Filed
Pursuant to Rule 424(b)(3)
File
No.
333-138782
PROSPECTUS
SUPPLEMENT NO. 1
(To
Prospectus Dated April 13, 2007)
VioQuest
Pharmaceuticals, Inc.
47,798,626
Shares
Common
Stock
The
information contained in this Prospectus Supplement amends and updates our
prospectus dated April 13, 2007 (the “Prospectus”), and should be read in
conjunction therewith. Please keep this Prospectus Supplement with your
Prospectus for future reference.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
supplement or the Prospectus is truthful or complete. Any representation to
the
contrary is a criminal offense.
The
date of this Prospectus Supplement is May 15, 2007
Forward-Looking
Information
This
prospectus supplement, including the documents that we incorporate by reference,
contains forward-looking statements. Any statements about our expectations,
beliefs, plans, objectives, assumptions or future events or performance are
not
historical facts and may be forward-looking. These statements are often, but
not
always, made through the use of words or phrases such as anticipate, estimate,
plan, project, continuing, ongoing, expect, management believes, we believe,
we
intend and similar words or phrases. Accordingly, these statements involve
estimates, assumptions and uncertainties that could cause actual results to
differ materially from those expressed in them. Any forward-looking statements
are qualified in their entirety by reference to the factors discussed in this
prospectus or incorporated by reference.
Because
the factors discussed in this prospectus or incorporated by reference could
cause actual results or outcomes to differ materially from those expressed
in
any forward-looking statements made by us or on our behalf, you should not
place
undue reliance on any such forward-looking statements. These statements are
subject to risks and uncertainties, known and unknown, which could cause actual
results and developments to differ materially from those expressed or implied
in
such statements. Such risks and uncertainties relate to, among other factors:
the development of our drug candidates; the regulatory approval of our drug
candidates; our use of clinical research centers and other contractors; our
ability to find collaborative partners for research, development and
commercialization of potential products; acceptance of our products by doctors,
patients or payors; our ability to market any of our products; our history
of
operating losses; our ability to compete against other companies and research
institutions; our ability to secure adequate protection for our intellectual
property; our ability to attract and retain key personnel; availability of
reimbursement for our product candidates; the effect of potential strategic
transactions on our business; our ability to obtain adequate financing; and
the
volatility of our stock price. These and other risks are detailed in the
prospectus under the discussion entitled “Risk Factors,” as well as in our
reports filed from time to time under the Securities Act and/or the Exchange
Act. You are encouraged to read these filings as they are made.
Further,
any forward-looking statement speaks only as of the date on which it is made,
and we undertake no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for us to predict
which
factors will arise. In addition, we cannot assess the impact of each factor
on
our business or the extent to which any factor, or combination of factors,
may
cause actual results to differ materially from those contained in any
forward-looking statements.
Interim
Financial Statements - Quarter Ended March 31, 2007
Included
in this prospectus supplement beginning at page F-1 are our interim financial
statements as of and for the three months ended March 31, 2007, included the
accompanying footnotes thereto. These interim financial statements, which were
included in our Quarterly Report on Form 10-QSB for the quarter ended March
31,
2007, should be read in conjunction with the audited financial statements as
of
and for the year ended December 31, 2006, which were included in the
Prospectus.
Management's
Discussion and Analysis or Plan
of Operation.
The
following discussion of our financial condition
and results of operations should be read in conjunction with the financial
statements and the notes to those statements included in this prospectus
supplement. This discussion includes forward-looking statements that
involve risks and uncertainties. As a result of many factors, such as
those set forth under "Risk Factors" in the Prospectus, our actual results
may
differ materially from those anticipated in these forward-looking
statements.
Overview
Through
our drug development business, we acquire, develop, and commercialize innovative
products for the treatment of key unmet medical needs in cancer and
immunological diseases. Through our acquisition of Greenwich Therapeutics,
Inc.
in October 2005, we obtained the rights to develop, manufacture, use,
commercialize, lease, sell and/or sublicense Lenocta™ (sodium stibogluconate)
and VQD-002 (triciribine phosphate) through license agreements with The
Cleveland Clinic Foundation and the University of South Florida Research
Foundation, respectively. We have initiated four Phase I/IIa clinical trials
since acquiring the license rights to Lenocta™ and VQD-002. In March 2007, we
obtained an exclusive, worldwide license to certain patents, relating to Xyfid™
from Fiordland Pharmaceuticals, Inc.
l Lenocta™
- Sodium Stibogluconate (SSG).
Lenocta™
is a pentavalent antimonial drug that has been in use for over 50 years in
parts
of Africa and Asia for the treatment of leishmaniasis (a protozoan disease).
According to the World Health Organization leishmaniasis currently threatens
350
million men, women, and children in 88 countries around the world. This drug
is
currently being used to treat military personnel serving in parts of the world
where leishmaniasis is prevalent. In collaboration with the U.S. Army, we are
pursuing development of Lenocta™ in the treatment of leishmaniasis and
anticipate filing a new drug application, or NDA, with the U.S. Food and Drug
Administration, or FDA, in the second half of 2007. In December 2006, Lenocta™
received orphan drug designation by the FDA for the treatment of leishmaniasis.
