UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x
QUARTERLY REPORT UNDER
SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended June 30, 2008
OR
o
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 registrant as specified in its charter)
|
Delaware
|
58-1486040
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
180
Mount
Airy Road, Suite 102, Basking Ridge, New Jersey 07920
(Address
of Principal Executive Offices)
(908)
766-4400
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed from last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
o
|
Accelerated
filer
o
|
|
Non-accelerated
filer
o
(Do not check if
a
smaller reporting company)
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
As
of
August 18, 2008 there were 5,461,644 shares of the issuer’s common stock, $0.001
par value, outstanding.
Index
|
|
|
Page
|
|
PART
I
|
FINANCIAL
INFORMATION
|
|
|
Item
1.
|
Unaudited
Condensed Consolidated Financial Statements
|
1
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
21
|
|
Item
4T.
|
Controls
and Procedures
|
21
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
Item
1A.
|
Risk
Factors
|
22
|
|
Item
6.
|
Exhibits
|
23
|
|
|
Signatures
|
23
|
|
|
Index
To Exhibits Filed With This Report
|
24
|
PART
I – FINANCIAL INFORMATION
Item
1. Unaudited Condensed Consolidated Financial Statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF JUNE 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007
|
|
|
June 30, 2008
(Unaudited)
|
|
December 31, 2007
(Note 1A)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
814,477
|
|
$
|
694,556
|
|
|
Prepaid
clinical research costs
|
|
|
268,978
|
|
|
189,359
|
|
|
Deferred
financing costs
|
|
|
-
|
|
|
357,581
|
|
|
Other
current assets
|
|
|
48,509
|
|
|
66,836
|
|
|
Total
Current Assets
|
|
|
1,131,964
|
|
|
1,308,332
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
30,139
|
|
|
34,789
|
|
|
SECURITY
DEPOSITS
|
|
|
15,232
|
|
|
15,232
|
|
|
TOTAL
ASSETS
|
|
$
|
1,177,335
|
|
$
|
1,358,353
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES,
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
DEFICIENCY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,171,150
|
|
$
|
1,873,500
|
|
|
Accrued
compensation and related taxes
|
|
|
150,574
|
|
|
373,460
|
|
|
Other
accrued expenses
|
|
|
371,803
|
|
|
665,273
|
|
|
Convertible
notes, net of unamortized debt discount of $0 and $917,612
|
|
|
-
|
|
|
2,930,388
|
|
|
TOTAL
LIABILITIES
|
|
|
2,693,527
|
|
|
5,842,621
|
|
|
|
|
|
|
|
|
|
|
|
MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED STOCK, $0.001 par value; 10,000,000
shares authorized
|
|
|
|
|
|
|
|
|
Series
A mandatorily redeemable convertible preferred stock; 3,464.5 shares
issued and outstanding at June 30, 2008
|
|
|
627,390
|
|
|
-
|
|
|
Series
B mandatorily redeemable convertible preferred stock; 3,405.165
shares
issued and outstanding at June 30, 2008
|
|
|
3,405,165
|
|
|
-
|
|
|
Dividends
payable in shares of common stock
|
|
|
122,103
|
|
|
-
|
|
|
TOTAL
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK
|
|
|
4,154,658
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIENCY
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 200,000,000 shares authorized; 5,461,644
and
5,462,112 shares issued and outstanding at June 30, 2008 and December
31,
2007, respectively
|
|
|
5,462
|
|
|
5,462
|
|
|
Additional
paid-in capital
|
|
|
38,676,402
|
|
|
34,942,567
|
|
|
Accumulated
deficit
|
|
|
(44,352,714
|
)
|
|
(39,432,297
|
)
|
|
Total
Stockholders' Deficiency
|
|
|
(5,670,850
|
)
|
|
(4,484,268
|
)
|
|
TOTAL
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND
STOCKHOLDERS' DEFICIENCY
|
|
$
|
1,177,335
|
|
$
|
1,358,353
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
|
|
|
For the Three
Months Ended
June 30, 2008
|
|
For the Three
Months Ended
June 30, 2007
|
|
For the Six
Months Ended
June 30, 2008
|
|
For the Six
Months Ended
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
472,801
|
|
$
|
950,844
|
|
$
|
1,451,895
|
|
$
|
2,319,655
|
|
|
General
and administrative
|
|
|
554,753
|
|
|
1,192,399
|
|
|
1,245,092
|
|
|
2,106,050
|
|
|
Total
Operating Expenses
|
|
|
1,027,554
|
|
|
2,143,243
|
|
|
2,696,987
|
|
|
4,425,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(1,027,554
|
)
|
|
(2,143,243
|
)
|
|
(2,696,987
|
)
|
|
(4,425,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
(EXPENSE)/INCOME, NET
|
|
|
(103,110
|
)
|
|
6,391
|
|
|
(1,514,658
|
)
|
|
32,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM CONTINUING OPERATIONS
|
|
|
(1,130,664
|
)
|
|
(2,136,852
|
)
|
|
(4,211,645
|
)
|
|
(4,393,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM DISCONTINUED OPERATIONS
|
|
|
-
|
|
|
(335,422
|
)
|
|
-
|
|
|
(596,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(1,130,664
|
)
|
|
(2,472,274
|
)
|
|
(4,211,645
|
)
|
|
(4,990,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BENEFICIAL
CONVERSION FEATURE
|
|
|
(708,772
|
)
|
|
-
|
|
|
(708,772
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS APPLICABLE TO COMMON STOCKHOLDERS
|
|
$
|
(1,839,436
|
)
|
$
|
(2,472,274
|
)
|
$
|
(4,920,417
|
)
|
$
|
(4,990,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
$
|
(0.38
|
)
|
$
|
(0.56
|
)
|
$
|
(1.00
|
)
|
$
|
(0.95
|
)
|
|
DISCONTINUED
OPERATIONS
|
|
|
-
|
|
|
(0.09
|
)
|
|
-
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS – BASIC AND DILUTED
|
|
$
|
(0.38
|
)
|
$
|
(0.65
|
)
|
$
|
(1.00
|
)
|
$
|
(1.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES USED IN COMPUTING NET LOSS PER SHARE APPLICABLE
TO
COMMON STOCKHOLDERS – BASIC AND DILUTED
|
|
|
4,905,081
|
|
|
3,816,512
|
|
|
4,905,254
|
|
|
4,605,672
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIENCY
FOR
THE SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
|
|
|
|
|
Additional
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
Paid-In
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2008
|
|
|
5,462,112
|
|
$
|
5,462
|
|
$
|
34,942,567
|
|
$
|
(39,432,297
|
)
|
$
|
(4,484,268
|
)
|
|
Net
loss applicable to common stockholders for the six months ended June
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
(4,920,417
|
)
|
|
(4,920,417
|
)
|
|
Proceeds
from issuance of Series A mandatorily redeemable convertible preferred
stock, net of financing costs of $233,714
|
|
|
|
|
|
|
|
|
2,054,800
|
|
|
|
|
|
2,054,800
|
|
|
Beneficial
conversion feature associated with conversion of Series B mandatorily
redeemable convertible preferred stock into Series A mandatorily
redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
708,772
|
|
|
|
|
|
708,772
|
|
|
Value
of warrants issued to placement agents with March 14, 2008 Series
A
mandatorily redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
140,164
|
|
|
|
|
|
140,164
|
|
|
Value
of warrants issued to investors and beneficial conversion feature
embedded
in Series A mandatorily redeemable convertible preferred
stock
|
|
|
|
|
|
|
|
|
531,286
|
|
|
|
|
|
531,286
|
|
|
Accretion
of discount on Series A mandatorily redeemable convertible preferred
stock
|
|
|
|
|
|
|
|
|
(122,390
|
)
|
|
|
|
|
(122,390
|
)
|
|
Discount
on convertible notes
|
|
|
|
|
|
|
|
|
62,166
|
|
|
|
|
|
62,166
|
|
|
Fractional
shares paid out in cash as a result of the 1-for-10 reverse stock
split
|
|
|
(468
|
)
|
|
|
|
|
(374
|
)
|
|
|
|
|
(374
|
)
|
|
Stock-based
compensation to employees
|
|
|
|
|
|
|
|
|
360,233
|
|
|
|
|
|
360,233
|
|
|
Stock-based
compensation to consultants and finder
|
|
|
|
|
|
|
|
|
(822
|
)
|
|
|
|
|
(822
|
)
|
|
Balance,
June 30, 2008
|
|
|
5,461,644
|
|
$
|
5,462
|
|
$
|
38,676,402
|
|
$
|
(44,352,714
|
)
|
$
|
(5,670,850
|
)
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
|
|
|
For the Six
Months Ended
June 30, 2008
|
|
For the Six
Months Ended
June 30, 2007
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders
|
|
$
|
(4,920,417
|
)
|
$
|
(4,990,527
|
)
|
|
Loss
from discontinued operations
|
|
|
-
|
|
|
596,897
|
|
|
Loss
From Continuing Operations
|
|
|
(4,920,417
|
)
|
|
(4,393,630
|
)
|
|
Adjustments
to reconcile loss from continuing operations to net cash used in
continuing operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,650
|
|
|
4,126
|
|
|
Stock-based
compensation to employees
|
|
|
360,233
|
|
|
534,730
|
|
|
Stock-based
compensation to consultants and finder
|
|
|
(822
|
)
|
|
54,093
|
|
|
Amortization
of debt discount and deferred financing fees
|
|
|
1,399,524
|
|
|
-
|
|
|
Dividends
payable on mandatorily redeemable convertible preferred
stock
|
|
|
122,103
|
|
|
-
|
|
|
Beneficial
conversion
feature
|
|
|
708,772
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid
clinical research costs
|
|
|
(79,619
|
)
|
|
(28,694
|
)
|
|
Other
assets
|
|
|
18,326
|
|
|
139,438
|
|
|
Accounts
payable
|
|
|
297,650
|
|
|
1,191,524
|
|
|
Accrued
expenses
|
|
|
(516,356
|
)
|
|
161,145
|
|
|
Net
Cash Used In Continuing Operating Activities
|
|
|
(2,605,956
|
)
|
|
(2,337,268
|
)
|
|
Net
cash used in discontinued operating activities
|
|
|
-
|
|
|
(356,217
|
)
|
|
Net
Cash Used In Operating Activities
|
|
|
(2,605,956
|
)
|
|
(2,693,485
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments
for purchased equipment
|
|
|
-
|
|
|
(2,277
|
)
|
|
Net
Cash Used In Continuing Investing Activities
|
|
|
-
|
|
|
(2,277
|
)
|
|
Net
cash used in discontinued investing activities
|
|
|
-
|
|
|
(26,698
|
)
|
|
Net
Cash Used In Investing Activities
|
|
|
-
|
|
|
(28,975
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of mandatorily redeemable convertible preferred stock
with
warrants, net of cash costs of $233,714
|
|
|
2,726,251
|
|
|
-
|
|
|
Payments
for fractional shares as a result of the 1-for-10 reverse stock
split
|
|
|
(374
|
)
|
|
|
|
|
Proceeds
from issuance of convertible notes with warrants, net of cash costs
of
$245,450
|
|
|
-
|
|
|
2,722,050
|
|
|
Repayment
of note payable
|
|
|
-
|
|
|
(100,000
|
)
|
|
Net
Cash Provided By Continuing Financing Activities
|
|
|
2,725,877
|
|
|
2,622,050
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
119,921
|
|
|
(100,410
|
)
|
|
CASH
AND CASH EQUIVALENTS – BEGINNING OF PERIOD
|
|
|
694,556
|
|
|
2,931,265
|
|
|
CASH
AND CASH EQUIVALENTS – END OF PERIOD
|
|
$
|
814,477
|
|
$
|
2,830,855
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Non-Cash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
|
Value
of warrants issued to placement agent in connection with issuances
of
mandatorily redeemable convertible Series B
Preferred stock
|
|
$
|
505,706
|
|
$
|
-
|
|
|
Value
of beneficial conversion feature related to mandatorily redeemable
convertible preferred stock
|
|
$
|
708,772
|
|
$
|
-
|
|
|
Value
of warrants issued to placement agent in connection with issuances
of
convertible notes
|
|
$
|
-
|
|
$
|
356,425
|
|
|
Value
of beneficial conversion feature related to convertible
notes
|
|
$
|
-
|
|
$
|
590,334
|
|
|
Conversion
of convertible notes into mandatorily redeemable convertible series
B
preferred stock
|
|
$
|
3,405,165
|
|
$
|
-
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008 (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 the rules and regulations of the Securities and
Exchange Commission. 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, 2008 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. for the year
ended December 31, 2007. The accompanying condensed consolidated balance sheet
as of December 31, 2007 has been derived from the audited balance sheet as
of
that date included in the Form 10-KSB.
