SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number:
    000-50414
 MIDDLEBROOK PHARMACEUTICALS,
    INC.
 (Exact name of Registrant as
    specified in its Charter)
  Delaware(State or other jurisdiction
    of
    incorporation or organization)

52-2208264(I.R.S. employer
    identification number)7 Village Circle, Suite 100
    Westlake, Texas(Address of principal
    executive offices)

76262(Zip
    Code)   (817) 837-1200
 (Registrants telephone
    number, including area code)
  (Former name, former address and
    former
 fiscal year  if
    changed since last report)
  Securities registered pursuant to Section 12(b) of the
    Act:
 None
  Securities registered pursuant to Section 12(g) of the
    Act:
 Common Stock, par value $0.01 per share
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Portions of MiddleBrook Pharmaceuticals, Inc.s Notice
    of Annual Stockholders Meeting and Proxy Statement, to be
    filed within 120 days after the end of the
    registrants fiscal year, are incorporated by reference
    into Part III of this Annual Report.




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MIDDLEBROOK
    PHARMACEUTICALS, INC.
    INDEX
  FORM 10-K
   
 PagePART IItem 1.


Business


2Item 1A.


Risk Factors


21Item 1B.


Unresolved Staff Comments


38Item 2.


Properties


38Item 3.


Legal Proceedings


38Item 4.


Submission of Matters to a Vote of Security
    Holders


38PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


39Item 6.


Selected Financial Data


42Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


43Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


66Item 8.


Financial Statements and Supplementary Data


67Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


67Item 9A.


Controls and Procedures


67Item 9B.


Other Information


68PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


68Item 11.


Executive Compensation


68Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


68Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


68Item 14.


Principal Accountant Fees and Services


69PART IVItem 15.


Exhibits and Financial Statement Schedules


69    KEFLEX, MiddleBrook, MiddleBrook Pharmaceuticals (stylized),
    MiddleBrook Pharmaceuticals, Inc., M1 (stylized), MOX-10,
    MOXAKIT, MOXATAG1 (stylized), MOXATAG, MOXATEN, MOX-PAK and
    PULSYS are our trademarks and have been registered in the
    U.S. Patent and trademark office or are the subject of
    pending U.S. trademarks applications. Each of the other
    trademarks, tradenames, or service marks appearing in this
    document belongs to the respective holder, as used herein,
    except as otherwise indicated by the context, references to
    we, us, our,
    MiddleBrook, or the Company, refer
    to MiddleBrook Pharmaceuticals, Inc., and its subsidiaries.




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FORWARD-LOOKING
    STATEMENTS
  This annual report on
    Form 10-K
    contains forward-looking statements, within the meaning of the
    Securities Exchange Act of 1934 and the Securities Act of 1933,
    that reflect our plans, beliefs and current views with respect
    to, among other things, future events and financial performance.
    In some cases, forward-looking statements are identified by
    words such as believe, anticipate,
    expect, intend, plan,
    potential, estimate will, may, predict,
    should, could, would and
    similar expressions. You should not place undue reliance on
    these forward-looking statements, which speak only as of the
    date of this report. All of these forward-looking statements are
    based on our historical performance and on our current plans,
    estimates and expectations. You should not regard the inclusion
    of this forward-looking information as a representation by us or
    any other person that we will achieve the future plans,
    estimates or expectations contained in this Annual Report. Such
    forward-looking statements are subject to various risks and
    uncertainties. In addition, there are or will be important
    factors that could cause our actual results to differ materially
    from those in the forward-looking statements. We believe these
    factors include, but are not limited to, those described in
    Part 1, Item 1A. Risk Factors.
  These cautionary statements should not be construed as
    exhaustive and should be read in conjunction with the other
    cautionary statements that are included in this Annual Report.
    Moreover, we operate in a continually changing business
    environment, and new risks and uncertainties emerge from time to
    time. Management cannot predict these new risks or
    uncertainties, nor can it assess the impact, if any, that any
    such risks or uncertainties may have on our business or the
    extent to which any factor, or combination of factors, may cause
    actual results to differ from those projected in any
    forward-looking statement. Accordingly, the risks and
    uncertainties to which we are subject can be expected to change
    over time, and we undertake no obligation to update publicly or
    review the risks or uncertainties described in this Annual
    Report. We also undertake no obligation to update publicly or
    review any of the forward-looking statements made in this Annual
    Report, whether as a result of new information, future
    developments or otherwise.
  If one or more of the risks or uncertainties referred to in
    this Annual Report materialize, or if our underlying assumptions
    prove to be incorrect, actual results may vary materially from
    what we have projected. Any forward-looking statements contained
    in this Annual Report reflect our current views with respect to
    future events and are subject to these and other risks,
    uncertainties and assumptions relating to our operations,
    financial condition, growth strategy and liquidity. You should
    specifically consider the factors identified in this Annual
    Report that could cause actual results to differ. We qualify all
    of our forward-looking statements by these cautionary
    statements. In addition, with respect to all of our
    forward-looking statements, we claim the protection of the safe
    harbor for forward-looking statements contained in the Private
    Securities Litigation Reform Act of 1995.
  We urge you to review and consider the various disclosures
    made by us in this Annual Report, and those detailed from time
    to time in our filings with the Securities and Exchange
    Commission, that attempt to advise you of the risks and factors
    that may affect our future results.
  The data included in this Annual Report regarding market
    share, historical sales, market size, and ranking, including our
    position within these markets, is based on data generated by the
    independent market research firm IMS Health Incorporated, or IMS
    Health.
  IMS Health reports data from various sources, including drug
    manufacturers, wholesalers, retailers, pharmacies, mail
    services, long-term care facilities, and hospitals. We rely on
    IMS Health-National Sales
    Perspectivestm

    for retail and non-retail sales data related to our business;
    IMS Health, National Prescription
    Audittm

    for historical retail and mail-order prescription data related
    to our product classes; and IMS Health, National Disease and
    Therapeutic
    Indextm for tracking physician treatment patterns.
 1




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PART I  Item 1.
    Business  Corporate
    Overview
      Streptococcus
    pyogenes
  Streptococcus pyogenes
  tm
  tm tm tm tm
   2




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271-person
  (817) 837-1200. Form 10-K.
  Anti-Infectives
    Market
      Substantial market. tm
  Increased resistance to existing
    therapies. Streptococcus
    pneumoniae Streptococcus yogenes
  Growing need for improved new
    treatments.
 3




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Difficulties in developing new classes of anti-infective
    compounds.
  Limitations of standard treatment regimens.
  Our
    Proprietary PULSYS Technology
      
    shorter duration of therapy;
    lower dose;
    reduced side effect profile;
    improved pediatric dosage form; and
    combination product(s) with superior efficacy over either drug
    alone.      Our
    Strategy
    Commercialize products with multiple advantages over existing
    therapies/regimens.
  Focus initially on antibiotics that have been used and
    trusted for decades.
 4




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Focus on first-line, broad-spectrum antibiotics for community
    infections.
  Multi-level patent strategy for PULSYS.
  In-license or acquire antibiotic products.
  Our
    Approved and Marketed Products
  Products

Key Indication(s)

Status

Marketing RightsMOXATAG (amoxicillin extended-release) Tablets, 775 mg

Pharyngitis/tonsillitis

Marketing

Worldwide rights (100% ownership  no royalties due to
    any third party)KEFLEX (Cephalexin, USP) Capsules 250 mg, 500 mg and
    750 mg

Skin and skin structure infections; upper respiratory tract
    infections

Marketing

U.S. and Puerto Rico rights (royalties to Eli Lilly, except for
    250 mg and 500 mg)   MOXATAG
    (amoxicillin extended-release) Tablets, 775 mg
  and/or Streptococcus pyogenes, tm tm
    and/or Streptococcus pyogenes ® Streptococcus pyogenes
 5




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Clinical development history of MOXATAG. 10-day 7-day
  Streptococcus pyogenes streptococcus
    MOXATAG U.S. Market
    Opportunity. tm
  tm
  ® ® ® ® ® ® tm tm
  tm
 6




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MOXATAG International Market Opportunity.
  KEFLEX
    (Cephalexin, USP) Capsules 250 mg, 500 mg, and
    750 mg
        once-a-day
 7




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KEFLEX Agreements- Deerfield Transaction. KEFLEX Agreements  Deerfield
    Transaction.
  Our
    Product Pipeline
    PULSYS Product



Targeted PULSYSCandidate/Program

Key Indication(s)

Added Value

Program Status(1)(2)KEFLEX (Cephalexin)  Adolescent & Adult

Skin and skin structure infections

Once-daily for 10-days

Preparing for Phase IIIPediatric Amoxicillin PULSYS  Sprinkle

Pharyngitis/tonsillitis

Shorter course of therapy, or once-daily

Plan to conduct Phase II-(on-hold)     (1)
    
    For an explanation of the terms Phase II and Phase III,
    please refer to the information under the heading
    Government Regulation below. Each of the product
    candidates above is discussed in more detail in the next section.(2)
    
    The timing of these development plans is dependent upon the
    availability of funds.  Item 7. Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations
  PULSYS
    Product Candidates
    
    once-a-day
    formulation;
    shorter duration of therapy;
    lower dose;
    reduced side effect profile;
    improved pediatric dosage form; and
    combination product with superior efficacy over either drug
    alone.    and/or
 8




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Government
    Regulation- 505(b)(2) Applications.
  KEFLEX (Cephalexin) PULSYS. tm tm
    Staphylococcus aureus Streptococcus pyogenes
  Amoxicillin Pediatric PULSYS Sprinkle
    Program. tm tm tm
     9




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and/or
  Other Possible Pulsatile Product
    Candidates.
    
    sinusitis;
    chronic bronchitis;
    acute otitis media;
    urinary tract infections; and
    community-acquired methicillin resistant staphylococcus aureus
    (MRSA).      Patent
    and Intellectual Property Protection
    Number of patents.
  Multi-level patent strategy for PULSYS.
 10




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Expiration dates for key patents.
  No royalties on PULSYS patents. Our Approved and Marketed Products- KEFLEX
    (Cephalexin, USP) Capsules
      Sales and
    Marketing
  271-person
  and/or
  Trade Sales and Distribution.
 11




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Seasonality. tm
  Competition
    
    Large pharmaceutical companies, such as Pfizer, GlaxoSmithKline,
    Wyeth, Bristol-Myers Squibb, Merck, Johnson & Johnson,
    Roche, Schering-Plough, Novartis, sanofi-aventis, Abbott
    Laboratories, AstraZeneca, and Bayer, which may develop new drug
    compounds that render our drugs obsolete or noncompetitive.
    Smaller pharmaceutical and biotechnology companies and specialty
    pharmaceutical companies engaged in focused research and
    development of anti-infective drugs, such as Trimeris, Vertex,
    Gilead Sciences, Cubist, Basilea, InterMune, Oscient, King,
    Advanced Life Sciences, and others.
    Drug delivery companies, such as Johnson &
    Johnsons Alza division, Biovail, DepoMed, Flamel
    Technologies, and SkyePharma, which may develop a dosing regimen
    that is more effective than pulsatile dosing.
    Generic drug companies, such as Teva, Ranbaxy, Sandoz and Stada,
    which produce low-cost versions of antibiotics that may contain
    the same active pharmaceutical ingredients as our PULSYS product
    candidates.    
    efficacy;
    safety;
    tolerability;
    acceptance by doctors;
    patient compliance and acceptance;
    patent protection;
    convenience;
    price;
    insurance and other reimbursement coverage;
    distribution; 12




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
    marketing; and
    adaptability to various modes of dosing.          Manufacturing
  Manufacture and Packaging.
    scale-up
 13




