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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarter ended March 31, 2008

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to
.

Commission File Number: 000-50677





IMMUNICON CORPORATION

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 23-2269490                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

3401 Masons Mill Road, Suite 100

Huntingdon Valley, Pennsylvania 19006

(Address of principal executive offices
and zip code)

(215) 830-0777

(Registrants telephone number including area code)





Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



|                                              |  |                             
|--------------------------------------------- |  | ----------------------------
|Large Accelerated filer   ̈                    |  | Accelerated filer   ̈        
|                                              | 
|Non-Accelerated filer   ̈                      |  | Smaller reporting company  x
|(do not check if a smaller reporting company) |  |                             

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

As of May 1, 2008, there were 31,500,083 shares of Common Stock, $0.001 par value, outstanding.









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IMMUNICON CORPORATION

INDEX



|         |  |                                                                                                      |  |           
|-------- |  | ---------------------------------------------------------------------------------------------------- |  | ----------
|         |  |                                                                                                      |  | PageNumber
|PART I.  |  | FINANCIAL INFORMATION                                                                                |  |           
|         |  |                                                                                                     
|Item 1.  |  | Condensed Consolidated Financial Statements (Unaudited):                                             |  |           
|         |  |                                                                                                     
|         |  | Condensed Consolidated Balance Sheets:March 31, 2008 and December 31, 2007                           |  | 4         
|         |  |                                                                                                     
|         |  | Condensed Consolidated Statements of Operations:Three months ended March 31, 2008 and March 31, 2007 |  | 5         
|         |  |                                                                                                     
|         |  | Condensed Consolidated Statements of Cash Flows:Three months ended March 31, 2008 and March 31, 2007 |  | 6         
|         |  |                                                                                                     
|         |  | Notes to Condensed Consolidated Financial Statements                                                 |  |           
|         |  |                                                                                                     
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.               |  | 27        
|         |  |                                                                                                     
|Item 4.  |  | Controls and Procedures.                                                                             |  | 45        
|         |  |                                                                                                     
|PART II. |  | OTHER INFORMATION                                                                                    |  |           
|         |  |                                                                                                     
|Item 1.  |  | Legal Proceedings.                                                                                   |  | 46        
|         |  |                                                                                                     
|Item 1A. |  | Risk Factors.                                                                                        |  | 46        
|         |  |                                                                                                     
|Item 6.  |  | Exhibits.                                                                                            |  | 49        

Immunicon is a registered trademark of Immunicon Corporation. The Immunicon logo is a registered trademark of
Immunicon Corporation. CellTracks, CellSpotter, MagNest, AutoPrep, AutoPrep System logo and the CellSpotter Analyzer logo are registered trademarks of Immunivest Corporation, a wholly owned subsidiary of Immunicon Corporation. CellTracks EasyCount,
EasyCount, CellTracks Analyzer II, CellCapture, Viasure, SlideNest and the CellSave Preservative Tube logo are trademarks of Immunivest Corporation, a wholly owned subsidiary of Immunicon Corporation. CellSearch is a registered trademark of
Johnson & Johnson. All other trademarks appearing in this filing are the property of their respective holders. Unless the context provides otherwise, the words Immunicon, we, Company, us and
our appearing in this filing refer to Immunicon Corporation and its subsidiaries.



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Forward-Looking Statements

The information contained in this quarterly report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are often preceded by words such as hope, may, believe, anticipate, plan, expect, intend, assume, will and similar expressions. We
caution investors not to place undue reliance on the forward-looking statements contained in this report. Forward-looking statements included in this report relate to financing and capital needs and resources, product development, our relationship
with Veridex, LLC, or Veridex, a Johnson & Johnson company, research, development and sales based milestones and related payments from Veridex, expansion of research and development activities and increases in research and development
costs, instrument system and platform improvement activities and costs, our relationship with Twente University, and other such institutions and companies with which we have a contractual relationship, expansion of clinical trials and related costs,
use of net proceeds from the sale of common stock and other funds, regulatory applications and requests for clearance intend to be submitted and regulatory clearances anticipated to be received and other statements regarding matters that are not
historical facts. Forward-looking statements speak only as of the date of this report, reflect managements current expectations and involve certain factors, such as risks and uncertainties, that may cause actual results to be far different
from those suggested by our forward-looking statements. These factors include, but are not limited to, risks and uncertainties associated with our ability to continue as a going concern, the effects of our restructuring effort, our dependence on
Veridex, the effects of the negative outcome of the arbitration proceeding with Veridex, our capital and financing needs and the terms of our existing financing arrangements, research and development and clinical trial expenditures,
commercialization of the our product candidates, our ability to use licensed products and to obtain new licenses from third parties, our ability to manage growth, our ability to obtain necessary regulatory approvals, reliance on third-party
manufacturers and suppliers, reimbursement by third-party payors to our customers for our products, compliance with applicable manufacturing standards, our ability to earn license and milestone payments under our agreement with Veridex, our ability
to retain key management or scientific personnel, delays in the development of new products or to planned improvements to our products, effectiveness of our products compared to competitors products, protection of our intellectual property and
other proprietary rights, conflicts with the intellectual property of third parties, product liability lawsuits that may be brought against us, labor, contract or technical difficulties, competitive pressures in our industry, other risks and
uncertainties discussed under Item 1A, Risk Factors in this quarterly report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2007 and elsewhere in this report; and other risks and uncertainties as may be
detailed from time to time in our public announcements and SEC filings.

We do not intend to update any of these factors or to publicly announce the
results of any revisions to any of these forward-looking statements other than as required under the federal securities laws.



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Immunicon Corporation and Subsidiaries







PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements.
|------- | ---------------------

Condensed Consolidated Balance Sheets (Unaudited).

(in thousands, except per share and share data)



|                                                                                                                                                                       |  |               |          |   |                  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                                       |  | March 31,2008 |          |   | December 31,2007 |  
|ASSETS                                                                                                                                                                 |  |               |          |   |                  |   |          |  
|Current assets:                                                                                                                                                        |  |               |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                                              |  | $             | 8,362    |   |                  | $ | 21,599   |  
|Short-term investments                                                                                                                                                 |  |               | 1,645    |   |                  |   | 11,159   |  
|Accounts receivable, net of allowance of $233 and $211 at March 31, 2008 and December 31, 2007, respectively                                                           |  |               | 1,224    |   |                  |   | 909      |  
|Receivable from related party                                                                                                                                          |  |               | 741      |   |                  |   | 517      |  
|Inventory                                                                                                                                                              |  |               | 4,622    |   |                  |   | 4,437    |  
|Prepaid expenses                                                                                                                                                       |  |               | 175      |   |                  |   | 237      |  
|Other current assets                                                                                                                                                   |  |               | 100      |   |                  |   | 118      |  
|                                                                                                                                                                       |  |               |          |   |                  |   |          |  
|Total current assets                                                                                                                                                   |  |               | 16,869   |   |                  |   | 38,976   |  
|Property and equipmentnet                                                                                                                                             |  |               | 639      |   |                  |   | 839      |  
|Deferred financing fees                                                                                                                                                |  |               | 1,042    |   |                  |   | 1,838    |  
|Deferred income taxes                                                                                                                                                  |  |               | 3,504    |   |                  |   | 3,474    |  
|Other assets                                                                                                                                                           |  |               | 423      |   |                  |   | 319      |  
|                                                                                                                                                                       |  |               |          |   |                  |   |          |  
|Total assets                                                                                                                                                           |  | $             | 22,477   |   |                  | $ | 45,446   |  
|                                                                                                                                                                       |  |               |          |   |                  |   |          |  
|                                                                                                                                                                       |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                   |  |               |          |   |                  |   |          |  
|Current liabilities:                                                                                                                                                   |  |               |          |   |                  |   |          |  
|Current portion of long-term debt                                                                                                                                      |  | $             | 362      |   |                  | $ | 2,086    |  
|Current portion of convertible notes, net of discount                                                                                                                  |  |               | 17,135   |   |                  |   |         |  
|Accounts payable                                                                                                                                                       |  |               | 2,233    |   |                  |   | 3,130    |  
|Payable to related party                                                                                                                                               |  |               | 1,654    |   |                  |   | 1,986    |  
|Accrued expenses                                                                                                                                                       |  |               | 5,240    |   |                  |   | 6,741    |  
|Deferred income taxes                                                                                                                                                  |  |               | 3,504    |   |                  |   | 3,474    |  
|Detachable warrants                                                                                                                                                    |  |               | 21       |   |                  |   | 81       |  
|Conversion feature relating to convertible debt                                                                                                                        |  |               | 14       |   |                  |   | 156      |  
|Current portion of deferred revenue:                                                                                                                                   |  |               |          |   |                  |   |          |  
|Related party                                                                                                                                                          |  |               | 2,897    |   |                  |   | 2,025    |  
|Other                                                                                                                                                                  |  |               | 170      |   |                  |   | 217      |  
|                                                                                                                                                                       |  |               |          |   |                  |   |          |  
|Total current liabilities                                                                                                                                              |  |               | 33,230   |   |                  |   | 19,896   |  
|                                                                                                                                                                       |  |               |          |   |                  |   |          |  
|                                                                                                                                                                       |  |              
|Convertible subordinated notes, net of discount                                                                                                                        |  |               |         |   |                  |   | 25,308   |  
|Long-term debt                                                                                                                                                         |  |               | 197      |   |                  |   | 2,247    |  
|Deferred revenue:                                                                                                                                                      |  |               |          |   |                  |   |          |  
|Related party                                                                                                                                                          |  |               | 358      |   |                  |   | 402      |  
|Other                                                                                                                                                                  |  |               | 1,429    |   |                  |   | 1,101    |  
|                                                                                                                                                                       |  |              
|Commitments and contingencies                                                                                                                                          |  |               |          |   |                  |   |          |  
|Stockholders equity (deficit):                                                                                                                                        |  |               |          |   |                  |   |          |  
|Common stock, $.001 par value100,000,000 authorized, 31,497,230 and 27,774,961 shares issued and outstanding as of March 31, 2008
and December 31, 2007, respectively |  |               | 31       |   |                  |   | 28       |  
|Additional paid-in capital                                                                                                                                             |  |               | 170,365  |   |                  |   | 164,031  |  
|Accumulated other comprehensive income                                                                                                                                 |  |               | 44       |   |                  |   | 33       |  
|Deficit accumulated                                                                                                                                                    |  |               | (183,177 | ) |                  |   | (167,600 | )
|                                                                                                                                                                       |  |               |          |   |                  |   |          |  
|Total stockholders equity (deficit)                                                                                                                                   |  |               | (12,737  | ) |                  |   | (3,508   | )
|                                                                                                                                                                       |  |               |          |   |                  |   |          |  
|Total liabilities and stockholders equity                                                                                                                             |  | $             | 22,477   |   |                  | $ | 45,446   |  
|                                                                                                                                                                       |  |               |          |   |                  |   |          |  

See notes to consolidated financial statements.



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Immunicon Corporation and Subsidiaries







Condensed Consolidated Statements of Operations (Unaudited).

Three months ended March 31, 2008 and March 31, 2007

(in thousands, except for share and per share amounts)



|                                                                  |  |                              |            |   |      |   |            |  
|----------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                  |  | Three Months Ended March 31, |           
|                                                                  |  | 2008                         |            |   | 2007 |  
|Product revenue:                                                  |  |                              |            |   |      |   |            |  
|Related party                                                     |  | $                            | 2,056      |   |      | $ | 1,210      |  
|Third party                                                       |  |                              | 1,034      |   |      |   | 767        |  
|Service revenue                                                   |  |                              | 642        |   |      |   | 577        |  
|                                                                  |  |                              |            |   |      |   |            |  
|Total product and service revenue                                 |  |                              | 3,732      |   |      |   | 2,554      |  
|Milestone, license and other revenue                              |  |                              | 121        |   |      |   | 103        |  
|Total revenue                                                     |  |                              | 3,853      |   |      |   | 2,657      |  
|Cost of goods sold                                                |  |                              | 2,451      |   |      |   | 2,523      |  
|Cost of services sold                                             |  |                              | 406        |   |      |   | 302        |  
|                                                                  |  |                              |            |   |      |   |            |  
|Gross profit (loss)                                               |  |                              | 996        |   |      |   | (168       | )
|                                                                  |  |                              |            |   |      |   |            |  
|                                                                  |  |                             
|Expenses:                                                         |  |                              |            |   |      |   |            |  
|Research and development                                          |  |                              | 2,739      |   |      |   | 2,826      |  
|Selling, general and administrative                               |  |                              | 6,855      |   |      |   | 2,957      |  
|                                                                  |  |                              |            |   |      |   |            |  
|Total operating expenses                                          |  |                              | 9,594      |   |      |   | 5,783      |  
|                                                                  |  |                              |            |   |      |   |            |  
|Operating loss                                                    |  |                              | (8,598     | ) |      |   | (5,951     | )
|                                                                  |  |                             
|Interest and other income, net                                    |  |                              | 180        |   |      |   | 616        |  
|Debt conversion expense                                           |  |                              | (3,036     | ) |      |   |           |  
|Change in fair value of detachable warrants and conversion rights |  |                              | 165        |   |      |   | 2,723      |  
|Interest expense                                                  |  |                              | (4,235     | ) |      |   | (1,504     | )
|                                                                  |  |                              |            |   |      |   |            |  
|Interest and other income, net                                    |  |                              | (6,926     | ) |      |   | 1,835      |  
|                                                                  |  |                              |            |   |      |   |            |  
|Loss before income taxes                                          |  |                              | (15,524    | ) |      |   | (4,116     | )
|Income tax benefit                                                |  |                              |           |   |      |   |           |  
|                                                                  |  |                              |            |   |      |   |            |  
|Net loss attributable to common stockholders                      |  | $                            | (15,524    | ) |      | $ | (4,116     | )
|                                                                  |  |                              |            |   |      |   |            |  
|Net loss per common share  basic and diluted                     |  | $                            | (0.53      | ) |      | $ | (0.15      | )
|                                                                  |  |                              |            |   |      |   |            |  
|Weighted average common shares outstanding  basic and diluted    |  |                              | 29,096,367 |   |      |   | 27,675,742 |  
|                                                                  |  |                              |            |   |      |   |            |  

See notes to condensed consolidated unaudited financial statements.



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Immunicon Corporation and Subsidiaries







Condensed Consolidated Statements of Cash Flows (Unaudited)

Three months ended March 31, 2008 and March 31, 2007 (in
thousands)



|                                                                                                                                |  |                              |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                |  | Three Months Ended March 31, |        
|                                                                                                                                |  | 2008                         |         |   | 2007 |  
|Operating activities:                                                                                                           |  |                              |         |   |      |   |         |  
|Net loss                                                                                                                        |  | $                            | (15,524 | ) |      | $ | (4,116  | )
|Adjustment to reconcile net loss to net cash used in operating activities:                                                      |  |                              |         |   |      |   |         |  
|Depreciation and amortization                                                                                                   |  |                              | 127     |   |      |   | 522     |  
|Impairment of Kreatech license and investment                                                                                   |  |                              | 236     |   |      |   |        |  
|Non-cash interest expense                                                                                                       |  |                              | 4,138   |   |      |   | 1,420   |  
|Provisions for accounts receivable allowances                                                                                   |  |                              | 22      |   |      |   | 28      |  
|Compensation expense related to the issuance of stock, stock options and warrants                                               |  |                              | 266     |   |      |   | 489     |  
|Change in fair value of liabilities potentially settled in common stock                                                         |  |                              | (165    | ) |      |   | (2,723  | )
|Non cash conversion charge                                                                                                      |  |                              | 3,036   |   |      |   |        |  
|Change in:                                                                                                                      |  |                              |         |   |      |   |         |  
|Accounts receivable                                                                                                             |  |                              | (337    | ) |      |   | 559     |  
|Accounts receivable from related party                                                                                          |  |                              | (224    | ) |      |   | 34      |  
|Inventory                                                                                                                       |  |                              | (185    | ) |      |   | (146    | )
|Prepaid expenses and other                                                                                                      |  |                              | 62      |   |      |   | 58      |  
|Other assets                                                                                                                    |  |                              | (101    | ) |      |   | 273     |  
|Accounts payable                                                                                                                |  |                              | (897    | ) |      |   | (196    | )
|Accounts payable to related parties                                                                                             |  |                              | (332    | ) |      |   | 127     |  
|Accrued expenses                                                                                                                |  |                              | (1,501  | ) |      |   | (478    | )
|Deferred revenue from related parties                                                                                           |  |                              | 828     |   |      |   | (80     | )
|Deferred revenue                                                                                                                |  |                              | 280     |   |      |   | 88      |  
|                                                                                                                                |  |                              |         |   |      |   |         |  
|Net cash used in operating activities                                                                                           |  |                              | (10,271 | ) |      |   | (4,141  | )
|                                                                                                                                |  |                              |         |   |      |   |         |  
|                                                                                                                                |  |                             
|Investing activities:                                                                                                           |  |                              |         |   |      |   |         |  
|Purchase of investments                                                                                                         |  |                              | (2,565  | ) |      |   | (11,878 | )
|Payments for purchases of property and equipment                                                                                |  |                              | (13     | ) |      |   | (141    | )
|Payments for license agreements                                                                                                 |  |                              | (212    | ) |      |   |        |  
|Payments for Kreatech Preferred Stock                                                                                           |  |                              | (24     | ) |      |   |        |  
|Proceeds from maturities of investments                                                                                         |  |                              | 12,165  |   |      |   | 7,899   |  
|                                                                                                                                |  |                              |         |   |      |   |         |  
|Net cash (used in)/provided by investing activities                                                                             |  |                              | 9,351   |   |      |   | (4,120  | )
|                                                                                                                                |  |                              |         |   |      |   |         |  
|                                                                                                                                |  |                             
|Financing activities:                                                                                                           |  |                              |         |   |      |   |         |  
|Proceeds from exercise of stock options and stock purchase plan                                                                 |  |                              |        |   |      |   | 17      |  
|Exchange of nonvested shares for taxes                                                                                          |  |                              | (53     | ) |      |   |        |  
|Payments on Notes                                                                                                               |  |                              | (8,500  | ) |      |   |        |  
|Payments on term debt                                                                                                           |  |                              | (3,774  | ) |      |   | (562    | )
|                                                                                                                                |  |                              |         |   |      |   |         |  
|Net cash used in financing activities                                                                                           |  |                              | (12,327 | ) |      |   | (545    | )
|                                                                                                                                |  |                              |         |   |      |   |         |  
|Effect of exchange rate changes on cash                                                                                         |  |                              | 10      |   |      |   | 2       |  
|Net decrease in cash and cash equivalents                                                                                       |  |                              | (13,247 | ) |      |   | (8,806  | )
|Cash and cash equivalents, beginning of period                                                                                  |  |                              | 21,599  |   |      |   | 36,132  |  
|                                                                                                                                |  |                              |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                                                                        |  | $                            | 8,362   |   |      | $ | 27,328  |  
|                                                                                                                                |  |                              |         |   |      |   |         |  
|                                                                                                                                |  |                             
|Supplemental cash flow information:                                                                                             |  |                              |         |   |      |   |         |  
|Cash paid for interest                                                                                                          |  | $                            | 122     |   |      | $ | 87      |  
|                                                                                                                                |  |                              |         |   |      |   |         |  
|                                                                                                                                |  |                             
|Supplemental schedule of non cash investing and financing activities:                                                           |  |                              |         |   |      |   |         |  
|We exchanged $3.0 million of principal and accrued but not paid interest on our Notes for 3,571,433 shares of our common
stock. |  |                              |         |   |      |   |         |  

See notes to condensed consolidated unaudited financial statements.



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Immunicon Corporation and Subsidiaries







(1) Background and basis of presentation

The accompanying unaudited condensed consolidated financial statements of Immunicon Corporation and subsidiaries (collectively, the Company or we) have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial information and with the Form 10-Q General Instructions and Article 10 of Regulation S-X of the Securities and Exchange Commission, or the SEC.
Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of our management, the accompanying
condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly our financial position at March 31, 2008 and results of operations and cash flows for the three month
periods ended March 31, 2008 and March 31, 2007.

Certain footnote information has been condensed or omitted from these financial statements.
Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. Results of
operations for the three months ended March 31, 2008 are not necessarily indicative of results to be expected for the full year.

