Forward Looking Statements
Certain statements contained in this quarterly report and in the documents incorporated by reference herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements frequently, but not always, use the words "may", "intends", "plans", "believes", "anticipates" or "expects" or similar words and may include statements concerning our strategies, goals and plans. Forward-looking statements involve a number of significant risks and uncertainties that could cause our actual results or achievements or other events to differ materially from those reflected in such forward-looking statements. Such factors include, among others described in this quarterly report, the following: (i) we are in an early stage of product development,
(ii) the possibility that favorable relationships with collaborators cannot be established or, if established, will be abandoned by the collaborators before completion of product development, (iii) the possibility that we or our collaborators will not successfully develop any marketable products, (iv) the possibility that advances by competitors will cause our product candidates not to be viable, (v) uncertainties as to the requirement that a drug product be found to be safe and effective after extensive clinical trials and the possibility that the results of such trials, if completed, will not establish the safety or efficacy of our drug product candidates, (vi) risks relating to requirements for approvals by governmental agencies, such as the Food and Drug Administration, before products can be marketed and the possibility that such approvals will not be obtained in a timely manner or at all or will be conditioned in a manner that would impair our ability to market our product candidates successfully, (vii) the risk that our patents could be invalidated or narrowed in scope by judicial actions or that our technology could infringe upon the patent or other intellectual property rights of third parties, (viii) the possibility that we will not be able to raise adequate capital to fund our operations through the process of commercializing a successful product or that future financing will be completed on unfavorable terms, (ix) the possibility that any products successfully developed by us will not achieve market acceptance and (x) other risks and uncertainties that may not be described herein. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Results of Operations
With the exception of certain research funding agreements, license agreements and certain grants, we have not generated any revenue from operations. For the period from inception (October 15, 1984) to September 30, 2008, we incurred cumulative net losses of approximately $110,289,000. We have incurred additional losses since such date and we expect to incur additional operating losses for the foreseeable future. We expect that our cash sources for at least the next year will be limited to:
• payments from foundations and other collaborators under arrangements that may be entered into in the future;

• payments from license agreement milestones;

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

• the issuance of securities or borrowing of funds or sale of the land use rights in Shenzhen, China.

The timing and amounts of grant and payment revenues, if any, will likely fluctuate sharply and depend upon the achievement of specified milestones, and results of operations for any period may be unrelated to the results of operations for any other period.
Three Month Period Ended September 30, 2008 Compared with the Three Month Period Ended September 30, 2007.
Revenues under collaborative research and development, and license agreements were approximately $506,000 and $1,030,000 for the three month periods ended September 30, 2008 and September 30, 2007, respectively. For the three month period ended September 30, 2008, we recognized revenues of approximately $487,000 related to a clinical research subcontract agreement between us and UNC-CH and approximately $10,000 related to the Par License Agreement which has been cancelled and $9,000 related to the BioAlliance License Agreement, while for the three month period ended September 30, 2007, revenues recognized of approximately $626,000 related to the abovementioned UNC-CH clinical research subcontract, and approximately $404,000 related to the Par License Agreement. Grant and research and development agreement revenue is recognized as completed under the terms of the respective agreements, according to Company estimates. Grant and research and development funds received prior to completion under the terms of the respective agreements are recorded as deferred revenues. Revenue from licensing arrangements is recorded when earned based on the performance requirements of the contract. Nonrefundable upfront license fees, for product candidates where the Company is providing continuing services related to product development, are deferred and recognized as revenue over the development period or as the Company provides services required under the agreement. The timing and amount of revenue the Company recognizes from licenses, either from upfront fees or milestones where the Company is providing continuing services related to product development, is dependent upon the Company's estimates of filing dates.
Research and development expenses decreased to approximately $990,000 from $2,283,000 for the three month periods ended September 30, 2008 and September 30, 2007, respectively. Expenses relating to the UNC-CH subcontract, decreased to approximately $487,000 in the three month period ended September 30, 2008 from approximately $626,000 in the three month period ended September 30, 2007. Expenses associated with setting up operations in mainland China were approximately $105,000 for the three month period ended September 30, 2008. Contract services relating to clinical trials and their discontinuation decreased to approximately $190,000 in the three month period ended September 30, 2008 from approximately $1,120,000 in the three month period ended September 30, 2007. Discovery contract research expenses decreased to approximately $140,000 in the three month period ended September 30, 2008 from approximately $408,000 in the three month period ended September 30, 2007. Non-cash options expense under research and development decreased to approximately $66,000 in the three month period ended September 30, 2008 from approximately $115,000 in the three month period ended September 30, 2007. Other research and development expenses decreased approximately $7,000 in the three month period ended September 30, 2008 from the three month period ended September 30, 2007.

