##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-51314
 Winston Pharmaceuticals, Inc.
  Delaware
    
    30-0132755(State or other Jurisdiction of
    
    (IRS Employer Identification No.)Incorporation)100 North Fairway Drive,Suite 134Vernon Hills, Illinois
    
    60061(Address of Principal Executive Offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  o Large Accelerated Filer
    
    o Accelerated Filer
    
    o Non-accelerated Filer
    
    þ Smaller reporting company
 Yes o No þ




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##### 



WINSTON PHARMACEUTICALS, INC. AND SUBSIDARIES
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the three and nine month periods
ended September 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine month periods ended
September 30, 2009 and 2008
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATION
    
    
    25Item 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26Signatures
    
    
    27Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 Winston Pharmaceuticals, Inc. and Subsidiaries
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30, 2009
    
    
    December 31, 2008ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    2,319,229
    
    
    $
    5,626,913Accounts receivable
    
    
    33,806
    
    
    
    17,498Related party receivable
    
    
    19,484
    
    
    
    38,142Prepaid and other current assets
    
    
    47,121
    
    
    
    68,465Total current assets
    
    
    2,419,640
    
    
    
    5,751,018PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $140,049 at September 30, 2009
and $161,907 at December 31, 2008
    
    
    15,144
    
    
    
    18,823INTANGIBLE ASSETS, NET
    
    
    17,982
    
    
    
    21,540TOTAL ASSETS
    
    $
    2,452,766
    
    
    $
    5,791,381LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    545,290
    
    
    $
    1,052,730Accrued expenses and other current liabilities
    
    
    268,924
    
    
    
    239,861Unearned revenue  current portion
    
    
    633,412
    
    
    
    1,266,825Total current liabilities
    
    
    1,447,626
    
    
    
    2,559,416Unearned revenue  long-term portion
    
    
    
    
    
    
    316,706Total liabilities
    
    
    1,447,626
    
    
    
    2,876,122Commitments and ContingenciesStockholders equityPreferred Stock, $.001 par value,
250,000,000 shares authorizedSeries A, Convertible 0 and 12,730
shares issued and outstanding at September 30, 2009 and at December 31, 2008
    
    
    
    
    
    
    13Series B, Convertible 0 and 9,157 shares
issued and outstanding at September 30, 2009 and at December 31, 2008
    
    
    
    
    
    
    9Common stock, $.001 par value, 900,000,000 shares authorized
77,383,893 and 55,106,364 shares issued and outstanding at
September 30, 2009 and at December 31, 2008
    
    
    77,384
    
    
    
    55,106Additional paid-in capital
    
    
    49,748,913
    
    
    
    49,587,913Accumulated deficit
    
    
    (48,821,157
    )
    
    
    (46,727,782
    )Total stockholders equity
    
    
    1,005,140
    
    
    
    2,915,259TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,452,766
    
    
    $
    5,791,381
 See notes to unaudited condensed consolidated financial statements
  3




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Winston Pharmaceuticals, Inc. and Subsidiaries
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months ended September 30
    
    
    Nine Months ended September 302009
    
    
    2008
    
    
    2009
    
    
    2008REVENUESLicense revenues
    
    $
    316,706
    
    
    $
    
    
    
    $
    950,119
    
    
    $
    Royalty revenues
    
    
    33,806
    
    
    
    6,911
    
    
    
    105,423
    
    
    
    106,904350,512
    
    
    
    6,911
    
    
    
    1,055,542
    
    
    
    106,904EXPENSESResearch and development
    
    
    582,916
    
    
    
    607,613
    
    
    
    1,716,642
    
    
    
    2,629,815General and administrative
    
    
    468,140
    
    
    
    516,622
    
    
    
    1,511,124
    
    
    
    1,415,465Depreciation and amortization
    
    
    2,185
    
    
    
    2,473
    
    
    
    6,821
    
    
    
    6,178Total operating expenses
    
    
    1,053,241
    
    
    
    1,126,708
    
    
    
    3,234,587
    
    
    
    4,051,458Loss from operations
    
    
    (702,729
    )
    