References
to the “Company,” the “Registrant,” “we,” “us,” or “our” in this Quarterly
Report on Form 10-Q refer to VioQuest Pharmaceuticals, Inc., a Delaware
corporation, and its consolidated subsidiaries, together taken as a whole,
unless the context indicates otherwise. Xyfid™ is our trademark for 1% uracil
topical cream that we are developing to treat dry skin conditions and to relieve
and to manage the burning and itching associated with various dermatoses
including atopic dermatitis, irritant contact dermatitis, radiation dermatitis
and other dry skin conditions, by maintaining a moist wound and skin
environment. Lenocta™, previously referred to as VQD-001, or sodium
stibogluconate, is our trademark for our oncology product candidate. All other
trademarks and trade names mentioned in this Form 10-Q are the property of
their
respective owners.
The
accompanying consolidated financial statements include the accounts of VioQuest
Pharmaceuticals, Inc. and its current and former subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
On
September 29, 2006, the Company’s Board of Directors determined to seek
strategic alternatives with respect to the Company’s Chiral Quest, Inc.
subsidiary (“Chiral Quest”), which included a possible sale or other disposition
of the operating assets of that business. Accordingly, the chiral products
and
services operations and the assets of Chiral Quest are presented in these
financial statements as discontinued operations. On July 16, 2007, the Company
completed the sale of Chiral Quest to Chiral Quest Acquisition Corp. (“CQAC”)
for total cash consideration of approximately $1,700,000. As a result of this
transaction, the Company reported a gain of $438,444, which is included in
its
loss from discontinued operations in the third quarter of 2007. 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
remaining drug development operations of VioQuest Pharmaceuticals, Inc. and
accordingly, the Company has only one reportable segment. As a result of these
reclassifications, the Company no longer provides segment reporting. See Note
2
for a complete discussion on discontinued operations. One of Chrial Quest’s
formerly wholly-owned subsidiaries operating in China had a United States Dollar
functional currency and all of that subsidiary’s transaction gains and losses
were also recorded in discontinued operations. The consolidated balance sheet
as
of December 31, 2007 and the consolidated statements of operations for the
three
and six months ended June 30, 2008 and 2007 include reclassifications to reflect
these discontinued operations.
(B)
Nature of Operations
Since
August 2004, the Company has focused on acquiring technologies for purposes
of
the development and commercialization of pharmaceutical drug candidates in
the
areas of supportive care products, oncology, and infectious diseases for which
there are unmet medical needs. Since October 2005, the Company has held license
rights to develop and commercialize its two therapeutic oncology drug
candidates, Lenocta (sodium stibogluconate, formerly VQD-001) an inhibitor
of
specific protein tyrosine phosphatases, and VQD-002 (triciribine phosphate
monohydrate), an inhibitor of activated Akt. The rights to these two oncology
drug candidates, Lenocta and VQD-002, are governed by license agreements with
The Cleveland Clinic Foundation and the University of South Florida Research
Foundation, respectively. In March 2007, the Company acquired license rights
to
develop and commercialize Xyfid (1% uracil topical), a supportive care oncology
product candidate. The Company’s rights to Xyfid are governed by a license
agreement with Asymmetric Therapeutics, LLC and Onc Res, Inc., as assigned
to
the Company by Fiordland Pharmaceuticals, Inc.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008 (UNAUDITED)
(C)
Liquidity
Since
its
inception, the Company has incurred an accumulated deficit of $44,352,714
through June 30, 2008. For the six months ended June 30, 2008 and 2007, the
Company had losses from continuing operations of $4,211,645 and $4,393,630,
respectively, and used $2,605,956 and $2,337,268 of cash in continuing operating
activities for the six months ended June 30, 2008 and 2007, respectively. For
the six months ended June 30, 2008 and 2007, the Company had a net loss of
$4,920,417 and $4,990,527 (which included $4,393,630 from continuing
operations), respectively. As of June 30, 2008, the Company had a working
capital deficit of $1,561,563 and cash and cash equivalents of $814,477. The
Company has incurred negative cash flow from operating activities since its
inception. The Company has spent, and expects to continue to spend, substantial
amounts in connection with executing its business strategy, including planned
development efforts relating to the Company’s drug candidates, clinical trials
and other research and development efforts. As a result, we have insufficient
funds to cover our current obligations or future operating expenses. To conserve
funds, we will continue to complete our current ongoing Phase I study for
VQD-002 and Phase II study for Lenocta, however we will not initiate any new
clinical studies unless and until we receive additional funding. Our current
resources are inadequate to continue to fund operations; therefore, we will
need
to raise capital by the end of the third quarter of 2008, if not sooner.
Furthermore, based upon the amount of capital we are required to raise by the
end of the third quarter of 2008 to continue operations, we may need to raise
additional capital before then to continue to fund our operations at our desired
pace throughout 2008. The most likely sources of additional financing include
the private sale of the Company’s equity or debt securities, including bridge
loans to the Company from third party lenders, or by potentially sublicensing
our rights to our products. 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 is urgently needed by the Company 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 or cease 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. These matters raise substantial
doubt about the ability of the Company to continue as a going
concern.
On
March
14 and April 9, 2008, the Company received aggregate gross proceeds of
$2,959,500 from two transactions involving the sale of Series A Mandatorily
Redeemable Convertible Preferred Stock (“Series A Preferred”). See Note 4 for
further discussion. The Company’s cash and cash equivalents at June 30, 2008
reflect the net cash proceeds to the Company from these
transactions.
(D)
Stock-Based Compensation
The
Company issued options and warrants to purchase an aggregate of 3,939,499
shares of its common stock during the six months ended June 30, 2008, comprised
of 560,000 shares subject to stock options to employees and non-employee
directors and 3,379,499 shares subject to warrants issued to investors and
placement agents.
Vesting
terms for the Company’s stock option plans differ based on the type of grant
made. Generally, stock options and warrants granted to employees and
non-employee directors vest as to one-third of the shares on each of the first,
second and third anniversaries of the grant date. However, vesting has ranged
in
length from immediate vesting to vesting periods in accordance with the period
covered by employment contracts. There were stock options to purchase 15,000
shares of common stock granted to a non-employee director in the first quarter
of 2006, of which 7,500 vested immediately and 7,500 vested on the first
anniversary of the grant date, stock options to purchase 40,000 shares of common
stock granted to four non-employee directors in the third quarter of 2007,
of
which one-third vested immediately and one-third of the shares vest on each
of
the first and second anniversaries of the grant date, stock options to purchase
501,334 shares of common stock granted to the President and Chief Executive
Officer, which vest as to 25% of the shares on each of the first, second, third
and fourth anniversaries of the grant date and stock options to purchase 85,644
shares of common stock granted to the President and Chief Executive Officer,
which will vest in four equal annual installments commencing on the first
anniversary of the grant date. However, this option is only exercisable to
the
extent that the shares of the Company’s common stock held in an escrow account
in favor of the former stockholders of Greenwich Therapeutics, Inc. established
in connection with the Company’s October 2005 acquisition of Greenwich are
released from escrow. As of June 30, 2008, 35% of the common stock held in
escrow had been released.
Stock
options and warrants granted to parties other than employees and non-employee
directors vest over individually agreed upon terms. The Company issued 3,379,499
warrants that vested immediately to investors and the placement agents that
participated in the March 14, 2008 and April 9, 2008 financings relating to
the
issuance and sale of Series A preferred stock. See Note 4 for further
discussion. On June 13, 2008, the Company issued 400,000 shares subject to
stock
options to employees and non-employee directors, of which one-third vested
immediately and one-third of the shares vest on each of the first and second
anniversaries of the grant date. At the same time, the Board of Directors
authorized the amendment of previously granted stock options representing
771,558 shares to reduce the exercise price of each stock option to $0.54 per
share.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008 (UNAUDITED)
Following
the vesting periods, options are exercisable until the earlier of 90 days after
an employee’s employment with the Company terminates or the tenth anniversary of
the initial grant, subject to adjustment under certain conditions. The Company
recorded total compensation charges in the three and six months ended June
30,
2008 related to the fair value of employee and non-employee director stock
option grants of $207,634 and $360,233, respectively.
The
Company uses the Black-Scholes option pricing model to calculate the fair value
of options and warrants granted under Statement of Financial Accounting
Standards (“SFAS”) No. 123R,
Share-based
Payment
(“SFAS
123R”). 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 set forth below, the weighted average fair values of the stock
options granted during the three and six months ended June 30, 2008 were $0.58
and $0.71, respectively.
