**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**




(Mark
      One)




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




For
                the quarterly period ended June 30,
                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:  001-14907**IMMTECH
                PHARMACEUTICALS, INC.**(Exact
                name of registrant as specified in its
                charter)





**Delaware**
            
            **39-1523370**(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)





**One
                North End Avenue, New York, New
                York  10282**(Address
                of principal executive offices)    (Zip
                Code)Registrant’s
                telephone number:  **(212)
                791-2911**Former
                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.




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
      August 7, 2007, 15,387,146 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
            2




Item
                1
            Financial
                Statements (unaudited)
            2


Item
                2
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            22


Item
                3
            Quantitative
                and Qualitative Disclosures about Market Risk
            25


Item
                4
            Controls
                and Procedures
            25




PART
                II
            OTHER
                INFORMATION
            26




Item
                1
            Legal
                Proceedings
            26


Item
                1A
            Risk
                Factors
            26


Item
                2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            26


Item
                3
            Defaults
                Upon Senior Securities
            26


Item
                4
            Submission
                of Matters to a Vote of Security Holders
            27


Item
                5
            Other
                Information
            27


Item
                6
            Exhibits
            27








-
          1
          -




**PART
        I.                      FINANCIAL
        INFORMATION**
  **Item
                  1.**
              **Financial
                  Statements.**
 **IMMTECH
                  PHARMACEUTICALS, INC. AND SUBSIDIARIES****(A
                  Development Stage Enterprise)****CONDENSED
                  CONSOLIDATED BALANCE SHEETS (UNAUDITED)****June
                  30,**
              
              
              **March
                  31,****ASSETS**
              
              **2007**
              
              
              **2007**CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              12,173,125
              
              
              $
              12,461,795Restricted
                  funds on deposit
              
              
              1,682,287
              
              
              
              3,118,766Other
                  current assets
              
              
              503,773
              
              
              
              98,627Total
                  current assets
              
              
              14,359,185
              
              
              
              15,679,188PROPERTY
                  AND EQUIPMENT - Net
              
              
              121,882
              
              
              
              140,263PREPAID
                  RENT
              
              
              3,290,508
              
              
              
              3,309,240OTHER
                  ASSETS
              
              
              193,108
              
              
              
              15,477TOTAL
              
              $
              17,964,683
              
              
              $
              19,144,168**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**CURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              1,365,546
              
              
              $
              2,585,395Accrued
                  expenses
              
              
              421,151
              
              
              
              375,925Deferred
                  revenue
              
              
              3,890,455
              
              
              
              1,726,673Total
                  current liabilities
              
              
              5,677,152
              
              
              
              4,687,993Total
                  liabilities
              
              
              5,677,152
              
              
              
              4,687,993STOCKHOLDERS'
                  EQUITY:Preferred
                  stock, par value $0.01 per share, 3,913,000 shares authorized
                  andunissued
                  as of June 30, 2007 and March 31, 2007.Series
                  A convertible preferred stock, par value $0.01 per share, stated
                  value$25
                  per share, 320,000 shares authorized, 55,500 shares issued and
                  outstandingas
                  of June 30, 2007 and March 31, 2007; aggregate liquidation
                  preferenceof
                  $1,404,528 as of June 30, 2007.
              
              
              1,404,528
              
              
              
              1,425,283






-
          2
          -




Series
                  B convertible preferred stock, par value $0.01 per share, stated
                  value$25
                  per share, 240,000 shares authorized, 13,464 shares issued and
                  outstandingas
                  of June 30, 2007 and March 31, 2007; aggregate liquidation
                  preferenceof
                  $341,902 as of June 30, 2007.
              
              
              341,902
              
              
              
              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 June 30, 2007 and March 31, 2007; aggregate liquidation
                  preferenceof
                  $1,157,639 as of June 30, 2007.
              
              
              1,157,639
              
              
              
              1,180,345Series
                  D convertible preferred stock, par value $0.01 per share, stated
                  value$25
                  per share, 200,000 shares authorized, 117,200 shares issued and
                  outstandingas
                  of June 30, 2007 and March 31, 2007; aggregate liquidation
                  preferenceof
                  $2,967,085 as of June 30, 2007.
              
