SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-QSB
|X|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended March 31, 2006
OR
|_|
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
transition period from _______ to _______
Commission
File Number 0-16686
VIOQUEST
PHARMACEUTICALS, INC.
(Exact
name of issuer as specified in its charter)
Delaware
|
58-1486040
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
180
Mount Airy Road, Suite 203, Basking Ridge, New Jersey
|
07059
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(908)
766-4400
(Issuer’s
telephone number)
(former
name, former address and former fiscal year, if changed from last
report)
Check
whether the issuer (1) has filed all reports required to be filed by Section
13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been
subject to such filing requirements for the past 90 days. Yes |X|
No
|_|
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). Yes o
No
x
As
of May
10, 2006 there were 46,729,519 shares of the issuer’s common stock, $0.001 par
value, outstanding.
Traditional
Small Business Disclosure Format (check one): Yes
|_|
No
|X|
Index
|
|
Page
|
PART
I
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Unaudited
Condensed Consolidated Financial Statements
|
1
|
Item
2.
|
Management’s
Discussion and Analysis or
Plan of Operations
|
11
|
Item
3.
|
Controls
and Procedures
|
15
|
PART
II
|
OTHER
INFORMATION
|
|
Item
5.
|
Other
Information
|
16
|
Item
6.
|
Exhibits
|
16
|
|
Signatures
|
17
|
|
Exhibit
Index
|
18
|
Forward-Looking
Statements
This Quarterly Report on Form 10-QSB contains statements that are not
historical, but are forward-looking in nature, including statements regarding
the expectations, beliefs, intentions or strategies regarding the future.
In
particular, the “Management’s Discussion and Analysis or Plan of Operations”
section in Part I, Item 2 of this quarterly report 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. A number of important factors could, individually or in the
aggregate, cause actual results to differ materially from those expressed
or
implied in any forward-looking statements. Such factors include, but are
not
limited to, the continued availability of our chief technology officer, our
ability to obtain additional financing, our ability to develop and maintain
customer relationships, regulatory developments relating to and the general
success of our and our customers’ products, and our ability to protect our
proprietary technology. Other risks are described under the section entitled
“Risk Factors” following Item 1 in Part I of our Annual Report on Form 10-KSB
for the year ended December 31, 2005.
PART
I - FINANCIAL INFORMATION
Item
1. Unaudited Condensed Consolidated Financial Statements
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF MARCH 31, 2006 (UNAUDITED) AND DECEMBER 31, 2005
|
|
March
31, 2006
|
|
December
31, 2005
|
|
|
|
(Unaudited)
|
|
(Note
1A)
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,281,205
|
|
$
|
6,021,399
|
|
Accounts
receivable
|
|
|
553,879
|
|
|
227,695
|
|
Inventory
|
|
|
652,886
|
|
|
625,158
|
|
Other
current assets
|
|
|
120,606
|
|
|
49,184
|
|
Total Current Assets
|
|
|
4,608,576
|
|
|
6,923,436
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
699,066
|
|
|
757,151
|
|
SECURITY
DEPOSITS
|
|
|
69,976
|
|
|
69,819
|
|
INTELLECTUAL
PROPERTY RIGHTS, NET
|
|
|
623,215
|
|
|
628,897
|
|
OTHER
ASSETS
|
|
|
37,075
|
|
|
-
|
|
TOTAL
ASSETS
|
|
$
|
6,037,908
|
|
$
|
8,379,303
|
|
LIABILITIES
AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
698,823
|
|
$
|
1,135,681
|
|
Accrued
compensation
|
|
|
157,020
|
|
|
480,000
|
|
Accrued
expenses
|
|
|
108,420
|
|
|
119,990
|
|
Note
payable - Paramount BioCapital
|
|
|
264,623
|
|
|
264,623
|
|
Deferred
revenue
|
|
|
51,000
|
|
|
40,000
|
|
TOTAL
LIABILITIES
|
|
|
1,279,886
|
|
|
2,040,294
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Preferred
stock; $0.001 par value: 10,000,000 shares authorized, 0 shares
issued and
outstanding at March 31, 2006 and December 31, 2005
|
|
|
-
|
|
|
-
|
|
Common
stock; $0.001 par value: 100,000,000 shares authorized at March
31, 2006
and December 31, 2005, 46,729,519 shares issued and outstanding
at March
31, 2006 and December 31, 2005
|
|
|
46,729
|
|
|
46,729
|
|
Additional
paid-in capital
|
|
|
26,842,432
|
|
|
26,561,672
|
|
Accumulated
deficit
|
|
|
(22,131,139
|
)
|
|
(20,269,392
|
)
|
Total Stockholders' Equity
|
|
|
4,758,022
|
|
|
6,339,009
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
6,037,908
|
|
$
|
8,379,303
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
|
|
For
the Three Months Ended March 31, 2006
|
|
For
the Three Months Ended March 31, 2005
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
598,876
|
|
$
|
597,768
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD (Excluding Depreciation and
Amortization)
|
|
|
318,149
|
|
|
396,760