In addition to the treatment for leishmaniasis, several preclinical
studies, especially those conducted at the Cleveland Clinic, have showed that
Lenocta™ is an inhibitor of multiple protein tyrosine phosphatases (PTPases),
specifically the SRC homology PTPase (SHP-1 & SHP-2) and PTB-1B. These
intracellular enzymes are involved in signaling pathways of many receptor-linked
tyrosine kinases which are involved in growth, proliferation and differentiation
of cancer cells. Inhibition of these enzymes with Lenocta™ can trigger
apoptosis, or cell death, of cancerous tumors. This cytotoxic effect, coupled
with its potential ability to enhance the body’s immune system, through improved
cytokine signaling and t-cell formation, suggest that Lenocta™ has potential as
an anti-cancer agent. It is well known that one major mechanism of regulating
the proliferation, growth and apoptosis of cancer cells involves activation
of
cellular pathways, especially protein tyrosine kinase pathways; the Jak/Stat
pathway is a particularly important protein tyrosine kinase pathway. It is
also
known that interferon and other cytokines exert their anti-cancer effects via
the Jak/Stat pathway. We filed with the FDA an IND for Lenocta™, which the FDA
accepted in August 2006, allowing us to commence clinical trials of Lenocta™.
Lenocta™ is currently being evaluated in combination with IFN a-2b
in a
24-patient investigator-sponsored Phase I clinical trial at the Cleveland Clinic
Taussig Cancer Center in refractory solid tumors, lymphoma and myeloma. We
are
also currently evaluating the safety, tolerability and activity of Lenocta™ in a
separate, company-sponsored study of up to a 54-patient Phase I/IIa clinical
trial at M.D. Anderson Cancer Center in patients with advanced malignancies
and
solid tumors that have been non-responsive in previous cytokine
therapy.
l VQD-002
- Triciribine-Phosphate (TCN-P). VQD-002,
a nucleoside analog, was previously advanced into clinical trials by the
National Cancer Institute in the 1980s and early 1990s, and showed compelling
anti-cancer activities. More recently, investigators at the Moffitt Cancer
Center of the University of South Florida were able to demonstrate from
preclinical studies that VQD-002’s mechanism of action is the inhibition of Akt
phosphorylation (protein kinase - B), which is found to be over activated and
over-expressed in various malignancies including breast, ovarian, colorectal,
and pancreatic and leukemias. Clinically, the over expression of phosphorylated
Akt is associated with poor prognosis, resistance to chemotherapy and shortened
survival time of cancer patients. We filed with the FDA an IND relating to
VQD-002, which was accepted in April 2006. Pursuant to this IND, we are
currently evaluating the safety, tolerability and activity of VQD-002 and its
ability to reduce Akt phosphorylaion in two Phase I/IIa clinical trials,
including one at the Moffitt Cancer Center in up to 42 patients with
hyper-activated, phosphorylated Akt in colorectal, pancreatic, breast and
ovarian tumors and a second clinical trial, with up to 40 patients, at the
M.D.
Anderson Cancer Center in hematological tumors, with particular attention in
leukemia.
l Xyfid™. Xyfid™
is
a topical, adjunctive therapy which has shown early clinical promise in the
treatment and prevention of Hand-Foot Syndrome (HFS), a common, often
dose-limiting and potentially life-threatening complication of several drug
regimens, commonly used in the treatment of patients with breast, colon, and
other cancers. HFS, also known as palmar-plantar erythrodysesthesia
syndrome (PPES), is commonly seen in patients receiving capecitabine (Xeloda™)
and has been associated with other fluoropyrimidines (5-FU) and anthracyclines.
In addition, HFS is being seen in patients receiving some of the newer tyrosine
kinase class of therapies sorafenib (Nexavar™). Incidence of HFS can be as high
as 50% in patients receiving initial chemotherapy with higher dose regimens
of
capecitabine.
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 2007 for the treatment of leishmaniasis, 2009
for
Xyfid™, and 2010 for oncology indications of VQD-002 and then 2011for oncology
indications of Lenocta™, if ever. In addition, as we continue the development of
our product candidates, our research and development expenses will further
increase. To the extent we are successful in acquiring additional product
candidates for our development pipeline, our need to finance further research
and development will continue 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 March 31, 2007 vs. March 31, 2006
Continuing
Operations:
The
Company has had no revenues from its continuing operations through March 31,
2007.
Research
and development, (“R&D”), expenses for the three months ended March 31, 2007
were $1,368,811 as compared to $289,646 during the three months ended March
31,
2006. R&D consists of clinical development costs, milestone license fees,
maintenance fees paid to our licensing institutions, outside manufacturing
costs, outside clinical research organization costs, in addition to regulatory
and patent filing costs associated to our two oncology compounds Lenocta™ and
VQD-002 currently in clinical trials, in addition to the license acquisition
costs of Xyfid™ in March 2007. The increase in R&D expenses for the three
months ended March 31, 2007 is primarily attributed to the license acquisition
for Xyfid™ of approximately $435,000, which consists of license fees, patent
costs, stock options issued, finder’s fee, and diligence analysis costs. The
Company also incurred clinical development costs for its oncology drug
candidate’s VQD-002 of approximately $478,000 and Lenocta™ of approximately
$457,000. Our R&D increase for the first quarter 2007 also consists of
outside regulatory and legal fees of approximately $137,000, employee costs
of
approximately $155,000, outside clinical research organization costs of
approximately $376,000 and outside manufacturing costs of approximately $13,000,
which have been allocated to each of our three pharmaceutical product
candidates. For the remainder of the year, and going forward, we expect R&D
spending related to our existing product candidates Lenocta™, VQD-002 and
Xyfid™ to increase as we expand our clinical trials.
