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
      quarterly period ended June 30,
2008




o
            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:  001-14907IMMTECH
      PHARMACEUTICALS, INC.(Exact
      name of registrant as specified in its
charter)





Delaware
            
            39-1523370(State
      or other jurisdiction of incorporation or
organization)
            
            (I.R.S.
      Employer Identification No.)One
      North End Avenue, New York, New York
            
            10282(Address
      of principal executive offices)
            
            (Zip
      Code)





Registrant’s
      telephone number:  (212) 791-2911






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  o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.




Large
accelerated filer       o      Accelerated
filer        x       Non-accelerated
filer   oSmaller reporting company       o




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




As of
August 7, 2008, 15,940,288 shares of the Registrant’s common stock, par value
$0.01 per share (“Common Stock”), were outstanding.













Table of
Contents
 Page




PART
      I
              FINANCIAL
      INFORMATION
              1Item
      1
              Financial Statements
              1Item
      2
              Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
              22Item
      3
              Quantitative and Qualitative Disclosures About Market Risk
              25Item
      4
              Controls and Procedures
              25PART
      II
              OTHER
      INFORMATION
              25Item
      1
              Legal Proceedings
              25Item
      1A
              Risk Factors
              26Item
      2
              Unregistered Sales of Equity Securities and Use of
Proceeds
              26Item
      3
              Defaults Upon Senior Securities
              27Item
      4
              Submission of Matters to a Vote of Security Holders
              27Item
      5
              Other Information
              27Item
      6
              Exhibits
              27




- i
-




PART
I.                      FINANCIAL
INFORMATION




Item
      1.
            Financial
      Statements.


IMMTECH
      PHARMACEUTICALS, INC. AND SUBSIDIARIES(A
      Development Stage Enterprise)CONSOLIDATED
      BALANCE SHEETS (UNAUDITED)June
      30,
            
            
            March
      31,ASSETS
            
            2008
            
            
            2008CURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            3,573,712
            
            
            $
            5,996,157Restricted
      funds on deposit
            
            
            2,001,101
            
            
            
            3,776,253Other
      receivables
            
            
            
            
            
            
            54,205Other
      current assets
            
            
            375,444
            
            
            
            253,014Total
      current assets
            
            
            5,950,257
            
            
            
            10,079,629PROPERTY
      AND EQUIPMENT - Net
            
            
            78,648
            
            
            
            89,519PREPAID
      RENT
            
            
            3,215,582
            
            
            
            3,234,314OTHER
      ASSETS
            
            
            34,142
            
            
            
            34,142TOTAL
            
            $
            9,278,629
            
            
            $
            13,437,604LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
            
            $
            1,450,861
            
            
            $
            2,938,511Accrued
      expenses
            
            
            530,986
            
            
            
            499,770Deferred
      revenue
            
            
            1,244,322
            
            
            
            2,399,676Total
      current liabilities
            
            
            3,226,169
            
            
            
            5,837,957Total
      liabilities
            
            
            3,226,169
            
            
            
            5,837,957STOCKHOLDERS'
      EQUITY:Preferred
      stock, par value $0.01 per share, 3,913,000 shares authorized
      andunissued
      as of June 30, 2008 and March 31, 2008.Series
      A convertible preferred stock, par value $0.01 per share, stated
      value$25
      per share, 320,000 shares authorized, 42,500 and 50,500 shares issued and
      outstanding







- 1
-




as
      of June 30, 2008 and March 31, 2008, respectively; aggregate liquidation
      preferenceof
      $1,075,414 as of June 30, 2008.
            
            
            1,075,414
            
            
            
            1,296,831Series
      B convertible preferred stock, par value $0.01 per share, stated
      value$25
      per share, 240,000 shares authorized, 9,464 and 11,464 shares issued and
      outstandingas
      of June 30, 2008 and March 31, 2008, respectively; aggregate liquidation
      preferenceof
      $240,220 as of June 30, 2008.
            
            
            240,220
            
            
            
            296,780Series
      C convertible preferred stock, par value $0.01 per share, stated
      value$25
      per share, 160,000 shares authorized, 45,536 shares issued and
      outstandingas
      of June 30, 2008 and March 31, 2008; aggregate liquidation
      preferenceof
      $1,157,639 as of June 30, 2008.
            
            
            1,157,639
            
            
            
            1,180,345Series
      D convertible preferred stock, par value $0.01 per share, stated
      value$25
      per share, 200,000 shares authorized, 117,200 shares issued and
      outstandingas
      of June 30, 2008 and March 31, 2008; aggregate liquidation
      preferenceof
      $2,916,452 as of June 30, 2008.
            
            
            2,916,452
            
            
            
            2,959,533Series
      E convertible preferred stock, par value $0.01 per share, stated
      value$25
      per share, 167,000 shares authorized, 97,800 and 98,600 shares
      issuedand
      outstanding as of June 30, 2008 and March 31, 2008,
      respectively;aggregate
      liquidation preference of $2,475,909 as of June 30, 2008.
            
            
            2,475,909
            
            
            
            2,533,107Common
      stock, par value $0.01 per share, 100,000,000 sharesauthorized,
      15,940,288 and 15,597,768 shares issued and outstandingas
      of June 30, 2008 and March 31, 2008, respectively.
            
            
            159,403
            
            
            
            155,978Additional
      paid-in capital
            
            
            110,977,443
            
            
            
            110,743,899Deficit
      accumulated during the developmental stage
            
            
            (112,950,020
            )
            
            
            (111,566,826
            )Total
      stockholders' equity
            
            
            6,052,460
            
            
            
            7,599,647TOTAL
            
            $
            9,278,629
            
            
            $
            13,437,604See
      notes to consolidated financial statements (unaudited).






- 2
-





IMMTECH
      PHARMACEUTICALS, INC. AND SUBSIDIARIES(A
      Development Stage Enterprise)CONSOLIDATED
      STATEMENTS OF OPERATIONS (UNAUDITED)October
      15,1984Three
      Months Ended
            
            
            (Inception)
      toJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008REVENUES
            
            $
            1,140,909
            
            
            $
            826,349
            
            
            $
            35,940,905EXPENSES:Research
      and development
            
            
            1,494,414
            
            
            
            1,917,812
            
            
            
            73,178,132General
      and administrative
            
            
            924,242
            
            
            
            1,717,288
            
            
            
            74,001,554Other
      (litigation settlement)
            
            
            
            
            
            
            
            
            
            
            (1,874,454
            )Equity
      in loss of joint venture
            
            
            -
            
            
            
            -
            
            
            
            135,002Total
      expenses
            
            
            2,418,656
            
            
            
            3,635,100
            
            
            
            145,440,234LOSS
      FROM OPERATIONS
            
            
            (1,277,747
            )
            
            
            (2,808,751
            )
            
            
            (109,499,329
            )OTHER
      INCOME (EXPENSE):Interest
      income
            
            
            20,968
            
            
            
            147,763
            
            
            
            1,934,544Interest
      expense
            
            
            
            
            
            
            
            
            
            
            (1,129,502
            )Loss
      on sales of investment securities - net
            
            
            
            
            
            
            
            
            
            
            (2,942
            )Cancelled
      offering costs
            
            
            
            
            
            
            
            
            
            
            (584,707
            )Gain
      on extinguishment of debt
            
            
            -
            
            
            
            -
            
            
            
            1,427,765Other
      income
            
            
            20,968
            
            
            
            147,763
            
            
            
            1,645,158NET
      LOSS
            
            
            (1,256,779
            )
            
            
            (2,660,988
            )
            
            
            (107,854,171
            )CONVERTIBLE
      PREFERRED STOCK DIVIDENDS AND CONVERTIBLEPREFERRED
      STOCK PREMIUM DEEMED DIVIDENDS
            
            
            (126,415
            )
            
            
            (134,997
            )
            
            
            (7,465,748
            )REDEEMABLE
      PREFERRED STOCK CONVERSION, PREMIUMAMORTIZATION
      AND DIVIDENDS
            
            
            -
            
            
            
            -
            
            
            
            2,369,899NET
      LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
            
            $
            (1,383,194
            )
            
            $
            (2,795,985
            )
            
            $
            (112,950,020
            )






- 3
-




BASIC
      AND DILUTED NET LOSS PER SHARE ATTRIBUTABLETO
      COMMON STOCKHOLDERS:Net
      loss
            
            $
            (0.08
            )
            
            $
            (0.17
            )Convertible
      preferred stock dividends and convertiblepreferred
      stock premium deemed dividends
            
            
            (0.01
            )
            
            
            (0.01
            )BASIC
      AND DILUTED LOSS PER SHARE ATTRIBUTABLETO
      COMMON STOCKHOLDERS
            
            $
            (0.09
            )
            
            $
            (0.18
            )WEIGHTED
      AVERAGE SHARES USED IN COMPUTINGBASIC
      AND DILUTED NET LOSS PER SHARE
            
            
            15,846,874
            
            
            
            15,370,054See
      notes to consolidated financial statements (unaudited).