The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America requires our 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 expenses during the reporting period. Actual results could differ from those estimates or assumptions. The more significant estimates reflected in
these financial statements include valuation of derivatives, accrued expenses and the valuation of stock-based compensation.

We have generated limited
revenues from product sales and have incurred substantial losses since our inception. We anticipate incurring additional losses for the foreseeable future and such losses may fluctuate based on the amounts of revenue generated from sales of our
products and services.

Veridex Arbitration

On
May 31, 2007, we announced that we had filed a Demand for Arbitration against Veridex, LLC, a Johnson & Johnson Company, or Veridex, pursuant to which we were seeking termination of the 20-year exclusive worldwide agreement to market,
sell and distribute our cancer diagnostic products and rescission of all licenses currently held by Veridex under the Development, License and Supply Agreement, or the DLS Agreement, based on repudiation and fundamental breaches by Veridex of
its contractual, agency and other fiduciary obligations to market, sell and distribute our cancer diagnostic products. We also sought monetary damages including compensatory damages of $220.2 to $254.2 million and punitive damages of $480
million.

Veridexs answer and counterclaim asserted, among other things, that we had failed to perform its development, manufacturing and quality
assurance obligations pursuant to the DLS Agreement and violated Veridexs exclusive right to sell our products.

On March 3, 2008, the
arbitrator in the arbitration proceedings issued a final award, or the Decision. In the Decision, the arbitrator determined that Veridex was not in breach of its best efforts marketing obligation and dismissed our claims. The arbitrator
awarded Veridex approximately $304,000 in contract damages, pursuant to Veridexs counterclaim in which Veridex had challenged our use of circulating tumor cell, or CTC reagents and analyzers as part of our Service business. We paid
the award in full in April 2008.

We have been in negotiations with Veridex in regards to this business and in May 2008, we signed an agreement that allows
us to continue to perform these services and pay Veridex a royalty for the ability to perform these tests. This agreement is temporary and we expect to transfer these contracts to other laboratories in the near future, therefore we will only have
revenue from these services until they have been transferred. We are not certain how long the transition will take, but anticipate that it is likely to occur by the end of the third quarter of 2008.

NASDAQ listing

On January 23, 2008, we received notice from The
NASDAQ Stock Market, or NASDAQ, that the minimum bid price of our common stock had fallen below $1.00 for the last 30 consecutive business days and that our common stock is, therefore, subject to delisting from the NASDAQ Capital Market. NASDAQ
Marketplace Rule 4310(c)(4) requires a $1.00 minimum bid price for continued listing of an issuers common stock.



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Immunicon Corporation and Subsidiaries







On April 2, 2008 we were also notified by NASDAQ, that we did not comply with the continued listing requirements
set forth in Marketplace Rule 4310(c)(3). This rule requires that a minimum of $2,500,000 in stockholders equity in order to continue listing its securities on The NASDAQ Capital Market. The NASDAQ allowed us until April 17, 2008 to
submit a specific plan to achieve and sustain compliance with all applicable continued listing requirements of The NASDAQ Capital Market. On April 18, 2008, we notified NASDAQ that we would not submit such a plan but rather would pursue
quotation of our common stock on the Over-the-Counter Bulletin Board, or OTCBB.

On April 24, 2008, we received a notice from NASDAQ indicating that
trading in our common stock would be suspended and our common stock would be delisted from The NASDAQ Capital Market at the opening of business on April 29, 2008, unless we decided to appeal NASDAQs determination.

We decided not to appeal NASDAQs determination of the delisting date and began the process of transferring the quotation of our common stock to the OTCBB. A market
maker filed the necessary application with the Financial Industry Regulatory Authority to make a market in our common stock on the OTCBB and effective April 29, 2008, our common stock began quotation on the OTCBB.

Senior Credit Facility and Subordinated Notes Payable

In December
2006, we entered into a definitive agreement for the sale and issuance of $30 million in aggregate principal amount of unsecured subordinated convertible promissory notes, or the Notes, which were convertible initially into an aggregate of up to
7,334,964 shares of our common stock. The Notes bear interest at 6% per annum. Interest is not payable currently but is accrued and added to the principal on a quarterly basis. Any portion of the Notes and all accrued but unpaid interest which
is not converted is repayable in cash on December 5, 2009, or the maturity date. The Notes are convertible into shares at a conversion price of $4.09. We also issued warrants under this agreement to purchase 1,466,994 shares of our common stock
at an exercise price of $4.09 per share. We received net proceeds of approximately $27.3 million from the sale of the Notes and accompanying warrants after deducting the placement agent fees and offering expenses of $2.7 million.

On February 29, 2008, we entered into, and consummated the transactions contemplated by, the Prepayment Agreement and Amendments, or the Prepayment Agreements, with
each of the holders, or the Holders, of Notes. As stated above, the Notes were first issued on December 6, 2006 in tandem with warrants, or the Warrants, to purchase shares of our common stock pursuant to that certain Securities Purchase
Agreement, dated December 6, 2006, or the Purchase Agreement. Upon the terms and subject to the conditions of the Prepayment Agreements, the Holders exchanged $3,000,000 of original principal amount and accrued but unpaid interest on the Notes
(the Exchanged Debt) with us in exchange for the issuance of 3,571,433 shares of common stock in the aggregate to the Holders in a transaction exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended.
Immunicon also prepaid $8,500,000 of original principal amount and accrued but unpaid interest on the Notes to the Holders.

In addition, certain terms of
the Notes were amended and restated, including to provide that we may prepay without penalty any amount of the principal and interest of the Notes by providing five business days notice to the Holders, subject to certain change of control premium
obligations in the event of a prepayment in connection with a change of control, and we may list our common stock on the OTCBB, as well as other stock exchanges, in order to remain compliant with the covenants in the Note. Further, the
Available Cash Test, as defined in the Notes, existing under the Notes was amended and restated such that the effective measurement date for the test will begin with the quarter ended December 31, 2008 and will be measured each
quarter thereafter until the maturity of the Notes on December 6, 2009. The definition of Events of Default under the Notes was amended such that a breach or default under any agreement binding us that would result in an Event of
Default specifically excludes a breach or default related to the DLS Agreement, to the extent such default or event of default arose out of or in connection with any matters related to our arbitration against Veridex.

In March 2008, we prepaid $3.3 million to Silicon Valley Bank, or SVB which represented the outstanding principal and interest remaining under our credit facility due to
SVB.

We have incurred significant negative cashflow for several years due to a lower than expected revenue, significant legal costs due to the arbitration
and continuing efforts in research and development programs to improve existing products and to develop new products. In the first quarter of 2008, we have paid $8.5 million in cash to the Holders in the transaction described above, $3.3 million to
SVB,



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and $5.9 million in legal costs from our arbitration with Veridex. In order to reduce our cash burn, on March 10, 2008, we committed to actions to
realign staff levels and incur certain expenses in order to better facilitate the Companys current strategy, near-term outlook and ongoing operations. See Note 5, Restructuring in 2008, for further information. We are considering additional
measures to reduce our cash burn. Our operations are subject to certain additional risks and uncertainties including, among others, uncertainties of adequate financing to continue as a going concern, dependence on Veridex to market our cancer
diagnostic product candidates, the uncertainty of product development (including clinical trial results), regulatory clearance and approval, supplier and manufacturing dependence, competition, reimbursement availability, dependence on exclusive
licenses and other relationships, uncertainties regarding patents and proprietary rights, dependence on key personnel, convertible debt covenants and other risks related to governmental regulations and approvals. We believe that cash, cash
equivalents and short-term investments at March 31, 2008 will be sufficient to maintain operations through the third quarter of 2008.

The
consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and liquidation of liabilities in the ordinary course of business. The report of our independent
registered public accounting firm for the fiscal year ended December 31, 2007, contained an explanatory paragraph which stated that we had incurred recurring losses from operations, capital deficiency and negative cashflows and, based on our
operating plan and existing working capital, raised substantial doubt about our ability to continue as a going concern.

We will need additional funds to
continue to fund our business beyond the third quarter of 2008. Our capital requirements will depend on several factors, including investment to implement our business strategy and seeking arrangements with corporate partners. Our inability to raise
adequate funds to support the growth of our project portfolio will materially adversely affect our business.

As stated above, we have amended our Notes,
such that the relevant first quarter to test the Available Cash Test is the fiscal quarter ended December 31, 2008. This test is generally measured on the Announcement Date Deadline, which is defined in the Notes as the forty-fifth
day after the end of each fiscal quarter (or the ninetieth day with respect to the last fiscal quarter of the year); however the amendments to the Notes provided that for the fiscal quarter ended December 31, 2008, compliance was instead
measured by a statement of compliance provided by us within fifteen business days following December 31, 2008.

If we are unable to reduce our
cash burn, or execute a modified business plan, and we are unable to satisfy our available cash test under the Notes, this would result in an event of default under the Notes and our Notes would be payable in January 2009. Since we expect that the
earliest the debt could become due is January 2009, we have classified the remaining debt balance as current as of March 31, 2008.

If we are unable
to obtain additional funding for operations, we may not be able to continue operations as proposed, requiring us to modify our business plan, curtail various aspects of our operations or cease operations.

Recent Accounting Pronouncements

In March 2008, the Financial
Accounting Standards Board (FASB) issued the Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivatives and Hedging Activities, which enhances the requirements under SFAS
No. 133, Accounting for Derivatives and Hedging Activities. SFAS No. 161 requires enhanced disclosures about an entitys derivatives and hedging activities and how they affect an entitys financial position,
financial performance, and cash flows. This Statement will be effective for fiscal years and interim periods beginning after November 15, 2008. We are currently assessing the impact to our Consolidated Financial Statements.

In December 2007, the Financial Accounting Standards Board, or FASB, issued SFAS No. 141 (Revised 2007), Business Combinations, SFAS 141R. SFAS
141R will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions. SFAS 141R will change the accounting treatment for certain specific acquisition related items including: (1) expensing acquisition related costs as incurred; (2) valuing noncontrolling interests at fair value at the
acquisition date; and (3) expensing restructuring costs associated with an acquired business. SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R is to be applied prospectively to business combinations for
which the acquisition date is on or after January 1, 2009. We expect SFAS 141R may have an impact on our accounting for future business combinations once adopted but the effect is dependent upon the acquisitions that are made in the future.



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In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements, or SFAS 160. SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary
(minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the Consolidated Financial Statements and separate from the parent companys equity. Among other requirements, this statement requires
consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the Consolidated Statement of Operations, of the amounts of
consolidated net income attributable to the parent and to the noncontrolling interest. This statement is effective for us on January 1, 2009. We are still in the process of evaluating the impact SFAS 160 will have on our Consolidated Financial
Statements.

In June 2007, FASB ratified the consensus reached by the Emerging Issues Task Force on Issue No. 07-3, Accounting for
Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities,or EITF 07-3. Pursuant to EITF 07-3, nonrefundable advance payments for goods or services that will be used or rendered for
future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or services are performed, or when the goods or services are no longer expected to be
received. EITF 07-3 is effective for the fiscal years beginning after December 15, 2007 and is to be applied prospectively for contracts entered into on or after the effective date. This statement did not have any material effects on our
financial condition or results of operations.

In February 2007, FASB, issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an amendment of FASB Statement No. 115, or SFAS 159. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items
for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and is required to be
adopted by us in the first quarter of 2008. This statement did not have a material effect on our financial condition or results of operation.

In September
2006, FASB issued SFAS No. 157, Fair Value Measurements, orSFAS 157,which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value
measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS 157 is effective for fiscal
years beginning after November 15, 2007. However, on February 12, 2008, FASB issued FSP FAS 157-2 which would delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This FSP partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years for items within the scope of this FSP. Effective for 2008, we will adopt SFAS 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSP FAS 157-2. The partial adoption of
SFAS 157 did not have a material impact on our consolidated financial position, results of operations or cash flows (See note 3 for the required disclosures).

(2) Accounting for stock-based compensation

Our Amended and Restated Equity Compensation Plan, or the Plan, provides for the granting of
stock options, awards of restricted common stock, now referred to as nonvested shares. We have reserved an aggregate of 5,266,667 shares of our common stock for issuance under the Plan and have 1,185,326 available for grant as of March 31,
2008. The Plan requires that exercise prices of stock options may not be less than the market value of the common stock on the date of the grant. The date of grant is determined when both parties have reached a mutual understanding of the key terms
of the grant. In general, stock options granted to employees under the Plan have ten-year terms and vest over four years from the date of grant. Stock-based compensation expense related to our share-based awards was $266,000 and $489,000 for the
three months ended March 31, 2008 and March 31, 2007, respectively.

Our 2004 Employee Stock Purchase Plan, or ESPP, was initiated upon the
completion of our initial public offering. The plan permits eligible employees to purchase shares of our common stock through after-tax payroll deductions. We have reserved an aggregate of 400,000 shares of our common stock for issuance under our
ESPP and have 197,589 shares available under this plan as of March 31, 2008. The next purchase date will be in April 2008. As a result of our adopting FAS123R, we have expensed these grants and recorded them as stock based compensation.

The stock-based compensation (income) and expense consisted of the following:



|                                                                  |  |                              |     |   |      |   |    
|----------------------------------------------------------------- |  | ---------------------------- | --- | - | ---- | - | ---
|                                                                  |  | Three Months Ended March 31,
|(in thousands)                                                    |  | 2008                         |     |   | 2007
|Stock options under SFAS 123R                                     |  | $                            | 162 |   |      | $ | 240
|Nonvested shares                                                  |  |                              | 109 |   |      |   | 145
|Stock options granted prior to our IPO at below fair market value |  |                              | (5  | ) |      |   | 104
|                                                                  |  |                              |     |   |      |   |    
|Stock based compensation                                          |  | $                            | 266 |   |      | $ | 489
|                                                                  |  |                              |     |   |      |   |    



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As a result of the reduction in workforce as further disclosed in Note 5, 301,000 stock options were forfeited and
33,000 non vested shares were cancelled and returned those underlying shares of common stock to our pool available for future issuance. This resulted in a reduction in stock-based compensation expense of $39,000 for stock options and $8,000 for non
vested shares.

In addition to the above, we terminated the employment of James Wilcox, our Chief Legal Officer, triggering the provisions of his
Employment Agreement. In accordance with his agreement his non vested stock and stock options became fully vested. Due to this acceleration, 74,000 shares became vested and exercisable and we recognized an additional $56,000 of expense under FAS123R
for the three months ended March 31, 2008.

Stock-based compensation recorded in the three months ended March 31, 2008 is based on awards that
have vested and therefore have not been reduced for estimated forfeitures. SFAS 123R require forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimates. Due to
the recent restructuring and subsequent high number of forfeitures surrounding this event, actual expenses were reflected in the current stock based compensation.

The fair value of each of our stock option awards is estimated on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the table below. The fair value of our stock option awards, which are subject
to the straight-line vesting method, is recorded as an expense using a straight-line basis over the vesting life of the stock options. Expected volatility is based on an average of historical volatility of our stock. We used historical volatility in
the assumptions for the expected volatility. In selecting the historical volatility approach we had reviewed similar entities as well as the AMEX Biotechnology Index and based on this analysis, chose our own historical volatility as the best measure
of expected volatility. The risk-free interest rate for periods within the contract life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date of the stock option award with a maturity equal to the
expected term of the stock option award granted. We also used the simplified calculation of expected life, described in SAB 107, Share-Based Payment, compared to the Companys historical grants. On December 12, 2007, SAB 110
was issued to extend the simplified method beyond 2007 for those companies who have concluded that their own historical exercise experience is not sufficient to provide a reasonable basis. Management believes that this calculation provides a
reasonable estimate of expected life for the Companys employee stock options.

The significant assumptions relating to the weighted average valuation
of our stock options for the three months ended March 31, 2008 and 2007 were as follows:



|                             |  |                 |  |                
|---------------------------- |  | --------------- |  | ---------------
|                             |  | March 31, 2008  |  | March 31, 2007 
|Dividend yield               |  |   %            |  |   %           
|Volatility                   |  | 61.51% - 64.36% |  | 59.45% - 60.35%
|Weighted average volatility  |  | 61.96%          |  | 59.91%         
|Risk-free interest rate      |  | 2.86% - 3.43%   |  | 4.46% to 4.87% 
|Expected option life (years) |  | 6.25            |  | 6.25           

(3) Fair Value of Financial Assets and Financial Liabilities

Effective January 1, 2008, we adopted the provisions of SFAS 157 that relate to our financial assets and financial liabilities as discussed in Note 1. SFAS 157
defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a hierarchy that prioritizes
fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:



| |  |  | Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. Majority of our available for sale marketable equity
securities were classified as Level 1 which have an active market with sufficient volume and frequency of transactions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar
assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Our Level 2 liabilities include our conversion feature relating to convertible debt and the detachable warrants.
Although there are both observable and unobservable inputs in the fair value model, the observable inputs are significant to the values of the instruments.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3: Unobservable inputs that reflect the reporting entitys own assumptions.
| | - |  | ---------------------------------------------------------------------------------

Our assessment of the significance of a particular input to the fair value measurement requires judgment and did not have a material impact on our consolidated financial
condition, results of operations or cash flow. Our financial assets and financial liabilities that are accounted for at fair value on a recurring basis are presented in the table below:



|                                                |  |                                 |       |         |   |         |  |       |    |  |   |      
|----------------------------------------------- |  | ------------------------------- | ----- | ------- | - | ------- |  | ----- | -- |  | - | -----
|Recurring Fair Value Measures                   |  |                                 |       |         |   |         |  |       |    |  |   |      
|                                                |  | Fair value as of March 31, 2008
|(in thousands)                                  |  | Level 1                         |       | Level 2 |   | Level 3 |  | Total
|Assets:                                         |  |                                 |       |         |   |         |  |       |    |  |   |      
|Available-for-sale securities                   |  |                                 | 1,645 |         |   |        |  |       |   |  |   | 1,645
|                                                |  |                                 |       |         |   |         |  |       |    |  |   |      
|                                                |  | $                               | 1,645 |         | $ |        |  | $     |   |  | $ | 1,645
|                                                |  |                                 |       |         |   |         |  |       |    |  |   |      
|Liabilities:                                    |  |                                 |       |         |   |         |  |       |    |  |   |      
|Detachable warrants                             |  |                                 |      |         |   |        |  |       | 21 |  |   | 21   
|Conversion feature relating to convertible debt |  |                                 |      |         |   |        |  |       | 14 |  |   | 14   
|                                                |  |                                 |       |         |   |         |  |       |    |  |   |      
|                                                |  | $                               |      |         | $ |        |  | $     | 35 |  | $ | 35   
|                                                |  |                                 |       |         |   |         |  |       |    |  |   |      

The following table summarizes the changes in the fair values of level 3 items, for the three months ended March
31, 2008:



|                                                                                                             |  |                    |     |   |                                             |   |      |       |  |   |      |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------ | --- | - | ------------------------------------------- | - | ---- | ----- |  | - | ---- | -
|(in thousands)                                                                                               |  | DetachableWarrants |     |   | ConversionFeatureRelating toConvertibleDebt |   |      | Total | 
|Balance at 1/1/08                                                                                            |  | $                  | 81  |   |                                             | $ | 156  |       |  | $ | 237  |  
|Change in fair value of detachable warrants and conversion rights as reported on the Statement of Operations |  |                    | (60 | ) |                                             |   | (105 | )     |  |   | (165 | )
|Reclass to equity (1)                                                                                        |  |                    |     |   |                                             |   | (37  | )     |  |   | (37  | )
|                                                                                                             |  |                    |     |   |                                             |   |      |       |  |   |      |  
|Balance at 3/31/08                                                                                           |  | $                  | 21  |   |                                             | $ | 14   |       |  | $ | 35   |  
|                                                                                                             |  |                    |     |   |                                             |   |      |       |  |   |      |  



|(1) | The fair value of approximately $37 was reclassified to equity relating to conversion of debt into equity. See Note 11 for more information
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

(4) Impairment Charge

As previously disclosed in our Form 10-K for
the year ended December 31, 2007, we reviewed our long-lived assets for impairment in accordance with SFAS 144. This was the result of the negative outcome of the arbitration. We had taken a $2.6 million dollar charge in our fourth quarter of
2007 for property and equipment and our investment and license agreement with Kreatech as a result of this review. Prior to the arbitration decision and subsequent to our year end, we had made another payment to Kreatech of approximately $236,000.
As a result, we recorded a non-cash impairment charge of $212,000 for our license agreement with Kreatech and $24,000 non-cash impairment charge for our investment in Kreatech for the three months ended March 31, 2008. These impairments are
based on the deterioration in financial condition of the respective companies and substantial doubt about Kreatechs ability to continue to fulfill its obligations and earn the remaining milestones. The impairment charge for the license
agreement is recorded in our selling, general and administrative expenses and the impairment related to the investment is recorded in other income and expense in our Consolidated Statement of Operations.