    
    (1,119,797
    )
    
    
    (2,179,045
    )
    
    
    (3,944,554
    )Interest income
    
    
    248
    
    
    
    10,100
    
    
    
    10,290
    
    
    
    67,793Other income
    
    
    
    
    
    
    1,544
    
    
    
    75,380
    
    
    
    1,890Other income
    
    
    248
    
    
    
    11,644
    
    
    
    85,670
    
    
    
    69,683Loss before income taxes
    
    
    (702,481
    )
    
    
    (1,108,153
    )
    
    
    (2,093,375
    )
    
    
    (3,874,871
    )Income TaxesCurrent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (702,481
    )
    
    $
    (1,108,153
    )
    
    $
    (2,093,375
    )
    
    $
    (3,874,871
    )Loss per share, basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.07
    )Weighted average number of shares outstanding, basic and diluted
    
    
    56,686,404
    
    
    
    52,939,362
    
    
    
    55,817,160
    
    
    
    52,856,636
 See notes to unaudited condensed consolidated financial statements
  4




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Winston Pharmaceuticals, Inc. and Subsidiaries
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended September 30, 2009 and 2008
 2009
    
    
    2008Cash flows from operating activitiesNet loss
    
    $
    (2,093,375
    )
    
    $
    (3,874,871
    )Depreciation and amortization
    
    
    6,821
    
    
    
    6,178Stock option expense
    
    
    55,826
    
    
    
    Changes in:Accounts receivable
    
    
    2,350
    
    
    
    33,832Prepaid and other current assets
    
    
    21,344
    
    
    
    (9,184
    )Other assets
    
    
    1,154
    
    
    
    Unearned revenue
    
    
    (950,119
    )
    
    
    Accounts payable
    
    
    (507,440
    )
    
    
    374,363Accrued expenses and other current liabilities
    
    
    29,063
    
    
    
    277,809Net cash used in operating activities
    
    
    (3,434,376
    )
    
    
    (3,191,873
    )Cash flows from investing activitiesPurchases of equipment
    
    
    (738
    )
    
    
    (14,603
    )Purchases of intangibles
    
    
    
    
    
    
    (1,730
    )Net cash used in investing activities
    
    
    (738
    )
    
    
    (16,333
    )Cash flows from financing activitiesCash received upon consummation of merger
    
    
    
    
    
    
    477,067Cost incurred in connection with merger
    
    
    
    
    
    
    (250,000
    )Proceeds from exercise of stock options
    
    
    127,430
    
    
    
    Issuance of preferred stock, net of issuance cost
    
    
    
    
    
    
    3,996,789Net cash provided by financing activities
    
    
    127,430
    
    
    
    4,223,856NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (3,307,684
    )
    
    
    1,015,650Cash and cash equivalents at beginning of period
    
    
    5,626,913
    
    
    
    4,481,611Cash and cash equivalents at end of period
    
    $
    2,319,229
    
    
    $
    5,497,261Supplemental disclosures of cash flow informationInterest paid
    
    $
    
    
    
    $
    Income taxes paid
    
    $
    
    
    
    $
    
  Managements Discussion and Analysis of
Financial Condition and Results of Operations
 See notes to unaudited condensed consolidated financial statements
  5




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Winston Pharmaceuticals, Inc. and Subsidiaries
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  BASIS OF PRESENTATION
      6




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Generally Accepted Accounting Principle
 Principles of Consolidation
   7




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Cash and Cash Equivalents
  Fair Value of Financial Instruments
     Fair Value Measurements at September 30, 2009Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAssets:Mutual fund
    
    $
    790,594
    
    
    $
    
    
    
    $
    
    
    
    $
    790,594Total
    
    $
    790,594
    
    
    $
    
    
    
    $
    
    
    
    $
    790,594
 Fair Value Measurements at December 31, 2008Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAssets:Mutual fund
    
    $
    1,961,059
    
    
    $
    
    
    
    $
    
    
    
    $
    1,961,059Total
    
    $
    1,961,059
    
    
    $
    
    
    
    $
    
    
    