- 4
-





IMMTECH
      PHARMACEUTICALS, INC. AND SUBSIDIARIES(A
      Development Stage Enterprise)CONSOLIDATED
      STATEMENTS OF CASH FLOWS (UNAUDITED)October
      15,1984Three
      Months Ended
            
            
            (Inception)
      toJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008OPERATING
      ACTIVITIES:Net
      loss
            
            $
            (1,256,779
            )
            
            $
            (2,660,988
            )
            
            $
            (107,854,171
            )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Compensation
      recorded related to issuance of common stock,common
      stock options and warrants
            
            
            (290,345
            )
            
            
            492,793
            
            
            
            33,574,442Depreciation
      and amortization of property and equipment
            
            
            32,314
            
            
            
            37,113
            
            
            
            1,365,551(Gain)/Loss
      on disposal of fixed assets
            
            
            
            
            
            
            
            
            
            
            5,982Equity
      in loss of joint venture
            
            
            
            
            
            
            
            
            
            
            135,002Loss
      on sales of investment securities - net
            
            
            
            
            
            
            
            
            
            
            2,942Amortization
      of debt discounts and issuance costs
            
            
            
            
            
            
            
            
            
            
            134,503Gain
      on extinguishment of debt
            
            
            
            
            
            
            
            
            
            
            (1,427,765
            )Changes
      in assets and liabilities:Other
      receivables
            
            
            54,205Other
      current assets
            
            
            (122,430
            )
            
            
            (405,146
            )
            
            
            (375,444
            )Other
      assets
            
            
            
            
            
            
            (177,631
            )
            
            
            (34,142
            )Accounts
      payable
            
            
            (1,487,650
            )
            
            
            (1,219,849
            )
            
            
            1,778,396Accrued
      expenses
            
            
            31,216
            
            
            
            45,226
            
            
            
            1,193,999Deferred
      revenue
            
            
            (1,155,354
            )
            
            
            2,163,782
            
            
            
            1,244,322Net
      cash provided used in operating activities
            
            
            (4,194,823
            )
            
            
            (1,724,700
            )
            
            
            (70,256,383
            )INVESTING
      ACTIVITIES:Purchase
      of property and equipment
            
            
            (2,711
            )
            
            
            
            
            
            
            (1,638,833
            )Restricted
      funds on deposit
            
            
            1,775,152
            
            
            
            1,436,479
            
            
            
            (2,001,101
            )Advances
      to joint venture
            
            
            
            
            
            
            
            
            
            
            (135,002
            )Proceeds
      from maturities of investment securities
            
            
            
            
            
            
            
            
            
            
            1,800,527Purchases
      of investment securities
            
            
            -
            
            
            
            -
            
            
            
            (1,803,469
            )Net
      cash provided by (used in) investing activities
            
            
            1,772,441
            
            
            
            1,436,479
            
            
            
            (3,777,878
            )FINANCING
      ACTIVITIES:Advances
      from stockholders and affiliates
            
            
            
            
            
            
            
            
            
            
            985,172Proceeds
      from issuance of notes payable
            
            
            
            
            
            
            
            
            
            
            2,645,194Principal
      payments on notes payable
            
            
            
            
            
            
            
            
            
            
            (218,119
            )





- 5
-




Payments
      for debt issuance costs
            
            
            
            
            
            
            
            
            
            
            (53,669
            )Payments
      for extinguishment of debt
            
            
            
            
            
            
            
            
            
            
            (203,450
            )Net
      proceeds from issuance of redeemable preferred stock
            
            
            
            
            
            
            
            
            
            
            3,330,000Net
      proceeds from issuance of convertible preferred stock and
      warrants
            
            
            
            
            
            
            
            
            
            
            17,085,434Payments
      of convertible preferred stock dividends and for fractional shares
      ofcommon
      stock resulting from the conversions of convertible preferred
      stock
            
            
            (63
            )
            
            
            (449
            )
            
            
            (6,041
            )Net
      proceeds from issuance of common stock
            
            
            
            
            
            
            
            
            
            
            53,798,490Additional
      capital contributed by stockholders
            
            
            -
            
            
            
            -
            
            
            
            245,559Net
      cash provided by (used in) financing activities
            
            
            (63
            )
            
            
            (449
            )
            
            
            77,607,973NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (2,422,445
            )
            
            
            (288,690
            )
            
            
            3,573,712CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            5,996,157
            
            
            
            12,461,795
            
            
            
            -CASH
      AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            3,573,712
            
            
            $
            12,173,125
            
            
            $
            3,573,712See
      notes to consolidated financial statements (unaudited).





- 6
-




IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.
            BASIS
      OF PRESENTATION




The
accompanying consolidated financial statements have been prepared by Immtech
Pharmaceuticals, Inc. and its subsidiaries (the “Company” or “Immtech”) pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”)
and, in the opinion of management, include all adjustments necessary for a fair
statement of results for each period shown (unless otherwise noted herein, all
adjustments are of a normal recurring nature).  Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted pursuant to such SEC rules and
regulations.  The Company, with a fiscal year ending March 31,
believes that the disclosures made are adequate to prevent the financial
information given from being misleading.  It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company’s latest Annual Report on Form
10-K.




2.
            COMPANY
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES




Description of Business –
Immtech Pharmaceuticals, Inc. and subsidiaries (a development stage enterprise)
(the “Company”) is focused on global opportunities in the healthcare
sector.  Immtech aims to leverage its established expertise and other
assets in both new drug sales and enhanced healthcare-related services,
including research and information-providing services, for developed and
developing countries.  We plan to further our focus on the discovery
and development of drugs to treat infectious diseases.  In addition to
our internal drug discovery program, we plan to partner with local institutions
to provide contract research services (“CRS”) in China and anticipate
cultivating business opportunities to distribute healthcare information via
electronic content in China and potentially throughout Asia.




During
the year ended March 31, 2008, the Company’s drug development program for
pafuramidine was discontinued due to findings of renal and liver adverse events
among participants in the study of healthy volunteers conducted in South Africa.
It was halted in December 2007 after several subjects developed abnormal liver
function. The program was formally discontinued in February 2008 when five
subjects in the same study developed renal abnormalities that required medical
intervention and hospitalization.




The
Company holds worldwide patents and patent applications, and licenses and rights
to license technology, primarily from a scientific consortium that has granted
to the Company exclusive rights to commercialize products from, and license
rights to the technology.  The scientific consortium includes
scientists from The University of North Carolina at Chapel Hill (“UNC-CH”),
Georgia State University (“Georgia State”), Duke University (“Duke University”)
and Auburn University (“Auburn University”) (collectively, the “Scientific
Consortium”).  The Company is a development stage enterprise and,
since its inception on October 15, 1984, has engaged in research and
development programs, expanded its network of scientists and scientific advisors
and licensing technology agreements, and worked to commercialize the aromatic
cation pharmaceutical technology platform (the Company acquired its rights to
the aromatic cation technology platform in







- 7
-





1997 and
promptly thereafter commenced development of its current
programs).  The Company uses the expertise and resources of strategic
partners and third parties in a number of areas,
including:  (i) laboratory research, (ii) animal and human
trials and (iii) the manufacturing of pharmaceutical drugs.




The
Company does not have any products currently available for sale, and no products
are expected to be commercially available for sale until after March 31,
2009, if at all.




The
Company also intends to increase its presence in China by: (i) bringing approved
drugs, health products and services from developed markets to China for sales
and distribution, (ii) partnering with local Chinese institutions to provide CRS
to other international companies involved in drug development and (iii)
distributing healthcare information to patients, and continuing education and
training programs to professional medical staff.




Going Concern Presentation and
Related Risks and Uncertainties – The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business.




Since
inception, the Company has incurred accumulated net losses of approximately
$107,854,000.  Management expects the Company will continue to incur
significant losses during the next several years as the Company continues
development activities, clinical trials and commercialization
efforts.  In addition, the Company has various research and
development agreements with third parties and is dependent upon such parties’
abilities to perform under these agreements.  There can be no
assurance that the Company’s activities will lead to the development of
commercially viable products.  The Company’s operations to date have
consumed substantial amounts of cash.  The negative cash flow from
operations is expected to continue in the foreseeable future.  The
Company believes it will require substantial additional funds to commercialize
its drug candidates.  The Company’s cash requirements may vary
materially from those now planned when and if the following become known:
formation and development of relationships with strategic partners, changes in
the focus and direction of development programs, results of research and
development efforts, results of clinical testing, responses to grant requests, ,
competitive and technological advances, requirements in the regulatory process
and other factors.  Changes in circumstances in any results of our new
global business initiatives may require the Company to allocate substantially
more funds than are currently available or than management intends to
raise.




The
Company believes its existing unrestricted cash and cash equivalents, and the
grants the Company has received or has been awarded, will be sufficient to meet
the Company’s planned expenditures through December 2008, and through the sale
of land use rights capital resources will be sufficient to support our
operations beyond March 2009, although there can be no assurance the Company
will not require additional funds. The decision to terminate the pafuramidine
development program has significantly depressed the Company’s stock price and
impaired its ability to raise additional funds.  The Company is
evaluating its strategic alternatives with respect to all aspects of the
business.  These factors, among others, indicate that the Company may
be unable to continue as a going concern. The accompanying financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.




The
Company’s ability to continue as a going concern is dependent upon its ability
to generate sufficient funds to meet its obligations as they become due,
complete the development and commercialization of drug candidates and,
ultimately, generate sufficient revenues for profitable
operations.  Management’s plans for the year, in addition to normal
operations, include continuing





- 8
-





financing
efforts, obtaining additional research grants and entering into research and
development agreements with other entities.





Principles of Consolidation –
The consolidated financial statements include the accounts of Immtech
Pharmaceuticals, Inc. and its wholly owned subsidiaries.  All
intercompany balances and transactions have been eliminated.