(5) Restructuring in 2008

On March 10, 2008, we restructured
our operations by reducing staff levels and incurred certain expenses in order to better facilitate our current strategy, particularly given the decision in the arbitration with Veridex, or the Restructuring. The Restructuring principally included a
workforce reduction of approximately 40% of our full-time equivalent staff, primarily in platform development programs, research and development of new products, marketing of current and new products and related roles.

The Restructuring reflects, and was the result of the detailed analysis of several factors, including our revenue outlook and current expense structure; the adverse
March 3, 2008 final award in the arbitration with Veridex, and the potential effect of the final award on our commercialization efforts; our desire to reduce our cost structure; our desire to preserve stockholder value; and managements
assessment of continued risk and uncertainty regarding the ability at the present time to extrapolate with confidence instrument placement and revenue growth rates.



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We recorded an expense of approximately $981,000 for severance and other costs related to the Restructuring, of which
$161,000 was paid as of the first quarter of 2008.

In addition to the above, we also offered retention letters to certain employees. The severance and
benefits that we expect to incur relating to these letters is approximately $700,000. As these employees will continue to provide services during fiscal 2008, we will recognize the severance and benefits costs associated with these employees ratably
over the service period in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. We recorded an initial provision of $58,000 relating to these employees in the first quarter of 2008.

We also plan to reduce the office space that we occupy and began discussions with the landlord in March 2008. We did not record any expense related to this decision
as we believe we will be able to sublease the unoccupied office space. We believe that this sublease covers our scheduled lease payment.

The following
table summarizes the total expense for severance and retention bonuses included in the financial statements for the first quarter of 2008:



|                                                             |  |                                  |      
|------------------------------------------------------------ |  | -------------------------------- | -----
|Severance and retention expenses included in: (in thousands) |  | Three months endedMarch 31, 2008
|Cost of goods sold                                           |  | $                                | 156  
|Research and development expenses                            |  |                                  | 427  
|Selling, general and administrative expenses                 |  |                                  | 456  
|                                                             |  |                                  |      
|                                                             |  | $                                | 1,039
|                                                             |  |                                  |      

(6) Net loss per share

Basic and diluted net loss per common share is calculated in accordance with SFAS No. 128, Earnings Per Share, or SFAS 128, and SEC Staff Accounting Bulletin No. 98, Computations of Earnings Per Share (Revisions of
previous SABs), or SAB 98. Under the provisions of SFAS 128 and SAB 98, basic net loss per common share is calculated by dividing the net loss applicable to common stockholders by the weighted-average number of unrestricted common shares
outstanding during the period. Diluted earnings for common stockholders per common share, or diluted EPS, considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential
common shares would have an antidilutive effect. Our diluted net loss per common share is the same as basic net loss per common share, since the effects of potentially dilutive securities are anti-dilutive for all periods presented.

The following table sets forth the computation of net loss (numerator) and shares (denominator) for loss per share:



|                                                                      |  |                              |            |   |      |   |            |  
|--------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                      |  | Three Months Ended March 31, |           
|(in thousands, except for shares)                                     |  | 2008                         |            |   | 2007 |  
|Numerator:                                                            |  |                              |            |   |      |   |            |  
|Net loss                                                              |  | $                            | (15,524    | ) |      | $ | (4,116     | )
|                                                                      |  |                             
|Denominator:                                                          |  |                              |            |   |      |   |            |  
|Weighted average shares outstanding used for basic income per share   |  |                              | 29,096,367 |   |      |   | 27,675,742 |  
|Common stock equivalents                                              |  |                              |           |   |      |   |           |  
|                                                                      |  |                              |            |   |      |   |            |  
|Weighted average shares outstanding used for diluted income per share |  |                              | 29,096,367 |   |      |   | 27,675,742 |  
|                                                                      |  |                              |            |   |      |   |            |  



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Potentially dilutive securities as of March 31, 2008 and March 31, 2007, which are not included in our
basic earnings per share, are summarized as follows:



|                                                    |  |                 |  |          
|--------------------------------------------------- |  | --------------- |  | ---------
|                                                    |  | As of March 31,
|                                                    |  | 2008            |  | 2007     
|Common stock options and nonvested shares           |  | 3,360,304       |  | 3,912,434
|Warrants                                            |  | 1,509,163       |  | 1,509,163
|Shares issuable upon conversion of convertible debt |  | 5,111,510       |  | 7,478,033

(7) Investments

Short-term investments are investments purchased with maturities of longer than 90 days, but less than one year, held at a financial institution. Long term investments are investments purchased with maturities of longer than one year.
Investments are accounted for in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and accordingly, those investments classified as held-to-maturity are carried at amortized cost.

Our short-term investments were classified as held-to-maturity until the first quarter of 2008. As of March 31, 2008, we classified these investments as
available-for-sale and recorded them at Fair Market Value on our balance sheet with unrealized gains and losses included in the stockholders equity (See Note 13, Comprehensive loss). At December 31, 2007 our investments were classified as
held-to-maturity and were recorded at amortized cost.

The cost or amortized cost and estimated market value of investments at March 31, 2008 were as
follows (in thousands):



|                          |  |                      |       |                      |   |                       |  |                      |   |  |   |      
|------------------------- |  | -------------------- | ----- | -------------------- | - | --------------------- |  | -------------------- | - |  | - | -----
|March 31, 2008            |  | Cost oramortizedcost |       | Grossunrealizedgains |   | Grossunrealizedlosses |  | Estimatedmarketvalue
|Corporate debt securities |  | $                    | 1,644 |                      | $ | 1                     |  | $                    |  |  | $ | 1,645
|US Agencies securities    |  |                      |      |                      |   |                      |  |                      |  |  |   |     
|                          |  |                      |       |                      |   |                       |  |                      |   |  |   |      
|Total                     |  | $                    | 1,644 |                      | $ | 1                     |  | $                    |  |  | $ | 1,645
|                          |  |                      |       |                      |   |                       |  |                      |   |  |   |      



|                          |  |                      |        |                      |   |                       |  |                      |   |  |   |       
|------------------------- |  | -------------------- | ------ | -------------------- | - | --------------------- |  | -------------------- | - |  | - | ------
|December 31, 2007         |  | Cost oramortizedcost |        | Grossunrealizedgains |   | Grossunrealizedlosses |  | Estimatedmarketvalue
|Corporate debt securities |  | $                    | 11,159 |                      | $ | 19                    |  | $                    |  |  | $ | 11,178
|US Agencies securities    |  |                      |       |                      |   |                      |  |                      |  |  |   |      
|                          |  |                      |        |                      |   |                       |  |                      |   |  |   |       
|Total                     |  | $                    | 11,159 |                      | $ | 19                    |  | $                    |  |  | $ | 11,178
|                          |  |                      |        |                      |   |                       |  |                      |   |  |   |       

Proceeds from the maturity of investments were $12.2 million and $7.9 million for the three months ended
March 31, 2008 and 2007, respectively.



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(8) Inventory

Inventory consisted of the following:



|                |  |               |       |                  |   |      
|--------------- |  | ------------- | ----- | ---------------- | - | -----
|(in thousands)  |  | March 31,2008 |       | December 31,2007
|Raw materials   |  | $             | 878   |                  | $ | 1,127
|Finished goods  |  |               | 3,703 |                  |   | 3,309
|Work-in-process |  |               | 41    |                  |   | 1    
|                |  |               |       |                  |   |      
|Inventory       |  | $             | 4,622 |                  | $ | 4,437
|                |  |               |       |                  |   |      

(9) Property and equipment

Property and equipment consisted of the following:



|                               |  |               |      |   |                  |   |    
|------------------------------ |  | ------------- | ---- | - | ---------------- | - | ---
|(in thousands)                 |  | March 30,2008 |      |   | December 31,2007
|Laboratory equipment           |  | $             | 490  |   |                  | $ | 490
|Office furniture and equipment |  |               | 67   |   |                  |   | 67 
|Manufacturing equipment        |  |               | 247  |   |                  |   | 247
|Computer equipment             |  |               | 48   |   |                  |   | 35 
|                               |  |               |      |   |                  |   |    
|Property and equipment, gross  |  |               | 852  |   |                  |   | 839
|Less Accumulated depreciation  |  |               | (213 | ) |                  |   | 0  
|                               |  |               |      |   |                  |   |    
|Property and equipment, net    |  | $             | 639  |   |                  | $ | 839
|                               |  |               |      |   |                  |   |    

Depreciation expense was $213,000 and $622,000 for three months ended March 31, 2008 and March 31, 2007,
respectively.

(10) Accrued expenses

Accrued expenses
consisted of the following:



|                                  |  |               |       |                  |   |      
|--------------------------------- |  | ------------- | ----- | ---------------- | - | -----
|(in thousands)                    |  | March 31,2008 |       | December 31,2007
|Salaryrelated expense            |  | $             | 1,601 |                  | $ | 599  
|Clinical research and trial costs |  |               | 703   |                  |   | 542  
|Contracted research costs         |  |               | 74    |                  |   | 80   
|Accounting and legal fees         |  |               | 1,963 |                  |   | 3,934
|Manufacturing/Lab material        |  |               | 49    |                  |   | 675  
|Other                             |  |               | 850   |                  |   | 911  
|                                  |  |               |       |                  |   |      
|Accrued expenses                  |  | $             | 5,240 |                  | $ | 6,741
|                                  |  |               |       |                  |   |      

The increase in salary and related expenses is primarily due to the severance accrual of $981,000 as discussed
above in Note 5. We incurred $3.8 million and paid approximately $5.9 million legal fees related to the arbitration in the first quarter of 2008.



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(11) Debt

Convertible subordinated notes payable

The convertible debt, detachable warrant and conversion rights liabilities are disclosed below:



|                                                                                                                                                                                     |  |               |        |                  |   |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------ | ---------------- | - | ------
|(in thousands)                                                                                                                                                                       |  | March 31,2008 |        | December 31,2007
|Current liabilities:                                                                                                                                                                 |  |               |        |                  |   |       
|Convertible subordinated notes payable due in December 2009 at interest rate of 6.0%, net of discount of $3,770 and $6,675 as of
March 31, 2008 and December 31, 2007, respectively. |  | $             | 17,135 |                  | $ |      
|Detachable warrants                                                                                                                                                                  |  |               | 21     |                  |   | 81    
|Conversion feature relating to convertible debt                                                                                                                                      |  |               | 14     |                  |   | 156   
|                                                                                                                                                                                     |  |              
|Long term liability                                                                                                                                                                  |  |               |        |                  |   |       
|Convertible subordinated notes payable due in December 2009 at interest rate of 6.0%, net of discount of $6,675 as of December 31, 2007                                              |  | $             |       |                  | $ | 25,308

In December 2006, we entered into a definitive agreement for the sale and issuance of $30 million in aggregate
principal amount of unsecured subordinated convertible promissory notes, or the Notes, which were convertible initially into an aggregate of up to 7,334,964 shares of our common stock. The Notes bear interest at 6% per annum. Interest is not
payable currently but is accrued and added to the principal on a quarterly basis. Any portion of the Notes and all accrued but unpaid interest which is not converted is repayable in cash on December 5, 2009, the maturity date. We also issued
warrants under this agreement to purchase 1,466,994 shares of our common stock. The Notes are convertible into shares at a conversion price of $4.09. The warrants have an exercise price of $4.09 per share. We received net proceeds of approximately
$27.3 million from the sale of the Notes and accompanying warrants after deducting the placement agent fees and offering expenses of $2.7 million.

If, at
any time after the eighteen-month anniversary of the issuance date of the Notes, the last closing sale price of our common stock exceeds $7.50 for any twenty consecutive trading days, we have the right to require the holders of the Notes to convert
all or any portion of the Notes into shares of our common stock at the conversion price, subject to certain limitations on beneficial ownership. This mandatory conversion right is subject to compliance with certain conditions during the sixty day
period prior to the mandatory conversion including our continued listing on an eligible trading market, compliance with certain covenants and the lack of occurrence of an event of default.

On February 29, 2008, we entered into, and consummated the transactions contemplated by, the Prepayment Agreement and Amendments, or the Prepayment Agreements, with
each of the Holders of our Notes. As stated above, the Notes were first issued December 6, 2006 in tandem with warrants, or the Warrants, to purchase shares of our common stock pursuant to that certain Securities Purchase Agreement, dated
December 6, 2006, or the Purchase Agreement. Upon the terms and subject to the conditions of the Prepayment Agreements, the Holders exchanged $3,000,000 of original principal amount and accrued but unpaid interest on the Notes (the
Exchanged Debt) with us in exchange for the issuance of 3,571,433 shares of common stock in the aggregate to the Holders in a transaction exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended.
Immunicon also prepaid $8,500,000 of original principal amount and accrued but unpaid interest on the Notes to the Holders.

In addition, certain terms of
the Notes were amended and restated, including to provide that we may prepay without penalty any amount of the principal and interest of the Notes by providing five business days notice to the Holders, subject to certain change of control premium
obligations in the event of a prepayment in connection with a change of control, and we may list our common stock on the OTCBB, as well as other stock exchanges, in order to remain compliant with the covenants in the Note. Further, the
Available Cash Test, as defined in the Notes, existing under the Notes was amended and restated such that the effective measurement date for the test will begin with the quarter ended December 31, 2008 and will be measured each
quarter thereafter until the maturity of the Notes on December 6, 2009. The definition of Events of Default under the Notes were amended such that a breach or default under any agreement binding us that would result in an Event of
Default specifically excludes a breach or default related to the DLS Agreement, to the extent such default or event of default arose out of or in connection with any matters related to our arbitration against Veridex.



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The terms of the Warrants and the Purchase Agreement were also amended to confirm that the closing of the
transactions contemplated by the Prepayment Agreements would not result in a breach of the Warrants or the Purchase Agreement. The Holders irrevocably waived any anti-dilution adjustment or participation rights related to the issuance of the Shares
in the Exchange. In addition, the terms of the Purchase Agreement were amended such that our covenants that, for so long as any of the Notes or Warrants remain outstanding, we shall use our reasonable best efforts to maintain the effectiveness of
the current Registration Statement on Form S-3, the Registration Statement, covering the issuance of the Registrable Securities (as defined in the Notes); provided that, if at any time while the Notes or the Warrants are outstanding we shall be
ineligible to maintain the effectiveness of the Registration Statement, we shall no longer be obligated to maintain the effectiveness of the Registration Statement.

In the original transaction, we allocated the proceeds received from the Notes between the underlying debt instruments, conversion rights, and the detachable warrants. At inception, the fair value of the detachable
warrants of $1.9 million and the conversion rights of $8.1 million were bifurcated from the host debt contract and recorded as a derivative liability. This resulted in a reduction of the initial notional carrying amount of the Notes as unamortized
discount which will be amortized over the term of the Notes under the effective interest method. As of March 31, 2008 and 2007, we have recorded non-cash interest expense relating to the discount of $2.9 million and $778,000, respectively. The
$2.9 million in the three months ended March 31, 2008 includes a $2.2 million write off of the discount as a result of the Prepayment Agreements discussed above.

The result of this accounting treatment is that the fair value of the embedded derivative and the detachable warrants are marked-to-market each balance sheet date and recorded as a liability. The change in fair value
is recorded in the statement of operations as Change in fair value of the detachable warrants and conversion right. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and
then that fair value is reclassified to equity. Management used a derivative model analyzing the detachable warrants and the conversion features, additional shares to be paid resulting from the interest accrual and the redemption options. The model
also considered factors such as the stock price, interest rate, the stock and interest rate volatility and the expected life. For the three months ended March 31, 2008 and March 31, 2007, we have recorded non-cash income in the statement
of operations of $165,000 and $2.7 million, respectively, relating to these changes in fair value for the conversion right. We were in compliance with its covenants for the three months ended March 31, 2008 and March 31, 2007.

As a result of the issuance of the 3,571,433 shares of common stock to prepay $3.0 million of principal and interest of the Notes, described above, we recorded a $3.0
million debt conversion expense in accordance with Statement of Financial Accounting Statement, or FAS, No. 84, Induced Conversions of Convertible Debt, or FAS 84, in the three month ended March 31, 2008. FAS 84 requires recognition
of an expense equal to the fair value of the additional securities or other consideration issued to induce conversion. This statement applies to conversions that both (a) occur for a changed conversion that is only exercisable for a limited
time and (b) include the issuance of all the equity securities issuable pursuant to conversion privileges included in the terms of the debt at issuance for each debt instrument that is converted. Upon the conversion of these shares, we marked
to fair value at the conversion date and then the fair value of approximately $37,000 was reclassified to equity at the conversion date.

The reduction of
the conversion derivative that was attributable to the prepayment of $8.5 million in cash was marked to market upon payment and is included in the statement of operations as Change in fair value of the detachable warrants and conversion
right. Subsequent to the Prepayment Agreement, we will continue to mark to market the remaining conversion derivative and Warrants at each balance sheet date.

Senior indebtedness

As of March 31, 2008, we had an aggregate of $559,000 of debt outstanding with General
Electric Capital Corporation, or GECC, as described below. The carrying value of this debt is as follows:



|                                                                                                       |  |               |      |   |                  |   |        |  
|------------------------------------------------------------------------------------------------------ |  | ------------- | ---- | - | ---------------- | - | ------ | -
|(in thousands)                                                                                         |  | March 31,2008 |      |   | December 31,2007 |  
|SVB line of credit                                                                                     |  | $             |     |   |                  | $ | 3,645  |  
|GECC line of credit due from April 2008 to October 2010 at interest rates ranging from 9.31% to 11.05% |  |               | 559  |   |                  |   | 688    |  
|                                                                                                       |  |               |      |   |                  |   |        |  
|                                                                                                       |  | $             | 559  |   |                  | $ | 4,333  |  
|Less: current portion of long term debt                                                                |  |               | (362 | ) |                  |   | (2,086 | )
|                                                                                                       |  |               |      |   |                  |   |        |  
|Total long term debt                                                                                   |  | $             | 197  |   |                  | $ | 2,247  |  
|                                                                                                       |  |               |      |   |                  |   |        |  



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SVB

On
March 27, 2008, we paid the balance due and outstanding to SVB of $3.3 million remaining under our credit facility which included $21,000 in interest.

GECC

In April 2003, we obtained $5.0 million in the form of equipment lines of credit from GECC. Collateral for this loan is a first
lien on those assets specifically pledged under this line of credit and a subordinated lien on all our remaining assets except for our intangible intellectual property. We issued a warrant to purchase 20,834 shares of our common stock with an
exercise price of $4.00 per share in connection with this loan. We obtained the right to borrow the second advance of $2.0 million in December 2003 upon the filing of our Registration statement on Form S-1 for our IPO.

In October, 2004, we extended our existing equipment line of credit with GECC by $5.0 million but did not otherwise amend the terms of this line of credit, except for
the applicable rate of interest and repayment period. However, upon the occurrence of any event of default, GECC may accelerate and declare all or any portion of its obligations to GECC immediately due and payable. This line of credit is secured by
a first priority security interest on the assets specifically pledged under the line of credit and a second priority security interest on all other assets except for our intangible intellectual property.

The $3.3 million available credit under our GECC credit facility expired on June 30, 2007. We are not extending the availability of the GECC credit facility. As of
this date we have drawn down $6.7 million, of which $559,000 was outstanding as of March 31, 2008 under all of the facilities with GECC with interest ranging from 9.31% to 11.05%. We are required to send our financial statements to GECC ten
days after we file such statements with the SEC. We were in compliance with our covenants in the GECC credit facility for the periods ended March 31, 2008 and December 31, 2007.