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
280,727
|
|
|
201,008
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
Management
and consulting fees
|
|
|
52,088
|
|
|
117,348
|
|
Research
and development
|
|
|
595,037
|
|
|
524,013
|
|
Selling,
general and administrative
|
|
|
1,464,333
|
|
|
810,892
|
|
Depreciation
and amortization
|
|
|
78,184
|
|
|
53,664
|
|
Total
Operating Expenses
|
|
|
2,189,642
|
|
|
1,505,917
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(1,908,915
|
)
|
|
(1,304,909
|
)
|
|
|
|
|
|
|
|
|
INTEREST
INCOME, NET
|
|
|
47,168
|
|
|
6,486
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(1,861,747
|
)
|
$
|
(1,298,423
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE - BASIC AND DILUTED
|
|
$
|
(.05
|
)
|
$
|
(.07
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
|
|
|
38,165,124
|
|
|
17,827,924
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR
THE THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
|
46,729,519
|
|
$
|
46,729
|
|
$
|
26,561,672
|
|
$
|
(20,269,392
|
)
|
$
|
6,339,009
|
|
Impact
of employee and director stock-based compensation
|
|
|
|
|
|
|
|
|
264,538
|
|
|
|
|
|
264,538
|
|
Impact
of stock-based compensation to consultants
|
|
|
—
|
|
|
—
|
|
|
16,222
|
|
|
—
|
|
|
16,222
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,861,747
|
)
|
|
(1,861,747
|
)
|
Balance,
March 31, 2006
|
|
|
46,729,519
|
|
$
|
46,729
|
|
$
|
26,842,432
|
|
$
|
(22,131,139
|
)
|
$
|
4,758,022
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
|
|
For
the Three
Months
Ended
March
31, 2006
|
|
For
the Three
Months
Ended
March
31, 2005
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,861,747
|
)
|
$
|
(1,298,423
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
78,184
|
|
|
53,664
|
|
Impact
of employee and director stock-based compensation
|
|
|
264,538
|
|
|
-
|
|
Impact of consultant stock-based compensation
|
|
|
16,222
|
|
|
72,848
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(326,184
|
)
|
|
(180,801
|
)
|
Inventory
|
|
|
(27,728
|
)
|
|
(71,684
|
)
|
Prepaid expenses and other assets
|
|
|
(108,497
|
)
|
|
14,134
|
|
Security deposits
|
|
|
(157
|
)
|
|
(20,463
|
)
|
Accounts payable
|
|
|
(436,858
|
)
|
|
245,471
|
|
Accrued
expenses
|
|
|
(334,550
|
)
|
|
(153,592
|
)
|
Deferred revenue
|
|
|
11,000
|
|
|
11,267
|
|
Net Cash Used In Operating Activities
|
|
|
(2,725,777
|
)
|
|
(1,327,579
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
for purchased equipment
|
|
|
(8,274
|
)
|
|
(253,888
|
)
|
Payments
for intellectual property rights
|
|
|
(6,143
|
)
|
|
-
|
|
Net Cash Used In Investing Activities
|
|
|
(14,417
|
)
|
|
(253,888
|
)
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(2,740,194
|
)
|
|
(1,581,467
|
)
|
CASH
AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
|
|
6,021,399
|
|
|
3,065,547
|
|
CASH
AND CASH EQUIVALENTS - END OF PERIOD
|
|
$
|
3,281,205
|
|
$
|
1,484,080
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006 (UNAUDITED)
NOTE
1
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND LIQUIDITY
(A)
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly,
the
financial statements do not include all information and footnotes required
by
accounting principles generally accepted in the United States of America
for
complete annual financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect
all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation. Interim operating results are not necessarily
indicative of results that may be expected for the year ending December 31,
2006
or for any subsequent period. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements included in the Annual Report on Form 10-KSB of VioQuest
Pharmaceuticals, Inc. as of and for the year ended December 31, 2005. The
accompanying condensed consolidated balance sheet as of December 31, 2005
has
been derived from the audited balance sheet as of that date included in the
Form
10-KSB. As used herein, the terms the “Company” or “VioQuest” refer to VioQuest
Pharmaceuticals, Inc. (formerly Chiral Quest, Inc.) together with its
subsidiaries.
(B)
Nature of Operations
Since
its
inception in October 2000, VioQuest has provided innovative chiral products
and
services to pharmaceutical and fine chemical companies in all stages of their
products’ lifecycles. Since August 2004, the Company has provided such products
and services through its wholly-owned subsidiary, Chiral Quest, Inc. (“Chiral
Quest”). Chiral Quest develops chemical catalysts used in the synthesis of
desired isomers of chiral molecules using asymmetrical catalysis technology
(the “Technology”) owned by the Pennsylvania State University Research
Foundation (“PSRF”), the technology arm of The Pennsylvania State University
(“PSU”). Chiral Quest has a worldwide, exclusive license from PSRF for the
inventions covered by the license. The original license agreement was entered
into on November 8, 2000.
