Unassociated Document
Filed
Pursuant to Rule 424(b)(3)
File
No.333-138782
OFFERING
PROSPECTUS
VioQuest
Pharmaceuticals, Inc.
47,798,626
Shares
Common
Stock
The
selling stockholders identified on pages 47-54
of
this
prospectus are offering on a resale basis a total of 47,798,626
shares
of
our common stock, including 12,746,612
shares
issuable upon the exercise of outstanding warrants. We will not receive any
proceeds from the sale of these shares by the selling stockholders.
Our
common stock is quoted on the Over-the-Counter Bulletin Board under the symbol
“VQPH.” On April 13, 2007, the last sale price for our common stock as reported
on the OTC Bulletin Board was $0.50.
The
securities offered by this prospectus involve a high degree of
risk.
See
“Risk Factors” beginning on page 4.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved these securities or determined that this prospectus
is
truthful or complete. A representation to the contrary is a criminal
offense.
The
date
of this Prospectus is April 13, 2007.
Table
of Contents
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Page
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Prospectus
Summary
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1
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Risk
Factors
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4
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Note
Regarding Forward Looking Statements
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11
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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11
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Our
Company
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20
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Management
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30
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Security
Ownership of Certain Beneficial Owners and Management
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40
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Certain
Relationships and Related Transactions
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41
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Market
for Common Equity and Related Stockholder Matters
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43
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Use
of Proceeds
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45
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Selling
Stockholders
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46
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Plan
of Distribution
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55
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Description
of Capital Stock
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57
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Disclosure
Of Commission Position On Indemnification For Securities Act
Liabilities
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57
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About
This Prospectus
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58
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Where
You Can Find More Information
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58
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Validity
of Common Stock
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58
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Experts
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58
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Financial
Statements
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F-1
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PROSPECTUS
SUMMARY
This
summary provides a brief overview of the key aspects of this offering. Because
it is only a summary, it does not contain all of the detailed information
contained elsewhere in this prospectus or in the documents included as exhibits
to the registration statement that contains this prospectus. Accordingly, you
are urged to carefully review this prospectus in its entirety.
Our
Company
VioQuest
Pharmaceuticals, Inc. engages in two distinct businesses: drug development
and
chiral technology. Our drug development business focuses on the acquisition,
development and commercialization of pharmaceutical drug candidates,
particularly candidates for use in oncology. Our chiral business provides
innovative chiral products, technology and services to pharmaceutical and fine
chemical companies in all stages of a product lifecycle.
We
are
incorporated under the laws of Delaware. Our company resulted from the reverse
merger of Chiral Quest, LLC, a Pennsylvania limited liability company that
commenced operations in October 2000, and Surg II, Inc., a Minnesota
corporation, on February 18, 2003. Following the merger, Surg II, Inc. was
renamed Chiral Quest, Inc., and in August 2004, we changed our name to VioQuest
Pharmaceuticals, Inc. In October 2005, we reincorporated in the state of
Delaware.
Our
executive offices are located at 180 Mount Airy Road, Suite 102, Basking Ridge,
New Jersey 07920 and our telephone number is (908) 766-4400. Our Internet site
is www.vioquestpharm.com.
Drug
Development
Through
our drug development business, we acquire, develop, and commercialize innovative
products for the treatment of important unmet medical needs in cancer and
immunological diseases. In October 2005, as a result of our acquisition of
Greenwich Therapeutics, Inc., we obtained the rights to develop and
commercialize two oncology drug candidates - VQD-001 (sodium stibogluconate)
and
VQD-002 (triciribine phosphate). The rights to our two oncology drug candidates,
VQD-001 and VQD-002, are governed by license agreements with The Cleveland
Clinic Foundation and the University of South Florida Research Foundation,
respectively. These licenses give us the right to develop, manufacture, use,
commercialize, lease, sell, and/or sublicense VQD-001 and VQD-002.
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VQD-001
- Sodium Stibogluconate (SSG).
VQD-001 is a pentavalent antimonial drug that has been used for over
50
years in parts of Africa and Asia for the treatment of leishmaniasis
(a
protozoan disease). The World Health Organization has stated that
leishmaniasis currently threatens 350 million men, women, and children
in
88 countries around the world. This drug is currently used to treat
military personnel serving in parts of the world where leishmaniasis
is
prevalent. Subsequently, and in collaboration with the U.S. Army,
we are
pursuing development of VQD-001 in the treatment of leishmaniasis
and
intend to file a new drug application, or NDA, with the U.S. Food
and Drug
Administration (FDA) in the first half of 2007. Already, VQD-001
has been
designated orphan drug status by the FDA in the first half of 2006
for the
treatment of leishmaniasis. Additionally, several preclinical studies,
especially those conducted at the Cleveland Clinic, showed that VQD-001
is
an inhibitor of multiple protein tyrosine phosphatases (PTPases),
specifically the SRC homology PTPase (SHP-1 & SHP-2). These
intracellular enzymes are involved in signaling pathways of many
receptor-linked tyrosine kinases which are involved in growth,
proliferation and differentiation of cancer cells. Inhibition of
these
enzymes with VQD-001 can trigger apoptosis of malignant cells. This
cytotoxic effect, coupled with its potential ability to enhance the
body’s
immune system, through improved cytokine signaling and t-cell formation,
suggest that VQD-001 has potential as an anti-cancer agent. On August
14,
2006, we received an acceptance letter for our Investigational New
Drug
Application (IND) for VQD-001. The FDA completed their review of
our IND
submission and have concluded that the clinical investigations described
in the protocol may begin. VQD-001 is currently being evaluated in
combination with IFN a-2b
in a 24-patient investigator-sponsored Phase I clinical trial at
the
Cleveland Clinic Taussig Cancer Center in refractory solid tumors,
lymphoma, and myeloma. We are also currently evaluating the safety,
tolerability, and activity of VQD-001 in a separate, company-sponsored
study of up to a 54-patient Phase I/IIa clinical trial at MD Anderson
Cancer Center in patients with advanced malignancies and solid tumors
that
have been non-responsive in previous cytokine
therapy.
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VQD-002
- Triciribine-Phosphate (TCN-P). Clinical
studies of VQD-002, a nucleoside analog, by the National Cancer
Institute
in the 1980s and early 1990s showed compelling anti-cancer activities.
More recently, investigators at the Moffitt Cancer Center of the
University of South Florida were able to demonstrate from preclinical
studies that VQD-002’s mechanism of action is the inhibition of Akt
phosphorylation (protein kinase - B), which is found to be over
activated
and over-expressed in various malignancies including breast, ovarian,
colorectal, and pancreatic and leukemias. Clinically, the over
expression
of phosphorylated Akt is associated with poor prognosis, resistance
to
chemotherapy and shortened survival time of cancer patients. On
April 11,
2006, we received an acceptance letter for our Investigational
New Drug
Application (IND) for VQD-002 from the FDA. The FDA completed their
review
of our IND submission and concluded that the clinical investigations
described in the protocol may begin. We are currently evaluating
the
safety, tolerability and activity of VQD-002 and its ability to
reduce Akt
phosphorylaion in two Phase I/IIa clinical trials, including one
at the
Moffitt Cancer Center in up to 42 patients with hyper-activated,
phosphorylated Akt in colorectal, pancreatic, breast and ovarian
tumors
and a second clinical trial, with up to 40 patients, at the MD
Anderson
Cancer Center in hematologic tumors, with particular attention
on
leukemia.
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Chiral
Products and Services
Since
our
inception, we have been engaged in the offer and sale of chiral chemistry
products and services, including proprietary chiral catalysts and chiral
building blocks or client-defined molecules. We have the rights to certain
chemical compounds known as chiral ligands which, with the introduction of
a
metal, serve as catalysts in facilitating the production of chiral molecules
in
such a manner that there is a preferential manufacture of the desired molecule
versus the unwanted mirror-image molecule. We provide pharmaceutical and fine
chemical manufacturers and other prospective clients with broad access to our
technologies for testing purposes at a low upfront cost, coupled with the
opportunity to gain access to such technologies for specific applications for
fees, royalties and certain manufacturing and development rights. We also
provide specialized services to pharmaceutical, biotechnology and fine chemical
companies relating to the development of chiral manufacturing processes for
their products.
In
September 2006, our board of directors directed our management to explore
strategic alternatives relating to our chiral business, including the possible
sale of the business. As a result, for accounting purposes, our chiral chemistry
business is presented as discontinued operations in our financial statements
for
and as of the year ended December 31, 2006, which appear elsewhere in this
prospectus.
Recent
Developments
License
Agreement
On
March
29, 2007, we entered into a Bill of Sale and Assignment, or the assignment,
with
Fiordland Pharmaceuticals, Inc., or Fiordland. We acquired all of Fiordland’s
rights, title, and interest to an Amended and Restated License Agreement
dated
December 29, 2006, referred to here as the license agreement, among Onc
Res,
Inc., or Onc Res, Assymetric Therapeutics, LLC, or Assymetric, Fiordland,
and
Stason Pharmaceuticals, Inc. In consideration for the assignment, we paid
Fiordland the cash sum of approximately $36,000.
The
license agreement grants us an exclusive, worldwide license to certain
intellectual property, including certain patents, relating to XyfidTM
(topical
uracil), a pharmaceutical product candidate being developed for the treatment
and prevention of Hand-Foot Syndrome, a common, often dose-limiting and
potentially life-threatening complication of several chemotherapy drugs.
The
license agreement grants us the exclusive license for (i) the use of uracil,
alone or in combination with other agents, for the prevention and treatment
of
any disease or condition in humans or animals, and (ii) the use of any
pharmaceutical compositions, chemicals, or biologics to treat Hand-Foot
Syndrome. Furthermore, we are, at our own expense, responsible for and have
the
right to control the prosecution and maintenance of the licensed patents.
If any
party to the license agreement receives any notice of alleged infringement
of or
any challenge to the validity of any licensed patent, all parties must notify
each other and we have the first right, but not the obligation, to take
appropriate action to respond to any infringement of or challenge to the
patent
rights.
In
consideration for the license, we are obligated to pay a royalty on net sales
of
licensed products, which is defined as any product that cannot be manufactured,
used, or sold without infringing one or more valid claims underlying one
of the
licensed patents. We are also required to make certain milestone payments,
which
total up to $6.2 million in the aggregate. The license agreement also requires
us to make up to an additional $12.5 million in payments upon the achievement
of
various commercialization and net sales milestones.
The
license agreement, unless earlier terminated, will expire on a county-by-country
basis, upon the expiration of the life of the last to expire licensed patent
in
that county. Assymetric has the right, following 90 days’ notice and opportunity
to cure, to terminate the license agreement sooner in the event we commit
a
material breach of default; provided, however, that under certain circumstances
we are permitted additional time to cure the breach. We may terminate, in
our
sole discretion, the license agreement at any time, in its entirety or on
a
country-by-country basis upon 30 days’ notice. Upon termination of the license
agreement, all rights to the licensed patents shall revert to Assymetric;
however, we have the right to continue to sell all remaining licensed products
in our inventory.
We
are
also required to indemnify and hold harmless Assymetric and Onc Res from
damages
and claims relating to our use, manufacture, sale or other disposition of
licensed product, unless such damages or claims relate to or were caused
by the
indemnitieess’ negligence, willful misconduct or non-compliance with applicable
laws. Assymetric and OncRes have agreed to indemnify us to the extent of
any
damages or claims relating to or caused by their breach of the license
agreement, negligence, willful misconduct or non-compliance with applicable
laws.
Fiordland
is an affililate of Paramount BioCapital, Inc. (“Paramount”). Stephen C.
Rocamboli, a director at VioQuest, is employed by Paramount, of which Lindsay
A.
Rosenwald, M.D., is the Chairman and sole stockholder. Dr. Rosenwald
beneficially owns in excess of 6% of VioQuest’s common stock, and certain trusts
established for his and his family’s benefit, collectively beneficially hold
approximately 14% of VioQuest’s common stock.
As
consideration for the services relating to the license agreement and analysis
of
XyfidTM,
we paid
a $20,000 cash fee to an individual employee of Paramount and also issued
to
such individual a 5-year warrant to purchase up to 300,000 shares of our
common
stock at an exercise price equal to $0.50 per share. The right to purchase
the
shares under the warrant vest in three equal installments of 100,000 shares
each. The first installment is immediately exercisable and the remaining
two
installments vest upon the achievement of certain clinical development and
regulatory milestones relating to XyfidTM.
Sale
of Chiral Quest
On
April
10, 2007, we entered into a stock purchase and sale agreement with Chiral
Quest
Acquisition Corp., or CQAC, pursuant to which we agreed to sell to CQAC
all of
the capital stock of our subsidiary, Chiral Quest, Inc. Completion of the
sale
is predicated upon the approval of the sale by our shareholders as well
as other
customary closing conditions.
CQAC
is a
newly-formed, privately-held Delaware corporation that is, or at the time
of
closing will be, principally owned by Dr. Xumu Zhang and a Chinese-based
venture
capital fund. Dr. Zhang co-founded Chiral Quest and has been a director
of
VioQuest and Chief Technology Officer of Chiral Quest since February 2003.
Following completion of the sale, CQAC plans to continue operating Chiral
Quest’s business in substantially the same manner as we have operated the
business. Because of Dr. Zhang’s interest in the transaction, he recused himself
from all discussions of our Board of Directors concerning the proposed
transaction.
Under
the
terms of the purchase agreement with CQAC, in exchange for all of the
outstanding capital stock of Chiral Quest, CQAC will pay us the cash sum
of
$1,700,000, plus assume liabilities of Chiral Quest in an amount up to
$1,300,000. To the extent Chiral Quest’s liabilities exceed $1,300,000 as of the
closing of the transaction, we would be required to pay such excess amount
to
CQAC.
The
purchase
agreement contains customary representations and warranties made by us
in favor
of CQAC
that
relate to a variety of matters, including without limitation: (i) the
organization and good standing of Chiral Quest, including its subsidiaries;
(ii)
the capitalization of Chiral Quest and its subsidiaries; (iii) the absence
of
any breach, violation or conflict with any agreement, instrument, judgment
or
law to which we or Chiral Quest are subject; (iv) the accuracy of Chiral
Quest’s
financial statements and their preparation in accordance with generally
accepted
accounting principles; (v) the absence of certain undisclosed liabilities;
(vi)
the rights in Chiral Quest’s intellectual property; and (vii) certain material
contracts to which Chiral Quest is a party and the absence of breaches
or
defaults with respect to such contracts.
The
purchase agreement also contains various covenants and other agreements
made by
us and CQAC relating to, among other things: (i) our agreement to allow
reasonable access by CQAC and its representatives to Chiral Quest’s properties
and records, subject to certain limitations described in the purchase agreement;
(ii) our ability to solicit or encourage offers from, or otherwise engage
in
discussions with, third parties relating to the sale of Chiral Quest; (iii)
our
agreement to maintain the corporate existence, good standing, adequate
insurance
of Chiral Quest and to otherwise continue to conduct Chiral Quest’s business in
the ordinary course; and (iv) CQAC’s agreement to assume the real estate lease
for our Monmouth Junction, New Jersey facility, from which Chiral Quest
operates.
Subject
to and following the closing, we agreed not to engage for a period of 10
years,
directly or indirectly, in any business that engages in the design, development,
marketing, manufacture and/or sale of any product which is the same or
directly
competitive with any product manufactured, marketed or sold by Chiral Quest
as
of the closing date. We further agreed that for a period of 5 years following
the closing, we will not solicit the customers or employees of Chiral Quest
with
respect to a business that competes with Chiral Quest’s business.
The
purchase agreement may be terminated prior to the closing, as follows:
(i) by
the mutual consent of the parties; (ii) by either party in the event the
transaction is not completed prior to the close of business on the day
that is
10 days following the date on which our shareholders approve the transaction,
which is referred to as the Expiration Date; (iii) by either CQAC or us
if there
has been a material breach by the other of a representation, warranty or
covenant contained in the purchase agreement that has not been cured by
the
breaching party; and (iv) by either CQAC or us if, as a result of an event
outside either’s reasonable control, certain closing conditions are incapable of
being satisfied.
In
addition to the purchase agreement, on March 27, 2007, we also entered
into an
escrow agreement with CQAC and Wells Fargo Bank, N.A., as escrow agent.
Under
the terms of the escrow agreement, CQAC deposited the cash sum of $500,000
with
the escrow agent. The escrow agreement provides that these escrowed funds
will
be disbursed to us in the event the sale of Chiral Quest to CQAC is not
completed as a result of an event that is deemed to be caused by CQAC or
to be
CQAC’s fault. Among other things, if CQAC fails to satisfy a condition precedent
to our obligation to close the transaction by the Expiration Date, then
such
failure is deemed to be caused by or the fault of CQAC.
We
agreed
to indemnify CQAC after the closing for damages from claims resulting from
or
arising out of a breach of a representation, warranty or covenant made
by us in
the purchase agreement. We will be obligated to indemnify CQAC with respect
a
claim for damages resulting from our breach of a representation or warranty
only
if CQAC provided us with written notice of such claim within 6 months following
the closing. Additionally, we have no obligation to indemnify CQAC until
the
aggregate amount of damages from claims exceeds the aggregate total of
$75,000,
and then only by such excess. Further, the maximum amount for which we
will be
obligated to indemnify CQAC is $1,700,000, which represents the cash portion
of
the purchase price. However, the $75,000 floor and $1,700,000 cap do not
apply
to claims based on a breach of our representations concerning the
capitalization, stock ownership or tax liability of Chiral
Quest.
Risk
Factors
For
a
discussion of some of the risks you should consider before purchasing shares
of
our common stock, you are urged to carefully review and consider the section
entitled “Risk Factors” beginning on page 4 of this prospectus.
The
Offering
The
shares offered by this prospectus reflect the balance of the shares remaining
unsold under our prospectuses dated April 28, 2006 (SEC File No.
333-129782), as amended and supplemented, and January 23, 2007 (SEC File No.
333-138782). This prospectus supersedes the April 28, 2006 and the
January 23, 2007 prospectuses (including all supplements thereto) in their
entirety. The selling stockholders identified on pages 47-54 of this
prospectus are offering on a resale basis a total of 47,798,626 shares
of
our common stock, as follows:
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35,052,014 shares
of our outstanding common stock issued in connection with various
private
placements;
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12,746,612 shares
of our common stock issuable upon the exercise of warrants issued
to
investors and placement agents in connection with our private
placements.
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Common
stock offered
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47,798,626
shares
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Common
stock currently outstanding (1)
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54,621,119 shares
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Common
stock outstanding after the offering(2)
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67,367,721 shares
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Common
Stock OTC Bulletin Board symbol
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VQPH.OB
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(1) |
Based
on the number of shares outstanding as of March 22, 2007, not including
18,834,044 shares
issuable upon exercise of various warrants and options to purchase
common
stock.
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(2) |
Assumes
the issuance of all shares offered hereby that are issuable upon
exercise
of warrants.
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RISK
FACTORS
An
investment in our common stock is very risky. You may lose the entire amount
of
your investment. Prior to making an investment decision, you should carefully
review this entire prospectus and consider the following risk
factors:
Risks
Related to Our Company
We
have no meaningful operating history on which to evaluate our business or
prospects.
We
commenced operations in October 2000 through our Chiral Quest business. In
September 2006, our board of directors determined to seek strategic alternatives
for this business, including potentially selling or otherwise disposing of
it
and in April 2007, we entered into a definitive agreement to sell Chiral Quest,
which we expect to complete in the second quarter of 2007. In August 2004,
we
also determined to become engaged in the drug development business and only
acquired rights to our first drug candidates in October 2005 through our
acquisition of Greenwich Therapeutics. Therefore, we have only a limited
operating history on which you can base an evaluation of our business and
prospects. Accordingly, our business prospects must be considered in light
of
the risks, uncertainties, expenses and difficulties frequently encountered
by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets, such as drug development, fine chemical,
pharmaceutical and biotechnology markets.
Our
management anticipates incurring losses for the foreseeable future.
For
the
year ended December 31, 2006, we had a net loss of $8,271,164, of which
$5,175,570 related to our continuing operations. For the year ended December
31,
2005, we had a net loss of $12,834,629, of which $10,353,884 related to our
continuing operations, and since our inception in October 2000 through December
31, 2006, we have incurred an aggregate net loss of $28,540,556. As of December
31, 2006, we had total assets of $5,828,323, of which $2,931,265 was cash or
cash equivalents. We expect operating losses to continue for the foreseeable
future and there can be no assurance that we will ever be able to operate
profitably.
We
will require additional financing in order to complete the development of our
products and services and otherwise develop our business operations. Such
financing may not be available on acceptable terms, if at all.
Following
the completion of our October 2006 private placement, we anticipate that our
current capital will be adequate to fund our operations through June 30, 2007.
However, changes may occur that would consume available capital resources before
that time. Our combined capital requirements will depend on numerous factors,
including: costs associated with our drug development process, and costs of
clinical programs, changes in our existing collaborative relationships, the
cost
of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights and the outcome of any potentially related
litigation or other dispute, acquisition of technologies, costs associated
to
the development and regulatory approval progress of our drug compounds, costs
relating to milestone payments to our licensors, license fees and manufacturing
costs, the hiring of additional people in the business development, chemistry
and administrative areas. In April 2007, we entered into a definitive agreement
to sell our Chiral Quest subsidiary for cash consideration. If we are able
to sell Chiral Quest as contemplated by our April 2007 agreement, we will
receive gross proceeds of $1.7 million. However, even if we receive such
proceeds, we expect to still need additional financing during 2007 in order
to
continue operations. The most likely source of such financing includes private
placements of our equity or debt securities or bridge loans to us from third
party lenders.
Additional
capital that may be needed by us in the future may not be available on
reasonable terms, or at all. If adequate financing is not available, we may
be
required to terminate or significantly curtail our operations, or enter into
arrangements with collaborative partners or others that may require us to
relinquish rights to certain of our technologies, or potential markets that
we
would not otherwise relinquish.
Our
operating results will fluctuate, making it difficult to predict our results
of
operations in any future period.
As
we
develop our business, we expect our operating results to vary significantly
from
quarter-to-quarter. As a result, quarter-to-quarter comparisons of our operating
results may not be meaningful. In addition, due to the fact that we have little
or no significant operating history with our new technology, we cannot predict
our future revenues or results of operations accurately. Our current and future
expense levels are based largely on our planned expenditures.
A
small group of persons is able to exert significant control over us.
Our
current officers and directors beneficially own or control approximately 10%
of
our common stock. Individually and in the aggregate, these persons will have
significant influence over the management of our business, the election of
directors and all matters requiring shareholder approval. In particular, this
concentration of ownership may have the effect of facilitating, delaying,
deferring or preventing a potential acquisition of our company and may adversely
affect the market price of our common stock. Additionally, one member of
our Board of Directors is an employee of Paramount BioCapital, Inc., or one
of
its affiliates. Dr. Lindsay A. Rosenwald is the chairman and sole owner of
Paramount BioCapital, Inc. and such affiliates. Dr. Rosenwald beneficially
owns
6% of our outstanding common stock, and several trusts for the benefit of Dr.
Rosenwald and his family beneficially own 14% of our outstanding common stock.
Although Dr. Rosenwald does not have the legal authority to exercise voting
power or investment discretion over the shares held by those trusts, he
nevertheless may have the ability to exert significant influence over the
Company.
Risks
Related to Our Drug Development Business
From
the rights to we have obtained to develop and commercialize our drug candidates,
we will require significant additional financing, which may not be available
on
acceptable terms and will significantly dilute your ownership of our common
stock.
We
will
not only require additional financing to develop and bring the drug to market.
Our future capital requirements will depend on numerous factors, including:
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the
terms of our license agreements pursuant to which we obtain the right
to
develop and commercialize drug candidates, including the amount of
license
fees and milestone payments required under such agreements;
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the
results of any clinical trials;
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the
scope and results of our research and development programs;
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the
time required to obtain regulatory approvals;
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our
ability to establish and maintain marketing alliances and collaborative
agreements; and
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the
cost of our internal marketing activities.
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We
will
likely look to obtain the necessary additional financing by selling shares
of
our capital stock. If adequate funds are not available, we will be required
to
delay, scale back or eliminate a future drug development program or obtain
funds
through arrangements with collaborative partners or others that may require
us
to relinquish rights to technologies or products that we would not otherwise
relinquish.
We
will continue to experience significant negative cash flow for the foreseeable
future and may never become profitable.
Because
drug development takes several years and is extremely expensive, we expect
that
our drug development subsidiary will incur substantial losses and negative
operating cash flow for the foreseeable future, and may never achieve or
maintain profitability, even if we succeed in acquiring, developing and
commercializing one or more drug candidates. In connection with our proposed
drug development business, we also expect to continue to incur significant
operating and capital expenditures and anticipate that our expenses will
increase substantially in the foreseeable future as we:
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acquire
the rights to develop and commercialize a drug candidate;
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undertake
pre-clinical development and clinical trials for drug candidates
that we
acquire;
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seek
regulatory approvals for drug candidates;
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implement
additional internal systems and infrastructure;
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|
|
lease
additional or alternative office facilities; and
|
|
|
hire
additional personnel.
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Our
drug
development business may not be able to generate revenue or achieve
profitability. Our failure to achieve or maintain profitability could negatively
impact the value of our common stock.
If
we are not able to obtain the necessary U.S. or worldwide regulatory approvals
to commercialize any product candidates that we acquire, we will not be able
to
sell those products.
We
will
need FDA approval to commercialize drug candidates in the U.S. and approvals
from the FDA equivalent regulatory authorities in foreign jurisdictions to
commercialize our product candidates in those jurisdictions. In order to obtain
FDA approval of a drug candidate, we will be required to first submit to the
FDA
for approval an IND, which will set forth our plans for clinical testing of
a
particular drug candidate.
When
the
clinical testing for our product candidates is complete, we will then be
required to submit to the FDA a New Drug Application, or “NDA,” demonstrating
that the product candidate is safe for humans and effective for its intended
use. This demonstration will require significant research and animal tests,
which are referred to as pre-clinical studies, as well as human tests, which
are
referred to as clinical trials. Satisfaction of the FDA’s regulatory
requirements typically takes many years, depends upon the type, complexity
and
novelty of the product candidate and requires substantial resources for
research, development and testing. The FDA has substantial discretion in the
drug approval process and may require us to conduct additional pre-clinical
and
clinical testing or to perform post-marketing studies. The approval process
may
also be delayed by changes in government regulation, future legislation or
administrative action or changes in FDA policy that occur prior to or during
our
regulatory review. Delays in obtaining regulatory approvals may:
|
delay
commercialization of, and our ability to derive product revenues
from, a
drug candidate;
|
|
|
impose
costly procedures on us; and
|
|
|
diminish
any competitive advantages that we may otherwise enjoy.
|
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Even
if
we comply with all FDA requests, the FDA may still ultimately reject an NDA.
Failure to obtain FDA approval of a drug candidate will severely undermine
our
business development by reducing our ability to recover the development costs
expended in connection with a drug candidate and realize any profit from
commercializing a drug candidate.
In
foreign jurisdictions, we will be required to obtain approval from the
appropriate regulatory authorities before we can commercialize our drugs.
Foreign regulatory approval processes generally include all of the risks
associated with the FDA approval procedures described above.
Clinical
trials are very expensive, time-consuming and difficult to design and implement.
Assuming
we are able to acquire the rights to develop and commercialize a product
candidate, we will be required to expend significant time, effort and money
to
conduct human clinical trials necessary to obtain regulatory approval of any
product candidate. Human clinical trials are very expensive and difficult to
design and implement, in part because they are subject to rigorous regulatory
requirements. The clinical trial process is also time consuming. We estimate
that clinical trials of any product candidate will take at least several years
to complete. Furthermore, failure can occur at any stage of the trials, and
we
could encounter problems that cause us to abandon or repeat clinical trials.
The
commencement and completion of clinical trials may be delayed by several
factors, including:
|
unforeseen
safety issues;
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|
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determination
of dosing issues;
|
|
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lack
of effectiveness during clinical trials;
|
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slower
than expected rates of patient recruitment;
|
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inability
to monitor patients adequately during or after
treatment;
and
|
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inability
or unwillingness of medical investigators to
follow our clinical
protocols.
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In
addition, we or the FDA may suspend our clinical trials at any time if it
appears that we are exposing participants to unacceptable health risks or if
the
FDA finds deficiencies in our IND submissions or the conduct of these trials.
The
results of any clinical trial may not support the results of pre-clinical
studies relating to our product candidate, which may delay development of any
product candidate or cause us to abandon development altogether.
Even
if
any clinical trials we undertake with respect to a future product candidate
that
we acquire are completed as planned, we cannot be certain that their results
will support the findings of pre-clinical studies upon which a development
plan
would be based. Success in pre-clinical testing and early clinical trials does
not ensure that later clinical trials will be successful, and we cannot be
sure
that the results of later clinical trials will replicate the results of prior
clinical trials and pre-clinical testing. The clinical trial process may fail
to
demonstrate that our product candidates are safe for humans and effective for
indicated uses. This failure may cause us to delay the development of a product
candidate or even to abandon development altogether. Such failure may also
cause
delay in other product candidates. Any delay in, or termination of, our clinical
trials will delay the filing of our NDAs with the FDA and, ultimately, our
ability to commercialize our product candidates and generate product revenues.
If
physicians and patients do not accept and use our drugs after regulatory
approvals are obtained, we will not realize sufficient revenue from such product
to cover our development costs.
Even
if
the FDA approved any product candidate that we acquired and subsequently
developed, physicians and patients may not accept and use them. Acceptance
and
use of the product candidates we acquire (if any) will depend upon a number
of
factors including:
|
perceptions
by members of the health care community, including physicians,
about the
safety and effectiveness of
our drugs;
|
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cost-effectiveness
of our product relative to competing products;
|
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availability
of reimbursement for our products from government
or other healthcare
payers; and
|
|
|
effectiveness
of marketing and distribution efforts by us
and our licensees and
distributors, if any.
|
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Because
our drug development business plan contemplates that substantially all of any
future revenues we will realize will result from sales of product candidates
that we develop, the failure of any of drugs we acquire and develop to find
market acceptance would significantly and adversely affect our ability to
generate cash flow and become profitable.
We
intend to rely upon third-party researchers and other collaborators who will
be
outside our control and may not devote sufficient resources to our projects.
We
intend
to collaborate with third parties, such as drug investigators, researchers
and
manufacturers, in the development of any product candidate that we acquire.
Such
third parties, which might include universities and medical institutions, will
likely conduct the necessary pre-clinical and clinical trials for a product
candidate that we develop. Accordingly, our successful development of any
product candidate will likely depend on the performance of these third parties.
These collaborators will not be our employees, however, and we may be unable
to
control the amount or timing of resources that they will devote to our programs.
For example, such collaborators may not assign as great a priority to our
programs or pursue them as diligently as we would if we were undertaking such
programs ourselves. If outside collaborators fail to devote sufficient time
and
resources to our drug-development programs, or if their performance is
substandard, the approval of our FDA applications, if any, and our introduction
of new drugs, if any, will be delayed. These collaborators may also have
relationships with other commercial entities, some of whom may compete with
us
in the future. If our collaborators were to assist our competitors at our
expense, the resulting adverse impact on our competitive position could delay
the development of our drug candidates or expedite the development of a
competitor’s candidate.
We
will rely exclusively on third parties to formulate and manufacture our product
candidates.
We
do not
currently have, and have no current plans to develop, the capability to
formulate or manufacture drugs. Rather, we intend to contract with one or more
manufacturers to manufacture, supply, store and distribute drug supplies that
will be needed for any clinical trials we undertake. If we received FDA approval
for any product candidate, we would rely on one or more third-party contractors
to manufacture our drugs. Our anticipated future reliance on a limited number
of
third-party manufacturers will expose us to the following risks:
|
We
may be unable to identify manufacturers on commercially reasonable
terms
or at all because the number of potential manufacturers is limited
and the
FDA must approve any replacement contractor. This approval would
require
new testing and compliance inspections. In addition, a new manufacturer
would have to be educated in, or develop substantially equivalent
processes for, production of our products after receipt of FDA approval,
if any.
|
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Our
third-party manufacturers might be unable to formulate and manufacture
our
drugs in the volume and of the quality required to meet our clinical
needs
and commercial needs, if any.
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Our
future contract manufacturers may not perform as agreed or may not
remain
in the contract manufacturing business for the time required to supply
our
clinical trials or to successfully produce, store and distribute
our
products.
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Drug
manufacturers are subject to ongoing periodic unannounced inspection
by
the FDA, the DEA, and corresponding state agencies to ensure strict
compliance with good manufacturing practice and other government
regulations and corresponding foreign standards. We do not have control
over third-party manufacturers’ compliance with these regulations and
standards.
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|
If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share, the
intellectual property rights to the innovation.
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We
may be
unable to identify manufacturers on acceptable terms or at all because the
number of potential manufacturers is limited and the FDA must approve any
replacement contractor. This approval would require new testing and compliance
inspections. In addition, a new manufacturer would have to be educated in,
or
develop substantially equivalent processes for, production of our products
after
receipt of FDA approval, if any.
If
we are not able to successfully compete against other drug companies, our
business will fail.