The
table
below sets forth the key assumptions used in the Black-Scholes calculations
for
options granted in the three and six months ended June 30, 2008 and
2007:
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
Term
|
|
|
7
years
|
|
|
7
years
|
|
|
7
years
|
|
|
7
years
|
|
|
Volatility
|
|
|
310-409
|
%
|
|
238
|
%
|
|
298-409
|
%
|
|
232-238
|
%
|
|
Dividend
yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
Risk-free
interest rate
|
|
|
3.0-3.8
|
%
|
|
4.6-4.9
|
%
|
|
3.0-3.8
|
%
|
|
4.6-4.9
|
%
|
|
Forfeiture
rate
|
|
|
0%-26
|
%
|
|
22
|
%
|
|
0%-26
|
%
|
|
22
|
%
|
The
following table summarizes information about the Company’s stock options as of
and for the six months ended June 30, 2008:
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Life
(Years)
|
|
Aggregate
Intrinsic Value
|
|
|
Balance,
January 1, 2008
|
|
|
1,013,339
|
|
$
|
9.86
|
(1)
|
|
|
|
|
|
|
|
Granted
|
|
|
560,000
|
|
$
|
0.71
|
(1)
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(67,733
|
)
|
$
|
4.38
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
1,505,606
|
|
$
|
2.05
|
|
|
3.05
|
|
$
|
-
|
|
|
Exercisable
at June 30, 2008
|
|
|
525,769
|
|
$
|
4.78
|
|
|
2.88
|
|
$
|
-
|
|
|
|
(1)
|
Reflects
the impact of the June 13, 2008 repricing of 771,558 shares
subject to
stock options to $0.54 that had original exercise prices
ranging from
$19.60 to $1.20.
|
As
of
June 30, 2008, there was $2,114,994 of unrecognized compensation costs related
to stock options. These costs are expected to be recognized over a weighted
average period of approximately 3.15 years.
As
of
June 30, 2008, an aggregate of 94,394 shares remained available for future
grants and awards under the Company’s stock incentive plan, which covers stock
options and restricted stock awards. The Company issues unissued shares to
satisfy stock option exercises and restricted stock awards.
(E)
Warrants Issued With Convertible Debt and Mandatorily Redeemable Convertible
Preferred Stock
The
Company accounts for the value of warrants and the intrinsic value of beneficial
conversion rights arising from the issuance of convertible debt instruments
and
mandatorily redeemable convertible preferred stock with nondetachable conversion
rights that are in-the-money at the commitment date pursuant to the consensuses
for EITF Issue No. 98-5, EITF Issue No. 00-19 and EITF Issue No. 00-27. Such
values are determined by allocating an appropriate portion of the proceeds
received from the debt instruments to the debt and warrants based on their
relative fair value and an appropriate portion of the proceeds received from
the
preferred stock to the preferred stock and warrants based on their relative
fair
value.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008 (UNAUDITED)
The
fair
value allocated to the warrants issued with convertible debt is recorded as
additional paid-in capital and as debt discount, which is charged to interest
expense over the term of the debt instrument. The fair value allocated to the
warrants issued with mandatorily redeemable convertible preferred stock is
recorded as additional paid-in capital and as preferred stock discount, which
is
accreted through a charge to accumulated deficit through the date of earliest
conversion.
The
intrinsic value of the beneficial conversion rights at the commitment date
may
also be recorded as additional paid-in capital and debt or preferred stock
discount as of that date or, if the terms of the debt instrument or preferred
stock are contingently adjustable, may only be recorded if a triggering event
occurs and the contingency is resolved.
(F)
Net Loss Per Share Applicable to Common
Stockholders
Basic
net
loss per share applicable to common stockholders is calculated by dividing
net
loss applicable to common stockholders by the weighted-average number of common
shares outstanding for the period, excluding 556,686 common shares held in
escrow based upon clinical milestones of Lenocta and VQD-002, as a result of
the
acquisition of Greenwich Therapeutics. Diluted net loss per share applicable
to
common stockholders is the same as basic net loss per share applicable to common
stockholders, 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 applicable to common stockholders during each period
presented. The amount of potentially dilutive securities including options
and
warrants in the aggregate excluded from the calculation were 14,127,027
(including the
556,686
common
shares held in escrow, 5,774,167 common shares issuable upon conversion of
the
Series A preferred stock, 896,096 common shares issuable upon conversion of
the
Series B preferred stock, 5,394,472 warrants, and 1,505,606 stock options)
at
June 30, 2008 and 3,442,946 at June 30, 2007.
(G)
Restatement of Net Loss Per Common Share Applicable to Common
Stockholders
As
a
result of the Company effecting a 1-for-10 reverse stock split on April 25,
2008, all common shares, warrants and options have been restated as of December
31, 2007. In accordance with the reverse stock split, each share of the
Company’s common stock, warrants and options, were reissued and repriced to
purchase or receive one-tenth times the number of shares of common stock
immediately theretofore purchasable and the purchase price per is 1,000 percent
of the purchase price per share.
NOTE
2
DISCONTINUED
OPERATIONS
As
explained in Note 1, the Company determined that it would dispose of Chiral
Quest on September 29, 2006 and, accordingly, the operations and assets of
Chiral Quest have been presented in these financial statements as discontinued
operations. On July 16, 2007, the Company completed the sale of Chiral Quest
to
CQAC for total cash consideration of approximately $1,700,000. As a result
of
this transaction, the Company reported a gain of $438,444 in the third quarter
of 2007. Retention bonuses of $106,761 and accrued severance of $90,000 paid
to
certain Chiral Quest employees have been offset against the gain on sale.
Revenues from discontinued operations for the three and six months ended June
30, 2007 were $680,581 and $1,484,365, respectively. The loss from discontinued
operations for the three and six months ended June 30, 2007, 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, was $335,422 and $596,897, respectively. No such revenues or
loss
from discontinued operations were recorded in the corresponding 2008
periods.
On
July
16, 2007, the Company entered into a sublease agreement with CQAC that expired
May 30, 2008 to lease its office and laboratory space, which was utilized by
Chiral Quest before it was sold to CQAC. CQAC, the subtenant, agreed to make
all
payments of base rent and additional rent totaling approximately $28,000 per
month for a total commitment of $56,000 then remaining on the sublease agreement
payable directly to the landlord. As of June 30, 2008, CQAC fully complied
with
the sublease agreement with the Company.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008 (UNAUDITED)
NOTE
3
CONVERTIBLE
NOTES
On
June
29, 2007 and July 3, 2007, the Company issued and sold a series of 8%
convertible promissory notes (the “Bridge Notes”) in the aggregate principal
amount of $3,700,000 with a term of one year from the date of final closing.
Investors could have elected, at any time during the term, to convert all unpaid
principal plus any accrued but unpaid interest thereon on the Bridge Notes
into
shares of the Company’s common stock. In the event that the investors had not
elected to convert the Bridge Notes, all unpaid principal plus any accrued
interest would have automatically converted into the Company’s common stock upon
the completion of an equity financing or series of related equity financings
by
the Company resulting in aggregate gross cash proceeds to the Company of at
least $7,000,000. If the Bridge Notes and accrued interest were not converted
into shares of the Company’s common stock, all unpaid principal plus any accrued
interest would be due and payable on the first anniversary of the final
closing.
The
face
value of the Bridge Notes issued on June 29, 2007 and July 3, 2007, was
$2,967,500 and $732,500, respectively. The Company incurred commissions and
related costs in association with the Bridge Notes of $245,450 and $50,750
(as
explained below) for the June 29, 2007 and July 3, 2007 closings, respectively.
The Company also issued to investors five-year warrants (“Bridge Warrants”) to
purchase an aggregate of approximately 243,000 (195,000 and 48,000 for the
June
29, 2007 and July 3, 2007 closings, respectively) shares of the Company’s common
stock at an exercise price of $4.00 per share, which had a fair value of
$736,935 and $172,301 as of June 29, 2007 and July 3, 2007, respectively. The
Company allocated proceeds from the sale to the Bridge Warrants of $590,334
and
$139,489 as of June 29, 2007 and July 3, 2007, respectively, based on their
relative fair values to the fair value of the Bridge Notes, which was recorded
as a discount to the Bridge Notes. Gross proceeds allocated to the Bridge Notes
were $2,377,166 for the June 29, 2007 issuances, and $593,011 for the July
3,
2007 issuances. The discount associated with the value of the warrants would
be
amortized to interest expense over the term of the Bridge Notes.
As
a
result of the allocation of proceeds to the Bridge Warrants, the Bridge Notes
contained a Beneficial Conversion Feature (“BCF”) of $590,334 for the June 29,
2007 closing, and $139,489 for the July 3, 2007 closing, which were attributable
to an effective conversion price for the Company’s common stock that was less
than the market values on the dates of issuance. Additional BCF’s are recorded
as convertible interest is accrued. These amounts were recorded as additional
debt discount and additional paid-in capital, which reduces the initial carrying
value of the Bridge Notes. The discount associated with the BCF would also
be
amortized to interest expense over the term of the Bridge Notes.
In
connection with the Bridge Notes, the Company issued five-year warrants to
placement agents to purchase an aggregate of 120,250 shares of common stock,
which are exercisable at a price of $4.20 per share. Based on the Black-Scholes
option pricing model, the warrants had a fair value of $356,425 for the June
29,
2007 closing and $73,441 for the July 3, 2007 closing. Additionally, the Company
incurred commissions of $205,450, a non-accountable expense allowance of $24,271
to the placement agents and escrow fees of $5,000 for the June 29, 2007 closing
and commissions of $50,575 for the July 3, 2007 closing. The Company engaged
Paramount BioCapital, Inc. (“Paramount”) as one of its placements agents. Dr.
Lindsay A. Rosenwald is the Chairman, CEO and sole stockholder of Paramount
and
a substantial stockholder of the Company. Stephen C. Rocamboli, the Company’s
chairman, was employed by Paramount at the time of the Company’s engagement. Of
the total consideration provided to the placement agents, the Company issued
warrants to Paramount to purchase 45,000 shares of common stock and paid
commissions of approximately $119,700. The fair value of the warrants,
commissions and fees totaling $591,146 for the June 29, 2007 closing and
$124,016 for the July 3, 2007 closing have been recognized as deferred financing
costs, which would be amortized to interest expense over the term of the Bridge
Notes.
The
following assumptions were used for the Black-Scholes calculations for the
warrants related to the Bridge Notes:
|
Term
|
|
|
5
years
|
|
|
Volatility
|
|
|
240
|
%
|
|
Dividend
yield
|
|
|
0.0
|
%
|
|
Risk-free
interest rate
|
|
|
4.9-5.0
|
%
|
As
a
condition to the March 14, 2008 private placement of our Series A Preferred
stock, the majority of the holders of the June 29, 2007 and July 3, 2007
convertible promissory notes agreed to convert such notes, together with accrued
interest, into approximately 3,910 shares of the Company’s newly-designated
Series B Mandatorily Redeemable Convertible Preferred Stock (“Series B
Preferred”). See Note 4 for further discussion. The conversion of the Bridge
Notes to Series B Preferred stock resulted in a loss on the early extinguishment
of debt of $814,355, which is included in interest expense for the three and
six
months ended June 30, 2008. The loss is comprised of non-cash items, such as
the
write-off of unamortized debt issuance costs, BCF and deferred financing
costs.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008 (UNAUDITED)
NOTE
4
MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED STOCK
On
March
14, 2008, the Company issued 765 shares of Series A Preferred stock at a price
of $1,000 per share together with five-year warrants to purchase an aggregate
of
approximately 637,500 shares of our common stock at an exercise price of $1.00
per share for an aggregate purchase price of $765,000. The Company received
approximately $671,000 in net cash proceeds after closing costs.