              
              2,967,085
              
              
              
              3,010,914Series
                  E convertible preferred stock, par value $0.01 per share, stated
                  value$25
                  per share, 167,000 shares authorized, 108,200 and 110,200 shares
                  issuedand
                  outstanding as of June 30, 2007 and March 31, 2007,
                  respectively;aggregate
                  liquidation preference of $2,739,272 as of June 30, 2007.
              
              
              2,739,272
              
              
              
              2,831,116Common
                  stock, par value $0.01 per share, 100,000,000 sharesauthorized,
                  15,381,493 and 15,333,221 shares issued and outstandingas
                  of June 30, 2007 and March 31, 2007, respectively.
              
              
              153,815
              
              
              
              153,332Additional
                  paid-in capital
              
              
              106,844,562
              
              
              
              106,031,851Deficit
                  accumulated during the developmental stage
              
              
              (103,321,272
              )
              
              
              (100,525,287
              )Total
                  stockholders' equity
              
              
              12,287,531
              
              
              
              14,456,175TOTAL
              
              $
              17,964,683
              
              
              $
              19,144,168See
                  notes to condensed consolidated financial statements
                  (unaudited).






-
          3
          -




**IMMTECH
                  PHARMACEUTICALS, INC. AND SUBSIDIARIES****(A
                  Development Stage Enterprise)****CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)****October
                  15,****1984****Three
                  Months Ended**
              
              
              **(Inception)
                  to****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**REVENUES
              
              $
              826,349
              
              
              $
              1,941,609
              
              
              $
              25,909,102EXPENSES:Research
                  and development
              
              
              1,917,812
              
              
              
              2,468,836
              
              
              
              62,031,745General
                  and administrative
              
              
              1,717,288
              
              
              
              2,219,855
              
              
              
              65,694,645Other
                  (litigation settlement)
              
              
              
              
              
              
              
              
              
              
              (1,874,454
              )Equity
                  in loss of joint venture
              
              
              -
              
              
              
              -
              
              
              
              135,002Total
                  expenses
              
              
              3,635,100
              
              
              
              4,688,691
              
              
              
              125,986,938LOSS
                  FROM OPERATIONS
              
              
              (2,808,751
              )
              
              
              (2,747,082
              )
              
              
              (100,077,836
              )OTHER
                  INCOME (EXPENSE):Interest
                  income
              
              
              147,763
              
              
              
              150,361
              
              
              
              1,621,794Interest
                  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
              
              
              147,763
              
              
              
              150,361
              
              
              
              1,332,408NET
                  LOSS
              
              
              (2,660,988
              )
              
              
              (2,596,721
              )
              
              
              (98,745,428
              )CONVERTIBLE
                  PREFERRED STOCK DIVIDENDS AND CONVERTIBLEPREFERRED
                  STOCK PREMIUM DEEMED DIVIDENDS
              
              
              (134,997
              )
              
              
              (142,808
              )
              
              
              (6,945,743
              )REDEEMABLE
                  PREFERRED STOCK CONVERSION, PREMIUMAMORTIZATION
                  AND DIVIDENDS
              
              
              -
              
              
              
              -
              
              
              
              2,369,899NET
                  LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
              
              $
              (2,795,985
              )
              
              $
              (2,739,529
              )
              
              $
              (103,321,272
              )






-
          4
          -




BASIC
                  AND DILUTED NET LOSS PER SHARE ATTRIBUTABLETO
                  COMMON STOCKHOLDERS:Net
                  loss
              
              $
              (0.17
              )
              
              $
              (0.19
              )Convertible
                  preferred stock dividends and convertiblepreferred
                  stock premium deemed dividends
              
              
              (0.01
              )
              
              
              (0.01
              )BASIC
                  AND DILUTED LOSS PER SHARE ATTRIBUTABLETO
                  COMMON STOCKHOLDERS
              
              $
              (0.18
              )
              
              $
              (0.20
              )WEIGHTED
                  AVERAGE SHARES USED IN COMPUTINGBASIC
                  AND DILUTED NET LOSS PER SHARE
              
              
              15,370,054
              
              
              
              13,920,324See
                  notes to condensed consolidated financial statements
                  (unaudited).