(12) Geographical and customer information

Operating segments are
identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, when making decisions regarding resource allocation and
assessing performance. To date, we have viewed our operations and manage our business as one segment operating primarily in the United States of America. Revenues from external customers are summarized below. Revenues are attributed to a country
based on the location of the customer. The following table consists of the customers from whom we derived more than 10% of our revenue in the quarter ended March 31, 2008 and March 31, 2007:



|          |  |                              |   |  |      |  
|--------- |  | ---------------------------- | - |  | ---- | -
|          |  | Three Months Ended March 31, |  
|Customers |  | 2008                         |   |  | 2007 |  
|Veridex   |  | 56                           | % |  | 49   | %



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Our revenue by geographical region is as follows for the quarter ended March 31, 2008 and March 31, 2007:



|                         |  |                              |       |      |   |      
|------------------------ |  | ---------------------------- | ----- | ---- | - | -----
|                         |  | Three Months Ended March 31,
|                         |  | 2008                         |       | 2007
|United States            |  | $                            | 2,309 |      | $ | 2,022
|France                   |  |                              | 632   |      |   | 34   
|Spain                    |  |                              | 403   |      |   | 2    
|Other European countries |  |                              | 168   |      |   | 416  
|Other foreign countries  |  |                              | 341   |      |   | 183  
|                         |  |                              |       |      |   |      
|                         |  | $                            | 3,853 |      | $ | 2,657
|                         |  |                              |       |      |   |      

(13) Comprehensive loss

Other comprehensive loss consisted of foreign currency translation adjustments and unrealized gains. Comprehensive loss reconciliation is below:



|                                                  |  |                              |         |   |      |   |        |  
|------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------ | -
|                                                  |  | Three months ended March 31, |        
|(in thousands)                                    |  | 2008                         |         |   | 2007 |  
|Net Loss as reported                              |  | $                            | (15,524 | ) |      | $ | (4,116 | )
|Foreign currency translation                      |  |                              | 10      |   |      |   | 2      |  
|Unrealized gain on available for sale investments |  |                              | 1       |   |      |   |       |  
|                                                  |  |                              |         |   |      |   |        |  
|Comprehensive loss                                |  | $                            | (15,513 | ) |      | $ | (4,114 | )
|                                                  |  |                              |         |   |      |   |        |  

(14) Commitment and contingencies

Licensing and sponsored research agreements

In the ordinary course of our business, we make certain indemnities,
commitments and guarantees under which we may be required to make payments in relation to certain transactions. These include indemnities of clinical investigators, consultants and contract research organizations involved in the development of our
products. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future
payments we could be obligated to make. We have not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. However, we accrue for losses for any known contingent liability, including
those that may arise from indemnification provisions, when future payment is probable. No such losses have been recorded to date.

In December 2006, we
entered into a definitive license, development, supply and distribution agreement with Diagnostic HYBRIDS, Inc., or DHI, to develop and commercialize products in the field of clinical virology diagnostics, starting with a panel of multiplex
respiratory virus and sexually transmitted disease assays. This product portfolio will be developed for the EasyCount platform. The agreement is in effect for a period ending on the fifth anniversary of the commencement of the commercial period and
either party may elect to extend the original term for an additional five years. The agreement automatically terminates in the event that pre-marketing FDA clearance for a new product is not received on or before July 1, 2009.



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We received an up front non-refundable license fee of $500,000 and are eligible for an additional $1.0 million upon
approval by the FDA of a clinical trial plan. In addition, the agreement provided for us to receive six quarterly payments of $200,000 each beginning in January 2007 to assist us in developing an instrument system and reagents for this
collaboration. As of March 31, 2008, we have received all six quarterly payments. Under the agreement we will manufacture and supply DHI with their requirements for bulk reagents and DHI will manufacture and supply the detection reagents. We
will receive 41% of the revenue from the sale of these reagents. DHI will act as our distributor for instrument systems and thereby be responsible for all expenses for marketing, sales, distribution and training.

We will manufacture and supply DHI with their requirements for bulk reagents, instrument systems and related
components and materials. DHI will manufacture and supply the detection reagents and finished products. We will receive 41% of the revenue from the sale of these reagents. DHI will act as our distributor for the instrument systems. We are
responsible for one year warranty expense for the instrument systems. We should receive all revenue from servicing or repair of instrument systems. DHI is entitled to 10% of service revenue as their commission. DHI will be responsible for all
expenses for sales and training with respect to products and systems. As of March 31, 2008, we are still in the developing phase of this agreement. In accordance with EITF 00-21, Revenue Recognition with Multiple Deliverables, or EITF 00-21, we
have evaluated the contract and determined that it has one unit of accounting. The payments received will be amortized over the life of the contract which we expect will be a total of 11 1/2years which includes a 5 year extension of the initial term. We recorded $34,000 and $15,000 in contract revenue for the three months ended March 31, 2008 and 2007,
respectively.

We entered a licensing agreement, or Licensing Agreement, with a university on June 1, 1999 in an effort to develop licensed
subject matter and identify future technologies. The technology developed relates to the isolation, enrichment and characterization of circulating epithelial cells, while determining their relationship to cancer disease states. We were granted a
royalty bearing, exclusive license to use, manufacture and distribute licensed products developed as part of the Licensing Agreement. The term of the Licensing Agreement is for 15 years.

In consideration of the rights granted by the university, we pay the university a nonrefundable annual license maintenance royalty of $25,000, along with a royalty equal to one percent of net sales of licensed
products. We recorded $5,000 and $3,000 for the royalty payments in costs of goods sold for the three months ended March 31, 2008 and 2007, respectively. In the event we pay a royalty to a third-party for use of patented technology which
materially enables the functionality of the universitys developed technology, then we shall be entitled to receive a credit against royalties due the university in the amount of the third-party royalty payments.

Relocation Agreement

In August 2006, the Compensation Committee of
our Board of Directors, or the Committee, approved a change to the compensation of our Chief Executive Officer, Byron Hewett. In order to facilitate his relocation the Committee unanimously approved certain expenditures related to his relocation to
the Philadelphia area. We reimbursed Mr. Hewett $67,000 for the costs on the purchase of his new home and the moving expenses in December 2006. The reimbursement included Mr. Hewetts anticipated United States Federal income tax
liability. We recorded total relocation expense of $389,000 for the three months ended in March 31, 2007.

Warranty for instrument product sales

We generally include a one year warranty for product quality related to our instrument product sales. We record warranty expense for known warranty
issues if a loss is probable and can reasonably be estimated, and we record warranty expenses for anticipated but, as yet, unidentified warranty expenses based on historical activity. Provisions for estimated warranty expenses related to product
warranties are made at the time products are shipped. The warranty liability and the related expense were not significant during the periods presented. We believe that the warranty accrual is appropriate; however, actual claims incurred could differ
from the original estimates, requiring adjustments to the accrual. Our product warranty obligations are included in accrued expenses on the accompanying condensed consolidated balance sheet.



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Changes in accrued product warranty expense are as follows:



|                                  |  |                                  |     |   |                             |   |     |  
|--------------------------------- |  | -------------------------------- | --- | - | --------------------------- | - | --- | -
|(in thousands)                    |  | Three Months EndedMarch 31, 2008 |     |   | Year EndedDecember 31, 2007 |  
|Beginning of the period           |  | $                                | 71  |   |                             | $ | 64  |  
|Adjustments to warranty provision |  |                                  | (19 | ) |                             |   | 73  |  
|Claims                            |  |                                  | (6  | ) |                             |   | (66 | )
|                                  |  |                                  |     |   |                             |   |     |  
|End of the period                 |  | $                                | 46  |   |                             | $ | 71  |  
|                                  |  |                                  |     |   |                             |   |     |  

Facility and operating leases

We currently lease approximately 46,945 square feet of office and laboratory space in Huntingdon Valley, Pennsylvania. Our current space is adequate to support commercialization. The lease expires on January 31,
2012 although we can elect to terminate the lease any time after May 10, 2006, subject to an early termination payment.

We also lease approximately
2,500 square feet of office and laboratory research space in Enschede, The Netherlands, used to support our research and development activities. This lease expires on August 1, 2009.

Rent expense for all locations for three months ended March 31, 2008 and 2007 was $232,000.

Future minimum lease payments under the operating leases as of March 31, 2008 are as follows:



|                             |  |           |      
|---------------------------- |  | --------- | -----
|(in thousands)               |  | Operating
|Fiscal 2008                  |  | $         | 649  
|Fiscal 2009                  |  |           | 869  
|Fiscal 2010                  |  |           | 706  
|Fiscal 2011                  |  |           | 234  
|Fiscal 2012 and thereafter   |  |           | 19   
|                             |  |           |      
|Total minimum lease payments |  | $         | 2,477
|                             |  |           |      

Employment contracts

We are liable for certain payments under employment contracts with our Chief Executive Officer, Chief Financial Officer, Chief Scientific Officer and Chief Counsel. The contracts require that we continue salary and benefits for these
officers for a period of one year as well as accelerate any unvested options, if any, if the officer is terminated, except for cause, or in the event of a Change of Control, as defined in the contracts.

On February 29, 2008, James G. Murphy, our former Chief Financial Officer, tendered his resignation to our Board, pursuant to which Mr. Murphy resigned his
position as our Senior Vice President, Finance and Administration and Chief Financial Officer. Mr. Murphys resignation was effective on March 14, 2008. Mr. Murphys resignation was not as a result of any disagreement with
Immunicon on any matter relating to our operations, policies or practices and Mr. Murphy worked closely with our management to ensure a smooth transition.

James L. Wilcox was terminated as part of the Restructuring, discussed in Note 5, from his positions as Vice President and Chief Counsel. Mr. Wilcoxs release was effective as of March 10, 2008. Mr. Wilcoxs
termination was not as a result of any disagreement with Immunicon on any matter relating to our operations, policies or practices. In accordance with his employment agreement, his non vested stock and stock options became fully vested. Due to this
acceleration, 74,000 shares became vested and exercisable and we recognized an additional $56,000 of expense under FAS123R for the three months ended March 31, 2008.



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(15) Equity compensation plan

Amended and Restated Equity Compensation Plan

Our Amended and Restated Equity Compensation Plan, or the Plan,
provides for the granting of stock options, awards of restricted common stock, now referred to as nonvested shares. We have reserved an aggregate of 5,266,667 shares of our common stock for issuance under the Plan and have 1,185,326 available for
grant as of March 31, 2008. Our 2004 Employee Stock Purchase Plan, or ESPP, was initiated upon the completion of our IPO. The plan permits eligible employees to purchase shares of our common stock through after-tax payroll deductions. We have
reserved an aggregate of 400,000 shares of our common stock for issuance under our ESPP and have 197,589 shares available under this plan as of March 31, 2008.

Section 3(a) of the Plan states in part that, during each calendar year that the Plan is maintained, the number of shares authorized for issuance or transfer under the Plan shall be increased without further
action by our Board, and without further approval by our stockholders, in such amount as shall cause the number of shares authorized for issuance or transfer under than Plan to equal 15% of the issued and outstanding shares as of December 31 of
the immediately prior year (on a fully-diluted basis); provided, however, that the maximum number of shares to be added in any calendar year pursuant to Section 3(a) of the Plan shall not exceed 250,000. As such, on December 31, 2007,
pursuant to Section 3(a) of the Plan, the total number of shares authorized for issuance or transfer under the Plan increased from 5,016,667 shares to 5,266,667 shares, an increase of 250,000 shares.

As a result of the reduction in workforce as further disclosed in Note 5, 301,000 stock options and 33,000 non vested shares were forfeited and returned to our option
pool available for future issuance.

As discussed above, certain officers have Employment Agreements with us which outline employment and certain rights
and obligations in the event of a change of control. If the officers employment is terminated for any reason before the nonvested stock or the stock options are fully vested, except as provided by such officers Employment Agreement with
us, the shares of nonvested stock and stock options that are not then vested will be forfeited. If the provisions of the officers Employment Agreement are triggered, the nonvested stock and stock options will vest in accordance with the
officers Employment Agreement. On March 10, 2008, as part of our restructuring efforts, we terminated the employment our Chief Counsel, triggering the provisions of his Employment Agreement. In accordance with his agreement 5,334 shares
of non vested stock and 68,500 stock options became fully vested and exercisable.

Grants

In January 2007, our Board made nonvested stock grants to the non-employee directors of the Board and to certain officers of the Company. The non-employee directors of
the Board were granted a total of 34,860 shares which will vest one-half on each of the next two anniversary dates from the grant date. Certain officers were granted a total of 155,000 shares which will vest one-third per year for each of the next
three years on the anniversary of the grant date. The nonvested stock grant had a fair market value of $107,000 and $477,000 for the directors and officers, respectively. All such grants were made pursuant to the Plan. The fair value of nonvested
shares is determined based on the closing price of our common stock, as reported by Nasdaq, on the grant date and compensation expense is recognized over the service period, or vesting period. Compensation expense relating to issuance of nonvested
shares was $109,000 and $145,000 for the three months ended March 31, 2008 and March 31, 2007, respectively.

Vesting

In the three months ended March 31, 2008, 211,996 nonvested shares given to various employees vested. The vesting of these shares created reportable income to
these individuals. This income was based on the fair market value of the closing price on that day. The provisions of the Plan allows for the employees, with the approval of the board, to choose to satisfy their tax obligations relating to this
vesting by netting the number of shares they receive. All of the employees chose this option. This resulted in the exchange of 75,736 shares to cover tax expenses of $53,000 relating to the vesting and release of the non vested shares.



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(16) Income taxes

We follow SFAS 109, which requires the liability method of accounting for income taxes. We have established a valuation allowance to fully reserve our net deferred tax assets at March 31, 2008 and December 31, 2007 due to the
uncertainty of the timing and amount of future taxable income. As of March 31, 2008, we had a net operating loss carryforward of approximately $160.6 million. We file income tax returns in the U.S. federal jurisdiction, and various states and
foreign jurisdictions. As a result of the net operating loss carryforwards, our federal statute of limitation remains open for all years since 1990 with no years currently under examination by the Internal Revenue Service. If not utilized, these net
operating loss carryforwards and tax credits will begin to expire in 2018 and expires through 2028. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return.
The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.

If we do not achieve profitability, we may lose our net operating loss carryforwards. In addition, the Internal Revenue Code places certain limitations on the annual amount of net operating loss carryforwards that can be utilized if certain
changes in our ownership occur.

On January 1, 2007, we adopted the provision of FASB Interpretation No. 48,Accounting for Uncertainty in
Income Taxes, or FIN 48. In accordance with paragraph 19 of FIN 48, interest, if any, relating to unrecognized tax benefits would be recorded as a component of interest expense and penalties, if any, relating to unrecognized tax benefits as a
component of tax expense. As of the date of the adoption of FIN48, we did not have any accrued interest or penalties associated with any unrecognized tax benefits.

We have an unrecognized tax benefit of approximately $1.7 million which did not change during the three months ended March 31, 2008. Any changes in the future to the unrecognized tax benefit would not impact the effective tax rate due
to the existence of the valuation allowance. We do not reasonably estimate that the unrecognized tax benefit will change significantly within 2008. As a result of the FIN 48 adjustment, our unused research and development credit carryforward was
approximately $3.6 million at March 31, 2008.

(17) Related parties

The following table summarizes the revenue from related parties recognized for the three months ended March 31, 2008 and 2007:



|                                                  |  |                    |       |      |   |      
|------------------------------------------------- |  | ------------------ | ----- | ---- | - | -----
|                                                  |  | Three Months Ended
|(in thousands)                                    |  | 2008               |       | 2007
|Contract and milestone revenue from related party |  | $                  | 87    |      | $ | 87   
|Product revenue from related party                |  |                    | 2,056 |      |   | 1,210
|                                                  |  |                    |       |      |   |      
|Total revenue from related party                  |  | $                  | 2,143 |      | $ | 1,297
|                                                  |  |                    |       |      |   |      

In January 2006, we entered into a license agreement with Kreatech Biotechnology B.V., or Kreatech, under which
Kreatech granted to us a royalty-bearing, non-exclusive, non-transferable license to offer for sale, sell, distribute, import, and export to resellers and end users reagents processed using Kreatechs Universal Linkage System technology for use
with our imaging technologies and instrument platforms. In consideration for the grant of the rights and licenses under this agreement, we paid to Kreatech an initial license fee of $71,000. In April 2007, we entered into a new agreement with
Kreatech (Cross-License Agreement) wherein the terms and conditions of the initial agreement were terminated, the research collaboration was expanded and the old license fee was fully amortized. Under the Cross-License Agreement, we have
provided an exclusive right to Kreatech to utilize certain of our technologies to improve existing Kreatech products and to manufacture and supply such improved products in exchange for the exclusive right to sell these products in North America.

In accordance with the provisions of the Cross-License Agreement, we have agreed to make a $500,000 payment to Kreatech if we are successful in obtaining
FDA clearance of any product developed under the Cross-License Agreement. We have agreed to make an additional $500,000 payment once we have achieved aggregate sales of $10 million in North America for the products developed under the Cross-License
Agreement. The initial term of the Cross-License Agreement is ten years with an automatic extension of ten years subject to certain conditions.



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We simultaneously entered into a Stock Purchase Agreement where we agreed to purchase Kreatech Series D Preferred
Stock. We paid Kreatech approximately $1.0 million and have received approximately 2.4 million shares of Series D Preferred Stock in fiscal 2007. We made a milestone payment of $236,000 in February 2008 as Kreatech met a development requirement
and received 664,000 shares of Series D Preferred Stock. Based on terms of the agreement, we will have to make additional payments of approximately $300,000 based on the achievement by Kreatech of certain development milestones. We expect the
remainder of the milestones will be achieved by the end of the second quarter in 2008.

We performed various analyses, including estimates of future cash
flow to determine the allocation of the value of the cash paid to Kreatech between the cross-license and the Series D Preferred Stock. Based on these analyses we determined that we would allocate 90% of the fair value to the cross-license and 10% to
the Series D Preferred Stock.

As further discussed in Note 4, we recorded an impairment charge of $212,000 for our license agreement with Kreatech and
$24,000 charge for our investment in Kreatech in the three months ended March 31, 2008. As a result, these assets were completely written off as of March 31, 2008.

In March 2007, Leon W. M.M. Terstappen, MD, Ph.D., our Senior Vice President of Research and Development and Chief Scientific Officer, was appointed Chair of Medical Cell Biophysics in the Faculty of Science and
Technology at the University of Twente, Enschede, The Netherlands. Dr. Terstappen will remain in his current position with us but will devote approximately 20% of his time to academic activities at the University of Twente with which we have
substantial contracts and relationships. The University of Twente will compensate directly to Dr. Terstappen for his time devoted to the University of Twente.

In 1997, we entered into a license agreement with a university (Netherlands Agreement) covering optical analysis of particles similar to cells and cell particles. In consideration of the rights granted by the university, we will
pay the university a royalty equal to three percent of net sales of products covered by the licensed technology for which a valid patent exists or one and three-quarters percent (1.75%) of net sales of products covered by the licensed
technology for which no valid patent exists. As of March 31, 2008, we had not sold any products relating to the Netherlands Agreement. In addition to the royalty, we also provide financial support for certain students that are assigned or
working in this area of expertise. We have recorded research and development expense for this support of $50,000, and $122,000 in the three month ended March 31, 2008 and March 31, 2007, respectively.

In June 2004, we entered into an addendum to the Netherlands Agreement with STW, a research funding agency of the Dutch government. Under the modified agreement, STW
will provide the university with up to approximately $1 million toward developing an affordable and portable instrument to monitor patients with HIV. This instrument represents an additional application of our existing technology, specifically the
CellTracks EasyCount system, which was developed through our collaboration with the university. Under the agreement addendum, we will contribute in kind research effort toward the project such as personnel, equipment and supplies, among
other things, and we have rights to commercialize products that result from the agreement. As of March 31, 2008, we have met our obligations under this agreement.

In August 2000, we entered into the DLS Agreement, with Ortho Clinical Diagnostics, Inc., or OCD, a subsidiary of Johnson and Johnson, Inc., whereby we licensed certain rights to our technology and
assumed certain development obligations for our cancer diagnostic product candidates. In exchange, OCD agreed to market and distribute our cancer diagnostic product candidates. On November 10, 2003, we executed an amendment to the DLS Agreement
whereby all of the rights and responsibilities of OCD were transferred to Veridex LLC, or Veridex, a subsidiary of OCD. In addition, we and Veridex re-negotiated certain clinical development and regulatory milestones. The DLS Agreement has a term of
20 years and may be terminated earlier by either party under certain conditions. The DLS Agreement was subject to arbitration between Veridex and us. See below for more discussion of the arbitration.

