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 December 31,
  2007
  or
  |_|
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 for the transition period from _______ to
  _______.
   Commission
      file number:  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) 791-2911Former
      name, former address and former fiscal year, if changed since last
      report
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  |X|
 No  |_|
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2.
  Large
accelerated
filer     |_|                                                  Accelerated
filer      |X|                                      Non-accelerated
filer      |_|
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  |_|
 No  |X|
   
   As of
February 8, 2008, 15,597,768 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
              1
  Item
      1
              Financial
      Statements
              1
 Item
      2
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              25Item
      3
              Quantitative
      and Qualitative Disclosures about Market Risk
              30
  Item
      4
              Controls
      and Procedures
              30
  PART
      II
              OTHER
      INFORMATION
              31
  Item
      1
              Legal
      Proceedings
              31
 Item
      1A
              Risk
      Factors
              31Item
      2
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              32
  Item
      3
              Defaults
      Upon Senior Securities
              33
 Item
      4
              Submission
      of Matters to a Vote of Security Holders
              33
 Item
      5
              Other
      Information
              33
 Item
      6
              Exhibits
              34
    -i-
 
 PART
I.                      FINANCIAL
INFORMATION
  Item
      1.
              Financial
      Statements.
  IMMTECH
      PHARMACEUTICALS, INC. AND SUBSIDIARIES(A
      Development Stage Enterprise)CONDENSED
      CONSOLIDATED BALANCE SHEETS (UNAUDITED)December
      31,
              
              
              March
      31,ASSETS
              
              2007
              
              
              2007CURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              9,444,196
              
              
              $
              12,461,795Restricted
      funds on deposit
              
              
              4,962,342
              
              
              
              3,118,766Other
      current assets
              
              
              487,860
              
              
              
              98,627Total
      current assets
              
              
              14,894,398
              
              
              
              15,679,188PROPERTY
      AND EQUIPMENT - Net
              
              
              92,241
              
              
              
              140,263PREPAID
      RENT
              
              
              3,253,045
              
              
              
              3,309,240OTHER
      ASSETS
              
              
              477,279
              
              
              
              15,477TOTAL
              
              $
              18,716,963
              
              
              $
              19,144,168LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
              
              $
              2,842,657
              
              
              $
              2,585,395Accrued
      expenses
              
              
              1,005,456
              
              
              
              375,925Deferred
      revenue
              
              
              5,314,142
              
              
              
              1,726,673Total
      current liabilities
              
              
              9,162,255
              
              
              
              4,687,993DEFERRED
      REVENUE—NON CURRENT
              
              
              3,694,400Total
      liabilities
              
              
              12,856,655
              
              
              
              4,687,993STOCKHOLDERS'
      EQUITY:Preferred
      stock, par value $0.01 per share, 3,913,000 shares authorized
      andunissued
      as of December 31, 2007 and March 31, 2007.Series
      A convertible preferred stock, par value $0.01 per share, stated
      value
    -1-
   $25
      per share, 320,000 shares authorized, 54,500 and 55,500 shares
      issuedand
      outstanding as of December 31, 2007 and March 31, 2007,
      respectively;aggregate
      liquidation preference of $1,379,435 as of December 31,
    2007.
              
              
              1,379,435
              
              
              
              1,425,283Series
      B convertible preferred stock, par value $0.01 per share, stated
      value$25
      per share, 240,000 shares authorized, 11,464 and 13,464 shares
      issuedand
      outstanding as of December 31, 2007 and March 31, 2007,
      respectively;aggregate
      liquidation preference of $291,126 as of December 31,
2007.
              
              
              291,126
              
              
              
              348,621Series
      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 December 31, 2007 and March 31, 2007; aggregate liquidation
      preferenceof
      $1,157,889 as of December 31, 2007.
              
              
              1,157,889
              
              
              
              1,180,345Series
      D convertible preferred stock, par value $0.01 per share, stated
      value$25
      per share, 200,000 shares authorized, 115,200 and 117,200 shares
      issuedand
      outstanding as of December 31, 2007 and March 31, 2007
      respectively;aggregate
      liquidation preference of $2,916,925 as of December 31,
    2007.
              
              
              2,916,925
              
              
              
              3,010,914Series
      E convertible preferred stock, par value $0.01 per share, stated
      value$25
      per share, 167,000 shares authorized, 98,600 and 110,200 shares
      issuedand
      outstanding as of December 31, 2007 and March 31, 2007,
      respectively;aggregate
      liquidation preference of $2,496,639 as of December 31,
    2007.
              
              
              2,496,639
              
              
              
              2,831,116Common
      stock, par value $0.01 per share, 100,000,000 sharesauthorized,
      15,574,685 and 15,333,221 shares issued and outstandingas
      of December 31, 2007 and March 31, 2007, respectively
              
              
              155,747
              
              
              
              153,332Additional
      paid-in capital
              
              
              109,589,482
              
              
              
              106,031,851Deficit
      accumulated during the developmental stage
              
              
              (112,126,935
              )
              
              
              (100,525,287
              )Total
      stockholders' equity
              
              
              5,860,308
              
              
              
              14,456,175TOTAL
              
              $
              18,716,963
              
              
              $
              19,144,168See
      notes to condensed consolidated financial statements
      (unaudited).
 
 -2-
 IMMTECH
      PHARMACEUTICALS, INC. AND SUBSIDIARIES(A
      Development Stage Enterprise)CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 October
      15,1984Three Months Ended
                
                Nine Months Ended
                
                
                (Inception)
      toDecember 31,
                
                December 31,
                
                
                December
      31,2007
                
                
                2006
                
                
                2007
                
                
                2006
                
                
                2007REVENUES
                
                $
                1,835,399
                
                
                $
                546,170
                
                
                $
                3,692,081
                
                
                $
                2,979,109
                
                
                $
                28,774,834EXPENSES:Research
      and development
                
                
                4,213,952
                
                
                
                1,862,304
                
                
                
                8,414,603
                
                
                
                6,086,466
                
                
                
                68,528,536General
      and administrative
                
                
                2,926,309
                
                
                
                2,629,592
                
                
                
                6,857,515
                
                
                
                7,213,243
                
                
                
                70,834,872Other
      (litigation settlement)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,874,454
                )
                
                
                (1,874,454
                )Equity
      in loss of joint venture
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                135,002Total
      expenses
                