-
          5
          -




**IMMTECH
                  PHARMACEUTICALS, INC. AND SUBSIDIARIES****(A
                  Development Stage Enterprise)****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)****October
                  15,****1984****Three
                  Months Ended**
              
              
              **(Inception)
                  to****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**OPERATING
                  ACTIVITIES:Net
                  loss
              
              $
              (2,660,988
              )
              
              $
              (2,596,721
              )
              
              $
              (98,745,428
              )Adjustments
                  to reconcile net loss to net cash used inoperating
                  activities:Compensation
                  recorded related to issuance of common stock,common
                  stock options and warrants
              
              
              492,793
              
              
              
              676,080
              
              
              
              31,185,763Depreciation
                  and amortization of property and equipment
              
              
              37,113
              
              
              
              39,262
              
              
              
              1,225,807(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
              
              
              (405,146
              )
              
              
              (201,818
              )
              
              
              (503,773
              )Other
                  assets
              
              
              (177,631
              )
              
              
              399
              
              
              
              (193,108
              )Accounts
                  payable
              
              
              (1,219,849
              )
              
              
              418,266
              
              
              
              1,693,081Accrued
                  expenses
              
              
              45,226
              
              
              
              7,386
              
              
              
              1,084,164Deferred
                  revenue
              
              
              2,163,782
              
              
              
              3,707,297
              
              
              
              3,890,455Net
                  cash provided by (used in) operating activities
              
              
              (1,724,700
              )
              
              
              2,050,151
              
              
              
              (61,512,375
              )INVESTING
                  ACTIVITIES:Purchase
                  of property and equipment
              
              
              
              
              
              
              (34,012
              )
              
              
              (1,617,249
              )Restricted
                  funds on deposit
              
              
              1,436,479
              
              
              
              (4,236,985
              )
              
              
              (1,682,287
              )Advances
                  to joint venture
              
              
              
              
              
              
              
              
              
              
              (135,002
              )Proceeds
                  from maturities of investment securities
              
              
              
              
              
              
              
              
              
              
              1,800,527Purchases
                  of investment securities
              
              
              -
              
              
              
              -
              
              
              
              (1,803,469
              )Net
                  cash provided by (used in) investing activities
              
              
              1,436,479
              
              
              
              (4,270,997
              )
              
              
              (3,437,480
              )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
              )






-
          6
          -




Payments
                  for extinguishment of debt
              
              
              
              
              
              
              
              
              (203,450
              )Net
                  proceeds from issuance of redeemable preferred stock
              
              
              
              
              
              
              
              
              3,330,000Net
                  proceeds from issuance of convertible preferred stock and
                  warrants
              
              
              
              
              
              
              
              
              17,085,434Payments
                  of convertible preferred stock dividends and for fractional shares
                  ofcommon
                  stock resulting from the conversions of convertible preferred
                  stock
              
              
              (449
              )
              
              
              (405
              )
              
              
              (6,041
              )Net
                  proceeds from issuance of common stock
              
              
              
              
              
              
              (6
              )
              
              
              53,312,900Additional
                  capital contributed by stockholders
              
              
              -
              
              
              
              -
              
              
              
              245,559Net
                  cash provided by (used in) provided by financing
                  activities
              
              
              (449
              )
              
              
              (411
              )
              
              
              77,122,980NET  INCREASE
                  (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (288,670
              )
              
              
              (2,221,257
              )
              
              
              12,173,125CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD
              
              
              12,461,795
              
              
              
              14,137,867
              
              
              
              -CASH
                  AND CASH EQUIVALENTS, END OF  PERIOD
              
              $
              12,173,125
              
              
              $
              11,916,610
              
              
              $
              12,173,125See
                  notes to condensed consolidated financial statements
                  (unaudited).




-
            7
            -


**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” or “Immtech”)
      pursuant to the rules and regulations of the Securities and Exchange Commission
      (“SEC”) and, in the opinion of management, include all adjustments necessary for
      a fair statement of results for each period shown (unless otherwise noted
      herein, all adjustments are of a normal recurring nature).  Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with accounting principles generally accepted in the
      United States of America have been 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)
      along with 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 Pneumocystis pneumonia (“PCP”), malaria, and
      trypanosomiasis (“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 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.







-
            8
            -


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
      $98,745,000.  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 is dependent upon its ability
      to generate sufficient funds to meet its obligations as they become due,
      complete the development and commercialization of drug candidates and,
      ultimately, 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.




