**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**





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





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





**OR**





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





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





**Commission
      File Number 0-23553**





**IMCOR
      PHARMACEUTICAL CO.**


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




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





**P.O.
      Box 2389**


**La
      Jolla, CA 92037**


(Address
      of principal executive offices) (Zip Code)





**858/410-5601**


(Issuer’s
      telephone number, including area code)




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





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





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: 6,962,456 shares of common stock, $0.001
      par
      value per share, issued and outstanding at August 17, 2006.




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










**INDEX**




PagePART
                  I.
              
              FINANCIAL
                  INFORMATIONITEM
                  1.
              
              FINANCIAL
                  STATEMENTS (UNAUDITED)
              
              1ITEM
                  2.
              
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              
              16ITEM
                  3.
              
              CONTROLS
                  AND PROCEDURES
              
              28PART
                  II.
              
              OTHER
                  INFORMATIONITEM
                  1.
              
              LEGAL
                  PROCEEDINGS
              
              29ITEM
                  2.
              
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              
              29ITEM
                  3.
              
              DEFAULTS
                  UPON SENIOR SECURITIES
              
              29ITEM
                  4.
              
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              29ITEM
                  5.
              
              OTHER
                  INFORMATION
              
              29ITEM
                  6.
              
              EXHIBIT
                  INDEX
              
              36





(i)




IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY


(A
      Development Stage Company)


CONSOLIDATED
      BALANCE SHEETS


(Unaudited)





ASSETS
            
            December
                  31,
              2005
            
            June
                  30,
              2006Current
                assets:Cash
                and cash equivalents
            
            $
            717,024
            
            $
            368,845Prepaid
                expenses
            
            
            144,535
            
            
            81,187Total
                current assets
            
            
            861,559
            
            
            450,032Purchased
                technology, net
            
            
            1,000,000
            
            
            1,000,000Total
                assets
            
            $
            1,861,559
            
            $
            1,450,032LIABILITIES
                AND SHAREHOLDERS’ EQUITY (DEFICIT)Current
                liabilities:Notes
                payable unsecured
            
            $
            192,233
            
            $
            192,233Accounts
                payable
            
            
            1,841,667
            
            
            1,601,591Accrued
                expenses and assumed acquisition obligations
            
            
            1,888,161
            
            
            1,935,765Accrued
                royalty fees
            
            
            401,946
            
            
            401,946Accrued
                equipment lease obligation
            
            
            492,984
            
            
            492,984Total
                current liabilities
            
            
            4,816,991
            
            
            4,624,519Commitments
                and contingencies (Note 10)SHAREHOLDERS’
                EQUITY (DEFICIT)Preferred
                stock, $.01 par value; 5,000,000 shares authorized Series A preferred
                stock: 4,500 shares authorized, issued and outstanding; $1,000 liquidation
                preference per share, $4,500,000 in aggregate
            
            
            45
            
            
            45Common
                stock, $.001 par value; 200,000,000 shares authorized; 6,962,456
                shares
                issued and outstanding as of December 31, 2005 and June 30,
                2006
            
            
            6,962
            
            
            6,962Additional
                paid-in capital
            
            
            87,926,777
            
            
            87,973,306Deficit
                accumulated during the development stage
            
            
            (90,889,216
            )
            
            (91,154,800
            )Total
                shareholders’ equity (deficit)
            
            
            (2,955,432
            )
            
            (3,174,487
            )Total
                liabilities and shareholders’ equity (deficit)
            
            $
            1,861,559
            
            $
            1,450,032




See
      notes
      to consolidated financial statements.




1





IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF OPERATIONS


(Unaudited)




Three
                Months
              Ended
              June
                30,
              2005
            
            Three
                Months Ended
              June
                30,
              2006
            
            Six
                Months
              Ended
              June
                30,
              2005
            
            Six
                Months
              Ended
              June
                30,
              2006
            
            Period
                from
              Inception
              (November
                3,
              1996)
                to
              June
                30,
              2006License
                revenue
            
            $
            174,077
            
            $
            —
            
            $
            348,154
            
            $
            —
            
            $
            1,080,515Operating
                expenses:Research
                and development
            
            
            497,976
            
            
            52,762
            
            
            1,355,726
            
            
            73,220
            
            
            12,202,748Sales,
                general and administrative
            
            
            3,632,832
            
            
            157,327
            
            
            7,804,316
            
            
            395,996
            
            
            55,972,546Restructuring
                charges
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,541,455Provision
                for future lease payments
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,264,208Loss
                on disposal of property, plant & equipment
            
            
            248,599
            
            
            —
            
            
            248,599
            
            
            —
            
            
            226,305Impairment
                losses, net
            
            
            3,835,813
            
            
            —
            
            
            3,835,813
            
            
            —
            
            
            7,781,045Total
                operating expenses
            
            
            8,215,220
            
            
            210,089
            
            
            13,244,454
            
            
            469,216
            
            
            78,988,307Operating
                loss
            
            
            (8,041,143
            )
            
            (210,089
            )
            
            (12,896,300
            )
            
            (469,216
            )
            
            (77,900,606
            )Loss
                from joint venture
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (14,518,000
            )Investment
                and other income
            
            
            9,340
            
            
            2,152
            
            
            37,169
            
            
            5,619
            
            
            1,500,493Gain
                on extinguishment of debt
            
            
            —
            
            
            98,918
            
            
            —
            
            
            245,617
            
            
            350,059Interest
                expense
            
            
            (22,181
            )
            
            (24,179
            )
            
            (44,536
            )
            
            (47,604
            )
            
            (1,680,211
            )Loss
                from continuing operations
            
            
            (8,053,984
            )
            
            (133,198
            )
            
            (12,903,667
            )
            
            (265,584
            )
            
            (92,255,451
            )Discontinued
                operations:Operating
                loss from therapeutic business
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (10,679,101
            )Gain
                from split-off of therapeutic business
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            11,799,752—
            
            
            —
            
            
            —
            
            
            —
            
            
            1,100,651Net
                loss attributable to common shareholders
            
            $
            (8,053,984
            )
            $
            (133,198
            )
            $
            (12,903,667
            )
            $
            (265,584
            )
            $
            (91,154,800
            )Basic
                and diluted loss per common share
            
            $
            (1.47
            )
            $
            (0.02
            )
            $
            (2.56
            )
            $
            (0.04
            )Weighted
                average number of common shares outstanding- basic &
                diluted
            
            
            5,473,110
            
            
            6,962,456
            
            
            5,031,497
            
            
            6,962,456





See
      notes to consolidated financial statements




2


IMCOR
      PHARMACEUTICAL CO. AND SUBSIDIARY


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Unaudited)




Six
                  Months
              Ended
              June
                  30,
              2005
            
            Six
                  Months
              Ended
              June
                  30,
              2006
            
            Period
                  from
              Inception
              (November
                  3,
              1996)
                to
              June
                  30,
              2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (12,903,667
            )
            $
            (265,584
            )
            $
            (91,154,800
            )Less
                gain from discontinued operations
            
            
            —
            
            
            —
            
            
            (1,100,651
            )Adjustments
                to reconcile net loss to cash used by operating
                activities:Depreciation
                and amortization
            
            
            1,269,078
            
            
            —
            
            
            8,406,351Loss
                on disposal of property, plant and equipment
            
            
            248,599
            
            
            —
            
            
            262,529Gain
                on sale of marketable securities
            
            
            —
            
            
            —
            
            
            (18,503
            )United
                States Treasury Notes amortization
            
            
            —
            
            
            —
            
            
            12,586Stock
                option compensation
            
            
            1,077,780
            
            
            46,529
            
            
            5,007,928Gain
                from equipment lease settlement
            
            
            —
            
            
            —
            
            
            (126,257
            )License
                revenue deferred
            
            
            —
            
            
            —
            
            
            9,000,000Recognition
                of deferred license revenue
            
            
            (348,154
            )
            