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Raw Material Sourcing Agreements.
  Product Candidates.
  Collaboration
    Agreements
    Termination of Our Collaboration with Par Pharmaceutical
    for Amoxicillin PULSYS.
    Termination of the Collaboration with GSK. ®
 14




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Collaboration with Par Pharmaceutical for Generic
    Clarithromycin.
  KEFLEX
    Agreements  Deerfield Transaction
    First Closing.
  Second Closing.
  Repurchase Right. Management
    Overview of the Key Developments in 2008
  Government
    Regulation
    New Drug Application Process.
  
    completion of preclinical laboratory and animal testing;
    submission of an investigational new drug application, which
    must become effective before the commencement of clinical trials; 15




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
    performance of adequate and well-controlled human clinical
    trials to establish the safety and efficacy of the proposed drug
    products intended use; and
    submission to and approval by the FDA of an NDA which includes
    inspection of manufacturing facilities.  PRECLINICAL:
    PHASE I:
  PHASE II:
  PHASE III:
      Abbreviated New Drug Applications, or ANDA.
  505(b)(2) Applications. and/or
 16




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Paragraph IV Certifications.
        45-day 30-month
 17




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and/or
  Other Regulatory Constraints.
       18




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Foreign Regulatory Approval.
    Pharmaceutical Pricing and Reimbursement.
 19




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
    controls on government funded reimbursement for drugs;
    controls on payments to healthcare providers that affect demand
    for drug products;
    challenges to the pricing of drugs or limits or prohibitions on
    reimbursement for specific products through other means;
    weakening of restrictions on imports of drugs; and
    expansion of use of managed care systems in which healthcare
    providers contract to provide comprehensive healthcare for a
    fixed cost per person.           20




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Employees
    Access to
    Our Filings with the Securities and Exchange
    Commission
  Form 10-K. Form 10-K, Form 10-Q, Form 8-K,
  1-800-SEC-0330.
  Item 1A.
    Risk
    Factors    Risks
    Related to Our Business
  Our
    performance depends substantially on the ability of our new
    management team to fully implement a new business strategy and
    on the performance of our executive officers and other key
    personnel.
   21




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We
    have a history of losses, we expect to incur losses for the
    foreseeable future, and we may never become
    profitable.
        
    commercializing our MOXATAG (amoxicillin extended-release)
    Tablets, 775 mg product, which was approved for marketing
    by the FDA in January 2008;
    maintaining sales of our KEFLEX 750 mg product;
    successfully developing, gaining FDA approval for, and
    commercializing other product candidates; and
    obtaining additional financing, should it prove to be necessary.    Although
    our MOXATAG product has been approved for commercial sale, we
    will not be successful if the product is not accepted by the
    market.
    
    demonstration of clinical efficacy and safety; 22




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
    cost-effectiveness;
    potential advantages over alternative therapies;
    reimbursement policies of government and third-party
    payors; and
    effectiveness of our marketing and distribution capabilities and
    the effectiveness of such capabilities of our collaborative
    partners.    Current
    unfavorable market conditions may adversely affect our product
    sales and business.
    Our
    PULSYS technology is based on a finding that could ultimately
    prove to be incorrect, or could have limited
    applicability.
      Our
    PULSYS delivery technology may not be effective for our product
    candidates, which would prevent us from commercializing products
    that are more effective than those of our
    competitors.
     23




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If a
    competitor produces and commercializes an antibiotic that is
    superior to our PULSYS antibiotics, the market for our potential
    products would be reduced or eliminated.
    We
    have not conducted an extensive third-party patent infringement,
    invalidity and enforceability investigation on pulsatile dosing
    and our PULSYS technology, and we are aware of at least one
    issued patent covering pulsatile delivery.
    
    cease selling, incorporating or using any of our products that
    incorporate the challenged intellectual property;
    obtain a license from the holder of the infringed intellectual
    property right, which may be costly or may not be available on
    reasonable terms, if at all; or
    redesign our products, which would be costly and time-consuming
    and may not be possible.  We
    have not sought patent protection for certain aspects of the
    technology used in our PULSYS product candidates.
   24




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If we
    are unable to develop and successfully commercialize our PULSYS
    product candidates, we may never achieve
    profitability.
    If
    clinical trials for our products are unsuccessful or delayed, we
    will be unable to meet our anticipated development and
    commercialization timelines.
        
    lack of efficacy during the clinical trials;
    unforeseen safety issues;
    slower than expected rate of patient recruitment; or
    government or regulatory delays.   25




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We
    have a post marketing commitment to proceed with a Phase II
    clinical trial for our pediatric PULSYS sprinkle product
    candidate, which we may never be able to conduct.
    Our
    ability to commercialize our products is dependent upon
    successfully developing our own sales and marketing capabilities
    and infrastructure.
    Our
    KEFLEX 750 mg product may not be successful.
    We
    rely upon a limited number of pharmaceutical wholesalers and
    distributors, which could impact our ability to sell our
    products.
   26




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The
    potential success of our products and product candidates, will
    be dependent upon successfully pricing the products in the
    marketplace.
    Generic
    pricing plans, such as that implemented by Wal-Mart and other
    retailers, may affect the market for our products.
  and/or
  Our
    immediate-release KEFLEX products are subject to therapeutic
    equivalent substitution, and our products are subject to
    Medicaid reimbursement and price reporting.
    We are
    dependent on our contract manufacturers and suppliers to provide
    us with active pharmaceutical ingredients and finished
    products.
   27




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
    the possibility that third parties may not comply with the
    FDAs cGMP regulations, other regulatory requirements and
    quality assurance;
    the possible breach of manufacturing agreements by third parties
    due to factors beyond our control; and
    the possibility of termination or nonrenewal of an agreement by
    a third-party manufacturer, based on its own business
    priorities, at a time that is costly or inconvenient for us.        All of
    our manufacturing operations are located outside of the U.S.,
    which exposes us to additional business risks that may cause our
    profitability to decline.
   28




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Our
    ability to conduct clinical trials will be impaired if we fail
    to qualify our clinical supply manufacturing facility and we are
    unable to maintain relationships with current clinical supply
    manufacturers or enter into relationships with new
    manufacturers.
    Clinical
    trials for our product candidates may be delayed due to our
    dependence on third parties for the conduct of such
    trials.
    Our
    success may depend on our ability to successfully attract and
    retain collaborative partners.
    
    fund our research and development activities;
    fund manufacturing by third parties;
    seek and obtain regulatory approvals; and
    successfully commercialize our product candidates.    If we
    cannot enter into new licensing arrangements or otherwise gain
    access to products, our ability to develop a diverse product
    portfolio could be limited.
   29




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and/or
  We
    could be forced to pay substantial damage awards if product
    liability claims that may be brought against us are
    successful.
    Risks
    Related to Our Industry
  Any
    inability to protect our intellectual property could harm our
    competitive position.
       30




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If we
    are unable to protect the intellectual property rights related
    to our brands, our ability to compete effectively in the markets
    for our products and our business could be negatively
    impacted.
  and/or Streptococcus pyogenes
    Legal
    proceedings or third party claims of intellectual property
    infringement may require us to spend time and money and could
    prevent us from developing or commercializing
    products.
       31




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If we
    do not compete successfully in the development and
    commercialization of products and keep pace with rapid
    technological change, we will be unable to capture and sustain a
    meaningful market position.
      
    Large pharmaceutical companies, such as Pfizer, GlaxoSmithKline,
    Wyeth, Bristol-Myers Squibb, Merck, Johnson & Johnson,
    Roche, Schering-Plough, Novartis, sanofi-aventis, Abbott
    Laboratories, AstraZeneca, and Bayer, which may develop new drug
    compounds that render our drugs obsolete or noncompetitive.
    Smaller pharmaceutical and biotechnology companies and specialty
    pharmaceutical companies engaged in focused research and
    development of anti-infective drugs, such as Trimeris, Vertex,
    Gilead Sciences, Cubist, Basilea, InterMune, Oscient, King,
    Advanced Life Sciences, and others.
    Drug delivery companies, such as Johnson &
    Johnsons Alza division, Biovail, DepoMed, Flamel
    Technologies, and SkyePharma, which may develop a dosing regimen
    that is more effective than pulsatile dosing.
    Generic drug companies, such as Teva, Ranbaxy, Sandoz and Stada,
    which produce low-cost versions of antibiotics that may contain
    the same APIs as our PULSYS product candidates.    
    developing products;
    undertaking preclinical testing and human clinical trials;
    obtaining approvals of products from the FDA and other
    regulatory agencies; and
    manufacturing and marketing products.    If we
    experience delays in obtaining regulatory approvals, or are
    unable to obtain or maintain regulatory approvals, we may be
    unable to commercialize any products.
  Government Regulation Form 10-K.
 32




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
    adversely affect the commercialization of any drugs that we or
    our collaborative partners develop;
    impose costly procedures on us or our collaborative partners;
    diminish any competitive advantages that we or our collaborative
    partners may attain; and
    adversely affect our receipt of revenues or royalties.      
    delays in clinical trials or commercialization;
    product recalls or seizures;
    suspension of production
    and/or
    distribution;
    withdrawals of previously approved marketing
    applications; and
    fines, civil penalties and criminal prosecutions.           33




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The
    manufacture and storage of pharmaceutical and chemical products
    is subject to environmental regulation and risk.
  and/or
  clean-up
  Our
    current and future products may be associated with certain
    transient side effects. If we or others identify additional,
    more severe side effects associated with our current or future
    products, we may be required to withdraw our products from the
    market, perform lengthy additional clinical trials or change the
    labeling of our products, any of which would hinder or preclude
    our ability to generate revenues.
      
    regulatory authorities may withdraw their approvals;
    we may be required to reformulate our products, conduct
    additional clinical trials, change the labeling of our products,
    or implement changes to obtain new approvals of
    manufacturers facilities;
    we may recall the affected products from the market;
    we may experience a significant drop in sales of the affected
    products;
    our reputation in the marketplace may suffer;
    we may become the target of lawsuits, including class action
    suits; and
    we may be required to withdraw our products from the market and
    not be able to re-introduce them into the market. 34




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Market
    acceptance of our products will be limited if users of our
    products are unable to obtain adequate reimbursement from
    third-party payors.
          Potential
    regulatory changes, and the billing and reimbursement process
    applicable to underlying conditions may cause price erosion and
    reduce sales revenue for our products, and our products may not
    be accepted by healthcare providers.
      Other
    Risks
  Future
    sales of our common stock, or the perception that these sales
    may occur, could depress our stock price.
   35




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We
    could be forced to pay liquidated damages if we do not maintain
    the effectiveness of our
    S-3
    registration statements.
  Form S-3
  A
    small number of stockholders have significant influence over our
    business, and the interests of those stockholders may not be
    consistent with the interests of our other
    stockholders.
    Our
    certificate of incorporation and provisions of Delaware law
    could discourage a takeover you may consider favorable or could
    cause current management to become entrenched and difficult to
    replace.
   36




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The
    price of our common stock has been and will likely continue to
    be volatile.
    We may
    undertake strategic acquisitions of technologies and products.
    Integration of such technologies and products will involve a
    variety of costs, and we may never realize the anticipated
    benefits of such acquisitions.
      We may
    need additional financing, which may be difficult to obtain. Our
    failure to obtain necessary financing or doing so on
    unattractive terms could adversely affect our marketing and
    development programs and other operations.
    
    the success of our commercialization of our products and the
    costs associated with related marketing, promotional and sales
    efforts;
    the timing of new product launches, product development and
    advancement of other product candidates into development;
    potential acquisitions or in-licensing of other products or
    technologies;
    the timing of, and the costs involved in, obtaining regulatory
    approvals;
    the cost of manufacturing activities, including raw material
    sourcing and regulatory compliance; and
    the costs involved in establishing and protecting our patent,
    trademark and other intellectual property rights. 37




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Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Location

Sq. Ft. (appx)


ExpirationWestlake, TX (Headquarters)


15,000


November 2013Germantown, MD (Office/R & D)


62,000


June 2013Germantown, MD (Vacant)


33,000


June 2013     Item 3.
    Legal
    Proceedings      and/or
  Item 4.
    Submission
    of Matters to a Vote of Security Holders    38




---



##### 



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
    High


LowDecember 31, 2008:Fourth quarter

$
1.96


$
0.95Third quarter


3.43



1.17Second quarter


4.89



3.18First quarter


4.44



1.11December 31, 2007:Fourth quarter

$
2.47


$
1.00Third quarter


2.62



1.71Second quarter


4.50



2.20First quarter


3.99



2.00   Holders
    Dividends
    Recent
    Sales of Unregistered Securities
  Form S-3
  Form S-3
 39




---



##### 



Corporate
    Performance Graph
      
  12/31/03



12/31/04



12/31/05



12/31/06



12/31/07



12/31/08MiddleBrook Pharmaceuticals


$
100.00



$
50.94



$
18.40



$
52.14



$
16.01



$
20.01Nasdaq Stock Market (U.S.)