In
August
2004, the Company expanded its business plan to also 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
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, also called
“SSG”, and, VQD-002, Triciribine-Phosphate, or “TCN-P”. 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 Therapeutics, the Company holds exclusive rights
to
develop, manufacture, use, commercialize, lease, sell and/or sublicense VQD-001
and VQD-002.
From
the
Company’s inception through March 31, 2006, it has generated sales but not any
net profits. With respect to the Company’s Chiral Quest operations, management
believes that the Company’s sales, marketing, manufacturing capacities will need
to grow in order for the Company to be able to obtain significant licensing
and
manufacturing agreements with large fine chemical and pharmaceutical companies.
Management believes that the Company’s manufacturing capacity will continue to
be enhanced with its expanded office and laboratory space located in Monmouth
Junction, New Jersey that was leased in May 2003, in addition to the laboratory
space leased in December 2004, located in Jiashan, China.
(C)
Liquidity
Since
inception, the Company has incurred an accumulated deficit of $22,131,139
through March 31, 2006. For the quarter ended March 31, 2006 the Company
had a
net loss of $1,861,747 and used $2,725,777 of cash in operating activities.
Management expects the Company’s losses to increase over the next several years,
primarily due to the expansion of its drug development business, costs
associated with clinical trial programs, resources allocated to our Chiral
Quest
subsidiary for the hiring of business development sales people, the hiring
of
additional chemists, marketing and advertising, and the expansion of its
manufacturing capabilities. There can be no assurance that the Company will
ever
be able to operate profitably. These matters raise substantial doubt about
the
ability of the Company to continue as a going concern.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006 (UNAUDITED)
The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
incurred negative cash flow from 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.
As
of
March 31, 2006, we had working capital of $3,328,690 and cash and cash
equivalents of $3,281,205. Management anticipates that the Company’s capital
resources will be adequate to fund its operations through the third quarter
of
2006, assuming the Company achieves expected increases in revenue. If the
Company is unable to increase revenues as expected, however, additional
financing will be required during 2006 in order to fund operations. The most
likely source of financing includes the private sale of our 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, including, without limitation, the progress of our drug development
and
clinical programs, associated costs relating to milestone payments, license
fees
and manufacturing costs, regulatory approvals, in addition to the resources
we
devote to our Chiral Quest subsidiary’s sales and marketing capabilities,
manufacturing expansions, progress of our research and development (“R&D”)
programs’ technological advances, the status of competitors, and our ability to
establish sales arrangements with new customers. Working capital will also
be
affected by the China facility expansion of office and laboratory space lease
agreements that were entered into during 2004, along with the hiring of
additional employees. Our management believes that by opening the facility
in
China, we will be able to significantly decrease our manufacturing costs
and
expenses, which will enable us to cost-effectively produce our ligands,
catalysts, contract synthesis development projects, and other end user products
more competitively and even more attractively to current and potential
customers.
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.
Our
ability to achieve profitability depends upon, among other things, our ability
to discover and develop products (specifically new “ligands”), and to sell our
products on a commercial scale through a cost effective and efficient process.
To the extent that we are unable to produce, directly or indirectly, ligands
in
quantities required for commercial use, we will not realize any significant
revenues from our technology. Moreover, there can be no assurance that we
will
ever achieve significant revenues or profitable operations from the sale
of any
of our products or technologies.
(D)
Stock-Based Compensation
In
December 2004, the Financial Accounting Standards Board issued the Statement
of
Financial Accounting Standards No. 123(R) (“FAS 123R”), “Share-Based Payment”,
revising the Statement of Financial Accounting Standards No. 123 (“FAS 123”)
requiring that the fair value of all share-based payments to employees be
recognized in the financial statements over the service period. We adopted
FAS
123(R) effective January 1, 2006, using the modified-prospective transition
method. Under this method, we are required to recognize compensation expense
for
the fair value of all awards granted after the date of adoption and for the
unvested portion of previously granted options that remain outstanding as
of the
adoption date.
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 FAS
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 are valued 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.
The
Company has a stock incentive plan (the “Plan”) under which incentive 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
shares 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 issued 1,068,000 shares of its $0.001 par value common stock during
the
first quarter of 2006. With the exception of 75,000 stock options granted
to a
non-employee director which vested immediately in the first quarter of 2006,
all
other options granted to employees and non-employee directors during the
three
months ended March 31, 2006 vest as to 33% of the shares on the first, second
and third anniversary of the vesting commencement date.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006 (UNAUDITED)
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.
We
recorded compensation expense in the three months ended March 31, 2006 for
employee and director stock options of $264,538.