                
                7,140,261
                
                
                
                4,491,896
                
                
                
                15,272,118
                
                
                
                11,425,255
                
                
                
                137,623,956LOSS
      FROM OPERATIONS
                
                
                (5,304,862
                )
                
                
                (3,945,726
                )
                
                
                (11,580,037
                )
                
                
                (8,446,146
                )
                
                
                (108,849,122
                )OTHER
      INCOME (EXPENSE):Interest
      income
                
                
                100,992
                
                
                
                117,046
                
                
                
                380,997
                
                
                
                399,741
                
                
                
                1,855,028Interest
      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
                
                
                100,992
                
                
                
                117,046
                
                
                
                380,997
                
                
                
                399,741
                
                
                
                1,565,642
    -3-
   NET
      LOSS
                
                
                (5,203,870
                )
                
                
                (3,828,680
                )
                
                
                (11,199,040
                )
                
                
                (8,046,405
                )
                
                
                (107,283,480
                )CONVERTIBLE
      PREFERRED STOCK DIVIDENDS AND CONVERTIBLE PREFERRED STOCK PREMIUM DEEMED
      DIVIDENDS
                
                
                (132,629
                )
                
                
                (136,934
                )
                
                
                (402,608
                )
                
                
                (416,824
                )
                
                
                (7,213,354
                )REDEEMABLE
      PREFERRED STOCK CONVERSION, PREMIUM AMORTIZATION AND
    DIVIDENDS
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,369,899NET
      LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
                
                $
                (5,336,499
                )
                
                $
                (3,965,614
                )
                
                $
                (11,601,648
                )
                
                $
                (8,463,229
                )
                
                $
                (112,126,935
                )BASIC
      AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO COMMON
      STOCKHOLDERS:Net loss
                
                $
                (0.33
                )
                
                $
                (0.27
                )
                
                $
                (0.73
                )
                
                $
                (0.57
                )Convertible preferred stock dividends and convertible preferred stock
      premium deemed dividends
                
                
                (0.01
                )
                
                
                (0.01
                )
                
                
                (0.02
                )
                
                
                (0.03
                )BASIC
      AND DILUTED LOSS PER SHARE ATTRIBUTABLE TO COMMON
    STOCKHOLDERS
                
                $
                (0.34
                )
                
                $
                (0.28
                )
                
                $
                (0.75
                )
                
                $
                (0.60
                )WEIGHTED
      AVERAGE SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER
      SHARE
                
                
                15,534,138
                
                
                
                14,108,835
                
                
                
                15,438,240
                
                
                
                14,040,801See
      notes to condensed consolidated financial statements
      (unaudited).
   -4-
 
 IMMTECH
      PHARMACEUTICALS, INC. AND SUBSIDIARIES(A
      Development Stage Enterprise)CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
  October
      15,1984Three
      Months Ended
              
              
              Nine
      Months Ended
              
              
              (Inception)
      toDecember
      31,
              
              
              December
      31,
              
              
              December
      31,2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007OPERATING
      ACTIVITIES:Net
      loss
              
              $
              (5,203,870
              )
              
              $
              (3,828,680
              )
              
              $
              (11,199,040
              )
              
              $
              (8,046,405
              )
              
              $
              (107,283,480
              )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Compensation
      recorded related to issuance of common stock,common
      stock options and warrants
              
              
              724,611
              
              
              
              1,137,595
              
              
              
              2,118,562
              
              
              
              2,370,982
              
              
              
              32,811,533Depreciation
      and amortization of property and equipment
              
              
              35,571
              
              
              
              37,861
              
              
              
              109,071
              
              
              
              115,074
              
              
              
              1,297,764(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
      current assets
              
              
              (88,788
              )
              
              
              1,796,200
              
              
              
              (389,233
              )
              
              
              (186,761
              )
              
              
              (487,860
              )Other
      assets
              
              
              (165,750
              )
              
              
              
              
              
              
              (461,802
              )
              
              
              70,399
              
              
              
              (477,279
              )Accounts
      payable
              
              
              1,415,919
              
              
              
              (312,729
              )
              
              
              257,262
              
              
              
              (645,650
              )
              
              
              3,170,192Accrued
      expenses
              
              
              753,378
              
              
              
              124,513
              
              
              
              629,531
              
              
              
              150,277
              
              
              
              1,668,469Deferred
      revenue
              
              
              6,217,499
              
              
              
              (546,171
              )
              
              
              7,281,869
              
              
              
              2,669,797
              
              
              
              9,008,542Net
      cash provided by (used in) operating activities
              
              
              3,688,570
              
              
              
              (1,591,411
              )
              
              
              (1,653,780
              )
              
              
              (3,502,287
              )
              
              
              (61,441,455
              )INVESTING
      ACTIVITIES:Purchase
      of property and equipment
              
              
              (4,854
              )
              
              
              (1,732
              )
              
              
              (4,854
              )
              
              
              (41,403
              )
              
              
              (1,622,103
              )Restricted
      funds on deposit
              
              
              (4,268,611
              )
              
              
              693,038
              
              
              
              (1,843,576
              )
              
              
              (2,986,319
              )
              
              
              (4,962,342
              )
   -5-
   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
                (4,273,465)
                691,306
                (1,848,430)
                (3,027,722)
                (6,722,389)FINANCING
      ACTIVITIES:Advances
      from stockholders and affiliates
                
                
                
                
                985,172Proceeds
      from issuance of notes payable
                
                
                
                
                2,645,194Principal
      payments on notes payable
                
                
                
                
                (218,119)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 of
      common stock resulting from the conversions of convertible preferred
      stock
                (513)
                (368)
                (979)
                (775)
                (6,571)Net
      proceeds from issuance of common stock
                189,679
                