$
100.00



$
108.83



$
111.14



$
122.09



$
132.39



$
63.78Nasdaq Pharmaceutical Index


$
100.00



$
106.50



$
117.29



$
114.79



$
120.73



$
112.32  40




---



##### 



Equity
    Compensation Plan Information
    Number of SecuritiesRemaining Available forNumber of Securities





Future Issuance Underto be Issued upon


Weighted-Average


Equity Compensation PlansExercise of


Exercise Price of


(Excluding SecuritiesOutstanding Options,


Outstanding Options,


Reflected in SecondPlan Category

Warrants and Rights


Warrants and Rights


Column)Equity compensation plans approved by security holders


13,363,194


$
2.80



511,440Equity compensation plans not approved by security holders(1)


2,396,600


$
1.31



2,103,400Total


15,759,794







2,614,840     (1)
    
    In September 2008, our board of directors approved the New Hire
    Stock Incentive Plan (the New Hire Incentive Plan)
    for use in making inducement grants of stock options to new
    employees pursuant to the NASDAQ Marketplace
    Rule 4350(i)(1)(A)(iv) as a material inducement for them to
    join MiddleBrook. The New Hire Incentive Plan was based upon and
    is substantially similar to our Stock Incentive Plan as approved
    by stockholders, except that eligible recipients are limited to
    prospective employees of MiddleBrook, consistent with its
    purpose as an employment inducement tool. The board of directors
    initially authorized 4,500,000 shares under the New Hire
    Incentive Plan, and as of December 31, 2008, we had issued
    options to purchase 2,396,600 shares of our common stock
    pursuant to this plan. Accordingly, as of January 1, 2009,
    2,103,400 shares remained available under the New Hire
    Incentive Plan. The board of directors may increase shares
    available under the New Hire Incentive Plan in its discretion. 41




---



##### 



Item 6.
    Selected
    Financial Data  Form 10-K Form 10-K
  For the Years Ended December 31,2008


2007


2006


2005


2004Statements of Operations DataTotal revenue

$
8,849,570


$
10,456,700


$
4,810,410


$
16,847,690


$
11,358,032Cost and expenses:Cost of product sales


1,635,051



2,576,954



899,601



562,009



169,854Research and development


19,078,990



21,957,708



25,973,844



39,729,441



33,642,930Selling, general and administrative


24,384,254



26,043,711



21,288,968



10,515,302



12,219,409Total expenses


45,098,295



50,578,373



48,162,413



50,806,752



46,032,193Loss from operations


(36,248,725
)


(40,121,673
)


(43,352,003
)


(33,959,062
)


(34,674,161
)Interest income (expense), net


723,682



(40,834
)


385,034



954,193



669,448Other income or (expense)


(6,714,000
)


(2,249,048
)


976,815



16,292



Loss before noncontrolling interest and taxes


(42,239,043
)


(42,411,555
)


(41,990,154
)


(32,988,577
)


(34,004,713
)Income tax (benefit)


(174,498
)














Loss attributable to noncontrolling interest


484,725



162,189











Net loss applicable to common stockholders

$
(41,579,820
)

$
(42,249,366
)

$
(41,990,154
)

$
(32,988,577
)

$
(34,004,713
)Basic and diluted net loss per share

$
(0.64
)

$
(0.96
)

$
(1.38
)

$
(1.20
)

$
(1.50
)Shares used in computing net loss per share, basic and diluted


65,179,709



43,816,145



30,535,965



27,421,516



22,684,410Balance Sheet Data at Year-End:Unrestricted cash, cash equivalents and marketable securities

$
74,761,935


$
1,951,715


$
15,379,461


$
29,431,058


$
30,051,937Total assets


95,192,816



23,665,795



42,005,769



57,796,892



61,142,140Long-term debt, including current portion










6,963,889



1,567,412



2,577,387Noncontrolling interest






7,337,811











Accumulated deficit


(236,914,648
)


(195,334,828
)


(153,085,462
)


(111,095,308
)


(78,106,731
)Total stockholders equity (deficit)


71,930,500



(5,848,152
)


11,872,020



33,342,011



39,738,379  42




---



##### 



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K. Forward-Looking Statements Risks
    Related to our Business Form 10-K,
  Our
    Business
      Streptococcus
    pyogenes
  Streptococcus pyogenes
  271-person
 43




---



##### 



General
  Form 10-K.
  Management
    Overview of the Key Developments in 2008
    Review
    of Strategic Alternatives Concluded in $100 Million Equity
    Investment
  
    Subsequent to receiving FDA approval for our MOXATAG product in
    January 2008, we announced that we had retained Morgan Stanley
    as our strategic advisor to assist us in exploring various
    strategic alternatives to further enhance stockholder value.
    Strategic alternatives that were evaluated included, but were
    not limited to, continued execution of our operating plan,
    licensing or development arrangements, the sale of some or all
    of our assets, partnership or other collaboration agreements, or
    a merger or other strategic transaction. On July 1, 2008,
    we announced that we reached an agreement for a
    $100 million equity investment in us by EGI-MBRK, L.L.C.,
    or EGI.
    On September 4, 2008, following stockholder approval, and
    in accordance with the stock purchase agreement dated
    July 1, 2008 with EGI, we sold 30,303,030 shares of
    our common stock at $3.30 per share and a five-year warrant to
    purchase a total of 12,121,212 shares of our common stock
    at an exercise price of $3.90 per share to EGI in exchange for
    its $100 million equity investment, or the EGI Transaction.
    In connection with the EGI Transaction, we repurchased certain
    KEFLEX assets previously sold to two entities affiliated with
    Deerfield Management, or Deerfield, Kef Pharmaceuticals, Inc.,
    or Kef, and Lex Pharmaceuticals, Inc., or Lex, in November 2007
    by purchasing all of the outstanding capital stock of both Kef
    and Lex for approximately $11 million, which canceled our
    ongoing royalty obligations to Deerfield. Additionally, we
    redeemed the warrant to purchase 3.0 million shares of our
    common stock issued to Deerfield for a total of
    $8.8 million.
    As part of the agreement with EGI, a new, commercially-focused
    senior management team was appointed. The net proceeds from the
    EGI Transaction, after repurchasing the KEFLEX assets, have
    allowed us to move forward with the commercial launch of
    MOXATAG, including hiring a dedicated sales force, and to
    continue work on the development of our proprietary delivery
    technology, or PULSYS, product candidate, KEFLEX PULSYS.  MOXATAG
    Approval
  
    We received FDA approval of our New Drug Application, or NDA, on
    January 23, 2008, for our once-daily amoxicillin PULSYS
    product under the trade name MOXATAG (amoxicillin
    extended-release) Tablets, 775 mg, which is indicated for
    the treatment of adults and pediatric patients 12 years and
    older with pharyngitis
    and/or
    tonsillitis secondary to Streptococcus pyogenes(commonly
    referred to as strep throat). The FDA approval of MOXATAG
    combined with our distribution, marketing and professional
    detail efforts will provide physicians with the first
    FDA-approved once-daily aminopenicillin antibiotic product for
    the treatment of pharyngitis.
    Following approval of MOXATAG, we were actively engaged in the
    commercial manufacture, testing and validation of our MOXATAG
    tablet production process in cooperation with our contract
    manufacturer, STADA Production Ireland Limited in Clonmel,
    Ireland, or Stada. Additionally, we retained ALMAC Pharma
    Services Limited, or ALMAC, to handle the packaging of our
    MOXATAG product samples. 44




---



##### 



Orange
    Book Listing
  
    The Orange Book is the means by which the FDA identifies
    products it has approved on the basis of safety and efficacy
    under Section 505 of the Federal Food, Drug and Cosmetic
    Act, and attached in an addendum to the Orange Book are any
    applicable periods of patent and non-patent market exclusivity
    for those FDA approved drugs.
    In October 2008, Section 4 of Public Law
    No. 110-379,
    extended certain Hatch Waxman Act patent and exclusivity
    benefits to older antibiotics that were historically excluded
    from these provisions of the Federal Food, Drug, and Cosmetic
    Act. Amoxicillin and cephalexin are older antibiotics covered by
    this new law. As such, we may be eligible for
    3-year
    exclusivity for these drugs if applicable legal and regulatory
    requirements are met. In addition, transition provisions
    included in the new law permit us to list certain patents in the
    Orange Book, thereby requiring that any applicant seeking
    approval of an abbreviated new drug application, or ANDA, or
    Section 505(b)(2) version of MOXATAG would have to certify to
    these patents. In late 2008, after the enactment of the new law,
    we submitted, and the FDA listed in the Orange Book, three
    patents covering MOXATAG. Moreover, if we submit future
    505(b)(2) NDAs that rely on previous approvals of older
    antibiotics for which there are Orange Book-listed patents, then
    we would have to certify to any patents listed in the Orange
    Book for those products.
    If we subsequently submit an NDA for a new use for MOXATAG,
    KEFLEX, or our amoxicillin pediatric PULSYS sprinkle product
    candidate those could qualify for three-year exclusivity, or if
    there is an applicable patent covering the drug product, then we
    will take the necessary steps to ensure that the FDAs
    Orange Book reflects this. Should we obtain the FDAs
    approval for our line extension of KEFLEX, currently termed
    KEFLEX PULSYS, then we will take the necessary steps to ensure
    that the FDAs Orange Book reflects any applicable period
    of patent or non-patent market exclusivity.  Marketed
    Products  KEFLEX (Cephalexin, USP) 250 mg,
    500 mg and 750 mg Capsules
  
    In 2008, net sales of our branded KEFLEX (Cephalexin, USP)
    immediate-release product line were approximately
    $8.8 million.
    During 2008, we continued our commercialization efforts for our
    750 mg strength of KEFLEX capsules through our 30 person
    contract sales force with Innovex. However, in November 2008, we
    terminated our agreement with Innovex and we began hiring our
    dedicated sales force of 271 sales representatives and 30
    district sales managers.  Focus for
    2009
      Critical
    Accounting Policies and Estimates
   45




---



##### 



Revenue
    Recognition
    Product Sales.
  Product Returns.
      Distribution Service Fees.
   46




---



##### 



Chargebacks and Rebates.
      Other Sales Allowances and Reserves.
    December 31,2008


2007Product returns

$
1,321,000


$
1,415,000Rebates and other


189,000



262,000Accrued returns, rebates and other(1)

$
1,510,000


$
1,677,000Distribution service fees(2)

$
266,000


$
340,000Chargebacks(2)

$
97,000


$
238,000Cash discounts(2)

$
16,000


$
25,000     (1)
    