Prior
to
adopting FAS 123R, we applied the intrinsic value-based method of accounting
prescribed in APB Opinion No. 25, “Accounting for Stock Issued to Employees,”
(“APB 25”) and, accordingly, did not recognize compensation expense for stock
option grants to employees and directors made at an exercise price equal
to or
in excess of the fair market value of the stock at the date of grant.
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 three months ended March 31, 2005 based on the fair
value
method under FAS 123 instead of the intrinsic value under APB 25:
|
|
Three
Months Ended
March
31, 2005
|
|
Net
loss, as reported
|
|
$
|
(1,298,423
|
)
|
Deduct:
Stock-based employee compensation expense determined under
fair value
based method for all awards, net of taxes
|
|
|
(114,508
|
)
|
Pro
forma, net loss
|
|
$
|
(1,412,931
|
)
|
|
|
|
|
|
Basic
and diluted net loss per share, as reported
|
|
$
|
(0.07
|
)
|
Basic
and diluted net loss per share, pro forma
|
|
$
|
(0.08
|
)
|
We
used
the Black-Scholes option pricing model to calculate the fair value of options
under FAS 123R and APB 25. The key assumptions for this valuation method
include
the expected term of the option, stock price volatility, risk-free interest
rate, dividend yield, exercise price, and forfeiture rate. Many of these
assumptions are judgmental and highly sensitive in the determination of
compensation expense. Under the assumptions indicated below, the weighted
average fair values of the stock options issued at the dates of grant in
the
periods ended March 31, 2006 and 2005 were $0.80 and $1.24, respectively.
The
table below indicates the key assumptions used in the valuation calculations
for
options granted in the three months ended March 31, 2006 and 2005:
|
|
Three
Months Ended
March
31,
|
|
|
|
2006
|
|
2005
|
|
Term
|
|
|
7
years
|
|
|
10
years
|
|
Volatility
|
|
|
210.14%-213.95
|
%
|
|
108.01%-114.21
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
Risk-free
interest rate
|
|
|
4.37%-4.83
|
%
|
|
4.07%-4.36
|
%
|
Forfeiture
rate
|
|
|
22
|
%
|
|
0
|
%
|
The
following table summarizes information about our stock incentive plans for
the
three months ended March 31, 2006.
|
|
Number
of Options
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Life
|
|
Aggregate
Intrinsic Value
|
|
Balance,
January 1, 2006
|
|
|
4,975,852
|
|
$
|
1.10
|
|
|
|
|
|
|
|
Options
granted
|
|
|
1,068,000
|
|
$
|
0.82
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Options
outstanding, March 31, 2006
|
|
|
6,043,852
|
|
$
|
1.05
|
|
|
7.8
|
|
$
|
674,910
|
|
Options
exercisable, March 31, 2006
|
|
|
1,772,433
|
|
$
|
2.18
|
|
|
6.4
|
|
$
|
572,961
|
|
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006 (UNAUDITED)
As
of
March 31, 2006, there was $3,764,667 of total unrecognized compensation cost
related to stock options. These costs are expected to be recognized over
a
period of approximately 3 years.
There
were no options exercised during the period ended March 31, 2006.
As
of
March 31, 2006, an aggregate of 456,148 shares remained available for future
grants and awards under our stock incentive plans, which cover stock options
and
restricted stock awards. We issue unissued shares to satisfy stock option
exercises and restricted stock awards.
(E)
Loss Per Share
Basic
net
loss per share is calculated by dividing net loss by the weighted-average
number
of common shares outstanding for each period presented. Diluted net loss
per
share is the same as basic net loss per share, since potentially dilutive
shares
from the assumed exercise of stock options and stock warrants would have
had an
antidilutive effect because the Company incurred a net loss during each period
presented. The number of potentially dilutive shares excluded from the
calculation was 27,094,367 at March 31, 2006 and 6,300,405 at March 31, 2005.
NOTE
2
INVENTORY
The
principal components of inventory are as follows:
|
|
March
31, 2006
(Unaudited)
|
|
December
31,
2005
|
|
Raw
material compounds
|
|
$
|
424,738
|
|
$
|
410,912
|
|
Work
in process
|
|
|
24,623
|
|
|
11,868
|
|
Finished
goods
|
|
|
203,525
|
|
|
202,378
|
|
Total
Inventory
|
|
$
|
652,886
|
|
$
|
625,158
|
|
NOTE
3 COMMITMENTS
In
January 2006, the Company amended its lease agreement to extend its lease
term
to May 31, 2009 for its laboratory and office space located in Monmouth
Junction, New Jersey. 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.
As of March 31, 2006, the Company’s total remaining lease commitment was
approximately $1,045,000 for rent, utilities and maintenance fees. Due to
the
escalation clause in the lease, the Company is straight-lining the expense
of
the lease over the term of the lease. The Company also issued the landlord
options to purchase 20,000 shares of common stock. The fair value of the
options
issued to the landlord of $9,845 is being amortized on a straight-line basis
over the term of the option agreement and included in rent expense.