General and administrative expenses decreased to approximately $1,268,000 from approximately $2,214,000 during the three month periods ended September 30, 2008, and September 30, 2007, respectively. Patent fees decreased to approximately $61,000 in the three month period ended September 30, 2008 from approximately $101,000 in the three month period ended September 30, 2007. Operating expenses in Immtech Hong Kong increased to approximately $82,000 from approximately $36,000 in the three month periods ended September 30, 2008 and September 30, 2007, respectively. Payroll and payroll related costs decreased to approximately $300,000 from approximately $338,000 over the same periods. Additionally, public relation costs decreased to approximately $35,000 in the three month period ended September 30, 2008 from approximately $188,000 in the three month period ended September 30, 2007. Non-cash general and administrative expenses decreased to approximately $219,000 in the three month period ended September 30, 2008 for the expensing of options, from approximately $786,000 in the three month period ended September 30, 2007 which includes (i) approximately $172,000 for 50,000 warrants issued to a consultant, (ii) approximately $118,000 for 30,000 warrants issued to an investor relations firm, and
(iii) approximately $496,000 for expensing options. All other general and administrative expenses decreased approximately $446,000 over the same periods, primarily due to increased cost controls. During the three month period ended September 30, 2008, the Company recorded a non-cash asset impairment charge of approximately $693,000. Our net loss decreased to approximately $2,435,000 from approximately $3,334,000 during the three month periods ended September 30, 2008 and September 30, 2007, respectively.
Six Month Period Ended September 30, 2008 Compared with the Six Month Period Ended September 30, 2007.
Revenues under collaborative research and development agreements were approximately $1,647,000 and $1,857,000 for the six month periods ended September 30, 2008 and September 30, 2007, respectively. For the six month period ended September 30, 2008, we recognized revenues of approximately $1,513,000 related to a clinical research subcontract agreement between us and UNC-CH, approximately $67,000 related to the Par License Agreement, and approximately $67,000 related to the BioAlliance License Agreement, while for the six month period ended September 30, 2007, revenues recognized of approximately $1,304,000 related to the abovementioned UNC-CH clinical research subcontract and $553,000 related to the Par License Agreement.
Grant and research and development agreement revenue is recognized as completed under the terms of the respective agreements, according to Company estimates. Grant and research and development funds received prior to completion under the terms of the respective agreements are recorded as deferred revenues.