            —
            
            
            (1,080,515
            )Amortization
                of deferred royalty expense
            
            
            20,833
            
            
            —
            
            
            83,334Valuation
                impairment allowances
            
            
            3,835,812
            
            
            —
            
            
            7,781,045Beneficial
                inducement costs for convertible notes
            
            
            —
            
            
            —
            
            
            206,348Issuance
                of warrants for services rendered
            
            
            —
            
            
            —
            
            
            4,345,491Issuance
                of stock options in settlement of lawsuit
            
            
            —
            
            
            —
            
            
            806,415Issuance
                of stock for standstill agreement
            
            
            —
            
            
            —
            
            
            1,173,750Issuance
                of stock for services rendered
            
            
            10,500
            
            
            —
            
            
            445,814Issuance
                of stock for interest payments and penalties
            
            
            1,668,593
            
            
            —
            
            
            3,179,410Equity
                in loss of affiliate
            
            
            —
            
            
            —
            
            
            14,518,000Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (85,536
            )
            
            —
            
            
            —Prepaid
                expenses
            
            
            45,527
            
            
            63,348
            
            
            (81,187
            )Deferred
                royalties expense
            
            
            —
            
            
            —
            
            
            (500,000
            )Accounts
                payable
            
            
            257,811
            
            
            (240,076
            )
            
            1,745,230Accrued
                expenses and assumed acquisition obligations
            
            
            (32,329
            )
            
            47,604
            
            
            (366,353
            )Accrued
                equipment lease obligation
            
            
            —
            
            
            —
            
            
            1,050,589Other
            
            
            —
            
            
            —
            
            
            10,000Net
                cash used in continuing operating activities
            
            
            (4,935,153
            )
            
            (348,179
            )
            
            (36,393,446
            )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)




Six
                  Months
              Ended
              June
                  30,
              2005
            
            Six
                  Months
              Ended
              June
                  30,
              2006
            
            Period
                  from
              Inception
              (November
                  3,
              1996)
                  to
              June
                  30,
              2006CASH
                FLOWS FROM INVESTING ACTIVITIES:Sale
                of marketable securities
            
            
            —
            
            
            —
            
            
            2,164,464Purchases
                of marketable securities
            
            
            —
            
            
            —
            
            
            (2,182,967
            )Purchases
                of United States Treasury Notes
            
            
            —
            
            
            —
            
            
            (38,656,973
            )Sale
                of United States Treasury Notes
            
            
            —
            
            
            —
            
            
            39,778,548Purchase
                of property, plant and equipment
            
            
            (3,040
            )
            
            —
            
            
            (754,674
            )Proceeds
                from disposal of property, plant and equipment
            
            
            270,871
            
            
            —
            
            
            492,135Proceeds
                from disposal of technology license
            
            
            —
            
            
            —
            
            
            102,500Patent
                acquisition costs
            
            
            —
            
            
            —
            
            
            (237,335
            )Investment
                in and advances to affiliate
            
            
            —
            
            
            —
            
            
            (15,107,468
            )Increase
                in note receivable
            
            
            —
            
            
            —
            
            
            (1,255,000
            )Decrease
                (increase) in deposits
            
            
            750
            
            
            —
            
            
            (439,370
            )Purchase
                of Imagent business
            
            
            —
            
            
            —
            
            
            (5,074,761
            )Net
                cash provided by (used in) investing activities
            
            
            268,581
            
            
            —
            
            
            (21,170,901
            )Net
                cash used in investing activities of discontinued
                operations
            
            
            —
            
            
            —
            
            
            (1,306,676
            )CASH
                FLOWS FROM FINANCING ACTIVITIESPrincipal
                payments on capital leases
            
            
            —
            
            
            —
            
            
            (291,704
            )Net
                proceeds from issuance of equity and mezzanine equity
            
            
            —
            
            
            —
            
            
            54,004,340Capital
                contributions from shareholders
            
            
            —
            
            
            —
            
            
            1,958,364Principal
                payments on acquisition debt
            
            
            —
            
            
            —
            
            
            (2,500,000
            )Principal
                payments on other debt
            
            
            —
            
            
            —
            
            
            (3,350,641
            )Proceeds
                from issuance of debt
            
            
            —
            
            
            —
            
            
            20,544,721Payments
                on lease settlement obligation
            
            
            —
            
            
            —
            
            
            (75,000
            )Cost
                of recapitalization
            
            
            —
            
            
            —
            
            
            (371,111
            )Net
                cash provided by financing activities
            
            
            —
            
            
            —
            
            
            69,918,969NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (4,666,572
            )
            
            (348,179
            )
            
            368,845CASH
                AND CASH EQUIVALENTS, BEGINNING OF YEAR
            
            
            4,721,456
            
            
            717,024
            
            
            —CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            54,884
            
            $
            368,845
            
            $
            368,845SUPPLEMENTAL
                SCHEDULE OF CASH FLOWS INFORMATION:Interest
                paid
            
            $
            —
            
            $
            —
            
            $
            481,679





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




**SIX
      MONTHS ENDED JUNE 30, 2006:**




[NONE]





**SIX
      MONTHS ENDED JUNE 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.




See
      notes
      to consolidated financial statements




4


**IMCOR
      Pharmaceutical Co. and Subsidiary**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**





**1.
      Basis of Presentation:**




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




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




The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States of America requires management to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of income and expenses during
      the reporting period. Actual results could differ from those estimates or
      assumptions. The more significant estimates reflected in these financial
      statements relate to the Company’s review of the fair value of its Purchased
      Technology (defined as the assets acquired on June 18, 2003 from Alliance
      Pharmaceutical Corp. (“Alliance”) which relate to the medical imaging business,
      including *Imagent* ®
      (perflexane lipid microspheres), an FDA approved product).




**2.
      Liquidity and Basis of Presentation - Going Concern:**





The
      accompanying consolidated financial statements are prepared assuming the Company
      is a going concern.  The Company has reported accumulated losses since
      inception of $91,154,800 and as of June 30, 2006, has a working capital deficit
      of $4,174,487. In addition, as indicated in more detail in Note 12, a
      restructuring plan was implemented commencing in the second quarter of 2005.
      Efforts to implement this restructuring plan are ongoing, as the Company seeks
      to maximize the value of its remaining technology assets.




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





5




**3.
      Recent Accounting Pronouncements:**





In
      December 2004, the FASB issued revised SFAS No. 123 (SFAS No. 123R),
“Share-Based Payment.” This statement eliminates the ability to account for
      share-based compensation transactions using the intrinsic value-based method
      under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
      to Employees,” and requires instead that such transactions be accounted for
      using a fair-value-based method. SFAS No. 123R is effective for Small Business
      Issuers for financial statements issued for the first interim period beginning
      after December 15, 2005. In connection with our adoption of SFAS No. 123R,
      effective January 1, 2006, utilizing the modified prospective method of
      transition, we recognized stock based compensation expense in the amount of
      $46,529 during the six months ended June 30, 2006.