    Accrued returns, rebates and other are reported within Accrued
    expenses and other current liabilities on the consolidated
    balance sheet.(2)
    
    Distribution fees, chargebacks and cash discounts are reported
    as valuation allowances against accounts receivable on the
    consolidated balance sheet.   47




---



##### 



Rebates &


Total AccruedProduct


Distribution





Cash


Other Sales


Sales ReservesReturns


Service Fees


Chargebacks


Discounts


Allowances


& AllowancesBalance at December 31, 2005

$
842,100


$
213,200


$
65,800


$
20,500


$
155,400


$
1,297,000Provision made for sales during period


351,200



454,700



122,700



120,200



69,000



1,117,800Payments/credits


(256,300
)


(568,100
)


(88,600
)


(123,500
)


(111,900
)


(1,148,400
)Balance at December 31, 2006


937,000



99,800



99,900



17,200



112,500



1,266,400Provision made for sales during period


746,800



604,000



254,100



261,400



406,100



2,272,400Payments/credits


(269,400
)


(364,200
)


(116,400
)


(253,000
)


(256,100
)


(1,259,100
)Balance at December 31, 2007


1,414,400



339,600



237,600



25,600



262,500



2,279,700Provision made for sales during period


712,500



626,600



194,600



223,800



321,600



2,079,100Provision/(benefit) for sales in prior periods


635,700







(160,300
)






(100,300
)


375,100Payments/credits


(1,441,600
)


(700,100
)


(174,600
)


(233,300
)


(294,800
)


(2,844,400
)Balance at December 31, 2008

$
1,321,000


$
266,100


$
97,300


$
16,100


$
189,000


$
1,889,500   Inventories
  first-in, work-in-process
  Foreign
    Exchange Forward Exchange Contracts
  Accounting for Derivative
    Instruments and Hedging Activities,
     48




---



##### 



Intangible
    Assets
  Acquired Intangible Assets.
  Impairment.
  Accrued
    Expenses
    Stock-Based
    Compensation
  Share-Based Payment,
   49




---



##### 




    We estimate the expected term of share-based awards granted
    subsequent to January 1, 2006 utilizing many factors
    including historical experience, vesting period of awards,
    expected volatility and employee demographics. Accordingly, as
    of December 31, 2008, we have estimated the expected term
    to be 4.0 years, equal to the length of the vesting periods
    for most option grants. Previously, we elected to determine the
    expected term of share-based award granted subsequent to
    January 1, 2006 using the transition approach proved by
    Staff Accounting Bulletin No. 107, under which an expected
    term of 6.25 years may be used for four-year grants with a
    ten-year contractual term. A shorter expected term would result
    in lower compensation expense.
    To estimate expected future volatility, we use our historical
    volatility over a period equal to our estimated expected term of
    options adjusted for certain unusual, one day fluctuations. We
    have no implied volatility data since we have no publicly traded
    options or other financial instruments from which implied
    volatility can be derived. As of December 31, 2008, we
    changed our volatility from 75% to 90% based on the updated
    expected term and our adjusted historical volatility.
    Historically, we based our estimate of expected future
    volatility upon a combination of our historical volatility
    together with the average volatility rates of comparable public
    companies. Using a higher volatility input to the Black-Scholes
    model would result in a higher compensation expense.
    The risk-free rate is based on U.S. Treasury yields in
    effect at the time of grant corresponding with the expected term
    of the options. Estimates of fair value are not intended to
    predict actual future events or the value ultimately realized by
    the employees who receive equity awards.  Income
    Taxes
   50




---



##### 



Accounting for
    Uncertainty in Income Taxes  an Interpretation of
    FASB Statement No. 109, Accounting for
    Income Taxes,
  Warrants
  Accounting
    for Certain Financial Instruments with Characteristics of both
    Liabilities and Equity, Accounting for Derivative Instruments
    and Hedging Activities. EITF 00-19, Accounting for Derivative Financial Instruments Indexed
    to, and Potentially Settled in, a Companys Own
    Stock, 00-19.
  EITF 00-19, EITF 00-19
    Registration
    Payment Arrangements
  No. EITF 00-19-2, Accounting for Registration Payment Arrangements, No. EITF 00-19-2. No. EITF 00-19-2, Accounting for
    Contingencies.
 51




---



##### 



Consolidation
    of Variable Interest Entities
  Consolidation of Variable Interest Entities, Consolidated
    Financial Statements,
        Recent
    Accounting Pronouncements
  No. 07-03, Accounting for Nonrefundable Advance Payments for Goods
    or Services to Be Used in Future Research and Development
    Activities, EITF 07-03. EITF 07-03 EITF 07-03
  No. 07-01, Accounting for Collaborative Arrangements, EITF 07-01. EITF 07-01 Disclosure of Accounting
 52




---



##### 



Policies, EITF 07-01 EITF 07-01
  Business Combinations,
  Noncontrolling Interests in Consolidated Financial
    Statements, an amendment of ARB No. 51,
  Fair Value Measurements,
  Disclosures About Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133,
  Research
    and Development Expenses
    Summary of Product Development
    Initiatives.
 53




---



##### 



Our Product
    Pipeline
  Incurred FromInception(January 1, 2000)


ClinicalYear Ended December 31,


to December 31,


Development2008


2007


2006


2008


PhaseDirect Project Costs(1)MOXATAG(2)

$
6,677,000


$
10,615,000


$
12,354,000


$
77,776,000


NDA approvedKEFLEX Product Development(3)


504,000



3,324,000



5,424,000



14,834,000


Early stages of
    preparing for
    Phase IIIOther Product Candidates


63,000



147,000



863,000



16,318,000


Phase II (on-hold)Total Direct Project Costs


7,244,000



14,086,000



18,641,000



108,928,000Indirect Project Costs(1)Facility


4,857,000



3,468,000



3,136,000



20,426,000Depreciation


5,675,000



2,854,000



2,441,000



16,848,000Other Indirect Overhead


1,303,000



1,550,000



1,756,000



12,480,000Total Indirect Expense


11,835,000



7,872,000



7,333,000



49,754,000Total Research & Development Expense

$
19,079,000


$
21,958,000


$
25,974,000


$
158,682,000     (1)
    
    Many of our research and development costs are not attributable
    to any individual project because we share resources across
    several development projects. We record direct costs, including
    personnel costs and related benefits and stock-based
    compensation, on a
    project-by-project
    basis. We record indirect costs that support a number of our
    research and development activities in the aggregate.(2)
    
    On January 23, 2008, we received approval for marketing
    from the FDA of our amoxicillin PULSYS adult and pediatric
    patients age 12 and older product, with the trade name
    MOXATAG. See Item 1. Business  Our Approved and
    Marketed Products  MOXATAG (amoxicillin
    extended-release) Tablets, 775 mg. We previously
    had an agreement under which Par Pharmaceutical was to be
    responsible for funding the anticipated future development costs
    of this product and our amoxicillin pediatric PULSYS sprinkle
    product candidate. See Item 1. Business 
    Collaboration Agreements  Termination of Our
    Collaboration with Par Pharmaceutical for Amoxicillin
    PULSYSabove. Assuming availability of funds, we plan
    to conduct a Phase II clinical trial for our amoxicillin
    pediatric PULSYS sprinkle product candidate. See Item 1.
    Business  Our Product Pipeline  PULSYS
    Product Candidates  Amoxicillin Pediatric
    PULSYS Sprinkle Programabove.(3)
    
    Direct Project Costs for KEFLEX product development include
    development costs for the non-pulsatile KEFLEX 750 mg line
    extension product, which commercially launched in July 2006, as
    well as research and development costs for a
    once-a-day
    KEFLEX PULSYS product candidate. We are currently in the early
    stages of preparing for a Phase III clinical trial for our
    KEFLEX PULSYS product candidate.  Net
    Losses
   54




---



##### 



Results
    of Operations
  Fiscal
    Year Ended December 31, 2008 Compared to Fiscal Year Ended
    December 31, 2007
  Revenues.
  Product Sale Revenues:

2008


2007KEFLEX 750 mg capsules

$
6,485,000


$
7,717,000KEFLEX 250 mg and 500 mg capsules


2,365,000



2,740,000Total

$
8,850,000


$
10,457,000     Cost of Product Sales.
  Cost of Product Sales:

2008


2007Product manufacturing costs

$
888,000


$
903,000Obsolescence provisions


39,000



864,000Royalty to Eli Lilly


708,000



810,000$
1,635,000


$
2,577,000       Research and Development Expenses.
 55




---



##### 



Year Ended December 31,Research and Development Expenses

2008


2007Direct project costs:Personnel, benefits and related costs

$
3,881,000


$
6,766,000Stock-based compensation


555,000



718,000Consultants, supplies, materials and other direct costs


2,881,000



6,530,000Clinical studies


(73,000
)


72,000Total direct costs


7,244,000



14,086,000Indirect project costs


11,835,000



7,872,000Total

$
19,079,000


$
21,958,000         Selling, General and Administrative
    Expenses.
  Year Ended December 31,2008


2007Salaries, benefits and related costs

$
4,937,000


$
3,284,000Severance costs


2,144,000



534,000Stock-based compensation


1,649,000



1,213,000Legal and consulting expenses


1,727,000



2,212,000Other expenses


6,994,000



6,526,000Marketing costs


2,839,000



4,746,000Contract sales expenses


4,094,000



7,529,000Total

$
24,384,000


$
26,044,000      56




---



##### 



Net Interest Income (Expense).
  Year Ended December 31,2008


2007Interest income

$
724,000


$
543,000Interest expense






(584,000
)Total, net

$
724,000


$
(41,000
)   Early Extinguishment of Debt.
  Warrant Expense.
  Other Income.
  Noncontrolling Interest.
  Fiscal
    Year Ended December 31, 2007 Compared to Fiscal Year Ended
    December 31, 2006
  Revenues.
  Product Sale Revenues:

2007


2006KEFLEX 750 mg capsules

$
7,717,000


$
2,680,000KEFLEX 250 mg and 500 mg capsules


2,740,000



2,130,000Total

$
10,457,000


$
4,810,000    57




---



##### 



Cost of Product Sales.
  Cost of Product Sales:

2007


2006Product manufacturing costs

$
903,000


$
459,000Obsolescence provisions


864,000



140,000Royalty to Eli Lilly


810,000



301,000$
2,577,000


$
900,000     Research and Development Expenses.
    Year Ended December 31,Research and Development Expenses

2007


2006Direct project costs:Personnel, benefits and related costs

$
6,766,000


$
6,252,000Stock-based compensation


718,000



1,435,000Consultants, supplies, materials and other direct costs


6,530,000



4,916,000Clinical studies


72,000



6,038,000Total direct costs


14,086,000



18,641,000Indirect project costs


7,872,000



7,333,000Total

$
21,958,000


$
25,974,000      58




---



##### 



Selling, General and Administrative
    Expenses.
  Year Ended December 31,2007


2006Salaries, benefits and related costs

$
3,284,000


$
2,710,000Severance costs


534,000



(359,000
)Stock-based compensation


1,213,000



1,970,000Legal and consulting expenses


2,212,000



2,142,000Other expenses


6,526,000



6,175,000Marketing costs


4,746,000



3,786,000Contract sales expenses


7,529,000



4,865,000Total

$
26,044,000


$
21,289,000               Net Interest Income (Expense).
    Year Ended December 31,2007


2006Interest income

$
543,000


$
896,000Interest expense


(584,000
)


(511,000
)Total, net

$
(41,000
)

$
385,000  59




---



##### 



Warrant expense.
  Other Income.
    Noncontrolling Interest.
  Liquidity
    and Capital Resources
    Review of Strategic
    Alternatives Concluded in $100 Million Equity Investment Noncontrolling
    Interest  Deerfield Transaction,
    Cash
    and Marketable Securities
    60