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




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




*Restricted
      Funds on Deposit*– Restricted funds on deposit consist of cash in two
      accounts on deposit at a bank which are restricted for use in accordance with
      (i) a clinical research subcontract agreement with UNC-CH and (ii) a
      malaria drug development agreement with Medicines for Malaria Venture
      (“MMV”).




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







-
            9
            -


*Investment*–
      The Company accounts for its investment in NextEra Therapeutics, Inc.
      (“NextEra”) on the equity method.  As of June 30, 2007 and March 31,
      2007, according to NextEra’s disclosure, the Company owned approximately 28% of
      the issued and outstanding shares of NextEra common stock.  The
      Company has recognized an equity loss in NextEra to the extent of the basis
      of
      its investment, and the investment balance is zero as of June 30, 2007 and
      March
      31, 2007.  Recognition of any investment income on the equity method
      by the Company for its investment in NextEra will occur only after NextEra
      has
      earnings in excess of previously unrecognized equity losses.  The
      Company does not provide, and has not provided, any financial guarantees to
      NextEra.




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




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




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




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




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.




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




*Income
      Taxes*– The Company accounts for income taxes using an asset and liability
      approach.  Deferred income tax assets and liabilities are computed
      annually for differences between the







-
            10
            -


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




*Net
      Income (Loss) Per Share*– Net income (loss) per share is calculated in
      accordance with Statement of Financial Accounting Standard (“SFAS”) No. 128,
“Earnings Per Share.”  Basic net income (loss) and diluted net income
      (loss) per share are computed by dividing net income (loss) attributable to
      common stockholders by the weighted average number of common shares
      outstanding.  Diluted net income per share, when applicable, is
      computed by dividing net income attributable to common stockholders by the
      weighted average number of common shares outstanding increased by the number
      of
      potential dilutive common shares based on the treasury stock
      method.  Diluted net loss per share was the same as the basic net loss
      per share for the three month periods ended June 30, 2007 and June 30, 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 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.




*Fair
      Value of Financial Instruments*– The Company believes that the carrying
      amount of its financial instruments (cash and cash equivalents, restricted
      funds
      on deposit, accounts payable and accrued expenses) approximates the fair value
      of such instruments as of June 30, 2007 and March 31, 2007 based on the
      short-term nature of the instruments.




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




*Comprehensive
      Loss*– There were no differences between comprehensive loss and net loss for
      the three month periods ended June 30, 2007 and 2006, respectively.




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







-
            11
            -


*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 June 30, 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 1990 through 2006 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, 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 $17,028 and $37,783
      of
      accrued preferred stock dividends at June 30, 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 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







-
            12
            -


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 June 30, 2007 and 2006 there were no
      conversions.




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




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




*Series
      B Convertible Preferred Stock* - On September 25, 2002, the Company filed a
      Certificate of Designation with the Secretary of State of the State of Delaware
      designating 240,000 shares of the Company’s 5,000,000 authorized shares of
      preferred stock as Series B Convertible Preferred Stock, $0.01 par value, with
      a
      stated value of $25.00 per share.  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 $5,302 and $12,021 of
      accrued preferred stock dividends as of June 30, 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 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
      periods ended June 30, 2007 and 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







-
            13
            -


to
      be
      received by the holders of the Series B Convertible Preferred Stock upon a
      mandatory conversion by the Company is determined by (i) dividing the
      Liquidation Price by the Conversion 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 $19,239 and $41,945
      of
      accrued preferred stock dividends as of June 30, 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 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 month periods ended June 30,
      2007 and 2006, there were no conversions.




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







-
            14
            -


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 $37,085 and $80,914
      of
      accrued preferred stock dividends as of June 30, 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 April 15, 2007, the Company issued 13,334
      shares of common stock and paid $95 in lieu of fractional common shares as
      dividends on the preferred shares.  On April 15, 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
      periods ended June 30, 2007 and 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 us is determined by (i) dividing the Liquidation
      Price by the Conversion Price D provided that the closing bid price for the
      Company’s common stock exceeds $18.00 for 20 consecutive trading days within 180
      days prior to notice of conversion, as defined, or (ii) if the requirements
      of
      (i) are not met, the number of shares of common stock is determined by dividing
      110% of the Liquidation Price by the Conversion Price D.  The
      Conversion Price D is subject to certain adjustments, as defined in the
      Certificate of Designation.