Cash and Cash Equivalents–
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.  Cash and cash
equivalents consist of an amount on deposit at a bank and an investment in a
money market mutual fund, stated at cost, which approximates fair
value.




Restricted Funds on Deposit –
Restricted funds on deposit consist of cash on deposit at a bank which are
restricted for use in accordance with a clinical research subcontract
agreement with UNC-CH.




Concentration of Credit Risk
– The Company maintains its cash in commercial banks.  Balances on
deposit are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to
specified limits.




Investment – The Company
accounts for its investment in NextEra Therapeutics, Inc. (“NextEra”) on the
equity method.  As of June 30, 2008 and March 31, 2008, according to
NextEra’s disclosure, the Company owned approximately 28% of the issued and
outstanding shares of NextEra common stock.  The Company has
recognized an equity loss in NextEra to the extent of the basis of its
investment, and the investment balance is zero as of June 30, 2008 and March 31,
2008.  Recognition of any investment income on the equity method by
the Company for its investment in NextEra will occur only after NextEra has
earnings in excess of previously unrecognized equity losses.  The
Company does not provide, and has not provided, any financial guarantees to
NextEra.




Property and Equipment –
Property and equipment are recorded at cost and depreciated and amortized using
the straight-line method over the estimated useful lives of the respective
assets, ranging from three to five years.  Leasehold improvements are
amortized over the lesser of the life of the related lease or their useful
lives.




Prepaid Rent – Prepaid rent
relates to land use rights that the Company has recorded at cost and amortized
using the straight-line method over the estimated useful life of fifty
years.




Long-Lived Assets – The
Company periodically evaluates the carrying value of its property and
equipment.  Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable.  If the sum of the expected future undiscounted cash
flows is less than the carrying amount of an asset, a loss is recognized for the
asset which is measured by the difference between the fair value and the
carrying value of the asset.




Revenue Recognition – Grants
to perform research have been the Company’s primary source of revenue and are
generally granted to support research and development activities for specific
projects or drug candidates.  Revenue related to grants to perform
research and development is recognized as earned based on the performance
requirements of the specific grant.  Upfront cash payments from
research and development grants are reported as deferred revenue until such time
as the research and development activities covered by the grant are
performed.







- 9
-





Revenue
from licensing arrangements is recorded when earned based on the performance
requirements of the contract.  Nonrefundable upfront license fees, for
product candidates where the Company is providing continuing services related to
product development, are deferred and recognized as revenue over the development
period or as the Company provides services required under the relevant
agreement.  The timing and amount of revenue the Company recognizes
from licenses, either from upfront fees or milestones where the Company is
providing continuing services related to product development, is dependent upon
the Company’s estimates of filing dates.  As product candidates move
through the development process, it is necessary to revise these estimates to
consider changes to the product development cycle, such as changes in the
clinical development plan, regulatory requirements, or various other factors,
many of which may be outside of the Company’s control.  The impact on
revenue changes in the Company’s estimates and the timing thereof, is recognized
prospectively over the remaining estimated product development
period.




Research and Development
Costs – Research and development costs are expensed as incurred and
include costs associated with research performed pursuant to collaborative
agreements.  Research and development costs consist of direct and
indirect internal costs related to specific projects as well as fees paid to
other entities that conduct certain research activities on the Company’s
behalf.




Income Taxes – The Company
accounts for income taxes using an asset and liability
approach.  Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income.  In addition, a
valuation allowance is recognized if it is more likely than not that some or all
of the deferred income tax assets will not be realized.  A valuation
allowance is used to offset the related net deferred income tax assets due to
uncertainties of realizing the benefits of certain net operating loss and tax
credit carry-forwards and other deferred income tax assets.




Net Income (Loss) Per Share –
Net income (loss) per share is calculated in accordance with Statement of
Financial Accounting Standard (“SFAS”) No. 128, “Earnings Per
Share.”  Basic net income (loss) and diluted net income (loss)
per share are computed by dividing net income (loss) attributable to common
stockholders by the weighted average number of common shares
outstanding.  Diluted net income per share, when applicable, is
computed by dividing net income attributable to common stockholders by the
weighted average number of common shares outstanding increased by the number of
potential dilutive common shares based on the treasury stock
method.  Diluted net loss per share was the same as the basic net loss
per share for the three month periods ended June 30, 2008 and June 30, 2007, as
none of the Company’s outstanding common stock options, warrants and the
conversion features of Series A, B, C, D and E Convertible Preferred Stock were
dilutive.




Stock-Based Compensation –
Effective April 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment,”using
the modified prospective method.  SFAS No. 123(R) requires entities to
recognize the cost of employee services in exchange for awards of equity
instruments based on the grant-date fair value of those awards (with limited
exceptions).  The cost, based on the estimated number of awards that
are expected to vest, will be recognized over the period during which the
employee is required to provide the services in exchange for the
award.  No compensation cost is recognized for awards for which
employees do not render the requisite service.  Upon adoption, the
grant-date fair value of employee share options and similar instruments was
estimated using the Black-Scholes valuation model.  The Black-Scholes
valuation requires the input of highly subjective assumptions, including the
expected life of the stock-based award and stock price
volatility.  The assumptions used are management’s best estimates, but
the estimates involve







- 10
-





inherent
uncertainties and the application of management’s judgment.  As a
result, if other assumptions had been used, the recorded and pro forma
stock-based compensation expense could have been materially different from that
depicted in the financial statements.




Fair Value of Financial
Instruments – The Company believes that the carrying amount of its
financial instruments (cash and cash equivalents, restricted funds on deposit,
accounts payable and accrued expenses) approximates the fair value of such
instruments as of June 30, 2008 and March 31, 2008 based on the short-term
nature of the instruments.




Segment
Reporting– The Company is
a development stage pharmaceutical company that operates as one
segment.




Comprehensive Loss – There
were no differences between comprehensive loss and net loss for the three month
periods ended June 30, 2008 and 2007, respectively.




Use of Estimates – The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ materially
from these estimates.




New Accounting Standard– The
Company adopted Financial Accounting Standards Board (“FASB”), Interpretation
No. 48, “Accounting for
Uncertainty in Income Taxes,” (“FIN 48”) on April 1, 2007.  The
adoption of FIN 48 did not have an impact.  At the adoption date and
as of June 30, 2008, the Company does not have a liability for uncertain tax
benefits.  The Company does not presently expect any reasonably
possible material change to the estimated amount of liability associated with
its uncertain tax positions during the next twelve
months.  Additionally, there were no interest or penalties related to
income taxes that have been accrued or recognized for open tax
years.




The
Company files income tax returns in the U.S. federal jurisdiction, and various
state jurisdictions.  Periods subject to examination for the Company’s
federal tax return are the 1991 through 2007 tax years.  In addition,
open tax years related to state jurisdictions remain subject to examination but
are not considered material.




New Accounting Standard– In
December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS
141(R)”).  SFAS 141(R) changes the requirements for an acquirer’s
recognition and measurement of the assets acquired and the liabilities assumed
in a business combination.  SFAS 141(R) is effective for us in fiscal
year 2009.  The impact of SFAS 141(R) will depend on future
acquisitions.




New Accounting Standard– In
September 2006, the FASB issued Statement No. 157 (“SFAS 157”), “Fair Value
Measurements.”  SFAS 157 defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosures about fair value
measurements.  Subsequently in February 2008, the FASB issued FASB
Staff Position 157-1, “Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13” (“FSP 157-1”) and FASB Staff Position 157-2, “Partial Deferral of the Effective
Date of Statement 157” (“FSP 157-2”).  FSP 157-1 removed
leasing transactions accounted for under Statement No. 13 and related guidance
from the scope of SFAS 157.  FSP 157-2 deferred the effective date of
SFAS 157 for all nonfinancial assets and







- 11
-





nonfinancial
liabilities to fiscal years beginning after November 15, 2008.  SFAS
157 is effective for us in fiscal year 2009.  The impact of adoption
has not been material.




New Accounting Standard– In
February 2007, the FASB issued Statement No. 159 (“SFAS 159”), “Fair Value Option for Financial
Assets and Financial Liabilities.”  SFAS 159 establishes the
irrevocable option to elect to carry certain financial assets and liabilities at
fair value, with changes in fair value recorded in earnings.  SFAS 159
is effective for us in fiscal year 2009.  The Company has assessed the
standard and will not elect the fair value option.




New Accounting Standard –In
December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”).  SFAS 160 requires that (a) noncontrolling (minority) interests
be reported as a component of shareholders’ equity, (b) net income attributable
to the parent and to the noncontrolling interest be separately identified in the
consolidated statement of operations, (c) changes in a parent’s ownership
interest while the parent retains its controlling interest be accounted for as
equity transactions, (d) any retained noncontrolling equity investment upon the
deconsolidation of a subsidiary be initially measured at fair value, and (e)
sufficient disclosures are provided that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners.  SFAS 160 is effective for us in fiscal year 2009 and should
be applied prospectively.  However, the presentation and disclosure
requirements of the statement shall be applied retrospectively for all periods
presented.  The Company does not expect the impact of adoption to be
material.




3.
            STOCKHOLDERS’
      EQUITY




On
January 7, 2004, the stockholders of the Company approved an increase in the
number of authorized common stock from 30 million to 100 million
shares.  On June 14, 2004, the Company filed with the Secretary of
State of the State of Delaware an Amended and Restated Certificate of
Incorporation implementing, among other things, the approved authorized 70
million share common stock increase from 30 million to 100 million shares of
common stock.