Revenue from licensing arrangements is recorded when earned based on the performance requirements of the contract. Nonrefundable upfront license fees, for product candidates where the Company is providing continuing services related to product development, are deferred and recognized as revenue over the development period or as the Company provides services required under the agreement. The timing and amount of revenue the Company recognizes from licenses, either from upfront fees or milestones where the Company is providing continuing services related to product development, is dependent upon the Company's estimates of filing dates.
Research and development expenses decreased to approximately $2,485,000 from $4,201,000 for the six month periods ended September 30, 2008 and September 30, 2007, respectively. Expenses relating to the UNC-CH subcontract, increased to approximately $1,513,000 in the six month period ended September 30, 2008 from approximately $1,221,000 in the three month period ended September 30, 2007. Additionally, contract services relating to trials for treatment of PCP and the subsequent termination decreased to approximately $211,000 from approximately $2,016,000 in the same periods. Discovery contract research expenses decreased to approximately $407,000 in the six month period ended September 30, 2008 from approximately $606,000 in the period ended September 30, 2007. Expenses associated with setting up operations in mainland China were approximately $166,000 for the six month period ended September 30, 2008. Non-cash options expense under research and development decreased to approximately $161,000 in the six month period ended September 30, 2008 from approximately $233,000 in the six month period ended September 30, 2007. Other research and development expenses decreased approximately $8,000 from the six month period ended September 30, 2007 to the six month period ended September 30, 2008. General and administrative expenses decreased to approximately $2,193,000 from approximately $3,931,000 during the six month periods ended September 30, 2008, and September 30, 2007, respectively. Legal fees decreased to approximately $232,000 in the six month period ended September 30, 2008 from approximately $333,000 in the six month period ended September 30, 2007. Contact services, including public relations, decreased to approximately $132,000 from approximately $483,000 during the same periods. Operating expenses in Immtech Hong Kong increased to approximately $126,000 from approximately $71,000 in the six month periods ended September 30, 2008 and September 30, 2007, respectively. Non-cash general and administrative expenses decreased to approximately $15,000 in the six month period ended September 30, 2008, having benefited by a reversal of approximately $428,000 due to the change in the option forfeiture rate under SFAS No. 123(R) upon the reduction in personnel in the first quarter of the fiscal year, from approximately $1,161,000 in the six month period ended September 30, 2007, which includes (i) approximately $172,000 for the 50,000 warrants issued to a consultant, (ii) approximately $118,000 for the 30,000 warrants issued to an investor relations firm, and (iii) approximately $871,000 for expensing options. Other general and administrative expenses decreased approximately $195,000 over the same periods.
During the six month period ended September 30, 2008, the Company recorded a non-cash asset impairment charge of approximately $693,000.
Our net loss decreased to approximately $3,692,000 from approximately $5,995,000 during the six month periods ended September 30, 2008 and September 30, 2007, respectively.
Business Plans
AQ-13 and Other Infectious Diseases
Our clinical and regulatory staff is planning for the clinical development of AQ-13 for the treatment of malaria and malaria prophylaxis in travelers. We have identified and are preparing to execute additional toxicology and genotoxicology studies, and planning the Phase I dose ranging study of AQ-13. We recently received an Orphan Drug Designation for AQ-13 in treatment of malaria, and have licensed exclusive rights to AQ-13 and other 4-aminoquinolines in development from Tulane University. We are currently pursuing relationships with NGOs and foundations to provide support for the development of AQ-13. We do not believe that we will not develop this program unless we obtain third party funding to cover or reduce third party and overhead expenses, and the resultant burn rate. We expect to initiate the AQ-13 program in the first half of calendar year 2009. We are also currently in discussions with commercial pharmaceutical organizations and NGOs regarding providing services related to the clinical development of proprietary compounds for infectious diseases on a fee-for-services basis. We believe that such arrangements will result in positive cash flow and help to reduce overall ongoing operational expenses. Discovery Programs
We are actively working on the following long term discovery programs currently supported by Company funds:
Hepatitis C Virus ("HCV"): Through a combination of academic collaboration and contract services, we are advancing an HCV drug discovery effort. In June 2008, we announced that a prototype compound belonging to this expanding class of compounds was found to have activity against HCV under assay conditions designed to demonstrate inhibition of the virus entry process. We are currently engaged in new medicinal chemistry and screening efforts to optimize the lead for potency and oral availability.
West Nile and Dengue Fever: Our understanding of mechanism of action of these compounds has led us to investigate the application of our technology to inhibit the virus entry process of other therapeutically important virus targets in the flavivirus family. Two notables in this family are West Nile virus ("WNV") and Dengue Fever virus. Screening efforts for WNV in particular have caused us to identify a promising lead series which is currently undergoing lead optimization through new medicinal chemistry.
The following programs are only being moved forward if third party funding is obtained:
Antifungal and Antibiotic: We are currently evaluating potential partnership opportunities for our antifungal and antibiotic discovery programs. We have initiated discussions with potential collaborators who may be interested in funding and executing additional discovery efforts in exchange for future royalties or licensing rights.
China
Early this year, we announced the initiation of a collaboration with Beijing Capital Medical University ("BCMU") in Beijing, one of China's leading academic medical research centers. The Company and BCMU are considering the development of a joint venture to provide contract research services ("CRS") in China. With an initial focus on early-stage drug discovery, we believe that a joint venture could be positioned to support later-stage clinical development including coordination with research sites, data management, monitoring and reporting for clinical research programs. We also plan to explore the potential of having joint ventures with Chinese pharmaceutical companies that are interested in expanding outside of China. These companies could provide funding and resources to further develop our compounds.
Additionally, we believe that our experience in and knowledge of the Chinese market may also permit us to explore other business development opportunities in China.