On
February 14, 2006, the Company entered into an employment agreement with
Pamela
Harris, M.D., F.A.C.P., our newly-appointed Chief Medical Officer. The agreement
is for an indefinite term beginning on March 15, 2006 and provides for an
initial base salary of $250,000, plus an annual target bonus of up to 20%
of
base salary based upon personal performance and an additional amount of up
to
10% of base salary based upon Company performance. The agreement provides
that
for fiscal year 2006, Dr. Harris will be guaranteed at least 50% of the target
bonus. The employment agreement also provides that Dr. Harris is entitled
to
receive options to purchase 200,000 shares of our common stock. The options
will
vest in three equal annual installments, commencing in March 15, 2007 and
will
be exercisable at $0.84 a price per share with an approximate fair value
of
$159,000 being amortized over three years. In addition, Dr. Harris shall
be
entitled, based on performance, to receive options to purchase an additional
200,000 shares of the Company’s common stock. These performance based options
will be divided in to three separate grants and are expected to vest in annual
installments over a 3-year period. Entitlement to the performance based options
and the exact vesting schedule has not yet been determined. These performance
based options criteria will be established after consideration of the
development timelines relating to the Company’s two product candidates.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006 (UNAUDITED)
All
terms
of the options will be issued pursuant to the Company’s 2003 Stock Option Plan
and will be exercisable by Dr. Harris as long as she remains employed by
the
Company; provided, however, if a “change of control” (as defined in the 2003
Plan) occurs during Dr. Harris’ employment, the vesting of the stock options
shall accelerate and be deemed vested. Pursuant to the terms of the employment
agreement, Dr. Harris is entitled to a housing allowance of up to $10,000
and
relocation assistance for up to an additional $10,000. In the event that
the
Company terminates Dr. Harris’ employment without cause, Dr. Harris is entitled
to receive her then annualized base salary for a period of six months from
such
termination.
NOTE
4 SEGMENT
REPORTING
The
Company has two business segments -Drug Development and Chiral Products and
Services. The Company’s 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. The Company has the exclusive rights to develop and commercialize
two oncology drug candidates. The Company’s 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 product lifecycle.
For the quarter ended March 31, 2006, the Company’s drug development business
expenses primarily consisted of manufacturing, licensing, regulatory, and
clinical development costs, administrative and rent expenses, totaling
approximately $700,000 or approximately 38% of the Company’s overall net loss.
The Company’s chiral business in the United States and China contributed to the
majority of the Company’s other operating expenses during the first quarter of
2006 and primarily all of the expenses in the first quarter of 2005 and
substantially all revenue, property and equipment. Of the Company’s total
assets, approximately 7% are held in its Chiral Quest, Ltd. Jiashan, China
facility as of March 31, 2006. The Company’s Chiral Quest, Ltd., Jiashan, China
subsidiary contributed to approximately 3% of the Company’s overall net loss for
the quarter ended March 31, 2006.
NOTE
5 MERGER
On
October 18, 2005, the Company completed a merger with Greenwich Therapeutics,
Inc., (“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.
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 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 its previous $8.4 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 that 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 of $264,623 at maturity in October 2006.
The
acquisition of Greenwich on October 18, 2005 was accounted for under the
purchase method of accounting and accordingly, the results of operations
of
Greenwich have been consolidated with those of the Company only from the
date of acquisition.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006 (UNAUDITED)
The
following unaudited pro forma financial information presents the condensed
consolidated results of operations of the Company and Greenwich for the three
months ended March 31, 2005 assuming the acquisition had been consummated
at the
beginning of that period. 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 period ($000's, except per share
information).
|
|
Three
months ended March 31,
|
|
|
|
2005
|
|
Net
Loss
|
|
$
|
(1,898
|
)
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
Weighted
average common shares outstanding - basic and diluted
|
|
|
37,965
|
|
Item
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
|
|
Overview
Since
its
inception in October 2000, VioQuest has provided innovative chiral products
and
services to pharmaceutical and fine chemical companies in all stages of their
products’
lifecycles. Since August 2004, the Company has provided such products and
services through its wholly-owned subsidiary, Chiral Quest, Inc. (“Chiral
Quest”). Chiral Quest develops chemical catalysts used in the synthesis of
desired isomers of chiral molecules using asymmetrical catalysis technology
(the “Technology”) owned by the Pennsylvania State University Research
Foundation (“PSRF”), the technology arm of The Pennsylvania State University
(“PSU”). Chiral Quest has a worldwide, exclusive license from PSRF for the
inventions covered by the license. The original license agreement was entered
into on November 8, 2000.
In
August
2004, the Company expanded its 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 - Sodium Stibogluconate, also called “SSG”
(VQD-001), and, Triciribine-Phosphate, or “TCN-P” (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 Therapeutics, the Company holds exclusive rights
to
develop, manufacture, use, commercialize, lease, sell and/or sublicense VQD-001
and VQD-002.