    $
    1,961,059
  Research and Development Expenses
   8




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Income Taxes
   Segment Information
  Reclassification
  Recent Accounting Pronouncements
    9




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NOTE 2  EARNINGS PER SHARE
  Three months ended September 30,
    
    
    Nine months ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Denominator:Weighted average
common shares
outstanding
    
    
    56,686,404
    
    
    
    52,939,362
    
    
    
    55,817,160
    
    
    
    52,856,636Loss per common
share  basic and
diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.07
    )
   10




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NOTE 3  TECHNOLOGY LICENSE AGREEMENTS
     11




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NOTE 4  RELATED-PARTY TRANSACTIONS
    NOTE 5  INCOME TAXES
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Tax benefit at U.S. federal statutory rate
    
    $
    (239,000
    )
    
    $
    (377,000
    )
    
    $
    (712,000
    )
    
    $
    (1,318,000
    )State tax benefit, net of federal benefit
    
    
    (34,000
    )
    
    
    (53,000
    )
    
    
    (101,000
    )
    
    
    (186,000
    )Change in valuation allowance
    
    
    295,000
    
    
    
    421,000
    
    
    
    871,000
    
    
    
    1,516,000Permanent differences
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000Research and development credits
    
    
    (25,000
    )
    
    
    (25,000
    )
    
    
    (77,000
    )
    
    
    (94,000
    )Other, net
    
    
    2,000
    
    
    
    33,000
    
    
    
    18,000
    
    
    
    81,000Income tax expense (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  12




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NOTE 6  STOCK OPTION PLANS
  WeightedWeighted-
    
    
    Weighted-
    
    
    
    
    
    
    AverageAverage
    
    
    Average
    
    
    Aggregate
    
    
    RemainingExercise
    
    
    Grant Date
    
    
    Intrinsic
    
    
    ContractualShares
    
    
    Price
    
    
    Fair Value
    
    
    Value
    
    
    LifeOptions at December 31, 2008
    
    
    3,626,731
    
    
    $
    0.32Granted
    
    
    409,500
    
    
    $
    1.47
    
    
    $
    1.89Exercised
    
    
    (390,529
    )
    
    $
    0.33Forfeitures
    
    
    (198,574
    )
    
    $
    0.28Options at September 30, 2009
    
    
    3,447,128
    
    
    $
    0.48
    
    
    
    
    
    
    $
    5,079,268
    
    
    
    
    
    
    
    3.95
        13




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Stock OptionsExpected dividend yield
    
    
    0
    %Expected volatility
    
    
    77
    %Expected life (in years)
    
    
    6Risk-free interest rate
    
    
    1.87%  2.36
    %
  NOTE 7  PREFERRED STOCK
   14




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
     Executive Overview
  ®
  15




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£
  ®
  16




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® ®
  17




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Results of Operations
 For the three months ended September 30, 2009 compared to the three months ended
September30, 2008
 Three Months Ended September 30,2009
    
    
    2008
    
    
    $ Change
    
    
    %   ChangeREVENUESLicense Revenue
    
    $
    316,706
    
    
    $
    
    
    
    $
    316,706
    
    
    
    N/ARoyalty Revenue
    
    
    33,806
    
    
    
    6,911
    
    
    
    26,895
    
    
    
    389
    %350,512
    
    
    
    6,911
    
    
    
    343,601
    
    
    
    4,972
    %EXPENSESResearch and development
    
    
    582,916
    
    
    
    607,613
    
    
    
    (24,697
    )
    
    
    (4
    )%General and administrative
    
    
    468,140
    
    
    
    516,622
    
    
    
    (48,482
    )
    
    
    (9
    )%Depreciation and amortization
    
    
    2,185
    
    
    
    2,473
    
    
    
    (288
    )
    
    
    (12
    )%Total Operating Expenses
    
    
    1,053,241
    
    
    
    1,126,708
    
    
    
    (73,467
    )
    
    
    (7
    )%Loss from Operations
    
    
    (702,729
    )
    
    
    (1,119,797
    )
    
    
    417,068
    
    
    
    (37
    )%Interest income
    
    
    248
    
    
    
