##### 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 June 30, 2009
 or
 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 Incorporation)
    
    (IRS Employer Identification No.)100 North Fairway Drive, 
Suite 134
Vernon 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 June 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the three and six month periods
ended June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the six month periods ended June
30, 2009 and 2008
June 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
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II. OTHER INFORMATION
    
    
    21Item 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22Signatures
    
    
    23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 99.1
   2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Winston Pharmaceuticals, Inc. and Subsidiaries
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30, 2009
    
    
    December 31, 2008ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    3,145,456
    
    
    $
    5,626,913Accounts receivable
    
    
    48,337
    
    
    
    17,498Related party receivable
    
    
    43,918
    
    
    
    38,142Prepaid and other current assets
    
    
    52,920
    
    
    
    68,465Total current assets
    
    
    3,290,631
    
    
    
    5,751,018PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$138,665 at June 30, 2009 and $161,907 at December 31, 2008
    
    
    16,529
    
    
    
    18,823INTANGIBLE ASSETS, NET
    
    
    18,783
    
    
    
    21,540TOTAL ASSETS
    
    $
    3,325,943
    
    
    $
    5,791,381LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    512,429
    
    
    $
    1,052,730Accrued expenses and other current liabilities
    
    
    184,923
    
    
    
    239,861Unearned revenue  current portion
    
    
    950,119
    
    
    
    1,266,825Total current liabilities
    
    
    1,647,471
    
    
    
    2,559,416Unearned revenue  long-term portion
    
    
    
    
    
    
    316,706Total liabilities
    
    
    1,647,471
    
    
    
    2,876,122Commitments and ContingenciesStockholders equityPreferred Stock, $.001 par value, 250,000,000 shares authorizedSeries A, Convertible 12,730 shares issued and outstanding
at June 30, 2009 and at December 31, 2008
    
    
    13
    
    
    
    13Series B, Convertible 9,157 shares issued and outstanding
at June 30, 2009 and at December 31, 2008
    
    
    9
    
    
    
    9Common stock, $.001 par value, 900,000,000 shares authorized
55,496,893 and 55,106,364 shares issued and outstanding at
June 30, 2009 and at December 31, 2008
    
    
    55,497
    
    
    
    55,106Additional paid-in capital
    
    
    49,741,630
    
    
    
    49,587,913Accumulated deficit
    
    
    (48,118,677
    )
    
    
    (46,727,782
    )Total stockholders equity
    
    
    1,678,472
    
    
    
    2,915,259TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,325,943
    
    
    $
    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 June 30
    
    
    Six Months ended June 302009
    
    
    2008
    
    
    2009
    
    
    2008REVENUESLicense revenues
    
    $
    316,707
    
    
    $
    
    
    
    $
    633,413
    
    
    $
    Royalty revenues
    
    
    48,337
    
    
    
    20,113
    
    
    
    71,617
    
    
    
    99,993365,044
    
    
    
    20,113
    
    
    
    705,030
    
    
    
    99,993EXPENSESResearch and development
    
    
    587,760
    
    
    
    1,029,282
    
    
    
    1,133,726
    
    
    
    2,022,202General and administrative
    
    
    462,675
    
    
    
    442,246
    
    
    
    1,042,984
    
    
    
    898,843Depreciation and amortization
    
    
    2,318
    
    
    
    2,037
    
    
    
    4,636
    
    
    
    3,706Total operating expenses
    
    
    1,052,753
    
    
    
    1,473,565
    
    
    
    2,181,346
    
    
    
    2,924,751Loss from operations
    
    
    (687,709
    )
    
    
    (1,453,452
    )
    
    
    (1,476,316
    )
    
    
    (2,824,758
    )Interest income
    
    
    316
    
    
    
    17,329
    
    
    
    10,043
    
    
    
    57,694Other income
    
    
    75,284
    
    
    
    292
    
    
    
    75,380
    
    
    
    346Other income
    
    
    75,600
    
    
    
    17,621
    
    
    
    85,423
    
    
    
    58,040Loss before income taxes
    
    
    (612,109
    )
    
    
    (1,435,831
    )
    
    
    (1,390,893
    )
    
    
    (2,766,718
    )Income TaxesCurrent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (612,109
    )
    
    $
    (1,435,831
    )
    
    $
    (1,390,893
    )
    
    $
    (2,766,718
    )Loss per share, basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )Weighted average number of shares
outstanding, basic and diluted
    
    
    55,442,776
    
    
    
    52,814,818
    
    
    
    55,375,335
    
    
    
    52,814,818
 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
 Six Months Ended June 30, 2009 and 2008
 2009
    
    
    2008Cash flows from operating activitiesNet loss
    
    $
    (1,390,893
    )
    
    $
    (2,766,718
    )Depreciation and amortization
    
    
    4,636
    
    
    
    3,706Stock option expense
    
    
    26,677
    
    
    
    Changes in:Accounts receivable
    
    
    (36,615
    )
    