                485,590
                29,994
                53,798,490Additional
      capital contributed by stockholders
                -
                -
                -
                -
                245,559Net
      cash provided by (used in) financing activities
                189,166
                (368)
                484,611
                29,219
                77,608,040NET  INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                (395,729)
                (900,473)
                (3,017,599)
                (6,500,790)
                9,444,196CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                9,839,925
                8,537,550
                12,461,795
                14,137,867
                -CASH
      AND CASH EQUIVALENTS, END OF  PERIOD
                $      9,444,196
                $    7,637,077
                $      9,444,196
                $     7,637,077
                $         9,444,196See
      notes to condensed consolidated financial statements
      (unaudited).
    -6-
  IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1.
              BASIS
      OF PRESENTATION
  The
accompanying condensed consolidated financial statements have been prepared by
Immtech Pharmaceuticals, Inc. and its subsidiaries (the “Company”) 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 condensed or 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. (a development stage enterprise) and its
subsidiaries, is a pharmaceutical company working to commercialize drugs to
treat infectious diseases, and the Company is expanding its targeted markets by
applying its proprietary pharmaceutical platform to treat other
disorders.  Immtech has advanced clinical programs that include new
treatments for PCP, malaria, and African sleeping sickness, and a well-defined,
expanding library of compounds targeting fungal infections, HCV and other
serious diseases.  Immtech holds an exclusive worldwide license to
certain patents and patent applications related to technology and products
derived from a proprietary pharmaceutical platform.  The Company has
worldwide rights to commercialize and sublicense such patented technology,
including a large library of well-defined compounds from which a pipeline of
therapeutic products could be developed.
  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
   -7-
  licensing
technology agreements, and work to commercialize the aromatic cation
pharmaceutical technology platform (the Company acquired its rights to the
aromatic cation technology platform in 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) manufacture 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,
2008, if at all.
  Since
inception, the Company has incurred accumulated net losses of approximately
$107,283,000.  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:
results of research and development efforts, results of clinical testing,
responses to grant requests, formation and development of relationships with
strategic partners, changes in the focus and direction of development programs,
competitive and technological advances, requirements in the regulatory process
and other factors.  Changes in circumstances in any of the above areas
may require the Company to allocate substantially more funds than are currently
available or than management intends to raise.
  Management
believes the Company’s existing unrestricted cash and cash equivalents, and the
grants received or awarded and awaiting disbursement of, will be sufficient to
meet the Company’s planned expenditures through at least the next twelve months,
although there can be no assurance the Company will not require additional
funds.  Management may seek to satisfy future funding requirements
through public or private offerings of securities, by collaborative or other
arrangements with pharmaceutical or biotechnology companies or from other
sources or by issuance of debt.
  The
Company’s ability to continue as a going concern in its present form is
dependent upon its ability to generate sufficient funds to meet its obligations
as they become due, have the United States Food and Drug Administration (the
“FDA”) remove the clinical hold on the pafuramidine development program,
complete the development and commercialization of drug candidates and,
ultimately, to generate sufficient revenues for profitable
operations.  Management’s plans for the forthcoming year, in addition
to normal operations, include continuing financing efforts, obtaining additional
research grants and entering into research and development agreements with other
entities.
   -8-
  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.
  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.
  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.  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.
  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 and nine month periods ended December 31, 2007 and
December 31, 2006, 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
  -9-
  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 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.
  Segment Reporting – The
Company is a development stage pharmaceutical company that operates as one
segment.
  New Accounting Standard– The
Company adopted 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
December 31, 2007, 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.
  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
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.  SFAS 157 is effective for us in fiscal year
2009.  The Company is currently assessing the impact of the adoption
of this statement.
  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 is currently
assessing the impact of the adoption of this statement.
  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,
  -10-
  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.  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 $16,935 and $39,783 of accrued preferred stock dividends at
December 31, 2007 and March 31, 2007, 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 October 17, 2007, the Company issued 5,106 shares of
common stock and paid $108 in lieu of fractional common shares as dividends on
the preferred shares.  On October 15, 2006, the Company issued 7,929
shares of common stock and paid $83 in lieu fractional common shares as
dividends on the preferred shares.  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, 2006, the Company
issued 5,547 shares of common stock and paid $47 in lieu of fractional common
shares as dividends on the preferred shares.  During the three month
periods ended December 31, 2007 and 2006, there were no conversions of Series A
Convertible Preferred Stock.  During the nine month periods ended
December 31, 2007 and 2006, certain preferred stockholders converted 1,000 and
2,400 shares of Series A Convertible Preferred Stock, including accrued
dividends, for 5,701 and 13,690 shares of common stock,
respectively.
  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 is subject to certain adjustments, as defined
in the Series A Certificate of Designation.
   -11-
  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.  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 $4,526 and $12,021 of accrued preferred stock dividends as of
December 31, 2007 and March 31, 2007, 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 October 17, 2007, the Company issued 1,682 shares of
common stock and paid $35 in lieu of fractional common shares as dividends on
the preferred shares.  On October 15, 2006, the Company issued 2,542
shares of common stock and paid $26 in lieu of fractional common shares as
dividends on the preferred shares.  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, 2006, the
Company issued 1,703 shares of common stock and paid $31 in lieu of fractional
common shares as dividends on the preferred shares.  During the three
month and nine month periods ended December 31, 2007, a preferred shareholder
converted 2,000 shares of Series B Convertible Preferred Stock, including
accrued dividends, for 12,574 shares of common stock.  During the
three and nine month periods ended December 31, 2006, there were no
conversions.
  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
  -12-
  Series B
Convertible Preferred Stock upon a mandatory conversion by the Company is
determined by (i) dividing the Liquidation Price by the Conversion 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.  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 $19,489 and $41,945 of accrued preferred stock dividends as of