Selling,
general and administrative (“SG&A”) expenses for the three months ended
March 31, 2007 were $911,344 as compared to $767,941 during the three months
ended March 31, 2006. This increase in SG&A expenses was due in part to the
impact of expensing employee and director stock options in accordance with
SFAS
123R of approximately $222,000, additional spending on conference expenses,
increased travel expenses for new business development opportunities and higher
administrative expenses associated with having more employees including our
Chief Scientific Officer hired in February 2007, our Vice President of Clinical
Operations and Regulatory Affairs hired in October 2006, in addition to other
related employee costs such as increased insurance, and employer payroll taxes
and increased rent expense as a result of expanding our leased corporate
headquarters facility in Basking Ridge, New Jersey in November 2006.
Depreciation
expense for the three months ended March 31, 2007 were $2,307 as compared to
$1,414 during the three months ended March 31, 2006. This increase was primarily
related to the fixed asset purchases for office and computer equipment for
our
leased corporate headquarters facility, in Basking Ridge, New Jersey.
Interest
income, net of interest expense for the three months ended March 31, 2007 was
$25,684 as compared to $47,031 for the three months ended March 31, 2006.
Interest income received during the three months ended March 31, 2007 was
approximately $28,000, which was offset by interest expense of approximately
$3,000 for the repayment of the final one third amount of debt owed, of
approximately $189,000 to Paramount BioSciences, LLC, which was assumed as
part
of the October 2005 acquisition of Greenwich Therapeutics.
Our
loss
from continuing operations for the three months ended March 31, 2007 was
$2,256,778 as compared to $1,011,970 for the three months ended March 31, 2006.
The increased loss from continuing operations for the three months ended March
31, 2007 as compared to the three months ended March 31, 2006 was attributable
to higher SG&A expenses, due in part to the impact of expensing employee and
director stock options of approximately $222,000 in accordance with SFAS 123R,
additional spending on conference expenses, increased travel expenses for new
business development opportunities and higher administrative expenses associated
with having more employees which include the Chief Scientific Officer hired
in
February 2007, the Vice President of Clinical Operations and Regulatory Affairs
hired in October 2006, in addition to other related employee costs such as
increased insurance, and employer payroll taxes and increased rent expense
for
the expansion of space for our leased corporate headquarter facility in Basking
Ridge, New Jersey. Increased R&D expenses also contributed to the higher
loss from continuing operations for the three months ended March 31, 2007 as
compared to the three months ended March 31, 2006, which were related to our
drug development costs, including, outside clinical research organization and
manufacturing costs, maintenance and licensing fees provided to the institutions
we licensed Lenocta™ and VQD-002 from, in addition to other clinical development
costs for the Lenocta™ and VQD-002 programs. Additionally, R&D expense
increased as a result of acquiring the worldwide license to certain
patents for Xyfid™ in March 2007. We expect losses to continue in the next year
from the costs associated with the drug development process related to
developing our drug candidates.
Discontinued
Operations:
Our
loss
from discontinued operations for the three months ended March 31, 2007 was
$261,475 as compared to $849,777 for the three months ended March 31, 2006.
The
decreased loss from discontinued operations for the three months ended March
31,
2007 as compared to March 31, 2006 was primarily attributable to increased
revenues in addition to lower employee costs as a result of reductions in
headcount in our Monmouth Junction, New Jersey facility in the fourth quarter
of
2006.
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 the Company’s 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 Assymetric
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
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.
Since
inception, we have incurred an accumulated deficit of $31,058,809 through March
31, 2007. For the three months ended March 31, 2007, we had losses from
continuing operations of $2,256,778, and used $1,347,108 in cash from continuing
operating activities. As of March 31, 2007, we had a working capital deficiency
of $666,723 and cash and cash equivalents of $1,141,227. Management expects
our
losses to increase over the next several years, due to the expansion of its
drug
development business, costs associated with the clinical development of
Lenocta™, VQD-002 and Xyfid™. These matters raise substantial doubt about our
ability to continue as a going concern.
Management
anticipates that the Company’s capital resources will be adequate to fund its
operations into the third quarter of 2007, which is based upon our ability
to
complete our proposed sale of our Chiral Quest subsidiary to CQAC for aggregate
gross proceeds of $1,700,000 during the second quarter of 2007. In addition,
CQAC will assume the current liabilities of Chiral Quest in an amount up to
$1,300,000. The Company estimates that the net proceeds to be received from
the
sale of Chiral Quest will be $1,528,000, based upon the payments of retention
bonuses to its employees of approximately $122,000 and legal and accounting
fees
of approximately $50,000. The completion of the sale is predicated upon the
approval of the purchase agreement by the Company’s shareholders at the upcoming
annual meeting, as well as other customary closing conditions and management
cannot assure that the sale will be completed and that the consideration from
the sale will be received. See Note 5.