---



##### 



As of December 31,2008


2007Cash and cash equivalents

$
30,520,000


$
1,952,000Marketable securities


44,242,000



Total

$
74,762,000


$
1,952,000       Cash
    Flow
    Year Ended December 31,2008


2007


2006Net cash used in operating activities

$
(23,996,000
)

$
(35,261,000
)

$
(36,331,000
)Net cash provided by (used in) investing activities


(55,501,000
)


(834,000
)


10,793,000Net cash provided by financing activities


108,065,000



23,190,000



22,278,000Net increase (decrease) in cash and cash equivalents

$
28,568,000


$
(12,905,000
)

$
(3,260,000
)   Operating
    Activities
    Year Ended December 31,Operating Activities

2008


2007


2006Cash receipts:Cash received from product sales

$
9,575,000


$
10,707,000


$
6,120,000Interest income received and other


974,000



785,000



1,568,000Total cash receipts


10,549,000



11,492,000



7,688,000Cash disbursements:Cash paid for employee compensation and benefits


10,841,000



11,260,000



9,969,000Cash paid to vendors, suppliers, and other


23,704,000



35,493,000



34,050,000Total cash disbursements


(34,545,000
)


46,753,000



44,019,000Net cash used in operating activities

$
(23,996,000
)

$
(35,261,000
)

$
(36,331,000
)    61




---



##### 



Investing
    Activities
    Year Ended December 31,Investing Activities

2008


2007


2006Cash receipts:Sale of marketable securities, net of purchases

$
2,380,000


$
563,000


$
10,590,000Sale of fixed assets, restricted cash and other


1,366,000







754,000Total cash receipts


3,746,000



563,000



11,344,000Cash disbursements:Repurchase of KEFLEX assets


12,190,000







Purchase of marketable securities


46,244,000







Property and equipment purchases and deposits


813,000



1,397,000



551,000Total cash disbursements


59,247,000



1,397,000



551,000Net cash (used in) / provided by investing activities

$
(55,501,000
)

$
(834,000
)

$
10,793,000        62




---



##### 



Financing
    Activities
    Year Ended December 31,Financing Activities

2008


2007


2006Cash receipts:Cash received from private placement

$
115,943,000


$
22,412,000


$
16,736,000Cash received from term debt










7,793,000Cash received from Deerfield






7,500,000



Cash received from exercise of stock options and warrants


936,000



167,000



353,000Total cash receipts


116,879,000



30,079,000



24,882,000Cash disbursements:Cash paid to settle warrant liability


8,814,000







Cash paid for debt






6,889,000



2,604,000Total cash disbursements


8,814,000



6,889,000



2,604,000Net cash provided by financing activities

$
108,065,000


$
23,190,000


$
22,278,000         Borrowings
    Stock
    Issuances
         63




---



##### 



Contractual
    Obligations
    Payments
    Due by Period
  AfterContractual Obligations(1),(2)

Total


2009


2010


2011


2012


2013


2013(In thousands)Minimum purchase commitments(3)

$
1,248


$
1,248


$



$



$



$



$
Operating lease obligations


17,582



4,565



4,883



4,226



2,634



1,274



Total contractual cash obligations

$
18,830


$
5,813


$
4,883


$
4,226


$
2,634


$
1,274


$
Other commercial commitments(4)

$
5,095


$
1,177


$
1,177


$
1,177


$
782


$
782


$
     (1)
    
    This table does not include potential royalty payments, at a
    rate of 10% of sales value, to Eli Lilly and Company, which may
    be due on product line extensions of KEFLEX, including KEFLEX
    750 mg. Any such royalties cannot be estimated at this time.(2)
    
    This table does not include a contingent liability to
    Par Pharmaceutical under our amoxicillin development and
    commercialization agreement that was terminated by Par in August
    2005. Under certain circumstances, the termination clauses of
    the agreement may entitle Par to receive a share of future net
    profits, if any, up to one-half of Pars total
    $23.25 million investment in the development of certain
    amoxicillin PULSYS products, should products covered by the
    agreement be successfully commercialized. Accordingly, we
    retained $11.625 million of deferred revenue in recognition
    of this contingent liability to Par.(3)
    
    Includes minimum contract termination costs associated with
    Innovex and purchase commitments through purchase orders with
    our suppliers and contracts with vendors.(4)
    
    In addition to the minimum purchase commitments required under
    our contracts, we expect to incur additional amounts under
    contractual arrangements. These amounts represent software
    license agreements for our field-based sales force and annual
    license fees for the FDA.    and/or
   64




---



##### 



Private Placement

Maximum Liquidated DamagesSeptember 2008

$15.5 millionJanuary 2008

$6.3 millionApril 2007

$8.3 millionDecember 2006

$8.2 millionApril 2005

$10.1 million   Off-Balance
    Sheet Arrangements
      Prospective
    Information  Risks and Uncertainties related to Our
    Future Capital Requirements
       65




---



##### 



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Market
    Risk
    Foreign
    Currency Risk
   66




---



##### 



Fair
    Value of Warrants (Derivative Liabilities)
    Inflation
    Item 8.
    Financial
    Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Form 10-K
  Changes
    in Internal Control over Financial Reporting during the
    Quarter
    Managements
    Report on Internal Controls over Financial Reporting
  Rule 13a-15(f)
 67




---



##### 



Internal Control 
    Integrated Framework
    Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Code of
    Ethics
  Form 10-K.
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence   68




---



##### 



Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Consolidated Financial Statement Schedules    Index to Financial Statements
   PageNumberReport of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets at December 31, 2008 and 2007


F-3Consolidated Statements of Operations for the Years Ended
    December 31, 2008, 2007 and 2006


F-4Consolidated Statement of Changes in Stockholders Equity
    (Deficit) for the Years Ended December 31, 2008, 2007 and
    2006


F-5Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2008, 2007 and 2006


F-6Notes to Consolidated Financial Statements


F-7   Financial Statement Schedule
  Form 10-K:
    Exhibits
  Exhibit No.2
.1(3)+

Asset Purchase Agreement dated as of June 30, 2004, by and
    between the Registrant and Eli Lilly and Company2
.2(14)

Asset Purchase Agreement, dated November 7, 2007, by and
    between the Registrant and Kef Pharmaceuticals, Inc.2
.3(14)

Asset Purchase Agreement, dated November 7, 2007, by and
    between the Registrant and Lex Pharmaceuticals, Inc.3
.1(18)

Seventh Restated Certificate of Incorporation3
.2(1)

Amended and Restated Bylaws3
.3(12)

Certificate of Ownership and Merger Merging MiddleBrook
    Pharmaceuticals, Inc. Into Advancis Pharmaceutical Corporation4
.1(1)

Specimen Stock Certificate4
.2(6)

Form of Warrant of the Registrant4
.3(9)

Form of Registration Rights Agreement dated April 9, 20074
.4(14)

Form of Warrant of the Registrant4
.5(14)

Registration Rights Agreement, dated November 7, 2007, by
    and among the Registrant, Deerfield Private Design International
    Fund, L.P., Deerfield Special Situations Fund, L.P., Deerfield
    Special Situation International Limited and Deerfield Private
    Design Fund, L.P.4
.6(15)

Form of Registration Rights Agreement4
.7(15)

Form of Warrant Agreement dated January 28, 20084
.8(16)

Form of Warrant Agreement, filed July 8, 2008 69




---



##### 



Exhibit No.4
.9(16)

Registration Rights Agreement, dated July 1, 2008, by and
    among the Registrant and the investors named therein9
.1(16)

Form of Voting Agreement dated July 1, 200810
.1(1)

Form of Incentive Stock Option Agreement10
.2(1)

Form of Non-qualified Stock Option Agreement10
.3(2)

Employee Stock Purchase Plan10
.4(1)

Form of Employment Agreement on Ideas, Inventions and
    Confidential Information10
.5(1)

Lease Agreement between the Registrant and Seneca Meadows
    Corporate Center II LLC dated August 1, 200210
.6(1)

Fourth Amended and Restated Stockholders Agreement10
.7(1)

Omnibus Addendum and Amendment to Series E Convertible
    Preferred Stock Purchase Agreement and Fourth Amended and
    Restated Stockholders Agreement10
.8(1)+

Supply, Distribution and Marketing Agreement between the
    Registrant and Par Pharmaceutical, Inc. dated
    September 4, 200310
.9(3)+

Manufacturing Agreement dated as of June 30, 2004, by and
    between the Registrant and Eli Lilly and Company10
.10(3)+

Transition Services Agreement dated as of June 30, 2004, by
    and between the Registrant and Eli Lilly and Company10
.11(4)+

Development and Commercialization Agreement between the
    Registrant and Par Pharmaceutical, Inc. dated May 28,
    200410
.12(5)+

Commercial Supply Agreement between the Registrant and Ceph
    International Corporation dated December 3, 200410
.13(5)+

First Amendment to Development and Commercialization Agreement
    between the Registrant and Par Pharmaceutical Corporation
    dated December 14, 200410
.14(7)+

Manufacturing and Supply Agreement between the Registrant and
    Clonmel Healthcare Limited, dated as of April 19, 200510
.15(7)+

Development and Clinical Manufacturing Agreement between the
    Registrant and Clonmel Healthcare Limited, dated as of
    April 19, 200510
.16(7)+

Facility Build-Out Agreement between the Registrant and Clonmel
    Healthcare Limited, dated as of April 19, 200510
.17(6)+

Form of Purchase Agreement dated April 26, 2005, including
    the form of Warrant attached thereto10
.18(8)

Credit and Security Agreement, dated June 30, 2006 between
    the Registrant and Merrill Lynch Capital10
.19(9)

Securities Purchase Agreement dated April 9, 2007,
    including the form of Warrant attached thereto10
.20(10)

Letter Agreement, dated May 9, 2007, between the Registrant
    and Merrill Lynch Capital, a division of Merrill Lynch Business
    Financial Services, Inc.10
.21(11)

Form of Amendment to the Form of Incentive Stock Option Agreement10
.22(11)

Form of Amendment to the Form of Non-Qualified Stock Option
    Agreement10
.23(13)

Letter Agreement, dated August 14, 2007, between the
    Registrant and Merrill Lynch Capital, a division of Merrill
    Lynch Business Financial Services, Inc.10
.24(14)

Stock Purchase Agreement, dated November 7, 2007, by and
    among Deerfield Private Design International Fund, L.P.,
    Deerfield Special Situations Fund, L.P., Deerfield Special
    Situation International Limited, Deerfield Private Design Fund,
    L.P., Deerfield Management, L.P., Kef Pharmaceuticals, Inc. and
    the Registrant10
.25(14)

Stock Purchase Agreement, dated November 7, 2007, by and
    among Deerfield Private Design International Fund, L.P.,
    Deerfield Special Situations Fund, L.P., Deerfield Special
    Situation International Limited, Deerfield Private Design Fund,
    L.P., Deerfield Management, L.P., Lex Pharmaceuticals, Inc. and
    the Registrant10
.26(14)

Inventory Consignment Agreement, dated November 7, 2007, by
    and between the Registrant and Kef Pharmaceuticals, Inc. 70




---



##### 



Exhibit No.10
.27(14)

Registration and Trademark License Agreement, dated
    November 7, 2007, by and between the Registrant and Lex
    Pharmaceuticals, Inc.10
.28(14)

Form of Patent License Agreement, by and between the Registrant
    and Kef Pharmaceuticals, Inc.10
.29(14)

Form of Patent Sublicense Agreement, by and between the
    Registrant and Kef Pharmaceuticals, Inc.10
.30(14)

Regulatory Responsibility Agreement, dated November 7,
    2007, by and between the Registrant and Lex Pharmaceuticals, Inc.10
.31(14)