    
    15,002Prepaid and other current assets
    
    
    15,545
    
    
    
    (5,746
    )Other assets
    
    
    1,154
    
    
    
    Unearned revenue
    
    
    (633,413
    )
    
    
    Accounts payable
    
    
    (540,302
    )
    
    
    291,323Accrued expenses and other current liabilities
    
    
    (54,938
    )
    
    
    940Net cash used in operating activities
    
    
    (2,608,149
    )
    
    
    (2,461,493
    )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 activitiesProceeds from exercise of stock options
    
    
    127,430
    
    
    
    Net cash provided by financing activities
    
    
    127,430
    
    
    
    NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (2,481,457
    )
    
    
    (2,477,826
    )Cash and cash equivalents at beginning of period
    
    
    5,626,913
    
    
    
    4,481,611Cash and cash equivalents at end of period
    
    $
    3,145,456
    
    
    $
    2,003,785Supplemental disclosures of cash flow informationInterest paid
    
    $
    
    
    
    $
    Income taxes paid
    
    $
    
    
    
    $
    
 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
      Principles of Consolidation
  Cash and Cash Equivalents
  Fair Value of Financial Instruments
   6




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Fair Value Measurements,
   Fair Value Measurements at June 30, 2009Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAssets:Mutual fund
    
    $
    2,056,631
    
    
    $
    
    
    
    $
    
    
    
    $
    2,056,631Total
    
    $
    2,056,631
    
    
    $
    
    
    
    $
    
    
    
    $
    2,056,631
 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
  Income Taxes
   7




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Segment Information
  Reclassification
  Recent Accounting Pronouncements
        8




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NOTE 2  EARNINGS PER SHARE
  Three months ended June 30,
    
    
    Six months ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Denominator:Weighted average common shares outstanding
    
    
    55,442,776
    
    
    
    52,814,818
    
    
    
    55,375,335
    
    
    
    52,814,818Loss per common share  basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )
  NOTE 3  TECHNOLOGY LICENSE AGREEMENTS
    NOTE 4  RELATED-PARTY TRANSACTIONS
     9




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NOTE 5  INCOME TAXES
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Tax benefit at U.S. federal statutory rate
    
    $
    (208,000
    )
    
    $
    (488,000
    )
    
    $
    (473,000
    )
    
    $
    (941,000
    )State tax benefit, net of federal benefit
    
    
    (29,000
    )
    
    
    (69,000
    )
    
    
    (67,000
    )
    
    
    (133,000
    )Change in valuation allowance
    
    
    265,000
    
    
    
    554,000
    
    
    
    576,000
    
    
    
    1,106,000Permanent differences
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000Research and development credits
    
    
    (27,000
    )
    
    
    (38,000
    )
    
    
    (52,000
    )
    
    
    (69,000
    )Other, net
    
    
    (2,000
    )
    
    
    40,000
    
    
    
    15,000
    
    
    
    36,000Income tax expense (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 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
    
    
    267,000
    
    
    $
    1.53
    
    
    $
    2.14Exercised
    
    
    (390,529
    )
    
    $
    0.33Forfeitures
    
    
    (198,574
    )
    
    $
    0.28Options at June 30, 2009
    
    
    3,304,628
    
    
    $
    0.44
    
    
    
    
    
    
    $
    329,390
    
    
    
    4.15
     10




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Stock OptionsExpected dividend yield
    
    
    0
    %Expected volatility
    
    
    77
    %Expected life (in years)
    
    
    6Risk-free interest rate
    
    
    1.87
    %
    11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
     Executive Overview
  ®
  12




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£
  ®
     13




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® ®
  14




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Results of Operations
 For the three months ended June 30, 2009 compared to the three months ended June 30, 2008
 Three Months Ended June 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeREVENUESLicense Revenue
    
    $
    316,707
    
    
    $
    
    
    
    $
    316,707
    
    
    
    N/ARoyalty Revenue
    
    
    48,337
    
    
    
    20,113
    
    
    
    28,224
    
    
    
    140
    %365,044
    
    
    
    20,113
    
    
    
    344,931
    
    
    
    1,715
    %EXPENSESResearch and development
    
    
    587,760
    
    
    
    1,029,282
    
    
    
    (441,522
    )
    
    
    (43
    )%General and administrative
    
    
    462,675
    
    
    
    442,246
    
    
    
    20,429
    
    
    
    5
    %Depreciation and amortization
    
    
    2,318
    
    
    
    2,037
    
    
    
    281
    
    
    
    14
    %Total Operating Expenses
    
    
    1,052,753
    
    
    
    1,473,565
    
    
    
    (420,812
    )
    
    
    (29
    )%Loss from Operations
    
    
    (687,709
    )
    
    
    (1,453,452
    )
    
    
    765,743
    
    
    
    (53
    )%Interest income
    
    
    316
    
    
    
    17,329
    
    
    
    (17,013
    )
    
    
    (98
    )%Other income
    
    
    75,284
    
    
    