Series A Convertible Preferred
Stock - On February 14, 2002, the Company filed a Certificate of
Designation with the Secretary of State of the State of Delaware designating
320,000 shares of the Company’s 5,000,000 authorized shares of preferred stock
as Series A Convertible Preferred Stock, $0.01 par value, with a stated value of
$25.00 per share (“Series A Certificate of Designation”).  Dividends
accrue at a rate of 6.0% per annum on the $25.00 stated value per share and are
payable semi-annually on April 15 and October 15 of each year while the shares
are outstanding.  The Company has the option to pay the dividend
either in cash or in equivalent shares of common stock, as
defined.  Included in the carrying value of the Series A Convertible
Preferred Stock in the accompanying condensed consolidated balance sheets are
$12,914 and $34,331 of accrued preferred stock dividends at June 30, 2008 and
March 31, 2008, respectively.  Each share of Series A Convertible
Preferred Stock may be converted by the holder at any time into shares of our
common stock at a conversion rate determined by dividing the $25.00 stated
value, plus any accrued and unpaid dividends (the “Liquidation Price”), by a
$4.42 conversion price (the “Conversion Price A”), subject to certain
adjustments, as defined in the Series A Certificate of
Designation.  On April 15, 2007, the Company issued 6,308 shares of
common stock and paid $87 in lieu of fractional common shares as dividends on
the preferred shares. On April 15, 2008, the Company issued 40,686 shares of
common stock and paid $15 in lieu of fractional common shares as dividends on
the preferred shares.  During the three month period ended June 30,
2007, there were no conversions.  During the three month period ended
June 30, 2008 a preferred shareholder converted 8,000 shares of Series A
Convertible Preferred Stock, including accrued dividends, for 47,141 shares of
common stock.







- 12
-





The
Company may at any time require that any or all outstanding shares of Series A
Convertible Preferred Stock be converted into shares of the Company’s common
stock, provided that the shares of common stock into which the Series A
Convertible Preferred Stock are convertible are registered pursuant to an
effective registration statement, as defined.  The number of shares of
common stock to be received by the holders of the Series A Convertible Preferred
Stock upon a mandatory conversion by the Company is determined by (i) dividing
the Liquidation Price by the Conversion Price A, provided that the closing bid
price for the Company’s common stock exceeds $9.00 for 20 consecutive trading
days within 180 days prior to notice of conversion, as defined, or (ii) if the
requirements of (i) are not met, the number of shares of common stock is
determined by dividing 110% of the Liquidation Price by the Conversion Price
A.  The Conversion Price A is subject to certain adjustments, as
defined in the Series A Certificate of Designation.




The
Company may at any time, upon 30 days’ notice, redeem any or all outstanding
shares of the Series A Convertible Preferred Stock by payment of the Liquidation
Price to the holder of such shares, provided that the holder does not convert
the Series A Convertible Preferred Stock into shares of common stock during the
30 day period.  The Series A Convertible Preferred Stock has a
preference in liquidation equal to $25.00 per share, plus any accrued and unpaid
dividends, over the common stock and is pari passu with all other outstanding
series of preferred stock.  Each issued and outstanding share of
Series A Convertible Preferred Stock shall be entitled to 5.6561 votes (subject
to adjustment) with respect to any and all matters presented to the Company’s
stockholders for their action or consideration.  Except as provided by
law or by the provisions establishing any other series of preferred stock,
Series A Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a single
class.




Series B Convertible Preferred
Stock - On September 25, 2002, the Company filed a Certificate of
Designation with the Secretary of State of the State of Delaware designating
240,000 shares of the Company’s 5,000,000 authorized shares of preferred stock
as Series B Convertible Preferred Stock, $0.01 par value, with a stated value of
$25.00 per share (“Series B Certificate of Designation”).  Dividends
accrue at a rate of 8.0% per annum on the $25.00 stated value per share and are
payable semi-annually on April 15 and October 15 of each year while the shares
are outstanding.  The Company has the option to pay the dividend
either in cash or in equivalent shares of common stock, as
defined.  Included in the carrying value of the Series B Convertible
Preferred Stock in the accompanying condensed consolidated balance sheets are
$3,620 and $10,180 of accrued preferred stock dividends as of June 30, 2008 and
March 31, 2008, respectively.  Each share of Series B Convertible
Preferred Stock may be converted by the holder at any time into shares of common
stock at a conversion rate determined by dividing the $25.00 stated value, plus
any accrued and unpaid dividends (the “Liquidation Price”), by a $4.00
conversion price (the “Conversion Price B”), subject to certain adjustments, as
defined in the Series B Certificate of Designation.  On April 15,
2007, the Company issued 2,040 shares of common stock and paid $30 in lieu of
fractional common shares as dividends on the preferred shares. On April 15,
2008, the Company issued 12,316 shares of common stock and paid $3 in lieu of
fractional common shares as dividends on the preferred
shares.    During the three month period ended June 30,
2007, there were no conversions.  During the three month period ended
June 30, 2008, a preferred shareholder converted 2,000 shares of Series B
Convertible Preferred Stock, including accrued dividends, for 13,129 shares of
common stock.




The
Company may at any time require that any or all outstanding shares of Series B
Convertible Preferred Stock be converted into shares of the Company’s common
stock, provided that the shares of common stock into which the Series B
Convertible Preferred Stock are convertible are registered pursuant to an
effective registration statement, as defined.  The number of shares of
common stock to be received by the holders of the Series B Convertible Preferred
Stock upon a mandatory conversion by the Company is determined by (i) dividing
the Liquidation Price by the Conversion







- 13
-





Price B,
provided that the closing bid price for the Company’s common stock exceeds $9.00
for 20 consecutive trading days within 180 days prior to notice of conversion,
as defined, or (ii) if the requirements of (i) are not met, the number of shares
of common stock is determined by dividing 110% of the Liquidation Price by the
Conversion Price B.  The Conversion Price B is subject to certain
adjustments, as defined in the Series B Certificate of Designation.




The
Company may at any time, upon 30 days’ notice, redeem any or all outstanding
shares of the Series B Convertible Preferred Stock by payment of the Liquidation
Price to the holder of such shares, provided that the holder does not convert
the Series B Convertible Preferred Stock into shares of common stock during the
30 day period.  The Series B Convertible Preferred Stock has a
preference in liquidation equal to $25.00 per share, plus any accrued and unpaid
dividends, over the common stock and is pari passu with all other outstanding
series of preferred stock.  Each issued and outstanding share of
Series B Convertible Preferred Stock shall be entitled to 6.25 votes (subject to
adjustment) with respect to any and all matters presented to the Company’s
stockholders for their action or consideration.  Except as provided by
law or by the provisions establishing any other series of preferred stock,
Series B Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a single
class.




Series C Convertible Preferred
Stock - On June 6, 2003, the Company filed a Certificate of Designation
with the Secretary of State of the State of Delaware designating 160,000 shares
of the Company’s 5,000,000 authorized shares of preferred stock as Series C
Convertible Preferred Stock, $0.01 par value, with a stated value of $25.00 per
share (“Series C Certificate of Designation”).  Dividends accrue at a
rate of 8.0% per annum on the $25.00 stated value per share and are payable
semi-annually on April 15 and October 15 of each year while the shares are
outstanding.  The Company has the option to pay the dividend either in
cash or in equivalent shares of common stock, as defined.  Included in
the carrying value of the Series C Convertible Preferred Stock in the
accompanying condensed consolidated balance sheets are $19,239 and $41,945 of
accrued preferred stock dividends as of June 30, 2008 and March 31, 2008,
respectively.   Each share of Series C Convertible Preferred
Stock may be converted by the holder at any time into shares of common stock at
a conversion rate determined by dividing the $25.00 stated value, plus any
accrued and unpaid dividends (the “Liquidation Price”), by a $4.42 conversion
price (the “Conversion Price C”), subject to certain adjustments, as defined in
the Series C Certificate of Designation.  On April 15, 2007, the
Company issued 6,900 shares of common stock and paid $99 in lieu of fractional
common shares as dividends on the preferred shares. On April 15, 2008, the
Company issued 48,919 shares of common stock and paid $14 in lieu of fractional
common shares as dividends on the preferred shares.  During the three
month periods ended June 30, 2007 and 2008, there were no
conversions.




The
Company may at any time require that any or all outstanding shares of Series C
Convertible Preferred Stock be converted into shares of the Company’s common
stock, provided that the shares of common stock into which the Series C
Convertible Preferred Stock are convertible are registered pursuant to an
effective registration statement, as defined.  The number of shares of
common stock to be received by the holders of the Series C Convertible Preferred
Stock upon a mandatory conversion by the Company is determined by (i) dividing
the Liquidation Price by the Conversion Price C provided that the closing bid
price for the Company’s common stock exceeds $9.00 for 20 consecutive trading
days within 180 days prior to notice of conversion, as defined, or (ii) if the
requirements of (i) are not met, the number of shares of common stock is
determined by dividing 110% of the Liquidation Price by the Conversion Price
C.  The Conversion Price C is subject to certain adjustments, as
defined in the Series C Certificate of Designation.