Keflex Products Transition Agreement, dated November 7,
    2007, by and between the Registrant and Kef Pharmaceuticals, Inc.10
.32(14)

Contingent Manufacturing Assignment, dated November 7,
    2007, by and between the Registrant and Lex Pharmaceuticals, Inc.10
.33(15)

Form of Securities Purchase Agreement dated January 24, 200810
.34

Amended and Restated Executive Employment Agreement between the
    Registrant and Edward M. Rudnic, Ph.D., dated April 8, 200810
.35

Amended and Restated Executive Employment Agreement between the
    Registrant and Robert C. Low, dated April 8, 200810
.36

Amended and Restated Executive Employment Agreement between the
    Registrant and Beth A. Burnside, Ph.D., dated April 1, 200810
.37

Amended and Restated Executive Employment Agreement between the
    Registrant and Donald J. Treacy, Ph.D., dated April 1, 200810
.38

Amended and Restated Executive Employment Agreement between the
    Registrant and Susan Clausen, Ph.D., dated April 1, 200810
.39(16)

Securities Purchase Agreement, dated July 1, 2008, by and
    between the Registrant and EGI-MBRK, L.L.C.10
.40(16)

Agreement Regarding Redemption of Warrants and Exercise of Stock
    Purchase Right, dated July 1, 2008, by and among the
    Registrant and Deerfield Private Design Fund, L.P., Deerfield
    Private Design International, L.P., Deerfield Special Situations
    Fund, L.P., Deerfield Special Situations Fund International
    Limited, Kef Pharmaceuticals, Inc., Lex Pharmaceuticals, Inc.
    and Deerfield Management, L.P.10
.41(16)

Executive Employment Agreement, dated July 1, 2008, between
    the Registrant and John S. Thievon10
.42(16)

Executive Employment Agreement, dated July 1, 2008, between
    the Registrant and David Becker10
.44(16)

Consulting Agreement, dated July 1, 2008, between the
    Registrant and John S. Thievon10
.45(16)

Consulting Agreement, dated July 1, 2008, between the
    Registrant and David Becker10
.46(16)

Consulting Agreement, dated June 27, 2008, between the
    Registrant and Edward M. Rudnic, Ph.D.10
.47(16)

Consulting Agreement, dated June 30, 2008, between the
    Registrant and Robert C. Low10
.48(17)

MiddleBrook Pharmaceuticals, Inc. Stock Incentive Plan10
.49(19)

Consulting Agreement, by and between the Registrant and Lord
    James Blyth, dated October 17, 200810
.50(20)

Lease Agreement dated October 30, 2008 between Maguire
    Partners  Solana Limited Partnership and the
    Registrant10
.51(21)

New Hire Stock Incentive Plan10
.52(21)

Form of New Hire Nonqualified Stock Option Agreement10
.53

Form of Indemnification Agreement23
.1

Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm31
.1

Rule 13a-14(a)
    Certification of Principal Executive Officer31
.2

Rule 13a-14(a)
    Certification of Principal Financial Officer32
.1

Section 1350 Certification of Chief Executive Officer32
.2

Section 1350 Certification of Chief Financial Officer     (1)
    
    Incorporated by reference to our Registration Statement, as
    amended, on
    Form S-1
    (File
    No. 333-107599). 71




---



##### 



(2)
    
    Incorporated by reference to our Registration Statement on
    Form S-8
    (File
    No. 333-109728).(3)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed July 15, 2004.(4)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    filed August 6, 2004.(5)
    
    Incorporated by reference to our Annual Report on
    Form 10-K
    filed March 10, 2005.(6)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    dated April 27, 2005.(7)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    filed August 15, 2005.(8)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    filed August 9, 2006.(9)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed April 13, 2007.(10)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-Q
    filed May 11, 2007.(11)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed May 22, 2007.(12)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed June 28, 2007.(13)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed August 20, 2007.(14)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed November 13, 2007.(15)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed January 30, 2008.(16)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed July 8, 2008.(17)
    
    Filed as an Appendix A to our Definitive Proxy Statement on
    Form 14A filed with the SEC on July 29, 2008.(18)
    
    Incorporated by reference to our Registration Statement on
    Form S-3
    filed October 17, 2008 (File
    No. 333-154431).(19)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed October 23, 2008.(20)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed November 4, 2008.(21)
    
    Incorporated by reference to our Registration Statement on
    Form S-8
    filed February 11, 2009 (File
    No. 333-157261).
    
    The Schedules and certain of the Exhibits to this Asset Purchase
    Agreement have been omitted in reliance upon the rules of the
    Securities and Exchange Commission. A copy will be delivered to
    the Securities and Exchange Commission upon request.+
    
    Confidential treatment requested for certain portions of this
    Exhibit pursuant to Rule 406 under the Securities Act,
    which portions are omitted and filed separately with the
    Securities and Exchange Commission. 72




---



##### 



SIGNATURES
    MIDDLEBROOK PHARMACEUTICALS, INC.
  By:
    /s/  John
    Thievon         Signature

Title

Date/s/  R.
    Gordon DouglasR.
    Gordon Douglas, M.D.

Chairman of the Board of Directors

March 13, 2009/s/  John
    ThievonJohn
    Thievon

President, Chief Executive Officer and Director (Principal
    Executive Officer)

March 13, 2009/s/  David
    BeckerDavid
    Becker

Executive Vice President, Chief Financial Officer (Principal
    Financial and Accounting Officer)

March 13, 2009/s/  Lord
    James BlythLord
    James Blyth

Vice Chairman of the Board of Directors

March 13, 2009/s/  James
    H. CavanaughJames
    H. Cavanaugh, Ph.D.

Director

March 13, 2009/s/  Richard
    W. DuganRichard
    W. Dugan

Director

March 13, 2009/s/  Wayne
    T. HockmeyerWayne
    T. Hockmeyer, Ph.D.

Director

March 13, 2009/s/  William
    C. PateWilliam
    C. Pate

Director

March 13, 2009/s/  Mark
    SotirMark
    Sotir

Director

March 13, 2009/s/  Martin
    A. VogelbaumMartin
    A. Vogelbaum

Director

March 13, 2009/s/  Harold
    R. WernerHarold
    R. Werner

Director

March 13, 2009  73




---



##### 



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageNumberReport of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm


F-2Consolidated Balance Sheets at December 31, 2008 and 2007


F-3Consolidated Statements of Operations for the Years ended
    December 31, 2008, 2007 and 2006


F-4Consolidated Statement of Changes in Stockholders Equity
    (Deficit) for the Years ended December 31, 2008, 2007 and
    2006


F-5Consolidated Statements of Cash Flows for the Years ended
    December 31, 2008, 2007 and 2006


F-6Notes to Consolidated Financial Statements


F-7  F-1




---



##### 



Report of
    Independent Registered Public Accounting Firm               F-2




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,2008


2007ASSETSCurrent assets:Cash and cash equivalents

$
30,519,879


$
1,951,715Marketable securities


44,242,056



Accounts receivable, net


426,138



687,787Inventories, net


334,739



687,933Prepaid expenses and other current assets


2,637,806



1,142,905Total current assets


78,160,618



4,470,340Property and equipment, net


4,191,605



10,928,659Restricted cash


872,180



872,180Deposits and other assets


523,230



174,965Intangible assets, net


11,445,183



7,219,651Total assets

$
95,192,816


$
23,665,795LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS
    EQUITY (DEFICIT)Current liabilities:Accounts payable

$
2,992,915


$
1,659,752Accrued expenses and other current liabilities


6,141,656



5,613,544Total current liabilities


9,134,571



7,273,296Warrant liability






2,100,000Deferred contract revenue


11,625,000



11,625,000Deferred rent and credit on lease concession


173,779



1,177,840Other long-term liabilities


2,328,966



Total liabilities


23,262,316



22,176,136Noncontrolling interest






7,337,811Commitments and contingencies (See Note 21)Stockholders equity (deficit):Preferred stock, $0.01 par value; 25,000,000 shares
    authorized, no shares issued or outstanding at December 31,
    2008 and 2007






Common stock, $0.01 par value; 225,000,000 shares
    authorized, and 86,433,194 and 46,748,748 shares issued and
    outstanding at December 31, 2008 and 2007, respectively


864,332



467,488Capital in excess of par value


307,704,865



189,019,188Accumulated deficit


(236,914,648
)


(195,334,828
)Accumulated other comprehensive income


275,951



Total stockholders equity (deficit)


71,930,500



(5,848,152
)Total liabilities, noncontrolling interest and
    stockholders equity (deficit)

$
95,192,816


$
23,665,795    F-3




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2008


2007


2006Revenues:Product sales

$
8,849,570


$
10,456,700


$
4,810,410Total revenue


8,849,570



10,456,700



4,810,410Cost and expenses:Cost of product sales


1,635,051



2,576,954



899,601Research and development


19,078,990



21,957,708



25,973,844Selling, general and administrative


24,384,254



26,043,711



21,288,968Total expenses


45,098,295



50,578,373



48,162,413Loss from operations


(36,248,725
)


(40,121,673
)


(43,352,003
)Interest income


723,682



543,442



895,685Interest expense






(584,276
)


(510,651
)Early extinguishment of debt






(224,048
)


Warrant expense


(6,714,000
)


(2,100,000
)


Other income






75,000



976,815Loss before noncontrolling interest and taxes

$
(42,239,043
)

$
(42,411,555
)

$
(41,990,154
)Income tax (benefit)


(174,498
)






Loss attributable to noncontrolling interest


484,725



162,189



Net loss

$
(41,579,820
)

$
(42,249,366
)

$
(41,990,154
)Basic and diluted net loss per share applicable to common
    stockholders

$
(0.64
)

$
(0.96
)

$
(1.38
)Shares used in calculation of basic and diluted net loss per
    share


65,179,709



43,816,145



30,535,965    F-4




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.



CONSOLIDATED
    STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
    (DEFICIT)  Accumulated


TotalCapital in


Deferred





Other


StockholdersCommon


Par


Excess of


Stock-Based


Accumulated


Comprehensive


EquityShares


Value


Par Value


Compensation


Deficit


Income (Loss)


(Deficit)Balance at December 31, 2005


29,765,139


$
297,652


$
144,766,213


$
(623,051
)

$
(111,095,308
)

$
(3,495
)

$
33,342,011Exercise of stock options


558,377



5,584



347,153















352,737Issuance of restricted stock


38,931



389



23,748















24,137Issuance and remeasurement of stock options for services










323,273















323,273Stock-based employee compensation expense










3,080,790















3,080,790Elimination of deferred stock-based compensation due to adoption
    of SFAS 123R










(623,051
)


623,051











Proceeds from private placement of common stock, net of issuance
    expenses


6,000,000



60,000



16,675,804















16,735,804Comprehensive income (loss):Net loss


















(41,990,154
)






(41,990,154
)Unrealized gain on marketable securities, net






















3,422



3,422Total comprehensive loss


























(41,986,732
)Balance at December 31, 2006


36,362,447



363,625



164,593,930







(153,085,462
)


(73
)


11,872,020Exercise of stock options


201,249



2,013



164,777















166,790Vesting of unvested restricted stock


30,052



300



18,332















18,632Issuance and remeasurement of stock options for services










16,594















16,594Stock-based employee compensation expense










1,914,845















1,914,845Proceeds from private placement of common stock and warrants,
    net of issuance expenses


10,155,000



101,550



22,310,710















22,412,260Comprehensive income (loss):Net loss


















(42,249,366
)






(42,249,366
)Unrealized gain on marketable securities, net






















73



73Total comprehensive loss


























(42,249,293
)Balance at December 31, 2007


46,748,748



467,488



189,019,188







(195,334,828
)