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







-
            15
            -


*Series
      E Convertible Preferred Stock*–On December 13, 2005, the Company filed a
      Certificate of Designation with the Secretary of State of the State of Delaware
      designating 167,000 shares of the Company’s 5,000,000 authorized shares of
      preferred stock as Series E Convertible Preferred Stock, $0.01 par value, with
      a
      stated value of $25.00 per share.  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 $34,272 and $76,116
      of
      accrued preferred stock dividends as of June 30, 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 the Series
      E Certificate of Designation.  On April 15, 2007, the Company issued
      12,531 shares of common stock and paid $132 in lieu of fractional common shares
      as dividends on the preferred shares. On April 15, 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 month period
      ended June 30, 2007, a preferred shareholder converted 2,000 shares of Series
      E
      Convertible Preferred Stock, including accrued dividends, for 7,159 shares
      of
      common stock.  During the three month period ended June 30, 2006,
      certain preferred stockholders converted 46,000 shares of Series E Convertible
      Preferred Stock, including accrued dividends, for 163,847 shares of common
      stock.




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




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




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




*Common
      Stock*–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







-
            16
            -


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.




*Warrants*–
      No warrants were exercised in the three month periods ended June 30, 2007 and
      2006.




*Incentive
      Stock Programs –*At the stockholders’ meeting held November 12, 2004, the
      stockholders approved the second amendment to the 2000 Stock Incentive Plan
      which increased the number of shares of common stock reserved for issuance
      from
      1,100,000 shares to 2,200,000 shares.  Options granted under the 2000
      Stock Incentive Plan that expire are available to be reissued.  During
      the three month periods ended June 30, 2007 and 2006, 81,000 and 9,166 options,
      respectively, previously granted under the 2000 Stock Incentive Plan expired
      and
      were available to be reissued.  During the three month periods ended
      June 30, 2007 and 2006, the Company issued 7,500 and 56,000 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 June 30, 2007, there were a total of 513,013 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 $493,000 and $605,000 of compensation cost
      for
      the three month periods ended June 30, 2007 and 2006, respectively. During
      the
      three month period ended June 30, 2006, 32,263 options were exercised on a
      cashless basis resulting in 30,349 common shares being issued with an exercise
      price of $0.47




The
      fair
      value of each stock option award is estimated on the date of grant using the
      Black-Scholes valuation model.  The Company uses historical data
      regarding stock option exercise behaviors to estimate the expected term of
      options granted (based on the period of time that options granted are expected
      to be outstanding).  Expected implied volatility is based on the
      volatility of the Company’s exchange traded options for the Company’s common
      stock.  The risk-free interest rate is based on the U.S. treasury
      security rate in effect over the estimated life of the option. There is no
      dividend yield.  The following weighted-average assumptions were used
      in calculating the fair value of stock options granted during the three month
      periods ended June 30, 2007 and 2006.





Three
                Months Ended June 30,




2007
            
            2006Risk
              free interest rate
            
            5.11%
            
            4.89%Average
              life of options (years)
            
            10.0
            
            6.0Volatility
            
            75%
            
            69%Dividend
              yield
            
            -0-
            
            -0-






-
            17
            -





A
      summary
      of stock option activity as of and for the three month period ended June 30,
      2007, is presented below:




**Shares**
            
            
            **Exercise
                Price Per Share (*)**
            
            
            **Remaining
                Contractual Term(*) in Years**Outstanding
                at March 31, 2007
            
            
            1,800,609
            
            
            $
            8.92Granted
            
            
            7,500
            
            
            
            6.67Exercised
            
            
            -Forfeited
                or expired
            
            
            (81,000
            )
            
            
            10.95Outstanding
                at June 30, 2007
            
            
            1,727,109
            
            
            
            8.81
            
            
            
            6.67Exercisable
                at June 30, 2007
            
            
            1,322,618
            
            
            
            9.47
            
            
            
            6.11


(*)
      Weighted-average




The
      weighted-average grant date fair value of options granted during the three
      month
      periods ended June 30, 2007 and 2006 was $6.67 and $7.35,
      respectively.  The intrinsic value of options exercised during the
      three month period ended June 30, 2006 was approximately $238,000.  No
      options were exercised during the three month period ended June 30,
      2007.  The intrinsic value of stock options vested during the three
      month periods ended June 30, 2007 and 2006 was approximately $2,123,000 and
      $1,597,000, respectively.  The intrinsic value of stock options
      outstanding during the three month periods ended June 30, 2007 and 2006 was
      approximately $2,774,000 and $1,598,000, respectively.