The
Company may at any time, upon 30 days’ notice, redeem any or all outstanding
shares of the Series C Convertible Preferred Stock by payment of the Liquidation
Price to the holder of such







- 14
-





shares,
provided that the holder does not convert the Series C Convertible Preferred
Stock into shares of common stock during the 30 day period. The Series C
Convertible Preferred Stock has a preference in liquidation equal to $25.00 per
share, plus any accrued and unpaid dividends, over the common stock and is pari
passu with all other outstanding series of preferred
stock.   Each issued and outstanding share of Series C
Convertible Preferred Stock shall be entitled to 5.6561 votes (subject to
adjustment) with respect to any and all matters presented to the Company’s
stockholders for their action or consideration.  Except as provided by
law or by the provisions establishing any other series of preferred stock,
Series C Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a single
class.




Series D Convertible Preferred Stock– On January 15, 2004, the Company filed a Certificate of
Designation with the Secretary of State of the State of Delaware designating
200,000 shares of the Company’s 5,000,000 authorized shares of preferred stock
as Series D Convertible Preferred Stock, $0.01 par value, with a stated value of
$25.00 per share (“Series D Certificate of Designation”).  Dividends
accrue at a rate of 6.0% per annum on the $25.00 stated value per share and are
payable semi-annually on April 15 and October 15 of each year while
the shares are outstanding.  The Company has the option to pay the
dividend either in cash or in equivalent shares of common stock, as defined.
Included in the carrying value of the Series D Convertible Preferred Stock in
the accompanying condensed consolidated balance sheets are $36,452 and $79,533
of accrued preferred stock dividends as of June 30, 2008 and March 31, 2008,
respectively.  Each share of Series D Convertible Preferred Stock may
be converted by the holder at any time into shares of common stock at a
conversion rate determined by dividing the $25.00 stated value, plus any accrued
and unpaid dividends (the “Liquidation Price”), by a $9.00 conversion price (the
“Conversion Price D”), subject to certain adjustments, as defined in the Series
D Certificate of Designation. On April 15, 2007, the Company issued 13,334
shares of common stock and paid $95 in lieu of fractional common shares as
dividends on the preferred shares.  On April 15, 2008, the Company
issued 92,831 shares of common stock and paid $16 in lieu of fractional common
shares as dividends on the preferred shares.  During the three month
periods ended June 30, 2007 and 2008, there were no conversions.




The
Company may at any time require that any or all outstanding shares of Series D
Convertible Preferred Stock be converted into shares of our common stock,
provided that the shares of common stock into which the Series D Convertible
Preferred Stock are convertible are registered pursuant to an effective
registration statement, as defined.  The number of shares of common
stock to be received by the holders of the Series D Convertible Preferred Stock
upon a mandatory conversion by us is determined by (i) dividing the Liquidation
Price by the Conversion Price D provided that the closing bid price for the
Company’s common stock exceeds $18.00 for 20 consecutive trading days within 180
days prior to notice of conversion, as defined, or (ii) if the requirements of
(i) are not met, the number of shares of common stock is determined by dividing
110% of the Liquidation Price by the Conversion Price D.  The
Conversion Price D is subject to certain adjustments, as defined in the Series D
Certificate of Designation.




The
Series D Convertible Preferred Stock has a preference in liquidation equal to
$25.00 per share, plus any accrued and unpaid dividends, over the common stock
and is pari passu with all other outstanding series of preferred
stock.  Each issued and outstanding share of Series D Convertible
Preferred Stock shall be entitled to 2.7778 votes (subject to adjustment) with
respect to any and all matters presented to the Company’s stockholders for their
action or consideration. Except as provided by law or by the provisions
establishing any other series of preferred stock, Series D Convertible Preferred
stockholders and holders of any other outstanding preferred stock shall vote
together with the holders of common stock as a single class.







- 15
-





Series E Convertible Preferred
Stock –On December 13, 2005, the Company filed a Certificate of
Designation with the Secretary of State of the State of Delaware designating
167,000 shares of the Company’s 5,000,000 authorized shares of preferred stock
as Series E Convertible Preferred Stock, $0.01 par value, with a stated value of
$25.00 per share (“Series E Certificate of Designation”).  Dividends
accrue at a rate of 6.0% per annum on the $25.00 stated value per share and are
payable semi-annually on April 15 and October 15 of each year while
the shares are outstanding.  The Company has the option to pay the
dividend either in cash or in equivalent shares of common stock, as
defined.  Included in the carrying value of the Series E Convertible
Preferred Stock in the accompanying condensed consolidated balance sheets are
$30,909 and $68,107 of accrued preferred stock dividends as of June 30, 2008 and
March 31, 2008, respectively.  Each share of Series E Convertible
Preferred Stock may be converted by the holder at any time into shares of common
stock at a conversion rate determined by dividing the $25.00 stated value, plus
any accrued and unpaid dividends (the “Liquidation Price”), by a $7.04
conversion price (the “Conversion Price E”), subject to certain adjustments, as
defined in the Series E Certificate of Designation.  On April 15,
2007, the Company issued 12,531 shares of common stock and paid $132 in lieu of
fractional common shares as dividends on the preferred shares. On April 15,
2008, the Company issued 79,532 shares of common stock and paid $13 in lieu of
fractional common shares as dividends on the preferred shares.  During
the three month period ended June 30, 2007, a preferred shareholder converted
2,000 shares of Series E Convertible Preferred Stock, including accrued
dividends, for 7,159 shares of common stock.  During the three month
period ended June 30, 2008, a preferred stockholder converted 800 shares of
Series E Convertible Preferred Stock, including accrued dividends, for 3,035
shares of common stock.




The
Company may at any time after December 1, 2006, require that any or all
outstanding shares of Series E Convertible Preferred Stock be converted into
shares of our common stock, provided that the shares of common stock into which
the Series E Convertible Preferred Stock are convertible are registered pursuant
to an effective registration statement, as defined.  The number of
shares of common stock to be received by the holders of the Series E Convertible
Preferred Stock upon a mandatory conversion by us is determined by (i) dividing
the Liquidation Price by the Conversion Price E provided that the closing bid
price for the Company’s common stock exceeds $10.56 for 20 out of 30 consecutive
trading days within 180 days prior to notice of conversion, as defined, or (ii)
if the requirements of (i) are not met, the number of shares of common stock is
determined by dividing 110% of the Liquidation Price by the Conversion Price
E.  The Conversion Price E is subject to certain adjustments, as
defined in the Series E Certificate of Designation.




The
Series E Convertible Preferred Stock has a preference in liquidation equal to
$25.00 per share, plus any accrued and unpaid dividends, over the common stock
and is parri passu with all other outstanding series of preferred
stock.  Each issued and outstanding share of Series E Convertible
Preferred Stock is entitled to 3.5511 votes (subject to adjustment) with respect
to any and all matters presented to the Company’s stockholders for their action
or consideration. Except as provided by law or by the provisions establishing
any other series of preferred stock, Series E Convertible Preferred stockholders
and holders of any other outstanding preferred stock shall vote together with
the holders of common stock as a single class.




The
Company will, on December 13, 2008, at the Company’s election, (i) redeem the
Series E Convertible Preferred Stock plus any accrued and unpaid interest for
cash, (ii) convert the Series E Convertible Preferred Stock and any accrued and
unpaid interest into common stock, or (iii) redeem and convert the Series E
Convertible Preferred Stock in any combination of (i) or (ii).




Common Stock – No common
stock other than through the exercise of options or conversion of preferred
shares was issued.







- 16
-





Warrants – No warrants were
exercised in the three month periods ended June 30, 2007 and 2008.




Incentive Stock Programs –At
the stockholders’ meeting held November 12, 2004, the stockholders’ approved the
second amendment to the 2000 Stock Incentive Plan which increased the number of
shares of common stock reserved for issuance from 1,100,000 shares to 2,200,000
shares.  At the stockholders’ meeting held November 29, 2007, the
stockholders approved the 2007 Stock Incentive Plan which increased the number
of shares of common stock reserved for issuance an additional 1,500,000
shares.  Options granted under the 2000 and 2007 Stock Incentive Plans
that expire are available to be reissued.  During the three month
periods ended June 30, 2007 and 2008, 81,000 and 7,500 options, respectively,
previously granted under the 2000 and 2007 Stock Incentive Plans expired and
were available to be reissued.  During the three month period ended
June 30, 2007, the Company issued 7,500 options to purchase shares of common
stock.  During the three month period ended June 30, 2008, no options
were issued.  As of June 30, 2008, there were a total of 1,600,774
shares available for grant. The purchase price of shares must be at least equal
to the fair market value of the common stock on the date of grant, and the
maximum term of an option is 10 years.  The options generally vest
over periods ranging from 0 to 3 years.




The
Company recognized approximately $493,000 of compensation cost for the three
month period ended June 30, 2007. The Company recognized approximately $319,000
of compensation cost offset by a credit of approximately $609,000 due to the
change in forfeiture rate during the three month period ended June 30,
2008.  During this period, the Company modified the estimated annual
forfeiture rate used in recognizing compensation expense for unvested stock
options, which in fiscal year ended 2008 had been 5% to 34%.  The
benefit realized in the period ended June 30, 2008 correlates to the downsizing
of personnel and planned departures thereafter.  During the three
month period ended June 30, 2008, 11,387 options were exercised on a cashless
basis resulting in 4,931 common shares being issued with an exercise price of
$0.46




The fair
value of each stock option award is estimated on the date of grant using the
Black-Scholes valuation model.  The Company uses historical data
regarding stock option exercise behaviors to estimate the expected term of
options granted (based on the period of time that options granted are expected
to be outstanding).  Expected implied volatility is based on the
volatility of the Company’s exchange traded options for the Company’s common
stock.  The risk-free interest rate is based on the U.S. treasury
security rate in effect over the estimated life of the option. There is no
dividend yield.  The following weighted-average assumptions were used
in calculating the fair value of stock options granted during the three month
period ended June 30, 2007.  No options were granted during the three
month period ended June 30, 2008.