The
market for new drugs is characterized by intense competition and rapid
technological advances. If any drug candidate that we develop receives FDA
approval, we will likely compete with a number of existing and future drugs
and
therapies developed, manufactured and marketed by others. Existing or future
competing products may provide greater therapeutic convenience or clinical
or
other benefits for a specific indication than our products, or may offer
comparable performance at a lower cost or with fewer side-effects. If our
products fail to capture and maintain market share, we may not achieve
sufficient product revenues and our business will suffer.
We
will
be competing against fully integrated pharmaceutical companies and smaller
companies that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have drug candidates already approved
or in development. In addition, many of these competitors, either alone or
together with their collaborative partners, operate larger research and
development programs and have substantially greater financial resources than
we
do, as well as significantly greater experience in:
|
undertaking
pre-clinical testing and human clinical trials;
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obtaining
FDA and other regulatory approvals of drugs;
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formulating
and manufacturing drugs; and
|
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launching,
marketing and selling drugs.
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Risks
Related to Our Securities
Trading
of our common stock is limited, which may make it difficult for you to sell
your
shares at times and prices that you feel are appropriate.
Trading
of our common stock, which is conducted on the OTC Bulletin Board, has been
limited. This adversely effects the liquidity of our common stock, not only
in
terms of the number of shares that can be bought and sold at a given price,
but
also through delays in the timing of transactions and reduction in security
analysts’ and the media’s coverage of us. This may result in lower prices for
our common stock than might otherwise be obtained and could also result in
a
larger spread between the bid and asked prices for our common stock.
Because
it is a “penny stock,” it will be more difficult for you to sell shares of our
common stock.
In
addition, our common stock is considered a “penny stock” under SEC rules because
it has been trading on the OTC Bulletin Board at a price lower than $5.00.
Broker-dealers who sell penny stocks must provide purchasers of these stocks
with a standardized risk-disclosure document prepared by the SEC. This document
provides information about penny stocks and the nature and level of risks
involved in investing in the penny-stock market. A broker must also give a
purchaser, orally or in writing, bid and offer quotations and information
regarding broker and salesperson compensation, make a written determination
that
the penny stock is a suitable investment for the purchaser, and obtain the
purchaser’s written agreement to the purchase. Broker-dealers also must provide
customers that hold penny stocks in their accounts with such broker-dealer
a
monthly statement containing price and market information relating to the penny
stock. If a penny stock is sold to you in violation of the penny stock rules,
you may be able to cancel your purchase and get your money back. The penny
stock
rules may make it difficult for you to sell your shares of our stock, however,
and because of the rules, there is less trading in penny stocks. Also, many
brokers simply choose not to participate in penny-stock transactions.
Accordingly, you may not always be able to resell shares of our common stock
publicly at times and prices that you feel are appropriate.
Our
stock price is, and we expect it to remain, volatile, which could limit
investors’ ability to sell stock at a profit.
The
volatile price of our stock makes it difficult for investors to predict the
value of their investment, to sell shares at a profit at any given time, or
to
plan purchases and sales in advance. A variety of factors may affect the market
price of our common stock. These include, but are not limited to:
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announcements
of technological innovations or new commercial products by
our competitors
or us;
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developments
concerning proprietary rights, including patents;
|
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regulatory
developments in the United States and foreign countries;
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economic
or other crises and other external factors;
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period-to-period
fluctuations in our revenues and other results of operations;
|
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changes
in financial estimates by securities analysts; and
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sales
of our common stock.
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We
will
not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not necessarily
be
indicative of our future performance.
In
addition, the stock market in general, and the market for biotechnology
companies in particular, has experienced extreme price and volume fluctuations
that may have been unrelated or disproportionate to the operating performance
of
individual companies. These broad market and industry factors may seriously
harm
the market price of our common stock, regardless of our operating performance.
Because
we do not expect to pay dividends, you will not realize any income from an
investment in our common stock unless and until you sell your shares at profit.
We
have
never paid dividends on our common stock and do not anticipate paying any
dividends for the foreseeable future. You should not rely on an investment
in
our stock if you require dividend income. Further, you will only realize income
on an investment in our shares in the event you sell or otherwise dispose of
your shares at a price higher than the price you paid for your shares. Such
a
gain would result only from an increase in the market price of our common stock,
which is uncertain and unpredictable.
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements contained in this prospectus that are forward-looking in nature
are
based on the current beliefs of our management as well as assumptions made
by
and information currently available to management, including statements related
to the markets for our products, general trends in our operations or financial
results, plans, expectations, estimates and beliefs. In addition, when used
in
this prospectus, the words “may,” “could,” “should,”
“anticipate,” “believe,” “estimate,” “expect,”
“intend,” “plan,” “predict” and similar expressions and their
variants, as they relate to us or our management, may identify forward-looking
statements. These statements reflect our judgment as of the date of this
prospectus with respect to future events, the outcome of which are subject
to
risks, which may have a significant impact on our business, operating results
or
financial condition. You are cautioned that these forward-looking statements
are
inherently uncertain. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
or
outcomes may vary materially from those described herein. We undertake no
obligation to update forward-looking statements. The risks identified under
the
heading “Risk Factors” in this prospectus, among others, may impact
forward-looking statements contained in this prospectus.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
You
should read the following discussion of our results of operations and financial
condition in conjunction with the financial statements contained in this
prospectus beginning at page F-1. This discussion includes “forward-looking”
statements that reflect our current views with respect to future events and
financial performance. We use words such as we “expect,”
“anticipate,” “believe,” and “intend” and similar expressions to identify
forward-looking statements. Investors should be aware that actual results may
differ materially from our expressed expectations because of risks and
uncertainties inherent in future events, particularly those risks identified
in
the “Risk Factors” section of this prospectus, and should not unduly rely on
these forward looking statements.
Overview
We
operate two distinct business units, through our continuing drug development
business, we acquire, develop and intend to commercial innovative products
for
the treatment of key unmet medical needs in cancer and immunological diseases,
and through our discontinued operation’s subsidiary Chiral Quest, Inc., we sell
chiral products and services and contract research and development services.
In
December 2004, we established our Chiral Quest, Ltd. Jiashan, China facility,
and commenced research and development and manufacturing operations during
the
second half of 2005.
In
August
2004, we expanded our business plan to also focus on acquiring technologies
for
purposes of development and commercialization of pharmaceutical drug candidates
for the treatment in oncology and antiviral diseases and disorders for which
there are unmet medical needs. In accordance with this expanded business plan,
in October 2005, the Company acquired in a merger transaction Greenwich
Therapeutics, Inc., a privately-held New York-based biotechnology company that
held exclusive rights to develop and commercialize two oncology drug candidates
- VQD-001 (Sodium Stibogluconate, or also SSG) and VQD-002
(Triciribine-Phosphate, or TCN-P). Both of these drug candidates are in early
stages of development and cannot be sold until we have obtained the approval
of
the U.S. Food and Drug Administration, or FDA, or a comparable regulatory body
in foreign countries. The rights to these two oncology drug candidates, VQD-001
and VQD-002, are governed by license agreements with The Cleveland Clinic
Foundation and the University of South Florida Research Foundation,
respectively. As a result of our acquisition of Greenwich Therapeutics, the
Company holds exclusive rights to develop, manufacture, use, commercialize,
lease, sell and/or sublicense VQD-001 and VQD-002. We have initiated three
Phase
I/IIa clinical trials since acquiring the license rights to VQD-001 and
VQD-002.
On
September 29, 2006, our board of directors directed our management to seek
strategic alternatives with respect to our Chiral Quest, which may include
a
sale or other disposition of the operating assets of that business. Accordingly,
Chiral Quest’s assets, liabilities and operations are presented in these
financial statements as discontinued operations. Chiral Quest had accounted
for
all sales of the Company from its inception. Our continuing operations, which
have not generated any revenues, will focus on the remaining drug development
operations of VioQuest Pharmaceuticals, Inc., and accordingly, we are reporting
one segment. No provision has been made to reduce the carrying amounts of the
assets of the discontinued operations as we believe they approximate their
estimated net realizable values.
Since
inception, we have incurred an accumulated deficit of $28,540,556 through
December 31, 2006. For the year ended December 31, 2006 we had losses from
continuing operations of $5,175,570, and used cash in continuing operating
activities totaling $3,955,017. As
of
December 31, 2006, we had working capital of $1,442,522 and cash and cash
equivalents of $2,931,265. We
expect
our operating losses to increase over the next several years, primarily related
to our drug development and costs associated with clinical programs, milestone
payments to both the Cleveland Clinic Foundation and the University of South
Florida for the development of VQD-001 and VQD-002, respectively, in addition
to
costs related to license fees, manufacturing of our products, regulatory
approvals, and the hiring of additional people in the business development,
chemistry and administrative areas.
Management
expects our losses to increase over the next several years, due to the expansion
of our drug development business, costs associated with the clinical development
of VQD-001 and VQD-002. These matters raise substantial doubt about our ability
to continue as a going concern.
Results
of Operations - Years Ended December 31, 2006 vs. 2005
Continuing
Operations:
We
had no
revenues from our continuing operations through December 31, 2006.
In-process
research and development, or (“IPR&D”) costs for the year ended December 31,
2006 was $0 as compared to $7,975,218 for the year ended December 31, 2005.
The
charge for the year ended December 31, 2005 is attributed to the acquisition
of
Greenwich Therapeutics in October 2005. The acquisition costs were comprised
of:
$5,995,077 related to the calculated value of 8,564,395 shares of our common
stock issued to Greenwich Therapeutics’ shareholders valued at $0.70 per share
($0.70 per share value was based upon the average stock price of our common
stock a few days before and a few days subsequent to the July 7, 2005 definitive
merger agreement announcement), $986,039 related to the calculated value of
2,000,000 warrants issued to Greenwich Therapeutics’ shareholders using the
Black-Scholes stock option pricing model, $823,869 related to debt we
assumed as part of the merger of Greenwich Therapeutics and $170,234 is
comprised of license fees, legal fees and other professional fees incurred
as
part of the merger with Greenwich Therapeutics.
Research
and development, or (“R&D”), expenses for the year ended December 31, 2006
were $1,819,736 as compared to $0 for the year ended December 31, 2005. R&D
is attributed to clinical development costs, milestone license fees, maintenance
fees provided to the institutions we licensed VQD-001 and VQD-002, outside
manufacturing costs, outside clinical research organization costs, in addition
to regulatory and patent filing costs associated to our two oncology compounds
VQD-001 and VQD-002 currently in clinical trials. The increase in R&D for
the year ended December 31, 2006, is a result of having no R&D costs from
our two oncology compounds for the year ended December 31, 2005 as a result
of
acquiring them in October 2005, and initiating our clinical studies in 2006.
Additionally, R&D charges for the year ended December 31, 2006 consist of
milestone license fees incurred in connection with receiving acceptance of
our
Investigational New Drug Application filing for VQD-002 in April 2006 of
$100,000, maintenance fees provided to the institutions we licensed VQD-001
and
VQD-002 from of approximately $25,000 and $35,000 respectively, outside
regulatory and legal fees of $445,000, employee costs of $440,000, outside
clinical research organization costs of $452,000 and outside manufacturing
costs
of approximately $245,000. We expect R&D spending related to our existing
product candidates to continue to increase over the next several years as we
expand our clinical trials.
Selling,
general and administrative, or (“SG&A”), expenses for the year ended
December 31, 2006 were $3,455,225 as compared to $2,419,442 during the year
ended December 31, 2005. This increase in SG&A expenses was due in part to
the impact of expensing employee and director stock options beginning with
the
year ended December 31, 2006 in accordance with SFAS No. 123R of approximately
$830,000, additional spending on conferences, increased travel expenses for
new
business development opportunities and higher administrative expenses associated
with having more employees which include the Chief Medical Officer hired in
March 2006, the Vice President of Regulatory and Clinical Operations hired
in
October 2006, in addition to other related employee costs such as increased
insurance, and employer payroll taxes and increased rent expense for the newly
extended leased corporate headquarters facility in Basking Ridge, New Jersey.
Additionally, management and consulting expenses contributed to part of the
SG&A increase, which was primarily attributed to a consultancy agreement for
the strategic and technical assessment of our clinical development programs
that
we entered in with Paramount Corporate Development, an affiliate of Paramount
BioCapital, Inc., a related party. The consultancy agreement was for a total
of
$90,000, for a period of three months for $30,000 per month commencing in August
2006.
Depreciation
expense for the year ended December 31, 2006 was $6,304 as compared to $1,646
for the year ended December 31, 2005. The increase in depreciation expense
is a
result of the additional purchases of computer and office equipment for
additional employees and our office expansion during 2006, for our office in
Basking Ridge, respectively.
Interest
income, net of interest expense for the year ended December 31, 2006 was
$105,695 as compared to $42,422 for the year ended December 31, 2005. Interest
income received during the year ended December 31, 2006 was approximately
$122,000, which was offset by interest expense of approximately $16,000, for
the
repayment of the final one third amount of debt owed, of approximately $264,000,
to Paramount BioCapital, which was assumed as part of the October 2005
acquisition of Greenwich Therapeutics. The increase in interest income for
the
year ended December 31, 2006 is attributed to having a higher cash balance
throughout 2006 as a result of the October 2005 and October 2006
financings.
Our
loss
from continuing operations for the year ended December 31, 2006 was $5,175,570
as compared to $10,353,884 for the year ended December 31, 2005. The decreased
loss from continuing operations for the year ended December 31, 2006 as compared
to the year ended December 31, 2005, was primarily due to the IPR&D charges
related to the acquisition of Greenwich Therapeutics in October 2005 for
$7,975,218, offset by the impact of expensing employee and director stock
options beginning with the year ended December 31, 2006 of approximately
$830,000 in accordance with SFAS No. 123R, additional spending on conferences,
increased travel expenses for new business development opportunities and higher
administrative expenses associated with having more employees which include
the
Chief Medical Officer hired in March 2006, the Vice President of Regulatory
and
Clinical Operations hired in October 2006, in addition to other related employee
costs such as increased insurance, and employer payroll taxes and increased
rent
expense for the newly leased corporate headquarter facility in Basking Ridge,
New Jersey. Increased R&D expenses also contributed to the loss from
continuing operations for the year ended December 31, 2006 as compared to having
no R&D expenses related to our drug development business for the year ended
December 31, 2005. R&D expenses related to our drug development business
include clinical research organization and manufacturing costs, maintenance
and
licensing fees provided to the institutions we licensed VQD-001 and VQD-002
from, in addition to other clinical development costs for the VQD-001 and
VQD-002 clinical programs. We expect losses to continue to increase for the
next
several years from the costs associated with the drug development process
related to developing our drug candidates.
Discontinued
Operations:
Our
loss
from discontinued operations for the year ended December 31, 2006 was $3,095,594
as compared to $2,480,745 for the year ended December 31, 2005. The increased
loss from discontinued operations for the year ended December 31, 2006 as
compared to December 31, 2005 was primarily attributable a decrease in revenues
from the prior year of approximately $1.1 million, establishing inventory
reserves for slow moving materials of approximately $427,000, and the expensing
of employee stock options of approximately $210,000, offset by having lower
overhead expenses resulting from a reduced number of employees located in our
New Jersey facility, lower R&D expenditures as a result of focusing on
commercializing our proprietary technology.
Results
of Operations - Years Ended December 31, 2005 vs. 2004
Continuing
Operations:
We
had no
revenues from our continuing operations through December 31, 2005.
IPR&D
costs of $7,975,218 for the year ended December 31, 2005 are attributed to
the
acquisition of Greenwich Therapeutics, Inc. in October 2005. The acquisition
costs are comprised of: $5,995,077 related to the calculated value of 8,564,395
shares of the Company’s common stock issued to Greenwich Therapeutics’
shareholders valued at $0.70 per share ($0.70 per share value was based upon
the
average stock price of our common stock a few days before and a few days
subsequent to the July 7, 2005 definitive merger agreement announcement),
$986,039 related to the calculated value of 2,000,000 warrants issued to
Greenwich Therapeutics’ shareholders using the Black-Scholes stock option
pricing model, $823,869 related to debt we assumed as part of the merger of
Greenwich Therapeutics and $170,234 is comprised of license fees, legal fees
and
other professional fees incurred as part of the merger with Greenwich
Therapeutics.
SG&A
expenses for the year ended December 31, 2005 were $2,419,442 as compared to
$0
for the year ended December 31, 2004. This increase in SG&A expenses was
primarily due to having no drug development business expenses until 2005. As
part of our drug development expansion, we hired our president and CEO in
February 2005, and hired our Vice President of Corporate Business Development
in
July 2005. SG&A also increased as a result of increased spending on
conferences, increased travel expenses for new business development
opportunities and higher administrative expenses associated with employee costs
such as increased insurance, and employer payroll taxes and increased rent
expense for the newly leased corporate headquarters facility in Basking Ridge,
New Jersey in September 2005. Additionally, management
and consulting expenses contributed $263,534 as part of the SG&A increase,
which was primarily attributed to a non-recurring
charge of $190,000 from the issuance of 200,000 shares of our common stock
to an
outside consultant in the third quarter 2005, in addition to the Company
utilizing regulatory and advisory consultants in the due diligence process
of
acquiring our two oncology compounds, VQD-001 and VQD-002 in October 2005.
Interest
income, net of interest expense for the year ended December 31, 2005 was $42,422
as compared to $0 for the year ended December 31, 2004. The increase was
attributed to having higher cash balances during the year ended December 31,
2005 as compared to 2004 as a result of completing a financing in October 2005
for approximately $8.4 million.
Our
loss
from continuing operations for the year ended December 31, 2005 was $10,353,884
as compared to $0 for the year ended December 31, 2004. The increased loss
from
continuing operations for the year ended December 31, 2005 as compared to
December 31, 2004 was primarily due to having no drug development business
expenses until 2005. In October 2005, we acquired Greenwich Therapeutics and
incurred IPR&D expenses of approximately $7.9 million as a result of the
Company acquiring two oncology compounds through the acquisition of Greenwich
Therapeutics, Inc. in October 2005 for $7,975,218, in addition to higher
SG&A expenses due in part to having more employees which include the
President and CEO hired in February 2005, the Vice President of Corporate
Business Development hired in July 2005, additional spending on conferences,
increased travel expenses for new business development opportunities and higher
administrative expenses associated with other related employee costs such as
increased insurance, and employer payroll taxes and increased rent expense
for
the newly leased corporate headquarters facility in Basking Ridge, New Jersey
in
September 2005.
Discontinued
Operations:
Our
loss
from discontinued operations for the year ended December 31, 2005 was $2,480,745
as compared to $4,023,558 for the year ended December 31, 2004. The decreased
loss from discontinued operations for the year ended December 31, 2005, as
compared to December 31, 2004 was primarily attributable to increased gross
profits as a result of having higher revenues in 2005 versus 2004, in addition
to having lower overhead expenses resulting from a reduced number of employees
located in our New Jersey facility, lower R&D expenditures as a result of
focusing on commercializing our proprietary technology, in addition to receiving
a tax benefit of approximately $236,000 from the State of New Jersey, from
the
sale of our net operating losses.
Liquidity
and Capital Resources:
In
August
2004, we decided to focus on acquiring technologies for
purposes
of development and commercialization of pharmaceutical drug candidates for
the
treatment of oncology and antiviral diseases and disorders for which there
are
unmet medical needs. In accordance with this business plan, in October 2005,
we
acquired in a merger transaction Greenwich Therapeutics, Inc., a privately-held
New York-based biotechnology company that held exclusive rights to develop
and
commercialize two oncology drug candidates - VQD-001, and VQD-002. The rights
to
these two oncology drug candidates, VQD-001 and VQD-002, are governed by license
agreements with The Cleveland Clinic Foundation and the University of South
Florida Research Foundation, respectively. As a result of our acquisition of
Greenwich Therapeutics, we hold exclusive rights to develop, manufacture, use,
commercialize, lease, sell and/or sublicense VQD-001 and VQD-002. We
have
initiated three Phase I/IIa clinical trials since acquiring the license rights
to VQD-001 and VQD-002.
As
a
result of this acquisition, we have undertaken funding development of VQD-001
and VQD-002, which has significantly increased our expected cash expenditures
and will continue to increase our expenditures over the next 12 months and
thereafter. The completion of development of VQD-001 and VQD-002, both of which
are only in early stages of clinical development, is very lengthy and expensive
process. Until such development is complete and the FDA (or the comparable
regulatory authorities of other countries) approves VQD-001 and VQD-002 for
sale, we will not be able to sell these products.
Since
inception, we have incurred an accumulated deficit of $28,540,556 through
December 31, 2006. For the year ended December 31, 2006, we had losses from
continuing operations of $5,175,570 and used $3,955,017 in cash from continuing
operating activities for year ended December 31, 2006. As of December 31, 2006,
we had working capital of $1,442,522 and cash and cash equivalents of
$2,931,265.
Management
expects our losses to increase over the next several years, due to the expansion
of our drug development business, costs associated with the clinical development
of VQD-001 and VQD-002. These matters raise substantial doubt about our ability
to continue as a going concern.
On
October 18, 2006, we sold 7,891,600 shares of our common stock at a price of
$0.50 per share resulting in gross proceeds of approximately $3.95 million.
In
addition to the shares of common stock, we also issued to the investors 5-year
warrants to purchase an aggregate of 2,762,060 shares at an exercise price
of
$0.73 per share. In connection with the private placement, we engaged Paramount
BioCapital, Inc. (“Paramount”), as our exclusive placement agent, and Paramount
in turn engaged various broker-dealers as sub-agents to assist with the
offering. Dr. Lindsay A. Rosenwald is the Chairman, CEO and sole stockholder
of
Paramount and a substantial stockholder of VioQuest. Stephen C. Rocamboli,
a
director of our Company, is
currently employed by Paramount. Until December 2006, Dr. Michael Weiser, also
a
director of our Company, was employed by Paramount, an entity of which Dr.
Rosenwald is the chairman and sole stockholder. In
consideration for their services, we paid an aggregate of approximately $276,000
in commissions to the placement agents (including sub-agents) in connection
with
the offering, of which $56,000 was paid to Paramount, plus an additional $30,000
as reimbursement for expenses. We also issued to the placement agents 5-year
warrants to purchase an aggregate of 394,580 shares of common stock at a price
of $0.55 per share. Based upon the Black-Scholes option pricing valuation model,
the investor warrants are estimated to be valued at approximately $1,363,000.
Based upon the Black-Scholes option pricing valuation model, the placement
agents’ warrants are estimated to be valued at approximately $195,000.
On
October 18, 2005, we sold 11,179,975 shares of our common stock at a price
of
$0.75 per share resulting in gross proceeds of approximately $8.38 million.
In
addition to the shares of our common stock, investors also received 5-year
warrants to purchase an aggregate of 4,471,975 shares of our common stock at
an
exercise price of $1.00 per share. . In connection with the private placement,
we engaged Paramount as our exclusive placement agent. Dr. Lindsay A. Rosenwald
is the Chairman, CEO and sole stockholder of Paramount and a substantial
stockholder of our Company. Two of our directors, Stephen C. Rocamboli
who is currently employed by Paramount and until December 2006, Dr. Weiser
was
employed by Paramount of which Dr. Rosenwald is the chairman and sole
stockholder, and is also a substantial stockholder of the Company. We
paid
an aggregate of approximately $587,000 in commissions to Paramount in connection
with the offering, plus an accountable expense allowance of $50,000, and issued
5-year warrants to purchase an aggregate of 1,117,997 shares of common stock
at
a price of $1.00 per share. Our net proceeds, after deducting placement agent
fees and other expenses relating to the private placement, were approximately
$7.5 million.
On
February 25, 2004, we completed a private placement of our securities to
accredited investors that resulted in gross proceeds of approximately $7.2
million. Investors in the private placement purchased an aggregate of
approximately 4.8 million shares of our common stock at a price per share of
$1.50 and received 5-year warrants to purchase one share of common stock at
$1.65 per share for every two common shares purchased in the offering (a total
of 2.4 million warrants). In connection with this offering, we issued 482,691
shares of common stock at a price of $1.65 per share to our placement agents.
In
addition, we paid an aggregate of $500,000 in selling agent commissions, of
which Paramount (See note 11 accompanying the consolidated financial statements
included elsewhere in this Prospectus), received $300,000. Net proceeds to
us,
after deducting commissions and other expenses relating to the private
placement, were approximately $6.7 million.
Management
anticipates that our capital resources will be adequate to fund our operations
through the second quarter of 2007. Additional financing will be required during
2007 in order to continue operations. Our board of directors directed our
management to seek strategic alternatives for our Chiral Quest business
operations on September 29, 2006, which may include the possible sale of that
business. If we are able to sell our Chiral Quest business we may receive cash
proceeds from the sale, which we would utilize to further the development of
our
two anti-cancer drug candidates. The most likely source of financing includes
the private sale of our equity or debt securities, or bridge loans to us from
third party lenders. However, changes may occur that would consume available
capital resources before that time. Our working capital requirements will depend
upon numerous factors, which include, the progress of its drug development
and
clinical programs, including associated costs relating to milestone payments,
license fees, manufacturing costs, regulatory approvals, and the hiring of
additional employees.
Our
net
cash used in continuing operating activities for the year ended December 31,
2006 was $3,955,017. Our net cash used in operating activities primarily
resulted from a net loss of $5,175,570 offset by non-cash items consisting
of
the impact of expensing employee and director stock options in accordance with
FAS 123R of $830,715, the impact of expensing scientific advisory board member
consultants’ options in accordance with EITF 96-18 for $33,830, and depreciation
of $6,304, Other uses of cash in continuing operating activities include an
increase in other current assets, which primarily consists of prepaid clinical
research organization costs, prepaid manufacturing costs of $432,068 attributed
to our two oncology compounds development sites. Additionally, an increase
in
accounts payable of $756,381 which is primarily attributed to clinical
development costs, clinical regulatory costs, legal, accounting
fees.
Our
net
cash used in continuing investing activities for the year ended December 31,
2006 totaled $28,406, which resulted from capital expenditures were attributed
to the purchases of computer and office equipment for the Basking Ridge, New
Jersey facility.
Our
net
cash provided by financing activities for the year ended December 31, 2006
was
$3,649,246. Financing activities consisted of approximately $3.65 million
received from our October 2006 private placement of approximately 7.9 million
shares of our common stock at a price per share of $0.50, net of approximately
$296,000 of costs associated to the agreement with Paramount, which served
as
our placement agent.
As
part
of our plan for development, we anticipate hiring additional full-time employees
in the medical, clinical and finance functions. In addition, we will continue
to
use senior advisors, consultants, clinical research organizations and third
parties to perform certain aspects of our products’ development, manufacturing,
clinical and preclinical development, and regulatory and quality assurance
functions.
At
our
current and desired pace of clinical development of our two products, currently
in Phase I/IIa clinical trials, over the next 12 months we expect to spend
approximately $7.0 million on clinical trials (including milestone payments
that
we expect to be triggered under the license agreements relating to our product
candidates, maintenance fees payments that we are obligated to pay to the
institutions we licensed our two oncology compounds from, salaries and
consulting fees, pre-clinical and laboratory studies), approximately $130,000
on
facilities, rent and other facilities costs, and approximately $2.7 million
on
general corporate and working capital. Additionally, we have an outstanding
debt balance of $264,623 and approximately $16,000 of interest through December
31, 2006, which was due in October 2006 and is currently due and payable to
Paramount BioSciences, LLC, an affiliate of Paramount. We plan to satisfy the
final portion of debt and interest by the end of the first half of 2007.
Our
working capital requirements will depend upon numerous factors. For example,
with respect to our drug development business, our working capital requirements
will depend on, among other factors, the progress of our drug development and
clinical programs, including associated costs relating to milestone payments,
license fees, manufacturing costs, regulatory approvals, and the hiring of
additional employees.
Additional
capital that we may need in the future may not be available on reasonable terms,
or at all. If adequate financing is not available, we may be required to
terminate or significantly curtail our operations, or enter into arrangements
with collaborative partners or others that may require us to relinquish rights
to certain of our technologies, or potential markets that we would not otherwise
relinquish.
Contractual
Obligations
License
with The Cleveland Clinic Foundation. We
have
an exclusive, worldwide license agreement with CCF for the rights to develop,
manufacture, use, commercialize, lease, sell and/or sublicense VQD-001. We
are
obligated to make an annual license maintenance payment until the first
commercial sale of VQD-001, at which time we are no longer obligated to pay
this
maintenance fee. In addition, the license agreement requires us to make payments
in an aggregate amount of up to $4.5 million to CCF upon the achievement of
certain clinical and regulatory milestones. Should VQD-001 become
commercialized, we will be obligated to pay CCF an annual royalty based on
net
sales of the product. In the event that we sublicense VQD-001 to a third party,
we will be obligated to pay CCF a portion of fees and royalties received from
the sublicense. We hold the exclusive right to negotiate for a license on any
improvements to VQD-001 and have the obligation to use all commercially
reasonable efforts to bring SSG to market. We have agreed to prosecute and
maintain the patents associated with VQD-001 or provide notice to CCF so that
it
may so elect. The license agreement shall automatically terminate upon
Greenwich’s bankruptcy and upon the date of the last to expire claim contained
in the patents subject to the license agreement. The license agreement may
be
terminated by CCF, upon notice with an opportunity for cure, for our failure
to
make required payments or its material breach, or by us, upon thirty day’s
written notice.
License
with the University of South Florida Research Foundation,
Inc.
We have
an exclusive, worldwide license agreement with USF for the rights to develop,
manufacture, use, commercialize, lease, sell and/or sublicense VQD-002. Under
the terms of the license agreement, we have agreed to sponsor research involving
VQD-002 annually for the term of the license agreement. In addition, the
license agreement requires us to make payments in an aggregate amount of up
to
$5.8 million to USF upon the achievement of certain clinical and regulatory
milestones. Should a product incorporating VQD-002 be commercialized, we are
obligated to pay to USF an annual royalty based on net sales of the product.
In
the event that we sublicense VQD-002 to a third party, we are obligated to
pay
USF a portion of fees and royalties received from the sublicense. We hold a
right of first refusal to obtain an exclusive license on any improvements to
VQD-002 and have the obligation to use all commercially reasonable efforts
to
bring VQD-002 to market. We have agreed to prosecute and maintain the patents
associated with VQD-002 or provide notice to USF so that it may so elect. The
license agreement shall automatically terminate upon Greenwhich’s bankruptcy or
upon the date of the last to expire claim contained in the patents subject
to
the license agreement. The license agreement may be terminated by USF, upon
notice with an opportunity for cure, for our failure to make required payments
or its material breach, or by us, upon six month’s written notice.
The
following table summarizes our long-term contractual obligations at
December 31, 2006:
|
|
Payments
due by period
|
|
|
|
Total
|
|
Less
than
1
year
|
|
1-3
years
|
|
3-5
years
|
|
More
than 5 years
|
|
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operating Lease Obligations (1)
|
|
$
|
494,000
|
|
$
|
97,000
|
|
$
|
295,000
|
|
$
|
102,000
|
|
$
|
-
|
|
Discontinued
Operating Lease Obligations (1)
|
|
|
799,000
|
|
|
331,000
|
|
|
468,000
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
1,293,000
|
|
$
|
428,000
|
|
$
|
763,000
|
|
$
|
102,000
|
|
$
|
-
|
|
(1)
Operating
Lease Obligations are payment obligations under an “operating lease” as
classified by FASB Statement of Financial Accounting Standards No. 13. According
to SFAS 13, any lease that does not meet the criteria for a “capital lease” is
considered an “operating lease.”
Critical
Accounting Policies and Estimates
Accounting
for Stock-Based Compensation
Prior
to
January 1, 2006, as permitted by SFAS No. 123, we accounted for share-based
payments to employees using the intrinsic value method under the recognition
and
measurement principles of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees “APB No. 25”, and related interpretations. Under
this method, compensation cost is measured as the amount by which the market
price of the underlying stock exceeds the exercise price of the stock option
at
the date at which both the number of options granted and the exercise price
are
known. As previously permitted by the Statement of Financial Accounting
Standards No. 123 “SFAS No. 123”, we had elected to apply the
intrinsic-value-based method of accounting under APB No. 25 described above,
and
adopted the disclosure only requirements of SFAS No. 123, and provided pro
forma
information for the effects of using a fair value basis for all options.
We
adopted SFAS No. 123R, Share-Based Payment and related interpretations on
January 1, 2006 for its employee and director stock options plan, using the
modified prospective method which requires that share-based expense recognized
includes: (a) share-based expense for all awards granted prior to, but not
yet
vested, as of the adoption date and (b) share-based expense for all awards
granted subsequent to the adoption date. Since the modified prospective
application method is being used, there is no cumulative effect adjustment
upon
the adoption of SFAS No. 123R, and our financial statements as of and for the
year ended December 31, 2005 do not reflect any restated amounts. No
modifications were made to outstanding options prior to the adoption of SFAS
No.
123R, and we did not change the quantity, type or payment arrangements of any
share-based payment programs.
SFAS
No.
123R requires that compensation cost relating to share-based payment
transactions be recognized as an expense in the financial statements, and that
measurement of that cost be based on the estimated fair value of the equity
or
liability instrument issued. Under SFAS No. 123R, the pro forma disclosures
previously permitted under SFAS No. 123, Accounting for Stock-Based Compensation
“SFAS No. 123” are no longer an alternative to financial statement recognition.