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




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




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




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




6




**4.
      Reclassification:**





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





**5.
      Basic and Diluted Loss Per Common Share:**





Basic
      and
      diluted loss per common share is computed based on the weighted average number
      of common shares outstanding. Loss per share excludes the impact of outstanding
      options, warrants and convertible preferred stock as they are anti-dilutive.
      Potential common shares excluded from the calculation at June 30 of each year
      are as follows:




2005
            
            2006Options
                pursuant to plans
            
            
            566,524
            
            
            138,599Options
                outside of plans, net of cashless component
            
            
            34,977
            
            
            34,977Warrants
            
            
            819,736
            
            
            819,736Issuable
                upon conversion of preferred stock
            
            
            833,334
            
            
            833,334Total
            
            
            2,254,571
            
            
            1,826,646





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





Effective
      December 31, 2005, the Company adopted the provisions of Financial Accounting
      Standards Board Statement of Financial Accounting Standard (“SFAS”) No. 123(R),
“Share-Based Payments,” which establishes the accounting for employee
      stock-based awards. Under the provisions of SFAS No.123(R), stock-based
      compensation is measured at the grant date, based on the calculated fair value
      of the award, and is recognized as an expense over the requisite employee
      service period (generally the vesting period of the grant). The Company adopted
      SFAS No. 123(R) using the modified prospective method and, as a result, periods
      prior to December 31, 2005 have not been restated. During the six months ended
      June 30, 2006, the Company recognized stock-based compensation of $46,529
      pursuant to SFAS No.123(R) in the “Selling, general and administrative” line
      item of the Consolidated Statement of Operations. Additionally, no modifications
      were made to outstanding stock options prior to the adoption of SFAS No. 123(R),
      and no cumulative adjustments were recorded in the Company’s financial
      statements.





Prior
      to
      December 31, 2005, the Company accounted for stock-based compensation in
      accordance with provisions of Accounting Principles Board Opinion No. 25 (“APB
      No. 25”), “Accounting for Stock Issued to Employees,” and related
      interpretations. Under APB No. 25, compensation cost was recognized based on
      the
      difference, if any, on the date of grant between the fair value of the Company’s
      stock and the amount an employee must pay to acquire the stock. In certain
      cases
      the Company granted stock options at an exercise price less than the market
      price on the date of grant, and accordingly compensation expense was recognized
      for the stock option grants in periods prior to the adoption of SFAS No.
      123(R).





7




SFAS
      No.
      123(R) requires disclosure of pro-forma information for periods prior to the
      adoption. The pro-forma disclosures are based on the fair value of awards at
      the
      grant date, amortized to expense over the service period. The following table
      illustrates the effect on net income and earnings per share as if the Company
      had applied the fair value recognition provisions of SFAS No. 123, “Accounting
      for Stock-Based Compensation,” for the period ending June 30 prior to the
      adoption of SFAS No. 123(R), and the actual effect on net income and earnings
      per share for the period after the adoption of SFAS No. 123(R).





Three
                Months
              Ended
              June
                30, 2005
            
            Three
                Months
              Ended
              June
                30, 2006
            
            Six
                Months
              Ended
              June
                30, 2005
            
            Six
                Months
              Ended
              June
                30, 2006Attributable
                to common stockholders:Net
                loss, as reported
            
            $
            (8,053,984
            )
            $
            (133,198
            )
            $
            (12,903,677
            )
            $
            (265,584
            )Add
                stock based compensation expenseincluded
                in reported net loss
            
            
            843,825
            
            
            8,203
            
            
            1,077,780
            
            
            46,529Less
                total stock-based employeeCompensation
                expense determined underthe
                fair-value based method for all awards
            
            
            (6,020,515
            )
            
            (8,203
            )
            
            (6,297,388
            )
            
            (46,529
            )Pro
                forma net loss
            
            $
            (13,230,674
            )
            $
            (133,198
            )
            $
            (18,123,285
            )
            $
            (265,584
            )Net
                loss per common share (basic and diluted):Reported
            
            $
            (1.47
            )
            $
            (0.02
            )
            $
            (2.56
            )
            $
            (0.04
            )Pro
                forma
            
            $
            (2.42
            )
            $
            (0.02
            )
            $
            (3.60
            )
            $
            (0.04
            )





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





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





As
      of
      June 30, 2006, the Company had unrecognized compensation costs of $81,804
      related to unvested stock options. This cost is expected to be recognized over
      a
      weighted average period of approximately 1.2 years.





The
      following summarizes the stock option activity for the six months ended June
      30,
      2006:




Shares
            
            Weighted
                Average
              Exercise
                Price
            
            Weighted
                Average
              Contractual
                TermsOutstanding,
                December 31, 2005
            
            
            167,017
            
            $
            70.49
            
            
            6.98Options
                granted
            
            
            —
            
            
            —
            
            
            —Options
                reinstated
            
            
            —
            
            
            —
            
            
            —Options
                exercised
            
            
            —
            
            
            —
            
            
            —Options
                forfeited or expired
            
            
            (28,418
            )
            $
            (48.00
            )
            
            —Outstanding
                June 30, 2006
            
            
            138,599
            
            $
            75.10
            
            
            6.83Options
                exercisable, June 30, 2006
            
            
            89,849
            
            $
            111.51
            
            
            5.84




8




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





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




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




**8.
      Intangible Assets:**





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





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





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




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




9




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




December
                  31,
              2005
            
            June
                  30,
              2006Assumed
                acquisition obligations
            
            $
            924,784
            
            $
            924,784Accrued
                payroll, deferred bonuses and related compensation
                expenses
            
            
            512,656
            
            
            512,656Accrued
                legal fees
            
            
            139,153
            
            
            139,153Accrued
                interest
            
            
            121,568
            
            
            169,172Other
                accrued expenses
            
            
            190,000
            
            
            190,000$
            1,888,161
            
            $
            1,935,765




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




During
      the quarter ended June 30, 2005, the former CEO's employment with the Company
      was terminated, and the Company recorded a reserve for severance totaling
      $275,000. This individual is also owed $206,250 for a bonus earned in 2004.
      No
      portion of these obligations, totaling $481,250, has been paid; such amounts
      are
      included in “Accrued payroll, deferred bonuses and related expenses” at December
      31, 2005 and June 30, 2006.




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




Incurred
      but unpaid interest totaling $121,568 and $169,172 at December 31, 2005 and
      June
      30, 2006, respectively, which represents an increase of $47,604 during this
      period ending June 30, 2006, is included in “Accrued interest,” and is
      associated with various interest-bearing obligations, including “Notes payable
      unsecured” ($192,233), “Accrued royalty fees” owed to Schering AG ($401,946) and
      various payable obligations associated with the “Assumed acquisition
      obligations” referenced above ($622,750).




10




Incurred
      but unpaid Board fees at December 31, 2005 and June 30, 2006, including related
      fees for service on various committees, totaled $180,000 and were in the amounts
      of $79,000 and $101,000 during the years ending December 31, 2004 and 2005,
      respectively, and are included in “Other accrued expenses.”




**10.
      Litigation:** ******




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




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




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




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




11




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
            %




On
      May
      11, 2005, the Company was served with an unlawful detainer lawsuit by
      EOP-Industrial Portfolio, LLC (“EOP”) regarding the Company’s default on its
      building lease to pay $84,641 of rent that was due April 1, 2005. The future
      minimum rents due on this lease were approximately $2,490,000 as of March 31,
      2005. EOP continued to hold a $297,330 security deposit related to this lease
      at
      June 30, 2005. EOP asserted in this lawsuit it was entitled to terminate the
      lease, demand all past due amounts under the lease immediately due and payable,
      repossess the premises, demand payment for all related costs and expenses,
      and/or assert any other rights that may be available in law or in equity. As
      described in Note 12, as part of a restructuring plan adopted in April and
      May
      2005, the Company has vacated the premises.




On
      July
      19, 2005, the Company concluded two concurrent, interdependent negotiations
      with
      both EOP and a new tenant, resulting in the execution of a lease termination
      agreement with EOP on that date. Pursuant to the terms of this agreement, the
      Company was allowed to occupy the premises until July 31, 2005, with the only
      consideration being the surrender of the lease deposit totaling $297,330. The
      Company was further released from all other obligations, including past due
      rents totaling approximately $331,292 at July 31, 2005 (approximately $248,469
      at June 30, 2005), late payment fees and any future lease payments, commitments
      and/or contingencies.