December 31, 2007 and March 31, 2007, 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 October 17, 2007, the Company issued 5,694 shares of
common stock and paid $75 in lieu of fractional common shares as dividends on
the preferred shares.  On October 15, 2006, the Company issued 8,602
shares of common stock and paid $62 in lieu of fractional common shares as
dividends on the preferred shares.  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, 2006, the
Company issued 5,761 shares of common stock and paid $95 in lieu of fractional
common shares as dividends on the preferred shares.  During the three
and nine month periods ended December 31, 2007 and 2006, there were no
conversions.
   -13-
  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 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.  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 $36,925 and $80,914 of accrued preferred stock dividends as of
December 31, 2007 and March 31, 2007, 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
October 17, 2007, the Company issued 10,804 shares of common stock and paid $140
in lieu of fractional common shares as dividends on the preferred
share.  On October 15, 2006, the Company issued 16,611 shares of
common stock and paid $86 in lieu of fractional common shares as dividends on
the preferred shares.  On April 15, 2007, the Company issued 13,334
shares of
 -14-
 common stock and paid $95
in lieu of fractional common shares as dividends on the preferred
shares.  On April 15, 2006, the Company issued 11,134 shares of common
stock and paid $79 in lieu of fractional common shares as dividends on the
preferred shares.  During the three month period ended December 31,
2007, there were no conversions.  During the nine month period ended
December 31, 2007, certain preferred stockholders converted 2,000 shares of
Series D Convertible Preferred Stock, including accrued dividends, for 5,653
shares of common stock, respectively. During the three and nine month periods
ended December 31, 2006, 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 the Company 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 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 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.
  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.  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 $31,639 and $76,116 of accrued preferred stock
dividends as of December 31, 2007 and March 31, 2007,
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
  -15-
  the
Series E Certificate of Designation.  On October 17, 2007, the Company
issued 9,995 shares of common stock and paid $149 in lieu of fractional common
shares as dividends on the preferred shares.  On October 15, 2006, the
Company issued 15,670 shares of common stock and paid $111 in lieu of fractional
common shares as dividends on the preferred shares.  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, 2006, the Company issued 8,819 shares of common stock and paid $135 in
lieu of fractional common shares as dividends on the preferred
shares.  During the three and nine month periods ended December 31,
2007, certain preferred stockholders converted 8,000 and 11,600 shares of Series
E Convertible Preferred Stock, including accrued dividends, for 28,632 and
41,604 shares of common stock, respectively.  During the three month
period ended December 31, 2006, a preferred shareholder converted 400 shares of
Series E Convertible Preferred Stock, including accrued dividends, for 1,424
shares of common stock.  During the nine month period ended December
31, 2006, certain preferred stockholders converted 46,400 shares of Series E
Convertible Preferred Stock, including accrued dividends, for 165,271 shares of
common stock.
  The
Company may at any time, 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 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).
   -16-
  Common Stock –On May 26,
2006, restricted shares in the amount of 5,000 shares of common stock were
issued and expensed with a grant date value of approximately $36,000 to Tulane
University as part of the Tulane License Agreement granting to us an exclusive
license to develop, manufacture and commercialize a group of four –
aminoquinoline drugs for treatment, prophylaxis and diagnosis of infectious
diseases.
  On May
26, 2006, restricted shares in the amount of 5,000 shares of common stock were
issued and expensed with a grant date value of approximately $36,000 to T.
Stephen Thompson as part of his retirement and consulting agreement dated May 1,
2006.
  On
November 28, 2006, restricted shares in the amount of 80,000 shares of common
stock were issued to China Pharmaceutical Investments Limited (“China
Pharmaceutical”) as part of the agreement signed August 28, 2006 between Immtech
Pharmaceuticals, Inc. and China Pharmaceutical.  China Pharmaceutical
achieved milestone payments of common stock for identification of a site deemed
suitable by the Company for building a pharmaceutical plant and for completing
the feasibility study to be submitted to the appropriate governmental
agencies.
  Warrants – During the three
and nine month periods ended December 31, 2007, warrants to purchase 30,000 and
78,312 shares of common stock were exercised, resulting in proceeds to the
Company of $187,200 and $482,937, respectively.  During the three
month period ended December 31, 2006, there were no warrants
exercised.  During the nine month period ended December 31, 2006,
warrants to purchase 5,000 shares of common stock were exercised, resulting in
proceeds to the Company of $30,000.
  In
connection with services rendered to us, effective July 17, 2007, the Company
issued to an investor relations firm, warrants to purchase 30,000 shares of our
common stock.  The warrants are exercisable at $9.00 per
share.  The warrants are exercisable through July 17, 2011 as follows:
(i) 10,000 vest immediately, (ii) 10,000 vest upon the Company’s stock trading
at or above $10.00 per share for 20 consecutive trading days and (iii) 10,000
vest upon the Company’s stock trading at or above $12.00 per share for 20
consecutive trading days.  The warrants have been expensed using a
grant date value as calculated using the Black-Scholes valuation model of
approximately $118,000.
  In
connection with a consulting agreement, the Company issued warrants on September
10, 2007 to purchase 50,000 shares of common stock.  The warrants are
exercisable at $10.00 per share.  The warrants are exercisable through
September 10, 2010.  The warrants have been expensed using a grant
date value as calculated using the Black-Scholes valuation model of
approximately $172,000.
  Incentive Stock Programs –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 Stock Incentive Plan that expire are available to be
reissued.  During the nine month periods ended December 31, 2007 and
2006, 83,746 and 103,430 options, respectively, previously granted under the
2000 Stock Incentive Plan expired and were available to be
reissued.  During the three month period ended December 31, 2007,
 -17-
 the Company issued 312,650
options to purchase shares of common stock.  During the three month
period ended December 31, 2006, the Company issued 365,000 options to purchase
shares of common stock. During the nine month periods ended December 31, 2007
and 2006, the Company issued 487,318 and 421,000 options, respectively, to
purchase shares of common stock.  Additionally, the Company granted
5,000 restricted stock awards in the period ended June 30, 2006.  As
of December 31, 2007, there were a total of 1,535,941 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 4 years.
  The
Company recognized approximately $725,000 and $1,829,000 of compensation cost
for the three and nine month periods ended December 31, 2007, and approximately
$574,000 and $1,736,000 for the three and nine month periods ended December 31,
2006. During the three month period ended December 31, 2007, 7,000 options were
exercised on a cashless basis resulting in 4,254 common shares being issued, and
972 options were exercised with an exercise price of $2.55, resulting in
proceeds to the Company of approximately $2,479.  During the three and
nine month periods ended December 31, 2006, 29,000 and 80,605 options were
exercised on a cashless basis resulting in 12,736 and 61,085 common shares being
issued, respectively.
  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 and nine
month periods ended December 31, 2007 and 2006.
  Three
      Months
              