(5,848,152
)Exercise of stock options


559,176



5,592



766,487















772,079Exercise of warrants


72,239



722



163,260















163,982Stock-based employee compensation expense










2,203,425















2,203,425Proceeds from private placement of common stock and warrants,
    net of issuance expenses (January)


8,750,001



87,500



19,827,502















19,915,002Proceeds from private placement of common stock and warrants,
    net of issuance expenses (September)


30,303,030



303,030



95,725,003















96,028,033Comprehensive income (loss):Net loss


















(41,579,820
)






(41,579,820
)Unrealized gain on securities, net of tax of $101,004






















159,727



159,727Unrealized gain on hedges, net of tax of $73,494






















116,224



116,224Total comprehensive loss


























(41,303,869
)Balance at December 31, 2008


86,433,194


$
864,332


$
307,704,865


$



$
(236,914,648
)

$
275,951


$
71,930,500    F-5




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2008


2007


2006Cash flows from operating activities:Net loss

$
(41,579,820
)

$
(42,249,366
)

$
(41,990,154
)Adjustments to reconcile net income to net cash used in
    operating activities:Loss attributed to noncontrolling interest


(484,725
)


(162,189
)


Depreciation and amortization


6,316,481



4,460,069



3,919,267Warrant expense


6,714,000



2,100,000



Stock-based compensation


2,203,426



1,931,439



3,404,063Deferred rent and credit on lease concession


(256,038
)


(75,060
)


(15,957
)Amortization of premium on marketable securities


(117,926
)


(39,687
)


204,525Loss on disposal of fixed assets and exiting facility


3,739,717







23,185Advance payment for sale of KEFLEX










(1,000,000
)Noncash tax benefit


(174,498
)






Changes in:Accounts receivable


261,649



(384,273
)


574,751Inventories


353,194



1,389,457



(1,857,939
)Prepaid expenses and other current assets


(1,278,621
)


539,780



(885,432
)Deposits other than on property and equipment, and other assets


(348,265
)


304,151



(30,096
)Accounts payable


1,333,163



(625,984
)


599,249Accrued expenses and other current liabilities


(677,797
)


(2,260,048
)


534,236Deferred product revenue






(189,000
)


189,000Net cash used in operating activities


(23,996,060
)


(35,260,711
)


(36,331,302
)Cash flows from investing activities:Repurchase of KEFLEX assets from Deerfield


(12,189,986
)






Purchase of marketable securities


(46,243,399
)


(5,867,519
)


(13,764,736
)Sale and maturities of marketable securities


2,380,000



6,430,000



24,355,000Purchases of property and equipment


(813,495
)


(1,396,954
)


(550,929
)Proceeds from sale of fixed assets


1,366,008







25,000Change in restricted cash










728,744Net cash provided by (used in) investing activities


(55,500,872
)


(834,473
)


10,793,079Cash flows from financing activities:Proceeds from private placement of common stock and warrants,
    net of issuance costs


115,943,034



22,412,260



16,735,804Proceeds from purchase of noncontrolling interest






7,500,000



Proceeds from issuance of debt, net of issue costs










7,792,976Payments on lines of credit






(6,888,889
)


(2,603,524
)Proceeds from exercise of common stock options


772,079



166,790



352,737Proceeds from exercise of common stock warrants


163,983







Payment to settle warrant liability


(8,814,000
)






Net cash provided by financing activities


108,065,096



23,190,161



22,277,993Net increase (decrease) in cash and cash equivalents


28,568,164



(12,905,023
)


(3,260,230
)Cash and cash equivalents, beginning of period


1,951,715



14,856,738



18,116,968Cash and cash equivalents, end of period

$
30,519,879


$
1,951,715


$
14,856,738Supplemental disclosure of cash flow information:Cash paid for interest

$



$
566,726


$
386,454Supplemental disclosure of non-cash transactions:Reclassification of liability related to early exercises of
    restricted stock to equity upon vesting of the restricted stock

$



$
18,632


$
24,137Warrants issued

$



$
2,580,000


$
    F-6




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    Nature of
    the Business    Noncontrolling
    Interest  Deerfield Transaction, Equity Group Investments
    Transaction
  2.
    Summary
    of Significant Accounting Policies  Consolidation
  Consolidation of Variable Interest
    Entities Noncontrolling Interest  Deerfield
    Transaction
  Use of
    Estimates
   F-7




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Revenue
    Recognition
  Product sales revenue
  Deferred product revenue
  Deferred contract revenue Deferred Contract Revenue
  Research
    and Development
    Cash
    and Cash Equivalents
    Restricted
    Cash
  Commitments and
    Contingencies
 F-8




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Marketable
    Securities
    Fair
    Value of Financial Instruments
    Derivative
    Financial Instruments
  Accounting for Derivative
    Instruments and Hedging Activities, as amended by
    SFAS No. 137, No. 138 and No. 149
          Accounts
    Receivable
   F-9




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Inventories
  first-in,
  Consolidation,
  Property
    and Equipment
    Intangible
    Assets
  Noncontrolling Interest  Deerfield
    Transaction Consolidation,
     F-10




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Noncontrolling Interest  Deerfield
    Transaction Equity Group
    Investments Transaction
  Impairment
    of Long-Lived Assets
  Accounting for the Impairment
    or Disposal of Long-Lived Assets, Accounting for Costs Associated
    with Exit or Disposal Activities,
    Leases
      Income
    Taxes
   F-11




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Warrant
    Liabilities
  Accounting for Certain
    Financial Instruments with Characteristics of both Liabilities
    and Equity, EITF 00-19, Accounting for Derivative Financial Instruments Indexed
    to, and Potentially Settled in, a Companys Own
    Stock.
  Noncontrolling
    Interest  Deerfield Transaction Equity Group Investments
    Transaction
  Registration
    Payment Arrangements
  No. EITF 00-19-2, Accounting for Registration Payment Arrangements (EITF 00-19-2). No. EITF 00-19-2, Accounting for
    Contingencies.
  Other
    Comprehensive Income
  Reporting Comprehensive
    Income,
  Earnings
    Per Share
   F-12




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31,(Number of Underlying Common Shares)

2008


2007


2006Stock options


15,759,794



4,774,206



4,378,578Nonvested restricted stock










30,052Warrants


25,561,581



13,012,607



2,396,357Total


41,321,375



17,786,813



6,804,987   Segment
    and Geographic Information
  Disclosure
    about Segments of an Enterprise and Related Information,
    Long-LivedGeographic Information

Product Sales


AssetsUnited States

$
8,849,570


$
2,020,297Ireland






2,171,308Total

$
8,849,570


$
4,191,605   Recent
    Accounting Pronouncements
  No. 07-03, Accounting for Nonrefundable Advance Payments for Goods
    or Services to Be Used in Future Research and Development
    Activities, (EITF 07-03). EITF 07-03 EITF 07-03
  No. 07-01, Accounting for Collaborative Arrangements, (EITF 07-01). EITF 07-01 Disclosure of Accounting
 F-13




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Policies, EITF 07-01 EITF 07-01
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements, an amendment of ARB No. 51,
  , Fair Value Measurements,
  Disclosures About Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133
  3.
    Revenue   F-14




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    Marketable
    Securities    December 31, 2008Gross


GrossAmortized


Unrealized


Unrealized


FairAvailable-for-Sale

Cost


Gains


Losses


ValueCorporate debt securities :

$
11,331,289


$
67,323


$



$
11,398,612Government debt securities :


32,650,037



193,407







32,843,444Total marketable securities

$
43,981,326


$
260,730


$



$
44,242,056       5.
    Accounts
    Receivable    December 31,2008


2007Accounts receivable for product sales, gross

$
805,693


$
1,290,630Allowances for discounts, chargebacks and rebates


(379,555
)


(602,843
)Accounts receivable for product sales, net

$
426,138


$
687,787     6.
    Inventories    December 31,2008


2007Finished goods

$
373,659


$
1,692,334Reserve for obsolete and slow-moving inventory


(38,920
)


(1,004,401
)Inventories, net

$
334,739


$
687,933     Noncontrolling Interest  Deerfield
    Transaction.
 F-15




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7.
    Prepaids
    and Other Current Assets    December 31,2008


2007Prepaid insurance

$
824,501


$
836,334FDA license fee


586,080



Deposits for sales training materials


295,363



Product samples


523,289



Forward contract unrealized gains


216,280



Other prepaid expenses and other current assets


192,293



306,571Prepaid expenses and other current assets

$
2,637,806


$
1,142,905     8.
    Property
    and Equipment    Estimated Useful Life

December 31,(Years)

2008


2007Construction in progress

n/a

$



$
46,752Computer equipment

3


696,578



1,038,543Furniture and fixtures

3-10


834,472



1,405,918Equipment

3-10


3,472,908



11,401,691Leasehold improvements

Shorter of economic life
    or lease term


9,239,394



9,292,903Subtotal




14,243,352



23,185,807Less  accumulated depreciation




(10,051,747
)


(12,257,148
)Property and equipment, net



$
4,191,605


$
10,928,659      F-16




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        9.
    Intangible
    Assets    December 31, 2008Gross Carrying


Accumulated


Net CarryingAmount


Amortization


AmountKEFLEX intangible assets

$
11,757,529


$
(324,346
)

$
11,433,183Patents acquired


120,000



(108,000
)


12,000Intangible assets

$
11,877,529


$
(432,346
)

$
11,445,183   December 31, 2007Gross Carrying


Accumulated


Net CarryingAmount


Amortization


AmountKEFLEX brand rights

$
10,954,272


$
(3,834,012
)

$
7,120,260KEFLEX non-compete agreement


251,245



(175,854
)


75,391Patents acquired


120,000



(96,000
)


24,000Intangible assets

$
11,325,517


$
(4,105,866
)

$
7,219,651        F-17




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Noncontrolling Interest 
    Deerfield Transaction Consolidation, Equity Group
    Investments Transaction.
  10.
    Borrowings    11.
    Accrued
    Expenses    December 31,2008


2007Product returns

$
1,320,975


$
1,414,507Accrued loss on leased facility  current


1,286,416



589,587Research and development expenses


621,212



731,273Professional fees


607,188



475,392Bonus


446,707



1,255,357Product royalties


315,053



231,211Severance  current portion


336,991



190,317Sales and marketing expense


228,814



127,890Insurance and benefits


150,231



240,577Other expenses


828,069



357,433Total accrued expenses  current

$
6,141,656


$
5,613,544Deferred rent and credit on lease concessions 
    noncurrent


173,779



1,177,840Accrued loss on leased facility  noncurrent


2,328,966



Total accrued expenses  noncurrent

$
2,502,745


$
1,177,840   Accrued
    Severance
   F-18




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Expense for Year Ended December 31, 2007Research &


Selling, General &Development


AdministrativeExpense


Expense


TotalSeverance  salaries and benefits

$



$
533,696


$
533,696Stock-based compensation  forfeitures






(19,229
)


(19,229
)Total

$



$
514,467


$
514,467     2007


20052008


Workforce


WorkforceSeverance


Reduction


Reduction


TotalCurrent liability as of 12/31/2006

$



$



$
1,094,375


$
1,094,375Charges






533,696







533,696Cash Paid






(343,379
)


(1,094,375
)


(1,437,754
)Current liability as of 12/31/2007






190,317







190,317Charges


2,144,351











2,144,351Cash Paid


(1,807,360
)


(190,317
)






(1,997,677
)Current liability as of 12/31/2008

$
336,991


$



$



$
336,991   Advance
    Payment for Potential Sale of KEFLEX Assets
   F-19




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  12.
    Warrant
    Liability  - Noncontrolling
    Interest  Deerfield Transaction EITF 00-19, Accounting for Derivative Financial Instruments Indexed
    to, and Potentially Settled in, a Companys Own
    Stock,
    Equity Group Investments
    Transaction,
  13.
    Deferred
    Contract Revenue  Collaboration
    with Par Pharmaceutical for Amoxicillin
    PULSYS.
     F-20