Additional
financing will be required during 2007 in order to continue to fund continuing
operations. The other most likely sources of additional financing include the
private sale of the Company’s equity or debt securities, or bridge loans to the
Company from third party lenders. However, changes may occur that would consume
available capital resources before that time. The Company’s working capital
requirements will depend upon numerous factors, which include, the progress
of
its drug development and clinical programs, including associated costs relating
to milestone payments, maintenance and license fees, manufacturing costs, patent
costs, regulatory approvals, and the hiring of additional employees.
Our
net
cash used in continuing operating activities for the three months ended March
31, 2007 was $1,347,108. Our net cash used in operating activities primarily
resulted from a net loss of $2,518,253 offset by a loss from discontinued
operations of $261,475, non-cash items consisting of the impact of expensing
employee and director stock options in accordance with SFAS 123R of $221,771,
the impact of expensing scientific advisory board member consultants’ options
and non-employee finder’s fee options related to the license acquisition of
Xyfid™ in accordance with Emerging Issues Task Force (“EITF”) 96-18 for $53,178,
and depreciation of $2,307. Other uses of cash in continuing operating
activities include a decrease in prepaid clinical research organization costs
of
$17,215 attributed to our two oncology compounds' development, offset by an
increase in other assets of $100,907. Additional increases in cash from
continuing operations included an increase in accounts payable of $759,403
offset by a decrease of accrued expenses of $43,297, which was attributed to
clinical development costs, legal, accounting fees, in addition to accrued
compensation.
Our
net
cash used in continuing investing activities for the three months ended March
31, 2007 totaled $2,277, which resulted from capital expenditures which were
attributable to the purchases of computer and office equipment for the Basking
Ridge, New Jersey facility.
Our
net
cash used in continuing financing activities for the three months ended March
31, 2007 resulted in a partial repayment of debt for $75,000 owed to Paramount
BioSciences, LLC, with an outstanding debt balance of $189,623 to be paid in
the
first half of 2007, which was attributable to the acquisition of Greenwich
Therapeutics, Inc. in 2005.
As
part
of our plan for additional employees, we anticipate hiring additional full-time
employees in the medical, clinical and finance functions. In addition, we intend
to and will continue to use senior advisors, consultants, clinical research
organizations and third parties to perform certain aspects of our product’s
development, manufacturing, clinical and preclinical development, and regulatory
and quality assurance functions.
At
our
current and desired pace of clinical development of our two products, currently
in Phase I/IIa clinical trials, over the next 12 months we expect to spend
approximately $6.0 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 we licensed our two oncology compounds
from, salaries and consulting fees, pre-clinical and laboratory studies),
approximately $130,000 on facilities, rent and other facilities costs, and
approximately $2.7 million on general corporate and working capital.
Additionally, we have an outstanding debt balance of $189,623 and approximately
$19,000 of accrued interest through March 31, 2007, payable to Paramount. The
Company plans to satisfy the final portion of debt and accrued interest by
the
end of the first half of 2007.
Our
working capital requirements will depend upon numerous factors. For example,
with respect to our drug development business, our working capital requirements
will depend on, among other factors, the progress of our drug development and
clinical programs, including associated costs relating to milestone payments,
license fees, manufacturing costs, regulatory approvals, and the hiring of
additional employees. Additional capital that we may need in the future may
not
be available on reasonable terms, or at all. If adequate financing is not
available, we may be required to terminate or significantly curtail our
operations, or enter into arrangements with collaborative partners or others
that may require us to relinquish rights to certain of our technologies, or
potential markets that we would not otherwise relinquish.