SFAS No. 123R also required that forfeitures be estimated and recorded over
the
vesting period of the instrument.
We
account for stock options granted to non-employees on a fair value basis using
the Black-Scholes option pricing method in accordance with SFAS 123R and
Emerging Issues Task Force No. 96-18, “Accounting for Equity Instruments that
are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. The initial non-cash charge to operations for
non-employee options with vesting is subsequently adjusted at the end of each
reporting period based upon the change in the fair value of our common stock
until such options vest. We use the same valuation methodologies and assumptions
in estimating the fair value of options under both SFAS No. 123R and the pro
forma disclosures under SFAS No. 123.
Research
and Development Expense.
Research
and development expenditures are expensed as incurred. We often contract with
third parties to facilitate, coordinate and perform agreed upon research and
development activities. To ensure that research and development costs are
expensed as incurred, we measure and record prepaid assets or accrue expenses
on
a monthly basis for such activities based on the work performed under the
contracts.
These
contracts typically call for the payment of fees for services at the initiation
of the contract and/or upon the achievement of certain clinical trial
milestones. In the event that we prepay fees for future milestones, we
record the prepayment as a prepaid asset and amortize the asset into research
and development expense over the period of time the contracted research and
development services are performed. Most professional fees are incurred
throughout the contract period. These professional fees are expensed based
on their percentage of completion at a particular date.
These
contracts generally include pass through fees. Pass through fees include,
but are not limited to, regulatory expenses, investigator fees, travel costs,
and other miscellaneous costs including shipping and printing fees. Because
these fees are incurred at various times during the contract term and they
are
used throughout the contract term, we record a monthly expense allocation to
recognize the fees during the contract period. Fees incurred to set up the
clinical trial are expensed during the setup period.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements.
Recently
Issued Accounting Standards
In
December 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position EITF 00-19-2 (“FSP 00-19-2”), Accounting
for Registration Payment Arrangements. FSP
00-19-2 addresses an issuer’s accounting for registration payment arrangements
by specifying that the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement,
wither issued as a separate agreement or included as a provision of a financial
instrument or other agreement, should be separately recognized and measured
in
accordance with FASB Statement No. 5, Accounting
for Contingencies. FSP
00-19-2 will be effective for fiscal years beginning after December 15, 2006,
and interim periods within those fiscal years. We currently believe that the
adoption of FSP 00-19-2 will have no material impact on our consolidated
financial position or results of operations.
In
June
2006, the FASB issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No.
109, Accounting for
Income Taxes (“FIN
48”).
FIN
48
clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements in accordance with FASB Statement No.
109.
FIN
48
stipulates a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, and interest and penalties. The provisions of FIN 48 are to
be
effective for our fiscal year beginning January 1, 2007. We have determined
that
the impact that uncertain tax positions will not have a material affect on
our
financial position or results of operations.
OUR
COMPANY
Overview
Since
October 2005, VioQuest Pharmaceuticals, Inc. has had two distinct business
units
- Drug Development and Chiral Products and Services. Our drug development
business focuses on acquiring, developing and eventually commercializing human
therapeutics in the areas of oncology, and antiviral diseases and disorders
for
which there are current unmet medical needs. We currently have the exclusive
rights to develop and commercialize two oncology drug candidates. We have
initiated three Phase I/IIa clinical trials since acquiring the license rights
to VQD-001 and VQD-002. Our chiral business, which we operate through our
wholly-owned subsidiary, Chiral Quest, Inc., provides innovative chiral
products, technology and custom synthesis development services to pharmaceutical
and fine chemical companies in all stages of a products’ lifecycle. In September
2006, our board of directors directed our management to explore strategic
alternatives relating to our chiral business, including the possible sale of
the
business. As a result, for accounting purposes, our chiral chemistry business
is
presented as discontinued operations in our financial statements, including
our
audited financial statements as of and for the year ended December 31, 2006
included elsewhere in this Prospectus. In April 2007, we entered into a
definitive agreement to sell Chiral Quest for cash consideration of $1.7
million, plus the assumption of up to $1.3 million in liabilities. The
transaction is subject to customary closing conditions, including the approval
of our shareholders.
Corporate
History; Mergers and Reincorporation Transactions
We
were
originally formed in October 2000, as a Pennsylvania limited liability company
under the name Chiral Quest, LLC. In February 2003, we completed a reverse
acquisition of Surg II, Inc., a publicly-held Minnesota shell corporation and
were renamed Chiral Quest, Inc. In August 2004, we changed our name to VioQuest
Pharmaceuticals, Inc. In October 2005, we reincorporated under Delaware law
by
merging into a wholly-owned subsidiary incorporated under Delaware law.
Immediately
following the reincorporation, we acquired Greenwich Therapeutics, Inc., a
privately-held, New York City based drug development company, in a merger
transaction in which we merged a wholly-owned subsidiary with and into Greenwich
Therapeutics, with Greenwich Therapeutics remaining as the surviving corporation
and our wholly-owned subsidiary. As a result of the acquisition of Greenwich
Therapeutics, we acquired the rights to develop and commercialize two oncology
drug candidates - VQD-001, Sodium Stibogluconate, or SSG, and VQD-002,
Triciribine-Phosphate, or TCN-P.
Drug
Development
Through
our drug development business, we acquire, develop, and intend to commercialize
innovative products for the treatment of important unmet medical needs in cancer
and immunological diseases. Through our acquisition of Greenwich Therapeutics,
Inc. in October 2005, we obtained the rights to develop and commercialize two
oncology drug candidates - VQD-001 and VQD-002. We hold our rights to VQD-001
and VQD-002, pursuant to license agreements with The Cleveland Clinic
Foundation and the University of South Florida Research Foundation,
respectively. These licenses give us the right to develop, manufacture, use,
commercialize, lease, sell and/or sublicense VQD-001 and VQD-002. We have
initiated three Phase I/IIa clinical trials since acquiring the license rights
to VQD-001 and VQD-002.
Cancer
Overview
Cancer
develops when abnormal cells in the body begin to grow out of control. These
cancer cells may outlive normal cells and can go on to form additional cancerous
cells. The danger is that these cells may often travel to other parts of the
body and replace normal tissue, a process called metastasis. Frequently, these
metastases ultimately lead to a patient’s death. Although the exact cause of
cancer is still uncertain, it is believed that genetics and environmental toxins
play a role.
The
American Cancer Society estimates that 1,444,920 new cases of cancer will be
diagnosed in 2007 alone. The National Institute of Health estimated that the
overall cost of cancer is $206.3 billion in 2006. This cost includes $78.2
billion in direct medical expenses, $17.9 billion in indirect morbidity costs,
and $110.2 billion in indirect mortality costs. In 2007, 559,650 Americans
are
expected to die from cancer, or one in four deaths in the United States. For
all
types of cancer diagnosed between 1996 and 2002 combined, the 5-year relative
survival rate is 66%.
Cancer
is
the second leading cause of death in America, exceeded only by heart disease.
In
the U.S., half of all men and one third of all women will develop cancer at
some
point in their lives. Since 1990, over 17 million new cancer cases have been
diagnosed. A number of drugs are used in the treatment of cancer. These drugs
are used to reduce pain, prolong the life of the patient, send the cancer into
remission or eliminate the cancer completely. We believe there is great
opportunity for improvement in all types of cancer treatment. Recognizing this
vast health and commercial opportunity, we acquire, develop, and commercialize
innovative products for the treatment of important unmet medical needs in cancer
and immunological diseases.
VQD-001
- Sodium Stibogluconate (SSG)
VQD-001
is a pentavalent antimonial drug that has been in use for over 50 years in
parts
of Africa and Asia for the treatment of leishmaniasis (a protozoan disease).
According to the World Health Organization leishmaniasis currently threatens
350
million men, women, and children in 88 countries around the world. This drug
is
currently being used to treat military personnel serving in parts of the world
where leishmaniasis is prevalent. In collaboration with the U.S. Army, we are
pursuing development of VQD-001 in the treatment of leishmaniasis and anticipate
filing a new drug application, or NDA, with the U.S. Food and Drug
Administration, or FDA, in the second half of 2007. In December 2006, VQD-001
received orphan drug designation by the FDA for the treatment of leishmaniasis.
In
addition to treatment for leishmaniasis, several preclinical studies, especially
those conducted at the Cleveland Clinic, have showed that VQD-001 is an
inhibitor of multiple protein tyrosine phosphatases (PTPases), specifically
the
SRC homology PTPase (SHP-1 & SHP-2) and PTB-1B. These intracellular enzymes
are involved in signaling pathways of many receptor-linked tyrosine kinases
which are involved in growth, proliferation and differentiation of cancer cells.
Inhibition of these enzymes with VQD-001 can trigger apoptosis, or cell death,
of cancerous tumors. This cytotoxic effect, coupled with its potential ability
to enhance the body’s immune system, through improved cytokine signaling and
t-cell formation, suggest that VQD-001 has potential as an anti-cancer agent.
It
is well known that one major mechanism of regulating the proliferation, growth
and apoptosis of cancer cells involves activation of cellular pathways,
especially protein tyrosine kinase pathways; the Jak/Stat pathway is a
particularly important protein tyrosine kinase pathway. It is also known that
interferon and other cytokines exert their anti-cancer effects via the Jak/Stat
pathway. We filed with the FDA an IND for VQD-001, which the FDA accepted in
August 2006, allowing us to commence clinical trials of VQD-001. VQD-001 is
currently being evaluated in combination with IFN a-2b
in a
24-patient investigator-sponsored Phase I clinical trial at the Cleveland Clinic
Taussig Cancer Center in refractory solid tumors, lymphoma and myeloma. We
are
also currently evaluating the safety, tolerability and activity of VQD-001
in a
separate, company-sponsored study of up to a 54-patient Phase I/IIa clinical
trial at M.D. Anderson Cancer Center in patients with advanced malignancies
and
solid tumors that have been non-responsive in previous cytokine
therapy.
Preclinical
Data
VQD-001
has been shown to have anti-proliferative activity against a broad number of
tumor cell lines, including melanoma and renal cell lines. Pre-clinical work
in
nude mice with cancer xenografts has shown that VQD-001 can control malignancies
in vivo as well. These effects were seen whether used as part of a combination
therapy with existing treatments, including interferon and interleukin-2 or
alone. In addition, preclinical data also suggests that monotherapy with VQD-001
may be useful to treat certain other tumor types, including prostate cancer.
The
preclinical data suggests that VQD-001 utilizes multiple modes of action,
including having a direct effect on cancer cells, as well as generally enhancing
the body’s immune system. These multiple modes of action, along with VQD-001’s
known historical toxicity profile, indicate to us that VQD-001 is a potentially
attractive drug candidate to evaluate as an anti-cancer agent.
Potential
Lead Indication of VQD-001
The
standard of care for solid tumors, lymphoma, myeloma and certain other
hematological malignancies, includes either chemotherapy and/or biologic
therapy. Biologic treatment with Interferon alpha-2b, or IFN a-2b,
has
been moderately successful in controlling some of these malignancies. However,
some tumors become refractory to treatment with IFN a-2b
and
the cancer continues to grow despite continued treatment. In addition, the
toxicity profile of IFN a-2b
often
limits its clinical efficacy. We believe that the effectiveness of this existing
treatment may be improved by using VQD-001 in combination with IFN a-2b.
Specifically, we believe that VQD-001, due to its demonstrated ability to
inhibit PTPases, will augment the anti-proliferative activity and improve the
efficacy of IFN a-2b.
Therefore, we believe that the efficacy of VQD-001 in combination with IFN
a-2b
as
shown in preclinical studies together with its known historically acceptable
safety profile, may position it well as an effective combination therapy to
treat solid tumors and certain other hematological malignancies.
Clinical
Development
VQD-001
is currently being studied at M.D. Anderson Cancer Center in a Phase I/IIa
corporate-sponsored clinical trial in combination with IFN a-2b
in up
to 54-patients with advance malignancies and solid tumors that have been
non-responsive in previous cytokine therapy. We expect the M.D. Anderson Phase
I
clinical trial will be completed by the first half of 2007. Pending a successful
completion of our Phase I/IIa corporate-sponsored clinical trial, we anticipate
initiating a Phase IIb trial in the second half of 2007. The Phase IIb trial
will be designed to provide information concerning efficacy, among other
information. Prior to initiating the Phase IIb trial, we will need to apply
for
approval with the local institutional review board and identify the principal
investigator to conduct the study. There may potentially be delays in receiving
this approval, such as unforeseen safety issues and dosing issues.
VQD-001
is also being studied at the Cleveland Clinic Taussig Cancer Center in an
investigator-sponsored Phase I clinical trial in combination with IFN
a-2b
in
the treatment of refractory solid tumors, lymphoma and melanoma in up to 24
patients. We expect the Cleveland Clinic Phase I clinical trial to be completed
during the second half of 2007. Although it has no obligation to us to do so,
the Cleveland Clinic intends to fund all costs associated with this clinical
trial. In order to ensure this trial is completed, however, we may in the future
agree to fund portions of this study. Further, if the Cleveland Clinic
determines to discontinue the trials, we intend to continue product testing
at
an alternative facility such as a medical center or university to run our
clinical trials.
The
primary objectives of both the M.D. Anderson Phase I/IIa and Cleveland Clinic
Phase I clinical trials are to evaluate the tolerance, safety and maximum
tolerated dose, of VQD-001 in combination with IFN a-2b.
In
addition, these trials will also evaluate pharmacokinetic data and
anti-neoplastic activity (although the trial is not designed to evaluate
efficacy). We also hope to gain a better understanding of how VQD-001 affects
important biological and genetic pathways.
Advantages
Over Existing Developmental Therapeutics
Potential
advantages of VQD-001 over existing therapies include VQD-001’s long history of
use, acceptable toxicity, known safety profiles, and efficacy in preclinical
cancer models. As previously discussed, VQD-001 has been utilized in the
treatment of leishmaniasis for over fifty years in parts of Africa and Asia.
In
connection with such use, VQD-001 has demonstrated favorable toxicity and side
effect profiles, at dosages well in excess of the dosages we intend to utilize
in our clinical trials in the treatment of cancer. Also, based on preclinical
in
vivo
cancer
models, we believe that VQD-001 may have better efficacy in treating refractory
cancer than existing standards of care.
Competition
To
our
knowledge, no inhibitors of such PTPases have previously been demonstrated
to be
effective to treat cancer. CombinatoRx, Incorporated, a privately held
biotechnology company, is developing a clinical drug candidate containing
Pentamidine + Thorazine. Pentamidine may also be a PTPase inhibitor and has
also
previously been used for the treatment of leishmaniasis. Hoffman-La Roche Inc.
and Wyeth are investigating PTPase inhibitors for the potential treatment of
non-insulin dependent diabetes.
Additional
Potential Indication of VQD-001
As
we
continue to develop VQD-001 for indications primarily used for an oncology
therapeutic, we are also in the process of developing a treatment for
leishmaniasis which is a parasitic disease as described above. According to
the
World Health Organization, leishmaniasis currently threatens 350 million men,
women and children in 88 countries around the world. The leishmaniases are
parasitic diseases with a wide range of clinical symptoms:
|
·
|
Cutaneous
leishmaniasis -
Cutaneous forms of the disease normally produce skin ulcers on the
exposed
parts of the body such as the face, arms and legs). The disease can
produce a large number of lesions - sometimes up to 200 - causing
serious
disability, and invariably leaving the patient permanently scarred,
a
stigma which can cause serious social prejudice;
|
|
·
|
Mucocutaneous
- in mucocutaneous
forms of leishmaniasis, lesions can lead to partial or total destruction
of the mucous membranes of the nose, mouth and throat cavities and
surrounding tissues. These disabling and degrading forms of leishmaniasis
can result in victims being humiliated and cast out from society;
and
|
|
·
|
Visceral
leishmaniasis
- also known as kala azar - is characterized by irregular bouts of
fever,
substantial weight loss, swelling of the spleen and liver, and anaemia
(occasionally serious). If left untreated, the fatality rate in developing
countries can be as high as 100% within 2 years.
|
In
collaboration with the U.S. Army, we are pursuing the development of VQD-001
in
the treatment of leishmaniasis and intend to file an NDA, with the FDA in the
second half of 2007. VQD-001 was granted orphan drug designation by the FDA
in
December 2006 for the treatment of leishmaniasis.
VQD-002
- Triciribine-Phosphate (TCN-P)
VQD-002,
a nucleoside analog, was previously advanced into clinical trials by the
National Cancer Institute in the 1980s and early 1990s, and showed compelling
anti-cancer activities. More recently, investigators at the Moffitt Cancer
Center of the University of South Florida were able to demonstrate from
preclinical studies that VQD-002’s mechanism of action is the inhibition of Akt
phosphorylation (protein kinase - B), which is found to be over activated and
over-expressed in various malignancies including breast, ovarian, colorectal,
and pancreatic and leukemias. Clinically, the over expression of phosphorylated
Akt is associated with poor prognosis, resistance to chemotherapy and shortened
survival time of cancer patients. We filed with the FDA an IND relating to
VQD-002, which was accepted in April 2006. Pursuant to this IND, we are
currently evaluating the safety, tolerability and activity of VQD-002 and its
ability to reduce Akt phosphorylaion in two Phase I/IIa clinical trials,
including one at the Moffitt Cancer Center in up to 42 patients with
hyper-activated, phosphorylated Akt in colorectal, pancreatic, breast and
ovarian tumors and a second clinical trial, with up to 40 patients, at the
M.D.
Anderson Cancer Center in hematological tumors, with particular attention in
leukemia.
Preclinical
Data
Recent
preclinical research performed at the Moffitt Cancer Center at the University
of
South Florida confirmed bio-activity of VQD-002 in tumor cell lines that
over-express Akt. Furthermore, in vivo studies showed that low doses of VQD-002
inhibited tumor growth in murine human xenograft models only if the xenograft
over-expressed Akt and if not Akt was over-expressed. In both human tumor cell
lines and in murine xenograft models, VQD-002 inhibited tumor cell growth and
promoted tumor cell death, a process known as apoptosis.
Potential
Lead Indication of VQD-002
The
efficacy of VQD-002 as an anti-cancer drug in previous clinical trials was
observed and toxicity was does dependent. We believe side effects were closely
related to the high dosage levels used in these trials. In addition, we believe
that the hyperglycemia seen as a side effect may have resulted from VQD-002’s
mechanism of action on Akt, as recent preclinical studies have shown that a
deficiency of Akt impairs the ability of insulin to lower blood glucose, which
could lead to a hyperglycemic condition. The previous NCI-sponsored clinical
trials used dosages that ranged up to 256mg/m2, and these trials targeted tumors
without regard to whether such tumors overexpressed Akt, since, at the time
of
such trials, the mechanism of action for VQD-002 was not fully understood.
We
believe that, based on the preclinical studies conducted to date, VQD-002
effectively and selectively induces apoptosis and inhibits growth in tumor
cells
with elevated levels of Akt at doses lower than those used in the previous
clinical trials. Therefore, we believe that by selectively screening and
treating only those patients with tumors that exhibit abnormal levels of
phosphorylated Akt, VQD-002 in low doses may achieve tumor inhibition and
regression without the significant side effects previously associated with
its
usage at higher dose levels. Our initial potential lead indication for VQD-002
will be for the treatment of solid tumors known to have abnormal levels of
phosphorylated Akt, which constitute a significant percentage of all colorectal,
ovarian, pancreatic and breast cancers.
Additional
Potential Indications for VQD-002
While
VQD-002 continues in clinical development for solid tumors that overexpress
abnormal levels of phosphorylated Akt, we have initiated two Phase I/IIa
clinical trials to explore VQD-002’s potential in the treatment for
hematological and other hematologic tumors, including leukemia. We also intend
to continue to explore other potential oncology indications by conducting
xenograph preclinical studies in various tumor models.
Clinical
Development
VQD-002
is currently being studied under our Phase I/IIa clinical trial at the Moffitt
Cancer Center at the University of South Florida in up to 42 patients in the
treatment of metastatic and refractory solid tumors including: colorectal,
pancreatic, breast and ovarian tumors. In addition we have entered into Phase
I/IIa clinical trials in up to 40 patients with advanced hematologic
malignancies at each M.D. Anderson Cancer Center and the Moffitt Cancer Center.
We expect that each patient enrolled in the clinical trials will have either
refractory solid or hematologic tumors that have demonstrated abnormal levels
of
phosphorylated Akt on biopsied tumor samples. The primary objective of this
clinical trial will be to confirm the tolerance, safety and maximum tolerated
dose, of VQD-002. In addition, the trial will also provide pharmacokinetic
data
and may provide possible very early evidence of anti-neoplastic activity
(although the trial is not designed to assess efficacy) and a better
understanding of how VQD-002 impacts on levels of Akt in previously
overexpressing tumors. Pending the successful completion of these Phase I,
which
we expect to be completed by the first half of 2007, we anticipate initiating
Phase IIb clinical trials in the second half of 2007. Prior to a initiating
these Phase IIb clinical trials, we will need to apply for approval with the
Institutional Review Board and the principal investigator to conduct the study.
There may potentially be delays in receiving this approval such as unforeseen
safety issues and dosing issues.
Advantages
over Existing Developmental Therapeutics
The
planned clinical trials utilizing VQD-002 in patients that have tumors that
exhibit abnormal levels of phosphorylated Akt is a strategy that we believe
offers significant advantages over classic anticancer therapies. Our research
indicates to us that low dose treatment with VQD-002 inhibits the activation
of
Akt. This will target cancer cells specifically, while sparing healthy cells,
resulting in fewer side effects. This “targeted therapy” takes advantage of the
biologic differences between cancer cells and healthy cells. We expect this
approach to result in a decreased number of patients required to see a clinical
effect, as we predict that a larger percentage of the patients treated will
benefit from treatment with VQD-002. We expect that this will decrease both
the
clinical trial regulatory time period, and also the costs associated with such
clinical trials, as compared to traditional anticancer products currently in
clinical development.
Competition
There
is
currently no approved Akt inhibitor on the market. Keryx Biopharmaceuticals,
Inc. is developing perifosine. Perifosine is an alkylphospholipid that has
been
shown to inhibit the PI3K/Akt pathway, but research to date has not demonstrated
that it directly binds the Akt molecule. Multiple pharmaceutical companies
have
Akt inhibitors in the early discovery stage of development, including Abbott
Laboratories, Astrazeneca, Bristol-Meyers Squibb, Merck & Co., Inc. and Eli
Lilly.
To
date,
we have not received approval for the sale of any drug candidates in any market
and, therefore, have not generated any revenues from our drug candidates. The
successful development of our product candidates is highly uncertain. Product
development costs and timelines can vary significantly for each product
candidate and are difficult to accurately predict. Various laws and regulations
also govern or influence the manufacturing, safety, labeling, storage, record
keeping and marketing of each product. The lengthy process of seeking these
approvals, and the subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial resources. Any failure
by us
to obtain, or any delay in obtaining, regulatory approvals could materially
adversely affect our business.
Developing
pharmaceutical products is a lengthy and very expensive process. Assuming we
do
not encounter any unforeseen safety issues during the course of developing
our
product candidates, we do not expect to complete the development of a product
candidate until late 2007 for the treatment of leishmaniasis, and 2011 for
oncology indications of VQD-001 and VQD-002, if ever. In addition, as we
continue the development of our product candidates, our research and development
expenses will further increase. To the extent we are successful in acquiring
additional product candidates for our development pipeline, our need to finance
further research and development will continue increasing. Accordingly, our
success depends not only on the safety and efficacy of our product candidates,
but also on our ability to finance the development of these product candidates.
Our major sources of working capital have been proceeds from various private
financings, primarily private sales of our common stock and other equity
securities.
Research
and development expenses consist primarily of salaries and related personnel
costs, fees paid to consultants and outside service providers for laboratory
development, legal expenses resulting from intellectual property protection,
business development and organizational affairs and other expenses relating
to
the acquiring, design, development, testing, and enhancement of our product
candidates, including milestone payments for licensed technology. We expense
our
research and development costs as they are incurred.
Government
Regulation
The
research, development, testing, manufacturing, labeling, promotion, advertising,
distribution, and marketing, among other things, of our products are extensively
regulated by governmental authorities in the U.S. and other countries. In the
United States, the FDA regulates drugs under the Federal Food, Drug, and
Cosmetic Act, or the FDCA, and its implementing regulations. Failure to comply
with the applicable U.S. requirements may subject us to administrative or
judicial sanctions, such as FDA refusal to approve pending NDAs, warning
letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, and/or criminal prosecution.
Drug
Approval Process
None
of
our drug candidates may be marketed in the U.S. until the drug has received
FDA
approval. The steps required before a drug may be marketed in the U.S. include:
·
preclinical
laboratory tests, animal studies, and formulation studies,
·
submission
to the FDA of an IND for human clinical testing, which must become effective
before human clinical trials may begin,
·
adequate
and well-controlled human clinical trials to establish the safety and efficacy
of the drug for each indication,
·
submission
to the FDA of an NDA,
·
satisfactory
completion of an FDA inspection of the manufacturing facility or facilities
at
which the drug is produced to assess compliance with current good manufacturing
practices, or cGMPs, and
·
FDA
review and approval of the NDA.
Preclinical
tests include laboratory evaluation of product chemistry, toxicity, and
formulation, as well as animal studies. The conduct of the preclinical tests
and
formulation of the compounds for testing must comply with federal regulations
and requirements. The results of the preclinical tests, together with
manufacturing information and analytical data, are submitted to the FDA as
part
of an IND, which must become effective before human clinical trials may begin.
An IND will automatically become effective 30 days after receipt by the FDA,
unless before that time the FDA raises concerns or questions about issues such
as the conduct of the trials as outlined in the IND. In such a case, the IND
sponsor and the FDA must resolve any outstanding FDA concerns or questions
before clinical trials can proceed. We cannot be sure that submission of an
IND
will result in the FDA allowing clinical trials to begin.
Clinical
trials involve the administration of the investigational drug to human subjects
under the supervision of qualified investigators. Clinical trials are conducted
under protocols detailing the objectives of the study, the parameters to be
used
in monitoring safety, and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND.
Clinical
trials typically are conducted in three sequential phases, but the phases may
overlap. The study protocol and informed consent information for study subjects
in clinical trials must also be approved by an Institutional Review Board for
each institution where the trials will be conducted. Study subjects must sign
an
informed consent form before participating in a clinical trial. Phase I usually
involves the initial introduction of the investigational drug into people to
evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics
and pharmacologic actions, and, if possible, to gain an early indication of
its
effectiveness. Phase II usually involves trials in a limited patient population
to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible
adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy
of the drug for specific indications. Phase III trials usually further evaluate
clinical efficacy and test further for safety by using the drug in its final
form in an expanded patient population. There can be no assurance that Phase
I,
Phase II, or Phase III testing will be completed successfully within any
specified period of time, if at all. Furthermore, the Company or the FDA may
suspend clinical trials at any time on various grounds, including a finding
that
the subjects or patients are being exposed to an unacceptable health risk.
The
FDCA
permits FDA and the IND sponsor to agree in writing on the design and size
of
clinical studies intended to form the primary basis of an effectiveness claim
in
an NDA application. This process is known as Special Protocol Assessment, or
SPA. These agreements may not be changed after the clinical studies begin,
except in limited circumstances.
Assuming
successful completion of the required clinical testing, the results of the
preclinical studies and of the clinical studies, together with other detailed
information, including information on the manufacture and composition of the
drug, are submitted to the FDA in the form of an NDA requesting approval to
market the product for one or more indications. The testing and approval process
requires substantial time, effort, and financial resources. The agencies review
the application and may deem it to be inadequate to support the registration
and
we cannot be sure that any approval will be granted on a timely basis, if at
all. The FDA may also refer the application to the appropriate advisory
committee, typically a panel of clinicians, for review, evaluation and a
recommendation as to whether the application should be approved. The FDA is
not
bound by the recommendations of the advisory committee.
The
FDA
has various programs, including fast track, priority review, and accelerated
approval, that are intended to expedite or simplify the process for reviewing
drugs, and/or provide for approval on the basis surrogate endpoints. Generally,
drugs that may be eligible for one or more of these programs are those for
serious or life-threatening conditions, those with the potential to address
unmet medical needs, and those that provide meaningful benefit over existing
treatments. We cannot be sure that any of our drug candidates will qualify
for
any of these programs, or that, if a drug candidate does qualify, that the
review time will be reduced.
Section
505b2 of the FDCA allows the FDA to approve a follow-on drug on the basis of
data in the scientific literature or data used by FDA in the approval of other
drugs. This procedure potentially makes it easier for generic drug manufacturers
to obtain rapid approval of new forms of drugs based on proprietary data of
the
original drug manufacturer.
Before
approving an NDA, the FDA usually will inspect the facility or the facilities
at
which the drug is manufactured, and will not approve the product unless cGMP
compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing
facilities as acceptable, the FDA may issue an approval letter, or in some
cases, an approvable letter followed by an approval letter. Both letters usually
contain a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions have been met to the FDA’s
satisfaction, the FDA will issue an approval letter. The approval letter
authorizes commercial marketing of the drug for specific indications. As a
condition of NDA approval, the FDA may require post marketing testing and
surveillance to monitor the drug’s safety or efficacy, or impose other
conditions.
After
approval, certain changes to the approved product, such as adding new
indications, making certain manufacturing changes, or making certain additional
labeling claims, are subject to further FDA review and approval. Before we
can
market our product candidates for additional indications, we must obtain
additional approvals from FDA. Obtaining approval for a new indication generally
requires that additional clinical studies be conducted. We cannot be sure that
any additional approval for new indications for any product candidate will
be
approved on a timely basis, or at all.
Post-Approval
Requirements
Often
times, even after a drug has been approved by the FDA for sale, the FDA may
require that certain post-approval requirements be satisfied, including the
conduct of additional clinical studies. If such post-approval conditions are
not
satisfied, the FDA may withdraw its approval of the drug. In addition, holders
of an approved NDA are required to: (i) report certain adverse reactions to
the
FDA, (ii) comply with certain requirements concerning advertising and
promotional labeling for their products, and (iii) continue to have quality
control and manufacturing procedures conform to cGMP after approval. The FDA
periodically inspects the sponsor’s records related to safety reporting and/or
manufacturing facilities; this latter effort includes assessment of compliance
with cGMP. Accordingly, manufacturers must continue to expend time, money,
and
effort in the area of production and quality control to maintain cGMP
compliance. We intend to use third party manufacturers to produce our products
in clinical and commercial quantities, and future FDA inspections may identify
compliance issues at the facilities of our contract manufacturers that may
disrupt production or distribution, or require substantial resources to correct.
In addition, discovery of problems with a product after approval may result
in
restrictions on a product, manufacturer, or holder of an approved NDA, including
withdrawal of the product from the market.
Orphan
Drug
The
FDA
may grant orphan drug designation to drugs intended to treat a “rare disease or
condition,” which generally is a disease or condition that affects fewer than
200,000 individuals in the United States. Orphan drug designation must be
requested before submitting an NDA. If the FDA grants orphan drug designation,
which it may not, the identity of the therapeutic agent and its potential orphan
use are publicly disclosed by the FDA. Orphan drug designation does not convey
an advantage in, or shorten the duration of, the review and approval process.
If
a product which has an orphan drug designation subsequently receives the first
FDA approval for the indication for which it has such designation, the product
is entitled to orphan exclusivity, meaning that the FDA may not approve any
other applications to market the same drug for the same indication, except
in
certain very limited circumstances, for a period of seven years. Orphan drug
designation does not prevent competitors from developing or marketing different
drugs for that indication. Our product candidate VQD-001 received orphan drug
designation for the treatment of leishmaniasis in December 2006.
Non-United
States Regulation
Before
our products can be marketed outside of the U.S., they are subject to regulatory
approval similar to that required in the U.S., although the requirements
governing the conduct of clinical trials, including additional clinical trials
that may be required, product licensing, pricing and reimbursement vary widely
from country to country. No action can be taken to market any product in a
country until an appropriate application has been approved by the regulatory
authorities in that country. The current approval process varies from country
to
country, and the time spent in gaining approval varies from that required for
FDA approval. In certain countries, the sales price of a product must also
be
approved. The pricing review period often begins after market approval is
granted. Even if a product is approved by a regulatory authority, satisfactory
prices may not be approved for such product.
In
Europe, marketing authorizations may be submitted at a centralized, a
decentralized or national level. The centralized procedure is mandatory for
the
approval of biotechnology products and provides for the grant of a single
marketing authorization that is valid in all EU members’ states.
As of January 1995, a mutual recognition procedure is available at the request
of the applicant for all medicinal products that are not subject to the
centralized procedure. There can be no assurance that the chosen regulatory
strategy will secure regulatory approvals on a timely basis or at
all.