As
      of
      June 30, 2007, there was approximately $1,868,000 of unrecognized compensation
      cost related to non-vested stock option compensation arrangements granted under
      the 2000 Plan that is expected to be recognized as a charge to earnings over
      a
      weighted-average period of 0.9 years.  As of June 30, 2007, 1,319,286
      options have vested or are expected to vest with a weighted-average exercise
      price of $10.82, a weighted-average remaining life of 6.67 years, and with
      an
      intrinsic value of approximately $2,600,000.







**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 after January 15, 1997, through use of Company-sponsored
      research funding or National Cooperative Drug Development grant







-
            18
            -


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 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 we receive under sublicensing arrangements.  With respect
      to products or licensing arrangements emanating from Duke University technology,
      the Company is required to negotiate in good faith with UNC-CH (on behalf of
      Duke University) royalty, milestone or other fees at the time of such event,
      consistent with the terms of the Consortium Agreement.







-
            19
            -


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 month periods ended June 30, 2007 and 2006, the Company expensed
      approximately $192,000 and $242,000, respectively, of payments to UNC-CH and
      certain other Scientific Consortium universities for patent related costs and
      other contracted research.    Included in accounts payable
      as of June 30, 2007 and March 31, 2007, were approximately $261,000, and
      $174,000, respectively, due to UNC and certain other Scientific Consortium
      universities.




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




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




Approximately
      $678,000 and $829,000 was utilized for clinical and research purposes conducted
      and expensed during the three months ended June 30, 2007 and 2006,
      respectively.  The Company has recognized revenues of approximately
      $678,000 and $1,759,000 during the three months ended June 30, 2007 and 2006,
      respectively.  The remaining amount (approximately $1,048,000 as of
      June 30, 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, 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







-
            20
            -


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 $0 and $182,000 during the three
      month periods ended June 30, 2007 and 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 we have 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, we received an initial payment of $3 million.  Par will also
      pay us as much as $29 million in development milestones if pafuramidine advances
      through ongoing Phase III clinical trials and FDA regulatory review and
      approval.  In addition to royalties on sales, we 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.  We have also granted Par a right of first offer to enter
      into a license agreement with us if we determine that pafuramidine can be used
      for the treatment and/or prophylaxis of malaria.







*
      * * * *
      *

















-
            21
            -


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




Forward
      Looking Statements




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




Results
      of Operations




With
      the
      exception of certain research funding agreements, license agreements and certain
      grants, we have not generated any revenue from operations.  For the
      period from inception (October 15, 1984) to June 30, 2007, we incurred
      cumulative net losses of approximately $98,745,000.  We have incurred
      additional losses since such date and we expect to incur additional operating
      losses for the foreseeable future.  We expect that our cash sources
      for at least the next year will be limited to:




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




·
            payments
                from license agreement milestones;




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




·
            the
                issuance of securities or borrowing of
                funds.


-
              22
              -
 The
          timing and amounts of grant and payment revenues, if any, will likely fluctuate
          sharply and depend upon the achievement of specified milestones, and results
          of
          operations for any period may be unrelated to the results of operations
          for any
          other period.