    10,100
    
    
    
    (9,852
    )
    
    
    (98
    )%Other income
    
    
    0
    
    
    
    1,544
    
    
    
    (1,544
    )
    
    
    100
    %Other income
    
    
    248
    
    
    
    11,644
    
    
    
    (11,396
    )
    
    
    (4,595
    )%Loss before income taxes
    
    
    (702,481
    )
    
    
    (1,108,153
    )
    
    
    405,672
    
    
    
    (37
    )%Income TaxesCurrent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (702,481
    )
    
    $
    (1,108,153
    )
    
    $
    405,672
    
    
    
    (37
    )%
 Revenues
   Research & Development Expenses
  General and Administrative Expenses
   18




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Interest Income
  Other Income
  Net Loss
   19




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Results of Operations
 For the nine months ended September 30, 2009 compared to the nine months ended September
30, 2008
 Nine Months Ended September 30,2009
    
    
    2008
    
    
    $ Change
    
    
    %   ChangeREVENUESLicense Revenue
    
    $
    950,119
    
    
    $
    
    
    
    $
    950,119Royalty Revenue
    
    
    105,423
    
    
    
    106,904
    
    
    
    (1,481
    )
    
    
    (1
    )%1,055,542
    
    
    
    106,904
    
    
    
    948,638
    
    
    
    887
    %EXPENSESResearch and development
    
    
    1,716,642
    
    
    
    2,629,815
    
    
    
    (913,173
    )
    
    
    (35
    )%General and administrative
    
    
    1,511,124
    
    
    
    1,415,465
    
    
    
    95,659
    
    
    
    7
    %Depreciation and amortization
    
    
    6,821
    
    
    
    6,178
    
    
    
    643
    
    
    
    10
    %Total Operating Expenses
    
    
    3,234,587
    
    
    
    4,051,458
    
    
    
    (816,871
    )
    
    
    (20
    )%Loss from Operations
    
    
    (2,179,045
    )
    
    
    (3,944,554
    )
    
    
    1,765,509
    
    
    
    (45
    )%Interest income
    
    
    10,290
    
    
    
    67,793
    
    
    
    (57,503
    )
    
    
    (85
    )%Other income
    
    
    75,380
    
    
    
    1,890
    
    
    
    73,490
    
    
    
    3,888
    %Other income
    
    
    85,670
    
    
    
    69,683
    
    
    
    15,987
    
    
    
    23
    %Loss before income taxes
    
    
    (2,093,375
    )
    
    
    (3,874,871
    )
    
    
    1,781,496
    
    
    
    (46
    )%Income TaxesCurrent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (2,093,375
    )
    
    $
    (3,874,871
    )
    
    $
    1,781,496
    
    
    
    (46
    )%
 Revenues
   Research & Development Expenses
   20




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General and Administrative Expenses
  Interest Income
  Other Income
  Net Loss
  Liquidity and Capital Resources
    ® ® ®
   21




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22




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23




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Contractual Obligations
   Off-Balance Sheet Arrangements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4.
    
    Controls and Procedures.
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
  24




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PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
   
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
   25




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Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 Exhibit No.10.1
    
    
    Form of Nonqualified Stock Option Agreement.31.1
    
    
    Certification of the President and Chief Executive Officer of Winston
Pharmaceuticals, Inc., Joel E. Bernstein, M.D., pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of the Vice President and Chief Financial Officer of Winston
Pharmaceuticals, Inc., David Starr, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.32.1
    
    
    Certification of the President and Chief Executive Officer of Winston
Pharmaceuticals, Inc., Joel E. Bernstein, M.D., and the Vice President and Chief
Financial Officer of Winston Pharmaceuticals, Inc., David Starr, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
  26




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SIGNATURES
  WINSTON PHARMACEUTICALS, INC.(Registrant)Dated: November 13, 2009
    
    By:
    
    /s/ Joel E. Bernstein

Joel E. Bernstein, M.D.President and Chief Executive OfficerDated: November 13, 2009
    
    By:
    
    /s/ David Starr

David StarrVice President, Chief Financial Officer
  27