Intellectual
Property and License Agreements
License
with The Cleveland Clinic Foundation. We
have
an exclusive, worldwide license agreement with the Cleveland Clinic Foundation,
or CCF, for the rights to develop, manufacture, use, commercialize, lease,
sell
and/or sublicense VQD-001. We are obligated to make annual license maintenance
payments until the first commercial sale of VQD-001, at which time we are no
longer obligated to pay this maintenance fee. In addition, the license agreement
requires us to make payments in an aggregate amount of up to $4.5 million to
CCF
upon the achievement of certain clinical and regulatory milestones. Should
VQD-001 become commercialized, we will be obligated to pay CCF an annual royalty
based on net sales of the product. In the event that we sublicense VQD-001
to a
third party, we will be obligated to pay CCF a portion of fees and royalties
received from the sublicense. We hold the exclusive right to negotiate for
a
license on any improvements to VQD-001 and have the obligation to use all
commercially reasonable efforts to bring VQD-001 to market. We have agreed
to
prosecute and maintain the patents associated with VQD-001 or provide notice
to
CCF so that it may so elect. The license agreement may be terminated by CCF,
upon notice with an opportunity for cure, for our failure to make required
payments or its material breach, or by us, upon thirty day’s written notice.
License
with the University of South Florida Research Foundation,
Inc.
We have
an exclusive, worldwide license agreement with the University of South Florida,
or USF, for the rights to develop, manufacture, use, commercialize, lease,
sell
and/or sublicense VQD-002. Under the terms of the license agreement, we have
agreed to sponsor research involving VQD-002 annually for the term of the
license agreement. In addition, the license agreement requires us to make
payments in an aggregate amount of up to $5.8 million to USF upon the
achievement of certain clinical and regulatory milestones. Should a product
incorporating VQD-002 be commercialized, we are obligated to pay to USF an
annual royalty based on net sales of the product. In the event that we
sublicense VQD-002 to a third party, we are obligated to pay USF a portion
of
fees and royalties received from the sublicense. We hold a right of first
refusal to obtain an exclusive license on any improvements to VQD-002 and have
the obligation to use all commercially reasonable efforts to bring VQD-002
to
market. We have agreed to prosecute and maintain the patents associated with
VQD-002 or provide notice to USF so that it may so elect. The license agreement
shall automatically terminate upon our bankruptcy or upon the date of the last
to expire claim contained in the patents subject to the license agreement.
The
license agreement may be terminated by USF, upon notice with an opportunity
for
cure, for our failure to make required payments or its material breach, or
by
us, upon six month’s written notice.
Employees
and Consultants
As
of
March 9, 2007, we have fifty full-time employees. None of our employees is
represented by a collective bargaining unit. We consider our relations with
our
employees to be good.
As
we
develop our technology and business, we anticipate the need to hire additional
employees, especially employees with expertise in the areas of clinical
operations, business development, chemistry, sales and
marketing.
Facilities
We
lease
office and laboratory space in Basking Ridge, New Jersey; Monmouth Junction,
New
Jersey; and in the People’s Republic of China, as summarized below:
Basking
Ridge, New Jersey.
We have
amended our original lease agreement effective June 15, 2005, for additional
office space effective November 20, 2006 for our principal executive offices
located in Basking Ridge, New Jersey. This facility consists of approximately
4,000 square feet of office space. Pursuant to the lease agreement term of
sixty-two months, we pay approximately $8,000 per month for rent and utilities.
Our total lease commitment of approximately $494,000 for rent and utilities
expires in January 2012.
Monmouth
Junction, New Jersey.
Through
our discontinued operation, Chiral Quest, we occupy approximately 9,000 square
feet of mostly laboratory space, and office space, for our Chiral Quest business
located in Monmouth Junction, New Jersey. In January 2006, we amended our
original May 2003 lease agreement to extend our lease term to May 31, 2009.
Pursuant to this amendment, effective June 1, 2006, our monthly base rent is
$19,439, in addition to monthly operating, utilities and maintenance fees of
$8,350. Upon six months prior written notice to the landlord, we will have
a one
time option, without penalty, to terminate this lease effective as of May 31,
2008. Our total lease commitment of approximately $799,000 for rent, utilities
and maintenance fees expires in May 2009.
The
People’s Republic of China. Through
our discontinued operation, Chiral Quest, pursuant
to an agreement effective December 15, 2004, with the Science and Technology
Bureau of Jiashan County (“Jiashan”) in Zhejiang Province of the People’s
Republic of China, we have agreed to lease a total of 4,000 square meters of
laboratory and office space in an industrial park near Shanghai, 50 percent
of
which we began occupying in 2005. Pursuant to our agreement with Jiashan,
although we are not required to pay rent during the initial 3-years of the
lease, we pay a maintenance fee of up to $4,500 per month, which is comprised
of
maintenance and management fees. Following the initial 3-year term, we may,
at
our sole discretion, either continue leasing the space for annual rent of no
more than $60,000 or purchase the facility on commercially reasonable terms.
We
have no financial obligation pursuant to the lease agreement after the end
of
the three year term. We were also granted the option to purchase in the next
three years approximately 33 acres of land adjacent to the industrial park.
For
purposes of entering into the lease, we established a wholly owned subsidiary
organized under the laws of Hong Kong, known as Chiral Quest Ltd., which in
turn
will be the sole shareholder of a subsidiary in the People’s Republic of China,
Chiral Quest (Jiashan) Ltd.
We
believe our existing facilities, as described above, are adequate to meet our
needs through the year ending December 31, 2007.
Legal
Matters
We
are
not a party to any material litigation and are not aware of any threatened
litigation that would have a material adverse effect on our
business.
MANAGEMENT
Our
executive officers and directors are described below. There are no family
relationships among our executive officers or directors.
Name
|
|
Age
|
|
Positions
|
Daniel
Greenleaf
|
|
42
|
|
President,
Chief Executive Officer and Director
|
Lawrence
Akinsanmi, M.D., Ph.D.
|
|
42
|
|
Vice
President of Clinical Operations and Regulatory Affairs
|
Edward
C. Bradley, M.D.
|
|
57
|
|
Chief
Scientific and Medical Officer
|
Michael
Cannarsa
|
|
49
|
|
General
Manager, Chiral Quest
|
Yaping
Hong
|
|
50
|
|
Senior
Vice President of Global Process Research and
Development
|
Brian
Lenz
|
|
34
|
|
Chief
Financial Officer and Treasurer
|
Vincent
Aita, Ph.D.
|
|
32
|
|
Director
|
Johnson
Y. N. Lau, M.D.
|
|
45
|
|
Director
|
Stephen
C. Rocamboli
|
|
35
|
|
Chairman
and Secretary
|
Stephen
A. Roth, Ph.D.
|
|
63
|
|
Director
|
Michael
Weiser, M.D., Ph.D.
|
|
44
|
|
Director |
Xumu
Zhang, Ph.D.
|
|
45
|
|
Chief
Technology Officer and Director
|
Daniel
Greenleaf has
been
our President and Chief Executive Officer and a member of the Board of Directors
since February 2005. He joined VioQuest from Celltech Biopharmaceuticals, a
European biotechnology company where he served as President of their U.S.
operations since 2004. Prior to that, Mr. Greenleaf served as Senior Vice
President of Operations for Nabi Biopharmaceuticals a biopharmaceutical
development company, from 2002 to 2003. From 1992 to 2002, Mr. Greenleaf held
a
series of positions of increasing responsibility at Schering-Plough Corporation,
an international pharmaceutical company, including its Vice President, Marketing
and Sales from 2000 to 2002. He holds an MBA from the University of Miami and
a
BA in Economics from Denison University.
Lawrence
Akinsanmi, M.D., Ph.D.,
joined
our company in October 2006. Prior to joining us, Dr. Akinsanmi served as global
lead, early development and senior director of regulatory affairs at Daiichi
Medical research, Inc., from January 2004 to September 2006. From January 2002
to December 2003, he served as Senior Director, Regulatory & Medical Affairs
at Omnicare Clinical Research. From February 1997 to October 2001, Dr. Akinsamni
was employed by Immunomedics, Inc., where he served as its Director of
Regulatory and Medical Affairs. Dr. Akinsamni has also held various clinical
research positions at academic and commercial research organizations. Dr.
Akinsanmi’s prior experiences include preparing and supporting IND and NDA
filings with the FDA and foreign regulatory authorities, and he has also been
involved in several oncology drug development projects. Dr. Akinsanmi also
has
broad oncologic drug development knowledge, and has previously worked on several
cancer products at various stages of development, including LymphoCide®,
CeaCide®, Iressa®, Satraplatin®, Camptosar® and Oral Taxane®.
Edward
C. Bradley, M.D.,
joined
VioQuest in February 2007 and serves as the Company’s Chief Scientific and
Medical Officer. Prior to joining the Company, Dr. Bradley was the Head of
Global Medical Development for the Imaging franchise of Berlex Schering AG/Bayer
Schering Pharma since March 2005. From January 2002 to March 2005, Dr. Bradley
was the Chief Medical Officer of Berlex Schering AG/Bayer Schering Pharma’s
Berlex Inc. division. From 1997 to January 2002, Dr. Bradley was Executive
Vice
President for Worldwide Medical Sciences & Development at DuPont
Pharmaceuticals Company.
Michael
Cannarsa, Ph.D.,
currently serves as General Manager of Chiral Quest and joined our Company
in
January 2005. Mr. Cannarsa joins us from Chemi Pharma, where he served as
President and VP of Business Development since 2003. From 2001 to 2003, Dr.
Cannarsa was employed by Synthetech, Inc. serving as Director of Business
Development. Prior to Synthetech, Inc., Dr. Cannarsa served as Vice President,
Fine Chemicals Business Development at Symyx Technologies, Inc. from 1999 to
2001. From 1997 to 1999; Dr. Cannarsa was employed by PPG-Sipsy Pharmaceutical
Products as Commercial Development Manager. He holds a Ph.D. from Cornell
University in Physical Organic Chemistry, and a BS in Chemistry from Georgetown
University.
Yaping
Hong, Ph.D.,
has
been our Senior Vice President of Global Research and Development since April
2004 and served as our Director of Process Research and Development from May
2003 to April 2004. Prior to joining Chiral Quest, Dr. Hong was Director of
Process Chemistry for Synthon Chiragenics from August 2001 to May 2003. From
April 1993 to August 2001, Dr. Hong was employed by Sepracor Inc., eventually
serving as Associate Research Fellow from January 2001 to August 2001. Dr.
Hong
holds a Ph.D. in Synthetic Organic Chemistry from the University of Waterloo.
Dr. Hong conducted his postdoctoral work from September 1991 to March 1993
at
the Massachusetts Institute of Technology, in Cambridge
Massachusetts.
Brian
Lenz
has been
our Chief Financial Officer since April 2004 and our Treasurer since December
2003. From October 2003 to April 2004, he served as our Controller and from
December 2003 to November 2006, he served as Secretary. Prior to that he was
Controller of Smiths Detection from July 2000 to September 2003. Previous to
Smiths Detection, Mr. Lenz worked as a Senior Auditor for KPMG LLP from October
1998 to June 2000. Mr. Lenz is a licensed Certified Public Accountant, holds
a
Bachelors of Science in Business Administration from Rider University in New
Jersey, and an M.B.A. from Saint Joseph’s University in
Pennsylvania.
Vincent
M. Aita, Ph.D. has
served as a member of the board of directors since February 2003. Dr. Aita
is a
partner at Kilkenny Capital Management, LLC, where he has worked from February
2004 to present. Prior to that, he was a research analyst for Paramount
BioCapital Asset Management, Inc. from November 2000 to January 2004. Prior
to
that, Dr. Aita completed a post-doctoral fellowship in the Department of
Genetics and Development at Columbia University, and concurrently served as
a
scientific consultant for Research Assessment Associates, Inc. From August
1995
to December 1999, Dr. Aita attended Columbia University where he received a
Ph.D. in Genetics from the Columbia Genome Center.
Johnson
Y. N. Lau
has been
a member of our board of directors since November 2005. He currently serves
as
the Chairman of Kinex Pharmaceuticals, LLC, a position he has held since
December 2003. Prior to that, Dr. Lau was an independent contractor from January
2003 until December 2003 and served in various capacities at Ribapharm Inc.
from
August 2000 until January 2003, including Chairman, President and Chief
Executive Officer. Previously he was the Senior Vice President and Head of
Research and Development at ICN Pharmaceuticals and Senior Director of Antiviral
Therapy at Schering-Plough Research Institute. Since September 2004, Dr. Lau
has
been a director of Chelsea Therapeutics International, Ltd. (OTCBB: CHTP),
a
North Carolina based biotechnology company. He has published over 200 scientific
papers and 40 reviews and editorials in leading academic journals and was
elected as a Fellow, Royal College of Physicians in 2004. Dr. Lau holds an
M.B.B.S. and M.D. from the University of Hong Kong and the degrees of M.R.C.P.
and F.R.C.P. from the Royal College of Physicians.
Stephen
C. Rocamboli has
served as our Chairman since February 2003 and Secretary since November 2006.
He
was our Secretary from February 2003 to December 2003. Since September 2004,
Mr.
Rocamboli has been general counsel of Paramount BioCapital, Inc. and Paramount
BioCapital Investments, LLC and served as deputy general counsel of those
companies from September 1999 to August 2004. From November 2002 to December
2003, Mr. Rocamboli served as a director of Ottawa, Ontario based Adherex
Technologies, Inc. Mr. Rocamboli also serves as a member of the board of
directors of several privately held development stage biotechnology companies.
Prior to joining Paramount, Mr. Rocamboli practiced law in the health care
field. He received his J.D. from Fordham University School of Law.
Stephen
A. Roth, Ph.D. has
served as a member of the board of directors since February 2003. Since January
2003, he has served as President, CEO, and director of Immune Control, Inc.,
a
privately-held biopharmaceutical company focused on developing cancer treating
drugs. Prior to joining Immune Control, Dr. Roth co-founded Neose Technologies
in 1990, becoming its Chief Executive Officer and Chairman in 1994. Prior to
starting Neose, Dr. Roth was assistant and associate professor of biology at
The
Johns Hopkins University from 1970-1980. He moved to the University of
Pennsylvania as professor of biology in 1980, and was appointed Department
Chairman in 1982, serving in that role until 1987. At Penn, Dr. Roth helped
form
its Plant Science Institute. His scholarly interests centered on the roles
of
complex carbohydrates in embryonic morphogenesis and in malignancy, topics
on
which he authored or co-authored nearly 100 articles and one book. He has
received several research awards and prizes, and is an inventor on 18 patents
and six patent applications. Dr. Roth received an A.B. degree from Johns Hopkins
in 1964, a Ph.D. from Case Western Reserve University in 1968, and did
postdoctoral work in carbohydrate chemistry at Hopkins from
1968-1970.
Michael
Weiser, M.D., Ph.D. has
served as a member of the board of directors since February 2003. Dr. Weiser
concurrently serves as the Director of Research of Paramount BioCapital,
Inc.
Dr. Weiser completed his Ph.D. in Molecular Neurobiology at Cornell University
Medical College and received his M.D. from New York University School of
Medicine, where he also completed a Postdoctoral Fellowship in the Department
of
Physiology and Neuroscience. Dr. Weiser currently serves on the board of
directors of Manhattan Pharmaceuticals, Inc. (MHA), Hana Biosciences, Inc.
(HNAB), Chelsea Therapeutics International Ltd. (CHTP), Emisphere Technologies
Inc. (EMIS), Ziopharm Oncology (ZIOP), all publicly-held biotechnology
companies, as well as several other privately held biotechnology
companies.
Xumu
Zhang, Ph.D.,
co-founder
of our subsidiary Chiral Quest, Inc., has been a member of our board of
directors and has served as our Chief Technology Officer and as a consultant
since our inception in 2000. Since 1994, Dr. Zhang has been primarily employed
by Pennsylvania State University in State College, Pennsylvania, most recently
as a Professor of Organic Chemistry, and prior to that was an Assistant and
Associate Professor of Chemistry. Dr. Zhang holds a Ph.D. in Organic and
Inorganic Chemistry from Stanford University, where he also conducted his
postdoctoral work.
Code
of Ethics
We
have
adopted a Code of Business Conduct and Ethics that applies to all officers,
directors and employees of our company. In addition, we have adopted a Code
of
Ethics specifically applicable to our Chief Executive Officer and Senior
Financial Officers. A copy of our Code of Business Conduct and Ethics and/or
our
Code of Ethics for Chief Executive Officer and Senior Financial Officers can
be
obtained without charge by sending a written request to the Secretary of the
Company at the address of Company’s principal offices. If we make any
substantive amendments to the Code of Business Conduct and Ethics or grant
any
waiver from a provision of the code to an executive officer or director, we
will
promptly disclose the nature of the amendment or waiver by filing with the
SEC a
current report on Form 8-K.
Audit
Committee Financial Expert
Our
audit
committee is composed of Dr. Aita, Dr. Lau and Mr. Rocamboli. Our board of
directors has determined that Dr. Lau qualifies as an “audit committee financial
expert” as such term is defined by SEC regulations. Dr. Lau qualifies as an
“independent director,” as such term is defined by Section 121(A) of the listing
standards of the American Stock Exchange.
Executive
Compensation
Summary
Compensation Table
The
following table sets forth all of the compensation awarded to, earned by
or paid
to or earned by (i) each individual serving as our principal executive
officer during our last completed fiscal year; and (ii) up to two other
individuals that served as executive officers at the conclusion of the
fiscal
year ended December 31, 2006 and who received in excess of $100,000 in
total
compensation for such fiscal year. We refer to each of these persons as
a named
executive.
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Option
Awards(2)
|
|
Non-Equity
Incentive Plan Compensation
|
|
All
Other Compensation
|
|
Total
|
|
Daniel
Greenleaf
President
and CEO
|
|
|
2006
|
|
$
|
360,000
|
|
$
|
100,000
|
(1)
|
$
|
818,053
|
(3)
|
$
|
100,000
|
(4)
|
$
|
-
|
|
$
|
1,378,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
Lenz
Chief
Financial Officer
|
|
|
2006
|
|
$
|
134,583
|
|
$
|
-
|
|
$
|
86,546
|
(5)
|
$
|
24,412
|
(6)
|
$
|
3,600
|
(7)
|
$
|
249,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yaping
Hong
Senior
V.P. of Process R&D
|
|
|
2006
|
|
$
|
165,000
|
|
$
|
-
|
|
$
|
87,647
|
(10)
|
$
|
27,225
|
(11)
|
$
|
-
|
|
$
|
279,872
|
|
(1) |
Pursuant
to Mr. Greenleaf’s employment agreement, he is entitled to a bonus of
$100,000 upon each anniversary of his agreement, provided he
continues to
be employed by us.
|
(2) |
Amount
reflects the dollar amount recognized for financial statement
reporting
purposes for the fiscal year ended December 31, 2006 in accordance
with
SFAS 123(R) of stock option awards, and may include amounts
from awards
granted in and prior to fiscal year 2006. Assumptions used
in the
calculation of this amount for employees are identified in Note 7 to
our financial statements for the year ended December 31, 2006
included elsewhere in this prospectus.
|
(3) |
Amount
reflects the dollar amount recognized for financial statement
reporting
purposes for the fiscal year ended December 31, 2006 in accordance
with
SFAS 123(R) of the following stock option awards: (i) the vesting
of
one-third of an option to purchase 891,396 shares granted on
February 1,
2005, which vests in three equal annual installments beginning
on February
1, 2006; and (ii) the vesting of one-third of an option to
purchase
1,445,080 shares granted on October 18, 2005, which vests in
three equal
installments beginning on February 1, 2006. These stock options
are issued
in
accordance with Mr. Greenleaf's employment agreement dated
February 1,
2005. See “—Employment Agreements with Named Executives - Daniel
Greenleaf.”
|
(4) |
Amounts
represent bonuses paid to Mr. Greenleaf as a result of the
satisfaction of
certain performance criteria established by our Board of Directors.
See “-
Employment Agreements with Named Executives - Daniel Greenleaf -
Bonus Compensation.”
|
(5) |
Amount
reflects the dollar amount recognized for financial statement
reporting
purposes for the fiscal year ended December 31, 2006 in accordance
with
SFAS 123(R) of the following stock option awards: (i) the vesting
of
one-third of a 15,000 share option granted on October 6, 2003
which vests
in equal amounts over 3 years; (ii) the vesting of one-third
of a 25,000
share option granted on April 19, 2004, which vests in equal
amounts over
3 years; (iii) the vesting of one-third of a 60,000 share option
granted
on January 24, 2005, which vests in equal amounts over 3 years;
and (iv)
the vesting of one-third of a 100,000 share option granted
on November 29,
2005, which vests in equal amounts over 3
years.
|
(6) |
Amount
represents a cash bonus awarded based upon the satisfaction
of performance
criteria established by our Board of Directors. See “- Employment
Agreements with Named Executives - Brian Lenz - Bonus Compensation.”
|
(7) |
Represents
amount paid to the named executive as an automobile
allowance.
|
(8) |
Amount
reflects the dollar amount recognized for financial statement
reporting
purposes for the fiscal year ended December 31, 2006 in accordance
with
SFAS 123(R) of the following stock option awards: (i) one-fourth
of 50,000
share option granted on April 21, 2003, which vests in equal
amounts over
4 years; (ii) one-third of a 50,000 share option granted on
April 19,
2004, which vest in equal amounts over 3 years; (iii) one-third
of a
25,000 share option granted on January 24, 2005, which vests
in equal
amounts over 3 years; (iv) one-third of a 100,000 share option
granted on
November 29, 2005, which vests in equal amounts over 3
years.
|
(9) |
Amount
represents a cash bonus awarded based upon the satisfaction
of performance
criteria established by our Board of Directors. See “- Employment
Agreements with Named Executives - Yaping Hong - Bonus
Compensation.”
|
Employment
Agreements with Named Executives
Daniel
Greenleaf
Cash
Compensation. Mr.
Greenleaf’s employment with us is governed by an agreement dated as of February
1, 2005. The agreement provides for a 3-year term and an initial annual
base
salary of $360,000, plus a guaranteed annual bonus of $100,000 during each
year
of the term of the agreement. Mr. Greenleaf also received a $50,000 signing
bonus upon entering into the agreement, one-half of which was paid immediately
upon signing, with the remaining one-half paid in August 2005. The agreement
further provides that Mr. Greenleaf is further entitled to a “Discretionary
Bonus” in an amount up to $250,000 per year. See “—Executive Bonus
Compensation.” Mr. Greenleaf’s agreement further provides that during his
employment he is entitled to such other benefits generally made available
to our
other senior management, which includes eligibility to participate in our
401(k)
plan and eligibility for group health, dental and life insurance.
Option
Grants.
Pursuant
to Mr. Greenleaf’s employment agreement, we issued to him an option to purchase
891,396 shares of common stock, which represented 5 percent of our outstanding
common stock at the time the agreement was entered into. This option vests
in
three equal annual installments, commencing February 2006 such that two-thirds
of the shares subject to this initial grant are currently exercisable.
Mr.
Greenleaf’s employment agreement further provides that, until we have raised $20
million through the sale of our equity securities and we have obtained
the
rights to one clinical stage human therapeutic, Mr. Greenleaf is entitled
to
receive additional stock options in order to maintain his beneficial ownership
(assuming the exercise of all stock options issued to Mr. Greenleaf) at
5
percent of our outstanding common stock. The employment agreement provides
that
to the extent any of these additional stock options are issued, the options
will
vest in equal installments over the then-remaining term of the employment
agreement and so long as Mr. Greenleaf remains employed by us. The exercise
price of the additional stock options will be equal to the then-current
market
value of our common stock at the time of issuance. We have made two additional
stock option grants pursuant to this provision. First, following the completion
of our October 2005 private placement and acquisition of Greenwich Therapeutics,
related to 1,445,080
shares
having an exercise price of $0.89, and which vested in 3 installments beginning
February 1, 2006 and each anniversary thereafter. Second, following the
completion of our October 2006 private placement, Mr. Greenleaf received
an
option to purchase 394,580 shares of our common stock, exercisable at $0.56
per
share, vesting in 2 equal installments on February 1, 2007 and February
1, 2008.
As of December 31, 2006, we have raised an aggregate of approximately $12.3
million, meaning Mr. Greenleaf will continue to be entitled to receive
the
additional stock options until we have raised an additional approximately
$6.7
from the sale of our equity securities.
Bonus
Compensation. Mr.
Greenleaf is
also
eligible to receive an annual cash bonus upon achievement of certain
performance
criteria established by our Board each year. The following table describes
the
criteria, the maximum amount for which Mr. Greenleaf was eligible to
receive for
2006 for fully satisfying each criterion, and the amount he was paid
for each
such criterion for 2006:
2006
Criteria
|
|
Eligible
Amount
|
|
Amount
Awarded
|
|
Completion
of financings resulting in gross proceeds of a targeted
amount
|
|
$
|
50,000
|
|
$
|
30,000
|
|
Listing
of common stock on national securities exchange
|
|
$
|
50,000
|
|
$
|
0
|
|
Company’s
initiation of 3 clinical trials in 2006
|
|
$
|
30,000
|
|
$
|
30,000
|
|
Company’s
completion of 3 clinical trials in 2006
|
|
$
|
30,000
|
|
$
|
20,000
|
|
Acquisition
of new compound
|
|
$
|
30,000
|
|
$
|
0
|
|
Acceptance
of NDA filing for review of leishmaniasis indication for
VQD-001
|
|
$
|
15,000
|
|
$
|
0
|
|
Chiral
Quest subsidiary net loss of less than targeted amount and
revenues in
excess of a targeted amount
|
|
$
|
20,000
|
|
$
|
10,000
|
|
Qualitative
factors relating to leadership, teamwork, peer interaction,
initiative and
communication
|
|
$
|
25,000
|
|
$
|
20,000
|
|
Total
|
|
$
|
250,000
|
|
$
|
100,000
|
|
Severance,
Change of Control and Termination Provision. Under
the
terms of Mr. Greenleaf’s employment agreement, in the event we terminate Mr.
Greenleaf’s employment upon a “change of control” and on the date of such
termination our aggregate market capitalization is less than $38 million,
he is
entitled to receive his base salary for six months thereafter and all of
his
stock options scheduled to vest in the calendar year of such termination
will
accelerate and be deemed vested upon termination and will remain exercisable
for
12 months following such termination. A “change of control” is defined in the
agreement as either: (i) the acquisition, directly or indirectly, following
the
date hereof by any person (as such term is defined in Section 13(d) and
14(d)(2)
of the Securities Exchange Act of 1934, as amended), in one transaction
or a
series of related transactions, of our securities representing 50% or more
of
the combined voting power of our then outstanding securities if such person
or
his or its affiliate(s) do not hold in excess of 50% of such voting power
on the
date the employment agreement; or (ii) the future disposition by us (whether
direct or indirect, by sale of assets or stock, merger, consolidation or
otherwise) of all or substantially all of our business and/or assets in
one
transaction or series of related transactions (other than a merger effected
exclusively for the purpose of changing our domicile).
In
the
event we terminate Mr. Greenleaf’s employment during the term of the agreement
other than as a result of death, disability, cause or in connection with
a
change of control where our aggregate market capitalization is less than
$38
million, then: (i) Mr. Greenleaf is entitled to receive his base salary
for 12
months from such termination, his guaranteed bonus for the calendar year
in
which such termination occurs, and the portion of any discretionary bonus
earned
as of the termination; and (ii) the vesting of his stock options shall
accelerate and be deemed vested and will remain exercisable for 12 months
following such termination.
Brian
Lenz
Base
Compensation.
We do
not have a formal employment agreement with Mr. Lenz, other than the severance
benefits agreement described below. However, Mr. Lenz’s current compensation
arrangement currently provides that he receives an annual base salary of
$185,000, and he is eligible to receive health care benefits and receives
an
annual automobile allowance of $3,600.
Bonus
Compensation. Mr.
Lenz
is also eligible to receive an annual cash bonus upon achievement of certain
performance criteria established by our Board each year. The following
table
describes the criteria, the maximum amount for which Mr. Lenz was eligible
to
receive for 2006 for fully satisfying each criterion, and the amount he
was paid
for each such criterion for 2006:
2006
Criteria
|
|
Eligible
Amount
|
|
Amount
Awarded
|
|
Completion
of financings resulting in gross proceeds of a targeted
amount
|
|
$
|
13,500
|
|
$
|
5,400
|
|
Company’s
initiation of 3 clinical trials in 2006
|
|
$
|
3,825
|
|
$
|
3,825
|
|
Completion
of non-dilutive financing transactions of a targeted
amount
|
|
$
|
5,625
|
|
$
|
2,812
|
|
Listing
of common stock on a national securities exchange
|
|
$
|
9,675
|
|
$
|
0
|
|
Chiral
Quest subsidiary net loss of less than targeted amount
|
|
$
|
7,875
|
|
$
|
7,875
|
|
Qualitative
factors relating to leadership, teamwork, peer interaction, initiative
and
communication
|
|
$
|
4,500
|
|
$
|
4,500
|
|
Total
|
|
$
|
45,000
|
|
$
|
24,412
|
|
In
addition to cash bonus compensation, Mr. Lenz also received a stock option
grant
in March 2006 relating to 100,000 shares of our common stock at an exercise
price of $0.85 per share. This option, which was issued under our 2003
Stock
Option Plan, vests in 3 annual installments commencing March 2007.
Severance,
Change of Control and Termination Provisions.
We
entered into a severance benefits agreement with Mr. Lenz, our Chief Financial
Officer, in August 2006. The agreement provides that, in the event we terminate
Mr. Lenz’s employment within one year following a “change of control” and such
termination is either without “cause,” or is a “constructive termination,” then
(i) Mr. Lenz shall be entitled to receive 12 months of his then annual
base
compensation, payable in semi-monthly installments, (ii) any and all outstanding
options to purchase shares of our common stock granted to Mr. Lenz shall
immediately vest and become immediately exercisable (whether granted before
or
after the date of the severance benefits agreement), and (iii) Mr. Lenz
shall be
entitled to participate in our health care and insurance benefits program
for a
period of 12 months thereafter. If Mr. Lenz’s employment is terminated at a time
other than a one-year period following a change of control and is without
cause,
then Mr. Lenz shall be entitled to receive (A) one-half of his then annual
compensation, payable in semi-monthly installments over a period of six
months
and (B) our health care and insurance benefits program over a period of
six
months thereafter.
Under
the
severance benefits agreement, “change of control” has the meaning given that
term in our 2003 Stock Option Plan, where it is defined as the occurrence
of one
of the following events:
· |
the
sale, lease, exchange or other transfer, directly or indirectly,
of
substantially all of the assets of the Company (in one transaction
or in a
series of related transactions) to a person or entity that is not
controlled by the Company;
|
· |
the
approval by our shareholders of any plan or proposal for the liquidation
or dissolution of the Company;
|
· |
any
person becomes after the effective date of the Plan the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly,
of (i) 20% or more, but not 50% or more, of the combined voting
power of
our outstanding securities ordinarily having the right to vote
at
elections of directors, unless the transaction resulting in such
ownership
has been approved in advance by the board members who continue
as
directors, or (ii) 50% or more of the combined voting power of
our
outstanding securities ordinarily having the right to vote at elections
of
directors (regardless of any approval by the continuing directors);
provided that a traditional institution or venture capital financing
transaction shall be excluded from this
definition;
|
· |
a
merger or consolidation to which we are a party if our shareholders
immediately prior to effective date of such merger or consolidation
have
beneficially own, immediately following the effective date of such
merger
or consolidation, securities of the surviving corporation representing
(i)
50% or more, but less than 80%, of the combined voting power of
the
surviving corporation’s then outstanding securities ordinarily having the
right to vote at elections of directors, unless such merger or
consolidation has been approved in advance by our continuing directors,
or
(ii) less than 50% of the combined voting power of the surviving
corporation’s then outstanding securities (regardless of any approval by
our continuing directors; or
|
· |
after
the date our securities are first sold in a registered public offering,
our continuing directors cease for any reason to constitute at
least a
majority of the Board.
|
Under
Mr.
Lenz’s severance benefits agreement, “cause” means (i) the conviction of a
felony; (ii) the conviction of theft or embezzlement of our property, or
the
commission of an act involving moral turpitude that materially and adversely
affects our reputation and business prospects; and (iii) Mr. Lenz’s failure to
substantially perform his material duties and responsibilities, provide
we first
send Mr. Lenz written notice of such failure and allow between 30 and 90
days to
cure such non-performance.
Under
Mr.
Lenz’s severance benefits agreement, a “constructive termination” is deemed to
occur when he has been demoted or his duties have been materially reduced,
there
has been an adverse change in his annual base salary or benefits, or he
has been
subject to discrimination prohibited by federal or state law.
In
addition, in March 2007, we entered into a letter agreement with Mr. Lenz
that
provided for additional compensation upon the event we sell our Chiral
Quest
subsidiary. Specifically, we agreed to pay to Mr. Lenz a cash payment equal
to
1.1667% of the gross proceeds received by us in connection with a sale
of Chiral
Quest.
Yaping
Hong
Base
Compensation.
Dr.
Hong, who serves as the Senior Vice President of Process R&D of our Chiral
Quest Subsidiary, currently receives an annual base salary of $160,000,
and is
eligible to receive various other benefits made available to our employees,
including our 401(k) plan and group health, dental and life insurance.
Bonus
Compensation. Dr.