In connection with the DLS Agreement, Veridex made a $1.5 million up-front, non-refundable license fee payment to us. Under the DLS Agreement, Veridex is obligated
to pay us approximately 31% of their net sales from the sale of reagents, test kits, and certain other consumable products and disposable items. Under the terms of the DLS Agreement, we are required to invest in related research based on a
percentage of sales as defined in the DLS Agreement. In 2000, another subsidiary of Johnson and Johnson, or J&J Sub, purchased $5 million of our Series E Preferred Stock. In December 2001 and July 2003, J&J Sub purchased
$3 million and $3.3 million of our Series F Preferred Stock, respectively.

We have received a total of $6.9 million in license and
milestone payments under the terms of the DLS Agreement from inception to March 31, 2008. These payments are recognized as revenue over the estimated product development period for the corresponding



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product, which we estimate will end at various points through June 30, 2011. We continuously review the status of the remaining development milestones
and, where appropriate, have renegotiated the development requirement and payment terms. We expect to receive the remaining $3.6 million in development milestone payments over the next three to five years.

We pay Veridex a commission for selling our instruments. We recorded commission expense of $109,000 and $77,000 for the three months ended March 31, 2008 and 2007,
respectively. These expenses were recorded under general and administrative expense. We also purchase certain products from Veridex for use in our clinical trials. These expenses are recorded in research and development and were $7,000 and $14,000
for the three months ended March 31, 2008 and March 31, 2007, respectively. In addition, Veridex also provides the training and technical support to customers purchasing the instruments and we reimburse for these expenses. We record these
expenses in our cost of goods sold. These expenses were $191,000 and $97,000 for the three months ended March 31, 2008 and March 31, 2007, respectively. Veridex is responsible for marketing our cancer diagnostic products including the
CellSearch reagents.

Arbitration with Veridex

On
May 31, 2007, we announced that we had filed a Demand for Arbitration against Veridex pursuant to which we were seeking termination of the 20-year exclusive worldwide agreement to market, sell and distribute our cancer diagnostic products and
rescission of all licenses currently held by Veridex under the DLS Agreement, based on repudiation and fundamental breaches by Veridex of its contractual, agency and other fiduciary obligations to market, sell and distribute our cancer
diagnostic products. We also sought monetary damages including compensatory damages of $220.2 to $254.2 million and punitive damages of $480 million.

In the Arbitration, we claimed, among other things, that Veridex had materially violated its obligation to devote best efforts in the marketing of the CellSearch test developed by us pursuant to the 2000 DLS Agreement, as amended, between
OCD (which has since been assigned to Veridex) and us.

Under the DLS Agreement, Veridex was appointed as exclusive sales agent, licensee and distributor
responsible for selling cancer diagnostic products we developed and remitting royalties on the sales of reagent kits to us. In the arbitration, we alleged, among other things, that Veridex breached its obligation to use its best efforts to
market those products and thereafter reneg(ed) on its express commitment to engage and deploy sales representatives to personally promote, or detail, the Immunicon products to doctors. We further alleged, (w)hile
seriously damaging to us and to our shareholders, Veridexs actions are depriving cancer patientswho are in severe need of the best treatment and testingand their doctors of our US Food and Drug Administration, or FDA, cleared
cancer diagnostic tests. We further alleged in the arbitration that Veridex refused outright to permit a meaningful audit of its performance as exclusive sales agent and licensee for selling and marketing the Immunicon products, and
erected a series of other roadblocks to a meaningful audit.

On May 25, 2007, after Veridex was informed that we were discontinuing the audit
and that we intended to file claims against it, Veridex sent us a notification asserting that we were in material breach of the DLS Agreement. As of March 31, 2008, we had recorded approximately $16.4 million in legal fees
associated with this action.

Veridexs answer and counterclaim asserted, among other things, that Immunicon had failed to perform its development,
manufacturing and quality assurance obligations pursuant to the DLS Agreement and violated Veridexs exclusive right to sell Immunicon products. Veridexs counterclaim originally claimed damages of $35.6 million. In a revised claim dated
October 19, 2007, Veridex revised its claim and now sought damages of $168 million for alleged breach of our obligation to refrain from selling products in the Field of Cancer except through Veridex.

On March 3, 2008, the arbitrator in the arbitration proceedings issued a final award, or the Decision. In the Decision, the arbitrator determined that Veridex was
not in breach of its best efforts marketing obligation and dismissed our claims. The arbitrator awarded Veridex approximately $304,000 in contract damages, pursuant to Veridexs counterclaim in which Veridex had challenged our use
of circulating tumor cell, or CTC reagents and analyzers as part of our Service business. We paid the award in full in April 2008.

We have
been in negotiations with Veridex in regards to the Service business and in May 2008, we signed an agreement that allows us to continue to perform these services and pay Veridex a royalty for the ability to perform these tests. This agreement is
temporary and we expect to transfer these contracts to other laboratories in the near future, therefore we will only have revenue from these services until they have been transferred. We are not certain how long the transition will take, but
anticipate that it is likely to occur by the end of the third quarter of 2008.



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(18) Supplemental expense information

The supplemental expense information below provides additional information about the amounts recorded as research and development expenses and selling, general and administrative expenses in the accompanying
statements of operations:

Research and development expenses

Research and development expenses consisted of the following:



|                                 |  |                              |       |      |   |      
|-------------------------------- |  | ---------------------------- | ----- | ---- | - | -----
|                                 |  | Three Months Ended March 31,
|(in thousands)                   |  | 2008                         |       | 2007
|Salaries, benefits and taxes     |  | $                            | 1,868 |      | $ | 1,887
|Laboratory supplies and expenses |  |                              | 222   |      |   | 119  
|Instrument development costs     |  |                              | 9     |      |   | 27   
|Clinical trial expense           |  |                              | 303   |      |   | 242  
|Contracted research costs        |  |                              | 101   |      |   | 233  
|Depreciation expense             |  |                              | 134   |      |   | 280  
|All others                       |  |                              | 102   |      |   | 38   
|                                 |  |                              |       |      |   |      
|                                 |  | $                            | 2,739 |      | $ | 2,826
|                                 |  |                              |       |      |   |      

Selling, general and administrative expenses

Selling, general and administrative expenses consisted of the following:



|                               |  |                              |       |      |   |      
|------------------------------ |  | ---------------------------- | ----- | ---- | - | -----
|                               |  | Three Months Ended March 31,
|(in thousands)                 |  | 2008                         |       | 2007
|Salaries, benefits and taxes   |  | $                            | 1,693 |      | $ | 1,548
|Depreciation expense           |  |                              | 8     |      |   | 33   
|Legal and professional fees    |  |                              | 4,533 |      |   | 910  
|Insurance                      |  |                              | 57    |      |   | 68   
|Impairment of Kreatech License |  |                              | 212   |      |   |     
|Commission                     |  |                              | 109   |      |   | 77   
|All others                     |  |                              | 243   |      |   | 321  
|                               |  |                              |       |      |   |      
|                               |  | $                            | 6,855 |      | $ | 2,957
|                               |  |                              |       |      |   |      



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------

OVERVIEW

Our business principally involves the development, manufacture, marketing and sale of proprietary
cell-based diagnostic and research products and certain service activities with a primary focus on cancer. We believe that our products can provide significant clinical benefits by giving physicians better information to understand, treat, monitor
and predict outcomes for their patients. Our technologies can identify, count and characterize circulating tumor cells, or CTCs, and other rare cells present in a blood sample from a patient. We also employ our technologies to provide analytical
services to pharmaceutical and biotechnology companies to assist them in the development of new therapeutic agents. We operate in one business segment, have our principal offices in Huntingdon Valley, Pennsylvania, and maintain a small research and
clinical development laboratory in the Netherlands.

In August 2000, we entered into a Development, License and Supply Agreement, or the DLS Agreement,
with Ortho-Clinical Diagnostics, or OCD, a Johnson & Johnson company, which subsequently assigned all rights and obligations under the agreement to Veridex, LLC, or Veridex, also a Johnson & Johnson company. Under the terms of this
agreement, we granted to Veridex a worldwide exclusive license within the field of cancer to commercialize cell analysis products incorporating our technologies.

Veridex is responsible for marketing our cancer diagnostic products including the CellSearch reagents. Adoption of our cancer diagnostic products to date had not been as rapid as we expected. As part of our efforts to better understand this
declining growth rate, in April 2007, we notified Veridex of our intention to exercise our right to conduct a contract audit to ensure that Veridex was complying with its obligations under the DLS Agreement.

Veridex Arbitration

On May 31, 2007, we announced that we had
filed a Demand for Arbitration against Veridex pursuant to which we were seeking termination of the 20-year exclusive worldwide agreement to market, sell and distribute our cancer diagnostic products and rescission of all licenses currently held by
Veridex under the DLS Agreement, based on repudiation and fundamental breaches by Veridex of its contractual, agency and other fiduciary obligations to market, sell and distribute our cancer diagnostic products. We also sought monetary
damages including compensatory damages of $220.2 to $254.2 million and punitive damages of $480 million.

Under the DLS Agreement, Veridex was appointed as
exclusive sales agent, licensee and distributor responsible for selling cancer diagnostic products we developed and remitting royalties on the sales of reagent kits to us. In the arbitration, we alleged, among other things, that Veridex breached its
obligation to use its best efforts to market those products and thereafter reneg(ed) on its express commitment to engage and deploy sales representatives to personally promote, or detail, the Immunicon products to
doctors. We further alleged, (w)hile seriously damaging to us and to our shareholders, Veridexs actions are depriving cancer patientswho are in severe need of the best treatment and testingand their doctors of our US
Food and Drug Administration, or FDA, cleared cancer diagnostic tests. We further alleged in the arbitration that Veridex refused outright to permit a meaningful audit of its performance as exclusive sales agent and licensee for selling
and marketing the Immunicon products, and erected a series of other roadblocks to a meaningful audit.

On May 25, 2007, after Veridex was
informed that we were discontinuing the audit and that we intended to file claims against it, Veridex sent us a notification asserting that we were in material breach of the DLS Agreement. As of March 31, 2008, we had recorded
approximately $16.4 million in legal fees associated with this action.

Veridexs answer and counterclaim asserted, among other things, that Immunicon
had failed to perform its development, manufacturing and quality assurance obligations pursuant to the DLS Agreement and violated Veridexs exclusive right to sell Immunicon products. Veridexs counterclaim originally claimed damages of
$35.6 million. In a revised claim dated October 19, 2007, Veridex revised its claim and sought damages of $168 million for alleged breach of our obligation to refrain from selling products in the Field of Cancer except through
Veridex.

On March 3, 2008, the arbitrator in the arbitration proceedings issued a final award, or the Decision. In the Decision, the arbitrator
determined that Veridex was not in breach of its best efforts marketing obligation and dismissed our claims. The arbitrator awarded Veridex approximately $304,000 in contract damages, pursuant to Veridexs counterclaim in which
Veridex had challenged our use of circulating tumor cell, or CTC reagents and analyzers as part of our Service business. We paid the award in full in April 2008.



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We have been in negotiations with Veridex in regards to this business and in May 2008, we signed an agreement that
allows us to continue to perform these services and pay Veridex a royalty for the ability to perform these tests. This agreement is temporary and we expect to transfer these contracts to other laboratories in the near future, therefore we will only
have revenue from these services until they have been transferred. We are not certain how long the transition will take, but anticipate that it is likely to occur by the end of the third quarter of 2008.

NASDAQ Listing

On January 23, 2008, we received notice from the
NASDAQ Stock Market, or NASDAQ that the minimum bid price of our common stock had fallen below $1.00 for the last 30 consecutive business days and that our common stock is, therefore, subject to delisting from the NASDAQ Capital Market. NASDAQ
Marketplace Rule 4310(c)(4) requires a $1.00 minimum bid price for continued listing of an issuers common stock.

On April 2, 2008, we were also
notified by NASDAQ that we did not comply with the continued listing requirements set forth in Marketplace Rule 4310(c)(3). This rule requires that a minimum of $2,500,000 in stockholders equity in order to continue listing its securities on
The NASDAQ Capital Market. NASDAQ allowed us until April 17, 2008 to submit a specific plan to achieve and sustain compliance with all applicable continued listing requirements of The NASDAQ Capital Market. On April 18, 2008, we notified
NASDAQ that we would not submit such a plan but rather would pursue quotation of our common stock on the Over-the-Counter Bulletin Board, or OTCBB.

On
April 24, 2008, we received a notice from NASDAQ indicating that trading in our common stock would be suspended and our common stock would be delisted from The NASDAQ Capital Market at the opening of business on April 29, 2008, unless we
decided to appeal NASDAQs determination.

We decided not to appeal NASDAQs determination of the delisting date and commenced the process of
transferring the quotation of our common stock to the OTCBB. A market maker filed the necessary application with the Financial Industry Regulatory Authority to make a market in our common stock on the OTCBB. Effective April 29, 2008, our common
stock began quotation on the OTCBB.

Senior Credit Facility and Subordinated Notes Payable

In December 2006, we entered into a definitive agreement for the sale and issuance of $30 million in aggregate principal amount of unsecured subordinated convertible
promissory notes, or the Notes, which were convertible initially into an aggregate of up to 7,334,964 shares of our common stock. The Notes bear interest at 6% per annum. Interest is not payable currently but is accrued and added to the
principal on a quarterly basis. Any portion of the Notes and all accrued but unpaid interest which is not converted is repayable in cash on December 5, 2009, or the maturity date. We also issued warrants under this agreement to purchase
1,466,994 shares of our common stock. The Notes are convertible into shares at a conversion price of $4.09. The warrants have an exercise price of $4.09 per share. We received net proceeds of approximately $27.3 million from the sale of the Notes
and accompanying warrants after deducting the placement agent fees and offering expenses of $2.7 million.

On February 29, 2008, we entered into, and
consummated the transactions contemplated by, the Prepayment Agreement and Amendments, or the Prepayment Agreements, with each of the holders of the Notes. As stated above, the Notes were first issued December 6, 2006 in tandem with warrants,
or the Warrants, to purchase shares of our common stock pursuant to that certain Securities Purchase Agreement, dated December 6, 2006, or the Purchase Agreement. Upon the terms and subject to the conditions of the Prepayment Agreements, the
Holders exchanged $3,000,000 of original principal amount and accrued but unpaid interest on the Notes (the Exchanged Debt) with us in exchange for the issuance of 3,571,433 shares of common stock in the aggregate to the Holders in a
transaction exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended. Immunicon also prepaid $8,500,000 of original principal amount and accrued but unpaid interest on the Notes to the Holders.

In addition, certain terms of the Notes were amended and restated, including to provide that we may prepay without penalty any amount of the principal and interest of
the Notes by providing five business days notice to the Holders, subject to certain change of control premium obligations in the event of a prepayment in connection with a change of control, and we may list our common stock



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on the OTCBB, as well as other stock exchanges, in order to remain compliant with the covenants in the Note. Further, the Available Cash Test, as
defined in the Notes, existing under the Notes was amended and restated such that the effective measurement date for the test will begin with the quarter ended December 31, 2008 and will be measured each quarter thereafter until the maturity of
the Notes on December 6, 2009. The definition of Events of Default under the Notes was amended such that a breach or default under any agreement binding us that would result in an Event of Default specifically excludes a breach or
default related to the DLS Agreement, to the extent such default or event of default arose out of or in connection with any matters related to our arbitration against Veridex.

In March 2008, we prepaid $3.3 million to Silicon Valley Bank, or SVB, which represented the outstanding principal and interest remaining under our credit facility due to SVB.

We have incurred significant negative cashflow for several years due to a lower than expected revenue, significant legal costs due to the arbitration and continuing
efforts in research and development programs to improve existing products and to develop new products. In the first quarter of 2008, we have paid $8.5 million to the Holders in the transaction described above, $3.3 million to SVB, and $5.9 million
in legal costs from our arbitration.

In order to reduce our cash burn, On March 10, 2008, we committed to actions to realign staff levels and incur
certain expenses in order to better facilitate the Companys current strategy, near-term outlook and ongoing operations. This initiative principally included a workforce reduction of approximately 40% of the Companys full-time equivalent
staff, primarily in platform development programs, research and development of new products, marketing of current and new products and related roles at the Company. See Note 5, Restructuring in 2008, for further information. We recorded an expense
of approximately $981,000 for severance and other costs related to the Restructuring, of which $161,000 was paid as of the first quarter of 2008. In addition, we also offered retention letters to certain employees. The severance and benefits that we
expect to incur relating to these letters is approximately $700,000. As these employees will continue to provide services during fiscal 2008, we will recognize the severance and benefits costs associated with these employees ratably over the service
period in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. We recorded an initial provision of $58,000 relating to these employees in the first quarter of 2008.

We are considering additional measures to reduce our cash burn. Our operations are subject to certain additional risks and uncertainties including, among others,
uncertainties of adequate financing to continue as a going concern, dependence on Veridex to market our cancer diagnostic product candidates, the uncertainty of product development (including clinical trial results), regulatory clearance and
approval, supplier and manufacturing dependence, competition, reimbursement availability, dependence on exclusive licenses and other relationships, uncertainties regarding patents and proprietary rights, dependence on key personnel, convertible debt
covenants and other risks related to governmental regulations and approvals. We believe, however, that cash, cash equivalents and short-term investments at March 31, 2008 will be sufficient to maintain operations through the third quarter of
2008.

We will need additional funds to continue to fund our business beyond the third quarter of 2008. Our capital requirements will depend on several
factors, including investment to implement our business strategy and seeking arrangements with corporate partners. Our inability to raise adequate funds to support the growth of our project portfolio will materially adversely affect our business. If
we were unable to reduce our cash burn, or execute a modified business plan, and we are unable to satisfy our available cash test under the Notes, this would result in an event of default under the Notes and our Notes would be payable in January
2009. Since we expect that the earliest the debt could become due is January 2009, we have classified the remaining debt balance as current as of March 31, 2008

If we are unable to obtain additional funding for operations, we may not be able to continue operations as proposed, requiring us to modify our business plan, curtail various aspects of our operations or cease
operations.

Impairment Charge

As previously disclosed
in our Form 10-K for the year ended December 31, 2007, as a result of the negative outcome of the arbitration, we reviewed our long-lived assets for impairment in accordance with Statement of Financial Accounting Standards No. 144,
Accounting for Impairment or Disposal of Long-lived Assets, or SFAS 144. We had taken a $2.6 million dollar charge in our fourth quarter of 2007 for property and equipment and our investment and license agreement with Kreatech as a result of
this review. Prior to the arbitration decision and subsequent to our year end, we had made another payment to Kreatech of approximately $236,000. As a result, we recorded an impairment charge for the entire milestone payment paid to Kreatech in the
first quarter of 2008. These impairments are based on the deterioration in financial condition of the respective companies and substantial doubt about Kreatechs ability to continue to fulfill its obligations and earn the remaining milestones.
The impairment charge of $212,000 for the license agreement is recorded in our selling, general and administrative expenses and the impairment charge of $24,000 related to the investment in Kreatech is recorded in other income and expense in our
Consolidated Statement of Operations.



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Diagnostic HYBRIDS, Inc. Agreement

In December 2006, we signed a definitive license, development, supply and distribution agreement to develop and
commercialize products in the field of clinical virology diagnostics, starting with a panel of multiplex respiratory virus and sexually transmitted infection assays with Diagnostic HYBRIDS, Inc., or DHI. The agreement terms are in effect for a
period ending on the fifth anniversary of the commencement of the commercial period and either party may elect to extend the original term for an additional five years. We received an upfront non-refundable license fee of $500,000 and are eligible
for an additional $1.0 million upon approval by the FDA of a clinical trial plan. In addition, in consideration for our performance of our obligations in the development of new products under the agreement, DHI will pay us a quarterly payment of
$200,000 for six fiscal quarters, which began January 2007. We will manufacture and supply DHI with their requirements of for bulk reagents and DHI will manufacture and supply the detection reagents. We will receive 41% of the revenue from the sale
of these reagents. DHI will act as our distributor for the instrument systems. DHI will be responsible for all expenses for sales and training with respect to products and systems. As of March 31, 2008, we are still in the developing phase of
this agreement. In accordance with EITF 00-21, we have evaluated the contract and determined that it has one unit of accounting. As of March 31, 2008, DHI has paid us $1.7 million under this agreement. The payments received will be amortized
over the life of the contract which we expect will be a total of 11 1/2years which includes a 5 year extension of the initial
term.