**11.
      Shareholders’ Equity (Deficit):**





The
      Company has not had any stock transactions during the six months ended June
      30,
      2006.




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




12




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




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




**12.
      Restructuring Plan:**




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




The
      Company’s board of directors later concluded that, for a variety of factors, it
      was not probable that the Company would obtain additional cash funds to continue
      operating even on a limited basis in the near term. Therefore, during May 2005,
      the Company modified its restructuring plan to include the disposition of its
      furniture, fixtures and equipment, to vacate its premises, and other steps
      to
      effect an orderly cessation or suspension of operations other than those
      necessary to facilitate completion of the restructuring plan. All of the above
      objectives have been met and concluded by December 31, 2005.




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




13




As
      also
      discussed in Note 10, the Company concluded a successful negotiation with EOP,
      the lessor of the Company’s facility at 6175 Lusk Boulevard, San Diego,
      California. In conformity with the terms of this agreement, the Company vacated
      the premises on or about July 31, 2005 and surrendered its lease security
      deposit totaling $297,330. The Company was released from all other obligations,
      including past due rents totaling approximately $331,292 at July 31, 2005
      (approximately $248,469 at June 30, 2005), as well as late payment fees and
      any
      future lease payments, commitments and/or contingencies. Future minimum lease
      payments at June 30, 2005 eliminated as result of the lease termination
      agreement totaled approximately $2,285,000 at that date. In addition, Alliance,
      which was the lease guarantor, was also released from any and all claims,
      commitments and contingencies.




As
      discussed in Note 10, the Company entered into the Amersham Settlement dated
      as
      of September 19, 2005 with Amersham, Alliance and Molecular Biosystems, Inc.
      The
      Amersham Settlement resolved the parties’ claims arising under the case
      described above. Under the terms of the Amersham Settlement, the Company’s
      technology cross license was valued at $1,200,000 in favor of the Company,
      for
      which the Company received $1,000,000 directly from Amersham. The balance,
      or
      $200,000, was paid directly by Amersham to Alliance which served as the cash
      consideration to Alliance under the separate but concurrent Alliance Settlement
      discussed below. The parties dismissed their litigation and granted each other
      fully paid-up, irrevocable, royalty-free, non-exclusive cross-licenses, with
      the
      right to sublicense, and mutual releases.




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




The
      Company is evaluating its alternatives with respect to efforts to sell or
      otherwise maximize asset values related to the Purchased Technology, and will
      continue to consider as alternatives the sale or license of its remaining
      assets, a merger or other material transaction. Such a transaction may include
      selling the Purchased Technology, a license or sale of the patent portfolio
      underlying the Purchased Technology, a manufacturing rights agreement, or
      another form of transaction. To date, efforts to solicit interest in such an
      arrangement have not been successful. However, the Company is still contacting
      other interested or potentially interested parties, and there remains some
      potential for a sale, license, development agreement or comparable
      transaction.




The
      Company is not currently able to predict what types of arrangements (if any)
      might ultimately be made with potential business partners for *Imagent* ,
      financial or otherwise. Accordingly, the Company is unable to make any estimates
      for further potential changes to the fair market value of the Purchased
      Technology, which was written down to $1,000,000 at December 31, 2005, and
      which
      is accordingly carried at the same balance on the Company’s balance sheet at
      June 30, 2006.




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




14




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




**13.
      Gain on Extinguishment of Debt:**




Beginning
      in December 2005, the Company began to negotiate with certain creditors who
      were
      willing to settle and provide a full release of claims against the Company,
      in
      exchange for significantly discounted payments. During the six months ended
      June
      30, 2006, the Company paid $27,402 to settle total obligations amounting to
      $273,019, resulting in a gain on extinguishment of debt totaling
      $245,617.




15


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




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




The
      following should be read in conjunction with the Company’s unaudited financial
      statements included above. References to the “Company,” “IMCOR,” “we,” “us,” or
“our” are to IMCOR Pharmaceutical Co. and, where appropriate, our subsidiary,
      Sentigen, Ltd. (“Sentigen”). References to the “Purchased Technology” are to the
      medical imaging business of Alliance Pharmaceutical Corp. (“Alliance”) that the
      Company acquired on June 18, 2003. *Imagent* ®
      (perflexane lipid microspheres) is a registered trademark owned by
      IMCOR.




**LIQUIDITY
      AND CAPITAL RESOURCES**





The
      independent registered public accounting firm's report dated April 14, 2006
      included in our December 31, 2005 Annual Report on Form 10-KSB, contained the
      following explanatory paragraph:




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 2 to the financial
      statements, the Company's recurring losses from operations and requirement
      for additional funding raise substantial doubt about its ability to continue
      as
      a going concern. Management's plans concerning these matters are described
      in Notes 2 and 13. The financial statements do not include any adjustments
      that
      might result from the outcome of this uncertainty.





At
      June
      30, 2006, the Company had cash and cash equivalents of $368,845 and negative
      working capital of $4,174,487.





Subsequent
      to June 30, 2006 and through August 11, 2006, we have additionally expended
      approximately $73,000, $50,000 of which relates to costs incurred during the
      three months ended June 30, 2006 for intellectual property and patent protection
      matters, but which remained unpaid as of that date. Our cash balance at August
      11, 2006 is approximately $296,000.





During
      the six month period ended June 30, 2006, our board of directors continued
      to
      implement our restructuring plan that had previously resulted in cessation
      or
      suspension of substantially all operations, including significant employee
      reduction-in-force, sale of excess equipment, suspension of manufacturing and
      clinical activities, cessation of manufacturing and selling activities, vacating
      our premises, and the sale of certain of our technology.




16




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.




We
      received $1,000,000 directly from Amersham, of which the following items were
      immediately paid (leaving us a net cash amount of $831,562 from this $1,000,000)
      (all amounts approximate):




·
            $48,000
                for legal expenses necessary to prepare filings, audits, and to meet
                our
                other compliance and reporting requirements under the Securities
                and
                Exchange Commission rules; and





·
            $120,000
                for payment of patent and other legal work that we incurred during
                the
                final steps of settlement negotiations with Amersham and Alliance,
                which
                was critical and integral to reaching a satisfactory conclusion to
                those
                disputes.




From
      September 21, 2005 through December 31, 2005, significant uses of our cash
      were
      (leaving us a net cash amount of $717,024 at December 31, 2005) (all amounts
      approximate):




·
            $10,000
                to settle and release claims of certain of our unsecured creditors
                totaling $115,000 for a gain on extinguishment of debt of $105,000
                (this
                is part of our $5,200,000 of debt);
                and





·
            $169,000
                for several categories including: additional legal fees ($27,000),
                outside
                accountants ($15,000), consultant fees ($32,500), compliance with
                reporting requirements under the Securities and Exchange Commission
                rules
                ($27,000), and final payroll and retention bonuses
                ($44,000).




17




From
      January 1, 2006 through June 30, 2006, significant uses of our cash were as
      listed below (leaving us a net cash amount of approximately $369,000 at June
      30,
      2006) (all amounts approximate):




·
            $27,000
                to settle and release claims of certain of our unsecured creditors
                totaling $273,000 for a gain on extinguishment of debt of $246,000
                (this
                is part of our total debt, of which approximately $4,625,000 remains
                unpaid at June 30, 2006);





·
            $26,000
                as a partial payment on certain other accounts payable obligations;
                and





·
            $300,000
                for several categories including: legal and intellectual property
                matters
                ($89,000), consultant fees ($69,000), audit and accounting review
                fees
                ($51,000), facilities costs ($9,000) and director and officer insurance
                to
                mitigate the Company’s obligation to provide mandatory indemnification
                pursuant to our articles of incorporation and bylaws
                ($76,000).