Hong
is also eligible to receive an annual cash bonus upon achievement of certain
performance criteria established by our Board each year. The following
table
describes the criteria, the maximum amount for which Dr. Hong was eligible
to
receive for 2006 for fully satisfying each criterion, and the amount he
was paid
for each such criterion for 2006:
2006
Criteria
|
|
Eligible
Amount
|
|
Amount
Awarded
|
|
Chiral
Quest revenue of at least at a targeted amount and a margin equal
to or
greater than a targeted percentage
|
|
$
|
9,900
|
|
$
|
0
|
|
Chiral
Quest subsidiary net loss of less than targeted amount
|
|
$
|
14,850
|
|
$
|
9,950
|
|
Chiral
Quest subsidiary targeted sales
|
|
$
|
14,850
|
|
$
|
12,326
|
|
Criteria
related to scaling up and employee training at Chiral Quest China
facility
|
|
$
|
9,900
|
|
$
|
4,950
|
|
Total
|
|
$
|
49,500
|
|
$
|
27,225
|
|
As
further consideration for Dr. Hong’s continued employment, in March 2007 we
agreed to pay to him additional consideration in the event we completed
a sale
of our Chiral Quest subsidiary. Specifically, if we sell Chiral Quest,
Dr. Hong
is entitled to a lump sum cash payment equal to 1.1667% of the gross proceeds
received by us from such sale. In addition, upon a sale of Chiral Quest
all of
Dr. Hong's outstanding stock options, to the extent then vested, will remain
exercisable for 12 months.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information regarding each unexercised option
held by
each of our named executive officers as of December 31, 2006. All of the
option
awards described in the following table were issued pursuant to our 2003
Stock
Option Plan. None of our named executive officers received any stock awards
during 2006.
Name
|
|
Number
of
Securities
Underlying Unexercised Options
Exercisable
(1)
|
|
Number
of Securities Underlying Unexercised Options
Unexercisable
(1)
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
Daniel
Greenleaf
|
|
|
297,132
|
(2)
|
|
594,264
|
(2)
|
$
|
0.88
|
|
|
02/01/2015
|
|
|
|
|
481,693
|
(2)
|
|
963,387
|
(2)
|
$
|
0.89
|
|
|
10/18/2016
|
|
|
|
|
-
|
|
|
394,580
|
(2)
|
$
|
0.56
|
|
|
10/18/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
Lenz
|
|
|
15,000
|
(3)
|
|
-
|
|
$
|
1.67
|
|
|
10/06/2013
|
|
|
|
|
16,667
|
(4)
|
|
8,333
|
(4)
|
$
|
1.40
|
|
|
04/19/2014
|
|
|
|
|
20,000
|
(5)
|
|
40,000
|
(5)
|
$
|
1.08
|
|
|
01/24/2015
|
|
|
|
|
33,333
|
(6)
|
|
66,667
|
(6)
|
$
|
1.03
|
|
|
11/29/2015
|
|
|
|
|
-
|
|
|
100,000
|
(7)
|
$
|
0.85
|
|
|
03/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yaping
Hong
|
|
|
37,500
|
(8)
|
|
12,500
|
(8)
|
$
|
1.50
|
|
|
04/21/2013
|
|
|
|
|
33,333
|
(4)
|
|
16,667
|
(4)
|
$
|
1.40
|
|
|
04/19/2014
|
|
|
|
|
8,333
|
(5)
|
|
16,667
|
(5)
|
$
|
1.08
|
|
|
01/24/2015
|
|
|
|
|
33,333
|
(6)
|
|
66,667
|
(6)
|
$
|
1.03
|
|
|
11/29/2015
|
|
|
|
|
-
|
|
|
75,000
|
(7)
|
$
|
0.85
|
|
|
03/31/2016
|
|
(1) |
All
options granted pursuant to our 2003 Stock Option
Plan.
|
(2) |
Options
were granted in
accordance with Mr. Greenleaf's employment agreement dated
2/1/2005, which
requires additional stock options to be issued to maintain
Mr. Greenleaf's
aggregate stock options to be equal to 5% of the Company's
outstanding
common stock until certain events
occur.
|
(3) |
Options
were granted on October 6, 2003 and vested in three equal
amounts on each
of October 6, 2004, October 6, 2005 and October 6,
2006.
|
(4) |
Options
were granted on April 19, 2004 and vest in three equal amounts
on each of
April 19, 2005, April 19, 2006 and April 19, 2007.
|
(5) |
Options
were granted on January 24, 2005 and vest in three equal
amounts on each
of January 24, 2006, January 24, 2007, and January 24,
2008.
|
(6) |
Options
were granted on November 29, 2005 and vest in three equal
amounts on each
of November 29, 2006, November 29, 2007, and November 29,
2008.
|
(7) |
Options
were granted on March 31, 2006 and vest in three equal amounts
on each of
March 31, 2007, March 31, 2008, and March 31,
2009.
|
(8) |
Options
were granted on April 21, 2003 and vested in four equal amounts
on each of
April 21, 2004, April 21, 2005, April 21, 2006, and April
21,
2007.
|
Director
Compensation
On
April
5, 2006, our board of directors approved a compensation plan for our outside
directors. Pursuant to the plan, each non-employee director serving on
the board
is entitled to receive $15,000 per year, payable upon reelection to the
board by
the shareholders. Additionally, the chair of the audit committee of
the board shall receive $4,000 yearly and each member of a committee is
entitled
to receive $1,000 upon each meeting of a committee. Directors who are employees
of the Company do not receive compensation for their service on the Board
and
shall only receive compensation in their capacities as employees.
The
following table shows the compensation earned by each of our non-officer
directors for the year ended December 31, 2006:
Name
|
|
Fees
Earned or
Paid
in Cash
|
|
Option
Awards
|
|
All
Other
Compensation
|
|
Total
|
|
Vincent
M. Aita
|
|
$
|
17,000
|
|
$
|
4,896
|
(1)
|
$
|
-
|
|
$
|
21,896
|
|
Johnson
Y.N. Lau
|
|
$
|
20,000
|
|
$
|
118,687
|
(2)
|
$
|
-
|
|
$
|
138,687
|
|
Stephen
C. Rocamboli
|
|
$
|
17,000
|
|
$
|
4,896
|
(1)
|
$
|
-
|
|
$
|
21,896
|
|
Stephen
A. Roth
|
|
$
|
17,000
|
|
$
|
31,908
|
(3)
|
$
|
-
|
|
$
|
48,908
|
|
Michael
Weiser
|
|
$
|
16,000
|
|
$
|
4,896
|
(1)
|
$
|
-
|
|
$
|
20,896
|
|
Xumu
Zhang
|
|
$
|
-
|
|
$
|
36,663
|
(4)
|
$
|
120,000
|
(5)
|
$
|
156,663
|
|
(1) |
Amount
reflects the dollar amount recognized for financial statement
reporting
purposes for the fiscal year ended December 31, 2006 in accordance
with
SFAS 123R of the vesting of one-third of 12,900 options granted
on October
28, 2003 which vest in three annual installments beginning
on October 28,
2004. Assumptions used in the calculation of this amount
for employees are
identified in Note 7 to our financial statements for the year
ended December 31, 2006 included elsewhere in this
prospectus.
|
(2) |
Amount
reflects the dollar amount recognized for financial statement
reporting
purposes for the fiscal year ended December 31, 2006 in accordance
with
SFAS 123R of the award of 75,000 options on March 31, 2006.
Assumptions
used in the calculation of this amount for employees are
identified
in Note 7 to our financial statements for the year ended
December 31, 2006 included elsewhere in this
prospectus.
|
(3) |
Amount
reflects the dollar amount recognized for financial statement
reporting
purposes for the fiscal year ended December 31, 2006 in accordance
with
SFAS 123R of the following stock option awards: (i) the vesting
of
one-third of 50,000 options granted on July 23, 2003 which
vest in three
equal annual installments beginning on July 23, 2004; and
(ii) the vesting
of one-third of 12,900 options granted in October 28, 2003
which vest in
three equal annual installments beginning on October 28,
2004. Assumptions
used in the calculation of this amount for employees are
identified
in Note 7 to our financial statements for the year ended
December 31, 2006 included elsewhere in this
prospectus.
|
(4) |
Amount
reflects the dollar amount recognized for financial statement
reporting
purposes for the fiscal year ended December 31, 2006 in accordance
with
SFAS 123R of the vesting of one-quarter of 650,052 options
granted on June
15, 2003 which vest in three annual installments beginning
on June 15,
2004. Assumptions used in the calculation of this amount
for employees are
identified in Note 7 to our financial statements for the year
ended December 31, 2006 included elsewhere in this
prospectus.
|
(5) |
The
Company and Dr. Zhang entered into a Consulting Agreement
dated May 15,
2003, by which Dr. Zhang provides consulting services for
the Company and
receives an annual consulting fee of $120,000, payable in
bi-monthly
installments.
|
SECURITY
OWNERSHIP OF
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the ownership of our
common stock as of March 22, 2007 by: (i) each director and nominee for
director; (ii) each of our current executive officers; (iii) all of our
directors and executive officers as a group; and (iv) all those known by us
to
be beneficial owners of at least five percent of our common stock. Beneficial
ownership is determined under rules promulgated by the SEC. Under those rules,
beneficial ownership includes any shares as to which the individual has sole
or
shared voting power or investment power and also any shares which the individual
has the right to acquire within 60 days of the date hereof, through the exercise
or conversion of any stock option, convertible security, warrant or other right.
Inclusion of shares in the table does not, however, constitute an admission
that
the named stockholder is a direct or indirect beneficial owner of those shares.
Unless otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares that power with that person’s
spouse) with respect to all shares of capital stock listed as owned by that
person or entity. Unless otherwise indicated, the address of each of the
following persons is 180 Mount Airy Road, Suite 102, Basking Ridge, New Jersey
07920.
Name
and Address
|
|
Number
of Shares
Beneficially
Owned (1)
|
|
Percentage
of
Class
|
|
Daniel
Greenleaf
|
|
|
1,834,940
|
(2)
|
|
3.3
|
|
Michael
Cannarsa
|
|
|
133,334
|
(3)
|
|
*
|
|
Yaping
Hong, Ph.D.
|
|
|
175,001
|
(4)
|
|
*
|
|
Brian
Lenz
|
|
|
151,668
|
(5)
|
|
*
|
|
Vincent
M. Aita, Ph.D.
|
|
|
242,374
|
(6)
|
|
*
|
|
Stephen
C. Rocamboli
|
|
|
881,235
|
(7)
|
|
1.6
|
|
Stephen
A. Roth, Ph.D.
|
|
|
102,900
|
(8)
|
|
*
|
|
Michael
Weiser, M.D., Ph.D.
|
|
|
1,904,968
|
(9)
|
|
3.5
|
|
Xumu
Zhang, Ph.D.
|
|
|
3,268,314
|
(10)
|
|
5.9
|
|
Edward
C. Bradley, M.D.
|
|
|
10,000
|
|
|
*
|
|
Johnson
Y.N. Lau, M.D., Ph.D.
|
|
|
206,666
|
|
|
*
|
|
All
Executive Officers and Directors as a group (11 persons)
|
|
|
8,846,400
|
|
|
15.3
|
|
Lester
Lipschutz
1650
Arch Street - 22nd
Floor
|
|
|
|
|
|
|
|
Philadelphia,
PA 19103
|
|
|
10,541,367
|
(11)
|
|
18.7
|
|
Lindsay
A. Rosenwald
787
7th
Avenue, 48th
Floor
|
|
|
|
|
|
|
|
New
York, NY 10019
|
|
|
3,470,999
|
(12)
|
|
6.2
|
|
(1)
|
Assumes
in each case that the stockholder exercised all options available
to the
person that have vested or will vest within 60 days of March 22,
2007.
|
(2)
|
Includes
shares issuable upon exercise (at a price of $0.88 per share) of
an
option, 594,264 shares of which were vested as of February 1, 2007
and
shares issuable upon exercise (at a price of $0.89 per share) of
an
option, 963,386 shares of which were vested on February 1, 2007;
and
shares issuable upon exercise (at a price of $0.56 per share) of
an
option, 197,290 shares of which were vested as of February 1,
2007.
|
(3)
|
Includes
shares issuable upon exercise (at a price of $0.86 per share) of
an
option, 116,667 shares of which were vested as of January 1, 2007;
and
shares issuable upon exercise (at a price of $0.85 per share) of
an
option, 16,667 shares of which will vest on March 31,
2007.
|
(4)
|
Represents:
(i) shares issuable upon exercise (at a price of $1.50 per share)
of an
option to purchase 50,000 shares, all of which will vest as of
April 21,
2007; (ii) shares issuable upon exercise (at a price of $1.40 per
share)
of an option to purchase 50,000 shares, all of which will be vested
as of
April 19, 2007; and (iii) shares issuable upon exercise (at a price
of
$1.08 per share) of an option, 16,667 shares of which vested on
January
24, 2007; shares issuable upon exercise (at a price of $1.03 per
share) of
an option, 33,334 shares of which vested on November 29, 2006;
and (iv)
shares issuable upon exercise (at a price of $0.85 per share) of
an
option, 25,000 shares of which will vest on March 31,
2007.
|
(5)
|
Represents:
(i) shares issuable upon exercise (at a price of $1.67 per share)
of an
option, 15,000 shares of which were vested as of October 6, 2006;
(ii)
shares issuable upon exercise (at a price of $1.40 per share) of
an
option, 25,000 of which will be vested as of April 19, 2007; (iii)
shares
issuable upon exercise (at a price of $1.08 per share) of an option,
20,000 shares of which vested on each of January 24, 2006 and January
24,
2007; (iv) shares issuable upon exercise (at a price of $1.03 per
share)
of an option 33,334 shares of which vested on November 29, 2006;
and (v)
shares issuable upon exercise (at a price of $0.85 per share) of
an
option, 33,334 shares of which will vest on March 31,
2007.
|
(6)
|
Includes
12,900 shares issuable upon exercise (at a price of $1.96 per share)
of an
option, 4,300 shares of which vested on each of October 28, 2004,
October
28, 2005, and October 28, 2006.
|
(7)
|
Includes
719,335 shares owned by, and 149,000 shares issuable upon the exercise
of
two warrants held by, Stephen C. Rocamboli as Trustee for The Stephen
C.
Rocamboli April 2005 Trust u/a/d April 7, 2005; and 12,900 shares
issuable
upon exercise (at a price of $1.96 per share) of an option, 4,300
shares
of which vested on each of October 28, 2004, October 28, 2005, and
October
28, 2006.
|
(8)
|
Represents:
(i) 50,000 shares issuable upon exercise (at a price of $1.70 per
share)
of an option, 16,667 shares of which vested on each of February 14,
2004
and February 14, 2005 and 16,666 of which vested on February 14,
2006;
(ii) 8,600 shares issuable upon exercise (at a price of $1.96 per
share)
of an option, 4,300 shares of which vested on each of October 28,
2004,
October 28, 2005, and October 28, 2006; and (iii) shares issuable
upon
exercise (at a price of $0.75 per share) of an option, 40,000 shares
of
which vested on January 12, 2007.
|
(9)
|
Includes
i) 280,000 shares issuable upon the exercise of a warrant; and ii)
12,900
shares issuable upon exercise (at a price of $1.96 per share) of
an
option, 4,300 shares of which vested on each of October 28, 2004.
October
28, 2005, and October 28, 2006.
|
(10)
|
Includes
487,539 shares issuable upon exercise (at a price of $1.49 per share)
of
an option 162,513 shares of which vested on each of May 15, 2004,
May 15,
2005 and May 15, 2006, and another 162,513 shares that will vest
on May
15, 2007.
|
(11)
|
Based
on Schedule 13D filed with the SEC on October 27, 2005. Represents
shares
owned equally by several trusts established for the benefit of Dr.
Lindsay
A. Rosenwald or members of his immediate family, for which Mr. Lipschutz
is the trustee/investment manager, and over which he has voting control
and investment power. Includes 1,633,000 shares issuable upon the
exercise
of warrants.
|
(12) |
Based
on a Schedule 13G/A filed February 13, 2007. Includes (i) 1,034,169
shares
issuable upon the exercise of warrants and (ii) 392,830 shares held
by
Paramount BioCapital Investments, LLC of which Dr. Rosenwald is the
managing member.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Mr.
Rocamboli and Dr. Weiser, both of whom are directors of our company, are former
stockholders of Greenwich Therapeutics, Inc., which company we acquired in
October 2005. Mr. Rocamboli owned 144,000 shares of Greenwich common stock
and
Dr. Weiser owned 280,000 shares of Greenwich common stock. Accordingly, upon
completion of the merger, Mr. Rocamboli received approximately 616,320 shares
of
our common stock and 144,000 shares issuable upon the exercise of warrants,
and
now beneficially owns approximately 1.8 percent of our outstanding common stock.
Dr. Weiser received approximately 1,198,400 shares of our common stock and
280,000 shares issuable upon the exercise of warrants, and now beneficially
owns
approximately 4.0 percent of our outstanding common stock. Mr. Rocamboli’s and
Dr. Weiser’s interests in Greenwich were made known to our board of directors at
the outset of the negotiating process between the companies and neither attended
or otherwise participated in any meeting and other discussion of the board
in
all matters relating to the merger with Greenwich.
Mr.
Rocamboli is also an employee of Paramount BioCapital, Inc. or its affiliates,
a
corporation of which Dr. Lindsay A. Rosenwald is the chairman and sole
shareholder. Together with various trusts for the benefit of Dr. Rosenwald
or
members of his immediate family, Dr. Rosenwald owned approximately 48 percent
of
Greenwich’s outstanding common stock. Upon completion of the merger with
Greenwich, Dr. Rosenwald and the trusts now beneficially own approximately
29
percent of our outstanding common stock.
On
February 25, 2004, the Company completed the sale of its securities in a private
placement to accredited investors for gross proceeds of approximately $7.2
million. Paramount BioCapital, Inc. participated as one of three placement
agents for this transaction, for which it received approximately $300,000 in
commissions.
On
October 18, 2005, the Company completed the sales of its securities in a private
placement to accredited investor for gross proceeds of approximately $8.4
million. Paramount BioCapital, Inc., which served as the placement agent for
this transaction, for which it received approximately $587,000 in commissions,
together with an accountable expense allowance of $50,000, and issued 5-year
warrants to purchase an aggregate of 1,117,997 shares of common stock at a
price
of $1.00 per share. Net proceeds to the Company after deducting placement agent
fees and other expenses relating to the private placement, were approximately
$7.5 million.
As
a
result of its acquisition of Greenwich Therapeutics, on October 18, 2005, the
Company assumed outstanding indebtedness of Greenwich of $823,869, all of which
is payable to Paramount BioCapital Investments, Inc. pursuant to a
promissory note dated October 17, 2005, referred to as the (“Note”). At the
closing of the merger, the Note was amended to provide that one-third would
be
converted into securities of the Company on the same terms as the Company’s
October 2005 private placement, one-third of the outstanding indebtedness under
the Note would be repaid upon the completion by the Company of a financing
resulting in gross proceeds of at least $5 million, and the final one-third
would be payable upon completion by the Company of one or more financings
resulting in aggregate gross proceeds of at least $10 million (inclusive of
the
amounts raised in a previous $5 million financing ). Accordingly, on October
18,
2005, upon completion of the private placement, the Company satisfied a
portion of the total indebtedness outstanding under the Note by making a
cash payment of $264,623 and another portion by issuing to Paramount
BioCapital Investments, Inc. 392,830 shares valued at the $.75 offering price
of
the October 2005 private placement, the equivalent of $294,623 of the Company’s
common stock. In the event the Company does not complete the financing(s)
resulting in aggregate gross proceeds of at least $10 million prior to the
Note’s maturity date, the Company will be required to satisfy the
final portion in October 2006. Dr. Lindsay A. Rosenwald and certain trusts
established for the benefit of Dr. Rosenwald and his family collectively held
approximately 48% of Greenwich’s capital stock prior to completion of the
merger. Together, Dr. Rosenwald and such trusts also owned approximately 16%
of
the Company’s common stock prior to the completion of the merger. In addition to
Dr. Rosenwald’s relationship with Greenwich, as described above, two directors
of the Company, Stephen C. Rocamboli and Michael Weiser, M.D., Ph.D., owned
approximately 3.6% and 7%, respectively, of Greenwich’s outstanding common
stock. Mr. Rocamboli and Dr. Weiser are also employees of Paramount BioCapital,
Inc.
In
August
2006, we entered into a consulting agreement with Paramount Corporate
Development, an affiliate of Paramount BioCapital, Inc., pursuant to which
it
provided us strategic and technical assessment of our clinical development
programs. The consulting agreement is for a total of $90,000, for a period
of three months for $30,000 per month commencing in August 2006.
On
October 18, 2006, we completed a private placement of our securities, resulting
in gross proceeds of approximately $3.95 million. We engaged Paramount
BioCapital, Inc. as our exclusive placement agent in connection with the
offering, and Paramount in turn engaged various broker-dealers as sub-agents
to
assist with the offering. In consideration for their services, we paid an
aggregate of approximately $276,000 in commissions to the placement agents
(including sub-agents) in connection with the offering, of which $56,000 was
paid to Paramount, plus an additional $30,000 as reimbursement for expenses.
We
also issued to the placement agents 5-year warrants to purchase an aggregate
of
394,580 shares of common stock at a price of $0.55 per share, of which warrants
to purchase 80,000 were allocated to Paramount BioCapital, Inc.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
for Common Stock
Since
August 27, 2004 our common stock has traded on the OTC Bulletin Board under
the
symbol “VQPH.OB.” Prior to that, our common stock traded on the OTC Bulletin
Board under the symbol “CQST.OB.” The following table lists the high and low bid
price for our common stock as quoted, in U.S. dollars, by the OTC Bulletin
Board
during each quarter within the last two completed fiscal years. These quotations
reflect inter-dealer prices, without retail mark-up, markdown, or commission
and
may not represent actual transactions.
Quarter
Ended
|
|
High
|
|
Low
|
|
March
31, 2005
|
|
$
|
0.99
|
|
$
|
0.60
|
|
June
30, 2005
|
|
$
|
0.70
|
|
$
|
0.70
|
|
September
30, 2005
|
|
$
|
1.15
|
|
$
|
1.05
|
|
December
31, 2005
|
|
$
|
0.76
|
|
$
|
0.70
|
|
March
31, 2006
|
|
$
|
0.85
|
|
$
|
0.81
|
|
June
30, 2006
|
|
$
|
0.80
|
|
$
|
0.77
|
|
September
30, 2006
|
|
$
|
0.65
|
|
$
|
0.60
|
|
December
31, 2006
|
|
$
|
0.53
|
|
$
|
0.43
|
|
Record
Holders
As
of
March 19, 2007, we had approximately 1,653 holders of record of our common
stock, one of which was Cede & Co., a nominee for Depository Trust Company,
or DTC. Shares of common stock that are held by financial institutions as
nominees for beneficial owners are deposited into participant accounts at DTC,
and are considered to be held of record by Cede & Co. as one
stockholder.
Dividends
We
have
not paid or declared any dividends on our common stock and we do not anticipate
paying dividends on our common stock in the foreseeable future.
Stock
Re-Purchases
We
did
not make any re-purchases of shares of our common stock during fiscal 2005
and
we do not currently have any publicly-announced repurchase plans in
effect.
Regulation
of Penny Stocks
Our
common stock meets the definition of a “penny stock” under applicable SEC rules.
Broker-dealers who sell penny stocks must satisfy several rules when
recommending that their customers purchase penny stock. A summary of those
rules
is set forth below.
Definition
of a Penny Stock.
The SEC
has adopted several rules regulating transactions involving “penny stocks.” As a
general matter, the term “penny stock” means any equity security other than a
security
·
|
that
is a “reported security” as that term is defined by SEC rule, including
securities listed on the Nasdaq Stock Market, the New York Stock
Exchange
or the American Stock Exchange,
|
|
|
·
|
that
is issued by an investment company,
|
|
|
·
|
that
is a put or call option issued by the Options Clearing House,
|
|
|
·
|
that
has a price of $5.00 or more, or
|
|
|
·
|
whose
issuer has (i) net tangible assets of more than $2 million if the
issuer
has been in business for at least 3 continuous years, and $5 million
if
the issuer has been in business less than 3 years, (ii)
average revenue of at least $6 million for the last 3
years.
|
Suitability
Determination.
The
SEC’s rules governing penny stock transactions are designed to ensure that
brokers and dealers make a determination that a particular customer is
appropriately suited to purchase penny stocks. Accordingly, prior to the sale
of
a penny stock recommended by the broker-dealer to a new customer who is not
an
institutional accredited investor, the broker-dealer must approve the customer’s
account for transactions in penny stocks. The determination requires the
broker-dealer to obtain from the customer information concerning the customer’s
“financial situation, investment experience, and investment objectives.” Based
on this information, the broker-dealer must then reasonably determine that
transactions in penny stocks are suitable for the customer and that the customer
has sufficient knowledge and experience in financial matters that the person
reasonably may be expected to be capable of evaluating the risks of penny stock
transactions. The broker-dealer then must provide the customer with a written
statement, to be signed by the customer, that sets forth the suitability
determination made by the broker-dealer.
Penny
Stock Risk Disclosure Document.
Prior to
the initial penny stock transaction with a customer, the broker-dealer must
provide to the customer a risk disclosure document, which states clearly that
transactions in penny stocks can be very risky and urges the customer to use
caution before proceeding with the transaction. The document warns the customer
of the lack of liquidity in many penny stocks, the possibility of losing the
investment, the need to use caution, and not to rely on the salesperson. The
document also sets forth the remedies available to customers in the event the
broker-dealer violates the penny stock rules in connection with a transaction
with the customer. The risk disclosure document also includes pricing
information relating to the penny stock and the compensation paid to the
broker-dealer in connection with the transaction.
Monthly
Statements.
The
broker-dealer must also furnish to the customer a statement as of the last
day
of each month that describes for each penny stock held by the broker-dealer
for
the customer’s account the price of the security, the number of shares of each
penny stock security held for the customer, and the estimated market value
of
the security. The monthly statement must be sent to the customer within 10
days
following the end of each month.
USE
OF PROCEEDS
We
will
not receive any proceeds from the resale of any of the shares offered by this
prospectus by the selling stockholders.
SELLING
STOCKHOLDERS
This
prospectus covers the resale by the selling stockholders identified below of
47,798,626 shares
of
our common stock, including shares issuable upon the exercise of warrants.
This
offering includes the 7,891,600 common
shares and 3,156,640 common
shares issuable upon the exercise of the warrants issued in our October 2006
private placement, of which 394,580 common
shares are issuable upon the exercise of warrants issued to placement agents
that provided services to us in the private placement. The warrants received
by
the investors in the private placement are exercisable until October 2011 at
an
exercise price of $0.73 per share. These warrants are also redeemable by us,
upon 30 days’ prior notice, when the average closing sale price of our common
stock, as reported on the OTC Bulletin Board or such other market or exchange
on
which our common stock is then listed or quoted, equals or exceeds 200 percent
of the exercise price for a period of 20 consecutive days. Upon redemption,
we
are obligated to pay to each warrant holder $0.01 per share underlying each
outstanding warrant.
This
prospectus also includes the 10,061,477 common shares and 5,589,972 common
shares issuable upon the exercise of the warrants issued in our October 2005
private placement, of which 1,117,997 common shares are issuable upon the
exercise of warrants issued to placement agents that provided services to us
in
the private placement. The warrants received by the investors in the private
placement are exercisable until October 2010 at an exercise price of $1.00
per
share. These warrants are also redeemable by us, upon 30 days’ prior notice,
when the average closing sale price of our common stock, as reported on the
OTC
Bulletin Board or such other market or exchange on which our common stock is
then listed or quoted, equals or exceeds 200 percent of the exercise price
for a
period of 20 consecutive days. Upon redemption, we are obligated to pay to
each
warrant holder $0.01 per share underlying each outstanding warrant.
This
prospectus also covers 17,128,790 shares of our common stock and 4,000,000
common shares issuable upon the exercise of the warrants issued to the former
stockholders of Greenwich Therapeutics, Inc. in connection with our acquisition
of that company in October 2005. The warrants received by the former Greenwich
stockholders are exercisable until October 18, 2010 at an exercise price of
$1.41 per share. Pursuant to the terms of the merger with Greenwich, 8,564,373
of the shares and 1,999,994 shares issuable upon the exercise of the warrants
issued to the former Greenwich stockholders are being held in escrow and will
be
released incrementally upon the achievement of certain milestones relating
to
the clinical development of the two product candidates acquired from Greenwich.
In the event that the milestones are not met prior to June 30, 2008, these
escrowed securities will be released and delivered to us for cancellation.
This
prospectus also covers 392,830 shares of our common stock issued to Paramount
BioCapital Investments, LLC in partial payment of debt assumed in connection
with our October 2005 acquisition of Greenwich Therapeutics, Inc.
The
following table sets forth the number of shares of the common stock owned by
the
selling stockholders as of March 27, 2007.
SELLING
STOCKHOLDER TABLE
Name
|
|
Shares beneficially
owned
before offering
|
|
Number
of outstanding shares
offered by
selling stockholder
|
|
Number
of shares
offered by
selling stockholder
issuable
upon exercise
of warrants
|
|
Percentage
beneficial
ownership after
offering
|
|
Shares
Issued in October 2005 Private Placement
|
|
Abraham
Katsman
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Adam
Brown and Melissa Brown
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Alan
H. Auerbach
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Albert
Fried, Jr.
|
|
|
74,866
|
|
|
11,533
|
|
|
13,333
|
|
|
*
|
|
Albert
Milstein
|
|
|
140,000
|
|
|
100,000
|
|
|
40,000
|
|
|
|
|
Alejandro
Garza Garza
|
|
|
48,332
|
|
|
16,666
|
|
|
6,666
|
|
|
*
|
|
Andrew
W. Albstein
|
|
|
186,666
|
|
|
133,333
|
|
|
53,333
|
|
|
|
|
Andrew
W. Schonzeit
|
|
|
46,000
|
|
|
30,000
|
|
|
16,000
|
|
|
|
|
Balanced
Investment, LLC
|
|
|
486,666
|
|
|
133,333
|
|
|
53,333
|
|
|
*
|
|
Baruch
Z. Halberstam
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
BF
Holding GMBH
|
|
|
960,000
|
|
|
400,000
|
|
|
160,000
|
|
|
*
|
|
Brino
Investment Ltd.
|
|
|
96,665
|
|
|
33,333
|
|
|
13,333
|
|
|
*
|
|
Catalytix
LDC
|
|
|
93,332
|
|
|
66,666
|
|
|
26,666
|
|
|
|
|
Catalytix
LDC Life Science Hedge AC
|
|
|
93,332
|
|
|
66,666
|
|
|
26,666
|
|
|
|
|
Christopher
Landers
|
|
|
63,332
|
|
|
36,666
|
|
|
26,666
|
|
|
|
|
Cooper
A. McIntosh, MD
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Cranshire
Capital, L.P.
|
|
|
251,632
|
|
|
144,966
|
|
|
106,666
|
|
|
|
|
Jerome
H. Meyer, as Trustee for the Crilly Court
Trust
u/a/d 3/1/91
|
|
|
81,000
|
|
|
40,000
|
|
|
16,000
|
|
|
*
|
|
Daniel
J. Kevles and Betty Ann Kevles as JTWROS
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Daniel
Kreiger
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
David
Jaroslawicz
|
|
|
80,000
|
|
|
0
|
|
|
80,000
|
|
|
|
|
Deborah
Silver
|
|
|
55,820
|
|
|
39,820
|
|
|
16,000
|
|
|
|
|
Diana
B. Shepler
|
|
|
56,000
|
|
|
40,000
|
|
|
16,000
|
|
|
|
|
Elizabeth
R. Moore
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Elke
R. de Ramirez
|
|
|
33,135
|
|
|
13,333
|
|
|
5,333
|
|
|
*
|
|
Eugenia
VI Venture Holdings, Ltd.
|
|
|
1,866,666
|
|
|
1,333,333
|
|
|
533,333
|
|
|
|
|
Fernando
Ahumada
|
|
|
74,666
|
|
|
53,333
|
|
|
21,333
|
|
|
|
|
Gary
J. Strauss
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Gitel
Family Limited Partnership
|
|
|
290,915
|
|
|
200,000
|
|
|
80,000
|
|
|
*
|
|
OZF
Investments LLC
|
|
|
1,533,332
|
|
|
666,666
|
|
|
266,666
|
|
|
[-
|
]
|
Harry
and Susan Newton as JTWROS
|
|
|
415,000
|
|
|
200,000
|
|
|
80,000
|
|
|
|
|
Moise
Hendeles, as Trustee for the Hendeles Grandchildren
Trust #2 u/a/d 12/23/931
|
|
|
241,998
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Moise
Hendeles, as Trustee for the Hendeles Grandchildren
Trust u/a/d 1/01/891
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Moise
Hendeles, as Trustee for the Hendeles Living
Trust u/a/d 6/28/881
|
|
|
241,998
|
|
|
40,000
|
|
|
16,000
|
|
|
|
|
Jack
Klebanow
|
|
|
16,000
|
|
|
0
|
|
|
16,000
|
|
|
|
|
Jay
Kestenbaum
|
|
|
93,332
|
|
|
66,666
|
|
|
26,666
|
|
|
|
|
John
S. Osterweis, Trustee for The Osterweis Revocable
Trust u/a/d 9/13/93
|
|
|
114,665
|
|
|
46,666
|
|
|
18,666
|
|
|
*
|
|
Jorge
Ahumada
|
|
|
93,332
|
|
|
66,666
|
|
|
26,666
|
|
|
|
|
Joseph
J. Vale
|
|
|
420,000
|
|
|
300,000
|
|
|
120,000
|
|
|
|
|
Judah
Schorr
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Kanfei
Investments LLC
|
|
|
560,000
|
|
|
400,000
|
|
|
160,000
|
|
|
|
|
Lake
End Capital LLC
|
|
|
70,000
|
|
|
50,000
|
|
|
20,000
|
|
|
|
|
Lewis
Opportunity Fund LP
|
|
|
228,332
|
|
|
66,666
|
|
|
26,666
|
|
|
|
|
Marc
Florin IRA (Albert Fried & Co. as custodian)
|
|
|
41,732
|
|
|
11,733
|
|
|
13,333
|
|
|
*
|
|
Mario
Pasquel and Begona Miranda
|
|
|
64,816
|
|
|
33,333
|
|
|
13,333
|
|
|
*
|
|
Mega
International Corporation
|
|
|
186,666
|
|
|
133,333
|
|
|
53,333
|
|
|
|
|
Moise
Hendeles, as Trustee for the MEH Revocable
Trust u/a/d 5/8/00
|
|
|
37,332
|
|
|
26,666
|
|
|
10,666
|
|
|
|
|
Michael
A. Mullen
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Milstein
Family L.P.
|
|
|
414,166
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Moise
Hendeles, C/F Arie Hendeles1
|
|
|
14,000
|
|
|
10,000
|
|
|
4,000
|
|
|
|
|
Moise
Hendeles, C/F Elie Hendeles1
|
|
|
14,000
|
|
|
10,000
|
|
|
4,000
|
|
|
|
|
Myron
M. Teitelbuam
|
|
|
90,331
|
|
|
46,666
|
|
|
18,666
|
|
|
*
|
|
Nathan
Eisen
|
|
|
93,332
|
|
|
66,666
|
|
|
26,666
|
|
|
|
|
Nicholas
B. Kronwall, as Trustee for the Nicholas
B.