*Three
      Month Period Ended June 30, 2007 Compared with the Three Month Period Ended
      June 30, 2006.*




Revenues
      under collaborative research and development, and license agreements were
      approximately $826,000 and $1,942,000 for the three month periods ended June
      30,
      2007 and June 30, 2006, respectively.  For the three month period
      ended June 30, 2007, we recognized revenues of approximately $678,000 related
      to
      a clinical research subcontract agreement between us and The University of
      North
      Carolina at Chapel Hill (“UNC-CH”) and approximately $148,000 related to the Par
      Pharmaceutical license agreement, while for the three month period ended June
      30, 2006, revenues recognized of approximately $1,759,000 related to the
      abovementioned UNC-CH clinical research subcontract and $183,000 related to
      a
      grant from Medicines for Malaria Venture (“MMV”) to fund clinical studies and
      licensure of pafuramidine (“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
      trypanosomiasis (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 decreased to approximately $1,918,000 from $2,469,000
      for the three month periods ended June 30, 2007 and June 30, 2006,
      respectively.  Expenses relating to the MMV testing agreement and the
      UNC subcontract, respectively, decreased to approximately $9,000 and $676,000
      in
      the three month period ended June 30, 2007 from approximately $182,000 and
      $825,000 in the three month period ended June 30, 2006.  Additionally,
      contract services relating to trials for treatment of pneumocystis pneumonia
      decreased to approximately $1,005,000 from approximately $1,125,000 in the
      same
      periods.  Non-cash options expense under research and development
      decreased to approximately $118,000 in the three month period ended June 30,
      2007 from approximately $177,000 in the three month period ended June 30,
      2006.  Other research and development expenses decreased by
      approximately $50,000 over the same periods.




General
      and administrative expenses decreased to approximately $1,717,000 from
      approximately $2,220,000 during the three month periods ended June 30, 2007,
      and
      June 30, 2006, respectively.  Legal fees increased to approximately
      $215,000 in the three month period ended June 30, 2007 from approximately
$182,000 in the three month period ended June 30, 2006.  The increase
      is primarily attributable to the review of the Par Pharmaceutical license
      agreement.  Patent fees decreased to approximately $72,000 from
      approximately $163,000 in the corresponding periods, respectively. Non-cash
      general and administrative expenses decreased to approximately $375,000 in
      the
      three month period ended
      June 30, 2007 from approximately $499,000 in the three month period ended June
      30, 2006.  Other general and administrative costs decreased by
      approximately $321,000 over the same periods.


-
              23
              -


Our
      net
      loss increased to approximately $2,661,000 from approximately $2,597,000 during
      the three month periods ended June 30, 2007 and June 30, 2006,
      respectively.




Liquidity
      and Capital Resources




As
      of
      June 30, 2007, cash and cash equivalents were approximately
      $12,173,000.




Capital
      expenditures were zero during the three month period ended June 30, 2007,
      compared to $34,000 for equipment expenditures during the same period in the
      previous year.  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 periods ended June 30, 2007 and
      2006, we did not receive any proceeds for the exercise of options or
      warrants.




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




Through
      June 30, 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
                $77,123,000;




·
            payments
                from research agreements, license agreements, foundation grants,
                and SBIR
                grants and STTR program grants of approximately $25,909,000;
                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 (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, 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 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 
 -
              24
              -


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 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 June 30, 2007 that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial
      reporting.





-
            25
            -




**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
      et al (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 of its officers and directors alleging breaches of a stock lock-up
      agreement, option agreements and a technology license agreement by the Company,
      as well as interference with the Von der Ruhr Plaintiffs’ contracts with the
      Company by its officers.  The complaint sought unspecified monetary
      damages and punitive damages, in addition to equitable relief and
      costs.  In 2005, one of the counts in the case was dismissed upon the
      Company’s motion for summary judgment.  A preliminary pre-trial
      conference was held on October 26, 2006 and the court granted the Company’s
      motions in limine to exclude plaintiffs’ claim for lost profits damages and to
      prohibit plaintiff Gerhard Von der Ruhr from offering expert testimony at
      trial.  The court subsequently granted a motion to sever the trial on
      Count V, regarding a technology license agreement, from the trial on the
      remaining counts.  A pre-trial order was submitted to the court in
      April 2007.  On July 27, 2007, the court conducted a pre-trial
      conference and set a trial date of December 3, 2007.




**Item
      1A.                      Risk
      Factors**




There
      are
      no material changes in risk factors previously disclosed in Item 1A to Part
      I of
      our Form 10-K for the fiscal year ended March 31, 2007.




**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.




*Conversion
      of Preferred Stock to Common Stock.*




During
      June 2007 a certain holder of Series E Convertible Preferred Stock, $0.01 par
      value (“Series E Stock”) converted 2,000 shares of Series E Preferred Stock into
      7,159 shares of our common stock.