Based
      on
      potential transaction values which might be concluded in the near term (one
      year
      or less), we previously determined at December 31, 2005 that the carrying value
      of the *Imagent* assets
      would be written down as of that date, through the establishment of an allowance
      for valuation impairment, to its currently estimated fair value of $1,000,000.
      Furthermore, inasmuch as the lack of adequate capital and a full-time staff
      make
      it impracticable to continue normal operating activities, we recognize that
      additional value will most readily be created only through opportunistic
      circumstances related to strategic technology transactions with others.




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




**RESULTS
      OF OPERATIONS**


**Three
      Months Ended June 30, 2005 and 2006**





**As
      a result of the restructuring plans adopted in April and May of 2005, and which
      continue to be carried out through June 30, 2006, the results of the second
      quarter of 2006 may not be indicative of the remainder of the fiscal
      year.**




**Revenue
      and License Fees**




We
      did
      not generate significant product revenues during the three months ending June
      30, 2005 and none during the three months ending June 30, 2006 due to capital
      constraints which forced us to limit and ultimately curtail our sales and
      marketing capability and the cessation of manufacturing operations related
      to
      the closing of our FDA-approved manufacturing facility during 2005. Any sales
      of
      products during the 2005 period are therefore included in our financial
      statements under “investment and other income.”




18




License
      revenue recognized during the three months June 30, 2005, totaling approximately
      $174,000, relates to the amortization of the deferred license revenue previously
      received in 2003 and 2004. During the three months ended June 30, 2006, no
      license revenue was recognized as a result of writing down deferred revenue
      balances to zero at December 31, 2005.




**Research
      and Development**




Essentially
      all of our research expenses since the third quarter of 2004 until early second
      quarter 2005 were directed toward infrastructure and expenses associated with
      regulatory compliance and continued development of *Imagent* for new
      indications and the maintenance of our manufacturing capability. During the
      second quarter of 2006 (presented below), the only costs incurred related to
      patent considerations, in keeping with our overall objective to preserve net
      asset values for the benefit of creditors and shareholders. (Our regulatory
      and
      clinical operations were discontinued in their entirety by the beginning of
      the
      quarter ended September 30, 2005 as part of our restructuring
      plan.)




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





Three
                months ended June 30,
              2005
            
            Three
                months ended June 30,
              2006
            
            Increase/
              (Decrease)
              2005
                to 2006Personnel
            
            $
            227,000
            
            $
            —
            
            $
            (227,000
            )Contract
                consultants
            
            
            156,000
            
            
            —
            
            
            (156,000
            )Patent
                costs
            
            
            77,000
            
            
            53,000
            
            
            (24,000
            )Production
                facilities costs
            
            
            6,000
            
            
            —
            
            
            (6,000
            )Supplies
            
            
            5,000
            
            
            —
            
            
            (5,000
            )Other
            
            
            27,000
            
            
            —
            
            
            (27,000
            )Total
            
            $
            498,000
            
            $
            53,000
            
            $
            (445,000
            )




Personnel,
      contract consultant charges, production facilities costs, supplies and other
      costs all decreased from the quarter ended June 30, 2005 to zero amounts during
      the comparable 2006 period, primarily due to our cessation of operations and
      implementation of other aspects of our restructuring plan.




Patent
      related costs decreased, but are still being incurred as a necessary part of
      our
      strategy to protect the *Imagent* asset
      value.




19




**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
              June
                30,
              2005
            
            Three
                months ended
              June
                30,
              2006
            
            Increase/
              (Decrease)
              2005
                to 2006Personnel
            
            $
            490,000
            
            $
            —
            
            $
            (490,000
            )Contract
                consultants
            
            
            176,000
            
            
            37,000
            
            
            (139,000
            )Stock
                options
            
            
            844,000
            
            
            8,000
            
            
            (836,000
            )Legal
                and accounting
            
            
            329,000
            
            
            61,000
            
            
            (268,000
            )Fees
            
            
            686,000
            
            
            —
            
            
            (686,000
            )Facilities
                costs
            
            
            366,000
            
            
            (1,000
            )
            
            (367,000
            )Insurance
            
            
            136,000
            
            
            46,000
            
            
            (90,000
            )Depreciation
                & amortization
            
            
            154,000
            
            
            —
            
            
            (154,000
            )Amortization-purchase
                technology
            
            
            326,000
            
            
            —
            
            
            (326,000
            )Other
            
            
            126,000
            
            
            6,000
            
            
            (120,000
            )Total
            
            $
            3,633,000
            
            $
            157,000
            
            $
            (3,476,000
            )





Personnel
      costs were zero in 2006 as a direct result of our restructuring activities;
      we
      have had no employees since October, 2005.




Contract
      consultant charges decreased dramatically from the three months ended June
      30,
      2005 to the comparable 2006 period due to the restructuring plan commenced
      in
      the second quarter of 2005 and continued through June 30, 2006, and have been
      focused on the most pertinent activities we believe necessary to preserve
      overall asset values for the benefit of creditors and shareholders and
      maintaining compliance with our ongoing duties to maintain our public filings
      with the Securities and Exchange Commission (“SEC”).




Stock
      option expense decreased primarily due to the reductions of personnel as part
      of
      our overall restructuring plan and related activities. The costs incurred in
      the
      three months ended June 30, 2005 were calculated on the intrinsic method for
      option grants previously issued with exercise prices below the then fair market
      value, which had not yet vested, and which by their terms had not yet expired.
      Included in stock option expense for the three months ended June 30, 2005 was
      the recognition of expense attributed to 88,290 options-shares which had
      previously been issued at then below market process to our former chief
      executive officer, but which became 100% vested on his employment termination
      date of May 31, 2005. The costs in the comparable period in 2006 were calculated
      on the fair value method, utilizing values in effect at the respective grant
      dates. The 2006 charges only relate to those options vesting during the second
      quarter, and which are held by two current members of our Board of Directors.




Legal
      and
      accounting expense decreased from the three months ended June 30, 2005 to the
      comparable 2006 period. Costs incurred in 2005 were significantly higher,
      primarily as a result of the then ongoing litigation, increased activities
      associated with the amendments of previous annual and quarterly filings with
      the
      SEC and various registration statement filings with the SEC.




20




There
      were no fees incurred in the second three months of 2006, which in the
      comparable 2005 period related almost entirely to late registration penalties
      that began accruing in January 2005 for shares for which we had filed two
      registration statements. One was declared effective, which we decided to suspend
      because updated information was required, and the second of which has never
      been
      declared effective. We have stopped accruing penalty shares for the security
      holders who received shares subject to that certain registration rights
      agreement dated as of April 14, 2004 because without an effective registration
      statement we are unable to abide by the contractual requirement that the penalty
      shares such parties receive are freely tradable shares. In addition, we entered
      into an agreement with Oxford Bioscience Partners IV, L.P., MRNA Fund II, L.P.
      and Mi3, L.P. to cease accruing penalty shares as of June 30, 2005. In general,
      privately issued shares held by the investors for one year may be sold under
      Rule 144.




Insurance
      costs decreased primarily as a result of lower D&O insurance premium costs
      resulting from reduced coverage for the policy renewal period commencing March
      31, 2006.




Depreciation
      and amortization of property, plant and equipment (including leasehold
      improvements) and technology license decreased from amounts recorded during
      the
      three months ended June 30, 2005 to zero in the comparable period in 2006,
      because all such assets were taken out of service and/or ultimately disposed
      of
      or otherwise abandoned as part of our restructuring activities.




Amortization
      of Purchased Technology ceased in 2005, as we wrote down the carrying value
      to
      $1,000,000, which we estimate to be potentially recoverable in the near term
      (one year or less) if one or more possible strategic transactions can be
      successfully negotiated. However, we cannot provide assurances that we can
      enter
      into such a transaction.