On
April
9, 2008, the Company issued 2,194.5 shares of Series A Preferred stock at a
price of $1,000 per share together with five-year warrants to purchase an
aggregate of approximately 1.83 million shares of our common stock at an
exercise price of $1.00 per share for an aggregate purchase price of $2,195,000.
The Company received approximately $2,041,000 in net cash proceeds after closing
costs. In addition, the Company reissued the 765 shares of Series A Preferred
stock originally sold on March 14, 2008, on the same terms as if the shares
had
been purchased on April 9, 2008.
Each
share of Series A Preferred stock sold is convertible into shares of the
Company's common stock at $0.60 per share, or approximately 5.77 million shares
of common stock in the aggregate. A holder of Series A Preferred stock may
convert the shares of Series A Preferred stock to common stock at any time
and
from time to time upon the holder’s election. The Series A Preferred stock shall
automatically convert into common stock in the event that the closing price
of
the common stock is equal to at least $3.80 per share (as adjusted for stock
splits, combinations and similar events) for 20 consecutive trading days. The
Series A Preferred stock is subject to mandatory redemption on July 3, 2009.
The
Series A Preferred stock shall be entitled to an annual dividend equal to 6%
of
the applicable issuance price per annum, payable semi-annually in cash or shares
of common stock, at the option of the Company. If the Company chooses to pay
the
dividend in shares of common stock, the price per share of common stock to
be
issued shall be equal to 90% of the average closing price of the common stock
for the 20 trading days prior to the date that such dividend becomes payable.
During the three and six months ended June 30, 2008, the Company accrued $40,736
and $42,649, respectively, associated with this dividend obligation, which
was
recorded as interest expense on the accompanying condensed consolidated
statements of operations.
The
Series A Preferred stock will be protected against dilution if the Company
effects a subdivision or combination of its outstanding common stock or in
the
event of a reclassification, stock dividend or other distribution payable in
securities of the Company and shall have full-ratchet antidilution protection,
subject to standard exceptions. The holders of Series A Preferred stock will
vote together with all other holders of the Company’s voting stock on all
matters submitted to a vote of holders generally, with the holder of each share
of Series A Preferred stock being entitled to one vote for each share of common
stock into which such shares of Series A Preferred stock could then be
converted.
Based
upon the Black-Scholes option pricing model, the investor warrants were
estimated to be valued at approximately $2,528,829. The Company allocated the
consideration received from the sale of the Series A Preferred stock between
the
Series A Preferred stock and the warrants on the basis of their relative fair
values at the date of issuance, resulting in approximately $1,363,033 allocated
to the warrants. The value of the warrants was recognized as an increase in
additional paid-in capital and as a discount to the Series A Preferred stock.
Furthermore, the fair value of the common shares into which the Series A
Preferred stock is convertible on the date of issuance exceeded the proceeds
allocated to the Series A Preferred stock, resulting in a beneficial conversion
feature of approximately $2,726,250 that was recognized as an increase in
additional paid-in capital and as a discount to the Series A Preferred stock.
The discounts are being accreted to the redemption value of the Series A
Preferred stock over the mandatory redemption period, using the effective
interest method, through a charge to additional paid-in capital.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008 (UNAUDITED)
In
connection with the offering, the Company engaged Paramount as our placement
agent. Dr. Lindsay A. Rosenwald is the Chairman, CEO and sole stockholder of
Paramount and a substantial stockholder of the Company. Dr. Rosenwald
participated in this financing through a family investment partnership, of
which
he is the managing member. The family investment partnership purchased 500
shares of Series A Preferred stock and received warrants to purchase 416,700
shares of common stock. Based upon the Black-Scholes option pricing model,
the
family investment partnership’s investor warrants were estimated to be valued at
approximately $458,000. In consideration for the placement agent’s services, the
Company paid an aggregate of approximately $54,000 in commissions to Paramount
in connection with the offering. The Company also paid $35,000 to Paramount
as a
non-accountable expense allowance. In addition, the Company issued to Paramount
five-year warrants to purchase an aggregate of approximately 127,500 shares
of
common stock, which are exercisable at a price of $0.80 per share. Based upon
the Black-Scholes option pricing model, the warrants issued to Paramount are
estimated to be valued at $505,776. The fair value of the warrants, commissions
and fees totaling approximately $739,026 that was recognized as a discount
to
the Series A Preferred stock. The discount is being accreted to Series A
Preferred stock over the mandatory redemption period, using the effective
interest method, through a charge to additional paid-in capital. For the three
and six months ended June 30, 2008, the Company accreted $116,069 and $122,390,
respectively, of Series A Preferred stock discount.
The
following assumptions were used for the Black-Scholes calculations for the
warrants related to the financing:
|
Term
|
5
years
|
|
|
|
Volatility
|
301
%
|
-
|
310%
|
|
Dividend
yield
|
0.0%
|
|
|
|
Risk-free
interest rate
|
2.4%
|
-
|
2.6%
|
As
a
condition to the March 14, 2008 closing of the private placement, the majority
of the holders of the June 29, 2007 and July 3, 2007 convertible promissory
notes agreed to convert such notes, together with accrued interest, into
approximately 3,910 shares of Series B Preferred stock. The Series B Preferred
stock contains substantially the same economic terms as the previously
outstanding senior convertible notes. A holder of Series B Preferred stock
may
convert the shares of Series B Preferred stock to common stock at any time
and
from time to time upon the holder’s election. The Series B Preferred stock shall
automatically convert into common stock in the event that the closing price
of
the common stock is equal to at least $3.80 per share (as adjusted for stock
splits, combinations and similar events) for 20 consecutive trading days. The
Series B Preferred stock is subject to mandatory redemption on July 3,
2009.
Each
share of Series B Preferred stock sold is convertible into shares of the
Company's common stock at $3.80 per share, or approximately 1,029,000 shares
of
common stock in the aggregate. The Series B Preferred stock shall be entitled
to
an annual dividend equal to 8% of the applicable issuance price per annum,
payable semi-annually in cash or shares of common stock, at the option of the
Company. If the Company chooses to pay the dividend in shares of common stock,
the price per share of common stock to be issued shall be equal to 90% of the
average closing price of the common stock for the 20 trading days prior to
the
date that such dividend becomes payable. During the three and six months ended
June 30, 2008, the Company accrued $66,420 and $79,454,
respectively, associated with this dividend obligation, which was recorded
as interest expense on the accompanying condensed consolidated statements of
operations.
In
the
event of a liquidation, bankruptcy, dissolution or similar proceeding, the
holders of the Series B Preferred stock shall rank
pari
passu
with the
Series A Preferred stock and shall receive an amount equal to 100% of the Series
B Preferred stock price plus any accrued but unpaid dividends.
Certain
Series B Preferred stockholders exercised their right to convert Series B
Preferred stock into Series A Preferred stock by investing new money in the
April 9, 2008 offering. These holders invested $505,000 of new money in the
April 9, 2008 offering and earned the right to convert $505,000 of Series B
Preferred stock, convertible into shares of the Company’s common stock at $3.80
per share, into Series A Preferred stock, convertible into shares of the
Company’s common stock at $0.60 per share. The converting stockholders received
505 shares of Series A Preferred Stock.
In
accordance with EITF No. 98-5,
Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios
,
and
EITF No. 00-27,
Application
of Issue No. 98-5 to Certain Convertible Instruments
,
the
Company recorded a non-cash beneficial conversion charge of $708,772 in April
2008 in connection with the induced conversion of the Series B Preferred
stock.
NOTE
5
REVERSE
STOCK SPLIT
On
April
15, 2008, the Company’s Board of Directors authorized an amendment to the
Company’s certificate of incorporation to provide for the combination of the
Company’s common stock in the form of a 1-for-10 reverse stock split. In
accordance with the reverse stock split, each share of the Company’s common
stock was reissued and repriced for each 10 shares of common stock exchanged
by
the holders of record at 12:01 a.m. on April 25, 2008 (the “Effective Time”).
Further, each option to purchase shares of common stock outstanding as of the
Effective Time and any other outstanding and unexercised warrants or similar
rights to purchase or receive shares of common stock outstanding immediately
prior to the Effective Time provides the right to purchase or receive one-tenth
times the number of shares of common stock immediately theretofore purchasable
and the purchase price per share shall be 1,000 percent of the purchase price
per share immediately theretofore payable. The number of shares reserved for
issuance under the Company’s 2003 Stock Option Plan shall become one-tenth the
number of shares reserved for issuance as of the Effective Time. All per share
amounts have been restated to effect the reverse stock split for all periods
presented.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008 (UNAUDITED)
NOTE
6
EMPLOYEE
MATTERS
On
April
11, 2008, Edward C. Bradley, M.D., the Company’s Chief Scientific Officer,
resigned from his part-time position with the Company. In consideration of
Dr.
Bradley’s service, the Company accelerated the vesting of Dr. Bradley’s stock
options to purchase an additional 23,333 shares of the Company’s common stock.
Furthermore, the exercise period for his vested options is extended until
December 31, 2008. Incremental compensation cost is incurred when the terms
of
his award are modified. Based upon the Black-Scholes option pricing model,
the
incremental cost is approximately $15,000, which is measured by comparing the
fair value of the modified award with the fair value of the award immediately
before the modification, and is included in stock-based compensation expense
under Research and Development Expense for the three and six month periods
ending June 30, 2008.
On
April
14, 2008, the Company appointed Vernon L. Alvarez, Ph.D., as Vice President
of
Research and Development.
On
July
18, 2008, the Company appointed Christopher P. Schnittker as Vice President
and
Chief Financial Officer. Pursuant to the terms of an Employment Agreement,
the
Company issued to Mr. Schnittker a ten-year option under our 2003 Stock Option
Plan to purchase 180,000 shares of its common stock at an exercise price equal
to fair market value on the date of the grant. The options vest in four equal
annual installments commencing on July 21, 2009. Additionally, pursuant to
the
Employment Agreement, the Company issued 180,000 additional stock options (the
“Merger Option”) on July 21, 2008, at an exercise price equal to fair market
value on the date of the grant. The merger options vest in four equal annual
installments commencing on July 21, 2009, however in addition to such vesting,
the Merger Option is only exercisable to the extent our shares which are held
in
escrow in connection with our acquisition of Greenwich Therapeutics, Inc.,
in
October 2005, are released.