Kronwall Trust u/a/d 11/12/692
|
|
|
114,166
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Patrick
M. Kane
|
|
|
63,333
|
|
|
0
|
|
|
13,333
|
|
|
*
|
|
Penn
Footwear
|
|
|
53,333
|
|
|
0
|
|
|
53,333
|
|
|
|
|
Phil
Lifschitz
|
|
|
93,332
|
|
|
66,666
|
|
|
26,666
|
|
|
|
|
Rachel
Family Partnership
|
|
|
284,000
|
|
|
200,000
|
|
|
80,000
|
|
|
*
|
|
Reuben
Taub
|
|
|
140,000
|
|
|
100,000
|
|
|
40,000
|
|
|
|
|
Ricardo
Mesa Tejada MD and Amy Mesa-Jonassen
MD
as JTWROS
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Riverside
Contracting, LLC3
|
|
|
409,227
|
|
|
66,666
|
|
|
26,666
|
|
|
*
|
|
Robert
Herskowitz
|
|
|
91,000
|
|
|
59,000
|
|
|
32,000
|
|
|
*
|
|
Robert
Masters
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
*
|
|
Roberto
Segovia
|
|
|
64,902
|
|
|
26,666
|
|
|
10,666
|
|
|
*
|
|
Ross
D. Ain
|
|
|
76,666
|
|
|
33,333
|
|
|
13,333
|
|
|
*
|
|
SDS
Capital Group SPC, Ltd.
|
|
|
549,833
|
|
|
363,167
|
|
|
186,666
|
|
|
|
|
Shea
Ventures, LLC
|
|
|
2,800,000
|
|
|
2,000,000
|
|
|
800,000
|
|
|
|
|
Smithfield
Fiduciary, LLC
|
|
|
266,666
|
|
|
0
|
|
|
266,666
|
|
|
|
|
South
Ferry Building Company
|
|
|
933,332
|
|
|
666,666
|
|
|
266,666
|
|
|
|
|
Stefan
Shoup IRA Bear Stearns SEC Corp Cust
|
|
|
112,000
|
|
|
80,000
|
|
|
32,000
|
|
|
|
|
Stahler
Investments LLC
|
|
|
197,581
|
|
|
133,333
|
|
|
53,333
|
|
|
*
|
|
Elida
Gollomp
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Tim
Malloch
|
|
|
46,666
|
|
|
33,333
|
|
|
13,333
|
|
|
|
|
Tisu
Investment Ltd.
|
|
|
143,331
|
|
|
66,666
|
|
|
26,666
|
|
|
*
|
|
Tokenhouse
Trading Pte. Ltd.4
|
|
|
589,165
|
|
|
133,333
|
|
|
53,333
|
|
|
*
|
|
William
J. Garner
|
|
|
28,716
|
|
|
13,333
|
|
|
5,333
|
|
|
*
|
|
Bernard
Gross
|
|
|
122,311
|
|
|
0
|
|
|
16,667
|
|
|
|
|
Harris
Lydon
|
|
|
74,078
|
|
|
0
|
|
|
47,667
|
|
|
|
|
Jill
Meleski
|
|
|
81,489
|
|
|
0
|
|
|
28,667
|
|
|
|
|
John
Knox
|
|
|
214,621
|
|
|
0
|
|
|
3,333
|
|
|
|
|
Karl
Ruggeberg
|
|
|
59,244
|
|
|
0
|
|
|
32,833
|
|
|
|
|
Lindsay
Rosenwald
|
|
|
3,425,999
|
|
|
0
|
|
|
616,298
|
|
|
3.0
|
|
Michael
Rosenman
|
|
|
342,954
|
|
|
0
|
|
|
131,666
|
|
|
|
|
Preston
Tsao
|
|
|
62,500
|
|
|
0
|
|
|
62,500
|
|
|
|
|
Robert
Friedman
|
|
|
1,667
|
|
|
0
|
|
|
1,667
|
|
|
|
|
Robert
D. Millstone
|
|
|
20,300
|
|
|
0
|
|
|
20,300
|
|
|
|
|
Sandgrain
Securities Inc.
|
|
|
3,383
|
|
|
0
|
|
|
3,383
|
|
|
|
|
Scott
A. Katzmann
|
|
|
395,776
|
|
|
0
|
|
|
131,666
|
|
|
|
|
Steven
A. Sherman
|
|
|
10,150
|
|
|
0
|
|
|
10,150
|
|
|
|
|
Timothy
McInerney
|
|
|
222,488
|
|
|
0
|
|
|
11,200
|
|
|
|
|
Subtotal
|
|
|
|
|
|
9,776,864
|
|
|
5,589,972
|
|
|
|
|
SHARES ISSUED
TO FORMER STOCKHOLDERS OF GREENWICH THERAPEUTICS, INC.
335
MAD, LLC
|
|
|
18,799
|
|
|
12,814
|
|
|
5,985
|
|
|
|
|
Aaron
Speisman
|
|
|
13,174
|
|
|
10,680
|
|
|
2,494
|
|
|
|
|
Alan
Clingman
|
|
|
10,538
|
|
|
8,543
|
|
|
1,995
|
|
|
|
|
Anil
Chenthitta
|
|
|
52,822
|
|
|
42,822
|
|
|
10,000
|
|
|
|
|
Basil
Christakos
|
|
|
75,722
|
|
|
0 |
|
|
12,000
|
|
|
|
|
Benjamin
S. Feinswog and Malvina Feinswog, as
Co-Trustees for the Benjamin S. Feinswog Trust
u/a/d 10/5/95
|
|
|
31,614
|
|
|
25,629
|
|
|
5,985
|
|
|
|
|
Bernard
Gross
|
|
|
79,489
|
|
|
42,822
|
|
|
20,000
|
|
|
|
|
Chad
Messer
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Claudia
Donat-Barker
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Danielle
Flatly
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
David
Butera
|
|
|
79,233
|
|
|
64,233
|
|
|
15,000
|
|
|
|
|
David
J. Bersad
|
|
|
92,085
|
|
|
21,360
|
|
|
4,988
|
|
|
*
|
|
David
Nussbaum
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Demitrios
Marras
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Dolores
Ferraro
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Donna
Kash and Peter Kash as JT
|
|
|
110,994
|
|
|
34,172
|
|
|
7,980
|
|
|
*
|
|
Donna
Lozito
|
|
|
105,644
|
|
|
85,644
|
|
|
20,000
|
|
|
|
|
Elbert
Chu
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Eric
R. Lee
|
|
|
39,616
|
|
|
32,116
|
|
|
7,500
|
|
|
|
|
Everest
Capital S.A.
|
|
|
128,326
|
|
|
85,429
|
|
|
19,950
|
|
|
|
|
Fidulex
Management, Inc.
|
|
|
14,753
|
|
|
11,960
|
|
|
2,793
|
|
|
|
|
Future
Global Holding, Ltd.
|
|
|
5,271
|
|
|
4,273
|
|
|
998
|
|
|
|
|
GMM
Capital
|
|
|
84,304
|
|
|
68,344
|
|
|
15,960
|
|
|
|
|
Harris
Lydon
|
|
|
74,078
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Henry
and Monica Millin
|
|
|
10,538
|
|
|
8,543
|
|
|
1,995
|
|
|
|
|
Illya
Keith Maher
|
|
|
211,288
|
|
|
171,288
|
|
|
40,000
|
|
|
|
|
Jamie
Cabibihan
|
|
|
31,693
|
|
|
25,693
|
|
|
6,000
|
|
|
|
|
Jason
Stein
|
|
|
1,616,699
|
|
|
1,199,015
|
|
|
280,000
|
|
|
*
|
|
Jay
Lobell
|
|
|
1,391,557
|
|
|
942,083
|
|
|
220,000
|
|
|
*
|
|
Jeana
Sommers
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Jeffrey
Serbin
|
|
|
1,607,606
|
|
|
1,284,659
|
|
|
300,000
|
|
|
|
|
Jill
T. Meleski
|
|
|
81,489
|
|
|
42,822
|
|
|
10,000
|
|
|
|
|
Jillian
M. Hoffman
|
|
|
105,644
|
|
|
85,644
|
|
|
20,000
|
|
|
|
|
John
and Tina Papadimitropoulos
|
|
|
29,840
|
|
|
20,340
|
|
|
9,500
|
|
|
|
|
John
Best
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
John
Cipriano
|
|
|
105,644
|
|
|
85,644
|
|
|
20,000
|
|
|
|
|
John
Knox
|
|
|
214,621
|
|
|
171,288
|
|
|
40,000
|
|
|
|
|
John
Liatos
|
|
|
100,362
|
|
|
81,362
|
|
|
19,000
|
|
|
|
|
Joseph
Friedman, as Trustee for the Joseph Friedman Trust u/a/d
12/16/99
|
|
|
10,538
|
|
|
8,543
|
|
|
1,995
|
|
|
|
|
Kanter
Family Foundation
|
|
|
15,810
|
|
|
12,817
|
|
|
2,993
|
|
|
|
|
Karl
Ruggeberg
|
|
|
59,244
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Kathleen
M. Fogarty
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Kristy
Plonisch
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Kyle
Kuhn
|
|
|
79,233
|
|
|
64,233
|
|
|
15,000
|
|
|
|
|
Lester
E. Lipschutz as Trustee for The Lindsay A.
Rosenwald 2000 Family Trusts u/a/d 12/15/2000
FBO David Rosenwald
|
|
|
10,541,367
|
|
|
798,202
|
|
|
186,400
|
|
|
4.1
|
|
Lester
E. Lipschutz as Trustee for the Lindsay A.
Rosenwald 2000 Family Trusts u/a/d 12/15/2000
FBO Demiona Rosenwald
|
|
|
10,541,367
|
|
|
798,202
|
|
|
186,400
|
|
|
4.1
|
|
Lester
E. Lipschutz as Trustee for the Lindsay A.
Rosenwald 2000 Family Trusts u/a/d 12/15/2000
FBO Doni Rosenwald
|
|
|
10,541,367
|
|
|
798,202
|
|
|
186,400
|
|
|
4.1
|
|
Lester
E. Lipschutz as Trustee for the Lindsay A.
Rosenwald 2000 Family Trusts u/a/d 12/15/2000
FBO Joshua Rosenwald
|
|
|
10,541,367
|
|
|
798,202
|
|
|
186,400
|
|
|
4.1
|
|
Lester
E. Lipschutz as Trustee for The Lindsay A.
Rosenwald 2000 Family Trusts u/a/d 12/15/2000
FBO Tamar Rosenwald
|
|
|
10,541,367
|
|
|
798,202
|
|
|
186,400
|
|
|
4.1
|
|
Lester
E. Lipschutz as Trustee for The Lindsay A.
Rosenwald 2000 Irrevocable Indenture of Trust
u/a/d May 24, 2000
|
|
|
10,541,367
|
|
|
1,717,161
|
|
|
401,000
|
|
|
4.1
|
|
Lester
E. Lipschutz as Trustee for The Lindsay A. Rosenwald Alaska Irrevocable
Indenture of Trust
u/a/d August 28, 2001
|
|
|
10,541,367
|
|
|
428,220
|
|
|
100,000
|
|
|
4.1
|
|
Lester
E. Lipschutz as Trustee for The Lindsay A. Rosenwald Nevada Irrevocable
Indenture of Trust
u/a/d August 28, 2001
|
|
|
10,541,367
|
|
|
428,220
|
|
|
100,000
|
|
|
4.1
|
|
Lester
E. Lipschutz as Trustee for The Lindsay A. Rosenwald Rhode Island
Irrevocable Indenture of Trust u/a/d August 28, 2001
|
|
|
10,541,367
|
|
|
428,220
|
|
|
100,000
|
|
|
4.1
|
|
Lillian
Hahn
|
|
|
26,348
|
|
|
21,360
|
|
|
4,988
|
|
|
|
|
Lindsay
Rosenwald
|
|
|
3,425,999
|
|
|
1,156,193
|
|
|
270,000
|
|
|
3.0
|
|
Louis
Smookler
|
|
|
166,389
|
|
|
134,889
|
|
|
31,500
|
|
|
|
|
Marion
Birch
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Matthew
Wyckoff, M.D.
|
|
|
1,056,439
|
|
|
856,439
|
|
|
200,000
|
|
|
|
|
Melvyn
I. Weiss
|
|
|
228,326
|
|
|
85,429
|
|
|
19,950
|
|
|
|
|
Michael
Rosenman
|
|
|
342,954
|
|
|
171,288
|
|
|
40,000
|
|
|
|
|
Michael
Weiser5
|
|
|
1,892,068
|
|
|
1,199,015
|
|
|
280,000
|
|
|
*
|
|
Nicole
Netolicky
|
|
|
15,705
|
|
|
10,705
|
|
|
5,000
|
|
|
|
|
NTP
Partners
|
|
|
26,348
|
|
|
21,360
|
|
|
4,988
|
|
|
|
|
Paramount
BioCapital Investments, LLC
|
|
|
392,830
|
|
|
392,830
|
|
|
0
|
|
|
—
|
|
Pearl
Capital Partners, L.P.
|
|
|
10,538
|
|
|
8,543
|
|
|
1,995
|
|
|
|
|
Peter
H. Barber
|
|
|
79,233
|
|
|
64,233
|
|
|
15,000
|
|
|
|
|
Robert
I. Falk
|
|
|
10,538
|
|
|
8,543
|
|
|
1,995
|
|
|
|
|
Robert
Klein
|
|
|
10,538
|
|
|
8,543
|
|
|
1,995
|
|
|
|
|
Scott
A. Katzmann
|
|
|
395,776
|
|
|
214,110
|
|
|
50,000
|
|
|
|
|
Stephen
C. Rocamboli as Trustee for The Stephen
C. Rocamboli April 2005 Trust u/a/d April
7, 20056
|
|
|
863,335
|
|
|
616,636
|
|
|
144,000
|
|
|
*
|
|
The
Holding Company
|
|
|
36,886
|
|
|
29,903
|
|
|
6,983
|
|
|
|
|
Timothy
M. Hofer
|
|
|
166,389
|
|
|
134,889
|
|
|
31,500
|
|
|
|
|
Timothy
McInerney
|
|
|
222,488
|
|
|
171,288
|
|
|
40,000
|
|
|
|
|
Timothy
Shands
|
|
|
26,411
|
|
|
21,411
|
|
|
5,000
|
|
|
|
|
Yitzhak
Nissan
|
|
|
10,538
|
|
|
8,543
|
|
|
1,995
|
|
|
|
|
Subtotal
|
|
|
|
|
|
17,383,550
|
|
|
4,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
27,160,414
|
|
|
9,589,972
|
|
|
|
|
Shares
Issued in October 2006 Private Placement
|
|
Bill
and Nanette Abbott
|
|
|
90,720
|
|
|
67,200
|
|
|
23,520
|
|
|
—
|
|
Neel
B. and Martha N. Ackerman
|
|
|
415,800
|
|
|
308,000
|
|
|
107,800
|
|
|
—
|
|
David
W. Aibel
|
|
|
48,600
|
|
|
36,000
|
|
|
12,600
|
|
|
—
|
|
Andrew
W. Albstein
|
|
|
135,000
|
|
|
100,000
|
|
|
35,000
|
|
|
—
|
|
Alpha
Capital Anstalt
|
|
|
675,000
|
|
|
500,000
|
|
|
175,000
|
|
|
—
|
|
Jorge
Altschuler
|
|
|
108,000
|
|
|
80,000
|
|
|
28,000
|
|
|
—
|
|
David
Benadum
|
|
|
136,080
|
|
|
100,800
|
|
|
35,280
|
|
|
—
|
|
Alan
Bresler & Hanna Bresler
|
|
|
40,500
|
|
|
30,000
|
|
|
10,500
|
|
|
—
|
|
David
Brill
|
|
|
27,000
|
|
|
20,000
|
|
|
7,000
|
|
|
—
|
|
James
Buck
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
R.
Jackson Burkhalter
|
|
|
90,720
|
|
|
67,200
|
|
|
23,520
|
|
|
—
|
|
Lawrence
Burstein
|
|
|
135,000
|
|
|
100,000
|
|
|
35,000
|
|
|
—
|
|
Frank
Calcutta
|
|
|
151,200
|
|
|
112,000
|
|
|
39,200
|
|
|
—
|
|
John
P. Casey
|
|
|
270,000
|
|
|
200,000
|
|
|
70,000
|
|
|
—
|
|
Joseph
M.Collins IRA
|
|
|
135,000
|
|
|
100,000
|
|
|
35,000
|
|
|
—
|
|
Steven
Cravath
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Ennio
DePianto
|
|
|
75,600
|
|
|
56,000
|
|
|
19,600
|
|
|
—
|
|
Praiful
Desai
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
David
DeValk
|
|
|
272,160
|
|
|
201,600
|
|
|
70,560
|
|
|
—
|
|
Donner
Plumbing & Heating, Inc.7
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Gregory
Dovolis
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Sherida
Downer & Paul Downer JTWROS
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
J.
William Doyle
|
|
|
105,840
|
|
|
78,400
|
|
|
27,440
|
|
|
—
|
|
John
Dunkin
|
|
|
136,080
|
|
|
100,800
|
|
|
35,280
|
|
|
—
|
|
Lawrence
J. Elish
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Susan
Gartenberg
|
|
|
69,000
|
|
|
40,000
|
|
|
14,000
|
|
|
*
|
|
Rick
Goad
|
|
|
136,080
|
|
|
100,800
|
|
|
35,280
|
|
|
—
|
|
Granite
Gulf Service Inc.8
|
|
|
67,500
|
|
|
50,000
|
|
|
17,500
|
|
|
—
|
|
Jay
Greenbaum
|
|
|
40,500
|
|
|
30,000
|
|
|
10,500
|
|
|
—
|
|
Robert
Guercio
|
|
|
136,080
|
|
|
100,800
|
|
|
35,280
|
|
|
—
|
|
James
E. Harris
|
|
|
204,120
|
|
|
151,200
|
|
|
52,920
|
|
|
—
|
|
Hendeles
Grandchildren Trust #2 DTD 12/23/931
|
|
|
241,998a
|
|
|
40,000
|
|
|
14,000
|
|
|
*
|
|
Hendeles
Living Trust1
|
|
|
241,998a
|
|
|
40,000
|
|
|
14,000
|
|
|
*
|
|
Moise
Hendeles C/F Arie Hendeles UGMA-CA1
|
|
|
203,118a
|
|
|
11,200
|
|
|
3,920
|
|
|
*
|
|
Moise
Hendeles C/F Elie Hendeles UGMA-CA1
|
|
|
203,118a
|
|
|
11,200
|
|
|
3,920
|
|
|
*
|
|
Jay
B. Jennings IRA
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Kevin
Anderson Well Drilling LLC9
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Klaus
Kretschmer
|
|
|
540,000
|
|
|
400,000
|
|
|
140,000
|
|
|
—
|
|
Nicholas
B. Kronwall Trust Dated 11/12/692
|
|
|
114,166
|
|
|
50,000
|
|
|
17,500
|
|
|
—
|
|
Lewis
Opportunity Fund, LP10
|
|
|
228,332
|
|
|
100,000
|
|
|
35,000
|
|
|
*
|
|
Linden
Growth Partners Master Fund, LP11
|
|
|
604,800
|
|
|
448,000
|
|
|
156,800
|
|
|
—
|
|
S.
Alan Lisenby
|
|
|
272,160
|
|
|
201,600
|
|
|
70,560
|
|
|
—
|
|
Milstein
Family L.P.12
|
|
|
414,166
|
|
|
50,000
|
|
|
17,500
|
|
|
*
|
|
Richard
A. Mullen
|
|
|
302,400
|
|
|
224,000
|
|
|
78,400
|
|
|
—
|
|
Susan
Newton & Harry Newton, JTWROS
|
|
|
415,000
|
|
|
100,000
|
|
|
35,000
|
|
|
*
|
|
Lawrence
O'Brien
|
|
|
136,080
|
|
|
100,800
|
|
|
35,280
|
|
|
—
|
|
Michael
O'Brien
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Alan
Platner
|
|
|
95,580
|
|
|
70,800
|
|
|
24,780
|
|
|
—
|
|
David
N. Porter
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
David
G. & Nancy Pudelsky
|
|
|
113,400
|
|
|
84,000
|
|
|
29,400
|
|
|
—
|
|
Stephen
C. Rabbitt
|
|
|
136,080
|
|
|
100,800
|
|
|
35,280
|
|
|
—
|
|
Louis
Reif
|
|
|
272,160
|
|
|
201,600
|
|
|
70,560
|
|
|
—
|
|
Riverside
Contracting, LLC3
|
|
|
409,227
|
|
|
200,000
|
|
|
70,000
|
|
|
*
|
|
Mitchell
Sayer
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Suzanne
Schiller
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Martin
B. Seretean
|
|
|
270,000
|
|
|
200,000
|
|
|
70,000
|
|
|
—
|
|
William
S. Silver
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
The
Silverman 1984 Trust UAD 5/20/8413
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Lucille
Slocum
|
|
|
151,200
|
|
|
112,000
|
|
|
39,200
|
|
|
—
|
|
Gary
Speet and Linda Speet
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Richard
H. Spurlock
|
|
|
135,000
|
|
|
100,000
|
|
|
35,000
|
|
|
—
|
|
Raymond
L. Stanley, Jr.
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Howard
M. Tanning IRA
|
|
|
415,800
|
|
|
308,000
|
|
|
107,800
|
|
|
—
|
|
Carolyn
Taylor
|
|
|
90,720
|
|
|
67,200
|
|
|
23,520
|
|
|
—
|
|
Tokenhouse
Trading PTE, Ltd.4
|
|
|
589,165
|
|
|
150,000
|
|
|
52,500
|
|
|
*
|
|
Rick
Van Den Toorn
|
|
|
108,000
|
|
|
80,000
|
|
|
28,000
|
|
|
—
|
|
Venturetek,
LP14
|
|
|
675,000
|
|
|
500,000
|
|
|
175,000
|
|
|
—
|
|
Jeffrey
G. Weil
|
|
|
204,120
|
|
|
151,200
|
|
|
52,920
|
|
|
—
|
|
Thomas
Wells
|
|
|
136,080
|
|
|
100,800
|
|
|
35,280
|
|
|
—
|
|
Olen
C. Wilson
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
Thomas
W. Worden IRA
|
|
|
68,040
|
|
|
50,400
|
|
|
17,640
|
|
|
—
|
|
American
Portfolios Financial Services, Inc.
|
|
|
6,262
|
|
|
—
|
|
|
6,262
|
|
|
—
|
|
Benjamin
Brissi
|
|
|
4,297
|
|
|
—
|
|
|
4,297
|
|
|
—
|
|
Annette
Cassella
|
|
|
2,500
|
|
|
—
|
|
|
2,500
|
|
|
—
|
|
Basil
Christakos
|
|
|
75,722
|
|
|
—
|
|
|
1,050
|
|
|
—
|
|
Laureen
Conversano
|
|
|
1,100
|
|
|
—
|
|
|
1,100
|
|
|
—
|
|
Vincent
D’Albora
|
|
|
5,000
|
|
|
—
|
|
|
5,000
|
|
|
—
|
|
Alan
Ferraro
|
|
|
24,435
|
|
|
—
|
|
|
24,435
|
|
|
—
|
|
GunnAllen
Financial, Inc.
|
|
|
60,740
|
|
|
—
|
|
|
60,740
|
|
|
—
|
|
Gary
S. Hobbib
|
|
|
667
|
|
|
—
|
|
|
667
|
|
|
—
|
|
John
Knox
|
|
|
198,535
|
|
|
—
|
|
|
4,300
|
|
|
—
|
|
Legend
Merchant Group, Inc.
|
|
|
1,600
|
|
|
—
|
|
|
1,600
|
|
|
—
|
|
Harris
Lydon
|
|
|
18,263
|
|
|
—
|
|
|
18,263
|
|
|
—
|
|
Jeffrey
R. Marshall
|
|
|
1,166
|
|
|
—
|
|
|
1,166
|
|
|
—
|
|
Andrew
Miles
|
|
|
2,148
|
|
|
—
|
|
|
2,148
|
|
|
—
|
|
Robert
D. Millstone
|
|
|
37,572
|
|
|
—
|
|
|
37,572
|
|
|
—
|
|
Michael
Mullen
|
|
|
108,685
|
|
|
—
|
|
|
108,685
|
|
|
—
|
|
William
Odenthal
|
|
|
1,667
|
|
|
—
|
|
|
1,667
|
|
|
—
|
|
Joseph
Orlando
|
|
|
20,500
|
|
|
—
|
|
|
20,500
|
|
|
—
|
|
Craig
Pierson
|
|
|
2,400
|
|
|
—
|
|
|
2,400
|
|
|
—
|
|
Ryan
Reed
|
|
|
10,000
|
|
|
—
|
|
|
10,000
|
|
|
—
|
|
Lindsay
A. Rosenwald
|
|
|
3,470,999b
|
|
|
—
|
|
|
45,000
|
|
|
6.0
|
|
Karl
Ruggeberg
|
|
|
4,942
|
|
|
—
|
|
|
4,942
|
|
|
—
|
|
Steven
A. Sherman
|
|
|
18,786
|
|
|
—
|
|
|
18,786
|
|
|
—
|
|
Whitaker
Securities LLC
|
|
|
1,500
|
|
|
—
|
|
|
1,500
|
|
|
—
|
|
Jeff
Woolf
|
|
|
10,000
|
|
|
—
|
|
|
10,000
|
|
|
—
|
|
Subtotal
|
|
|
|
|
|
7,891,600
|
|
|
3,156,640
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
35,052,014
|
|
|
12,746,612
|
|
|
|
|
* Denotes
less than 1 percent.
1 Moise
Hendeles has voting and investment control over the shares held by such selling
stockholder.
2 Nicholas
B. Kronwall, Trustee of the Nicholas B. Kronwall Trust dated 11/12/69, has
voting and investment control over the shares held by such selling
stockholder.
3 Neil
Herskowitz, as Managing Member of Riverside Contracting, LLC, has voting
and
investment control over the shares held by such selling
stockholder.
4
The
following persons share voting and investment control over the shares held
by
such selling stockholder: Stefan Aegerter, Arshia Ahmed, Angela Alabons,
Rocio
Benalcazar, Christine Berger, Monique Bhullar, Christopher Blake, Joo Bee
Bietenholz, Christina Bollman, Kay Bower, Sau Yoke Chong, Stefan Dapato,
Andrew
Delgado, Juliet Diaz Widerkehr, Gordana Djurin, Yuko Eggmann-Murakami, Andrew
Elliott, Jeremias Fernandes, Raelene Gabrielli, Christine Green, Gordana
Jovanovic, Clark Kalt, Laura Lees, Cristina Lepori, Joel Levy, Terence Loh,
Pia
Mandus, Kim Naude, Ester Neff, Gayathri Perera, Cecile Pernet, Marek Ponte,
Rita
Serena, Nina Stanic, Monica Stricker, Sharon Suess, Bee Lian Tan, Heather
Tang,
Evelyn Tay, Rave Thlagarajan, Oksana Thorn, Daved Van Heerden, Isabel Villalba,
Nino von Schultess, Steven Weekes, Sharon Yam, or Adzam
Yosuf.
5
Michael Weiser is a director of our company.
6 Stephen
Rocamboli is the chairman of our board of directors.
7 Michael
Donner, President of Donner Plumbing and Heating, Inc., has voting and
investment control over the shares held by such selling
stockholder.
8 Bradley
Kaye, President of Granite Gulf Service, Inc., has voting and investment control
over the shares held by such selling stockholder.
9 Kevin
Anderson, a Member of Kevin Anderson Well Drilling, LLC, has voting and
investment control over the shares held by such selling
stockholder.
10 William
A. Lewis, IV, as the General Partner of Lewis Opportunity Fund, LP, has voting
and investment control over the shares held by such selling
stockholder.
11
Paul
Coviello, as President of Linden Capital Management IV, the General Partner
of
Linden Growth Partners Master Fund, LP, has voting and investment control over
the shares held by such selling stockholder.
12
Albert
Milstein, as the General Partner of Milstein Family L.P., has voting and
investment control over the shares held by such selling
stockholder.
13
Robert
Silverman, as Trustee of The Silverman 1984 Trust UAD 5/20/84, has voting and
investment control over the shares held by such selling
stockholder.
14
David
Selengut has voting and investment control over the shares held by such selling
stockholder.
a
Moise
Hendeles is the beneficial owner of 187,998 shares and these shares are
reflected in the beneficial ownership of each trust.
b
Includes
(i) 989,169 shares issuable upon the exercise of warrants and (ii) 392,830
shares held by Paramount BioCapital Investments, LLC of which Dr. Rosenwald
is
the managing member.
PLAN
OF DISTRIBUTION
We
are
registering the shares offered by this prospectus on behalf of the selling
stockholders. The selling stockholders, which as used herein includes donees,
pledgees, transferees or other successors-in-interest selling shares of common
stock or interests in shares of common stock received after the date of this
prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests
in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These dispositions
may
be at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the
time
of sale, or at negotiated prices. To the extent any of the selling stockholders
gift, pledge or otherwise transfer the shares offered hereby, such transferees
may offer and sell the shares from time to time under this prospectus, provided
that this prospectus has been amended under Rule 424(b)(3) or other applicable
provision of the Securities Act to include the name of such transferee in the
list of selling stockholders under this prospectus.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as
agent, but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
·
|
privately
negotiated transactions;
|
|
|
·
|
short
sales;
|
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
|
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per share;
|
|
|
·
|
a
combination of any such methods of sale; and
|
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common
stock
offered by them will be the purchase price of the common stock less discounts
or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole
or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering. Upon any
exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders might be, and any broker-dealers that act in connection
with the sale of securities will be, deemed to be “underwriters” within the
meaning of Section 2(11) of the Securities Act, and any commissions received
by
such broker-dealers and any profit on the resale of the securities sold by
them
while acting as principals will be deemed to be underwriting discounts or
commissions under the Securities Act.
To
the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions
or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In
order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be
sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We
have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to
the
activities of the selling stockholders and their affiliates. In addition, we
will make copies of this prospectus (as it may be supplemented or amended from
time to time) available to the selling stockholders for the purpose of
satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We
have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to
the
registration of the shares offered by this prospectus.
We
have
agreed with the selling stockholders to keep the registration statement that
includes this prospectus effective until the earlier of (1) such time as all
of
the shares covered by this prospectus have been disposed of pursuant to and
in
accordance with the registration statement or (2) the date on which the shares
may be sold pursuant to Rule 144(k) of the Securities Act.
Shares
Eligible For Future Sale
Upon
completion of this offering and assuming the issuance of all of the shares
covered by this prospectus that are issuable upon the exercise or conversion
of
convertible securities, there will be 67,367,721 shares of our common stock
issued and outstanding. The shares purchased in this offering will be freely
tradable without registration or other restriction under the Securities Act,
except for any shares purchased by an “affiliate” of our company (as defined in
the Securities Act).
Our
currently outstanding shares that were issued in reliance upon the “private
placement” exemptions provided by the Securities Act are deemed “restricted
securities” within the meaning of Rule 144. Restricted securities may not be
sold unless they are registered under the Securities Act or are sold pursuant
to
an applicable exemption from registration, including an exemption under Rule
144
of the Securities Act.