On
April
11, 2006, the Company received an acceptance letter for its Investigational
New
Drug Application (IND) for VQD-002 from the Food and Drug Administration
(“FDA”). The FDA completed their review of the Company’s IND submission and have
concluded that the clinical investigations (s) described in the protocol
may
begin.
From
the
Company’s inception through March 31, 2006, it has generated sales but not any
net profits. With respect to the Company’s Chiral Quest operations, management
believes that the Company’s sales, marketing, manufacturing capacities will need
to grow in order for the Company to be able to obtain significant licensing
and
manufacturing agreements with large fine chemical and pharmaceutical companies.
Management believes that the Company’s manufacturing capacity will continue to
be enhanced with its expanded office and laboratory space located in Monmouth
Junction, New Jersey that was leased in May 2003, in addition to the laboratory
space leased in December 2004, located in Jiashan, China.
The
Company’s ability to achieve profitability depends upon, among other things, its
ability to discover and develop products (specifically new “ligands”), and to
sell its products on a commercial scale through a cost effective and efficient
process. To the extent that the Company is unable to produce, directly or
indirectly, ligands in quantities required for commercial use, it will not
realize any significant revenues from its technology. Moreover, there can
be no
assurance that it will ever achieve significant revenues or profitable
operations from the sale of any of its products or technologies.
The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Since inception,
the
Company has incurred an accumulated deficit of $22,131,139 through March
31,
2006. For the three months ended March 31, 2006, the Company had a net loss
of
$1,861,747. Management expects the Company’s losses to increase over the next
several years, primarily due to the costs related to the development and
commercialization of our two recently-acquired two anti-cancer therapeutic
compounds, in addition to the expansion of our research and development
programs, the hiring of additional chemists, and the expansion of our
manufacturing capabilities. These matters raise doubt about its ability to
continue as a going concern. There can be no assurance that the Company will
ever be able to operate profitably.
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
BioCapital, Inc., 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. As of March 31, 2006, we had working capital
of
$3,328,690 and cash and cash equivalents of $3,281,205.
Management
anticipates that the Company’s capital resources as of March 31, 2006 will be
adequate to fund its operations through the third quarter of 2006, assuming
the
Company achieves expected increases in revenue.
If
the
Company is unable to increase revenues as expected, however, additional
financing will be required during 2006 in order to fund operations.
The
Company’s combined capital requirements will depend on numerous factors,
including: acquiring, developing and commercializing therapies for oncology,
metabolic and inflammatory diseases and disorders; competing technological
and
market developments; 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; the purchase of additional capital equipment;
the
establishment and funding of the Chiral Quest, Jiashan, China facility; the
development and regulatory approval progress of its customers’ product
candidates into which the Company’s technology will be incorporated; and the
costs associated with the drug development process related to acquiring,
developing and commercializing a drug candidate.
On
October 18, 2005, we acquired Greenwich Therapeutics, Inc., a privately-held
biotechnology company with exclusive license rights to develop and commercialize
two anti-cancer therapeutic candidates - VQD-001 (sodium stibogluconate)
and
VQD-002 (triciribine). We acquired Greenwich in furtherance of our plan to
expand our business into drug development. As a result of this acquisition,
we
will immediately undertake funding development of VQD-001 and VQD-002, which
has
significantly increased our expected cash expenditures and will continue
to
increase 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 U.S. Food and Drug Administration (or the comparable regulatory
authorities of other countries) approve VQD-001 and VQD-002 for sale, we
will
not be able to sell these products until such approval is obtained.
Results
of Operations - For the Three Months Ended March 31, 2006 vs. March 31, 2005
Our
revenues for the three months ended March 31, 2006 were $598,876 as compared
to
$597,768 for the three months ended March 31, 2005. For the three months
ended
March 31, 2006, substantially all of our revenue was derived from customized
process development services sold to third parties (accounting for 80% of
total
revenue), sales of our catalysts and ligands (11% of total revenue) and 9%
of
total revenue was derived from feasibility screening services and additional
contract services.
Cost
of
goods sold for the three months ended March 31, 2006 was $318,149 as compared
to
$396,760 during the three months ended March 31, 2005. The decrease in cost
of
goods sold is attributed to the Company having lower costs of materials and
direct labor used in the production of its commercial quantity ligands,
catalysts and process development services, resulting from the Company utilizing
a greater percentage of its China facility and outside contractors during
the
first quarter 2006.
Our
gross
profit percentage increased to approximately 47% for the three months ended
March 31, 2006 as compared to 34% for the period ended March 31, 2005. The
primary reason the gross profit percentage increased is attributed to the
Company having lower costs of material and direct labor used in the production
of its commercial quantity ligands, catalysts and process development services,
resulting from the Company utilizing a greater percentage of its China facility
and outside contractors during the first quarter 2006.