On
July
21, 2008, Brian Lenz, the Company’s prior Chief Financial Officer, resigned his
position. Mr. Lenz agreed to remain with the Company as an employee until August
14, 2008 at which time he terminated his employment. During his employment
as
the Company’s Chief Financial Officer, Mr. Lenz received stock options to
purchase an aggregate of 200,000 shares of the Company’s common stock. Pursuant
to the terms of his stock option grants, on August 14, 2008 Mr. Lenz will have
vested stock options to purchase 53,334 shares of our common stock. On July
18,
2008, the Company agreed to vest on August 14, 2008 an additional 93,333 shares
subject to Mr. Lenz’s stock options, so that on that date Mr. Lenz shall have a
vested and exercisable right to purchase an aggregate of 146,667 shares subject
to his stock option. The Company also extended the exercise period with respect
to Mr. Lenz’s options until August 14, 2009.
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Company
Overview
We
are a
biopharmaceutical company focused on the acquisition, development and
commercialization of clinical stage drug therapies targeting both the molecular
basis of cancer and side effects of cancer treatment. Our lead compound under
development is Xyfid (1% uracil topical) for the treatment of dry skin
conditions and manage the burning and itching associated with various skin
disorders. We filed a 510(k) Premarket Notification submission with the FDA
on
June 30, 2008 for Xyfid to treat various dermatoses. Additionally, we are
developing VQD-002 (triciribine phosphate monohydrate or TCN-P), a small
molecule anticancer compound that inhibits activation of protein kinase B
(“Akt”), a key component of a signaling pathway known to promote cancer cell
growth and survival as well as resistance to chemotherapy and radiotherapy.
VQD-002 is currently in Phase I clinical development for both solid tumors
and
hematological malignancies. We are also developing Lenocta (sodium
stibogluconate), which we previously referred to as VQD-001, a selective, small
molecule inhibitor of certain protein tyrosine phosphatases (“PTPs”), such as
SHP-1, SHP-2 and PTP1B, with demonstrated anti-tumor activity against a wide
spectrum of cancers both alone and in combination with other approved immune
activation agents, including IL-2 and interferons. Lenocta is currently in
a
Phase IIa clinical trial as a potential treatment for melanoma, renal cell
carcinoma, and other solid tumors. In addition to its potential role as a cancer
therapeutic, sodium stibogluconate has been approved in most of the world for
first-line treatment of leishmaniasis, an infection typically found in tropic
and sub-tropic developing countries. Based on historical published data and
a
large observational study by the U.S. Army, existing data from approximately
400
patients could be utilized to support a New Drug Application (“NDA”) with the
U.S. Food and Drug Administration (“FDA”). Lenocta has been granted Orphan Drug
status for leishmaniasis. To date, we have not received approval for the sale
of
any of our drug candidates in any market and, therefore, have not generated
any
product sales from our drug candidates.
Through
our acquisition of Greenwich Therapeutics, Inc. in October 2005, we obtained
the
rights to develop and commercialize Lenocta and VQD-002. We hold our rights
to
Lenocta and VQD-002 pursuant to license agreements with The Cleveland Clinic
Foundation and the University of South Florida Research Foundation,
respectively. In March 2007, the Company acquired license rights to develop
and
commercialize Xyfid. The Company’s rights to Xyfid are governed by a license
agreement with Asymmetric Therapeutics, LLC and Onc Res, Inc., as assigned
to
the Company by Fiordland Pharmaceuticals, Inc. These licenses give us the right
to develop, manufacture, use, commercialize, lease, sell and/or sublicense
Lenocta, VQD-002 and Xyfid.
Products:
Xyfid™
(1% uracil topical).
During
March 2008, we engaged Medical Device Consultants, Inc. to assist us in
obtaining clearance to market Xyfid pursuant to Section 510(k) of the Food,
Drug
and Cosmetic Act and, in particular, the “premarket notification” provisions of
Section 510(k). To qualify for 510(k) premarket notification, a product must
be
substantially equivalent to another device that is legally marketed in the
U.S.
A device is substantially equivalent if, in comparison to a predicate, it:
|
|
·
|
has
the same intended use as the predicate; and
|
|
|
·
|
has
the same technological characteristics as the
predicate.
|
A
claim
of substantial equivalence does not mean the new and predicate devices must
be
identical. Substantial equivalence is established with respect to intended
use,
design, energy used or delivered, materials, chemical composition, manufacturing
process, performance, safety, effectiveness, labeling, biocompatibility,
standards, and other characteristics, as applicable.
We
believe that Xyfid may be substantially equivalent to several predicate devices
designed to improve dry skin conditions and to relieve and to manage the burning
and itching associated with various dermatoses including atopic dermatitis,
irritant contact dermatitis, radiation dermatitis and other dry skin conditions,
by maintaining a moist wound and skin environment.
We
filed
the 510(k) submission with the Center for Devices and Radiological Health (CDRH)
of the FDA on June 30, 2008.
Generally,
the CDRH responds to 510(k) applications within a 90-day period. While the
majority of products go through the 510(k) process within the 90-day period,
the
more difficult 510(k) applications, or those involving more sophisticated
products or products that have undergone significant changes, often take
longer.
Additionally, the FDA may raise questions during the review process. If these
questions are lengthy or require a significant amount of time to prepare
a
response, the FDA may restart the 90-day review clock. The FDA also can treat
the submission of new information as starting the process over and thereby
turn
the clock back to day one. This allows an additional 90 days to review the
510(k) application. Thus, the actual review period may exceed 90
days.
VQD-002
(triciribine phosphate monohydrate).
VQD-002,
a tricyclic nucleoside that inhibits the activation of Akt, has demonstrated
anti-tumor activity against a wide spectrum of cancers in preclinical and
clinical studies. Amplification, overexpression, or activation, of Akt has
been
detected in a number of human malignancies, including prostate, breast, ovarian,
colorectal, pancreatic, and hematologic cancers. Activation of Akt is associated
with cell survival, malignant transformation, tumor invasiveness, and
chemo-resistance, while inhibition of Akt activity has been shown to cause
cell
death. These attributes make Akt an attractive target for cancer
therapy.
VQD-002
was first synthesized in 1971 and originally identified as an antineoplastic
agent. Phase I clinical trials on VQD-002 proved that its safety and side
effects were dose dependent. However, as a single drug in Phase II trials,
VQD-002 failed to show efficacy against advanced breast, colon, and lung cancer
even at very high doses.
More
recently, researchers at Moffitt Cancer Center found that VQD-002 inhibits
Akt
activation and has antitumor activity as a single agent against tumors with
activated Akt. Inhibition of Akt activation plays a key role in VQD-002’s
antitumor activity. Thus, Phase I trials of VQD-002 have been initiated for
tumors with activated Akt using a modified dose and schedule of VQD-002 than
those previously used that caused toxicity.
We
filed
an IND with the FDA 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 in two Phase 1 clinical trials, including one at the Moffitt
Cancer Center in up to 42 patients with hyper-activated, phosphorylated Akt
in
solid tumors and a second clinical trial, with up to 40 patients, at the M.D.
Anderson Cancer Center and the Moffitt Cancer Center in hematological tumors,
with particular attention in leukemias. We expect to complete our Phase 1
studies in 2008. During 2008, the FDA granted orphan drug designation to VQD-002
for the treatment of multiple myeloma.
During
October 2007, preclinical study results were published demonstrating that
combining VQD-002 with trastuzumab (Herceptin® by Genentech) may be a clinically
applicable strategy to overcome trastuzumab resistance, particularly that caused
by loss of PTEN, a tumor suppressor protein. Trastuzumab resistance is a
clinically devastating problem and this study suggests a rational improvement
to
trastuzumab-based therapy, which could directly affect the clinical management
of breast cancer patients in general and particularly those with PTEN-deficient
tumors.
During
January 2008, preclinical study results were published demonstrating that
VQD-002 disrupts a specific signaling pathway associated with chemoresistance
and cancer cell survival in ovarian cancer. The preclinical study results
indicate that VQD-002 could play a role in reversing drug resistance in ovarian
cancer for patients treated with chemotherapy in the years ahead.
In
our
Phase I solid tumor study, VQD-002 was administered intravenously over a 28-day
cycle on days 1, 8, and 15. Cohorts of 3 patients received escalating doses
of
VQD-002 at 15, 25, 35, and 45 mg/m2. Patients had progressive disease despite
receiving a median of 3 prior treatment regimens (range 1-4). Preliminary Phase
I data from this solid tumor study demonstrated that VQD-002 could modulate
Akt
activity
in
vivo
and was
well tolerated; one melanoma subject had stable disease for 8
months.
In
our
Phase I hematological malignancy study, VQD-002 was administered intravenously
over a 28-day cycle on days 1, 8, and 15. Cohorts of 3 patients received
escalating doses of VQD-002 at 15, 25, 35, 45, 55 and 65 mg/m2. Patients had
progressive disease despite receiving a median of 3 prior treatment regimens
(range 1-4). Interim results of the Phase I trial in hematologic malignancy
presented at the 2007 American Society of Hematology (“ASH”) annual meeting
demonstrated that VQD-002 is well-tolerated and shows signs of clinical activity
in patients with advanced leukemias. The Phase I trial is designed to assess
the
safety, tolerability and pharmacokinetics of VQD-002 and to establish a
recommended Phase II dose for further studies among patients. In results
presented to date, a total of 38 patients have been enrolled at two clinical
sites. Twenty-nine patients are evaluable for toxicity and response, six
patients are evaluable for toxicity only, and three patients are not
evaluable.
Preliminary
results from this trial show that patients with relapsed, refractory acute
myeloid leukemia, or AML, experienced a decrease in peripheral blood
myeloblasts, a measure of clinical activity. In particular, four patients
treated at the 25 mg/m2 or 35 mg/m2 dose level of VQD-002 experienced up to
50
percent reductions in peripheral blast cells. Additional hematological
improvements included six patients achieving major improvements in platelet
count lasting up to 36 days and seven patients achieving major improvements
in
neutrophil count lasting up to 40 days while on therapy. VQD-002 was
well-tolerated at the doses studied.
Lenocta™
(sodium stibogluconate).
Lenocta
is a selective, small molecule inhibitor of certain protein tyrosine
phosphatases (“PTPs”), such as SHP-1, SHP-2 and PTP1B, with demonstrated
anti-tumor activity against a wide spectrum of cancers both alone and in
combination with other approved immune activation agents, including IL-2 and
interferons. PTPs are a family of proteins that regulate signal transduction
pathways in cells and have been implicated in a number of diseases including
cancer, diabetes, and neurodegeneration.
Lenocta
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 Lenocta 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 Lenocta
may be useful to treat certain other tumor types, including prostate
cancer.
The
preclinical data suggests that Lenocta 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 Lenocta’s
known historical toxicity profile, demonstrate that Lenocta is a potentially
attractive drug candidate to evaluate as an anti-cancer agent.
Phase
I
data from our combination trial of Lenocta and alpha interferon (“IFN
a
-2b”)
presented during an oral session at the 2008 American Society of Clinical
Oncology (ASCO) annual meeting demonstrated pharmacodynamic activity in some
solid tumors as demonstrated by increases in the activities of natural killer
cells, CD8 and type II dendritic cells, and two patients with ocular melanoma
(1) and adenocystic carcinoma (1) have remained stable by Response Evaluation
Criteria in Solid Tumors, or RECIST, on first assessment. There have been
seventeen subjects evaluable for response.