    292
    
    
    
    74,992
    
    
    
    25,682
    %Other income
    
    
    75,600
    
    
    
    17,621
    
    
    
    57,979
    
    
    
    329
    %Loss before income taxes
    
    
    (612,109
    )
    
    
    (1,435,831
    )
    
    
    823,722
    
    
    
    (57
    )%Income TaxesCurrent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (612,109
    )
    
    $
    (1,435,831
    )
    
    $
    823,722
    
    
    
    (57
    )%
 Revenues
    15




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Research & Development Expenses
  General and Administrative Expenses
  Interest Income
  Other Income
  Net Loss
   16




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Results of Operations
 For the six months ended June 30, 2009 compared to the six months ended June 30, 2008
 Six Months Ended June 30,2009
    
    
    2008
    
    
    $ Change
    
    

% ChangeREVENUESLicense Revenue
    
    $
    633,413
    
    
    $
    
    
    
    $
    633,413
    
    
    
    N/ARoyalty Revenue
    
    
    71,617
    
    
    
    99,993
    
    
    
    (28,376
    )
    
    
    (28
    )%705,030
    
    
    
    99,993
    
    
    
    605,037
    
    
    
    605
    %EXPENSESResearch and development
    
    
    1,133,726
    
    
    
    2,022,202
    
    
    
    (888,476
    )
    
    
    (44
    )%General and administrative
    
    
    1,042,984
    
    
    
    898,843
    
    
    
    144,141
    
    
    
    16
    %Depreciation and amortization
    
    
    4,636
    
    
    
    3,706
    
    
    
    930
    
    
    
    25
    %Total Operating Expenses
    
    
    2,181,346
    
    
    
    2,924,751
    
    
    
    (743,405
    )
    
    
    (25
    )%Loss from Operations
    
    
    (1,476,316
    )
    
    
    (2,824,758
    )
    
    
    1,348,442
    
    
    
    (48
    )%Interest income
    
    
    10,043
    
    
    
    57,694
    
    
    
    (47,651
    )
    
    
    (83
    )%Other income
    
    
    75,380
    
    
    
    346
    
    
    
    75,034
    
    
    
    21,686
    %Other income
    
    
    85,423
    
    
    
    58,040
    
    
    
    27,383
    
    
    
    47
    %Loss before income taxes
    
    
    (1,390,893
    )
    
    
    (2,766,718
    )
    
    
    1,375,825
    
    
    
    (50
    )%Income TaxesCurrent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (1,390,893
    )
    
    $
    (2,766,718
    )
    
    $
    1,375,825
    
    
    
    (50
    )%
 Revenues
   Research & Development Expenses
  General and Administrative Expenses
   17




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Interest Income
  Other Income
  Net Loss
  Liquidity and Capital Resources
    ® ® ®
    18




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Contractual Obligations
  2009
    
    $
    6,4132010
    
    
    12,8252011
    
    
    12,8252012
    
    
    12,8252013
    
    
    6,412
    19




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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
  20




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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
  Election of Directors
 Number of Votes
    
    
    Number of VotesName of Nominee
    
    Cast For
    
    
    WithheldJoel E. Bernstein, M.D.
    
    
    68,830,293
    
    
    
    651,512Glenn L. Halpryn
    
    
    69,106,713
    
    
    
    375,092Curtis Lockshin, Ph.D.
    
    
    69,107,036
    
    
    
    374,769Neal S. Penneys, M.D., Ph.D.
    
    
    69,107,036
    
    
    
    374,769Scott Phillips, M.D.
    
    
    69,039,742
    
    
    
    442,063Subbarao Uppaluri, Ph.D.
    
    
    69,107,036
    
    
    
    374,769Robert A. Yolles
    
    
    68,897,587
    
    
    
    584,218
  21




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Ratification of Independent Registered Public Accounting Firm.
 Number of Votes
    
    
    Number of VotesName of Nominee
    
    Cast For
    
    
    WithheldMcGladrey & Pullen, LLP
    
    
    69,044,070
    
    
    
    437,735
 Approval of Omnibus Incentive Plan.
 Number of Votes Cast For
    Number of Votes Cast Against
    
    Number of Votes Withheld68,619,850
    67,476
    
    
    794,479
 
 Item 5. Other Information
     
 Item 6. Exhibits
 Exhibit No.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 2002.99.1
    
    
    Press Release of Winston Pharmaceuticals, Inc., dated August 14, 2009.
  22




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##### Table of Contents



SIGNATURES
  WINSTON PHARMACEUTICALS, INC.
(Registrant)Dated: August 14, 2009
    By:
    /s/ Joel E. BernsteinJoel E. Bernstein, M.D.President and Chief Executive Officer Dated: August 14, 2009
    By:
    /s/ David StarrDavid StarrVice President, Chief Financial Officer  23




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description31.1
    
    
    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 2002.99.1
    
    
    Press Release of Winston Pharmaceuticals, Inc., dated August 14, 2009.
  24