**Loss
      on Disposal of Property, Plan & Equipment; Impairment Losses,
      net**




Expenses
      related to the $3,836,000 impairment losses and $249,000 loss on disposal of
      property, plant and equipment (all numbers approximate) for the quarter ended
      June 30, 2005 decreased to zero during the quarter ended June 30, 2006 because
      all corresponding write offs were taken during the year ending December 31,
      2005
      and, therefore, no additional write offs were required in 2006.




**Investment
      and Other Income**




Investment
      and other income in the second quarter of 2006 decreased from the comparable
      period in 2005, primarily due to the lack of revenues from sales of our *Imagent* product
      as a result of our curtailing of marketing efforts in 2006 as part of our
      restructuring plan.




**Gain
      on Extinguishment of Debt**




Beginning
      in late 2005, we began to negotiate with certain creditors who were willing
      to
      settle and provide a full release of claims on amounts we owed them, at a
      significant discount, in exchange for nominal payments. During the three months
      ending June 30, 2006, we paid $11,000 to settle $110,000 in vendor claims,
      resulting in a gain on extinguishment of debt totaling $99,000. From June 30,
      2006 through August 11, 2006, we have continued to reach settlements, resulting
      in an additional gain of approximately $24,000, by paying out approximately
      $3,000 to settle an additional $27,000 in vendor claims. Therefore, total gains
      through August 11, 2006, related to settlements with creditors are approximately
      $375,000 (including gains recognized in 2005 amounting to $105,000), based
      on
      paying out approximately $40,000 to settle approximately $415,000 in total
      claims.





21




**Interest
      Expense**




Interest
      expense in the three months ending June 30, 2006 did not effectively change
      as
      the amount of our notes payable and other interest bearing obligations have
      not
      been increased or decrease during the intervening periods.




**RESULTS
      OF OPERATIONS**


**Six
      Months Ended June 30, 2005 and 2006**




**As
      a result of the restructuring plans adopted in April and May of 2005, and which
      continue to be carried out through June 30, 2006, the results of the first
      six
      months of 2006 may not be indicative of the remainder of the fiscal
      year.**




**Revenue
      and License Fees**




We
      did
      not generate significant product revenues during the six months ending June
      30,
      2005 and none during the six months ending June 30, 2006 due to capital
      constraints which forced us to limit and ultimately curtail our sales and
      marketing capability and the cessation of manufacturing operations related
      to
      the closing of our FDA-approved manufacturing facility during 2005. Any sales
      of
      products during the 2005 period are therefore included in our financial
      statements under “investment and other income.”




License
      revenue recognized during the six months June 30, 2005, totaling approximately
      $348,000, relates to the amortization of the deferred license revenue previously
      received in 2003 and 2004. During the six months ended June 30, 2006, no license
      revenue was recognized as a result of writing down deferred revenue balances
      to
      zero at December 31, 2005.




**Research
      and Development**




Essentially
      all of our research expenses since the third quarter of 2004 until early second
      quarter 2005 were directed toward infrastructure and expenses associated with
      regulatory compliance and continued development of *Imagent* for new
      indications and the maintenance of our manufacturing capability. During the
      first six months of 2006 (presented below), the only costs incurred related
      to
      patent considerations, in keeping with our overall objective to preserve net
      asset values for the benefit of creditors and shareholders. (Our regulatory
      and
      clinical operations were discontinued in their entirety by the beginning of
      the
      quarter ended September 30, 2005 as part of our restructuring
      plan.)




22




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





Six
                months ended
              June
                30,
              2005
            
            Six
                months ended
              June
                30,
              2006
            
            Increase/
              (Decrease)
              2005
                to 2006Personnel
            
            $
            746,000
            
            $
            —
            
            $
            (746,000
            )Contract
                consultants
            
            
            345,000
            
            
            —
            
            
            (345,000
            )Patent
                costs
            
            
            146,000
            
            
            73,000
            
            
            (73,000
            )Production
                facilities costs
            
            
            27,000
            
            
            —
            
            
            (27,000
            )Supplies
            
            
            16,000
            
            
            —
            
            
            (16,000
            )Other
            
            
            76,000
            
            
            —
            
            
            (76,000
            )Total
            
            $
            1,356,000
            
            $
            73,000
            
            $
            (1,283,000
            )




Personnel,
      contract consultant charges, production facilities costs, supplies and other
      costs all decreased from the quarter ended June 30, 2005 to zero amounts during
      the comparable 2006 period, primarily due to our cessation of operations and
      implementation of other aspects of our restructuring plan.




Patent
      related costs decreased, but are still being incurred as a necessary part of
      our
      strategy to protect the *Imagent* asset
      value.




**Selling,
      General and Administrative Expense**




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




Six
                months ended
              June
                30,
              2005
            
            Six
                months ended
              June
                30,
              2006
            
            Increase/
              (Decrease)
              2005
                to 2006Personnel
            
            $
            747,000
            
            $
            —
            
            $
            (747,000
            )Contract
                consultants
            
            
            447,000
            
            
            68,000
            
            
            (379,000
            )Stock
                options
            
            
            1,078,000
            
            
            47,000
            
            
            (1,031,000
            )Legal
                and accounting
            
            
            1,208,000
            
            
            123,000
            
            
            (1,085,000
            )Fees
            
            
            1,677,000
            
            
            —
            
            
            (1,677,000
            )Facilities
                costs
            
            
            786,000
            
            
            9,000
            
            
            (777,000Insurance
            
            
            299,000
            
            
            133,000
            
            
            (166,000
            )Depreciation
                & amortization
            
            
            617,000
            
            
            —
            
            
            (617,000
            )Amortization-purchase
                technology
            
            
            652,000
            
            
            —
            
            
            (652,000
            )Other
            
            
            293,000
            
            
            16,000
            
            
            (277,000
            )Total
            
            $
            7,804,000
            
            $
            396,000
            
            $
            (7,408,000
            )




Personnel
      costs were zero in 2006 as a direct result of our restructuring activities;
      we
      have had no employees since October, 2005.




23




Contract
      consultant charges decreased dramatically from the six months ended June 30,
      2005 to the comparable 2006 period due to the restructuring plan commenced
      in
      the second quarter of 2005 and continued through June 30, 2006, and have been
      focused on the most pertinent activities we believe necessary to preserve
      overall asset values for the benefit of creditors and shareholders and
      maintaining compliance with our ongoing duties to maintain our public filings
      with the Securities and Exchange Commission (“SEC”).




Stock
      option expense decreased primarily due to the reductions of personnel as part
      of
      our overall restructuring plan and related activities. The costs incurred in
      the
      six months ended June 30, 2005 were calculated on the intrinsic method for
      option grants previously issued with exercise prices below the then fair market
      value, which had not yet vested, and which by their terms had not yet expired.
      Included in stock option expense for the three months ended June 30, 2005 was
      the recognition of expense attributed to 88,290 options-shares which had
      previously been issued at then below market process to our former chief
      executive officer, but which became 100% vested on his employment termination
      date of May 31, 2005. The costs in the comparable period in 2006 were calculated
      on the fair value method, utilizing values in effect at the respective grant
      dates. The 2006 charges only relate to those options vesting during the first
      quarter, and which are held by two current members of our Board of Directors.




Legal
      and
      accounting expense decreased from the six months ended June 30, 2005 to the
      comparable 2006 period. Costs incurred in 2005 were significantly higher,
      primarily as a result of the then ongoing litigation, increased activities
      associated with the amendments of previous annual and quarterly filings with
      the
      SEC and various registration statement filings with the SEC.