A
complete treatment cycle is for six weeks, with week 1 the patient is
intravenously dosed with Lenocta for five days as a monotherapy, week 2 the
patient is dosed with Lenocta and IFN
a
-2b,
week
3 is a rest period, weeks 4 and 5 the patient is dosed with Lenocta and IFN
a
-2b,
and
then there is a week rest before a subsequent cycle is initiated. Patients
have
been given five different dose cohorts: 400 mg/m2, 600 mg/m2, 900 mg/m2, 1350
mg/m2 and a dose reduced cohort of 1125 mg/m2. Lenocta with IFN
a
-2b
has
been well tolerated at doses up to 900 mg/m2. We plan to initiate an expansion
phase for 20 patients to have twelve subjects evaluable for response at a dose
of 900 mg/m2.
Additional
Potential Indication of Lenocta
As
we
continue to develop Lenocta for indications primarily used for an oncology
drug
candidate, we are also in the process of evaluating its potential development
as
a treatment for leishmaniasis. 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, including skin ulcers, partial or total destruction
of the mucus membrane, and irregular bouts of fever, substantial weight loss,
swelling of the spleen and liver, and anemia (occasionally serious). In
collaboration with the U.S. Army, through an executed Cooperative Research
and
Development Agreement, we are evaluating the potential development of Lenocta
in
the treatment of leishmaniasis. Lenocta was granted orphan drug designation
by
the FDA in the second half of 2006 for the treatment of leishmaniasis. The
Company has also convened an advisory board to evaluate the potential submission
of an NDA to the FDA for Lenocta for the treatment of leishmaniasis in
2008.
With
regard to leishmaniasis, Congress has created a new incentive for companies
to
invest in new drugs and vaccines for neglected tropical diseases. A provision
of
the Food and Drug Administration Amendments Act (HR 3580) awards a transferable
“priority review voucher” to any company that obtains approval for a treatment
for a neglected tropical disease. This provision adds to the market-based
incentives available for the development of new medicines for developing world
diseases such as leishmaniasis, tuberculosis and African sleeping sickness.
The
bill was signed into law on September 27, 2007.
The
statute authorizes the FDA to award a priority review voucher to the sponsor
of
a newly approved drug or biologic that targets a neglected tropical disease.
The
voucher, which is transferable and can be sold, entitles the bearer to a
priority review for another product. Under current Prescription Drug User Fee
Act (“PDUFA”) targets, the FDA aims to complete and act upon reviews of priority
drugs within 6 months instead of the standard 10 month review period. Actual
FDA
review timelines, however, can be longer than the target PDUFA review periods,
particularly for new products that haven’t previously been
approved.
To
qualify to receive a priority review voucher, a product must satisfy five
criteria:
|
|
(1)
|
The
application must be to treat or prevent a “neglected tropical disease” as
defined by the law and regulation;
|
|
|
(2)
|
The
drug or biologic must be a new molecular
entity;
|
|
|
(3)
|
The
application must have been submitted after enactment of the Food
&
Drug Administration Amendments Act (September 25,
2007);
|
|
|
(4)
|
It
must qualify for priority review under existing FDA procedures;
and
|
|
|
(5)
|
It
must be approved by the agency.
|
Economists
at Duke University, who published on this concept in 2006, estimated that
priority review can cut the
FDA
review process from an average of 18 months down to six months, shortening
by as
much as a full year the time it takes for the company’s drug to reach the
market. For a company with a top selling drug with a net present value close
to
$3 billion, the Duke researchers calculated the accelerated approval could
be
worth over $300 million.
Based
in
part on a third party analysis, we believe that FDA approval of an NDA
submission for Lenocta for the treatment of leishmaniasis could result in the
award of a priority review voucher. Accordingly, we are currently soliciting
preliminary, good faith, but non-binding indications of interest to partner
or
license the priority review voucher that VioQuest expects to
receive.
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 approximately 2008 for the treatment of leishmaniasis, 2008
for
Xyfid through a 510(k) submission, and 2013 for oncology indications of VQD-002
and then 2013 for oncology indications of Lenocta, if ever. In addition, as
we
continue the development of our product candidates, our research and development
expenses will significantly 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 to increase.
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 clinical
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.
Results
of Operations – For the Three Months Ended June 30, 2008 vs. June 30,
2007
Continuing
Operations:
The
Company has had no revenues from its continuing operations through June 30,
2008.
Research
and development, or R&D, expenses for the three months ended June 30, 2008
were $472,801 as compared to $950,844 during the three months ended June 30,
2007. R&D expense consists of clinical development costs, milestone license
fees, maintenance fees paid to our licensing institutions, outside manufacturing
costs, outside clinical research organization costs, regulatory and patent
filing costs associated with our three oncology compounds: Lenocta, VQD-002
and
Xyfid.
The
following table sets forth the research and development expenses per compound
for the periods presented.
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2008
|
|
2007
|
|
Cumulative
amounts during
development
|
|
|
Lenocta
|
|
$
|
68,376
|
|
$
|
426,683
|
|
$
|
3,233,700
|
|
|
VQD-002
|
|
|
286,928
|
|
|
259,663
|
|
|
3,713,518
|
|
|
Xyfid
|
|
|
117,497
|
|
|
264,498
|
|
|
1,312,558
|
|
|
Total
|
|
$
|
472,801
|
|
$
|
950,844
|
|
$
|
8,259,776
|
|
The
following table sets forth the research and development expenses for the three
months ended June 30, 2008 by expense category for our three oncology
compounds.
|
|
|
Drug Candidate
|
|
|
|
|
|
|
Lenocta
|
|
VQD-002
|
|
Xyfid
|
|
Three Months
Ended June 30,
2008
|
|
|
Clinical
Research Costs
|
|
$
|
7,208
|
|
$
|
142,565
|
|
$
|
25,283
|
|
$
|
175,056
|
|
|
Labor
Costs
|
|
|
29,842
|
|
|
77,588
|
|
|
11,936
|
|
|
119,366
|
|
|
Regulatory
/ Legal Fees
|
|
|
22,576
|
|
|
58,698
|
|
|
24,031
|
|
|
105,305
|
|
|
Licensing
/ Milestone Fees
|
|
|
8,750
|
|
|
6,250
|
|
|
-
|
|
|
15,000
|
|
|
Other
|
|
|
-
|
|
|
1,827
|
|
|
56,247
|
|
|
58,074
|
|
|
Total
|
|
$
|
68,376
|
|
$
|
286,928
|
|
$
|
117,497
|
|
$
|
472,801
|
|
The
following table sets forth the research and development expenses for the three
months ended June 30, 2007 by expense category for our three oncology
compounds.
|
|
|
Drug Candidate
|
|
|
|
|
|
|
Lenocta
|
|
VQD-002
|
|
Xyfid
|
|
Three Months
Ended June 30,
2007
|
|
|
Clinical
Research Costs
|
|
$
|
62,606
|
|
$
|
100,691
|
|
$
|
27,454
|
|
$
|
190,751
|
|
|
Labor
Costs
|
|
|
165,814
|
|
|
105,815
|
|
|
-
|
|
|
271,629
|
|
|
Regulatory
/ Legal Fees
|
|
|
161,161
|
|
|
16,791
|
|
|
-
|
|
|
177,952
|
|
|
Licensing
Fees
|
|
|
8,750
|
|
|
6,250
|
|
|
-
|
|
|
15,000
|
|
|
Other
|
|
|
28,352
|
|
|
30,116
|
|
|
237,044
|
|
|
295,512
|
|
|
Total
|
|
$
|
426,683
|
|
$
|
259,663
|
|
$
|
264,498
|
|
$
|
950,844
|
|
The
decrease in R&D expenses was primarily attributable to fees incurred
during 2007 to acquire the worldwide license to certain patents for Xyfid.
In
addition, there was a reduction in clinical research costs, offset by increased
labor costs and regulatory and legal fees related to our oncology drug
candidates. Our R&D expense for the three months ended June 30, 2008 is
primarily composed of outside clinical research organization costs (37%),
employee costs (25%) and outside regulatory and legal fees (22%), which have
been allocated to each of our three pharmaceutical product candidates. To
conserve funds, we will continue to complete our current ongoing Phase I and
Phase II studies for VQD-002 and Lenocta, respectively, however we will not
initiate any new clinical studies unless and until we receive additional
funding. We expect R&D spending to increase over the remainder of the year
as we continue our existing clinical development programs and incur costs
related to license fees, manufacturing of our products, regulatory costs, and
the hiring of additional people in the clinical development area, pending
available resources.
General
and administrative, or G&A, expenses for the three months ended June 30,
2008 were $554,753 as compared to $1,192,399 during the three months ended
June
30, 2007. This decrease in G&A expenses was primarily due to headcount
reductions which resulted in reduced employee and non-employee director stock
option expense in accordance with SFAS 123R as a result of forfeitures, a
reduction of bonus expense, and the lack of recruitment expenses and employment
agency fees.
Interest
expense, net of interest income, for the three months ended June 30, 2008 was
$103,110 as compared to interest income, net of interest expense, for the three
months ended June 30, 2007 of $6,391. Interest expense for the three months
ended June 30, 2008 was primarily composed of dividends payable on mandatorily
redeemable convertible preferred stock of $107,156, which was offset by interest
income earned on cash and cash equivalents of $4,046.
Our
loss
from continuing operations for the three months ended June 30, 2008 was
$1,130,664 as compared to $2,136,852 for the three months ended June 30, 2007.
The decreased loss from continuing operations in 2008 was attributable primarily
to planned reductions in R&D and G&A spending, as noted above.
We
recorded a non-cash beneficial conversion charge of $708,772 in April 2008
in
connection with the induced conversion of the Series B Preferred stock into
Series A Preferred Stock.
Results
of Operations – For the Six Months Ended June 30, 2008 vs. June 30,
2007
Continuing
Operations:
The
Company has had no revenues from its continuing operations through June 30,
2008.
R&D
expenses for the six months ended June 30, 2008 were $1,451,895 as compared
to
$2,319,655 during the six months ended June 30, 2007. R&D expense consists
of clinical development costs, milestone license fees, maintenance fees paid
to
our licensing institutions, outside manufacturing costs, outside clinical
research organization costs, regulatory and patent filing costs associated
with
our three oncology compounds, Lenocta, VQD-002 and Xyfid.
The
following table sets forth the research and development expenses per compound
for the periods presented.