*Preferred
      Stock Dividend Payment.*




On
      April
      15, 2007, we issued 41,113 shares of common stock as payment of a dividend
      earned on outstanding preferred stock to the holders thereof: holders of Series
      A Stock earned 6,308 shares of common stock on 55,500 outstanding shares;
      holders of Series B Stock earned 2,040 shares of common stock on 13,464
      outstanding shares; holders of Series C Stock earned 6,900 shares of common
      stock on 45,536 outstanding shares; holders of Series D Stock earned 13,334
      shares of common stock on 117,200 outstanding shares; and holders of Series
      E
      Stock earned 12,531 shares of common stock on 108,200 outstanding
      shares.  We also paid holders of our outstanding preferred stock $443
      in cash in lieu of fractional shares.




**Item
                3.**
            **Defaults
                Upon Senior
                Securities.**




None





-
            26
            -


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




None




**Item
                5.**
            **Other
                Information.**




None




**Item
                6.**
            **Exhibits.**







**Exhibit
                Number**
            **Exhibit
                Description**3.1
                (5)
            Amended
                and Restated Certificate of Incorporation of the Company, dated
                June 14, 20043.2
                (6)
            Certificate
                of Correction to Certificate of Incorporation dated December 14,
                2005.3.3
                (7)
            Certificate
                of Amendment (Name Change) to Certificate of Incorporation dated
                March 22,
                2006.3.4
                (1)
            Certificate
                of Designation for Series A Convertible Preferred Stock Private Placement,
                dated February 14, 20023.5
                (2)
            Certificate
                of Designation for Series B Convertible Preferred Stock Private Placement,
                dated September 25, 20023.6
                (3)
            Certificate
                of Designation for Series C Convertible Preferred Stock Private Placement,
                dated June 6, 20033.7
                (4)
            Certificate
                of Designation for Series D Convertible Preferred Stock Private Placement,
                dated January 15, 20043.8
                (6)
            Certificate
                of Designation for Series E Convertible Preferred Stock Private Placement,
                dated December 13, 20053.9
                (8)
            Amended
                and Restated Bylaws of the Company effective as of June 6,
                2007.10.48*
            Licensing
                Agreement with Par Pharmaceutical, Inc., dated June 11,
                2007.10.49*
            Supply
                & Distribution Agreement with Par Pharmaceutical, Inc., dated June
                11,
                2007.31.1
            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 2002






-
              27
              -
 31.2
                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 these exhibits 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 8-K (File No. 001-14907), as filed with
                the
                Securities and Exchange Commission on February 14, 2002.




(2)
            Incorporated
                by Reference to our Form 8-K (File No. 001-14907), as filed with
                the
                Securities and Exchange Commission on September 25,
                2002.




(3)
            Incorporated
                by Reference to our Form 8-K (File No. 001-14907), as filed with
                the
                Securities and Exchange Commission on June 10,
                2003.




(4)
            Incorporated
                by Reference to our Form 8-K (File No. 001-14907), as filed with
                the
                Securities and Exchange Commission on January 21,
                2004.




(5)
            Incorporated
                by Reference to our Form 10-K (File No. 001-14907), as filed with
                the
                Securities and Exchange Commission on June 14,
                2004.




(6)
            Incorporated
                by Reference to our Form 8-K (File No. 001-14907), as filed with
                the
                Securities and Exchange Commission on December 14,
                2005.




(7)
            Incorporated
                by Reference to our Form 8-K (File No. 001-14907), as filed with
                the
                Securities and Exchange Commission on March 23,
                2006.




(8)
            Incorporated
                by Reference to our Form 8-K (File No. 001-14907), as filed with
                the
                Securities and Exchange Commission on June 12,
                2007.








-
            28
            -










**SIGNATURES**




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




**IMMTECH
                PHARMACEUTICALS, INC.**Date:  August
                9, 2007
            By:/s/
                Eric L.
                Sorkin
              Eric
                L.
                Sorkin
              President
                and
                Chief Executive OfficerDate:  August
                9, 2007
            By:/s/
                Gary C.
                Parks
              Gary
                C.
                Parks
              Treasurer,
                Secretary and Chief Financial Officer
              (Principal
                Financial and Accounting Officer)