Three Months Ended
      June 30,2007Risk free interest
      rate
            5.11%Average life of
      options (years)
            10.0Volatility
            75%Dividend
      yield
            -0-







- 17
-





A summary
of stock option activity as of and for the three month period ended June 30,
2008, is presented below:




Shares
            
            
            Exercise
      Price Per Share (*)
            
            
            Remaining
      Contractual Term(*) in YearsOutstanding
      at March 31, 2008
            
            
            2,098,113
            
            
            
            $8.92Granted
            
            
            -Exercised
            
            
            (11,387
            )
            
            
            0.46Forfeited
      or expired
            
            
            (62,990
            )
            
            
            2.33Outstanding
      at June 30, 2008
            
            
            2,023,736
            
            
            
            8.76
            
            
            
            6.91Exercisable
      at June 30, 2008
            
            
            1,693,388
            
            
            
            9.24
            
            
            
            6.48(*)
      Weighted-average






The
weighted-average grant date fair value of options granted during the three month
periods ended June 30, 2007 and 2008 was $6.67 and $0,
respectively.  The intrinsic value of options exercised during the
three month period ended June 30, 2008 was approximately $7,000.  No
options were exercised during the three month period ended June 30,
2007.  The intrinsic value of stock options outstanding during the
three month periods ended June 30, 2007 and 2008 was approximately $2,774,000
and $0, respectively.




As of
June 30, 2008, there was approximately $930,000 of unrecognized compensation
cost related to non-vested stock option compensation arrangements granted under
the 2000 and 2007 Stock Incentive Plans that is expected to be recognized as a
charge to earnings over a weighted-average period of 0.7 years.  As of
June 30, 2008, 1,337,336 options have vested or are expected to vest with a
weighted-average exercise price of $6.82, a weighted-average remaining life of
6.92 years, and with an intrinsic value of $0.




4.
            COLLABORATIVE
      RESEARCH AND DEVELOPMENT ACTIVITIES




The
Company earns revenue under various collaborative research
agreements.  Under the terms of these arrangements, the Company
generally has agreed to perform best efforts research and development and, in
exchange, the Company may receive advanced cash funding, an allowance for
management overhead, and may also earn additional fees for the attainment of
certain milestones.




The
Company initially acquired its rights to the aromatic cation technology platform
developed by a consortium of universities consisting of UNC-CH, Georgia State
University, Duke University and Auburn University pursuant to an agreement,
dated January 15, 1997 (as amended, the “Consortium Agreement”) among the
Company, UNC-CH and a third-party (to which each of the other members of the
Scientific Consortium shortly thereafter joined) (the “original
licensee”).  The Consortium Agreement commits the parties to
collectively research, develop, finance the research and development of,
manufacture and market both the technology and compounds owned by the scientific
consortium and previously licensed or optioned to the original licensee and
licensed to the Company in accordance with the Consortium Agreement (the
“Current Compounds”), and all technology and compounds developed by the
Scientific Consortium after January 15, 1997, through use of Company-sponsored
research funding or National Cooperative Drug Development grant funding made
available to the Scientific Consortium (the “Future Compounds” and, collectively
with the Current Compounds, the “Compounds”).







- 18
-





The
Consortium Agreement contemplated that upon the completion of our initial public
offering (“IPO”) of shares of its common stock with gross proceeds of at least
$10,000,000 by April 30, 1999, the Company, with respect to the Current
Compounds, and UNC-CH, (on behalf of the Scientific Consortium), with respect to
Current Compounds and Future Compounds, would enter into license agreements for
the intellectual property rights relating to the Compounds pursuant to which the
Company would pay royalties and other payments based on revenues received for
the sale of products based on the Compounds.




The
Company completed an IPO on April 26, 1999, with gross proceeds in excess of
$10,000,000 thereby earning a worldwide license and exclusive rights to
commercially use, manufacture, have manufactured, promote, sell, distribute, or
otherwise dispose of any products based directly or indirectly on all of the
Current Compounds and Future Compounds.




As a
result of the closing of the IPO, the Company issued an aggregate of 611,250
shares of common stock, of which 162,500 shares were issued to the Scientific
Consortium and 448,750 shares were issued to the original licensee or persons
designated by the original licensee.




As
contemplated by the Consortium Agreement, on January 28, 2002, the Company
entered into a license agreement with the Scientific Consortium whereby the
Company received the exclusive license to commercialize the aromatic cation
technology platform and compounds developed or invented by one or more of the
Consortium scientists after January 15, 1997, and which also incorporated into
such License Agreement the Company’s existing license with the Scientific
Consortium with regard to the Current Compounds (the “License
Agreement”).  Also pursuant to the Consortium Agreement, the original
licensee transferred to the Company the worldwide license and exclusive right to
commercially use, manufacture, have manufactured, promote, sell, distribute or
otherwise dispose of any and all products based directly or indirectly on
aromatic cations developed by the Scientific Consortium on or prior to January
15, 1997 and previously licensed (together with related technology and patents)
to the third-party.




The
Consortium Agreement provides that the Company is required to pay to UNC-CH, on
behalf of the Scientific Consortium, reimbursement of patent and patent-related
fees, certain milestone payments and royalty payments based on revenue derived
from the Scientific Consortium’s aromatic cation technology
platform.  Each month on behalf of the inventor scientist or
university, as the case may be, UNC-CH submits an invoice to the Company for
payment of patent-related fees related to current compounds or future compounds
incurred prior to the invoice date.  The Company is also required to
make milestone payments in the form of the issuance of 100,000 shares of its
common stock to the Scientific Consortium when it files its first initial New
Drug Application (“NDA”) or an Abbreviated New Drug Application (“ANDA”) based
on Scientific Consortium technology.  The Company is also required to
pay to UNC-CH on behalf of the Scientific Consortium (other than Duke
University) (i) royalty payments of up to 5% of our net worldwide sales of
“current products” and “future products” (products based directly or indirectly
on Current Compounds and Future Compounds, respectively) and (ii) a
percentage of any fees we receive under sublicensing
arrangements.  With respect to products or licensing arrangements
emanating from Duke University technology, the Company is required to negotiate
in good faith with UNC-CH (on behalf of Duke University) royalty, milestone or
other fees at the time of such event, consistent with the terms of the
Consortium Agreement.




Under the
License Agreement, the Company must also reimburse the cost of obtaining patents
and assume liability for future costs to maintain and defend patents so long as
the Company chooses to retain the license to such patents.







- 19
-





During
the three month periods ended June 30, 2007 and 2008, the Company expensed
approximately $192,000 and $105,000, respectively, of payments to UNC-CH and
certain other Scientific Consortium universities for patent related costs and
other contracted research.    Included in accounts payable
as of June 30, 2008 and March 31, 2008, were approximately $385,000, and
$755,000, respectively, due to UNC-CH and certain other Scientific Consortium
universities.




In
November 2000, The Bill & Melinda Gates Foundation (“Foundation”) awarded a
$15,114,000 grant to UNC-CH to develop new drugs to treat Human Trypanosomiasis
(“African sleeping sickness”) and leishmaniasis.  On March 29, 2001,
UNC-CH entered into a clinical research subcontract agreement with the Company,
whereby the Company was to receive up to $9,800,000, subject to certain terms
and conditions, over a five year period to conduct certain clinical and research
studies related to the Foundation grant.




In April
2003, the Foundation awarded a supplemental grant of approximately $2,700,000 to
UNC-CH for the expansion of Phase IIB/III clinical trials to treat African
sleeping sickness and improved manufacturing processes.  The Company
has received, pursuant to the clinical research subcontract with UNC-CH,
inclusive of its portion of the supplemental grant, a total amount of funding of
approximately $11,700,000.  Grant funds paid in advance of the
Company’s delivery of services are treated as restricted funds and must be
segregated from other funds and used only for the purposes specified. In March
2006, the Company amended and restated the clinical research subcontract with
UNC-CH and UNC-CH in turn obtained an expanded funding commitment for the
Company of approximately $13.6 million from the Foundation.  Under the
amended and restated clinical research subcontract, the Company received on May
24, 2006 the first payment of approximately $5,649,000 of the five year
approximately $13,601,000 contract.




Approximately
$678,000 and $1,025,000 was utilized for clinical and research purposes
conducted and expensed during the three months ended June 30, 2007 and 2008,
respectively.  The Company has recognized revenues of approximately
$678,000 and $1,025,000 during the three months ended June 30, 2007 and 2008,
respectively.  The remaining amount (approximately $1,223,000 as of
June 30, 2008) has been deferred and will be recognized as revenue over the term
of the amended and restated clinical research subcontract as the services are
performed.




On June
8, 2007, the Company entered into an exclusive licensing agreement pursuant to
which the Company licensed to Par Pharmaceutical Companies, Inc. (“Par”)
commercialization rights in the U.S. to pafuramidine for the treatment of
pneumocystis pneumonia (“PCP”) in AIDS patients (“Par License Agreement”). Under
the Par License Agreement, the Company and Par also contemplated collaborating
on efforts to develop pafuramidine as a preventative therapy for patients at
risk of developing PCP, including people living with HIV, cancer and other
immunosuppressive conditions.