Kreatech Biotechnology

In January 2006,
we entered into a license agreement with Kreatech Biotechnology B.V., or Kreatech, under which Kreatech granted to us a royalty-bearing, non-exclusive, non-transferable license to offer for sale, sell, distribute, import, and export to resellers and
end users reagents processed using Kreatechs Universal Linkage System technology for use with our imaging technologies and instrument platforms. In consideration for the grant of the rights and licenses under this agreement, we paid to
Kreatech an initial license fee of $71,000. In April 2007 we entered into a new agreement with Kreatech (Cross-License Agreement) wherein which the terms and conditions of this initial agreement were terminated and the research
collaboration was expanded. Under the Cross-License Agreement, we have provided an exclusive right to Kreatech to utilize certain of our technologies to improve existing Kreatech products and to manufacture and supply such improved products in
exchange for the exclusive right to sell these products in North America. As a result of the new Cross-License Agreement, the old license fee was fully amortized.

In accordance with the provisions of the Cross-License Agreement, we have agreed to make a $500,000 payment to Kreatech if we are successful in obtaining FDA clearance of any product developed under the Cross-License Agreement. We have
agreed to make an additional $500,000 payment once we have achieved aggregate sales of $10 million in North America for the products developed under the Cross-License Agreement. The initial term of the Cross-License Agreement is ten years with an
automatic extension of ten years subject to certain conditions. Therefore, we will amortize the value ascribed to the Cross-License Agreement over 20 years.

We simultaneously entered into a Stock Purchase Agreement where we agreed to purchase Kreatech Series D Preferred Stock. Upon signing the Stock Purchase Agreement and the Cross-License Agreement, we paid Kreatech $500,000 and received
1.7 million shares of Series D Preferred Stock. We made a milestone payment of $250,000 in October 2007 as Kreatech met the feasibility requirements and received 830,000 shares of Series D Preferred Stock. We made a milestone payment of
$250,000 in December 2007 as Kreatech met a development requirement and received 830,000 shares of Series D Preferred Stock. We made a milestone payment of approximate $200,000 as Kreatech delivered three probes to Immunicon and we received 664,000
shares of Series D Preferred Stock in February 2008. Based on terms of the agreement, we will have to make additional payments of approximately $300,000 based on the achievement by Kreatech of certain development milestones. We expect the remainder
of the milestones will be achieved by the end of the second quarter in 2008.

We performed various analyses including estimates of future cash flow and
other analyses to determine the allocation of the value of the cash paid to Kreatech between the cross-license and the Series D Preferred Stock. Based on these analyses we determined that we would allocate 90% of the fair value to the cross-license
and 10% to the Series D Preferred Stock. The portion allocated to the Cross-License will be amortized over the license period which we deem to be 20 years.



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As mentioned above, pursuant to SFAS 144, during the first quarter of fiscal 2008, we recorded an impairment charge
of $212,000 for our license agreement with Kreatech and $24,000 charge for our investment in Kreatech. See note 4, Impairment Charges, for more information.

Revenues

We derive revenues from four primary sources: instrument product sales, reagent product sales, service revenue and license
revenue. We initiated sales activities for instruments and reagent products for research use only, or RUO, in the first quarter of 2004 and for in vitro diagnostic, or IVD, use in October 2004.

We reported product and service revenue of $3.7 million for the three months ended March 31, 2008, including $1.8 million in instrument revenue, $1.3 million in
reagent and consumable product sales and $642,000 in service revenue. This represents an increase of 46% over the $2.6 million in product and service revenue for the three months ended March 31, 2007, which included $1.4 million in instrument
revenue, $580,000 in reagent and consumable product sales and $577,000 in service revenue.

We sold 14 instruments (7 CellTracks Analyzers II and 7
CellTracks AutoPrep systems) in the three month period ended March 31, 2008 and 20 instruments (12 cell analyzers and 8 CellTracks AutoPrep systems) in the corresponding prior year period. A summary of instrument shipments and instruments sold
for revenue recognition purposes for the period from product launch to March 31, 2008 is shown below:



|                     |  |                                 |  |                                  |  |                           
|-------------------- |  | ------------------------------- |  | -------------------------------- |  | --------------------------
|                     |  | Cumulative as ofJanuary 1, 2008 |  | Three months endedMarch 31, 2008 |  | Cumulative @March 31, 2008
|Instrument shipments |  |                                 |  |                                  |  |                           
|Total Analyzers      |  | 150                             |  | 8                                |  | 158                       
|                     |  |                                 |  |                                  |  |                           
|CellTracks AutoPrep  |  | 137                             |  | 8                                |  | 145                       
|                     |  |                                 |  |                                  |  |                           
|                     |  |                                 | 
|Instruments sold (1) |  |                                 |  |                                  |  |                           
|Total Analyzers      |  | 138                             |  | 7                                |  | 145                       
|                     |  |                                 |  |                                  |  |                           
|CellTracks AutoPrep  |  | 120                             |  | 7                                |  | 127                       
|                     |  |                                 |  |                                  |  |                           



(1)Presents instruments which were sold and revenue recorded in the period indicated.

We have received a total of $6.9 million in license
and milestone payments under the terms of the Development Agreement from inception to March 31, 2008 and have recorded $6.3 million as milestone and license revenue to date. Cash received related to these milestones is being recognized as
revenue over the estimated product development period for the corresponding product, which we estimate will end at various points through June 2011. We continuously review the status of the remaining development milestones and, where appropriate,
renegotiate the development requirement and payment terms. We do not believe that these renegotiations have had or will have a material adverse effect on our product development or financial position.

Under the DLS Agreement, we can expect to receive the remaining $3.6 million in development milestone payments. We estimate that we will earn these license revenues
from research milestones over the next three to five years. Therefore, we expect that the trend associated with license revenue will fluctuate. Also, we expect to continue to invest in research and development, particularly in clinical trials and
manufacturing development and therefore we do not believe that these expenses will correspond to the periods wherein which we expect to earn the milestone revenue referenced above.



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Under the DLS Agreement, we also can earn up to $10.0 million in revenue for achieving defined sales targets.
Our agreement with Veridex provides for payments to us by Veridex of $2.0 million, $3.0 million and $5.0 million in the first year that sales recognized by Veridex of the CellSearch reagent products to third parties, excluding sales
of instruments, reach $250 million, $500 million and $1 billion, respectively. We do not estimate that we will reach any of these sales targets in the next few years and therefore do not anticipate earning any sales-based milestone
revenues until then.

We recognized $86,000 in each of three month periods ended March 31, 2008 and March 31, 2007 as milestone and other license
revenue from Veridex.

Research and development expenses

Our research and development expenses consist of expenses incurred in developing reagents, instrument platforms and ancillary products, as well as the clinical research and trial costs to test these kits and systems. These expenses consist
primarily of:



| |  |  | salaries and related expenses for personnel;
| | - |  | --------------------------------------------



| |  |  | fees paid to professional service providers in conjunction with independently monitoring our clinical trials and acquiring and evaluating data in conjunction with
our clinical trials; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | payments to third parties for instrument development activities and for research related support, expenses for materials consumed in research experiments and
clinical research and clinical trials.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We expense research and development costs as incurred. We believe that significant investment in
product development is a competitive necessity and plan to continue these investments in order to realize the potential of our product candidates and proprietary technologies. We expect to continue to incur significant costs for clinical research
and for trials and to make investments to improve our instrument platforms and reagents.

Selling, general and administrative expenses

Our selling, general and administrative expenses consist primarily of salaries and other related costs for personnel in executive, finance, accounting, sales and
marketing, information technology, legal and human resource functions. Other costs include facility costs not otherwise included in research and development expense, commissions and professional fees for legal and accounting services.

Intellectual property

Protection of our intellectual property is a
strategic priority for our business and we rely on a combination of patent, trademark, copyright and trade secret laws to protect our interests. Our ability to protect and use our intellectual property rights in the continued development and
commercialization of our technologies and products, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights is crucial to our continued success. We will be able to protect our
products and technologies from unauthorized use by third parties only to the extent that our products and technologies are covered by valid and enforceable patents, trademarks or copyrights, or are effectively maintained as trade secrets, know-how
or other proprietary information.

In connection with the commercial distribution of our products, we also have obtained trademark registrations in the US
for Immunicon and the Immunicon logo. Trademark registrations were also obtained for CellTracks, Magnest, AutoPrep, the CellTracks AutoPrep System logo, EasyCount, Viasure, and
CellTracks Analyzer II by Immunivest Corporation, our wholly owned subsidiary. We have filed a number of trademark registration applications in preparation for commercial distribution activities with respect to future products. Much of
the proprietary software and related information utilized in our instrument systems is protected by the copyright rights or by rights that we have licensed.

We devote significant resources to obtaining, enforcing and defending patents and other intellectual property and protecting our other proprietary information.



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We have a portfolio of issued patents and patent applications, which we believe provides patent coverage for our
proprietary technologies and products. As of April 28, 2008 our intellectual property estate consisted of 157 issued patents or patent applications, as follows:

39 issued US patents, including two US design patents;

19 US non-provisional patent applications;

8 US provisional patent applications;

20 foreign patents, including 6
foreign design patents;

65 foreign patent applications that are in various national stages of prosecution; and

6 foreign patent applications not at the national stage.

CRITICAL
ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base 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. Our critical accounting policies include:



| |  |  | revenue recognition;
| | - |  | --------------------



| |  |  | inventory capitalization;
| | - |  | -------------------------



| |  |  | accounting for research and development expenses;
| | - |  | -------------------------------------------------



| |  |  | estimating the value of our equity instruments for use in stock-based compensation;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | derivative financial instruments; and
| | - |  | -------------------------------------



| |  |  | accounting for income taxes.
| | - |  | ----------------------------

In accordance with the
SECs Release No. 33-8040, Cautionary Advice Regarding Disclosure about Critical Accounting Policies,we have determined the critical principles by considering accounting policies that involve the most complex or subjective
decisions or assessments. There were no significant changes to our critical accounting policies during the three months ended March 31, 2008.

Revenue recognition

We derive revenues from instrument and reagent product sales, sales of services to pharmaceutical and biotechnology
companies, license agreements and milestone achievements. We recognize revenue on product sales in accordance with the SEC Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition in Financial Statements, or SAB 104, when
persuasive evidence of an arrangement exists, the contract price is fixed or determinable, the product or accessory has been delivered, title and risk of loss have passed to the customer, and collection of the resulting receivable is reasonably
assured. We recognize revenue for instrument placements at the time that all necessary conditions for the recognition of revenue have been met. Specifically, if we grant an evaluation period to the customer, recognition of revenue is delayed for a
period of several months. Also, in certain instances, the customer may be provided with an opportunity to return the instrument to us. We therefore recognize the revenue associated with these instrument placements only at the point when it is clear
that all revenue recognition criteria have been met and that no continuing right of return remains.



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We record revenue from services provided as part of research and development support agreements and milestone
payments under collaborations with third parties. We examine each contract and consider the appropriate revenue recognition in accordance with SAB 104 and Emerging Issue Task Force, or EITF, 00-21, Revenue Recognition with Multiple Deliverables,or EITF 00-21. We evaluate all deliverables in our collaborative agreement to determine whether it represents separate units of accounting. Deliverables qualify for separate accounting treatment if they have stand-alone value to the customer and
if there is objective evidence of fair value for the undelivered items. If there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of
accounting based on their relative fair values. If the arrangement is a single unit of accounting, the revenue recognition policy must be determined for the entire arrangement. Under the arrangements where the license fees and research and
development activities can be accounted for as a separate unit of accounting, nonrefundable upfront fees are deferred and recognized as revenue on a straight-line basis over the expected term of our continued involvement in the research and
development process. Revenues from the achievement of research and development milestones, if deemed substantive, are recognized as revenue when the milestones are achieved, and milestone payments are due and collectible. Milestones are substantive
if the milestone is nonrefundable, achievement was not reasonably assured at inception, substantive effort was put forth in meeting the milestone and the amount of the appears reasonable in relation to the effort put forth. If these conditions are
not met, we recognize a proportionate amount of the milestone payment upon receipt as revenue and the remaining portion will be deferred and recognized as revenue as we complete our performance obligation.

In accordance with SAB 104, up-front non-refundable license fees are recorded as deferred revenue and recognized over the estimated development period. Since
August 2000, we have earned and received $6.9 million in license and milestone payments from Veridex. License and milestone payments are deferred and amortized on a straight-line basis over the product development period as defined for each specific
product.

Inventory capitalization

Inventories are
stated at the lower of cost or market with cost determined under the first-in/first-out, or FIFO method. We include in inventory the raw materials that can be used in both production and clinical products. These clinical product costs are expensed
as part of research and development costs when consumed.

The valuation of inventory requires us to estimate obsolete or excess inventory as well as
inventory that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the demand for our products. If our estimates for specific products is less than actual demand of products and we fail to reduce
manufacturing output accordingly, we could be required to write down additional inventory, which would have a negative impact on our gross margin. The write-down for estimated obsolete and excess inventory is therefore based on our collective
judgment regarding the realistic and potential future demand for each product and is inherently subjective. We evaluate our estimates quarterly and actual results have not differed materially from quarter to quarter when comparing to these
estimates.

Accounting for research and development expenses

Our research and development expenses are primarily composed of costs associated with product development for our cancer diagnostic products. Future research and development expenses may be directed toward development of non-cancer products
such as products that may be used to diagnose and identify infectious diseases. Costs incurred to date include the development costs for instrument platforms, clinical trial and development costs and the costs associated with non-clinical support
activities such as manufacturing process development and regulatory services. Clinical development costs represent internal costs for personnel; external costs incurred at clinical sites and contracted payments to third-party CROs to perform certain
clinical trials. We have a discovery research effort, which is conducted in part on our premises by our scientists and in part through collaborative agreements with academic laboratories. Most of our research and development expenses are the result
of the internal costs related directly to our employees.

Estimating the value of our equity instruments for use in stock-based compensation

On January 1, 2006, we adopted Statement of Financial Accounting Standards, or SFAS, No. 123 (Revised 2004), Share Based Payment, or
SFAS 123R. In adopting SFAS 123R, we elected to apply the modified prospective transition method of reporting as allowed under SFAS 123R and therefore have not restated prior periods.



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We value our employee stock options using the Black-Scholes method and have applied the assumptions described in the
notes to the financial statements. These assumptions describe expected volatility, anticipated term of the options and the risk-free interest rate. We used historical volatility in the assumptions for the expected volatility. In selecting the
historical volatility approach we had reviewed similar entities as well as the AMEX Biotechnology Index and based on this analysis, chose our own historical volatility as the best measure of expected volatility. Additionally, we began using the
simplified calculation of expected life, described in SAB 107. Management believes that this calculation provides a reasonable estimate of expected life for our employee stock options. On December 12, 2007, SAB 110 was issued to extend the
simplified method beyond 2007 for those companies who have concluded that their own historical exercise experience is not sufficient to provide a reasonable basis. The risk-free interest rate assumption is based upon the rate applicable to the US
Treasury security with a maturity equal to the expected term of the option on the grant date. We review these estimates annually and actual results have not differed materially from these estimates.

Stock-based compensation recorded in the three months ended March 31, 2008 is based on awards that are expected to vest and therefore have been reduced for
estimated forfeitures. SFAS 123R require forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimates. Forfeitures were based on historical experience.

Management believes that the estimate related to the expense of stock options is a critical accounting estimate as the underlying assumptions can change from time to
time. As a result, the future compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current period with respect to similar instruments.

Critical accounting estimates and assumptions are evaluated periodically as conditions may arise and changes to such estimates are recorded as new information or changed
as conditions require revision. Our policy is to grant stock options at their fair market value on the date of grant. All nonvested shares granted to executive officers are recorded as compensation expense using the fair value method under SFAS
123R. Fair value is based upon the closing price of our common stock on the date of grant.

Section 3(a) of the Companys Amended and Restated
Equity Compensation Plan, or the Plan, states in part that, during each calendar year that the Plan is maintained, the number of shares of common stock authorized for issuance or transfer under the Plan shall be increased without further action by
our board of directors, and without further approval by our stockholders, in such amount as shall cause the number of shares of common stock authorized for issuance or transfer under than Plan to equal 15% of the our issued and outstanding shares of
common stock as of December 31 of the immediately prior year (on a fully-diluted basis); provided, however, that the maximum number of shares of common stock to be added in any calendar year pursuant to Section 3(a) of the Plan shall not
exceed 250,000. As such, on December 31, 2007, pursuant to Section 3(a) of the Plan, the total number of shares of common stock authorized for issuance or transfer under the Plan increased from 5,016,667 shares to 5,266,667 shares, an
increase of 250,000 shares.

In June 2007, our stockholders approved an amendment to the Immunicon Corporation 2004 Employee Stock Purchase Plan, or the
ESPP, to increase by 200,000 shares the number of shares of common stock authorized for issuance or transfer under the ESPP and approved the entire ESPP, as amended. As of March 31, 2008, the total number of shares of common stock authorized
for issuance under the ESPP was 400,000.

Through the end of 2005, we accounted for stock-based compensation costs under SFAS 123, as amended by SFAS 148,
which permitted (i) recognition of the fair value of stock-based awards as an expense, or (ii) continued application of the intrinsic value method of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees,or APB 25. We accounted for our stock-based employee and director compensation plans under the recognition and measurement principles of APB 25. Under this intrinsic value method, compensation cost represented the excess, if any, of
the quoted market price of our common stock at the grant date over the amount the grantee had to pay for the stock. Our policy is to grant stock options at their fair market value on the date of grant.

Because, prior to our IPO in April 2004, there was no public market for our common stock, we have estimated the fair value of equity instruments, issued prior to our
IPO, using various valuation methods, including the minimum value and the Black-Scholes methods. When stock options are granted with an exercise price below the estimated fair value of our common stock at the grant date, the difference between the
fair value of our common stock and the exercise price of the stock option is amortized to compensation expense on a straight-line basis over the vesting period of the stock option.

All non-vested shares granted are recorded as compensation expense using the fair value method under SFAS 123R. Fair value is based upon the closing price of our common stock on the date of grant. The first non-vested
shares were granted in January 2005.



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Derivative Financial Instruments

On December 5, 2006, we issued $30 million in convertible subordinated notes, or the Notes. The Notes have been accounted for in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, or SFAS 133, and the EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, or EITF 00-19.

We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We review the terms of our convertible debt and equity
instruments that we issue to determine whether there are embedded derivatives that need to be bifurcated and accounted for separately as a derivative. When the embedded features risks are not clearly or closely related to the host instrument, the
host instrument is not re-measured at fair value and if a separate instrument with the same terms would meet the definition of a derivative, the embedded instrument is bifurcated and accounted for separately. All three of these criteria need to be
met in order to treat the embedded instrument as a derivative. If the convertible instrument is debt, the risks associated with the embedded conversion option are not clearly and closely related to the debt instrument. The conversion option has
risks associated with an equity instrument, not a debt instrument. If the host contract is considered to be conventional convertible debt, bifurcation of the embedded conversion option is not required. Generally, where the ability to
physical or net-share settle the conversion option is deemed not in our control, the embedded conversion option is required to be bifurcated and accounted for as a derivative.

We may also issue options or warrants associated with the issuance of convertible debt. Although the terms of the options or warrants may not provide for net-cash settlement, in certain circumstances, physical or
net-share settlement may not be considered in our control and, accordingly, we may be required to account for these options or warrants as derivative financial instruments and record them as a liability instead of equity.

For derivative instruments that are required to be accounted for as liabilities, the instrument would be initially recorded at its fair value and then at each reporting
date, the change in fair value would be recorded in the statement of operations.

If the embedded derivative instrument is to be bifurcated and accounted
for as a liability, the proceeds from an issuance will be first allocated to the fair value of the bifurcated derivative instruments. If there are also options or warrants that are required to be recorded as a liability, the proceeds are next
allocated to the fair value of those instruments. The remaining proceeds, if any, are allocated to the convertible instrument itself, usually resulting in that instrument being recorded at a discount from the face amount.