Management
and consulting fees for the three months ended March 31, 2006 were $52,088
as
compared to $117,348 during the three months ended March 31, 2005. Management
and consulting fees consist of the consulting agreement with our Chief
Technology Officer (“CTO”), at a rate of $10,000 per month effective May 15,
2003. Management and consulting fees also consist of approximately $16,000
of
stock option charges resulting from the fair value of options issued to
consultants, and scientific advisory board members granted during 2003 accounted
for under variable accounting. The primary reason for the decrease in management
and consulting fees in 2006 compared to 2005 is a result of the Company’s
amortization for deferred consulting expenses for the CTO and PSRF ending
in the
third quarter 2005, in addition to lower expenses resulting from the issuance
of
stock options to consultants, and scientific advisory board members during
the
first quarter 2006.
Our
R&D expenses for the three months ended March 31, 2006 were $595,037 as
compared to $524,013 during the three months ended March 31, 2005. R&D
primarily includes costs associated to the clinical development, manufacturing,
licensing and regulatory costs of VQD-001 and VQD-002, in addition to purchases
of laboratory materials and supplies such as chemicals, solvents, glassware
used
as part of the facility’s test pilot programs for the formulation and analyzing
of our proprietary catalysts, ligands, and our next generation technology
of
building blocks to determine their technological feasibility and also costs
for
sponsoring two post doctorates at PSU to develop reports on our technological
feasibility of our proprietary technology through preparing sample batches
for
analysis in the Monmouth Junction, New Jersey office. The primary increase
is a
result of our drug development costs associated with VQD-001 and VQD-002,
which
commenced in October 2005 through the acquisition of Greenwich Therapeutics.
Selling,
general and administrative (“SG&A”) expenses for the three months ended
March 31, 2006 were $1,464,333 as compared to $810,892 during the three months
ended March 31, 2005. This increase in SG&A expenses was due in part to the
impact of expensing employee and director stock options of approximately
$265,000 in accordance with FAS 123R, increased rent expense for the New
Jersey
facilities as a result of the Company’s expansions, additional spending on
advertising and promotion expenses, increased travel expenses for new business
development opportunities and higher administrative expenses associated
with having more employees which include the President and CEO hired in February
2005, the Vice President of Corporate Business Development hired in July
2005,
and the Chief Medical Officer hired in March 2006, in addition to other related
employee costs such as increased insurance, and employer payroll taxes.
Depreciation
and amortization expenses for the three months ended March 31, 2006 were
$78,184
as compared to $53,664 during the three months ended March 31, 2005. This
increase was primarily related to the fixed asset purchases for office
equipment, computer equipment, laboratory equipment and leasehold improvements
for the leased facilities and recent expansions in New Jersey, in addition
to
the equipment and leasehold improvement expenditures related to the newly
leased
Jiashan facility which has become fully operational as of May 2005.
Interest
income, net for the three months ended March 31, 2006 was $47,168 as compared
to
$6,486 for the three months ended March 31, 2005. The increase in interest
income is attributed to having higher cash reserves for the three months
ended
March 31, 2006 as compared to the three months ended March 31, 2005, as a
result
of the funds received from the private placement of the Company’s common stock
in October 2005.
Our
net
loss for the three months ended March 31, 2006 was $1,861,747 as compared
to
$1,298,423 for the three months ended March 31, 2005. The increased net loss
for
the three months ended March 31, 2006 as compared to March 31, 2005 was
attributable to higher SG&A expenses due in part to the impact of expensing
employee and director stock options of approximately $265,000 in accordance
with
FAS 123R, increased rent expense for the New Jersey facilities as a result
of
the Company’s expansions, additional spending on advertising and promotion
expenses, increased travel expenses for new business development opportunities
and higher administrative expenses associated with having more employees
which
include the President and CEO hired in February 2005, the Vice President
of
Corporate Business Development hired in July 2005, and the Chief Medical
Officer
hired in March 2006, in addition to other related employee costs such as
increased insurance, and employer payroll taxes in addition to R&D expenses
related to the Company’s drug development costs, including, manufacturing,
licensing, clinical development costs. We expect losses to continue in the
next
year from the costs associated with the drug development process related
to
developing our drug candidates, in addition to continue to expand operations
in
New Jersey and in Jiashan.
Liquidity
and Capital Resources
Since
inception, the Company has incurred an accumulated deficit of $22,131,139
through March 31, 2006. For the three months ended March 31, 2006, the Company
had a net loss of $1,861,747. As of March 31, 2006, the Company had working
capital of $3,328,690 and cash and cash equivalents of $3,281,205. However,
we
expect losses to increase over the next several years, primarily due to the
costs related to the Company’s development and commercializing of our two
anti-cancer therapeutic compounds, such as costs associated to clinical trials,
regulatory approvals, uses of consultants, license milestone payments to
the
Cleveland Clinic Foundation and the University of South Florida and patent
filing expenses, in addition to the expansion of our research and development
programs, the hiring of additional chemists, and the expansion of our
manufacturing capabilities. There can be no assurance that we will ever be
able
to operate profitably. Management anticipates that the Company’s capital
resources will be adequate to fund its operations through the third quarter
of
2006, assuming the Company achieves expected increases in revenue. If the
Company is unable to increase revenues as expected, however, additional
financing will be required during 2006 in order to fund operations. These
matters raise substantial doubt about the Company’s ability to continue as a
going concern.