              Nine
      MonthsEnded
      December 31,
              
              Ended
      December 31,2007
              2006
              
              2007
              2006Risk
      free interest rate
              4.25%
              4.78%
              
              4.41%
              4.80%Average
      life of options (years)
              10.0
              10.0
              
              10.0
              9.5Volatility
              62%
              80%
              
              67%
              78%Dividend
      yield
              0
              0
              
              0
              0
   -18-
 
 A summary
of stock option activity as of and for the nine month period ended December 31,
2007, is presented below:
  Shares
              
              
              Exercise
      Price Per Share (*)
              
              
              Remaining
      Contractual Term(*) in YearsOutstanding
      at March 31, 2007
              
              
              1,800,609
              
              
              $
              8.92Granted
              
              
              487,318
              
              
              
              6.57Exercised
              
              
              (27,091
              )
              
              
              1.08Forfeited
      or expired
              
              
              (81,000
              )
              
              
              10.95Outstanding
      at December 31, 2007
              
              
              2,179,836
              
              
              
              8.41
              
              
              
              7.04Exercisable
      at December 31, 2007
              
              
              1,573,882
              
              
              
              9.14
              
              
              
              6.55
 (*)
Weighted-average
  The
weighted-average grant date fair value of options granted during the nine month
periods ended December 31, 2007 and 2006 was $6.57 and $5.96,
respectively.  The intrinsic value of options exercised during the
nine month periods ended December 31, 2007 and 2006 was approximately $174,000
and $466,000, respectively.  The intrinsic value of stock options
outstanding at the nine month periods ended December 31, 2007 and 2006 was
approximately $347,000 and $1,715,000, respectively.
  As of
December 31, 2007, there was approximately $2,730,000 of unrecognized
compensation cost related to non-vested stock option compensation arrangements
granted under the 2000 and 2007 Plans that are expected to be recognized as a
charge to earnings over a weighted-average period of 1.3 years.  As of
December 31, 2007, 1,734,203 options have vested or are expected to vest with a
weighted-average exercise price of $10.85, a weighted-average remaining life of
7.11 years, and with an intrinsic value of approximately $330,000.
  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
  -19-
  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”).
  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.  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 Consortium when it files its first initial New Drug
Application (“NDA”) or an
  -20-
  Abbreviated
New Drug Application (“ANDA”) based on 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 the Company receives 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.
  During
the three and nine month periods ended December 31, 2007, the Company expensed
approximately $180,000 and $583,000, respectively, of other payments to UNC-CH
and certain other Scientific Consortium universities for patent related costs
and other contracted research.  For the corresponding periods ended
December 31, 2006, the Company expensed approximately $150,000 and $786,000,
respectively. Included in accounts payable as of December 31, 2007 and
March 31, 2007, were approximately $330,000, and $174,000, 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 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 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 $13,601,000 from the Foundation.  Under the amended and
restated agreement, the Company received on May 24, 2006 the first payment of
approximately $5,649,000 of the five year approximately $13,601,000 contract. On
November 2, 2007, the Company received a second payment of approximately
$5,123,000 from the Consortium.
   -21-
  During
the three and nine months ended December 31, 2007, approximately $1,335,000 and
$2,639,000 was utilized for clinical and research purposes conducted and
expensed, respectively.  During the three and nine months ended
December 31, 2006, approximately $445,000 and $1,653,000 was utilized for
clinical and research purposes conducted and expensed, respectively. The Company
has recognized revenues of approximately $1,335,000 and $2,639,000 during the
three and nine months ended December 31, 2007, respectively.  The
Company has recognized revenues of approximately $445,000 and $2,583,000 during
the three and nine months ended December 31, 2006, respectively.  The
remaining amount (approximately $4,211,000 as of December 31, 2007) has been
deferred and will be recognized as revenue over the term of the agreement as the
services are performed.
  On
November 26, 2003, the Company entered into a testing agreement (“Testing
Agreement”) with Medicines for Malaria Venture (“MMV”), a foundation established
in Switzerland, and UNC, pursuant to which the Company, with the support of MMV
and UNC-CH, conducted a proof of concept study of the dicationic first drug
candidate pafuramidine for the treatment of malaria.
  Under the
terms of the Testing Agreement, MMV committed to pay for human clinical trials
and, subject to certain milestones, regulatory preparation and filing costs for
the approvals to market pafuramidine to treat malaria. In return for MMV’s
funding, the Company is required, when selling malaria drugs derived from this
research into “malaria-endemic countries,” as defined, to sell such drugs at
affordable prices.  An affordable price is defined in the Testing
Agreement to mean a price not to be less than the cost to manufacture and
deliver the drugs plus administrative overhead costs (not to exceed 10% of the
cost to manufacture) and a modest profit. There are no price constraints on
product sales into non-malaria-endemic countries.  The Company must,
however, pay to MMV a royalty not to exceed 7% of net sales, as defined, on
product sales into non-malaria-endemic countries, until the amount funded under
the Testing Agreement and amounts funded under a related discovery agreement
between MMV and UNC-CH is refunded to MMV at face value.  The company
and MMV agreed to terminate the Testing Agreement effective as of February 10,
2006.  The Company has received approximately $5,636,000 under this
contract.
  The
Company recognized revenues of approximately $101,000 and $396,000 during the
three and nine month periods ended September 30, 2006, respectively, for
expenses incurred related to activities within the scope of the Testing
Agreement.
  On June
8, 2007, the Company entered into an exclusive licensing agreement pursuant to
which the Company has licensed to Par Pharmaceutical Companies, Inc. (“Par”)
commercialization rights in the United States of America to pafuramidine for the
treatment of PCP in AIDS patients. The Company and Par may also collaborate 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
will also pay the Company as much as $29 million in development milestones if
pafuramidine advances
  -22-
  through ongoing Phase III
clinical trials and FDA regulatory review and approval.  In addition
to royalties on sales, the Company may receive up to $115 million in additional
milestone payments on future sales and will retain the right to co-market
pafuramidine in the United States of America.  The Company has also
granted Par a right of first offer to enter into a license agreement with it if
the Company determines that pafuramidine can be used for the treatment and/or
prophylaxis of malaria.
  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. The Company also granted BioAlliance an option to
commercialize pafuramidine in Europe for the prevention and treatment of malaria
in travelers.  Pursuant to the license agreement, the Company received
an initial payment of $3 million from BioAlliance, and it will receive an
additional $13 million upon achieving certain regulatory and pricing milestones.
In addition, the Company will receive an additional $10 million upon achieving
certain sales milestones and will also receive double-digit royalties based on
sales.
  On
December 20, 2007, the Food and Drug Administration (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.  The FDA placed this clinical hold on the pafuramidine program
after subjects in the Company’s Phase I safety study demonstrated abnormal liver
function tests.  The affected subjects do not currently have any signs
and symptoms related to the liver abnormalities and the Company’s clinical
follow-up of the subjects remains ongoing.
  The
Company has reviewed data from the Phase I safety study with experts in liver
disease, the Company’s consortium scientific advisors and governance council,
and the Data Safety Monitoring Board.  Such experts will assist the
Company in preparing a report to be submitted to the FDA reviewing data related
to the liver function of subjects from the Company’s prior and currently
suspended pafuramidine trials. In addition, the Company is developing a risk
management plan to monitor potential liver abnormalities in pafuramidine studies
related to African sleeping sickness, PCP and malaria, which will be submitted
to the FDA as a part of the report.
  Any
resumption of the clinical trials for the pafuramidine program will require
regulatory approval from the FDA.  There can be no assurance that the
Company will be able to resume these trials or that, if resumed, whether and
when they will be completed.  In addition, the Company may need to
modify the clinical trial protocol, which could require it to repeat a trial or
conduct additional trials.  Accordingly, if the Company is unable to
resume its trials relating to pafuramidine or if the trials are delayed or
modified, the Company’s business, operations and stock price may be adversely
affected.
  5.
              NEUROCHEM
      ARBITRATION
  On June
9, 2006, the International Court of Arbitration of the ICC notified the parties
that (i) the Arbitral Panel found that Neurochem breached the testing agreement
and awarded
  -23-
  Immtech
approximately $1.9 million in damages and attorneys' fees and costs, and (ii)
denied all of Neurochem's claims against Immtech. On July 10, 2006, Immtech
requested that the Arbitral Panel make certain corrections to the Award. On or
about September 27, 2006, Immtech received an Addendum to the Final Award, which
did not alter the substance or amount of the Arbitral Panel’s Award. Subsequent
to September 30, 2006, Neurochem disbursed funds representing the Final Award by
the Arbitral Panel.
  6.
              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 der 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. The Company is considering
all options, including the filing of an appeal.
  As a
result of this ruling, the Company has accrued $362,000 as a reserve for
settlement.
  