In
general, under Rule 144 as currently in effect, any person (or persons whose
shares are aggregated) including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held for at least one year
from the later of the date of issuance by us or acquisition from an affiliate,
may sell such securities in broker’s transactions or directly to market makers,
provided that the number of shares sold in any three month period may not exceed
the greater of 1 percent of the then-outstanding shares of our common stock
or
the average weekly trading volume of our shares of common stock in the
over-the-counter market during the four calendar weeks preceding the sale.
Sales
under Rule 144 are also subject to certain notice requirements and the
availability of current public information about our company. After two years
have elapsed from the later of the issuance of restricted securities by us
or
their acquisition from an affiliate, such securities may be sold without
limitation by persons who are not affiliates under the rule.
Following
the date of this prospectus, we cannot predict the effect, if any, that sales
of
our common stock or the availability of our common stock for sale will have
on
the market price prevailing from time to time. Nevertheless, sales by existing
stockholders of substantial amounts of our common stock could adversely affect
prevailing market prices for our stock.
DESCRIPTION
OF CAPITAL STOCK
General
Our
certificate of incorporation, as amended to date, authorizes us to issue up
to
100,000,000 shares of common stock and 10,000,000 shares of preferred stock.
We
have no shares of preferred stock outstanding. As of March 22, 2007, we had
54,621,119
shares
of
common stock issued and outstanding. The transfer agent and registrar for our
common stock is Wells Fargo Bank Minnesota, N.A., St. Paul,
Minnesota.
Common
Stock
Holders
of our common stock are entitled to one vote for each share on all matters
to be
voted on by our stockholders. Holders of our common stock do not have any
cumulative voting rights. Common stockholders are entitled to share ratably
in
any dividends that may be declared from time to time on the common stock by
our
board of directors from funds legally available for dividends. Holders of common
stock do not have any preemptive right to purchase shares of common stock.
There
are no conversion rights or sinking fund provisions for our common
stock.
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Pursuant
to our certificate of incorporation and bylaws, we may indemnify an officer
or
director who is made a party to any proceeding, because of his position as
such,
to the fullest extent authorized by the General Corporation Law of Delaware,
as
the same exists or may hereafter be amended. In certain cases, we may advance
expenses incurred in defending any such proceeding.
To
the
extent that indemnification for liabilities arising under the Securities Act
may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of
the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. If
a
claim for indemnification against such liabilities (other than the payment
by us
of expenses incurred or paid by a director, officer or controlling person of
our
company in the successful defense of any action, suit or proceeding) is asserted
by any of our directors, officers or controlling persons in connection with
the
securities being registered, we will, unless in the opinion of our counsel
the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of that issue.
ABOUT
THIS PROSPECTUS
This
prospectus is not an offer or solicitation in respect to these securities in
any
jurisdiction in which such offer or solicitation would be unlawful. This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission. The registration statement that contains this
prospectus (including the exhibits to the registration statement) contains
additional information about our company and the securities offered under this
prospectus. That registration statement can be read at the SEC web site or
at
the SEC’s offices mentioned under the heading “Where You Can Find More
Information.” We have not authorized anyone else to provide you with different
information or additional information. You should not assume that the
information in this prospectus, or any supplement or amendment to this
prospectus, is accurate at any date other than the date indicated on the cover
page of such documents.
WHERE
YOU CAN FIND MORE INFORMATION
Federal
securities law requires us to file information with the SEC concerning our
business and operations. Accordingly, we file annual, quarterly, and special
reports, proxy statements and other information with the SEC. You can inspect
and copy this information at the Public Reference Facility maintained by the
SEC
at Judiciary Plaza, 100 F Street, N.E., Washington, D.C. 20549. You can receive
additional information about the operation of the SEC’s Public Reference
Facilities by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web
site at http://www.sec.gov
that
contains reports, proxy and information statements and other information
regarding companies that, like us, file information electronically with the
SEC.
VALIDITY
OF COMMON STOCK
Legal
matters in connection with the validity of the shares offered by this prospectus
will be passed upon by Maslon Edelman Borman & Brand, LLP, Minneapolis,
Minnesota.
EXPERTS
The
consolidated financial statements of VioQuest Pharmaceuticals, Inc. as of
December 31, 2006 and 2005, and for the years then ended, included in this
prospectus, have been included herein in reliance on the report, which includes
an explanatory paragraph relating to the Company’s ability to continue as a
going concern, of J.H. Cohn LLP, independent registered public accounting firm,
given on the authority of that firm as experts in accounting and
auditing.
Index
to Consolidated Financial Statements
|
|
Page
|
|
|
|
|
|
Report
of J.H. Cohn LLP
|
|
|
F-2
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
|
|
F-3
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the Years Ended December 31, 2006 and
2005
|
|
|
F-4
|
|
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the Years Ended
December 31, 2006 and 2005
|
|
|
F-5
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2006 and
2005
|
|
|
F-6
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
F-7
to F-21
|
|
Report
of Independent Registered Public Accounting Firm
VioQuest
Pharmaceuticals, Inc.
We
have
audited the accompanying consolidated balance sheets of VioQuest
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2006 and 2005, and
the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VioQuest
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2006 and 2005, and
their results of operations and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States
of
America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has an accumulated deficit at
December 31, 2006 and has generated recurring losses and negative net cash
flows
from operating activities. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
As
discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for share-based compensation in fiscal
2006.
/s/
J.H.
Cohn LLP
Roseland,
New Jersey
March
6,
2007
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31,
|
|
2006
|
|
2005
|
|
ASSETS
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,931,265
|
|
$
|
6,021,399
|
|
Prepaid
expenses and other current assets
|
|
|
442,013
|
|
|
9,945
|
|
Current
assets associated with discontinued operations
|
|
|
1,056,808
|
|
|
892,092
|
|
Total
Current Assets
|
|
|
4,430,086
|
|
|
6,923,436
|
|
|
|
|
|
|
|
|
|
NON-CURRENT
ASSETS ASSOCIATED WITH DISCONTINUED OPERATIONS
|
|
|
1,339,627
|
|
|
1,424,883
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
43,378
|
|
|
21,276
|
|
SECURITY
DEPOSITS
|
|
|
15,232
|
|
|
9,708
|
|
TOTAL
ASSETS
|
|
$
|
5,828,323
|
|
$
|
8,379,303
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,031,458
|
|
$
|
275,077
|
|
Accrued
compensation and related taxes
|
|
|
245,475
|
|
|
360,000
|
|
Accrued
expenses
|
|
|
180,440
|
|
|
35,000
|
|
Note
payable - Paramount BioSciences, LLC
|
|
|
264,623
|
|
|
264,623
|
|
Current
liabilities associated with discontinued operations
|
|
|
1,265,568
|
|
|
1,105,594
|
|
TOTAL
LIABILITIES
|
|
|
2,987,564
|
|
|
2,040,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Preferred
stock; $0.001 par value: 10,000,000 shares authorized, 0 shares issued
and
outstanding at December 31, 2006 and 2005
|
|
|
-
|
|
|
-
|
|
Common
stock; $0.001 par value: 100,000,000 shares authorized at December
31,
2006 and 2005 respectively, 54,621,119 shares issued and outstanding
at
December 31, 2006, and 46,729,519 shares issued and outstanding at
December 31, 2005
|
|
|
54,621
|
|
|
46,729
|
|
Additional
paid-in capital
|
|
|
31,326,694
|
|
|
26,561,672
|
|
Accumulated
deficit
|
|
|
(28,540,556
|
)
|
|
(20,269,392
|
)
|
Total
Stockholders' Equity
|
|
|
2,840,759
|
|
|
6,339,009
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
5,828,323
|
|
$
|
8,379,303
|
|
See
accompanying notes to consolidated financial statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31,
|
|
2006
|
|
2005
|
|
REVENUE
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
In-process
research and development
|
|
|
-
|
|
|
7,975,218
|
|
Research
and development
|
|
|
1,819,736
|
|
|
-
|
|
Selling,
general and administrative
|
|
|
3,455,225
|
|
|
2,419,442
|
|
Depreciation
|
|
|
6,304
|
|
|
1,646
|
|
Total
Operating Expenses
|
|
|
5,281,265
|
|
|
10,396,306
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(5,281,265
|
)
|
|
(10,396,306
|
)
|
|
|
|
|
|
|
|
|
INTEREST
INCOME, NET
|
|
|
105,695
|
|
|
42,422
|
|
|
|
|
|
|
|
|
|
LOSS
FROM CONTINUING OPERATIONS
|
|
|
(5,175,570
|
)
|
|
(10,353,884
|
)
|
|
|
|
|
|
|
|
|
LOSS
FROM DISCONTINUED OPERATIONS, NET OF TAX BENEFIT
|
|
|
(3,095,594
|
)
|
|
(2,480,745
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(8,271,164
|
)
|
$
|
(12,834,629
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE:
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
$
|
(0.13
|
)
|
$
|
(0.47
|
)
|
DISCONTINUED
OPERATIONS
|
|
|
(0.08
|
)
|
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE - BASIC AND DILUTED
|
|
$
|
(0.21
|
)
|
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
|
|
|
39,786,686
|
|
|
22,034,198
|
|
See
accompanying notes to consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2006 and 2005
|
|
Common
Stock
|
|
|
|
Accumulated
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
|
Balance,
January 1, 2005
|
|
|
17,827,924
|
|
$
|
178,279
|
|
$
|
11,046,276
|
|
$
|
(7,434,763
|
)
|
$
|
3,789,792
|
|
Common
stock issued to consultant
|
|
|
200,000
|
|
|
200
|
|
|
189,800
|
|
|
|
|
|
190,000
|
|
October
18, 2005 private placement, net of $636,949 in financing
costs
|
|
|
11,179,975
|
|
|
11,180
|
|
|
7,736,852
|
|
|
|
|
|
7,748,032
|
|
October
18, 2005 acquisition of Greenwich Therapeutics, Inc. (includes 8,564,395
shares held in escrow)
|
|
|
17,128,790
|
|
|
17,129
|
|
|
6,993,985
|
|
|
|
|
|
7,011,114
|
|
Shares
issued for repayment of debt to Paramount BioCapital, Inc.
|
|
|
392,830
|
|
|
392
|
|
|
264,231
|
|
|
|
|
|
264,623
|
|
Stock-based
compensation to consultants
|
|
|
|
|
|
|
|
|
170,077
|
|
|
|
|
|
170,077
|
|
Effect
of change in par value from change in state incorporation
|
|
|
|
|
|
(160,451
|
)
|
|
160,451
|
|
|
|
|
|
-
|
|
Net
loss for the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
(12,834,629
|
)
|
|
(12,834,629
|
)
|
Balance,
December 31, 2005
|
|
|
46,729,519
|
|
|
46,729
|
|
|
26,561,672
|
|
|
(20,269,392
|
)
|
|
6,339,009
|
|
October
18, 2006 private placement, net of $296,554 in financing
costs
|
|
|
7,891,600
|
|
|
7,892
|
|
|
3,641,354
|
|
|
|
|
|
3,649,246
|
|
Stock-based
compensation to employees
|
|
|
|
|
|
|
|
|
1,040,145
|
|
|
|
|
|
1,040,145
|
|
Stock-based
compensation to consultants
|
|
|
|
|
|
|
|
|
83,523
|
|
|
|
|
|
83,523
|
|
Net
loss for the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
(8,271,164
|
)
|
|
(8,271,164
|
)
|
Balance,
December 31, 2006
|
|
|
54,621,119
|
|
$
|
54,621
|
|
$
|
31,326,694
|
|
$
|
(28,540,556
|
)
|
$
|
2,840,759
|
|
See
accompanying notes to consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31,
|
|
2006
|
|
2005
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,271,164
|
)
|
$
|
(12,834,629
|
)
|
Loss
from discontinued operations
|
|
|
3,095,594
|
|
|
2,480,745
|
|
Loss
from continuing operations
|
|
|
(5,175,570
|
)
|
|
(10,353,884
|
)
|
Adjustments
to reconcile net loss from continuing operations to net cash used
in
continuing operating activities:
|
|
|
|
|
|
|
|
In-process
research and development
|
|
|
-
|
|
|
7,975,218
|
|
Depreciation
|
|
|
6,304
|
|
|
1,646
|
|
Stock-based
compensation to consultants
|
|
|
33,830
|
|
|
-
|
|
Stock-based
compensation issued to employees
|
|
|
830,715
|
|
|
190,000
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
in prepaid expenses and other current assets
|
|
|
(432,068
|
)
|
|
(9,945
|
)
|
(Increase)
in security deposits
|
|
|
(5,524
|
)
|
|
(9,708
|
)
|
Increase
in accounts payable
|
|
|
756,381
|
|
|
275,077
|
|
Increase
in accrued expenses
|
|
|
30,915
|
|
|
395,000
|
|
Net
cash used in continuing operating activities
|
|
|
(3,955,017
|
)
|
|
(1,536,596
|
)
|
Net
cash used in discontinued operating activities
|
|
|
(2,502,814
|
)
|
|
(2,205,258
|
)
|
Net
cash used in operating activities
|
|
|
(6,457,831
|
)
|
|
(3,741,854
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
for Greenwich acquisition
|
|
|
-
|
|
|
(170,234
|
)
|
Payments
for purchased property and equipment
|
|
|
(28,406
|
)
|
|
(21,276
|
)
|
Net
cash used in continuing investing activities
|
|
|
(28,406
|
)
|
|
(191,510
|
)
|
Net
cash used in discontinued investing activities
|
|
|
(253,143
|
)
|
|
(594,193
|
)
|
Net
cash used in investing activities
|
|
|
(281,549
|
)
|
|
(785,703
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from private placement of common stock, net
|
|
|
3,649,246
|
|
|
7,748,032
|
|
Payment
of note payable to Paramount BioSciences
|
|
|
-
|
|
|
(264,623
|
)
|
Net
cash provided by financing activities
|
|
|
3,649,246
|
|
|
7,483,409
|
|
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(3,090,134
|
)
|
|
2,955,852
|
|
CASH
AND CASH EQUIVALENTS - BEGINNING OF YEAR
|
|
|
6,021,399
|
|
|
3,065,547
|
|
CASH
AND CASH EQUIVALENTS - END OF YEAR
|
|
$
|
2,931,265
|
|
$
|
6,021,399
|
|
Non-Cash
Transactions:
1.
See
Note 4 for discussion of the acquisition of Greenwich Therapeutics, Inc. and
consideration (principally, shares, warrants and the assumption of debt) issued
and assumed.
2.
The
Company incurred $823,869 of debt from the acquisition of Greenwich
Therapeutics, Inc., in October 2005.
3.
Of the
total debt assumed by the Company, $264,623 was paid to Paramount BioCapital,
Inc. from proceeds of the October 2005 private placement of the Company’s common
stock, $294,623 was paid through the issuance of 392,830 shares of its common
stock to Paramount BioCapital, Inc., and $264,623 is payable to Paramount
BioSciences, LLC, as a result of the Company’s successful completion of a
combined financing, of at least $10 million, which includes the $8.4 million
financing in October 2005 and $3.95 million financing in October 2006. See
Note
11.
4.
The
Company reincorporated from Minnesota to Delaware in October 2005, resulting
in
an equity reclassification of $160,451 from the change in the par value of
its
common stock from $0.01 to $0.001.
See
accompanying notes to consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
1
NATURE
OF OPERATIONS AND LIQUIDITY
(A)
Basis of Presentation
The
accompanying consolidated financial statements include the accounts of VioQuest
Pharmaceuticals, Inc. and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The functional
currency of Chiral Quest, Ltd., Jiashan, China, a wholly-owned, discontinued
subsidiary of the Company, is the United States Dollar. As such, all transaction
gains and losses are recorded in discontinued operations.
On
September 29, 2006, the Company’s board of directors directed its management to
seek strategic alternatives with respect to the Company’s Chiral Quest, Inc.
subsidiary (“Chiral Quest”), which may include a sale or other disposition of
the operating assets of that business. Accordingly, the results of Chiral
Quest’s products and services business and the assets and liabilities are
presented in these financial statements as discontinued operations. Chiral
Quest
had accounted for all sales of the Company from its inception. The Company’s
continuing operations, which have not generated any revenues, will focus on
the
drug development operations of VioQuest Pharmaceuticals, Inc. and accordingly,
the Company has only one segment. As a result, the Company no longer provides
segment reporting. No provision has been made to reduce the carrying amounts
of
the assets of the discontinued operations as they approximate their estimated
net realizable values. See Note 3.
The
balance sheets as of December 31, 2006 and December 31, 2005 and the statements
of operations and cash flows for the years then ended include reclassifications
primarily to reflect discontinued operations.
(B)
Nature of Continuing Operations
Since
August 2004, the Company has focused on acquiring technologies for
purposes
of development and commercialization of pharmaceutical drug candidates for
the
treatment of oncology and antiviral diseases and disorders for which there
are
unmet medical needs. In accordance with this business plan, in October 2005,
the
Company acquired in a merger transaction Greenwich Therapeutics, Inc.,
(“Greenwich”), a privately-held New York-based biotechnology company that held
exclusive rights to develop and commercialize two oncology drug candidates
-
sodium stibogluconate or VQD-001, and triciribine-Phosphate or VQD-002. The
rights to these two oncology drug candidates, VQD-001 and VQD-002, are governed
by license agreements with The Cleveland Clinic Foundation and the University
of
South Florida Research Foundation, respectively. As a result of the Company’s
acquisition of Greenwich, the Company holds exclusive rights to develop,
manufacture, use, commercialize, lease, sell and/or sublicense VQD-001 and
VQD-002.
(C)
Liquidity
Since
inception, the Company has incurred an accumulated deficit of $28,540,556
through December 31, 2006. For the years ended December 31, 2006 and 2005,
the
Company had losses from continuing operations of $5,175,570 and $10,353,884,
respectively, and used $3,955,017 and $1,536,596 of cash in continuing operating
activities for the years ended December 31, 2006 and 2005, respectively. For
the
years ended December 31, 2006 and 2005, the Company had a net loss of $8,271,164
(including $5,175,570 from continuing operations) and a net loss of $12,834,629
(including $10,353,884 from continuing operations), respectively, and used
$6,457,831 and $3,741,854 of cash in all operating activities for the years
ended December 31, 2006 and 2005, respectively. Management
expects the Company’s losses from continuing operations to increase over the
next several years, due to the expansion of its drug development business,
and
related costs associated with the clinical development programs of VQD-001
and
VQD-002. These matters raise substantial doubt about the ability of the Company
to continue as a going concern.
As
of
December 31, 2006, we had working capital of $1,442,522 and cash and cash
equivalents of $2,931,265. The
Company has incurred negative cash flow from continuing operations since we
started business. The Company has spent, and expects to continue to spend,
substantial amounts in connection with executing our business strategy,
including our planned development efforts relating to our drug candidates,
our
clinical trials, and our research and development efforts.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
Management
anticipates that the Company’s capital resources will be adequate to fund its
operations through the second quarter of 2007. Additional financing will be
required during 2007 in order to continue operations. On September 29, 2006
the
Company has determined to seek strategic alternatives for its Chiral Quest
business operations, including the possible sale of that business, which may
potentially provide the Company with additional net cash proceeds. See Note
3.
The other most likely sources of additional financing include the private sale
of the Company’s equity or debt securities, or bridge loans to the Company from
third party lenders. However, changes may occur that would consume available
capital resources before that time. The Company’s working capital requirements
will depend upon numerous factors, which include, the progress of its drug
development and clinical programs, including associated costs relating to
milestone payments, maintenance and license fees, manufacturing costs, patent
costs, regulatory approvals, and the hiring of additional employees.
Additional
capital that may be needed by the Company in the future may not be available
on
reasonable terms, or at all. If adequate financing is not available, the Company
may be required to terminate or significantly curtail its operations, or enter
into arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, or potential
markets that the Company would not otherwise relinquish.
NOTE
2 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(A)
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts of VioQuest
Pharmaceuticals, Inc. and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The Company
translates the financial statements of its discontinued subsidiary, Chiral
Quest, Ltd. in Jiashan, China, at end of period rates with respect to its
balance sheet and at the average exchange rates with respect to the results
of
its operations and cash flows.
(B)
Cash and Cash Equivalents
The
Company considers all highly-liquid investments with a maturity at the date
of
purchase of three months or less to be cash equivalents.
(C)
Fair Value of Financial Instruments
The
carrying value of financial instruments including cash and cash equivalents
and
accounts payable approximate fair value due to the relatively short maturity
of
these instruments. The carrying value of the note payable to Paramount
BioSciences, LLC, approximates fair value based on the incremental borrowing
rates currently available to the Company for financing with similar terms and
maturities.
(D)
Property and Equipment
Property
and equipment is recorded at cost and depreciated over the estimated useful
lives of the assets, principally using the straight-line method. Amortization
of equipment under capital leases and leasehold improvements is computed over
the shorter of the lease term or estimated useful life of the asset. Additions
and improvements are capitalized, while repairs and maintenance costs are
expensed as incurred. The
estimated useful lives used for depreciation and amortization were three (lease
term), five and seven years for computer equipment and office equipment,
respectively (See Note 5).
(E)
Income Taxes
Under
Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes,” (“SFAS 109”) deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in
tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when it is more likely than not that
deferred tax assets will not be realized.
(F)
Stock-Based Compensation
Prior
to
January 1, 2006, as permitted by SFAS No. 123, Accounting for Stock-Based
Compensation (“SFAS No. 123”) the Company accounted for share-based payments to
employees using the intrinsic value method under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (“APB No. 25”), and related interpretations. Under this
method, compensation cost is measured as the amount by which the market price
of
the underlying stock exceeds the exercise price of the stock option at the
date
at which both the number of options granted and the exercise price are known.
As
previously permitted by SFAS No. 123, the Company had elected to apply the
intrinsic-value-based method of accounting under APB No. 25 described above,
and
adopted the disclosure only requirements of SFAS No. 123 and provided pro forma
information for the effects of using a fair value basis for all options.
The
Company adopted SFAS No. 123R, Share-Based Payment (“SFAS No. 123R”) and related
interpretations on January 1, 2006 for its employee and director stock options
plan, using the modified prospective method which requires that share-based
expense recognized includes: (a) share-based expense for all awards granted
prior to, but not yet vested, as of the adoption date and (b) share-based
expense for all awards granted subsequent to the adoption date. Since the
modified prospective application method is being used, there is no cumulative
effect adjustment upon the adoption of SFAS No. 123R, and the Company’s December
31, 2005 financial statements do not reflect any restated amounts. No
modifications were made to outstanding options prior to the adoption of SFAS
No.
123R, and the Company did not change the quantity, type or payment arrangements
of any share-based payment programs. SFAS No. 123R requires that compensation
cost relating to share-based payment transactions be recognized as an expense
in
the financial statements over the related service period, and that measurement
of that cost be based on the estimated fair value of the equity or liability
instrument issued. The pro forma information provided under SFAS No. 123 was
determined on a basis similar in most respects to that of SFAS No. 123R, with
the exception of option forfeitures, which, under SFAS No. 123, had been
accounted for as they occurred.
Under
SFAS No. 123R, the pro forma disclosures previously permitted under SFAS No.
123, are no longer an alternative to financial statement recognition. SFAS
No.
123R also required that forfeitures be estimated and recorded over the vesting
period of the instrument.
The
Company accounts for stock options granted to non-employees on a fair value
basis using the Black-Scholes option pricing method in accordance with SFAS
No.
123R and Emerging Issues Task Force No. 96-18, “Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. The initial non-cash charge to
operations for non-employee options with vesting is subsequently adjusted at
the
end of each reporting period based upon the change in the fair value of the
Company’s common stock until such options vest.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
The
following table details the pro forma effect on the Company’s net loss and basic
and diluted net loss per share had compensation expense for stock-based
awards
been recorded in the year ended December 31, 2005 based on the fair value
method
under SFAS No. 123 instead of the intrinsic value method under APB No.
25:
|
|
Year
Ended
December
31, 2005
|
|
Loss
from continuing operations as reported
|
|
$
|
(10,353,884
|
)
|
Deduct:
Stock-based employee compensation
|
|
|
|
|
expense
determined under fair value based
|
|
|
|
|
method
for all awards, net of taxes
|
|
|
(466,991
|
)
|
Pro
forma, loss from continuing operations
|
|
$
|
(10,820,875
|
)
|
|
|
|
|
|
Loss
from discontinued operations as reported
|
|
$
|
(2,480,745
|
)
|
Deduct:
Stock-based employee compensation
|
|
|
|
|
expense
determined under fair value based
|
|
|
|
|
method
for all awards, net of taxes
|
|
|
(236,781
|
)
|
Pro
forma, loss from discontinued operations
|
|
$
|
(2,717,526
|
)
|
|
|
|
|
|
Net
loss as reported
|
|
$
|
(12,834,629
|
)
|
Deduct:
Stock-based employee compensation
|
|
|
|
|
expense
determined under fair value based
|
|
|
|
|
method
for all awards, net of taxes
|
|
|
(703,772
|
)
|
Pro
forma, net loss
|
|
$
|
(13,538,401
|
)
|
|
|
|
|
|
Basic
and diluted loss per share from continuing operations, as
reported
|
|
$
|
(0.47
|
)
|
Basic
and diluted loss per share from continuing operations, pro
forma
|
|
$
|
(0.49
|
)
|
Basic
and diluted loss per share from discontinued operations, as
reported
|
|
$
|
(0.11
|
)
|
Basic
and diluted loss per share from discontinued operations, pro
forma
|
|
$
|
(0.12
|
)
|
Basic
and diluted net loss per share, as reported
|
|
$
|
(0.58
|
)
|
Basic
and diluted net loss per share, pro forma
|
|
$
|
(0.61
|
)
|
(G)
Use of Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
(H)
In-Process Research and Development Expense
In-process
research and development costs are expensed as incurred. These expenses are
comprised of the costs associated with the acquisition of
Greenwich.
(I)
Research and Development Expense
Research
and development costs, when incurred in continuing operations, will be expensed
as incurred. These expenses will include the cost of the Company's proprietary
research and development efforts, as well as costs incurred in connection with
the Company's third-party collaboration efforts. We often contract with third
parties to facilitate, coordinate and perform agreed upon research and
development activities. To ensure that research and development costs are
expensed as incurred, we measure and record prepaid assets or accrue expenses
on
a monthly basis for such activities based on the work performed under the
contracts.
These
contracts typically call for the payment of fees for services at the initiation
of the contract and/or upon the achievement of certain clinical trial
milestones.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
In
the
event that we prepay fees for future milestones, we record the prepayment as
a
prepaid asset and amortize the asset into research and development expense
over
the period of time the contracted research and development services are
performed. Most professional fees are incurred throughout the contract
period. These professional fees are expensed based on their percentage of
completion at a particular date.
These
contracts generally include pass through fees. Pass through fees include,
but are not limited to, regulatory expenses, investigator fees, travel costs,
and other miscellaneous costs including shipping and printing fees. Because
these fees are incurred at various times during the contract term and they
are
used throughout the contract term, we record a monthly expense allocation to
recognize the fees during the contract period. Fees incurred to set up the
clinical trial are expensed during the setup period.
(J)
Loss Per Share
Basic
net
loss per share is calculated by dividing net loss by the weighted-average number
of common shares outstanding for the period, excluding 8,564,395 common shares
held in escrow based
upon clinical milestones of VQD-001 and VQD-002, as a result of the acquisition
of Greenwich Therapeutics.
Diluted
net loss per share is the same as basic net loss per share, since potentially
dilutive securities from the assumed exercise of stock options and stock
warrants would have an antidilutive effect because the Company incurred a net
loss during each period presented. The amount of potentially dilutive securities
including options and warrants in the aggregate excluded from the calculation
were 30,294,586 (including the 8,564,395 common shares held in escrow,
15,642,759 warrants, and 6,087,432 stock options) at December 31, 2006 and
26,026,366 at December 31, 2005.
(K)
Concentrations of Credit Risk
Financial
instruments that potentially subject us to concentrations of credit risk consist
primarily of cash and cash equivalents. The Company places its cash with high
quality financial institutions to limit credit exposure.
NOTE
3 DISCONTINUED
OPERATIONS
On
September 29, 2006, the Company’s board of directors directed its management to
seek strategic alternatives for the operations of its Chiral Quest subsidiary
which may include a sale or other disposition of the operating assets of that
business. Accordingly, the business and assets of Chiral Quest are presented
in
these financial statements as discontinued operations. No provision has been
made to reduce the carrying amounts of the assets of discontinued operations
as
management believes they approximate their net realizable values. As of December
31, 2006 and 2005, the current assets of discontinued operations totaled
$1,056,808 and $892,092, respectively, which consisted of accounts receivable,
inventories and prepaid expenses. As of December 31, 2006 and 2005, the
non-current assets of discontinued operations totaled $1,339,627 and $1,424,883,
respectively, which consisted of fixed assets net of accumulated depreciation
and patents net of accumulated amortization, and security deposits. Current
liabilities as of December 31, 2006 and 2005 associated with discontinued
operations totaled $1,265,568 and $1,105,594, respectively, which consisted
of
accounts payable, accrued expenses, and deferred revenue. Revenues for the
years
ended December 31, 2006 and 2005, from discontinued operations totaled
$2,738,652 and $3,804,654 respectively. Loss from discontinued operations for
the years ended December 31, 2006 and 2005, which consisted of revenues less
cost of goods sold, management and consulting fees, research and development,
selling, general and administrative expenses and depreciation and amortization,
totaled $3,095,594 and $2,480,745, respectively.
NOTE
4 MERGER
Greenwich
Therapeutics, Inc.
On
October 18, 2005, the Company completed a merger with Greenwich, a New York
based biotechnology company. In exchange for their shares of Greenwich common
stock and pursuant to the Merger Agreement, the stockholders of Greenwich
received an aggregate of 17,128,790 shares of the Company’s common stock and
five-year warrants to purchase an additional 4,000,000 shares of the Company’s
common stock at an exercise price of $1.41 per share. One-half of the shares
and
warrants issued to Greenwich’s stockholders were placed in escrow and will be
released based upon the achievement of certain milestones as discussed:
|
(i)
|
35%
of the escrowed securities shall be released upon the conclusion
of a
Phase I clinical trial pursuant to an investigational new drug
application
(“IND”) accepted by the U.S. Food and Drug Administration (“FDA”) for
VQD-001 or SSG;
|
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
|
(ii)
|
15%
of the escrowed securities shall be released immediately upon conclusion
of a Phase II clinical trial for VQD-001 or SSG under a Company-sponsored
IND; provided that a majority of the members of the Company’s then
existing medical advisory board conclude that such trial yielded
results
which, in the opinion of such advisory board, warrant initiation
of Phase
III trial(s) (provided that this milestone shall be deemed to have
been
satisfied in the event a new drug application, or NDA, relating to
VQD-001
or SSG has been accepted for review by the FDA prior to any determination
by the medical advisory board to initiate a Phase III
trial);
|
|
(iii) |
35%
of such escrowed securities shall be released immediately upon the
conclusion of a Phase I clinical trial pursuant to a Company-sponsored
IND
application accepted by the FDA for VQD-002 or TCN-P;
|
|
(iv) |
15%
of such escrowed securities shall be released immediately upon conclusion
of a Phase II clinical trial for VQD-002 or TCN-P under a
Company-sponsored IND; provided that a majority of the members of
the
Company’s then existing medical advisory board conclude that such trial
yielded results which, in the opinion of such advisory board, warrant
initiation of Phase III trial(s) (provided that this milestone shall
be
deemed to have been satisfied in the event an NDA relating to VQD-002
or
has been accepted for review by the FDA prior to any determination
by the
medical advisory board to initiate a Phase III trial).
|
In
the
event the escrowed securities relating to the milestones described above have
not been released to the Greenwich shareholders by June 30, 2008, any escrowed
securities still remaining in the escrow shall be released and delivered to
the
Company for cancellation, and the Greenwich shareholders will have no further
right, title or interest to such escrowed securities.
Dr.
Lindsay A. Rosenwald and certain trusts established for the benefit of Dr.
Rosenwald and his family collectively held approximately 48% of Greenwich’s
capital stock prior to the completion of the Merger. Together, Dr. Rosenwald
and
such trusts also owned approximately 16% of the Company’s common stock prior to
the completion of the Merger. Dr.
Lindsay A. Rosenwald is the Chairman, CEO and sole stockholder of Paramount
BioCapital, Inc. (“Paramount”) and a substantial stockholder of VioQuest. See
Note 11.
Additionally,
as contemplated by the merger agreement, on October 18, 2005, the Company
assumed outstanding indebtedness of Greenwich of $823,869, all of which is
payable to Paramount BioSciences, LLC. (“PBI”), (See Note 11), pursuant to a
promissory note dated October 17, 2005, referred to as the (“Note”).
At
the
closing of the merger, the Note was amended to provide that one-third would
be
converted into securities of the Company on the same terms as the Company’s
October 2005 private placement, one-third of the outstanding indebtedness under
the Note would be repaid upon the completion by the Company of a financing
resulting in gross proceeds of at least $5 million, and the final one-third
would be payable upon completion by the Company of one or more
financings resulting in aggregate gross proceeds of at least $10 million
(inclusive of the amounts raised in its $8.4 million financing on October 18,
2005 and $3.95 million financing on October 18, 2006). (See Note 7). As of
December 31, 2006, the Company has completed two financings which have totaled
over $10 million.