| |
Page
|
|
Unaudited
Interim Financial Statements:
|
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2007 and December 31,
2006
|
F-2
|
|
Condensed
Consolidated Statement of Operations for the Three Months Ended March
31,
2007 and 2006
|
F-3
|
|
Condensed
Consolidated Statement of Changes in Stockholders’ Equity (Deficiency) for
the Three Months Ended March 31, 2007
|
F-4
|
|
Condensed
Consolidated Statement of Cash Flows for the Three Months Ended March
31,
2007 and 2006
|
F-5
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
F-6
|
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF MARCH 31, 2007 (UNAUDITED) AND DECEMBER 31, 2006
|
|
|
March
31, 2007
(Unaudited)
|
|
December
31, 2006
(Note
1A)
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,141,227
|
|
$
|
2,931,265
|
|
|
Prepaid
clinical research costs
|
|
|
255,957
|
|
|
273,172
|
|
|
Other
current assets
|
|
|
269,748
|
|
|
168,841
|
|
|
Current
assets associated with discontinued operations
|
|
|
824,128
|
|
|
1,056,808
|
|
|
Total
Current Assets
|
|
|
2,491,060
|
|
|
4,430,086
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT
ASSETS ASSOCIATED WITH DISCONTINUED OPERATIONS
|
|
|
1,284,331
|
|
|
1,339,627
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
37,796
|
|
|
43,378
|
|
|
SECURITY
DEPOSITS
|
|
|
15,232
|
|
|
15,232
|
|
|
TOTAL
ASSETS
|
|
$
|
3,828,419
|
|
$
|
5,828,323
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,790,861
|
|
$
|
1,031,458
|
|
|
Accrued
expenses
|
|
|
382,618
|
|
|
425,915
|
|
|
Note
payable - Paramount BioSciences, LLC
|
|
|
189,623
|
|
|
264,623
|
|
|
Current
liabilities associated with discontinued operations
|
|
|
794,681
|
|
|
1,265,568
|
|
|
TOTAL
LIABILITIES
|
|
|
3,157,783
|
|
|
2,987,564
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock; $0.001 par value: 10,000,000 shares authorized, 0 shares
issued and
outstanding at March 31, 2007 and December 31, 2006
|
|
|
-
|
|
|
-
|
|
|
Common
stock; $0.001 par value: 100,000,000 shares authorized at March
31, 2007
and December 31, 2006, 54,621,119 shares issued and outstanding
at March
31, 2007 and December 31, 2006
|
|
|
54,621
|
|
|
54,621
|
|
|
Additional
paid-in capital
|
|
|
31,674,824
|
|
|
31,326,694
|
|
|
Accumulated
deficit
|
|
|
(31,058,809
|
)
|
|
(28,540,556
|
)
|
|
Total
Stockholders' Equity
|
|
|
670,636
|
|
|
2,840,759
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
3,828,419
|
|
$
|
5,828,323
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(UNAUDITED)
| |
|
For
the Three Months Ended March 31, 2007
|
|
For
the Three Months Ended March 31, 2006
|
|
| |
|
|
|
|
|
|
REVENUE
|
|
-
|
|
-
|
|
| |
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
Research
and development
|
|
$
|
1,368,811
|
|
$
|
289,646
|
|
|
Selling,
general and administrative
|
|
|
911,344
|
|
|
767,941
|
|
|
Depreciation
|
|
|
2,307
|
|
|
1,414
|
|
|
Total
Operating Expenses
|
|
|
2,282,462
|
|
|
1,059,001
|
|
| |
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(2,282,462
|
)
|
|
(1,059,001
|
)
|
| |
|
|
|
|
|
|
|
|
INTEREST
INCOME, NET
|
|
|
25,684
|
|
|
47,031
|
|
| |
|
|
|
|
|
|
|
|
LOSS
FROM CONTINUING OPERATIONS
|
|
|
(2,256,778
|
)
|
|
(1,011,970
|
)
|
| |
|
|
|
|
|
|
|
|
LOSS
FROM DISCONTINUED OPERATIONS
|
|
|
(261,475
|
)
|
|
(849,777
|
)
|
| |
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(2,518,253
|
)
|
$
|
(1,861,747
|
)
|
| |
|
|
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
$
|
(0.05
|
)
|
$
|
(0.03
|
)
|
|
DISCONTINUED
OPERATIONS
|
|
|
(0.00
|
)
|
|
(0.02
|
)
|
| |
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE - BASIC AND DILUTED
|
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
| |
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
|
|
|
46,056,724
|
|
|
38,165,124
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR
THE THREE MONTHS ENDED MARCH 31, 2007
(UNAUDITED)
| |
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
|
54,621,119
|
|
$
|
54,621
|
|
$
|
31,326,694
|
|
$
|
(28,540,556
|
)
|
$
|
2,840,759
|
|
|
Stock-based
compensation to employees
|
|
|
-
|
|
|
-
|
|
|
294,577
|
|
|
-
|
|
|
294,577
|
|
|
Stock-based
compensation to consultants and finder
|
|
|
-
|
|
|
-
|
|
|
53,553
|
|
|
-
|
|
|
53,553
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,518,253
|
)
|
|
(2,518,253
|
)
|
|
Balance,
March 31, 2007
|
|
|
54,621,119
|
|
$
|
54,621
|
|
$
|
31,674,824
|
|
$
|
(31,058,809
|
)
|
$
|
670,636
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(UNAUDITED)
| |
|
For
the Three
Months
Ended
March
31, 2007
|
|
For
the Three
Months
Ended
March
31, 2006
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,518,253
|
)
|
$
|
(1,861,747
|
)
|
|
Loss
from discontinued operations
|
|
|
261,475 |
|
|
849,777 |
|
|
Loss
from continuing operations
|
|
|
(2,256,778 |
) |
|
(1,011,970 |
) |
|
Adjustments
to reconcile net loss from continuing operations to net cash used
in
continuing operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,307 |
|
|
1,414 |
|
|
Stock-based
compensation to employees
|
|
|
221,771 |
|
|
223,994 |
|
|
Stock-based
compensation to consultants and finder
|
|
|
53,178 |
|
|
- |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid
clinical research costs
|
|
|
17,215 |
|
|
(86,812 |
) |
|
Other
assets
|
|
|
(100,907 |
) |
|
(19,076 |
) |
|
Accounts
payable
|
|
|
759,403 |
|
|
(25,693 |
) |
|
Accrued
expenses
|
|
|
(43,297 |
) |
|
(271,457 |
) |
|
Net
Cash Used in Continuing Operating Activities
|
|
|