In
return, the Company received an initial payment of $3 million.  Par
was to also pay the Company as much as $29 million in development milestones if
pafuramidine advanced through ongoing Phase III clinical trials and the United
States Food and Drug Administration (“FDA”) regulatory review and
approval.  In addition to royalties on sales, the Company could have
received up to $115 million in additional milestone payments on future sales and
retain the right to co-market pafuramidine in the U.S.  The Company
granted Par a right of first offer to enter into a license agreement with it if
the Company determined that pafuramidine could be used for the treatment and/or
prophylaxis of malaria.  As a result of the discontinuation of the
pafuramidine program, the Company recognized approximately $58,000 of deferred
income in the three month period ended June 30, 2008. The Par License Agreement
was terminated by Par on May 9, 2008.







- 20
-





On
December 3, 2007, the Company entered into a licensing agreement with
BioAlliance Pharma SA (“BioAlliance”) pursuant to which the Company granted
BioAlliance and its affiliates an exclusive license to commercialize
pafuramidine in Europe for the treatment of PCP in AIDS patients and African
sleeping sickness (“BioAlliance License Agreement”). The Company also granted
BioAlliance an option to commercialize pafuramidine in Europe for the prevention
and treatment of malaria in travelers.  Pursuant to the BioAlliance
License Agreement, the Company received an initial payment of $3 million from
BioAlliance, and it was to have received an additional $13 million upon
achieving certain regulatory and pricing milestones. In addition, the Company
was to have received an additional $10 million upon achieving certain sales
milestones and was to have received double-digit royalties based on
sales.  As a result of the discontinuation of the pafuramidine
program, the Company recognized approximately $58,000 of deferred income in the
three month period ended June 30, 2008.




On
December 20, 2007, the FDA informed the Company that it had placed all of the
Company’s ongoing and projected clinical trials relating to the development of
pafuramidine on clinical hold.  Subsequently the program was
discontinued on February 22, 2008.





5.
            LITIGATION




In
October 2003, Gerhard Von der Ruhr and his son Mark (the “Von der Ruhr
Plaintiffs”) filed a complaint in the United States District Court for the
Northern District of Illinois against the Company and certain officers and
directors alleging breaches of a stock lock-up agreement, option agreements and
a technology license agreement by the Company. The Von de Ruhr Plaintiffs also
alleged a claim for intentional interference with contractual relations by
certain officers of the Company. The complaint sought unspecified monetary
damages and punitive damages, in addition to equitable relief and costs. In a
filing made in late February 2005, the Von der Ruhr Plaintiffs specified
damages of approximately $44.5 million in damages.




In 2005,
one of the breach of contract claims was dismissed upon the Company's motion for
summary judgment. On October 26, 2006, a preliminary pre-trial conference was
held and the court granted the Company's motions in limine to exclude
plaintiffs’ damage claim for lost profits and prohibited plaintiff from offering
expert testimony at trial on this issue. The court subsequently granted a motion
to sever the trial on Count V, regarding the technology license agreement, from
the trial on the remaining counts. The trial on the remaining counts concluded
on December 7, 2007, and a jury returned a verdict against the Company and
certain officers and directors for a total amount of $361,704.90. The Company
immediately filed a motion with the court seeking to overturn the jury verdict,
which the court subsequently denied.




In the
first quarter of 2008, the Von der Ruhr Plaintiffs appealed the trial court’s
ruling excluding their damage claim for lost profits.  Separately, the
Company’s officers and directors have appealed the jury’s finding on the
intentional interference with contractual relations claim.  The United
States Court of Appeals for the Seventh Circuit has consolidated these appeals
and now will be briefed to the appellate court.  The last brief is now
scheduled to be filed in October 2008.









* * * * *
*







- 21
-




Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.




Forward Looking
Statements




Certain
statements contained in this quarterly report and in the documents incorporated
by reference herein constitute “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995.  All
statements other than statements of historical fact may be deemed to be
forward-looking statements.  Forward-looking statements frequently,
but not always, use the words “may”, “intends”, “plans”, “believes”,
“anticipates” or “expects” or similar words and may include statements
concerning our strategies, goals and plans.  Forward-looking
statements involve a number of significant risks and uncertainties that could
cause our actual results or achievements or other events to differ materially
from those reflected in such forward-looking statements.  Such factors
include, among others described in this quarterly report, the following: (i) we
are in an early stage of product development, (ii) the possibility that
favorable relationships with collaborators cannot be established or, if
established, will be abandoned by the collaborators before completion of product
development, (iii) the possibility that we or our collaborators will not
successfully develop any marketable products, (iv) the possibility that advances
by competitors will cause our product candidates not to be viable, (v)
uncertainties as to the requirement that a drug product be found to be safe and
effective after extensive clinical trials and the possibility that the results
of such trials, if completed, will not establish the safety or efficacy of our
drug product candidates, (vi) risks relating to requirements for approvals by
governmental agencies, such as the Food and Drug Administration, before products
can be marketed and the possibility that such approvals will not be obtained in
a timely manner or at all or will be conditioned in a manner that would impair
our ability to market our product candidates successfully, (vii) the risk that
our patents could be invalidated or narrowed in scope by judicial actions or
that our technology could infringe upon the patent or other intellectual
property rights of third parties, (viii) the possibility that we will not be
able to raise adequate capital to fund our operations through the process of
commercializing a successful product or that future financing will be completed
on unfavorable terms, (ix) the possibility that any products successfully
developed by us will not achieve market acceptance and (x) other risks and
uncertainties that may not be described herein.  We undertake no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.




Results of
Operations




With the
exception of certain research funding agreements, license agreements and certain
grants, we have not generated any revenue from operations.  For the
period from inception (October 15, 1984) to June 30, 2008, we incurred
cumulative net losses of approximately $107,854,000.  We have incurred
additional losses since such date and we expect to incur additional operating
losses for the foreseeable future.  We expect that our cash sources
for at least the next year will be limited to:




·
            payments
      from foundations and other collaborators under arrangements that may be
      entered into in the future;




·
            payments
      from license agreement milestones;




·
            grants
      from the United States government and other governments and entities;
      and




·
            the
      issuance of securities, borrowing of funds or sale of
      property.





- 22
-




The
timing and amounts of grant and payment revenues, if any, will likely fluctuate
sharply and depend upon the achievement of specified milestones, and results of
operations for any period may be unrelated to the results of operations for any
other period.




Three
Month Period Ended June 30, 2008 Compared with the Three Month Period Ended
June 30, 2007.




Revenues
under collaborative research and development, and license agreements were
approximately $826,000 and $1,141,000 for the three month periods ended June 30,
2007 and June 30, 2008, respectively.  For the three month period
ended June 30, 2007, we recognized revenues of approximately $678,000 related to
a clinical research subcontract agreement between us and UNC-CH and
approximately $148,000 related to the Par License Agreement, while for the three
month period ended June 30, 2008, revenues recognized of approximately
$1,025,000 related to the abovementioned UNC-CH clinical research subcontract,
$58,000 related to the Par License Agreement which has been cancelled, and
$58,000 related to the Bio-Alliance License Agreement.




Grant and
research and development agreement revenue is recognized as completed under the
terms of the respective agreements, according to Company
estimates.  Grant and research and development funds received prior to
completion under the terms of the respective agreements are recorded as deferred
revenues.




Revenue
from licensing arrangements is recorded when earned based on the performance
requirements of the contract.  Nonrefundable upfront license fees, for
product candidates where the Company is providing continuing services related to
product development, are deferred and recognized as revenue over the development
period or as the Company provides services required under the
agreement.  The timing and amount of revenue the Company recognizes
from licenses, either from upfront fees or milestones where the Company is
providing continuing services related to product development, is dependent upon
the Company’s estimates of filing dates.




Research
and development expenses decreased from approximately $1,918,000 to $1,494,000
for the three month periods ended June 30, 2007 and June 30, 2008,
respectively.  Expenses relating to the UNC-CH clinical research
subcontract increased from approximately $676,000 in the three month period
ended June 30, 2007 to approximately $1,025,000 in the three month period ended
June 30, 2008.  Additionally, contract services relating to trials for
treatment of PCP and the subsequent termination decreased from approximately
$1,005,000 to $221,000 in the same periods.  Other research and
development expenses increased from approximately $237,000 to $248,000 over the
same periods.




General
and administrative expenses decreased from approximately $1,717,000 to $924,000
during the three month periods ended June 30, 2007 and June 30, 2008,
respectively.  Legal fees decreased from approximately $215,000 in the
three month period ended June 30, 2007 to approximately $100,000 in the three
month period ended June 30, 2008.  The decrease is primarily
attributable to the review of the Par License Agreement in the three month
period ended June 30, 2007.  Patent fees increased from approximately
$72,000 to $105,000 in the corresponding periods, respectively. Other general
and administrative costs decreased by approximately $711,000 over the same
periods.  This was primarily due to the change in the option
forfeiture rate under SFAS No. 123(R) upon the reduction in personnel which
resulted in a reversal of approximately $428,000 during the period ended June
30, 2008.




Our net
loss decreased from approximately $2,661,000 to $1,257,000 during the three
month periods ended June 30, 2007 and June 30, 2008, respectively.