Accordingly,
on October 18, 2005, upon completion of the private placement, the Company
satisfied one-third of the total indebtedness outstanding under the Note by
making a cash payment of $264,623 and another one-third by issuing to PBI
392,830 shares valued at $0.75 per share, the offering price of the October
2005
private placement, the equivalent of $294,623 of the Company’s common stock.
The
final
one-third of the Note of $264,623, which was due in October 2006, in addition
to
interest of approximately $16,000, remains outstanding and payable to PBI as
of
December 31, 2006. The Company plans to satisfy the final portion of debt and
interest by the end of the first half of 2007.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
The
acquisition of Greenwich on October 18, 2005 was accounted for by the Company
under the purchase method of accounting in accordance with Statement of
Financial Accounting Standards No. 141 “Business Combinations.”
Under
the
purchase method, assets acquired and liabilities assumed by the Company were
recorded at their estimated fair values at the date of acquisition and the
results of operations of the acquired company were consolidated with those
of
the Company from the date of acquisition.
The
total
purchase price of $7,975,218, was determined to be allocable to a charge for
in-process research and development and is comprised of $5,995,077 related
to
the calculated value of the Company’s common stock issued of $0.70 per share
($0.70 per share value was based upon the average stock price of the Company’s
common stock a few days before and a few days subsequent to the July 7, 2005
definitive merger agreement announcement), $986,039 related to the calculated
value of 2,000,000 warrants issued to Greenwich shareholders using the
Black-Scholes option pricing model, $823,869 related to debt the Company assumed
and $170,234 related to professional fees.
The
components of the purchase price, which the Company charged to in-process
research and development, are summarized as follows ($000’s):
Common
stock issued, excluding contingent shares*
|
|
$
|
5,995
|
|
Warrants
issued, excluding contingent warrants*
|
|
|
986
|
|
Liabilities
assumed
|
|
|
824
|
|
Transaction
costs
|
|
|
170
|
|
Total
purchase price
|
|
$
|
7,975
|
|
*
The
purchase price does not include any of the contingent achievement-based
milestone payments described above.
The
following unaudited pro forma financial information represents the condensed
consolidated results of operations of the Company and Greenwich for the year
ended December 31, 2005 assuming the acquisition had been consummated at the
beginning of that year. The pro forma information does not necessarily reflect
the results of operations that would have occurred had the entities been a
single company during the year. Our pro forma results of operations are as
follows:
|
|
Pro
Forma (Unaudited)
|
|
|
|
Years
Ended
|
|
|
|
December
31,
|
|
|
|
2005
|
|
NET
LOSS
|
|
$
|
(11,108,786
|
)
|
BASIC
AND DILUTED LOSS PER COMMON SHARE
|
|
$
|
(.38
|
)
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED
|
|
|
29,150,897
|
|
The
pro-forma net loss for the year ended December 31, 2005, includes a
non-recurring, one-time charge of $7,975,000 which represents the allocated
in-process research and development costs. The above pro forma financial
information is not necessarily indicative of what the Company’s results of
operations would have been had the Merger occurred on January 1, 2005.
Reincorporation
In
October 2005, the Company, formerly a Minnesota corporation, reincorporated
under Delaware law. The reincorporation was effected by merging the Company
with
and into VioQuest Delaware, Inc., a wholly-owned subsidiary of the Company
formed under Delaware law solely for the purpose of effecting the Company’s
reincorporation, with VioQuest Delaware remaining as the surviving corporation.
Each
share of outstanding common stock of the Company was converted into one share
of
VioQuest Delaware common stock. In connection with the reincorporation and
merger, VioQuest Delaware’s name was changed to VioQuest Pharmaceuticals, Inc.
Further, as a result of the reincorporation, the Company’s authorized number of
shares was increased to 100,000,000 shares of common stock and 10,000,000 shares
of preferred stock. The Company’s stockholders approved both the reincorporation
and an amendment to the Company’s charter increasing the number of authorized
shares of capital stock at a special meeting held October 8, 2005. The
reincorporation of the Company under Delaware law was a condition to completing
the merger with Greenwich. The par value of the Company’s common stock changed
in October 2005 to $0.001 from $0.01, as a result of the Company’s
reincorporation from Minnesota a par value of $0.01 to Delaware a par value
of
$0.001.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
The
cost
of the major classes of property and equipment are as follows:
|
|
December
31, 2006
|
|
December
31, 2005
|
|
Office
equipment
|
|
$
|
27,346
|
|
$
|
18,185
|
|
Computer
equipment
|
|
|
24,123
|
|
|
4,878
|
|
Property
and equipment
|
|
|
51,469
|
|
|
23,063
|
|
Less
accumulated depreciation
|
|
|
8,091
|
|
|
1,787
|
|
Property
and Equipment, Net
|
|
$
|
43,378
|
|
$
|
21,276
|
|
Depreciation
expense for property and equipment for continuing operations for the years
ended
December 31, 2006 and 2005 was $6,304 and $1,646, respectively.
NOTE
6
INCOME
TAXES
The
Company recognized a tax benefit from its discontinued operations of $201,079
and $236,416 for the years ended December 31, 2006 and 2005 as a result of
the
sale of its New Jersey net operating losses (“NOL’s”).
The
significant components of the Company’s net deferred tax assets are summarized
as follows:
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
NOL
carryforwards - Federal
|
|
$
|
6,168,321
|
|
$
|
4,110,501
|
|
NOL
carryforwards - State
|
|
|
674,556
|
|
|
365,563
|
|
Tax
credits - State
|
|
|
483,949
|
|
|
-
|
|
Inventory
reserve
|
|
|
170,800
|
|
|
-
|
|
Employee
stock compensation
|
|
|
416,058
|
|
|
-
|
|
Other,
net
|
|
|
114,748
|
|
|
(20,850
|
)
|
Valuation
allowance
|
|
|
(8,028,432
|
)
|
|
(4,455,214
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
Deferred
tax assets have been fully offset by a valuation allowance because it is
management’s belief that it is more likely than not that those benefits will not
be realized.
As
of
December 31, 2006, we had available for federal income tax reporting purposes
NOL carryforwards in the approximate amount of $18,142,000, expiring through
2026, which are available to reduce future earnings that would otherwise be
subject to federal income taxes. Our ability to use such net operating losses
may be limited by change in control provisions under Internal Revenue Code
Section 382. In addition, as of December 31, 2006, we have research and
development credits in the approximate amount of $25,000, which are available
to
reduce the amount of future federal income taxes. These credits expire from
2006
through 2025.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
We
have
New Jersey NOL carryforwards in the approximate amount of $11,243,000 and
research
and development credits in the approximate amount of
$484,000, expiring through 2013 that are available to reduce future earnings,
which would otherwise be subject to state income tax. As of December 31, 2006,
approximately $4,510,000 of these New Jersey NOL carryforwards has been approved
for future sale under a program of the New Jersey Economic Development Authority
(“NJEDA”). In order to realize these benefits, we must apply to the NJEDA each
year and must meet various requirements for continuing eligibility. In addition,
the program must continue to be funded by the State of New Jersey and there
are
limitations based on the level of participation by other companies. As a result,
future tax benefits will be recognized in the financial statements as specific
sales are approved.
The
following is a reconciliation of the expected income tax benefit based on losses
from continuing and discontinued operations before income taxes, computed at
the
U.S. Federal statutory rate to the Company's actual income tax benefit:
|
|
December
31, 2006
|
|
December
31, 2005
|
|
|
|
|
|
|
|
Income
tax benefit at statutory rate
|
|
$
|
(2,880,563
|
)
|
$
|
(4,444,155
|
)
|
State
income taxes net of Federal tax
|
|
|
(417,362
|
)
|
|
(406,665
|
)
|
Nondeductible
expenses and prior year true-up
|
|
|
208,655
|
|
|
100,741
|
|
Nondeductible
in-process research and development
|
|
|
-
|
|
|
3,190,087
|
|
Tax
credits
|
|
|
(483,949
|
)
|
|
(25,177
|
)
|
Sale
of state NOLs
|
|
|
(201,079
|
)
|
|
(236,416
|
)
|
Increase
in valuation allowance
|
|
|
3,573,219
|
|
|
1,585,169
|
|
|
|
$
|
(201,079
|
)
|
$
|
(236,416
|
)
|
On
October 18, 2005, the Company acquired Greenwich Therapeutics, Inc., a privately
held biotechnology company. The acquisition constituted a tax-free
reorganization under Section 368(a) of the Code.
NOTE
7
STOCKHOLDERS'
EQUITY
On
August
29, 2005, the Company issued 200,000 shares of its restricted common stock
to a
consultant at a price of $0.95, the closing price of the Company’s common stock,
which resulted in a charge of $190,000 to consulting expense for 2005.
On
October 18, 2005, the Company sold 11,179,975 Shares of its common stock at
a
price of $0.75 per share resulting in gross proceeds of approximately $8.38
million. In addition to the shares of common stock, the investors also received
5-year Warrants to purchase an aggregate of 4,471,975 shares at an exercise
price of $1.00 per share.
In
connection with the private placement, the Company paid an aggregate of
approximately $587,000 in commissions to Paramount (See Note 11), which served
as the placement agent in connection with the offering, together with an
accountable expense allowance of $50,000, and issued 5-year warrants to purchase
an aggregate of 1,117,997 shares of common stock at a price of $1.00 per share.
Net proceeds to the Company after deducting placement agent fees and other
expenses relating to the private placement, were approximately $7.5
million.
On
October 18, 2005, the Company completed a merger with Greenwich (See Note 4).
In
exchange for Greenwich stockholders’ shares of Greenwich common stock, the
stockholders of Greenwich received an aggregate of 17,128,790 shares of the
Company’s common stock and five-year warrants to purchase an additional
4,000,000 shares of the Company’s common stock at an exercise price of $1.41 per
share. One-half of the securities issued pursuant to the merger agreement were
placed in escrow pursuant to an escrow agreement (See Note 4).
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
On
October 18, 2006, the Company completed the sales of 7,891,600 shares of its
common stock at a price of $0.50 per share resulting in gross proceeds of
approximately $3.95 million. In connection with the private placement, the
Company engaged Paramount as its exclusive placement agent, and Paramount in
turn engaged various broker-dealers as sub-agents to assist with the offering.
In consideration for their services, we paid an aggregate of approximately
$276,000 in commissions to the placement agents (including sub-agents) in
connection with the offering, of which $56,000 was paid to Paramount, plus
an
additional $30,000 as reimbursement for expenses.
In
addition to the shares of common stock, we also issued to the investors 5-year
warrants to purchase an aggregate of 2,762,060 shares at an exercise price
of
$0.73 per share. The Company also issued to the placement agents 5-year warrants
to purchase an aggregate of 394,580 shares of common stock at a price of $0.55
per share. Net
proceeds to the Company after deducting placement agent fees and other expenses
relating to the private placement, were approximately $3.65 million. Based
upon
the Black-Scholes stock option pricing valuation model, the investors’ warrants
are estimated to be valued at $1,363,000 and the placement agents’ warrants are
estimated to be valued at approximately $195,000, which have not been recorded
in the financial statements for the year ended December 31, 2006.
The
Company has adopted the 2003 Stock Option Plan (the “Plan”) under which
incentive and non-qualified stock options may be granted. In January 2006,
the
Board approved an amendment to the Plan, increasing the number of common shares
available for grant to 6,500,000 stock options for the purchase of its $0.001
par value of common stock. Grants under the Plan may be made to employees
(including officers), directors, consultants, advisors, or other independent
contractors who provide services to the Company or its subsidiaries.
The
Company issues stock options to employees and non-employees at or above the
fair
market value of its common stock price at the date of grant.
With
the
exception of the immediate vesting of 75,000 stock options granted to a
non-employee director, 50,000 performance-based stock options granted to a
consultant and 40,000 stock options granted to Scientific Advisory Board members
during the year ended December 31, 2006, options granted to employees and
non-employee directors during the year ended December 31, 2006 vest as to 33%
of
the shares on the first, second and third anniversary of the vesting
commencement date.
Following
the vesting periods, options are exercisable until the earlier of 90 days after
the employee’s termination with the Company or the ten-year anniversary of the
initial grant, subject to adjustment under certain conditions.
The
following table summarizes the total number of options outstanding, options
issued to employees, non-employees, directors, consultants, scientific advisory
board members and expired options:
|
|
December
31, 2006
|
|
December
31, 2005
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at beginning of year
|
|
|
4,975,852
|
|
$
|
1.10
|
|
|
2,244,877
|
|
$
|
1.42
|
|
Granted
|
|
|
1,746,580
|
|
$
|
0.75
|
|
|
3,079,475
|
|
$
|
0.90
|
|
Expired
|
|
|
(635,000
|
)
|
$
|
0.89
|
|
|
(348,500
|
)
|
$
|
1.41
|
|
Outstanding
at end of year
|
|
|
6,087,432
|
|
$
|
1.02
|
|
|
4,975,852
|
|
$
|
1.10
|
|
Options
exercisable at year-end
|
|
|
2,670,356
|
|
$
|
1.21
|
|
|
1,170,121
|
|
$
|
1.36
|
|
The
weighted-average fair value of options granted during the year was $0.74 and
$0.86 at December 31, 2006 and 2005, respectively.
The
Company has recorded $1,036,187 related to its employee share-based expenses
in
selling, general and administrative expenses and $3,958 employee share-based
research and development expenses on the accompanying Statements of Operations
for the year ended December 31, 2006. The Company has also recorded $83,523
non-employee share-based expenses related to stock options issued to
consultants. No compensation costs were capitalized as part of the cost of
an
asset.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
The
aggregate intrinsic value for options outstanding and exercisable at December
31, 2006 was $0.00.
The
weighted average remaining contractural term for exercisable and non-exercisable
stock options was 7 years and 8 years respectively as of December 31,
2006.
As
of
December 31, 2006, there was $3,296,453 of total unrecognized compensation
cost
related to nonvested share-based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a weighted average period
of 3
years.
The
following table summarizes the information about stock options outstanding
at
December 31, 2006:
Range
of Exercise Prices
|
|
Outstanding
Options
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Life In Years
|
|
$.01-$0.99
|
|
|
3,889,056
|
|
$
|
0.83
|
|
|
9
|
|
$1.00
- $1.99
|
|
|
2,185,251
|
|
$
|
1.35
|
|
|
7
|
|
$2.00-$2.99
|
|
|
10,000
|
|
$
|
2.17
|
|
|
7
|
|
$3.00-$3.99
|
|
|
875
|
|
$
|
3.20
|
|
|
6
|
|
$4.00-$12.00
|
|
|
2,250
|
|
$
|
7.29
|
|
|
3
|
|
Total
|
|
|
6,087,432
|
|
|
|
|
|
|
|
For
the
purpose of valuing options granted to employees, directors and consultants,
the
Company has valued the options using the Black-Scholes option pricing model
with
the following assumptions used in 2006 and 2005:
|
|
December
31,
2006
|
|
December
31,
2005
|
|
Risk-free
interest rate
|
|
|
4
|
%
|
|
3%-5
|
%
|
Volatility
|
|
|
210%-225
|
%
|
|
108%-175
|
%
|
Lives
in years
|
|
|
7
|
|
|
10
|
|
Dividend
yield
|
|
|
0
|
%
|
|
0
|
%
|
To
determine the risk-free interest rate, the Company utilized the U.S. Treasury
yield curve in effect at the time of grant with a term consistent with the
expected term of the Company’s awards. To determine the stock price volatility,
the Company believes that the volatility calculated over the period since
becoming publicly traded over three years ago, is indicative of what the
volatility would have been had the Company’s stock traded for seven years, the
expected term of its options. In addition, had the Company supplemented the
volatility of its common stock over the past three years with a calculated
volatility from a peer public company or industry sector index, the Company
believes the results would not have produced a more meaningful expectation
of
future volatility. The Company estimated the expected life of the options
granted based on anticipated exercises in future periods. The expected dividends
reflect the Company’s current and expected future policy for dividends on its
common stock. There were no stock options exercised during the years ended
December 31, 2006 and 2005.
As
of
December 31, 2006, an aggregate of 412,568 shares remained available for future
grants and awards under the Company’s stock incentive plan, which covers stock
options and restricted awards. The Company issues unissued shares to satisfy
stock options exercises and restricted stock awards.
The
following table summarizes information related to warrants outstanding at
December 31, 2006:
Remaining
Contractural Life In Years
|
|
Price
|
|
Number
of Outstanding Warrants
|
|
4.75
|
|
$
|
0.73
|
|
|
2,762,060
|
(A)
|
4.75
|
|
$
|
0.55
|
|
|
394,580
|
(B)
|
3.75
|
|
$
|
1.00
|
|
|
5,589,987
|
(C)
|
3.75
|
|
$
|
1.41
|
|
|
4,000,000
|
(D)
|
2.10
|
|
$
|
1.65
|
|
|
2,896,132
|
(E)
|
|
|
|
|
|
|
15,642,759
|
|
(A) |
-
Warrants issued as a result of the Company’s private placement of its
common stock in October 2006 to investors. All warrants are exercisable
as
of December 31, 2006.
|
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
(B) |
-
Warrants issued as a result of the Company’s private placement of its
common stock in October 2006 to placement agents. All warrants are
exercisable as of December 31,
2006.
|
(C) |
-
Warrants issued as a result of the Company’s private placement of its
common stock in October 2005 to investors and placement agents. All
warrants are exercisable as of December 31,
2006.
|
(D) |
-
Warrants issued as a result of the merger with Greenwich. In connection
with the escrow agreement (see Note 4), one-half of the warrants
are
exercisable upon the achievement of certain clinical milestones.
Half of
the warrants are exercisable as of December 31,
2006.
|
(E) |
-
Warrants issued as a result of the Company’s private placement of its
common stock in February 2004 to investors and placement agents.
All
warrants are exercisable as of December 31,
2006.
|
NOTE
8
COMMITMENTS
AND CONTINGENCIES
(A)
EMPLOYMENT AGREEMENT WITH CEO
The
Company entered into a written employment agreement dated as of February 1,
2005
with Daniel Greenleaf upon his appointment as the Company’s President and Chief
Executive Officer. The agreement provides for a 3-year term and an initial
annual base salary of $360,000, plus a guaranteed annual bonus of $100,000
during each year of the term of the agreement. In addition, Mr. Greenleaf is
entitled to a signing bonus in the amount of $50,000, of which one-half was
paid
following the execution of the employment agreement and the remaining one-half
was paid on the 6-month anniversary of the agreement. Mr. Greenleaf is further
entitled to a discretionary bonus under the employment agreement of up to
$250,000 per year upon the attainment of certain performance criteria specified
in the employment agreement, and such other benefits generally made available
to
the Company’s other senior management.
In
accordance with the terms of the employment agreement, the Company issued to
Mr.
Greenleaf an option to purchase 891,396 shares of the Company’s common stock,
which represented 5% of the Company’s then-current outstanding common stock. The
option vests in three equal annual installments, commencing February 2006.
In
addition, until the Company has raised $20 million through the sale of equity
securities and has obtained the rights to one clinical stage human therapeutic,
Mr. Greenleaf shall be entitled to receive such additional options to purchase
common stock in order to maintain his beneficial ownership (assuming the
exercise of all stock options issued to Mr. Greenleaf) at 5% of the Company’s
outstanding common stock. To the extent any additional stock options are issued
pursuant to the foregoing sentence, the options will vest in installments over
the term of the employment agreement as long as Mr. Greenleaf remains employed
by the Company and will be exercisable at the market value of the Company’s
common stock at the time of issuance. In accordance with this provision, upon
the closing of the Company’s October 2005 private placement, the Company issued
to Mr. Greenleaf an additional option to purchase 1,445,080 shares of common
stock at an exercise price of $0.89 per share, and upon the closing of the
Company’s October 2006 private placement, the Company issued to Mr. Greenleaf an
additional option to purchase 394,580 shares of common stock at an exercise
price of $0.56 per share, one-half of which vested February 1, 2007 and the
remainder will vest on February 1, 2008. In the event Mr. Greenleaf’s employment
is terminated by the Company during its term upon a “change of control” (as
defined in the employment agreement) and on the date of such termination the
Company’s aggregate market capitalization is less than $38 million, he is
entitled to receive his base salary for six months thereafter and all of his
stock options scheduled to vest in the calendar year of such termination shall
accelerate and be deemed vested upon termination and will remain exercisable
for
12 months following such termination.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
In
the
event the Company terminates Mr. Greenleaf’s employment during the term of the
agreement other than as a result of death, disability, cause or in connection
with a change of control where the Company’s aggregate market capitalization is
less than $38 million, then (i) Mr. Greenleaf is entitled to receive his base
salary for 12 months from such termination, his guaranteed bonus for the
calendar year in which such termination occurs, and the portion of any
discretionary bonus earned as of the termination, and (ii) the vesting of his
stock options shall accelerate and be deemed vested and will remain exercisable
for 12 months following such termination.
(B)
LEASE AGREEMENTS
The
Company leases office space for its corporate headquarters in Basking Ridge,
New
Jersey. Effective November 2006, the Company amended its original June 2005,
lease agreement. The lease requires monthly payments of approximately $8,000
and
expires in January 2012.
The
Company leases laboratory and office space for its discontinued Chiral Quest
operation located in Monmouth Junction, New Jersey. In January 2006, the Company
amended its original lease agreement to extend its lease term to May 31, 2009.
Effective June 1, 2006, the Company’s base rent for the remainder of the term is
$19,439 per month. Upon six months prior written notice to the landlord, the
Company will have a one time option, without penalty, to terminate this lease
effective as of May 31, 2008. The lease requires monthly payments of
approximately $28,000 which includes rent, utilities and maintenance fees,
and
expires in May 31, 2009.
The
Company’s leases laboratory and office space for its discontinued Chiral Quest
operation with
the
Science and Technology Bureau of Jiashan County (“Jiashan”) in Zhejiang Province
of the People’s Republic of China. .
The
Company has entered into an agreement effective December 15, 2004 at an
industrial park near Shanghai, 50% of which the Company began occupying in
2005.
Pursuant to the Company’s agreement with Jiashan, although the Company is not
required to pay rent during the initial 3-years of the lease, the Company will
pay a maintenance fee of up to $4,500 per quarter, which is comprised of
maintenance and management fees. Following the initial 3-year term, the Company
may, at our sole discretion, either continue leasing the space for annual rent
of no more than $60,000 or purchase the facility on commercially reasonable
terms. The Company has no financial obligation pursuant to the lease agreement
after the end of the three year term. The Company was also granted the option
to
purchase in the next three years certain land adjacent to the industrial park.
For purposes of entering into the lease, the Company established a wholly owned
subsidiary organized under the laws of Hong Kong, known as Chiral Quest Ltd.,
which in turn is the sole shareholder of a subsidiary in the People’s Republic
of China, Chiral Quest (Jiashan) Ltd.
Future
minimum rental payments subsequent to December 31, 2006 for operations are
as
follows:
Years
ended December
31,
|
|
Continuing
Operations
|
|
Discontinued
Operations
|
|
Total
|
|
2007
|
|
$
|
97,000
|
|
|
331,000
|
|
|
428,000
|
|
2008
|
|
|
97,000
|
|
|
331,000
|
|
|
428,000
|
|
2009
|
|
|
97,000
|
|
|
137,000
|
|
|
234,000
|
|
2010
|
|
|
101,000
|
|
|
|
|
|
101,000
|
|
2011
|
|
|
102,000
|
|
|
|
|
|
102,000
|
|
Total
|
|
$
|
494,000
|
|
|
799,000
|
|
|
1,293,000
|
|
Total
rent expense for the continuing operations of the Company, which includes base
rent, and utilities, for Basking Ridge, New Jersey for the years ended December
31, 2006 and 2005 was approximately $50,000 and $18,000, respectively.
NOTE
9
INTELLECTUAL
PROPERTY AND LICENSE AGREEMENTS
License
with The Cleveland Clinic Foundation (“CCF”). We
have
an exclusive, worldwide license agreement with CCF for the rights to develop,
manufacture, use, commercialize, lease, sell and/or sublicense VQD-001. We
are
obligated to make an annual license maintenance payment until the first
commercial sale of VQD-001, at which time we are no longer obligated to pay
this
maintenance fee. In addition, the license agreement requires us to make payments
in an aggregate amount of up to $4.5 million to CCF upon the achievement of
certain clinical and regulatory milestones. Should VQD-001 become
commercialized, we will be obligated to pay CCF an annual royalty based on
net
sales of the product. In the event that we sublicense VQD-001 to a third party,
we will be obligated to pay CCF a portion of fees and royalties received from
the sublicense. We hold the exclusive right to negotiate for a license on any
improvements to VQD-001 and have the obligation to use all commercially
reasonable efforts to bring VQD-001 to market.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
We
have
agreed to prosecute and maintain the patents associated with VQD-001 or provide
notice to CCF so that it may so elect. The license agreement may be terminated
by CCF, upon notice with an opportunity for cure, for our failure to make
required payments or its material breach, or by us, upon thirty day’s written
notice.
License
with the University of South Florida Research Foundation,
Inc.(“USF”)
We have
an exclusive, worldwide license agreement with USF for the rights to develop,
manufacture, use, commercialize, lease, sell and/or sublicense VQD-002. Under
the terms of the license agreement, we have agreed to sponsor research involving
VQD-002 annually for the term of the license agreement. In addition, the
license agreement requires us to make payments in an aggregate amount of up
to
$5.8 million to USF upon the achievement of certain clinical and regulatory
milestones. Should a product incorporating VQD-002 be commercialized, we are
obligated to pay to USF an annual royalty based on net sales of the product.
In
the event that we sublicense VQD-002 to a third party, we are obligated to
pay
USF a portion of fees and royalties received from the sublicense. We hold a
right of first refusal to obtain an exclusive license on any improvements to
VQD-002 and have the obligation to use all commercially reasonable efforts
to
bring VQD-002 to market. We have agreed to prosecute and maintain the patents
associated with VQD-002 or provide notice to USF so that it may so elect. The
license agreement shall automatically terminate upon Greenwich’s bankruptcy or
upon the date of the last to expire claim contained in the patents subject
to
the license agreement. The license agreement may be terminated by USF, upon
notice with an opportunity for cure, for our failure to make required payments
or its material breach, or by us, upon six month’s written notice.
NOTE
10
RETIREMENT
PLAN
The
Company sponsors a defined contribution 401(k) plan which allows eligible
employees to defer a portion of their salaries for retirement planning and
income tax purposes by making contributions to the plan. There were no Company
contributions to the plan for the years ended December 31, 2006 and 2005.
NOTE
11
CERTAIN
TRANSACTIONS
On
October 18, 2005, the Company completed the sales of 11,179,975 of its common
stock at a price of $0.75 per share resulting in gross proceeds of approximately
$8.38 million. In addition to the shares of common stock, the investors also
received 5-year warrants to purchase an aggregate of 4,471,975 shares at an
exercise price of $1.00 per share. In connection with the private placement,
we
paid an aggregate of approximately $587,000 in commissions to Paramount.
Paramount served as the placement agent in connection with the offering,
together with an accountable expense allowance of $50,000, and we issued 5-year
warrants to purchase an aggregate of 1,117,997 shares of common stock at a
price
of $1.00 per share. Net proceeds to us after deducting placement agent fees
and
other expenses relating to the private placement were approximately $7.5
million.
On
October 18, 2005, the Company completed a merger with Greenwich (See Note 4).
In
exchange for Greenwich stockholders’ shares of Greenwich common stock, the
stockholders of Greenwich received an aggregate of 17,128,790 shares of the
Company’s common stock and five-year warrants to purchase an additional
4,000,000 shares of the Company’s common stock at an exercise price of $1.41 per
share. One-half of the securities issued pursuant to the merger agreement were
placed in escrow pursuant to an escrow agreement (see Note 4). Additionally,
as contemplated by the merger Agreement with Greenwich (see Note 4), on October
18, 2005, the Company assumed outstanding indebtedness of Greenwich of $823,869,
all of which was owed to Paramount BioSciences, LLC. (“PBS”), an affiliate of
Paramount, pursuant to a promissory note dated October 17, 2005 (the “Note”).
At
the
closing of the merger, the Note was amended to provide that one-third would
be
converted into securities of the Company on the same terms as the Company’s
October 2005 private placement, one-third of the outstanding indebtedness under
the Note would be repaid upon the completion by the Company of a financing
resulting in gross proceeds of at least $5 million, and the final one-third
would be payable upon completion by the Company of one or more financings
resulting in aggregate gross proceeds of at least $10 million (inclusive of
the
amounts raised in a previous $5 million financing ).
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
Accordingly,
on October 18, 2005, upon completion of the private placement, the Company
satisfied one-third of the total indebtedness outstanding under the Note by
making a cash payment of $264,623 and another one-third by issuing to PBS
392,830 shares valued at $0.75 the offering price of October 2005 private
placement, the equivalent of $294,623 of the Company’s common stock. The final
one-third of the Note of $264,623, in addition to accrued interest of
approximately $16,000 as of December 31, 2006, which was originally due to
be
paid in October 2006, however, remains outstanding and payable to PBS as of
December 31, 2006. The Company plans to satisfy the final portion of debt and
accrued interest by the end of the first half of 2007. Dr. Lindsay A. Rosenwald
and certain trusts established for the benefit of Dr. Rosenwald and his family
collectively held approximately 48% of Greenwich’s capital stock prior to the
Company’s acquisition of Greenwich. Together, Dr. Rosenwald and such trusts also
owned approximately 16% of the Company’s common stock prior to the completion of
the Merger. In addition to Dr. Rosenwald’s relationship with Greenwich, two
directors of the Company, Stephen C. Rocamboli and Michael Weiser, M.D., Ph.D.,
owned approximately 3.6% and 7% respectively, of Greenwich’s outstanding common
stock. Mr. Rocamboli is currently employed by Paramount and, until December
2006, Dr. Weiser was employed by Paramount of which Dr. Rosenwald is the
chairman and sole stockholder, and is also a substantial stockholder of the
Company.
In August
2006, the Company entered into a consulting agreement for a period of three
months at $30,000 per month, with Paramount Corporate Development, an affiliate
of Paramount, to provide a strategic and technical assessment for all of the
Company’s clinical development programs.
On
October 18, 2006, the Company completed the sales of 7,891,600 shares of its
common stock at a price of $0.50 per share resulting in gross proceeds of
approximately $3.95 million. In connection with the private placement, the
Company engaged Paramount as its exclusive placement agent, and Paramount in
turn engaged various broker-dealers as sub-agents to assist with the offering.
In consideration for their services, we paid an aggregate of approximately
$276,000 in commissions to the placement agents (including sub-agents) in
connection with the offering, of which $56,000 was paid to Paramount, plus
an
additional $30,000 as reimbursement for expenses.
In
addition to the shares of common stock, we also issued to the investors 5-year
warrants to purchase an aggregate of 2,762,060 shares at an exercise price
of
$0.73 per share. The Company also issued to the placement agents 5-year warrants
to purchase an aggregate of 394,580 shares of common stock at a price of $0.55
per share. Net
proceeds to the Company after deducting placement agent fees and other expenses
relating to the private placement, were approximately $3.65 million.
Based
upon the Black- Scholes option pricing valuation model, the investor warrants
are estimated to be valued at approximately $1,363,000, which is derived from
their exercise price of $0.73 per share, a fair market value of $0.50 per share
as of October 18, 2006, a 5 year term, with a 4.73% risk free interest rate.
However, the Company was not required to record that value for accounting
purposes.
NOTE
12
SUBSEQUENT
EVENTS
On
February 1, 2007, the Company appointed Edward C. Bradley, M.D., as its Chief
Scientific and Medical Officer. Dr. Bradley’s employment with the Company is
governed by the terms of a letter agreement dated January 31, 2007, and provides
for an initial base salary of $330,000 plus an annual target bonus of up to
20%
of his base salary based upon personal performance and an additional amount
of
up to 10% of his base salary based upon Company performance. Pursuant to the
letter agreement, Dr. Bradley also received an option to purchase 700,000 shares
of the Company’s common stock. The option will vest in three equal annual
installments, commencing in February 2008 and will be exercisable at a price
per
share equal to $0.55. The option was issued pursuant to the Company’s 2003 Stock
Option Plan and will be exercisable by Dr. Bradley as long as he remains
employed by the Company; provided, however, if the Company completes a
transaction in which it sells its assets or stock resulting in a change of
control of the Company (other than a sale of the stock or assets of the
Company’s Chiral Quest subsidiary) during Dr. Bradley’s employment, the vesting
of the stock option shall accelerate and be deemed vested. In the event that
the
Company terminates Dr. Bradley’s employment without cause, Dr. Bradley is
entitled to receive his then annualized base salary for a period of six months.
If Dr. Bradley’s employment is terminated without cause and within a year of a
change of control, as described above, then Dr. Bradley is entitled to receive
his then annualized base salary for a period of one year, and he is entitled
to
receive any bonuses he has earned at the time of his termination.
47,798,626
Shares
Common
Stock
VioQuest
Pharmaceuticals, Inc.
PROSPECTUS
April
13, 2007