The identification of, and accounting for, derivative instruments is complex. Management used a derivative model analyzing the conversion features, additional shares to
be paid resulting from the interest accrual and the redemption options. The model also considered factors such as the stock price, interest rate, the stock and interest rate volatility and the expected life.

Management used the above model to value the related warrants that were issued in conjunction with the Notes. The primary factors driving the economic value of the
warrants were factors, such as stock price, stock volatility, interest rate and expected life. We have not had any significant changes to these assumptions in the current year.

Accounting for income taxes

We must make significant management judgments when determining our provision for income
taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. At March 31, 2008, we recorded a full valuation allowance of $63.7 million against our net deferred tax asset balance, due
to uncertainties related to our deferred tax assets as a result of our history of operating losses. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax
assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods we may need to change the valuation allowance, which could materially impact our financial position and results
of operations. We review these estimates annually and actual results have not differed materially from these estimates.

We adopted the provisions of FIN
48 on January 1, 2007. We would recognize interest, if any, relating to unrecognized tax benefits within the interest expense line in the accompanying consolidated statement of operations. We would recognize penalties, if any, relating to
unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties, if any, would be included within the related tax liability line in the consolidated balance sheet.



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RESULTS OF OPERATIONS

Three months ended March 31, 2008 and March 31, 2007

Revenue

We segregate revenue into product revenue, which includes instrument, reagent and other product revenue, service revenue and license and milestone revenue. We further identify related party revenue where indicated.



|                                                              |  |                              |       |      |   |      
|------------------------------------------------------------- |  | ---------------------------- | ----- | ---- | - | -----
|                                                              |  | Three Months Ended March 31,
|                                                              |  | 2008                         |       | 2007
|Product revenue including product revenue from related party: |  |                              |       |      |   |      
|( in thousands)                                               |  |                              |       |      |   |      
|Instrument Revenue:                                           |  |                              |       |      |   |      
|Related party                                                 |  | $                            | 1,054 |      | $ | 715  
|Other                                                         |  |                              | 777   |      |   | 682  
|                                                              |  |                              |       |      |   |      
|Total instrument revenue                                      |  |                              | 1,831 |      |   | 1,397
|Reagents and other product revenue:                           |  |                              |       |      |   |      
|Related party                                                 |  |                              | 1,002 |      |   | 495  
|Other                                                         |  |                              | 257   |      |   | 85   
|                                                              |  |                              |       |      |   |      
|Total reagent revenue                                         |  |                              | 1,259 |      |   | 580  
|Service revenue                                               |  |                              | 642   |      |   | 577  
|License and milestone revenue:                                |  |                              |       |      |   |      
|Related party                                                 |  |                              | 87    |      |   | 87   
|Other                                                         |  |                              | 34    |      |   | 16   
|                                                              |  |                              |       |      |   |      
|Total license and milestone revenue                           |  |                              | 121   |      |   | 103  
|                                                              |  |                              |       |      |   |      
|Total revenue                                                 |  | $                            | 3,853 |      | $ | 2,657
|                                                              |  |                              |       |      |   |      

We recorded $3.7 million in product and service revenue in the quarter ended March 31, 2008 of which $2.1
million was earned from related parties, primarily from Veridex. We recorded $2.6 million in product and service revenue in the quarter ended March 31, 2007, of which $1.2 million was earned from related parties. Instrument revenue increased
$434,000, or 31%, to $1.8 in the first quarter ended March 31, 2008 from $1.4 million in the quarter ended March 31, 2007. We sold 14 instruments in the quarter ended March 31, 2008 and 20 in the quarter ended March 31, 2007. The
increased revenue with lower number of instruments sold was attributed to higher selling prices for our instruments effective in the second quarter of 2007. Reagent and other product revenue increased $679,000, or 117%, to $1.3 million in the first
quarter of 2008 compared to the quarter ended March 31, 2007. As we place more of our instruments in the field, we anticipate that our reagent and other product revenue should increase. In addition, as we have received additional clearances
from the FDA for the monitoring of patients with colorectal and prostate cancer, we would anticipate an increase in the reagent revenue.

Service revenue
was $642,000 and $577,000 in the quarter ended March 31, 2008 and March 31, 2007, respectively. In our arbitration, Veridex had challenged our use of circulating tumor cell, or CTC reagents and analyzers as part of our Service
business. The arbitrator awarded Veridex approximately $304,000 in contract damages, pursuant to Veridexs counterclaim in which Veridex had challenged our use of circulating tumor cell, or CTC reagents and analyzers as part of our
Service business. We paid Veridex $307,000 which included interest from March 3, 2008 to the date we paid the award in April 2008.

We
have been in negotiations with Veridex in regards to the Service business, and in May 2008, we signed an agreement that allows us to continue to perform these services and pay Veridex a royalty for the ability to perform these tests. This agreement
is temporary and we expect to transfer these contracts to other laboratories in the near future, therefore we will only have revenue from these services until they have been transferred. We are not certain how long the transition will take but
anticipate that it is likely to occur by the end of the third quarter of 2008.



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License and milestone revenue from related parties were $87,000 for the both quarters ended March 31, 2008 and
March 31, 2007.

As a result of the above, total revenue increased by $1.2 million to $3.9 million in the quarter ended March 31, 2008 compared
to $2.7 million in quarter ended March 31, 2007.

Costs of goods sold



|                    |  |                              |       |      |   |       |  
|------------------- |  | ---------------------------- | ----- | ---- | - | ----- | -
|                    |  | Three months ended March 31, |      
|(in thousands)      |  | 2008                         |       | 2007 |  
|Instruments:        |  |                              |       |      |   |       |  
|Revenue             |  | $                            | 1,831 |      | $ | 1,397 |  
|Cost of goods sold  |  |                              | 1,743 |      |   | 1,877 |  
|                    |  |                              |       |      |   |       |  
|Gross profit (loss) |  | $                            | 88    |      | $ | (480  | )
|                    |  |                              |       |      |   |       |  
|                    |  |                             
|Reagents            |  |                              |       |      |   |       |  
|Revenue             |  | $                            | 1,259 |      | $ | 580   |  
|Cost of goods sold  |  |                              | 708   |      |   | 646   |  
|                    |  |                              |       |      |   |       |  
|Gross profit (loss) |  | $                            | 551   |      | $ | (66   | )
|                    |  |                              |       |      |   |       |  
|                    |  |                             
|Service:            |  |                              |       |      |   |       |  
|Revenue             |  |                              | 642   |      |   | 577   |  
|Cost of goods sold  |  |                              | 406   |      |   | 302   |  
|                    |  |                              |       |      |   |       |  
|Gross Profit        |  | $                            | 236   |      | $ | 275   |  
|                    |  |                              |       |      |   |       |  

Total costs of goods sold, including services, were $2.9 million and 2.8 million for the quarter ended
March 31, 2008 and March 31, 2007, respectively. We reported gross margin on product and service sales of $875,000 in the quarter ended March 31, 2008 compared to a loss on product and service sales of $271,000 in the quarter ended
March 31, 2007.

Improvement on instrument gross profit is due principally to two factors. We completed the outsourcing of our instrument
manufacturing activities in the third quarter 2007 and, effective April 1, 2007, we increased the list prices for our instruments. As a result, the gross profit per instrument for the quarter was approximately $6,000, or a total gross profit on
instrument sales of $87,000. Total costs of goods sold for instruments was $1.7 million in the quarter ended March 31, 2008 compared to $1.9 million in the quarter ended March 31, 2007.

Costs of goods sold for reagents and consumables was $708,000 and the gross profit on the sale of reagents and consumables was $551,000 in the first quarter of 2008
compared to costs of goods of $646,000 and a loss on the sale of reagents and consumables of $66,000 in the first quarter of 2007. The improved gross margin in 2008 is due to higher volumes for reagents and consumables.

Costs of services sold was $406,000 and the gross profit on the services sold was $236,000 in the quarter ended March 31, 2008 compared to $302,000 costs of
services and $275,000 gross profit in the quarter ended March 31, 2007.

Research and development expenses

Research and development expenses decreased by $87,000, or 3.1%, to $2.7 million in the first quarter of 2008 from $2.8 million in the first quarter of 2007.
The property and equipment basis used in research and development was reduced in the fourth quarter as a result of the impairment charge and, therefore, depreciation expense decreased $146,000 in the first quarter of 2008 as compared to the prior
year period. Contracted research costs decreased approximately $132,000 primarily related to the completion of development work on certain improvements to the CellTracks Analyzer II in mid-2007.



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A summary of the principal components of our research and development costs for the three months ended March 31,
2008 and March 31, 2007 are shown below:



|                                                 |  |                              |       |      |   |      
|------------------------------------------------ |  | ---------------------------- | ----- | ---- | - | -----
|                                                 |  | Three months ended March 31,
|Research and development expenses (in thousands) |  | 2008                         |       | 2007
|Salaries, benefits and taxes                     |  | $                            | 1,868 |      | $ | 1,887
|Laboratory supplies and expenses                 |  |                              | 222   |      |   | 119  
|Instrument development costs                     |  |                              | 9     |      |   | 27   
|Clinical trial expenses                          |  |                              | 303   |      |   | 242  
|Contracted research costs                        |  |                              | 101   |      |   | 233  
|Depreciation                                     |  |                              | 134   |      |   | 280  
|All others                                       |  |                              | 102   |      |   | 38   
|                                                 |  |                              |       |      |   |      
|Total research and development expenses          |  | $                            | 2,739 |      | $ | 2,826
|                                                 |  |                              |       |      |   |      

Each of our R&D programs is subject to risks and uncertainties, including the requirement to obtain regulatory
approval for our clinical trials that are outside of our control. As a result of these risks and uncertainties, we are unable to predict the period in which we will achieve profitability. For example, our clinical trials may be subject to delays or
rejections for a variety of reasons, such as our inability to obtain applicable clearances from the FDA or institutional or ethical review boards or to enroll patients at the rate that we expect. Moreover, the product candidates we are developing
must overcome significant technological and marketing challenges before they can be successfully commercialized.

Selling, general and administrative
expenses

Selling, general and administrative expenses increased by 132% to $6.9 million in the first quarter of 2008 from $3.0 million in the
first quarter of 2007. This increase is attributable to increases in legal and professional fees related to our arbitration with Veridex described throughout this report and the impairment charge against the Kreatech license agreement incurred in
the first quarter of 2008. For the three months ended March 31, 2008, we incurred approximately $3.8 million in legal fees associated with this arbitration process.

As previously disclosed in our Form 10-K for the year ended December 31, 2007, we reviewed our long-lived assets for impairment in accordance with SFAS 144 as a result of the negative outcome of the arbitration.
We had taken a $2.6 million dollar charge in our fourth quarter of 2007 for property and equipment and our investment and license agreement with Kreatech as a result of this review. Prior to the arbitration decision and subsequent to our year end,
we had made another payment to Kreatech of approximately $236,000. We recorded a non-cash impairment charge of $212,000 for our license agreement with Kreatech and $24,000 non-cash impairment charge for our investment in Kreatech for the three
months ended March 31, 2008.

A summary of the principal components of our selling, general and administrative expenses for the three months ended
March 31, 2008 and March 31, 2007 is below:



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|                                                            |  |                              |       |      |   |      
|----------------------------------------------------------- |  | ---------------------------- | ----- | ---- | - | -----
|                                                            |  | Three Months Ended March 31,
|Selling, general and administrative expenses (in thousands) |  | 2008                         |       | 2007
|Salaries, benefits and taxes                                |  | $                            | 1,693 |      | $ | 1,548
|Legal and professional fees                                 |  |                              | 4,533 |      |   | 910  
|Commissions                                                 |  |                              | 109   |      |   | 77   
|Depreciation                                                |  |                              | 8     |      |   | 33   
|Insurance                                                   |  |                              | 57    |      |   | 68   
|Impairment of Kreatech license                              |  |                              | 212   |      |   |     
|All others                                                  |  |                              | 243   |      |   | 321  
|                                                            |  |                              |       |      |   |      
|Total selling, general and administrative expenses          |  | $                            | 6,855 |      | $ | 2,957
|                                                            |  |                              |       |      |   |      

Interest and other income

Interest and other income decreased by $436,000, or 71%, to $180,000 in the quarter ended March 31, 2008 from $616,000 in the quarter ended March 31, 2007. This decrease in interest income was primarily a
result of lower average cash available and lower interest rate for investment in 2008 compared to 2007.

Debt conversion expense

As a result of the issuance of the 3,571,433 shares of common stock to prepay $3.0 million of principal and interest under the Notes, as described in the overview, we
recorded a $3.0 million debt conversion expense in accordance with Statement of Financial Accounting Statement, or FAS, No. 84, Induced Conversions of convertible Debt,or FAS 84, in the three month ended March 31, 2008. FAS 84
requires recognition of an expense equal to the fair value of the additional securities or other consideration issued to induce conversion. This statement applies to conversions that both (a) occur for a changed conversion that is only
exercisable for a limited time and (b) include the issuance of all the equity securities issuable pursuant to conversion privileges included in the terms of the debt at issuance for each debt instrument that is converted.

Value of conversion rights, warrant value and conversion expense

The
warrants and conversion features associated with the Notes are required to be adjusted to their fair value each quarter. We recorded a non-cash increase in income of $165,000 and $2.7 million in three months ended March 31, 2008 and
March 31, 2007, respectively relating to the adjustment to the fair value.

As a result of the issuance of the 3,571,433 shares of common stock to
prepay $3.0 million of principal and interest we adjusted the conversion feature to fair value at the conversion date and the fair value impact of approximately $37,000 was reclassified to equity.

The reduction of the conversion derivative that was attributable to the prepayment of $8.5 million of principal of the Notes in cash which was marked to market upon
payment and is included in the statement of operations as Change in fair value of the detachable warrants and conversion right. Subsequent to the Prepayment Agreement, we will continue to mark to market the remaining conversion
derivative and Warrants at each balance sheet date.

Interest expense

Interest expense was $4.2 million and $1.5 million for the quarter ended March 31, 2008 and March 31, 2007, respectively. As previously disclosed, on February 29, 2008, we prepaid approximately $8.5
million and converted $3.0 million of the original principal and accrued but unpaid interest on the Notes. As a result, we wrote off $2.2 million to interest expense representing a portion of the bank fee and original discount associated with the
prepayment.



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Stock-based compensation expenses

In the first quarter of 2008, we awarded employees grants of approximately 14,000 stock options which vest over the next four years on the anniversary of the grant date. The strike price for the options was the
closing price of our common stock on the grant date.

Our Chief Executive Officer, Chief Scientific Officer, Chief Financial Officer and Chief Counsel each
have Employment Agreements with us which outline employment and certain rights and obligations in the event of a change of control. If the officers employment is terminated for any reason before the nonvested stock is fully vested, except as
provided by such officers Employment Agreement with us, the shares of nonvested stock that are not then vested will be forfeited. If the provisions of the officers Employment Agreement are triggered, the nonvested stock will vest in
accordance with the officers Employment Agreement. The fair value of nonvested shares is determined based on the closing price of our common stock, as reported by NASDAQ, on the grant date and compensation expense is recognized over the three
years of the service period.

As a result of the reduction in workforce as disclosed in the overview, 301,000 stock options and 33,000 non vested shares
were forfeited and returned to our option pool available for future issuance. This resulted in a reduction in stock-based compensation expense of $39,000 for stock options and $8,000 for non vested shares.

In addition to the above, we terminated the employment James Wilcox, our former Chief Counsel, triggering the provisions of his Employment Agreement. In accordance with
his agreement, the non vested stock and stock options became fully vested. Due to this acceleration, 74,000 shares became vested and exercisable and we recognized an additional $56,000 of expense under FAS123R for the three months ended
March 31, 2008.

Stock-based compensation expenses were $266,000 and $489,000 for the three months ended March 31, 2008 and March 31, 2007,
respectively. Stock-based compensation expense is recorded as a component among cost of goods sold, research and development expense or selling, general and administrative expense. The allocation is dependent on the expense category where the
employee who holds the stock option is assigned. A summary of the stock-based compensation is shown below.



|                                                              |  |                              |     |      |   |    
|------------------------------------------------------------- |  | ---------------------------- | --- | ---- | - | ---
|                                                              |  | Three Months Ended March 31,
|Stock-based compensation expenses included in: (in thousands) |  | 2008                         |     | 2007
|Cost of goods sold                                            |  | $                            | 35  |      | $ | 17 
|Research and development expenses                             |  |                              |    |      |   | 150
|Selling, general and administrative expenses                  |  |                              | 231 |      |   | 322
|                                                              |  |                              |     |      |   |    
|Total stock-based compensation expenses                       |  | $                            | 266 |      | $ | 489
|                                                              |  |                              |     |      |   |    

Income Taxes

We have incurred net operating losses since our inception and therefore have not paid any federal, state or foreign taxes. We adopted the provision of FIN 48 on January 1, 2007. We have established a valuation allowance to fully
reserve our net deferred tax assets at March 31, 2008 and December 31, 2007 due to the uncertainty of the timing and amount of future taxable income. As of March 31, 2008, we had a net operating loss carryforward of approximately
$160.6 million and an unused research and development credit carryforward of approximately $3.6 million. As a result of the net operating loss carryforwards, our federal statute of limitation remains open for all years since 1990 with no years
currently under examination by the Internal Revenue Service. If not utilized, these net operating loss carryforwards and tax credits will begin to expire in 2018 and expires through 2027. If we do not achieve profitability, we may lose our net
operating loss carryforwards. In addition, the Internal Revenue Code places certain limitations on the annual amount of net operating loss carryforwards that can be utilized if certain changes in our ownership occur.



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Net loss and net loss per common share

For the quarter ended March 31, 2008, our net loss was $15.5 million compared to a net loss of $4.1 million in the quarter ended March 31, 2007. The loss per share was $0.53 and $0.15 for the first quarter
ended March 31, 2008 and March 31, 2007, respectively. The weighted average common shares outstanding were 29.1 million and 27.7 million for the quarter ended March 31, 2008 and March 31, 2007, respectively.

LIQUIDITY AND CAPITAL RESOURCES

We have limited operating
history. We have financed our operations since inception primarily through private and public equity and debt financings, capital equipment and leasehold financing, license and milestone revenues from corporate collaborations, government grants and
interest earned on cash and investments. Our expenditures are primarily for research and development and for other operating expenditures, as well as for purchases of capital equipment and for payments on outstanding indebtedness.

Cash and short-term investments decreased by $22.8 million from December 31, 2007 through March 31, 2008 to $10 million principally due to funding our net loss
and prepaying the debts.

We used $10.3 million for operating activities in the three month period ended March 31, 2008 and $4.1 million in the three
months ended March 31, 2007. This increase is primarily related to the cash portion of the arbitration legal expenses and the payment for the Kreatech license and equity investment.

We received approximately $9.4 million in our investing activities in the three months ended March 31, 2008. We paid $236,000 to Kreatech for their milestone achievement. We received the net proceeds of $9.6
million from maturities of investments and spent $13,000 to purchase capital equipment. In the three months ended March 31, 2007, we used approximately $4.1 million from investing activities principally from net payments of $4.0 million from
purchases of investments and $141,000 for purchases of capital equipment and leasehold improvements.

We used $12.3 million in our financing activities in
the three months ended March 31, 2008 and $545,000 in the three months ended March 31, 2007. In the quarter ended March 31, 2008, we made principal payments of $8.5 million to our debt holders under the Prepayment Agreement and
Amendment, prepaid $3.3 million to SVB, which represented the outstanding principal remaining under our credit facility with SVB. In the three months ended March 31, 2007, we made principal payments of $562,000 against our equipment credit
lines of credit and received $17,000 proceeds from stock option exercises.

As of March 31, 2008, we did not have any off-balance sheet financing
arrangements.

We are liable for certain payments under employment contracts with our Chief Executive Officer and Chief Scientific Officer. These contracts
require that we continue salary and benefits for these officers for a period of one year and that we accelerate any unvested options, if any, if the officer is terminated, except for cause, or in the event of a change of control, as defined in the
contracts.

We also have contingent obligations for research and development and clinical trial expenditures under our DLS Agreement with Veridex.
Specifically, we must pay the first $5.0 million in clinical trial costs for the first cellular analysis product for general population screening for a major cancer, and Veridex is responsible for the next $5.0 million of such clinical
trial costs. We have agreed to negotiate in good faith for the allocation of costs in excess of $10.0 million. As of March 31, 2008, we have not incurred any costs related to clinical trials for a product for general population screening,
and we do not anticipate spending any funds on clinical trials toward such a product through 2008.