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      14.
    Noncontrolling
    Interest  Deerfield Transaction    First
    Closing
  ,
  Second
    Closing
    Repurchase
    Right
   F-21




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Equity Group Investments Transaction
  Variable
    Interest Entities and FIN 46R Consolidation
    15.
    Preferred
    Stock  Undesignated    16.
    Common
    Stock and Warrants      Private
    Placements of Common Stock
   F-22




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EITF 00-19, Accounting for Derivative Financial Instruments Indexed
    to, and Potentially Settled in, a Companys Own
    Stock, (EITF 00-19) Equity Group Investments Transaction Form S-3
  EITF 00-19, Form S-3
  Form S-3
  Form S-3
 F-23




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form S-3
  No. EITF 00-19-2, Accounting for Registration Payment Arrangements. EITF 00-19, No. EITF 00-19-2, Accounting for
    Contingencies.
  No. EITF 00-19-2 EITF 00-19-2
 F-24




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Warrants
    Exercise


Expiration

Number ofDate Issued

Price


Date

SharesApril 29, 2005

$
4.78


April 29, 2010


2,396,357April 12, 2007

$
2.27


April 12, 2012


7,544,011January 28, 2008

$
3.00


July 28, 2013


3,500,001September 4, 2008

$
3.90


September 4, 2013


12,121,21225,561,581   Shares
    Reserved for Future Issuance
    Number of SharesOutstanding common stock options


15,759,794Common stock available for future grant under our stock option
    plans


2,614,840Common stock available for future grant under our Employee Stock
    Purchase Plan


100,000Warrants


25,561,58144,036,215   17.
    Stock
    Option Plans    4-year
 F-25




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted-AverageRemaining


AggregateNumber of


Weighted-Average


Contractual


IntrinsicOptions


Exercise Price


Term (Yrs)


ValueOutstanding, December 31, 2005


4,095,417


$
4.79Granted


1,322,870



2.24Exercised


(558,377
)


0.63Cancelled


(481,332
)


6.86Outstanding, December 31, 2006


4,378,578



4.30Granted


1,075,150



2.56Exercised


(201,249
)


0.83Cancelled


(478,273
)


3.12Outstanding, December 31, 2007


4,774,206



4.18Granted


12,023,501



1.91Exercised


(559,176
)


1.38Cancelled


(478,737
)


3.46Outstanding, December 31, 2008


15,759,794


$
2.57



8.9


$
1,002,668Exercisable, December 31, 2008


3,863,558


$
4.73



6.5


$
230,462       Number of


WeightedNonvested Stock


Average Grant DateOptions


Fair ValueOutstanding, December 31, 2007


1,372,676


$
1.85Granted


12,023,501



1.28Vested


(944,413
)


2.03Forefeited


(390,858
)


1.97Outstanding, December 31, 2008


12,060,906


$
1.26    F-26




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted-


Weighted-





Weighted-Range of

Number


Average Remaining


Average


Number


AverageExercise Prices

Outstanding


Contractual Life


Exercise Price


Exercisable


Exercise PriceDecember 31, 2008$0.35 to $1.15


1,522,744



9.1


$
1.09



281,071


$
0.80$1.28 to $1.36


1,955,998



9.7



1.32



113,493



1.35$1.41 to $2.03


2,065,104



8.7



1.62



564,789



1.54$2.06


6,487,901



9.7



2.06



60,000



2.06$2.47 to $3.08


1,635,125



8.5



2.83



813,639



2.75$3.18 to $4.80


895,552



6.9



4.32



833,196



4.32$8.40 to $10.00


1,197,370



5.0



9.25



1,197,370



9.2515,759,794



8.9


$
2.57



3,863,558


$
4.73   18.
    Stock-Based
    Compensation    December 31,Stock-Based Compensation Expense:

2008


2007


2006Employees:Fair-value method

$
2,076,000


$
1,914,845


$
3,080,790Nonemployees:Fair-value method


127,426



16,594



323,273Total

$
2,203,426


$
1,931,439


$
3,404,063   December 31,Included in Income Statement Captions as Follows:

2008


2007


2006Research and development expense

$
554,735


$
718,257


$
1,434,664Selling, general and administrative expense


1,648,691



1,213,182



1,969,399Total

$
2,203,426


$
1,931,439


$
3,404,063   Employees. Accounting for Stock Issued
    to Employees, Share-Based Payment
 F-27




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              December 31,2008


2007


2006Expected term (in years)


6.19



6.25



6.25Risk-free interest rate


2.75
%


4.79
%


4.57
%Volatility


75.4
%


75.0
%


75.0
%Dividend yield


0
%


0
%


0
%      F-28




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Nonemployees. No. 96-18 ,
    Accounting for Equity Instruments that are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services.
  19.
    Income
    Taxes   F-29




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006Current:Federal

$



$



$
State










Foreign










Total current income tax benefit

$



$



$
Deferred:Federal

$
(142,157
)

$



$
State


(32,341
)






Foreign










Total deferred income tax benefit

$
(174,498
)

$



$
Total income tax benefit

$
(174,498
)

$



$
     December 31,2008


2007Net operating loss carryforwards

$
72,169,290


$
62,627,851Start-up
    costs






324,279Deferred revenue


4,503,358



4,503,358Depreciation and amortization


2,475,249



1,348,447Stock-based compensation


691,857



642,494Loss on sale of intangible assets






(667,921
)Accrued research and development, accrued returns and other items


4,229,245



1,325,741Patent costs


766,059



613,806Research and experimentation tax credit


4,385,299



4,262,057Amortization of capitalized R&D


2,039,130



Identified intangibles


(2,250,167
)


Other Comprehensive Income


(174,497
)


Deferred tax assets


88,834,823



74,980,112Valuation allowance


(88,834,823
)


(74,980,112
)Net deferred tax assets

$



$
    F-30




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006U.S. federal statutory income tax rate


(34.0
)%


(34.0
)%


(34.0
)%State income taxes, net of federal tax benefit


(4.6
)%


(0.9
)%


(5.8
)%Permanent items, primarily stock-based compensation


0.7
%


1.4
%


2.9
%Research and experimentation tax credit


(0.7
)%


(1.4
)%


(2.8
)%Income taxes at other rates


0.4
%






Change in valuation allowance


37.8
%


34.9
%


39.7
%Effective tax rate


(0.4
)%


(0.0
)%


(0.0
)%       Accounting for Uncertainty in Income Taxes 
    an Interpretation of FASB Statement No. 109 Accounting for Income
    Taxes
        20.
    401(k)
    Savings Plan and Employee Stock Purchase Plan   F-31




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    21.
    Commitments
    and Contingencies  Leases
    10-year Summary of Significant Accounting
    Policies
  Summary of Significant Accounting
    Policies
   F-32




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        OperatingYear Ending December 31,

Leases2009

$
2,524,2472010


2,589,9222011


2,538,0292012


2,610,1642013


1,274,278Thereafter


Total

$
11,536,640   Royalties
      Legal
    Proceedings
     F-33




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    and/or
  22.
    Fair
    Value Measurements  The Fair Value
    Option for Financial Assets and Financial
    Liabilities  including an amendment to
    FAS 115
    
    Level 1  defined as observable inputs such as
    quoted prices in active markets
    Level 2  defined as inputs other than quoted
    prices in active markets that are either directly or indirectly
    observable
    Level 3  defined as unobservable inputs in which
    little or no market data exists, therefore requiring an entity
    to develop its own assumptions    Fair Value Measurement at December 31, 2008Quoted Prices in


SignificantActive Markets for


Other


SignificantIdentical Assets


Observable


Unobservable(Level 1)


Inputs (Level 2)


Inputs (Level 3)Marketable securities

$



$
44,242,056


$
Total

$



$
44,242,056


$
    F-34




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair Value Measurement at December 31, 2007Quoted Prices in


SignificantActive Markets for


Other


SignificantIdentical Liability


Observable


Unobservable(Level 1)


Inputs (Level 2)


Inputs (Level 3)Warrant liability

$



$
2,100,000


$
Total

$



$
2,100,000


$
   23.
    Equity
    Group Investments Transaction  EITF 00-19, Accounting for Derivative Financial Instruments Indexed
    to, and Potentially Settled in, a Companys Own
    Stock,
        Form S-3
 F-35




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  24.
    Related
    Party Transactions  Deerfield
    Transaction
  Noncontrolling Interest 
    Deerfield Transaction.
  Loans
    to Executive Officer
    Consulting
    Arrangements
  Consulting Agreements with Edward M.
    Rudnic. 12-month half-day,
    Consulting Agreements with Robert C. Low. 12-month half-day,
 F-36




---



##### 



MIDDLEBROOK
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Consulting Agreement with James
    D. Isbister.
  25.
    Quarterly
    Financial Data (Unaudited)    Net LossNet Loss


Per ShareApplicable to


Applicable toOperating





Common


CommonRevenue


Loss


Net Loss


Stockholders


StockholdersYear endedDecember 31, 2008:First quarter

$
2,394,011


$
(6,727,687
)

$
(13,799,502
)

$
(13,799,502
)

$
(0.26
)Second quarter


2,522,255



(5,414,182
)


(3,707,251
)


(3,707,251
)


(0.07
)Third quarter


2,267,033



(11,984,562
)


(12,462,280
)


(12,462,280
)


(0.19
)Fourth quarter


1,666,271



(12,122,294
)


(11,610,787
)


(11,610,787
)


(0.13
)Year endedDecember 31, 2007:First quarter

$
1,773,037


$
(13,678,122
)

$
(13,662,990
)

$
(13,662,990
)

$
(0.38
)Second quarter


2,680,558



(9,523,430
)


(9,477,927
)


(9,477,927
)


(0.21
)Third quarter


3,144,532



(10,024,075
)


(10,056,779
)


(10,056,779
)


(0.22
)Fourth quarter


2,858,573



(6,896,046
)


(9,051,670
)


(9,051,670
)


(0.19
)  F-37




---



##### 



SCHEDULE II
  MIDDLEBROOK
    PHARMACEUTICALS, INC.
    VALUATION AND QUALIFYING ACCOUNTS
 Years Ended December 31, 2008, 2007, and 2006
  Balance atBeginning of








Balance at End ofPeriod


Additions


Deductions(1)


PeriodAccounts receivable allowances:Year Ended December 31, 2008

$
602,843


$
884,726


$
(1,108,014
)

$
379,555Year Ended December 31, 2007

$
216,930


$
1,104,515


$
(718,602
)

$
602,843Year Ended December 31, 2006

$
352,920


$
821,165


$
(957,155
)

$
216,930Inventory reserves:Year Ended December 31, 2008

$
1,004,401


$
38,920


$
(1,004,401
)

$
38,920Year Ended December 31, 2007

$
293,956


$
864,404


$
(153,959
)

$
1,004,401Year Ended December 31, 2006

$
154,367


$
140,000


$
(411
)

$
293,956Deferred tax asset valuation reserves:Year Ended December 31, 2008

$
74,980,112


$
13,854,711


$



$
88,834,823Year Ended December 31, 2007

$
62,570,857


$
12,409,255


$



$
74,980,112Year Ended December 31, 2006

$
48,030,603


$
14,540,254


$



$
62,570,857     (1)
    
    Deductions represent utilization of the allowances. For accounts
    receivable, these include the deduction by customers of prompt
    pay discounts from their payments, chargebacks made by
    wholesalers to the Company, wholesaler rebates and writeoffs of
    bad debts, if any. S-1