 * * * * *
*
   -24-
  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 and certain grants, we have not
generated any revenue from operations.  For the period from inception
(October 15, 1984) to December 31, 2007, we incurred cumulative net losses
of approximately $107,283,000.  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;
   -25-
  ·
              grants
      from the United States government and other governments and entities;
      and
  ·
              the
      issuance of securities or borrowing of
funds.
  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 December 31, 2007 Compared with the Three Month Period Ended
December 31, 2006.
  Revenues
under collaborative research and development, and license agreements were
approximately $1,835,000 and $546,000 for the three month periods ended December
31, 2007 and December 31, 2006, respectively.  For the three month
period ended December 31, 2007, we recognized revenues of approximately
$1,335,000 related to a clinical research subcontract agreement between us and
The University of North Carolina at Chapel Hill
(“UNC-CH”),  approximately $387,000 related to the Par Pharmaceutical
license agreement, and approximately $113,000 related to the BioAlliance license
agreement while for the three month period ended December 31, 2006, revenues
recognized of approximately $445,000 related to the abovementioned UNC-CH
clinical research subcontract and $101,000 related to a grant from Medicines for
Malaria Venture (“MMV”) to fund clinical studies and licensure of DB289 for
treatment of malaria which has since lapsed.
  The
clinical research subcontract agreement relates to a grant from a philanthropic
foundation (the “Foundation”) to UNC-CH to develop new drugs to treat African
sleeping sickness and leishmaniasis.  MMV also receives funding from
the Foundation.  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 increased to approximately $4,214,000 from $1,862,000
for the three month periods ended December 31, 2007 and December 31, 2006,
respectively.  Expenses relating to the UNC-CH subcontract, increased
to approximately $1,335,000 in the three month period ended December 31, 2007
from approximately $445,000 in the three month period ended December 31, 2006
while expenses relating to the MMV testing agreement decreased over the same
periods to approximately zero from $104,000.  Contract services
relating to non-MMV supported malaria trials increased to approximately $369,000
in the three
  -26-
  month
period ended December 31, 2007 from approximately $155,000 in the three month
period ended December 31, 2006. Additionally, contract services relating to
trials for treatment of PCP increased to approximately $1,438,000 from
approximately $597,000 in the same periods.  Discovery contract
research expenses increased to approximately $473,000 in the three month period
ended December 31, 2007 from approximately $67,000 in the period ended December
31, 2006. Non-cash options expense under research and development decreased to
approximately $136,000 in the three month period ended December 31, 2007 from
approximately $206,000 in the three month period ended December 31,
2006.  Other research and development expenses increased approximately
$175,000 from the three month period ended December 31, 2006 to the three month
period ended December 31, 2007.
  General
and administrative expenses increased to approximately $2,926,000 from
approximately $2,630,000 during the three month periods ended December 31, 2007,
and December 31, 2006, respectively.  The increase was partly due to
legal costs, which increased to approximately $519,000 in the three month period
ended December 31, 2007, from approximately $280,000 in the three month period
ended December, 2006, along with the booking of approximately $362,000 as a
reserve for the settlement of the Von der Ruhr litigation.  Patent
fees increased to approximately $126,000 in the three month period ended
December 31, 2007 from approximately $105,000 in the three month period ended
December 31, 2006. Non-cash general and administrative expenses decreased to
approximately $588,000 in the three month period ended December 31, 2007, which
is for expensing options, from approximately $932,000 in the three month period
ended December 31, 2006, which relates to (i) approximately $368,000 for the
expensing of options, and (ii) approximately $564,000 for the issuance of 80,000
common shares to China Pharmaceutical Investments Limited.
  Our net
loss increased to approximately $5,204,000 from approximately $3,829,000 during
the three month periods ended December 31, 2007 and December 31, 2006,
respectively.  The increase was primarily attributable to an increase
in the research and development costs attributable to the trials for treatment
of PCP.
  Nine
Month Period Ended December 31, 2007 Compared with the Nine Month Period Ended
December 31, 2006.
  Revenues
under collaborative research and development agreements were approximately
$3,692,000 and $2,979,000 for the nine month periods ended December 31, 2007 and
December 31, 2006, respectively.  For the nine month period ended
December 31, 2007, we recognized revenues of approximately $2,639,000 related to
a clinical research subcontract agreement between us and UNC-CH, approximately
$940,000 related to the Par Pharmaceutical license agreement, and approximately
$113,000 related to the BioAlliance license agreement while for the nine month
period ended December 31, 2006, revenues recognized of approximately $2,584,000
related to the abovementioned UNC-CH clinical research subcontract and $395,000
related to a grant from MMV to fund clinical studies and licensure of DB289 for
treatment of malaria which has since lapsed.
  The
clinical research subcontract agreement relates to a grant from the Foundation
to UNC-CH to develop new drugs to treat African sleeping sickness and
leishmaniasis.  MMV also receives funding from the
Foundation.  Grant and research and development agreement revenue is
  -27-
  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 increased to approximately $8,415,000 from $6,086,000
for the nine month periods ended December 31, 2007 and December 31, 2006,
respectively.  Expenses relating to the UNC-CH subcontract, increased
to approximately $2,556,000 in the nine month period ended December 31, 2007
from approximately $1,653,000 in the nine month period ended December 31, 2006
while expenses relating to the MMV testing agreement decreased over the same
periods to approximately $15,000 from $397,000.  Contract services
relating to non-MMV supported malaria trials increased to approximately
$1,151,000 in the nine month period ended December 31, 2007 from approximately
$167,000 in the nine month period ended December 31, 2006. Additionally,
contract services relating to trials for treatment of PCP decreased to