The DLS Agreement with Veridex provides for a total of
up to $10.5 million in non-refundable license and milestone payments related to research and development activities, including up to $1.5 million for the initial license and up to $9.0 million related to the completion of certain
instrument and clinical trial milestones. We have received $6.9 million as of March 31, 2008. We have also continuously reviewed the status of the remaining development milestones and, where appropriate, have renegotiated the development
requirement and payment terms. We do not believe that these renegotiations will have a material adverse effect on our product development or financial position. We expect to earn the remaining $3.6 million in development milestone payments over
the next three to five years.



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If we do not successfully complete the payment criteria for a given future milestone, we will not receive the
applicable milestone payment. If we do not successfully complete the payment criteria by the target date for a given milestone, we will continue to be entitled to receive the milestone payment in the future upon successful completion of the
criteria. However, Veridexs obligation to pay us a percentage of the net sales for the specific cell analysis product to which the milestone relates would be reduced by 0.5% for the ten-year period beginning with the shipment for commercial
sale of the first product resulting from this agreement. In no event, however, would reductions due to missed target dates reduce our proportionate percentage share of net sales for the product specified that we would otherwise be entitled to
receive from Veridex for sales of all cell analysis products by Veridex under this agreement by more than 0.5% in the aggregate. In the case of the CellSearch product related to metastatic breast cancer we agreed with Veridex that we did not reach a
certain development milestone within the time period specified and therefore we will receive approximately 31% of net sales for this product.

If we
achieve certain levels of sales of our reagents we may receive up to an additional $10 million in milestone payments from Veridex although we do not expect to receive any milestone payments related to sales goals until at least 2009.

Veridex is responsible under the agreement for obtaining all regulatory clearances, in consultation with us, for these cell analysis products in the field
of cancer.

We have also established a sales agency arrangement with Veridex with respect to our sample preparation and cell analysis systems. Under this
arrangement, Veridex is our exclusive sales, invoicing and collecting agent and exclusive instrument and technical service provider for these systems in the field of cancer.

Veridex is responsible for all expenses for marketing, sales and training, and we are responsible for all development and validation as well as quality control and quality assurance. We are responsible for shipping
systems pursuant to purchase orders received by Veridex. We are obligated to pay Veridex a commission on each sale or lease of these sample preparation and cell analysis systems of up to 15% of the invoice price, subject to a minimum gross profit
margin received by us on each system of 27.5%, as defined in the Agreement. Some customers may enter into a reagent rental agreement with Veridex, whereby the reagent price also carries an amortized cost of the instrument, based on an agreed test
volume. In these cases, Veridex will pay us a percentage of the fully loaded cost of the instrument when it is placed in the account. We are responsible for the costs associated with the one-year warranty period. Veridex has the option under the
agreement to convert the sales agency relationship to a sole distributorship arrangement upon 12-months written notice. However, we do not anticipate earning significant gross margins or incurring significant losses on the sale, lease or
rental of our instrument systems. We anticipate that the majority of our future gross margins and future profits derived under our agreement with Veridex will result from the sales of reagents and disposables. For more information on our
relationship with Veridex, see our description of the arbitration in the Overview section of Managements Discussion and Analysis of Financial Condition and Results of Operations.

We launched our first cancer diagnostic products in October 2004. This represents the beginning of the commercialization phase as defined in our DLS Agreement. According to the DLS Agreement once commercialization
begins, we are required to invest an amount ranging from between 8.5% and 10% of total net product sales by Veridex, excluding revenue from cell analysis system sales, in research and development activities for cancer-related cell analysis products.
These research and development activities may consist of any activities, such as product improvements, product line extensions and clinical trials, conducted to achieve the milestones described above, to advance the development program designed by
the steering committee for this agreement, or to enhance the cancer-related cell analysis products or sample preparation and cell analysis systems based on our technologies.

The agreement has an initial term of 20 years and is automatically renewed for three-year terms unless earlier terminated. There are various conditions that allow either party to terminate the agreement,
including a material breach by either party or by mutual agreement. Veridex may also terminate for additional reasons including upon a change of control of us, as defined in the agreement, at any time prior to commercialization of any cell analysis
products under the agreement with or without reason upon 180 days prior written notice, or at any time following commercialization of the first cell analysis product under the agreement with or without reason upon 24 months
prior written notice. At this time we believe the latter provision is in effect due to initiation of commercialization in 2004. In certain circumstances of termination, Veridex may, at its option, retain certain worldwide rights to sell
our cell analysis products if it agrees to pay us any unpaid license and milestone payments and an ongoing net sales royalty. Johnson and Johnson Development Corporation, a wholly-owned subsidiary of Johnson & Johnson, Inc.,
beneficially owns approximately 6% of our common stock as of December 31, 2007 and is a wholly-owned subsidiary of Johnson & Johnson, Inc.



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We have generated limited revenues from product sales and have incurred substantial losses since our inception. We
anticipate incurring additional losses over the foreseeable future and such losses may fluctuate based on the amounts of revenue generated from sales of our products and services.

We have incurred significant negative cashflow for several years due to a lower than expected revenue, significant legal costs due to the arbitration and continuing efforts in research and development programs to
improve our products and develop new products. In the first quarter of 2008, we have paid $8.5 million to the Holders in the transaction mentioned above, $3.3 million to Silicon Valley Bank, and $5.9 million in legal costs from our arbitration. We
are considering additional measures to reduce our cash burn. Our operations are subject to certain additional risks and uncertainties including, among others, uncertainties of adequate financing to continue as a going concern, dependence on Veridex
to market our cancer diagnostic product candidates, the uncertainty of product development (including clinical trial results), regulatory clearance and approval, supplier and manufacturing dependence, competition, reimbursement availability,
dependence on exclusive licenses and other relationships, uncertainties regarding patents and proprietary rights, dependence on key personnel, convertible debt covenants and other risks related to governmental regulations and approvals. We believe,
however, that cash, cash equivalents and short term investments at March 31, 2008 will be sufficient to maintain operations through the third quarter of 2008.

We will need additional funds to continue to fund our business beyond the third quarter of 2008. Our capital requirements will depend on several factors, including investment to implement our business strategy and seeking arrangements with
corporate partners. Our inability to raise adequate funds to support the growth of our project portfolio will materially adversely affect our business. If we were unable to reduce our cash burn, or execute a modified business plan, and we are unable
to satisfy our available cash test under the Notes, this would result in an event of default under the Notes and our Notes would be payable in January 2009. Since we expect that the earliest the debt could become due is January 2009, we have
classified the remaining debt balance as current as of March 31, 2008

If we are unable to obtain additional funding for operations, we may not be
able to continue operations as proposed, requiring us to modify our business plan, curtail various aspects of our operations or cease operations.

Recent Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (FASB) issued the Statement of
Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivatives and Hedging Activities, which enhances the requirements under SFAS No. 133, Accounting for Derivatives and Hedging
Activities. SFAS No. 161 requires enhanced disclosures about an entitys derivatives and hedging activities and how they affect an entitys financial position, financial performance, and cash flows. This Statement will be
effective for fiscal years and interim periods beginning after November 15, 2008. We are currently assessing the impact to our Consolidated Financial Statements.

In December 2007, the Financial Accounting Standards Board, or FASB, issued SFAS No. 141 (Revised 2007), Business Combinations, SFAS 141R. SFAS 141R will significantly change the accounting for
business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the
accounting treatment for certain specific acquisition related items including: (1) expensing acquisition related costs as incurred; (2) valuing noncontrolling interests at fair value at the acquisition date; and (3) expensing
restructuring costs associated with an acquired business. SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R is to be applied prospectively to business combinations for which the acquisition date is on or after
January 1, 2009. We expect SFAS 141R may have an impact on our accounting for future business combinations once adopted but the effect is dependent upon the acquisitions that are made in the future.

In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, or SFAS 160. SFAS 160 establishes new
accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary (minority interest) is an ownership interest in the
consolidated entity that should be reported as equity in the Consolidated Financial Statements and separate from the parent companys equity. Among other requirements, this statement requires consolidated net income to be reported at amounts
that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the Consolidated Statement of Operations, of the amounts of consolidated net income attributable to the parent and
to the noncontrolling interest. This statement is effective for us on January 1, 2009. We are still in the process of evaluating the impact SFAS 160 will have on our Consolidated Financial Statements.



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In June 2007, FASB ratified the consensus reached by the Emerging Issues Task Force on Issue No. 07-3,
Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities,or EITF 07-3. Pursuant to EITF 07-3, nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or services are performed, or when the goods or services are no longer
expected to be received. EITF 07-3 is effective for the fiscal years beginning after December 15, 2007 and is to be applied prospectively for contracts entered into on or after the effective date. This statement did not have any material
effects on our financial condition or results of operations.

In February 2007, FASB, issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115, or SFAS 159. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and
losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and is
required to be adopted by us in the first quarter of 2008. This statement did not have a material effect on our financial condition or results of operation.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements, orSFAS 157,which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.
SFAS 157 is effective for fiscal years beginning after November 15, 2007. However, on February 12, 2008, FASB issued FSP FAS 157-2 which would delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This FSP partially defers the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. Effective for 2008, we will adopt SFAS 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in
FSP FAS 157-2. The partial adoption of SFAS 157 did not have a material impact on our consolidated financial position, results of operations or cash flows (See note 3 for the required disclosures).



|Item 4. | Controls and Procedures.
|------- | ------------------------

Evaluation of disclosure controls and
procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were (1) designed to ensure that material information relating to
the Company, including its consolidated subsidiaries, is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and
(2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time period specified in the SECs rules and forms. The information is accumulated and communicated to management to allow timely decisions.

Change in internal control over financial reporting.No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

On May 31, 2007, we announced that we had
filed a Demand for Arbitration against Veridex pursuant to which we were seeking termination of the 20-year exclusive worldwide agreement to market, sell and distribute our cancer diagnostic products and rescission of all licenses currently held by
Veridex under the DLS Agreement, based on repudiation and fundamental breaches by Veridex of its contractual, agency and other fiduciary obligations to market, sell and distribute our cancer diagnostic products. We are also seeking
monetary damages including compensatory damages of $220.2 to $254.2 million and punitive damages of $480 million.

In response to our arbitration demand,
Veridex has filed an answer and counterclaim wherein it asserted, among other things, that Immunicon had failed to perform its development, manufacturing and quality assurance obligations pursuant to the DLS Agreement and had violated Veridexs
exclusive right to sell Immunicon products. Veridexs counterclaim originally claimed damages of $35.6 million. In a revised claim dated October 19, 2007, Veridex revised its claim to seek damages of $168 million for alleged breach of its
obligation to refrain from selling products in the Field of Cancer except through Veridex.

On March 3, 2008, the arbitrator in the
arbitration proceedings issued a final award, or the Decision. In the Decision, the arbitrator determined that Veridex was not in breach of its best efforts marketing obligation and dismissed our claims. The arbitrator awarded Veridex
approximately $304,000 in contract damages, pursuant to Veridexs counterclaim in which Veridex had challenged our use of circulating tumor cell, or CTC reagents and analyzers as part of our Service business. We paid the award in
full in April 2008.

We have been in negotiations with Veridex in regards to this Service business and in May 2008, we signed an agreement that allows us
to continue to perform these services and pay Veridex a royalty for the ability to perform these tests. This agreement is temporary and we expect to transfer these contracts to other laboratories in the near future, therefore we will only have
revenue from these services until they have been transferred. We are not certain how long the transition will take, but anticipate that it is likely to occur by the end of the third quarter of 2008.



|Item 1A. | Risk Factors.
|-------- | -------------

In addition to the other information set forth in
this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2007 and the additional factors set forth below, all of which could
materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K and below are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

We have a history of
operating losses, expect to continue to incur substantial losses, and might never achieve or maintain profitability.

We have a limited operating
history. We have incurred significant net losses since we began operations in 1983. As of March 31, 2008, we had an accumulated deficit $183.2 million. These losses have resulted primarily from costs incurred in our research and development
programs and from our selling, general and administrative expenses. Because our operating expenses may increase in the near term, we will need to generate significant additional revenue to achieve profitability. As we do not as yet have sufficient
operating revenue from the sales of our products to offset our losses, we do not expect to have any sufficient operating income from the sale of our products until at least 2008. We will continue to incur research and development and clinical trial
expenses, as well as increased manufacturing, sales and marketing expenses. These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and stockholders equity. Because of the
numerous risks and uncertainties associated with our product development efforts, market acceptance and uncertainties concerning the success of sales efforts by us and Veridex, we are unable to predict when we will become profitable, and we may
never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we are unable to achieve and then maintain profitability, the market value of our common stock
will decline.



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If our relationship with Veridex does not function effectively or is terminated, we may be unable to continue to
commercialize effectively certain of our products based on our technologies in the field of cancer.

On May 31, 2007, we announced that we had
filed a Demand for Arbitration against Veridex pursuant to which we were seeking termination of the 20-year exclusive worldwide agreement to market, sell and distribute our cancer diagnostic products and rescission of all licenses currently held by
Veridex under the DLS Agreement, based on repudiation and fundamental breaches by Veridex of its contractual, agency and other fiduciary obligations to market, sell and distribute our cancer diagnostic products. We were also seeking
monetary damages including compensatory damages of $220.2 to $254.2 million and punitive damages of $480 million.

In response to our arbitration demand,
Veridex filed an answer and counterclaim wherein it asserted, among other things, that Immunicon failed to perform its development, manufacturing and quality assurance obligations pursuant to the DLS Agreement and had violated Veridexs
exclusive right to sell Immunicon products. Veridexs counterclaim originally claimed damages of $35.6 million. In a revised claim dated October 19, 2007, Veridex revised its claim to seek damages of $168 million for alleged breach of its
obligation to refrain from selling products in the Field of Cancer except through Veridex.

On March 3, 2008, the arbitrator in the
arbitration proceedings issued a final award, or the Decision. In the Decision, the arbitrator determined that Veridex was not in breach of its best efforts marketing obligation and dismissed our claims. The arbitrator awarded Veridex
approximately $304,000 in contract damages, pursuant to Veridexs counterclaim in which Veridex had challenged our use of circulating tumor cell, or CTC reagents and analyzers as part of our Service business. This award was paid in
full in April 2008.

In August 2000, we entered into the DLS Agreement with Veridex, under which we granted to Veridex a worldwide exclusive license in the
field of cancer to commercialize cell analysis products based on our technologies. We also appointed Veridex as our exclusive sales, invoicing and collection agent for our cell analysis instrumentation in cancer. If Veridex fails to meet its
obligations under the agreement or fails to deploy adequate resources to commercialize products such that our relationship with Veridex does not function effectively, as we allege in our arbitration demand, we may suffer substantial losses due to
the fact that we are not free to terminate the contact and/or to commercialize our products on our own. While Veridex has the exclusive right under this agreement to market, distribute and conduct field, technical, customer service and certain
manufacturing finishing operations for these products, Veridex has very limited obligations to perform these functions under this agreement. For example, the agreement does not require Veridex to meet any minimum levels with respect to sales,
marketing personnel or other marketing expenditures, and Veridex may terminate this agreement with or without reason at any time by providing us with 24 months prior written notice. Veridex may also terminate this agreement if we are in
material breach or are acquired by a competitor in the IVD field. If Veridex were to fail to meet its obligations under this agreement or fail to deploy adequate resources to commercialize products under this agreement or terminate this agreement:



| |  |  | we could incur significant delays and expense in the commercialization of these products;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | we may be unable to enter into a similar agreement with another company with similar resources to commercialize these products and perform these functions on
acceptable terms, if at all; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be unable to commercialize these products or perform these functions successfully ourselves.
| | - |  | ---------------------------------------------------------------------------------------------------

Any of these outcomes could result in delays in our ability to generate additional revenues from sales of these products or an inability to generate any additional
revenues from sales of these products, an increase in our expenses and a resulting adverse impact on our operations and financial results, and the value of our common stock would likely decline.

Under our agreement with Veridex, we are required to invest an amount ranging from between 8.5% and 10% of total net product sales by Veridex, excluding revenue from
cell analysis system sales, in research and development for cancer-related cell analysis products.

If our Service business discontinues, our revenues
will be significantly impacted.

We have offered assay development services and clinical laboratory testing services to pharmaceutical and
biotechnology companies. We record revenue for these services as part of our Service revenue in our statement of operations. We recorded revenues of $532,000 relating to this service in the three months ended March 31, 2008 and $291,000 in the
three months ended March 31, 2007.



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As previously disclosed, on May 31, 2007, we announced that we had filed a Demand for Arbitration against
Veridex, LLC, a Johnson & Johnson company, or Veridex, pursuant to which we were seeking termination of the 20-year exclusive worldwide agreement to market, sell and distribute our cancer diagnostic products and rescission of all licenses
currently held by Veridex under the DLS Agreement. We also sought monetary damages including compensatory damages of $220.2 to $254.2 million and punitive damages of $480 million.

Veridexs answer and counterclaim asserted, among other things, that we had failed to perform our development, manufacturing and quality assurance obligations pursuant to the DLS Agreement and that we had
violated Veridexs exclusive right to sell our products through the operations and activities related to our Services business.

Also as
previously disclosed, on March 3, 2008, the arbitrator in the arbitration proceedings issued a final award, or the Decision. In the Decision, the arbitrator determined that Veridex was not in breach of its best efforts marketing
obligation and dismissed our claims. The arbitrator awarded Veridex approximately $304,000 in contract damages, pursuant to Veridexs counterclaim in which Veridex had challenged Immunicons use of circulating tumor cell reagents and
analyzers as part of its Services business. We paid the award in full in April 2008.

Following the Decision, Immunicon entered into
negotiations with Veridex regarding the ongoing Service business and, on May 5, 2008, we entered into a Phama Services Interim Agreement, or the Interim Agreement, with Veridex. Pursuant to the Interim Agreement, Veridex permits us
to continue the operations and activities related to the Services business until either Veridex sends written notice to us stating that we must stop providing such services or the parties execute a separate agreement that allows for
transition of the services now performed by us to customers of Veridex. Further pursuant to the Interim Agreement, while we continue our Services business, we must pay to Veridex royalty payments varying from $59 to $129 per test
performed.

We are not certain how long we will be able to continue performing these tests, but we anticipate we will transition these services to third
party laboratories by the end of the third quarter of 2008. This will significantly negatively impact our revenues from that time forward. If Veridex sends us written notice to stop providing such services at an earlier time, our revenues and
profitability would be negatively impacted at that time.



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|Item 6. | Exhibits.
|------- | ---------



|       |  |                                                                                                                                                                  
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1   |  | Form of Prepayment Agreement and Amendment (Incorporated by reference to the Registrants Current Report on Form 8-K filed with the Commission on March 3, 2008).
|31.1 # |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.                                                      
|31.2 # |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.                                                      
|32.1 # |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.                                                                                     
|32.2 # |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                     



|# | Filed herewith
|- | --------------

|
|



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.



|                   |  |                       |  |                                             
|------------------ |  | --------------------- |  | --------------------------------------------
|                   |  | IMMUNICON CORPORATION
|                   |  |                      
|Date: May 12, 2008 |  | By:                   |  | /s/ BYRON D. HEWETT                         
|                   |  |                       |  | Byron D. Hewett                             
|                   |  |                       |  | President and Chief Executive Officer       
|                   |  |                       |  | (Principal Executive Officer)               
|                   |  |                      
|Date: May 12, 2008 |  | By:                   |  | /s/ TERESA O. LIPCSEY                       
|                   |  |                       |  | Teresa O. Lipcsey                           
|                   |  |                       |  | Vice President and Corporate Controller     
|                   |  |                       |  | (Principal Financial and Accounting Officer)



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EXHIBIT INDEX



|       |  |                                                                                                                                                                  
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                      
|10.1   |  | Form of Prepayment Agreement and Amendment (Incorporated by reference to the Registrants Current Report on Form 8-K filed with the Commission on March 3, 2008).
|       | 
|31.1 # |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.                                                      
|       | 
|31.2 # |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.                                                      
|       | 
|32.1 # |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.                                                                                     
|       | 
|32.2 # |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                     



|# | Filed herewith
|- | --------------



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