(1,347,108 |
) |
|
(1,189,600 |
) |
|
Net
Cash Used in Discontinued Operating Activities
|
|
|
(342,098 |
) |
|
(1,536,177 |
) |
|
Net
Cash Used in Operating Activities
|
|
|
(1,689,206 |
) |
|
(2,725,777 |
) |
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments
for purchased equipment
|
|
|
(2,277 |
) |
|
(7,851 |
) |
|
Net
Cash Used in Continuing Investing Activities
|
|
|
(2,277 |
) |
|
(7,851 |
) |
|
Net
Cash Used in Discontinued Investing Activities
|
|
|
(23,555 |
) |
|
(6,566 |
) |
|
Net
Cash Used in Investing Activities
|
|
|
(25,832 |
) |
|
(14,417 |
) |
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment
of note payable to Paramount BioSciences, LLC
|
|
|
(75,000 |
) |
|
- |
|
|
Net
Cash Used in Continuing Financing Activities
|
|
|
(75,000 |
) |
|
- |
|
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(1,790,038 |
) |
|
(2,740,194 |
) |
|
CASH
AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
|
|
2,931,265 |
|
|
6,021,399 |
|
|
CASH
AND CASH EQUIVALENTS - END OF PERIOD
|
|
$
|
1,141,227
|
|
$
|
3,281,205
|
|
See
accompanying notes to condensed consolidated financial statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 (UNAUDITED)
NOTE
1 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND LIQUIDITY
(A)
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and 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,
2007
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, 2006. The accompanying
condensed consolidated balance sheet as of December 31, 2006 has been derived
from the audited balance sheet as of that date included in the Form 10-KSB.
As
used herein, the terms the “Company” or “VioQuest” refer to VioQuest
Pharmaceuticals, Inc.
The
accompanying consolidated financial statements include the accounts of VioQuest
Pharmaceuticals, Inc. and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The functional
currency of Chiral Quest, Ltd., Jiashan, China, a wholly-owned, discontinued
subsidiary of the Company, is the United States Dollar. As such, all transaction
gains and losses are recorded in discontinued operations.
On
September 29, 2006, the Company’s Board of Directors determined to seek
strategic alternatives with respect to the Company’s Chiral Quest, Inc.
subsidiary (“Chiral Quest”), which include 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. 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 segment. As a result of these reclassifications,
the
Company no longer provides segment reporting. No provision has been made
to
reduce the carrying amounts of the assets of the discontinued operations
as they
approximate their estimated net realizable values. See Note 2.
The
balance sheet as of March 31, 2007 and December 31, 2006 and the statements
of
operations for the three months ended March 31, 2007 and 2006 include
reclassifications to reflect discontinued operations.
(B)
Nature of Operations
Since
August 2004, the Company has focused on acquiring technologies for
purposes
of development and commercialization of pharmaceutical drug candidates for
the
treatment of oncology and antiviral diseases and disorders for which there
are
unmet medical needs. Since October 2005, the Company has held license rights
to
develop and commercialize its two oncology drug candidates, Lenocta™ or Sodium
Stibogluconate, formerly VQD-001, an inhibitor of specific protein tyrosine
phosphatases, and VQD-002 or Triciribine-Phosphate 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™ an
adjunctive therapy for a common and serious side effect of cancer chemotherapy.
Xyfid™ is governed by a license agreement with Assymetric Therapeutics, LLC and
Onc Res, Inc., assigned by Fiordland Pharmaceuticals, Inc. See Note
3.
(C)
Liquidity
Since
inception, the Company has incurred an accumulated deficit of $31,058,809,
through March 31, 2007. For the three months ended March 31, 2007, the Company
had losses from continuing operations of $2,256,778 and used $1,347,108 of
cash
in continuing operating activities.
Management
expects the Company’s losses from continuing operations to increase over the
next several years, due to the expansion of its drug development business,
and
related costs associated with the clinical development programs of Lenocta™,
VQD-002 and Xfyid™. These matters raise substantial doubt about the ability of
the Company to continue as a going concern.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 (UNAUDITED)
The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As of March 31,
2007, the Company had a working capital deficiency of $666,723 and cash and
cash
equivalents of $1,141,227. The Company has incurred negative cash flow from
operations 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.
Management
anticipates that the Company’s capital resources will be adequate to fund its
operations into the third quarter of 2007, which is based upon receiving
$1,700,000 of gross proceeds in the second quarter of 2007 from the sale
of its
subsidiary, Chiral Quest, to Chiral Quest Acquisition Corp. (“CQAC”). In
addition, CQAC will assume Chiral Quest’s current liabilities up to $1,300,000.
The completion of the sale is predicated upon the approval of the proposed
sale
by the Company’s shareholders at the upcoming annual meeting, as well as other
customary closing conditions and management cannot assure that the sale will
be
completed and that the consideration from the sale will be received. See
Note 5.