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2008
|
|
2007
|
|
Cumulative
amounts during
development
|
|
|
Lenocta
|
|
$
|
353,706
|
|
$
|
883,209
|
|
$
|
3,233,700
|
|
|
VQD-002
|
|
|
817,541
|
|
|
737,287
|
|
|
3,713,518
|
|
|
Xyfid
|
|
|
280,648
|
|
|
699,159
|
|
|
1,312,558
|
|
|
Total
|
|
$
|
1,451,895
|
|
$
|
2,319,655
|
|
$
|
8,259,776
|
|
The
following table sets forth the research and development expenses for the six
months ended June 30, 2008 by expense category for our three oncology
compounds.
|
|
|
Drug
Candidate
|
|
|
|
|
|
|
Lenocta
|
|
VQD-002
|
|
Xyfid
|
|
Six Months
Ended June 30,
2008
|
|
|
Clinical
Research Costs
|
|
$
|
167,967
|
|
$
|
317,957
|
|
$
|
44,252
|
|
$
|
530,176
|
|
|
Labor
Costs
|
|
|
94,245
|
|
|
245,036
|
|
|
37,698
|
|
|
376,979
|
|
|
Regulatory
/ Legal Fees
|
|
|
73,694
|
|
|
191,605
|
|
|
44,478
|
|
|
309,777
|
|
|
Licensing
/ Milestone Fees
|
|
|
17,500
|
|
|
12,500
|
|
|
-
|
|
|
30,000
|
|
|
Other
|
|
|
300
|
|
|
50,443
|
|
|
154,220
|
|
|
204,963
|
|
|
Total
|
|
$
|
353,706
|
|
$
|
817,541
|
|
$
|
280,648
|
|
$
|
1,451,895
|
|
The
following table sets forth the research and development expenses for the six
months ended June 30, 2007 by expense category for our three oncology
compounds.
|
|
|
Drug
Candidate
|
|
|
|
|
|
|
Lenocta
|
|
VQD-002
|
|
Xyfid
|
|
Six Months
Ended June 30,
2007
|
|
|
Clinical
Research Costs
|
|
$
|
245,103
|
|
$
|
|
|
$
|
27,454
|
|
$
|
|
|
|
Labor
Costs
|
|
|
303,042
|
|
|
183,041
|
|
|
-
|
|
|
486,083
|
|
|
Regulatory
/ Legal Fees
|
|
|
238,025
|
|
|
76,839
|
|
|
37,490
|
|
|
352,354
|
|
|
Licensing
Fees
|
|
|
17,502
|
|
|
12,500
|
|
|
369,588
|
|
|
399,590
|
|
|
Other
|
|
|
79,537
|
|
|
70,128
|
|
|
264,627
|
|
|
414,292
|
|
|
Total
|
|
$
|
883,209
|
|
$
|
737,287
|
|
$
|
699,159
|
|
$
|
2,319,655
|
|
The
decrease in R&D expenses for the six months ended June 30, 2008 as compared
to the six months ended June 30, 2007 is primarily attributable to nonrecurring
fees incurred during 2007 to acquire the worldwide license to certain patents
for Xyfid. In addition, there was a reduction in clinical research costs, offset
by increased labor costs and regulatory and legal fees related to our oncology
drug candidates. Our R&D expense for the six months ended June 30, 2008 is
primarily composed of outside clinical research organization costs (37%),
employee costs of (26%) and outside regulatory and legal fees (21%), which
have
been allocated to each of our three pharmaceutical product candidates. To
conserve funds, we will continue to complete our current ongoing Phase I and
Phase II studies for VQD-002 and Lenocta, respectively, however we will not
initiate any new clinical studies unless and until we receive additional
funding. We expect R&D spending to increase over the remainder of the year
as we continue our existing clinical development programs and incur costs
related to license fees, manufacturing of our products, regulatory costs, and
the hiring of additional people in the clinical development area, pending
available resources.
G&A
expenses for the six months ended June 30, 2008 were $1,245,092 as compared
to
$2,106,050 for the six months ended June 30, 2007. This decrease in G&A
expenses in 2008 was primarily due to headcount reductions which resulted in
reduced employee and non-employee director stock option expense in accordance
with SFAS 123R as a result of forfeitures, a reduction of bonus expense, and
the
lack of recruitment expenses and employment agency fees.
Interest
expense, net of interest income, for the six months ended June 30, 2008 was
$1,514,658 as compared to interest income, net of interest expense, for the
six
months ended June 30, 2007 of $32,075. Interest expense for the six months
ended
June 30, 2008 was primarily composed of interest expenses recorded upon the
extinguishment of the Bridge Notes of $1,399,524 and dividends payable on
mandatorily redeemable convertible preferred stock of $122,103, which was offset
by interest income earned on cash and cash equivalents of $6,969.
Our
loss
from continuing operations for the six months ended June 30, 2008 was $4,211,645
as compared to $4,393,630 for the six months ended June 30, 2007. The decreased
loss from continuing operations in 2008 was attributable primarily to interest
expenses recorded upon the extinguishment of the Bridge Notes, offset by planned
reductions in R&D and G&A spending, as noted above.
We
recorded a non-cash beneficial conversion charge of $708,772 in April 2008
in
connection with the induced conversion of the Series B Preferred stock into
Series A Preferred Stock.
Discontinued
Operations:
Our
loss
from discontinued operations for the three and six months ended June 30, 2007
was $335,422 and $596,897, respectively. There were no discontinued operations
for the three or six months ended June 30, 2008 due to the completion of the
sale of Chiral Quest to CQAC during the third quarter of 2007.
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
Greenwich Therapeutics, Inc., a privately-held New York-based biotechnology
company that held exclusive rights to develop and commercialize two oncology
drug candidates: Lenocta and VQD-002. The rights to these two oncology drug
candidates 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 Lenocta and VQD-002. In March 2007, we acquired license rights to
develop and commercialize Xyfid an adjunctive therapy for a common and serious
side effect of cancer chemotherapy. Our rights to Xyfid are governed by a
license agreement with Asymmetric Therapeutics, LLC and Onc Res, Inc., as
assigned to us by Fiordland Pharmaceuticals, Inc., an entity affiliated with
Dr.
Rosenwald, who is a significant stockholder of our Company.
As
a
result of acquiring the license rights to Lenocta, VQD-002 and Xyfid, we
immediately undertook funding their development, which has significantly
increased our expected cash expenditures and will continue to increase our
expected cash expenditures over the next 12 months and thereafter. The
completion of development of Lenocta, VQD-002 and Xyfid, all of which are only
in early stages of clinical development, is a very lengthy and expensive
process. Until such development is complete and the FDA (or the comparable
regulatory authorities of other countries) approves Lenocta, VQD-002, or Xyfid
for sale, we will not be able to sell these products and generate
revenues.
Since
inception, we have incurred an accumulated deficit of $44,352,714 through June
30, 2008. For the six months ended June 30, 2008 we had losses from continuing
operations of $4,211,645 and used $2,605,956 in cash from continuing operating
activities. As of June 30, 2008, we had a working capital deficit of $1,561,563
and cash and cash equivalents of $814,477. As a result, we have insufficient
funds to cover our current obligations or future operating expenses. To conserve
funds, we will continue to complete our current ongoing Phase I and Phase II
studies for VQD-002 and Lenocta, respectively, however we will not initiate
any
new clinical studies unless and until we receive additional funding. We expect
our operating losses to increase over the next several years, due to the
expansion of our drug development business, and related costs associated with
the clinical development programs of Lenocta, VQD-002 and Xyfid, in addition
to
costs related to license fees, manufacturing of our products, regulatory costs,
and the hiring of additional people in the clinical development area, pending
available resources. These matters raise substantial doubt about our ability
to
continue as a going concern.
We
anticipate that our capital resources will be adequate to fund our operations
into the third quarter of 2008. Additional financing will be required during
the
third quarter of 2008 in order to continue to fund continuing operations. The
most likely sources of additional financing include the private sale of the
Company’s equity or debt securities, including bridge loans to the Company from
third party lenders, or by potentially sublicensing our rights to our products.
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 our 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.
Our
net
cash used in continuing operating activities for the six months ended June
30,
2008 was $2,605,956. Our net cash used in continuing operating activities
primarily resulted from a net loss applicable to common stockholders of
$4,920,417 offset partially by noncash items consisting primarily of the impact
of expensing employee and director stock options in accordance with SFAS 123R
of
$360,233, amortization of the discount on our bridge note of $1,399,524,
dividends payable on mandatorily redeemable convertible preferred stock of
$122,103, the value of a beneficial conversion feature of $708,772, and
depreciation of $4,650. Other uses of cash in continuing operating activities
include an increase in prepaid clinical research organization costs of $79,619
and accrued expenses of $516,356 (largely comprised of clinical development
costs, professional fees and compensation), offset by an increase in other
assets of $18,326 and accounts payable of $297,650 in an effort to conserve
cash.
We
did
not use or provide cash from continuing investing activities for the six months
ended June 30, 2008.
Our
net
cash provided by continuing financing activities for the six months ended June
30, 2008 was $2,725,877, which was attributed to the issuance of preferred
stock
to investors for gross proceeds of approximately $3.0 million.
We
currently have three full-time employees and two consultants. We anticipate
hiring additional full-time employees in the medical and clinical functions,
pending available resources. We intend to and 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 three products,
currently in Phase I/IIa clinical trials, over the next twelve months we expect
to spend approximately $5.0 million on clinical trials and research and
development (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 from which we licensed
our two oncology compounds, salaries and consulting fees, pre-clinical work
and
laboratory studies), approximately $200,000 on facilities, rent and other
facilities costs, and approximately $1.4 million on general corporate and
working capital.
On
June
29, 2007 and July 3, 2007 we issued a series of convertible promissory notes
resulting in aggregate gross proceeds of $3.7 million. We also issued to
investors five-year warrants to purchase an aggregate of approximately 243,000
shares of the Company’s common stock at an exercise price of $4.00 per share.
Based upon the Black-Scholes option pricing model, the investor warrants were
estimated to be valued at approximately $909,000. In connection with the
offering, we engaged Paramount as one of our placements agents. Dr. Lindsay
A.
Rosenwald is the Chairman, CEO and sole stockholder of Paramount and a
substantial stockholder of the Company. Stephen C. Rocamboli, a director of
the
Company, was employed by Paramount at the time of the Company’s engagement. In
consideration for the placement agents’ services, we paid an aggregate of
approximately $256,000 in commissions to the placement agents in connection
with
the offering, of which $119,700 was paid to Paramount. We also paid to placement
agents approximately $24,000 as a non-accountable expense allowance. In
addition, we issued placement agents five-year warrants to purchase an aggregate
of approximately 120,000 shares of common stock, of which 45,000 shares of
common stock were issued to Paramount, which are exercisable at a price of
$4.20
per share. Based upon the Black-Scholes option pricing model, the placement
agents’ warrants were estimated to be valued at approximately
$430,000.
On
July
16, 2007, we completed the sale of our discontinued operations Chiral Quest
and
received $1.7 million in gross proceeds, of which we recognized $197,000 in
accrued compensation costs related to a severance agreement and retention
bonuses payable to certain key employees. Additionally, the purchaser assumed
liabilities in the aggregate amount of approximately $807,000 pursuant to the
purchase agreement.