There
      were no fees incurred in the first six months of 2006, which in the comparable
      2005 period related almost entirely to late registration penalties that began
      accruing in January 2005 for shares for which we had filed two registration
      statements. One was declared effective, which we decided to suspend because
      updated information was required, and the second of which has never been
      declared effective. We have stopped accruing penalty shares for the security
      holders who received shares subject to that certain registration rights
      agreement dated as of April 14, 2004 because without an effective registration
      statement we are unable to abide by the contractual requirement that the penalty
      shares such parties receive are freely tradable shares. In addition, we entered
      into an agreement with Oxford Bioscience Partners IV, L.P., MRNA Fund II, L.P.
      and Mi3, L.P. to cease accruing penalty shares as of June 30, 2005. In general,
      privately issued shares held by the investors for one year may be sold under
      Rule 144.




Insurance
      costs decreased primarily as a result of lower D&O insurance premium costs
      resulting from reduced coverage for the policy renewal period commencing March
      31, 2006.




Depreciation
      and amortization of property, plant and equipment (including leasehold
      improvements) and technology license decreased from amounts recorded during
      the
      six months ended June 30, 2005 to zero in the comparable period in 2006, because
      all such assets were taken out of service and/or ultimately disposed of or
      otherwise abandoned as part of our restructuring activities.




Amortization
      of Purchased Technology ceased in 2005, as we wrote down the carrying value
      to
      $1,000,000, which we estimate to be potentially recoverable in the near term
      (one year or less) if one or more possible strategic transactions can be
      successfully negotiated. However, we cannot provide assurances that we can
      enter
      into such a transaction.




24




**Loss
      on Disposal of Property, Plan & Equipment; Impairment Losses,
      net**




Expenses
      related to the $3,836,000 impairment losses and $249,000 loss on disposal of
      property, plant and equipment (all numbers approximate) for the six months
      ended
      June 30, 2005 decreased to zero during the six months ended June 30, 2006
      because all corresponding write offs were taken during the year ending December
      31, 2005 and, therefore, no additional write offs were required in
      2006.




**Investment
      and Other Income**




Investment
      and other income in the first six months of 2006 decreased from the comparable
      period in 2005, primarily due to the lack of revenues from sales of our *Imagent* product
      as a result of our curtailing of marketing efforts in 2006 as part of our
      restructuring plan.




**Gain
      on Extinguishment of Debt**




Beginning
      in late 2005, we began to negotiate with certain creditors who were willing
      to
      settle and provide a full release of claims on amounts we owed them, at a
      significant discount, in exchange for nominal payments. Through December 31,
      2005, we had settled on approximately $115,000 in vendor claims in exchange
      for
      approximately $10,000. During the six months ending June 30, 2006, we paid
      $27,000 to settle $273,000 in vendor claims, resulting in a gain on
      extinguishment of debt totaling $246,000. From June 30, 2006 through August
      11,
      2006, we have continued to reach settlements, resulting in an additional gain
      of
      approximately $24,000, by paying out approximately $3,000 to settle an
      additional $27,000 in vendor claims. Therefore, total gains through August
      11,
      2006, related to settlements with creditors are approximately $375,000
      (including gains recognized in 2005 amounting to $105,000), based on paying
      out
      approximately $40,000 to settle approximately $415,000 in total claims.





**Interest
      Expense**




Interest
      expense in the six months ending June 30, 2006 did not effectively change as
      the
      amount of our notes payable and other interest bearing obligations have not
      been
      increased or decrease during the intervening periods.




**Plan
      of Operation**




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




We
      have
      also sold our equipment and other licensed technology assets except for the
      Purchased Technology.




25




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




**Contractual
      Obligations**




The
      following table summarizes our approximate contractual obligations as of June
      30, 2006 and the effect such obligations are expected to have on our liquidity
      and cash flow for future periods:




Total
              Obligations
              All
                Years
            
            2006
            
            2007
            
            2008
            
            2009*Imagent*purchase obligations and related notes (remaining)
            
            $
            808,000
            
            
            808,000
            
            $
            —
            
            $
            —
            
            $
            —Notes
                payable
            
            
            192,000
            
            
            192,000
            
            
            —
            
            
            —
            
            
            —Accrued
                royalty liabilities
            
            
            402,000
            
            
            402,000
            
            
            —
            
            
            —
            
            
            —Severance
                and unpaid bonus to former CEO
            
            
            481,000
            
            
            481,000
            
            
            —
            
            
            —
            
            
            —Settlement
                amounts owed and guaranteed pursuant to equipment lease
                settlement
            
            
            493,000
            
            
            493,000
            
            
            —
            
            
            —
            
            
            —Other
                liabilities- past due
            
            
            647,000
            
            
            647,000
            
            
            —
            
            
            —
            
            
            —Accounts
                payable- past due
            
            
            1,602,000
            
            
            1,602,000
            
            
            —
            
            
            —
            
            
            —Total
                contractual cash obligations
            
            $
            4,625,000
            
            
            4,625,000
            
            $
            —
            
            $
            0
            
            $
            0




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




As
      of
      June 30, 2006, we have not entered into any purchase orders for capital
      equipment.




**Significant
      Estimates**




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




26




**Recent
      Accounting Pronouncements**




In
      December 2004, the FASB issued revised SFAS No. 123 (SFAS No. 123R),
“Share-Based Payment.” This statement eliminates the ability to account for
      share-based compensation transactions using the intrinsic value-based method
      under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
      to Employees,” and requires instead that such transactions be accounted for
      using a fair-value-based method. SFAS No. 123R is effective for Small Business
      Issuers for financial statements issued for the first interim period beginning
      after December 15, 2005. In connection with our adoption of SFAS No. 123R,
      effective January 1, 2006, utilizing the modified prospective method of
      transition, we recognized stock based compensation expense in the amount of
      $46,529 during the six months ended June 30, 2006.




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




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




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




27




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




**ITEM
      3. CONTROLS AND PROCEDURES**




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




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




Our
      senior officers have previously consulted with Larry D. Grant and have
      participated in the evaluation of our disclosure controls (as defined in Rules
      13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended
      (the
“Exchange Act”)) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of
      June 30, 2006 and, based on that evaluation, concluded that due to insufficient
      staff our disclosure controls and procedures were not fully effective to ensure
      timely collection, evaluation and disclosure of information relating to the
      Company that would potentially be subject to disclosure under the Exchange
      Act,
      and the rules and regulations thereunder. However, to the extent corrections
      and
      improvements in internal controls and disclosure controls and procedures cannot
      be implemented and/or maintained, management believes appropriate oversight
      and
      review is currently in place in light of the minimal transactions conducted
      during this fiscal quarter to prevent material misstatements in our annual
      financial reporting.




28




**PART
      II. OTHER INFORMATION**




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




During
      the quarter ended June 30, 2006, we had no legal proceedings described in Item
      103 of Regulation S-B.




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




During
      the six months ending June 30, 2006, we did not issue any shares of our common
      stock.




Given
      our
      current financial circumstances and our goal to maximize the funds available
      to
      our creditors, our board of directors has determined that we will not continue
      to pursue our efforts to effect our registration statements currently on file
      with the SEC (File Nos. 333-122625 and 333-117907). Those registration
      statements, which are not currently effective, will be withdrawn. We have
      stopped accruing penalty shares for the security holders who received shares
      subject to that certain registration rights agreement dated as of April 14,
      2004
      because without an effective registration statement we are unable to abide
      by
      the contractual requirement that the penalty shares such parties receive freely
      tradable shares. In general, privately issued shares held by investors for
      more
      than one year may be sold under Rule 144.




Many
      of
      our investors have held their shares in the Company for more than a year and
      are
      qualified to sell their shares under Rule 144, subject to the restrictions
      set
      forth therein; ** indeed,
      several such investors have sold shares utilizing Rule 144. However, given
      our
      current financial situation, at some point in 2006 or thereafter we may elect
      to
      cease reporting under the Exchange Act, and as a result, investors will no
      longer be eligible to resell their shares of our common stock under Rule
      144.