Additional financing will be required during 2007 in order to continue to
fund
continuing operations. The other 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. However, changes may
occur
that would consume available capital resources before that time. The Company’s
working capital requirements will depend upon numerous factors, which include,
the progress of its drug development and clinical programs, including associated
costs relating to milestone payments, maintenance and license fees,
manufacturing costs, patent costs, regulatory approvals, and the hiring of
additional employees.
Additional
capital that may be needed by the Company in the future may not be available
on
reasonable terms, or at all. If adequate financing is not available, the
Company
may be required to terminate or significantly curtail its operations, or
enter
into arrangements with collaborative partners or others that may require
the
Company to relinquish rights to certain of its technologies, or potential
markets that the Company would not otherwise relinquish.
(D)
Stock-Based Compensation
The
Company issued options
and warrants to purchase an aggregate of 1,010,000 shares
of
its
common
stock
during
the three months ended March 31, 2007.
Generally,
stock options and warrants granted to employee and non-employee directors
during
the three months ended March 31, 2007 and 2006 vest as to 33% of the shares
on
the first, second and third anniversaries of the vesting commencement date.
The
exceptions to the vesting of shares over three years to employee and
non-employee directors are comprised of the immediate vesting of 100,000
warrants granted to a non-employee advisor as partial consideration for a
finder’s fee for services relating to the Company’s acquisition of rights under
a license agreement for Xyfid™, as well as certain technical analyses related to
Xyfid, the immediate vesting of a stock option to purchase 3,334 shares of
common stock granted to a non-employee scientific advisory board member during
the first quarter of 2007, and a stock option to purchase 75,000 shares of
common stock granted to a non-employee director in the first quarter of
2006.
Following
the vesting periods, options are exercisable until the earlier of 90 days
after
an employee’s employment with the Company terminates or the ten-year anniversary
of the initial grant, subject to adjustment under certain conditions.
The
Company recorded total compensation charges in the three months ended March
31,
2007 and 2006 related to the fair value of continuing and discontinued employee
and director stock option grants of $294,577 and $264,538 , respectively.
The
Company used 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”), during
the three months ended March 31, 2007 and 2006. The key assumptions for this
valuation method include the expected term of the option, stock price
volatility, risk-free interest rate, dividend yield, exercise price, and
forfeiture rate. Many of these assumptions are judgmental and highly sensitive
in the determination of compensation expense. Under the assumptions indicated
below, the weighted average fair values of the stock options issued at the
dates
of grant in the periods ended March 31, 2007 and 2006 were $0.51 and $0.80
respectively.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 (UNAUDITED)
The
table
below indicates the key assumptions used in the valuation calculations for
options granted in the three months ended March 31, 2007 and 2006:
|
|
|
Three
Months Ended
March
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Term
|
|
|
7
years
|
|
|
7
years
|
|
|
Volatility
|
|
|
232-233
|
%
|
|
210-214
|
%
|
|
Dividend
yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
Risk-free
interest rate
|
|
|
4.5-4.9
|
%
|
|
4.4-4.8
|
%
|
|
Forfeiture
rate
|
|
|
22
|
%
|
|
22
|
%
|
The
following table summarizes information about the Company’s stock options as of
and for the three months ended March 31, 2007:
| |
|
Number
of Options
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Aggregate
Intrinsic Value
|
|
|
Balance,
January 1, 2007
|
|
|
6,087,432
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
1,010,000
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
Options
cancelled or exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Options
outstanding, March 31, 2007
|
|
|
7,097,432
|
|
$
|
0.95
|
|
|
6.9
|
|
|
-
|
|
|
Options
exercisable, March 31, 2007
|
|
|
3,482,158
|
|
$
|
1.11
|
|
|
5.5
|
|
|
-
|
|
As
of
March 31, 2007, there was $1,750,797 of unrecognized compensation costs related
to stock options. These costs are expected to be recognized over a weighted
average period of approximately 3 years.
As
of
March 31, 2007, an aggregate of 402,568 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)
Loss Per Share
Basic
net
loss per share is calculated by dividing net loss by the weighted-average
number
of common shares outstanding for each period presented excluding 8,564,395
common shares held in escrow based upon clinical milestones of Lenocta™ and
VQD-002, as a result of the acquisition of Greenwich Therapeutics, Inc. in
2005.
Diluted net loss per share is the same as basic net loss per share, since
potentially dilutive shares from the assumed exercise of stock options and
stock
warrants would have had an antidilutive effect because the Company incurred
a
net loss during each period presented. At March 31, 2007, there were 31,304,586
potentially dilutive shares excluded from the calculation, which was comprised
of 15,942,759 shares of underlying warrants, 8,564,395 shares held in escrow,
and 6,797,432 shares of underlying stock options, and at March 31, 2006,
there
were 27,094,367 shares excluded.
NOTE
2 DISCONTINUED
OPERATIONS
On
September 29, 2006, the Company’s Board of Directors determined to seek
strategic alternatives for the operations of its Chiral Quest subsidiary,
which
included a possible sale or other disposition of the operating assets of
that
business. On April 10, 2007, the Company entered into a definitive agreement
to
sell Chiral Quest. See Note 5. Accordingly, the business and assets of Chiral
Quest are presented in these financial statements as discontinued operations.