On
March
14, 2008, we issued 765 shares of Series A Preferred stock at a price of $1,000
per share resulting in aggregate gross proceeds of $765,000. Each share of
Series A Preferred stock sold is convertible into shares of the Company's common
stock at $0.60 per share, or approximately 1.275 million shares of common stock
in the aggregate. We also issued to investors five-year warrants to purchase
an
aggregate of approximately 640,000 shares of our common stock at an exercise
price of $1.00 per share. Based upon the Black-Scholes option pricing model,
the
investor warrants are estimated to be valued at approximately $701,000. In
connection with the offering, we engaged Paramount as our placement agent.
Dr.
Lindsay A. Rosenwald is the Chairman, CEO and sole stockholder of Paramount
and
a substantial stockholder of the Company. Dr. Rosenwald participated in this
financing, through a family investment partnership, of which he is the managing
member. The family investment partnership purchased 500 shares of Series A
Preferred stock and received warrants to purchase 416,700 shares of common
stock. In consideration for the placement agent’s services, we paid an aggregate
of approximately $54,000 in commissions to Paramount in connection with the
offering. We also paid $35,000 to Paramount as a non-accountable expense
allowance. In addition, we issued five-year warrants to purchase an aggregate
of
approximately 127,500 shares of common stock to Paramount, which are exercisable
at a price of $0.80 per share. Based upon the Black-Scholes option pricing
model, the warrants issued to Paramount were estimated to be valued at
approximately $140,000. The Series A Preferred stock shall be entitled to an
annual dividend equal to 6% of the applicable issuance price per annum, payable
semi-annually in cash or shares of common stock, at the option of the Company.
If the Company chooses to pay the dividend in shares of common stock, the price
per share of common stock to be issued shall be equal to 90% of the average
closing price of the common stock for the 20 trading days prior to the date
that
such dividend becomes payable. As a condition to the initial closing of the
private placement, the majority of the holders of the June 29, 2007 and July
3,
2007 convertible promissory notes agreed to convert such notes, together with
accrued interest, into approximately 3,910 shares of the Company’s
newly-designated Series B Preferred stock. The Series B Preferred stock contains
substantially the same economic terms as the previously outstanding senior
convertible notes.
On
April
9, 2008, we issued 2,194.5 shares of Series A Preferred stock at a price of
$1,000 per share resulting in aggregate gross proceeds of $2,195,000. Each
share
of Series A Preferred stock sold is convertible into shares of the Company's
common stock at $0.60 per share, or approximately 3.66 million shares of common
stock in the aggregate. In addition, we issued 505 shares of Series A Preferred
stock to two investors that converted their Series B Preferred stock into Series
A Preferred stock on a dollar-for-dollar basis. We also issued to investors
five-year warrants to purchase an aggregate of approximately 1.83 million shares
of our common stock at an exercise price of $1.00 per share. Based upon the
Black-Scholes option pricing model, the investor warrants are estimated to
be
valued at approximately $1,828,000. In connection with the offering, we engaged
Paramount as our placement agent. In consideration for the placement agent’s
services, the Company paid an aggregate of approximately $153,000 in commissions
to Paramount in connection with the offering. In addition, the Company issued
to
Paramount five-year warrants to purchase an aggregate of approximately 366,000
shares of common stock, which are exercisable at a price of $0.80 per share.
Based upon the Black-Scholes option pricing model, the warrants issued to
Paramount were estimated to be valued at approximately $366,000. The Series
A
Preferred stock shall be entitled to an annual dividend equal to 6% of the
applicable issuance price per annum, payable semi-annually in cash or shares
of
common stock, at the option of the Company. If the Company chooses to pay the
dividend in shares of common stock, the price per share of common stock to
be
issued shall be equal to 90% of the average closing price of the common stock
for the 20 trading days prior to the date that such dividend becomes payable.
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.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
We
have
no material exposures relating to our debt, as our debt bears interest at fixed
rates.
Forward-looking
Information
An
investment in our securities involves a high degree of risk. Prior to making
an
investment, prospective investors should carefully consider the following
factors, among others, and seek professional advice. In addition, this Form
10-Q
contains certain “forward-looking statements” within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. Such forward-looking
statements, which are often identified by words such as “believes”,
“anticipates”, “expects”, “estimates”, “should”, “may”, “will” and similar
expressions, represent our expectations or beliefs concerning future events.
Numerous assumptions, risks, and uncertainties could cause actual results to
differ materially from the results discussed in the forward-looking statements.
Prospective purchasers of our securities should carefully consider the
information contained herein or in the documents incorporated herein by
reference.
This
Form
10-Q contains certain estimates, predictions, projections and other
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934) that involve
various risks and uncertainties. While these forward-looking statements, and
any
assumptions upon which they are based, are made in good faith and reflect
management’s current judgment regarding the direction of the business, actual
results will almost always vary, sometimes materially, from any estimates,
predictions, projections, or other future performance suggested
herein
.
Such
factors include, but are not limited to, the following:
|
|
·
|
the
possibility that the results of clinical trials will not be
successful;
|
|
|
·
|
the
possibility that our development efforts relating to our product
candidates, including Lenocta, VQD-002 and Xyfid, will not be
successful;
|
|
|
·
|
the
inability to obtain regulatory approval of our product
candidates;
|
|
|
·
|
our
reliance on third-parties to develop our product
candidates;
|
|
|
·
|
our
lack of experience in developing and commercializing pharmaceutical
products;
|
|
|
·
|
the
possibility that our licenses to develop and commercialize our product
candidates may be terminated;
|
|
|
·
|
our
ability to obtain additional financing;
and
|
|
|
·
|
our
ability to protect our proprietary
technology.
|
Any
forward-looking statement speaks only as of the date on which it is made. For
further details and a discussion of these and other risks and uncertainties,
investors and security holders are cautioned to review the VioQuest 2007 Annual
Report on Form 10-KSB, including the Forward-Looking Statement section therein,
and other subsequent filings with the U.S. Securities and Exchange Commission
including Current Reports on Form 8-K. The Company undertakes no obligation
to
publicly release the result of any revisions to any such forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Item
4T. Controls and Procedures.
Under
the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures as required by Exchange
Act Rule 13a-15(b) as of the end of the period covered by this report. Based
on
that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures were not effective
due
to a lack of segregation of duties in our accounting and financial functions.Due
to our lack of sufficient capital, management has concluded that with certain
oversight controls that are in place, the risks associated with the lack of
segregation of duties are not sufficient to justify the costs of potential
benefits to be gained by adding additional employees at this time. Management
will periodically reevaluate this situation. If we secure sufficient capital
it
is our intention to increase staffing to mitigate the current lack of
segregation of duties within the accounting and financial functions.
Report
of Management on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Internal control over
financial reporting is a process to provide reasonable assurance regarding
the
reliability of our financial reporting for external purposes in accordance
with
accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes maintaining records that
in
reasonable detail accurately and fairly reflect our transactions; providing
reasonable assurance that transactions are recorded as necessary for preparation
of our consolidated financial statements; providing reasonable assurance that
receipts and expenditures of company assets are made in accordance with
management authorization; and providing reasonable assurance that unauthorized
acquisition, use or disposition of company assets that could have a material
effect on our consolidated financial statements would be prevented or detected
on a timely basis. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a
misstatement of our consolidated financial statements would be prevented or
detected.
Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that the Company’s
internal control over financial reporting was effective as of June 30, 2008.
There
were no changes in our internal control over financial reporting during
the three months ended June 30, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II – OTHER INFORMATION
Item
1A. Risk Factors
There
have been no material changes to our risk factors and uncertainties during
the
six months ended June 30, 2008. For a discussion of the Risk Factors, refer
to
the “Risk Factors” section of Item 1 in the Company's Annual Report on Form
10-KSB for the period ended December 31, 2007.
Item
6. Exhibits
|
Exhibit
No.
|
|
Description
|
|
|
10.1
|
|
Form
of Stock Option Agreement dated June 13, 2008 between VioQuest
Pharmaceuticals, Inc. and Michael Becker (incorporated by reference
to
Exhibit 10.2 of the Company’s Form 8-K filed on June 19,
2008)
|
|
|
10.2
|
|
Form
of Stock Option Agreement dated June 13, 2008 between VioQuest
Pharmaceuticals, Inc. and Brian Lenz (incorporated by reference to
Exhibit
10.3 of the Company’s Form 8-K filed on June 19, 2008)
|
|
|
10.3
|
|
Form
of Director Stock Option Agreement dated June 13, 2008 (incorporated
by
reference to Exhibit 10.4 of the Company’s Form 8-K filed on June 19,
2008)
|
|
|
10.4
|
|
Form
of Amendment to Stock Option Agreement dated June 13, 2008 (incorporated
by reference to Exhibit 10.5 of the Company’s Form 8-K filed on June 19,
2008)
|
|
|
10.5
|
|
List
of Stock Option Agreements to be amended by the Form attached hereto
as
Exhibit 10.3 (incorporated by reference to Exhibit 10.6 of the Company’s
Form 8-K filed on June 19, 2008)
|
|
|
10.6
|
|
Amendment
dated June 13, 2008 to Stock Option Agreement dated November 21,
2007
between VioQuest Pharmaceuticals, Inc. and Michael Becker for 501,334
shares (incorporated by reference to Exhibit 10.7 of the Company’s Form
8-K filed on June 19, 2008)
|
|
|
10.7
|
|
Amendment
dated June 13, 2008 to Stock Option Agreement dated November 21,
2007
between VioQuest Pharmaceuticals, Inc. and Michael Becker for 29,974
shares (incorporated by reference to Exhibit 10.8 of the Company’s Form
8-K filed on June 19, 2008)
|
|
|
10.8
|
|
Employment
Amendment dated July 18, 2008 between VioQuest Pharmaceuticals, Inc.
and
Christopher P. Schnittker (incorporated by reference to Exhibit 10.1
of
the Company’s Form 8-K filed on July 24, 2008)
|
|
|
10.9
|
|
2003
Stock Option Plan, as amended (incorporated by reference to Exhibit
10.2
of the Company’s Form 8-K filed on July 24, 2008)
|
|
|
31.1
|
|
Certification
of Chief Executive Officer
|
|
|
31.2
|
|
Certification
of Chief Financial Officer
|
|
|
32.1
|
|
Certification
of Chief Executive Officer 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: August 19, 2008
|
By:
|
/s/ Michael D. Becker
|
|
|
|
|
Michael D. Becker
President & Chief Executive Officer
|
|
|
|
|
|
|
|
Date: August 19, 2008
|
By:
|
/s/ Christopher P. Schnittker
|
|
|
|
|
Christopher P. Schnittker
Vice President & Chief Financial Officer
|
|
INDEX
TO EXHIBITS FILED WITH THIS REPORT
|
Exhibit
No.
|
|
Description
|
|
|
31.1
|
|
Certification
of Chief Executive Officer
|
|
|
31.2
|
|
Certification
of Chief Financial Officer
|
|
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002
|
|
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