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




NONE




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




NONE




**ITEM
      5.OTHER
      INFORMATION**




**RISK
      FACTORS**




**We
      currently have insufficient funds available to pay all of our
      liabilities.**




Our
      cash
      and cash equivalents at June 30, 2006 was approximately $368,845. At June 30,
      2006, we had current liabilities totaling approximately $4,624,519.




29




**If
      we are unable to find a partner or buyer of our remaining assets at acceptable
      prices we will continue to be unable to meet our obligations to our creditors
      and may enter into bankruptcy proceedings, or liquidate and dissolve under
      applicable state laws.**




We
      have
      implemented a restructuring plan which resulted in a reduction-in-force of
      all
      our employees, terminating sales efforts and manufacturing operations,
      terminating clinical development, vacating our leased premises, selling our
      furniture, fixtures and manufacturing equipment, and selling our rights to
      N1177
      (an iodine-based nanoparticulate contrast agent) and PH-50, which is the same
      or
      substantially similar compound as N1177 for a different indication. Our board
      of
      directors has authorized actions necessary to effectuate the restructuring
      plan.




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




**We
      expect to incur significant costs in connection with Securities Exchange Act
      of
      1934 compliance and may elect to remove the company from the Securities Exchange
      Act of 1934 reporting requirements, which would make Rule 144 resales
      unavailable to investors.**




We
      are
      currently subject to the rules of the Exchange Act and the related reporting
      requirements. Compliance with the reporting requirements of the Exchange Act
      requires the timely filing of Quarterly Reports on Form 10-QSB, Annual Reports
      on Form 10-KSB and Current Reports on Form 8-K, among other actions. Our
      compliance with the reporting requirements involves significant costs and
      expenditures of management's time. Given our current financial position and
      the
      limited resources of our management, our board of directors may elect to remove
      the company from the reporting obligations of the Exchange Act at some point
      in
      2006 or thereafter. If we make such an election, investors would not be able
      to
      utilize Rule 144 in connection with the resale of their shares of our common
      stock (until the shares become freely tradable under Rule 144(k)).




**Our
      current financial situation could lead to shareholder or creditor litigation
      which could result in substantial costs and distract our management from our
      restructuring efforts.**




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




30




**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 June 30, 2006,
      we
      have incurred cumulative net losses (before dividends on preferred stock) of
      approximately $91,154,800. We expect our losses to increase in the future as
      our
      financial resources are used to preserve the value of our assets and to the
      extent possible, pay creditors. It is unlikely that we will be able to achieve
      or maintain profitability in the future.




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




**We
      no longer maintain a manufacturing facility and we may encounter difficulties
      restarting our manufacturing operations if we chose to do so in the future
      or
      contracting with a contract manufacturer.**




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




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




Since
      we
      have suspended manufacturing operations and vacated our leased manufacturing
      facility located in San Diego, California, we entered into an agreement with
      Cardinal Health, Inc. to maintain and conduct our stability samples. On August
      17, 2005, we terminated this agreement and consequently the testing program,
      resulting in the inability to support any clinical testing of the
      product.




**We
      no longer maintain any clinical or regulatory staff.**




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




31




**Failure
      to achieve and maintain effective internal controls in accordance with Section
      404 of the Sarbanes-Oxley Act could have a material adverse effect on our
      business and operating results.**




Effective
      internal controls are necessary for us to provide reliable financial reports
      and
      effectively prevent fraud. If we cannot provide reliable financial reports
      and
      prevent fraud, our operating results could be harmed and current and potential
      stockholders could lose confidence in our financial reporting, which could
      have
      a material adverse effect on our stock price and ability to raise capital.
      In
      September 2004, we and our independent registered public accounting firm
      concluded that our internal controls and procedures had certain material
      weaknesses and reportable conditions. For further information concerning our
      controls, see “ *Part
      I. Financial Information, Item 3. Controls and Procedures.* ”




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




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




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




We
      currently have one acting Principal Executive Officer (Mr. DeFranco) who was
      a
      part-time employee of the Company until October 2005. Mr. DeFranco became a
      consultant to the company in November 2005 and is engaged by us on a part-time,
      as needed basis through October 30, 2006. We also have retained Larry D. Grant,
      a consultant, to provide advisory and management services, on a part-time basis,
      on financial, operational and strategic matters. These individuals have entered
      into consulting agreements, confidentiality and/or non-competition agreements
      with us. If an individual performing one of these executive or consulting
      functions for us terminates his association with us or breaches their agreement
      with us:




32




·
            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
      June 30, 2006, two related stockholders controlled approximately 4,652,969
      shares, or 66.8% of our issued and outstanding common stock at that date. This
      concentration of ownership and control may delay or prevent a change in control
      of IMCOR, and may also result in a small supply of shares available for purchase
      in the public securities markets. These factors may affect the market and the
      market price for its common stock in ways that do not reflect the intrinsic
      value of our common stock.




We
      have
      issued a substantial number of securities convertible into shares of our common
      stock that will result in substantial dilution to the ownership interests of
      our
      existing shareholders.




As
      of
      June 30, 2006, we had reserved 2,437,701 shares of our common stock for issuance
      upon exercise or conversion of warrants or stock options (including options
      that
      have been granted and that are available for grant in the future). Furthermore,
      on October 29, 2004, we issued and sold 4,500 shares of our newly issued Series
      A Convertible Preferred Stock which are convertible into 833,334 shares of
      our
      common stock.




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




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




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




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




33




**ITEM
      6. EXHIBITS**




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




**EXHIBIT
                NO.**
            
            **DESCRIPTION**+3.1
            
            Restated
                Articles of Incorporation of IMCOR Pharmaceutical Co., as amended,
                including Certificate of Designation, Preferences and Rights of Series
                A
                Convertible Preferred Stock. (Filed as Exhibit 3.1 to the Company’s Annual
                Report on Form 10-KSB for the year ended December 31, 2004 and
                incorporated herein by reference.)+3.2
            
            Amended
                and Restated Bylaws of IMCOR Pharmaceutical Co. (Filed as Exhibit C
                to the Company’s Information Statement on Form DEF 14C dated December 23,
                2002 and incorporated herein by reference.)*31.1
            
            Certification
                of Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.*31.2
            
            Certification
                of Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.*32.1
            
            Certification
                of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.*32.2
            
            Certification
                of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.





+
      Incorporated by Reference.


*
      Filed
      herewith.




34





**Signatures**




In
      accordance with the requirements of the Exchange Act, the registrant has caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


Date:
                August 17, 2006
            
            
            **IMCOR
              Pharmaceutical Co.**/s/
                Brian GallagherBrian
              Gallagher
              (Chairman
                of the Board and Acting Principal
              Financial
                Officer)





35





**EXHIBIT
      INDEX**




**EXHIBIT
                NO.**
            
            **DESCRIPTION**+3.1
            
            Restated
                Articles of Incorporation of IMCOR Pharmaceutical Co., as amended,
                including Certificate of Designation, Preferences and Rights of Series
                A
                Convertible Preferred Stock. (Filed as Exhibit 3.1 to the Company’s Annual
                Report on Form 10-KSB for the year ended December 31, 2004 and
                incorporated herein by reference.)+3.2
            
            Amended
                and Restated Bylaws of IMCOR Pharmaceutical Co. (Filed as Exhibit
                C to the
                Company’s Information Statement on Form DEF 14C dated December 23, 2002
                and incorporated herein by reference.)*31.1
            
            Certification
                of Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.*31.2
            
            Certification
                of Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.*32.1
            
            Certification
                of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.*32.2
            
            Certification
                of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




+
      Incorporated by Reference.


*
      Filed
      herewith.




36