Liquidity and Capital Resources
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Since inception, the Company has incurred accumulated net losses of approximately $110,289,000. Management expects the Company will continue to incur significant losses during the next several years as the Company continues development activities, clinical trials and commercialization efforts. In addition, the Company has various research and development agreements with third parties and is dependent upon such parties' abilities to perform under these agreements. There can be no assurance that the Company's activities will lead to the development of commercially viable products. The Company's operations to date have consumed substantial amounts of cash. The negative cash flow from operations is expected to continue in the foreseeable future. The Company believes it will require substantial additional funds to commercialize its drug candidates. The Company's cash requirements may vary materially from those now planned when and if the following become known: formation and development of relationships with strategic partners, changes in the focus and direction of development programs, results of research and development efforts, results of clinical testing, responses to grant requests, competitive and technological advances, requirements in the regulatory process and other factors. Changes in circumstances in any results of our new global business initiatives may require the Company to allocate substantially more funds than are currently available or than management intends to raise.
As of September 30, 2008, cash and cash equivalents were approximately $2,077,000.
We spent approximately $1,000 and $4,000, respectively, on equipment purchases during the three and six month periods ended September 30, 2008. Nothing was spent on equipment purchases during the six month period ended September 30, 2007. No significant purchases of equipment are anticipated by us during the year ending March 31, 2009.
We periodically receive cash from the exercise of common stock options and warrants. No options or warrants were exercised for cash during the three or six month periods ended September 30, 2008. During the three and six month periods ended September 30, 2007, we received approximately $296,000 from the exercise of warrants.
Through September 30, 2008, we financed our operations with:
• proceeds from various private placements of debt and equity securities, secondary public stock offerings, our initial public offering (our "IPO"), and other cash contributed from stockholders, which in the aggregate raised approximately $77,608,000;

• payments from research agreements, licensing agreements, foundation grants, and Small Business Innovation Research ("SBIR") grants and Small Business Technology Transfer program grants of approximately $36,447,000; and

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

Our cash resources have been used to finance, develop and begin commercialization of drug product candidates, including sponsored research, conducting human clinical trials, capital expenditures, expenses associated with development of product candidates pursuant to the Consortium Agreement, and, as contemplated by the Consortium Agreement, under the License Agreement with the Scientific Consortium, and general and administrative expenses. Over the next several years we expect to incur substantial additional research and development costs, including costs related to research in pre-clinical (laboratory) and human clinical trials, administrative expenses to support our research and development operations and marketing expenses to launch the sale of any commercialized product that may be developed.
Our future working capital requirements will depend upon numerous factors, including the progress of research, development and commercialization programs (which may vary as product candidates are added or abandoned), results of pre-clinical testing and human clinical trials, achievement of regulatory milestones, third party collaborators fulfilling their obligations to us, the timing and cost of seeking regulatory approvals, the level of resources that we devote to the engagement or development of manufacturing capabilities, our ability to maintain existing and to establish new collaborative arrangements with others to provide funding to support these activities, and other factors. In any event, we will require substantial additional funds in addition to our existing resources to develop product candidates and to otherwise meet our business objectives.

We believe our existing unrestricted cash and cash equivalents and the grants we have received or have been awarded and are awaiting disbursement of, will be sufficient to meet our planned expenditures through at least January 2009, although there can be no assurance we will not require additional funds. As of November 1, 2008, the Company has the following cash:

               Unrestricted cash and cash equivalents   $ 1,776,058

               Restricted funds on deposit                  915,437


                                                        $ 2,691,495

Based on forecasted monthly usage of unrestricted cash of approximately $450,000 and after consideration of payment of liabilities recorded as of November 1, 2008, we believe funding is available to continue operations through January 31, 2009. In order to maintain operations and liquidity after that date, the following options are being pursued and are discussed below:
• sale of land use rights in Shenzhen, China;

• discussions with commercial pharmaceutical organizations and NGOs for providing development services for compounds slated for clinical development on a fee-for-services basis; and

• restrictions on staffing based on businesses to be developed and pursued.

Subsequent to September 30, 2008, the Company engaged a sales agent for the sale of the land use rights in Shenzhen, China. We believe that the proceeds from the sale of the land use rights will provide cash to fund operations through June 30, 2009. As noted in Note 2 (Long-Lived Assets), the Company has recorded an asset impairment charge of $693,073 in the second quarter of fiscal year 2009. However, due to the current uncertainty in the market, there can be no assurance that the Company will be able to realize its full carrying value. In the event the aforementioned options are unsuccessful, the Company may be unable to sustain its operations beyond January 31, 2009 due to a lack of cash resources. However, in the meantime, the Company will explore all options including fund raising, joint ventures, licensing, reducing expenses, and will consider all possibilities including merger with another company, selling the Company, ceasing operations or seeking protection under applicable laws. Management's plans for the remainder of the fiscal year, in addition to normal operations, include continuing their efforts to create joint ventures, obtain additional grants and to develop and enter into research, development and/or commercialization agreements with others.