
        internal controls are necessary for us to provide reliable financial reports
        and
        effectively prevent fraud. If we cannot provide reliable financial reports
        and
        prevent fraud, our operating results could be harmed and current and potential
        stockholders could lose confidence in our financial reporting, which could
        have
        a material adverse effect on our stock price and ability to raise capital.
        In
        September 2004, we and our independent registered public accounting firm
        concluded that our internal controls and procedures had certain material
        weaknesses and reportable conditions. For further information concerning
        our
        controls, see ***“Part
        II. Other Information, 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, since it
        is
        unlikely that we can further rectify these material weaknesses through measures
        and improvements to our systems and procedures, management may encounter
        difficulties in timely assessing business performance and identifying incipient
        strategic and oversight issues.
  We
        are
        committed to maintaining high standards of corporate governance and public
        disclosure. As a result, our efforts to comply with evolving laws, regulations
        and standards have resulted in, and are likely to continue to result in,
        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.
  -33-
  **We
        depend on a small number of consultants to provide management expertise,
        and the
        loss of this expertise may interfere with our operations or delay our ability
        to
        implement our restructuring plan.**
  We
        currently have one acting Principal Executive Officer (Mr. DeFranco) who
        was a
        part-time employee of the Company until October 2005. Mr. DeFranco became
        a
        consultant to the Company in November 2005 and is engaged by us on a part-time,
        as needed basis through April 30, 2006. **** We
        also
        have retained Larry D. Grant, a consultant, to provide advisory and management
        services, on a part-time basis, on financial, operational and strategic matters.
        These individuals have entered into consulting agreements, confidentiality
        and/or non-competition agreements with us. If an individual performing one
        of
        these executive or consulting functions for us terminates his association
        with
        us or breaches their agreement with us:
  ·
              We
                  would not have anyone available to promote or negotiate a sale
                  or
                  development transaction with a
                  third-party,
  ·
              We
                  could suffer competitive disadvantage or loss of intellectual property
                  protection, and
  ·
              We
                  could experience a delay in our ability to implement our restructuring
                  plan until we arrange for another individual or firm to fulfill
                  the
                  role.
  **Two
        related stockholders have significant voting power, which may delay or prevent
        a
        change of control of IMCOR and may limit the trading volume of our common
        stock.**
  As
        of
        November 18, 2005, two related stockholders controlled approximately 2,738,084
        shares, or 55% of our issued and outstanding common stock at that date. In
        August 2005, these stockholders agreed to stop the accrual, as of June 30,
        2005,
        of their right to receive additional shares of the Company’s common stock as a
        penalty for the Company’s failure to timely register certain of their shares of
        common stock. Such additional common shares, which are yet to be issued,
        total
        1,914,885. Upon issuance, these two related stockholders will then control
        approximately 68% of our pro forma issued and outstanding common stock. This
        concentration of ownership and control may delay or prevent a change in control
        of IMCOR, and may also result in a small supply of shares available for purchase
        in the public securities markets. These factors may affect the market and
        the
        market price for its common stock in ways that do not reflect the intrinsic
        value of our common stock.
  **We
        have issued a substantial number of securities convertible into shares of
        our
        common stock that will result in substantial dilution to the ownership interests
        of our existing shareholders.**
  As
        of
        September 30, 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 September 30, 2005 we have obligations
        to
        issue 2,008,913 shares of common stock for final tabulated late registration
        penalties, of which none are issued as of November, 2005.
  -34-
  If
        our
        options and warrants are all issued and exercised, or convertible securities
        converted, investors may experience significant dilution in the voting power
        of
        their common stock. The sale of these shares could also place downward pressure
        on the overall market price of our common stock.
  **Applicable
        Securities and Exchange Commission rules governing the trading of “penny stocks”
        limits the trading and liquidity of our common stock, which may affect the
        trading price of our common stock.**
  Our
        common stock currently is quoted on the Pink Sheets. 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 not considering
        options to seek relisting of our shares on another exchange at this time.
        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.
  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.
  **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
              
              Settlement
                  Agreement and License dated as of September 19, 2005 by and among
                  IMCOR
                  Pharmaceutical Co., GE Healthcare Ltd. (f/k/a Amersham plc, Amersham
                  Health, Inc. and Amersham Health AS), Alliance Pharmaceutical Corp.
                  and
                  Molecular Biosystems, Inc. (Filed as Exhibit 10.1 to the Company’s current
                  report on Form 8-K filed on September 24, 2005 and incorporated
                  herein by
                  reference.)+10.2
              
              Settlement
                  Agreement dated as of September 19, 2005 by and between IMCOR
                  Pharmaceutical Co. and Alliance Pharmaceutical Corp. (Filed as
                  Exhibit
                  10.2 to the Company’s current report on Form 8-K filed on September 24,
                  2005 and incorporated herein by reference.)*31.1
              
              Certification
                  of Principal Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.*31.2
              
              Certification
                  of Principal Financial Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.*32.1
              
              Certification
                  of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.*32.2
              
              Certification
                  of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.
 
 +
              Incorporated
                  by Reference.
 *
              Filed
                  herewith.
   -35-
 
 **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.
  **IMCOR
                PHARMACEUTICAL CO.**Date: 
                November 18, 2005
              By:
              /s/ Brian
                GallagherBrian
                  Gallagher
                (Chairman of the Board and Acting Principal
                  Financial
                  Officer)
   -36-
  **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
              
              Settlement
                  Agreement and License dated as of September 19, 2005 by and among
                  IMCOR
                  Pharmaceutical Co., GE Healthcare Ltd. (f/k/a Amersham plc, Amersham
                  Health, Inc. and Amersham Health AS), Alliance Pharmaceutical Corp.
                  and
                  Molecular Biosystems, Inc. (Filed as Exhibit 10.1 to the Company’s current
                  report on Form 8-K filed on September 24, 2005 and incorporated
                  herein by
                  reference.)+10.2
              
              Settlement
                  Agreement dated as of September 19, 2005 by and between IMCOR
                  Pharmaceutical Co. and Alliance Pharmaceutical Corp. (Filed as
                  Exhibit
                  10.2 to the Company’s current report on Form 8-K filed on September 24,
                  2005 and incorporated herein by reference.)*31.1
              
              Certification
                  of Principal Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.*31.2
              
              Certification
                  of Principal Financial Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.*32.1
              
              Certification
                  of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.*32.2
              
              Certification
                  of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.
 
 +
              Incorporated
                  by Reference.
 *
              Filed
                  herewith.
   -37-