No
provision has been made to reduce the carrying amounts of the assets of
discontinued operations as they approximate their net realizable values.
At
March 31, 2007 and December 31, 2006, the current assets of discontinued
operations totaled $824,128 and $1,056,808 respectively, which consisted
of
accounts receivable, inventories and prepaid expenses. At March 31, 2007
and
December 31, 2006, the non-current assets of discontinued operations totaled
$1,284,331 and $1,339,627, respectively, which consisted of fixed assets,
net of
accumulated depreciation, and patents, net of accumulated amortization, security
deposits and prepaid rent. Current liabilities as of March 31, 2007 and December
31, 2006 associated with discontinued operations totaled $794,681 and $1,265,568
respectively, which consisted of accounts payable, accrued expenses, and
deferred revenues. Revenues from discontinued operations for the three months
ended March 31, 2007 totaled $803,784, and revenues for the three months
ended
March 31, 2006 totaled $598,876. Loss from discontinued operations for the
three
months ended March 31, 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, totaled $261,475.
Loss from discontinued operations for the three months ended March 31, 2006,
which consisted of revenues less cost of goods sold, management and consulting
fees, research and development, selling, general and administrative expenses,
and depreciation and amortization, totaled $849,777.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 (UNAUDITED)
NOTE
3 LICENSE
AGREEMENT
On
March
29, 2007, the Company acquired exclusive license rights to Xyfid™, a
pharmaceutical product candidate being developed for the treatment and
prevention of Hand-Foot Syndrome (HFS), a common, often dose-limiting and
potentially life-threatening complication of several chemotherapy drugs.
In
consideration for the rights under the license agreement, the Company paid
to
the licensor an aggregate $300,000 for license related fees, and $37,000
for
patent prosecution costs. In addition, the Company paid to a third party
finder
a cash fee of $20,000 and a 5-year warrant to purchase 300,000 shares of
the
Company’s common stock at an exercise price of $0.50 per share. The right to
purchase the shares under the warrant vests in three equal installments of
100,000 each, with the first installment being immediately exercisable, and
the
remaining two installments vesting upon the achievement of certain clinical
development and regulatory milestones relating to Xyfid™. The Company has
recognized approximately $50,000 of expense in the first quarter of 2007
based
upon the immediate vesting of the first 100,000 options. In consideration
of the
license, the Company is required to make payments upon the achievement of
various clinical development and regulatory milestones, which total up to
$6.2
million in the aggregate. The license agreement further requires the Company
to
make payments of up to an additional $12.5 million in the aggregate upon
the
achievement of various commercialization and net sales milestones. The Company
will also be obligated to pay a royalty on net sales of the licensed product.
NOTE
4 EMPLOYMENT
AGREEMENT
On
February 1, 2007 the Company entered into an employment agreement with Edward
C.
Bradley, M.D., as its Chief Scientific Officer. The agreement is for an
indefinite term beginning on February 1, 2007 and provides for an initial
base
salary of $330,000, plus an annual target bonus of up to 20% of base salary
based upon his personal performance and an additional amount of up to 10%
of
base salary based upon Company performance. Pursuant to the employment
agreement, Dr. Bradley received a stock option to purchase 700,000 shares
of the
Company’s common stock. The option vests in three equal annual installments,
commencing in February 2008 and will be exercisable at a price per share
equal
to $0.55. The stock option had an approximate fair value of $363,000 at the
date
of grant which is being amortized over three years. The employment agreement
also entitles Dr. Bradley to certain severance benefits. In the event that
the
Company terminates Dr. Bradley’s employment without cause, then Dr. Bradley is
entitled to receive his then annualized base salary for a period of six months.
If Dr. Bradley’s employment is terminated without cause, and within a year of a
change of control, then Dr. Bradley is entitled to receive his then annualized
base salary for a period of one year, and he is entitled to receive any bonuses
he has earned at the time of his termination.
NOTE
5 SUBSEQUENT
EVENT
On
April
10, 2007, the Company entered into a stock purchase and sale agreement for
the
sale of its Chiral Quest subsidiary to Chiral Quest Acquisition Corp. (“CQAC”).
Under the terms of the purchase agreement, in exchange for all of the
outstanding capital stock of Chiral Quest, CQAC will pay the Company $1,700,000,
plus assume liabilities of Chiral Quest in an amount up to $1,300,000. To
the
extent Chiral Quest’ s liabilities exceed $1,300,000 as of the closing of the
transaction, the Company will be required to pay such excess amount to CQAC.
The
Company estimates that the net proceeds to be received from the sale of Chiral
Quest will be $1,528,000, based upon the payments of retention bonuses to
its
employees of approximately $122,000 and legal and accounting fees of
approximately $50,000. The completion of the sale is predicated upon the
approval of the purchase agreement by the Company’s shareholders at the upcoming
2007 annual meeting, as well as other customary closing conditions, and
management cannot assure that the sale will be completed and that the
consideration from the sale will be received.