approximately $2,233,000 from approximately $2,342,000 in the same periods.
Discovery contract research expenses increased to approximately $1,079,000 in
the nine month period ended December 31, 2007 from approximately $239,000 in the
period ended December 31, 2006. Non-cash options expense under research and
development decreased to approximately $369,000 in the nine month period ended
December 31, 2007 from approximately $557,000 in the nine month period ended
December 31, 2006.  Other research and development expenses increased
approximately $281,000 from the nine month period ended December 31, 2006 to the
nine month period ended December 31, 2007.
  General
and administrative expenses decreased to approximately $6,858,000 from
approximately $7,213,000 during the nine month periods ended December 31, 2007,
and December 31, 2006, respectively.  The decrease was partly due to
lower business development costs, which decreased to approximately $12,000 in
the nine month period ended December 31, 2007, from approximately $943,000 in
the nine month period ended December 31, 2006.  Patent fees decreased
to approximately $299,000 in the nine month period ended December 31, 2007 from
approximately $611,000 in the nine month period ended December 31, 2006.
Non-cash general and administrative expenses decreased to approximately
$1,749,000 in the nine month period ended December 31, 2007, which includes (i)
approximately $172,000 for the 50,000 warrants issued to a consultant, (ii)
approximately $118,000 for the 30,000 warrants issued to an investor relations
firm, and (iii) approximately $1,459,000 for expensing options, from
approximately $1,814,000 in the nine month period ended December 31, 2006, which
includes (i) approximately $36,000 for the issuance of 5,000 common shares to
Tulane University, (ii) approximately $36,000 for the issuance of 5,000 common
shares as part of a retirement and consulting agreement, (iii) approximately
$564,000 for the issuance of 80,000 common shares to
  -28-
  China
Pharmaceutical Investments Limited, and (iv) approximately $1,178,000 for
expensing options.
  Our net
loss increased to approximately $11,199,000 from approximately $8,046,000 during
the nine month periods ended December 31, 2007 and December 31, 2006,
respectively.  The increase was primarily attributable to the
litigation settlement of approximately $1,874,000 posted during the nine month
period ended December 31, 2006 that related to the award from the Neurochem
litigation.
  Liquidity and Capital
Resources
  As of
December 31, 2007, cash and cash equivalents were approximately
$9,444,000.
  We spent
approximately $5,000 on equipment purchases during the three and nine month
periods ended December 31, 2007.  We spent approximately $2,000 and
$41,000, respectively, on equipment purchases during the three and nine month
periods ended December 31, 2006.  No significant purchases of
equipment are anticipated by us during the year ending March 31,
2008.
  We
periodically receive cash from the exercise of common stock options and
warrants.  During the three month period ended December 31, 2007, we
received approximately $187,000 from the exercise of warrants and approximately
$2,000 from the exercise of options.  During the three month period
ended December 31, 2006, we did not receive any funds for the exercise of
warrants or options.
  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 November 2008,
although there can be no assurance we will not require additional
funds.
  Through
December 31, 2007, we financed our operations with:
  ·
              proceeds
      from various private placements of debt and equity securities, an initial
      public offering, and other cash contributed from stockholders, which in
      the aggregate raised approximately
$77,608,000;
  ·
              payments
      from research agreements, license agreements, foundation grants, and SBIR
      grants and STTR program grants of approximately $28,775,000;
      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, conduct of human clinical
trials, capital expenditures, expenses associated with development of product
candidates pursuant to an agreement, dated January 15, 1997, (the “Consortium
Agreement”), among us and UNC-CH (to which each of Duke University, Auburn
University and Georgia State University agreed shortly thereafter to become a
party, and all of which, collectively with UNC-CH, are referred to as the
“Consortium”) and, as contemplated by the Consortium Agreement, under a license
agreement dated January 28, 2002 (“Consortium License Agreement”) with the
Consortium, and general
  -29-
  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 including the build-out
of our subsidiary’s facility in China, our ability to maintain existing and to
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.
  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.
  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
  -30-
  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
  We have
not made any changes in our internal control over financial reporting during the
quarter ended December 31, 2007 that have materially affected, or are reasonably
likely to materially affect, our 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 filing made in late February 2005, the Von de 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. The Company is
considering all options, including the filing of an appeal.
  Item
1A.  Risk
Factors.
  In
addition to those risk factors previously disclosed in Item 1A to Part I of our
Form 10-K for the fiscal year ended March 31, 2007, we are now subject to the
additional risk factor below.
  The
suspension of our clinical trials relating to pafuramidine may adversely affect
our business, operations and stock price.
  On
December 20, 2007, the Food and Drug Administration (the “FDA”) informed us that
it had placed all of our ongoing and projected clinical trials relating to the
development of pafuramidine on clinical hold.  The FDA placed this
clinical hold on the pafuramidine program after subjects in our Phase I safety
study demonstrated abnormal liver function tests.  The
  -31-
  affected
subjects do not currently have any signs and symptoms related to the liver
abnormalities and our clinical follow-up of the subjects remains
ongoing.
  We have
reviewed data from the Phase I safety study with experts in liver disease, our
consortium scientific advisors and governance council, and the Data Safety
Monitoring Board.  Such experts will assist us in preparing a report
to be submitted to the FDA reviewing data related to the liver function of
subjects from our prior and currently suspended pafuramidine trials. In
addition, we are developing a risk management plan to monitor potential liver