The
Company’s net cash used in operating activities for the three months ended March
31, 2006 was $2,725,777. The Company’s net cash used in operating activities
primarily resulted from a net loss of $1,861,747 offset by non-cash items
consisting of depreciation and amortization of $78,184, the impact of expensing
employee, director and consultant stock options in accordance with FAS 123R
of
$264,538, and the impact of expensing consultants’ options in accordance with
EITF 96-18 under variable accounting for $16,222. An increase in accounts
receivable of $326,184 was a result of higher sales in the fourth quarter
2005
and first quarter 2006 compared to prior periods. A decrease in accounts
payable
and accrued expenses is the result of operational expenditures of $436,858
and
$334,550 which were remitted during the first quarter 2006,
respectively.
The
Company’s net cash used in investing activities for the three months ended March
31, 2006 totaled $14,417, which resulted from capital expenditures of $8,274
were attributed to the purchases of laboratory, computer and office equipment
for the New Jersey and China facilities. Additionally, payments for intellectual
property totaled $6,143 were attributed to patent defense and filing
costs.
The
Company had no financing activities in the first quarter of 2006 and 2005.
However, 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
BioCapital, Inc., 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.
The
Company’s combined capital requirements will depend on numerous factors,
including: the costs related to developing and commercializing our two
anti-cancer therapeutic compounds, in addition to the expansion of our research
and development programs, the hiring of additional chemists, and the expansion
of our manufacturing capabilities, competing technological and market
developments, changes in our existing collaborative relationships, the cost
of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights and the outcome if any potentially related
litigation or other dispute, the purchase of additional capital equipment,
acquisition of technologies, the establishment and funding of Chiral Quest’s,
Jiashan, China facility, and the development and regulatory approval progress
of
its customers’ product candidates into which the Company’s technology will be
incorporated.
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.
Our
ability to achieve profitability depends upon, among other things, its ability
to discover and develop products (specifically new “ligands”), and to develop
its products on a commercial scale through a cost effective and efficient
process. To the extent that we are unable to produce, directly or indirectly,
ligands in quantities required for commercial use, it will not realize any
significant revenues from its technology. Moreover, there can be no assurance
that we will ever achieve significant revenues or profitable operations from
the
sale of any of our products or technologies.
We
have
formed two China subsidiaries through which we have opened a laboratory facility
in the People’s Republic of China. We have provided approximately $655,000 of
capital to the China subsidiary as of March 31, 2006. We believe that by
the
opening of this facility in China to produce our proprietary ligands, catalysts,
chemical building blocks and related compounds, we will be able to significantly
decrease our manufacturing costs and expenses, enabling us to cost-effectively
produce our ligands and end products in efforts to make our products
substantially more competitive and even more attractive to current and potential
customers. The China facility’s operations commenced in the third quarter of
2005.
Item
3. Controls and Procedures
As
of
March 31, 2006, we carried out an evaluation, under the supervision and with
the
participation of our Chief Executive Officer and Chief Financial Officer,
of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in alerting them on a timely basis
to
material information required to be disclosed in our periodic reports to
the
Securities and Exchange Commission. During the fiscal three months ended
March
31, 2006, there was no change in the Company’s internal control over financial
reporting that materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
6. Exhibits
(a)
Exhibits
Exhibit
No.
|
|
Description
|
|
|
|
10.1
|
|
Letter
agreement between the Company and Pamela Harris dated February
15, 2006
(incorporated by reference to Exhibit 10.8 of the Company’s Annual Report
on Form 10-KSB for the year ended December 31, 2005).
|
31.1
|
|
Certification
of Chief Executive Officer
|
31.2
|
|
Certification
of Chief Financial Officer
|
32.1
|
|
Certifications
of Chief Executive and Chief Financial Officer pursuant to Section
906 of
the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
|
VIOQUEST
PHARMACEUTICALS, INC.
|
|
Date:
May 12, 2006
|
By:
|
/s/
Daniel
Greenleaf
|
|
|
|
Daniel
Greenleaf
President
& Chief Executive Officer
|
|
Date:
May 12, 2006
|
By:
|
/s/
Brian
Lenz
|
|
|
|
Brian
Lenz
Chief
Financial Officer
|
|
EXHIBIT
INDEX
Exhibit
No.
|
|
Description
|
31.1
|
|
Certification
of Chief Executive Officer
|
31.2
|
|
Certification
of Chief Financial Officer
|
32.1
|
|
Certifications
of Chief Executive and Chief Financial Officer pursuant to Section
906 of
the
Sarbanes-Oxley Act of 2002.
|