- 23
-




Liquidity
and Capital Resources




As of
June 30, 2008, cash and cash equivalents were approximately
$3,574,000.




Capital
expenditures were approximately $3,000 during the three month period ended June
30, 2008, compared to no expenditures for equipment during the same period in
the previous year.  No significant purchases of equipment are
anticipated by us during the year ending March 31, 2009.




We
periodically receive cash from the exercise of common stock options and
warrants.  During the three month periods ended June 30, 2007 and
2008, we did not receive any proceeds for the exercise of options or
warrants.




We
believe our existing unrestricted cash and cash equivalents and the grants we
have received or have been awarded and are awaiting disbursement of, will be
sufficient to meet our planned expenditures through at least December 2008,
although there can be no assurance we will not require additional
funds.




Through
June 30, 2008, we financed our operations with:




·
            proceeds
      from various private placements of debt and equity securities, secondary
      public stock offerings, our initial public offering (our “IPO”), and other
      cash contributed from stockholders, which in the aggregate raised
      approximately $77,608,000;




·
            payments
      from research agreements, licensing agreements, foundation grants and
      Small Business Innovation Research (“SBIR”) grants and Small Business
      Technology Transfer program grants of approximately $35,941,000;
      and




·
            the
      use of stock, options and warrants in lieu of cash
      compensation.




Our cash
resources have been used to finance, develop and begin commercialization of drug
product candidates, including sponsored research, conducting human clinical
trials, capital expenditures, expenses associated with development of product
candidates pursuant to the Consortium Agreement, and, as contemplated by the
Consortium Agreement, under the License Agreement with the Consortium, and
general and administrative expenses.  Over the next several years we
expect to incur substantial additional research and development costs, including
costs related to research in pre-clinical (laboratory) and human clinical
trials, administrative expenses to support our research and development
operations and marketing expenses to launch the sale of any commercialized
product that may be developed.




Our
future working capital requirements will depend upon numerous factors, including
the progress of research, development and commercialization programs (which may
vary as product candidates are added or abandoned), results of pre-clinical
testing and human clinical trials, achievement of regulatory milestones, third
party collaborators fulfilling their obligations to us, the timing and cost of
seeking regulatory approvals, the level of resources that we devote to the
engagement or development of manufacturing capabilities, our ability to maintain
existing and establish new collaborative arrangements with others to provide
funding to support these activities, and other factors.  In any event,
we will require substantial additional funds in addition to our existing
resources to develop product candidates and to otherwise meet our business
objectives.




Management’s
plans for the remainder of the fiscal year, in addition to normal operations,
include continuing their efforts to create joint ventures, obtain additional
grants and to develop and enter into research, development and/or
commercialization agreements with others.







- 24
-












Item
      3.
            Quantitative and
      Qualitative Disclosures About Market
  Risk.




The
exposure of market risk associated with risk-sensitive instruments is not
material, as our operations are conducted primarily in U.S. dollars and we
invest primarily in short-term government obligations and other cash
equivalents.  We intend to develop policies and procedures to manage
market risk in the future if and when circumstances require.  We have
no off-balance sheet arrangements as defined in Regulation S-K Item
303(a)(4)(ii).




Item
      4.
            Controls and
      Procedures.




Disclosures
and Procedures




We
maintain controls and procedures designed to ensure that we are able to collect
the information we are required to disclose in the reports we file with the SEC,
and to process, summarize and disclose this information within the time periods
specified in the rules of the SEC.  Our chief executive officer and
chief financial officer are responsible for establishing and maintaining these
procedures and, as required by the rules of the SEC, evaluate their
effectiveness.  Based on their evaluation of our disclosure controls
and procedures, which took place as of the end of the period covered by this
Quarterly Report on Form 10-Q, our chief executive officer and chief financial
officer believe that these procedures are effective to ensure that we are able
to collect, process and disclose the information we are required to disclose in
the reports we file with the SEC within the required time periods.




Internal
Controls




We
maintain a system of internal controls designed to provide reasonable assurance
that: (1) transactions are executed in accordance with management’s general
or specific authorization and (2) transactions are recorded as necessary to
(a) permit preparation of financial statements in conformity with generally
accepted accounting principles and (b) maintain accountability for
assets.  Access to assets is permitted only in accordance with
management’s general or specific authorization and the recorded accountability
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.




Changes
in Internal Controls




There was
no change in the Company’s internal control over financial reporting that
occurred during the Company’s quarter ending June 30, 2008 that has materially
affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.




PART
II.                      OTHER
INFORMATION




Item
      1.
            Legal
      Proceedings.




Gerhard
Von der Ruhr et al. v. Immtech International, Inc. et. al.




In
October 2003, Gerhard Von der Ruhr and his son Mark (the “Von der Ruhr
Plaintiffs”) filed a complaint in the United States District Court for the
Northern District of Illinois against the Company and certain officers and
directors alleging breaches of a stock lock-up agreement, option agreements and
a technology license agreement by the Company. The Von de Ruhr Plaintiffs also
alleged a claim for intentional interference with contractual relations by
certain officers of the Company. The complaint sought unspecified monetary
damages and punitive damages, in addition to equitable relief and costs. In a







- 25
-





filing
made in late February 2005, the Von der Ruhr Plaintiffs specified damages
of approximately $44.5 million in damages.




In 2005,
one of the breach of contract claims was dismissed upon the Company's motion for
summary judgment. On October 26, 2006, a preliminary pre-trial conference was
held and the court granted the Company's motions in limine to exclude
plaintiffs’ damage claim for lost profits and prohibited plaintiff from offering
expert testimony at trial on this issue. The court subsequently granted a motion
to sever the trial on Count V, regarding the technology license agreement, from
the trial on the remaining counts. The trial on the remaining counts concluded
on December 7, 2007, and a jury returned a verdict against the Company and
certain officers and directors for a total amount of $361,704.90. The Company
immediately filed a motion with the court seeking to overturn the jury verdict,
which the court subsequently denied.




In the
first quarter of 2008, the Von der Ruhr Plaintiffs appealed the trial court’s
ruling excluding their damage claim for lost profits.  Separately, the
Company’s officers and directors have appealed the jury’s finding on the
intentional interference with contractual relations claim.  The United
States Court of Appeals for the Seventh Circuit has consolidated these appeals
and now will be briefed to the appellate court.  The last brief is now
scheduled to be filed in October 2008.




Item 1A.
            Risk
  Factors.




There are
no material changes in risk factors previously disclosed in Item 1A to Part I of
our Form 10-K for the fiscal year ended March 31, 2008.




Item 2.
            Unregistered Sales of
      Equity Securities and Use of
  Proceeds.




Recent Sales of Unregistered
Securities.




All such
shares of common stock herein described as issuances below were made pursuant to
Section 4(2) of the Securities Act of 1933, as amended.




Option
Exercise




On April
9, 2008, options to purchase 11,387 shares with an exercise price of $0.46 per
share were exercised on a cashless basis.  Common shares in the amount
of 4,931 were issued.




Conversion
of Preferred Stock to Common Stock.




On June
13, 2008 a certain holder of Series A Convertible Preferred Stock, $0.01 par
value (“Series A Stock”) converted 8,000 shares of Series A Preferred Stock into
47,141 shares of our common stock.




On June
13, 2008 a certain holder of Series B Convertible Preferred Stock, $0.01 par
value (“Series B Stock”) converted 2,000 shares of Series B Preferred Stock into
13,129 shares of our common stock.




On June
13, 2008 a certain holder of Series E Convertible Preferred Stock, $0.01 par
value (“Series E Stock”) converted 800 shares of Series E Preferred Stock into
3,035 shares of our common stock.




Preferred
Stock Dividend Payment.




On April
15, 2008, we issued 274,284 shares of common stock as payment of a dividend
earned on outstanding preferred stock to the holders thereof: holders of Series
A Convertible Preferred Stock earned 40,686 shares of common stock on 42,500
outstanding shares; holders of Series B Convertible Preferred






- 26
-




Stock
earned 12,316 shares of common stock on 9,464 outstanding shares; holders of
Series C Convertible Preferred Stock earned 48,919 shares of common stock on
45,536 outstanding shares; holders of Series D Convertible Preferred Stock
earned 92,831 shares of common stock on 115,200 outstanding shares; and holders
of Series E Convertible Preferred Stock earned 79,532 shares of common stock on
97,800 outstanding shares.  We also paid holders of our outstanding
preferred stock $62 in cash in lieu of fractional shares.




Item
      3.
            Defaults Upon Senior
      Securities.




None




Item
      4.
            Submission of Matters
      to a Vote of Security
Holders.




None




Item
      5.
            Other
      Information.




None




Item
      6.
            Exhibits.





31.1
      *
            Certification
      by the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act31.2
      *
            Certification
      by the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act32.1
      *
            Certification
      by the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act32.2
      *
            Certification
      by the Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act






*
            Filed
      herewith.







- 27
-




SIGNATURES




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




IMMTECH
      PHARMACEUTICALS, INC.Date:  August
      11, 2008
            By:
            /s/ Eric L. SorkinEric
      L. Sorkin
              President
      and Chief Executive OfficerDate:  August
      11, 2008
            By:
            /s/
      Gary C. ParksGary
      C. Parks
              Treasurer,
      Secretary and Chief Financial Officer
              (Principal
      Financial and Accounting Officer)