abnormalities in pafuramidine studies related to African sleeping sickness, PCP
and malaria, which will be submitted to the FDA as a part of the
report.
  Any
resumption of the clinical trials for the pafuramidine program will require
regulatory approval from the FDA.  There can be no assurance that we
will be able to resume these trials or that, if resumed, whether and when they
will be completed.  In addition, we may need to modify the clinical
trial protocol, which could require us to repeat a trial or conduct additional
trials.  Accordingly, if we are unable to resume our trials relating
to pafuramidine or if the trials are delayed or modified, our business,
operations and stock price may be adversely affected.
  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
November 14, 2007, an executive officer exercised options to purchase 972 shares
with an exercise price of $2.55 per share resulting in proceeds to the Company
of approximately $2,479.
  On
December 17, 2007, options to purchase 7,000 shares with an exercise price of
$2.55 per share were exercised on a cashless basis.  Common shares in
the amount of 4,254 were issued.
  Warrant
Exercise
  On
October 5, 2007, an investor exercised warrants to purchase 20,000 shares with
an exercise price of $6.125 per share resulting in proceeds to the Company of
$122,500.
  On
November 14, 2007, an executive officer exercised warrants to purchase 10,000
shares with an exercise price of $6.47 per share resulting in proceeds to the
Company of $64,700.
  Conversion
of Preferred Stock to Common Stock.
  On
November 27, 2007, a holder of Series B Convertible Preferred Stock, $0.01 par
value (“Series B Stock”) converted 2,000 shares of Series B Preferred Stock into
12,574 shares of our common stock.
   -32-
  On
November 27, 2007, holders of Series E Convertible Preferred Stock, $0.01 par
value (“Series E Stock”) converted an aggregate of 8,000 shares of Series E
Preferred Stock into an aggregate of 28,632 shares of our common
stock.
  Preferred
Stock Dividend Payment.
  On
October 17, 2007, we issued 33,281 shares of common stock as payment of a
dividend earned on outstanding preferred stock to the holders thereof: holders
of Series A Stock earned 5,106 shares of common stock on 54,500 outstanding
shares; holders of Series B Stock earned 1,682 shares of common stock on 13,464
outstanding shares; holders of Series C Stock earned 5,694 shares of common
stock on 45,536 outstanding shares; holders of Series D Stock earned 10,804
shares of common stock on 115,200 outstanding shares; and holders of Series E
Stock earned 9,995 shares of common stock on 106,600 outstanding
shares.  We also paid holders of our outstanding preferred stock $507
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.
  Votes
of the Stockholders
  We held
our Annual Meeting on November 29, 2007 at the Grand Hyatt in New York,
NY.  The following matters were presented to our stockholders: (1)
Proposal No. 1 – election of six directors to serve until the next annual
meeting of the stockholders, (2) Proposal No. 2 – to approve the Immtech
Pharmaceuticals, Inc. 2007 Stock Incentive Plan, and (3) Proposal No. 3 –
ratification of the selection of Deloitte & Touche LLP as the Company’s
independent registered public accounting firm for the fiscal year ending March
31, 2008.  The results of the votes are as follows:
  Proposal
      1 - Election of directors by the stockholders
              Votes
      For
              Authority
      WithheldEric
      L. Sorkin
              11,725,099
              891,981Cecilia
      Chan
              11,730,210
              886,870David
      Fleet
              12,453,329
              163,751Judy
      Lau
              11,650,918
              966,162Levi
      H. K. Lee, M.D.
              11,740,152
              876,928Donald
      F. Sinex
              12,369,464
              247,616
   -33-
  Votes
      For
              Votes
      Against
              Abstain
      *Proposal
      2 – Approve 2007 Stock Incentive Plan
              3,673,624
              1,711,553
              172,789Proposal
      3 – Ratification of Deloitte & Touche as independent
      auditors
              12,478,919
              108,532
              29,629
 * Per the
proxy statement, abstentions are considered votes against the
proposal.
  Item 5. Other
Information.
  None
  Item 6. Exhibits.
  Exhibit
      Number
              Exhibit
      Description3.1
      (1)
              Amended
      and Restated Certificate of Incorporation of the Company, dated
      June 14, 20043.2
      (2)
              Certificate
      of Correction to Certificate of Incorporation dated December 14,
      20053.3
      (3)
              Certificate
      of Amendment (Name Change) to Certificate of Incorporation dated March 22,
      2006.3.4
      (4)
              Amended
      and Restated Bylaws of the Company effective as of June 6,
      200710.50*
              Licensing
      Agreement, dated as of December 3, 2007, by and between Immtech
      Pharmaceuticals, Inc. and BioAlliance Pharma SA31.1
              Certification
      of Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
              Certification
      of Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
              Certification
      of Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
              Certification
      of Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
   *
              Portions
      of this exhibit have been omitted and filed separately with the Securities
      and Exchange Commission pursuant to a confidential treatment request under
      Rule 24b-2 of the Securities and Exchange Act of 1934, as
      amended.
  (1)
              Incorporated
      by Reference to our Form 10-K (File No. 001-14907), as filed with the
      Securities and Exchange Commission on June 14,
  2004.
  (2)
              Incorporated
      by Reference to our Form 8-K (File No. 001-14907), as filed with the
      Securities and Exchange Commission on December 14,
  2005.
  (3)
              Incorporated
      by Reference to our Form 8-K (File No. 001-14907), as filed with the
      Securities and Exchange Commission on March 23,
  2006.
  (4)
              Incorporated
      by Reference to our Form 8-K (File No. 001-14907), as filed with the
      Securities Exchange Commission on June 12,
2007.
    -34-
  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:  February 11, 2008
              By: 
      /s/ Eric L.
      Sorkin
                Eric
      L. Sorkin
                President
      and Chief Executive OfficerDate:  February 11, 2008
              By: 
      /s/ Gary C.
      Parks
                Gary
      C. Parks
                Treasurer,
      Secretary and Chief Financial Officer
                (Principal
      Financial and Accounting
Officer)