**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
DC 20549**





**FORM
10-QSB**





x QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 
 For the quarterly period ended March 31, 2005




OR





o TRANSITION
REPORT UNDER SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the transition period from _______ to
_______





Commission
File Number 0-16686





**VIOQUEST
PHARMACEUTICALS, INC.**





(Exact
name of issuer as specified in its charter)




Minnesota
    58-1486040(State
      or other jurisdiction of incorporation or organization)
    (IRS
      Employer Identification No.)7
      Deer Park Drive, Suite E, Monmouth Junction, NJ
    08852(Address
      of Principal Executive Offices)
    (Zip
      Code)





(732)
274-0399





(Issuer’s
telephone number)




Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x  No
o





As of May
13, 2005 there were 17,827,924 shares of the issuer’s common stock, $.01 par
value, outstanding.





Traditional
Small Business Disclosure Format (check one): Yes o No x







****


**Index**






Page**PART
      I**
    **FINANCIAL
      INFORMATION**Item
      1.
    Condensed
      Consolidated Financial Statements
    1Item
      2.
    Management’s
      Discussion and Analysis
    9or
      Plan of OperationsItem
      3.
    Controls
      and Procedures
    14**PART
      II**
    **OTHER
      INFORMATION**Item
      5.
    Other
      Events
    15Item
      6.
    Exhibits
    15Signatures
    16Exhibit
      Index
    17








**Forward-Looking
Statements**





This Quarterly Report on Form 10-QSB contains statements that are not
historical, but are forward-looking in nature, including statements regarding
the expectations, beliefs, intentions or strategies regarding the future. In
particular, the “Management’s Discussion and Analysis or Plan of Operation”
section in Part I, Item 2 of this quarterly report includes forward-looking
statements that reflect our current views with respect to future events and
financial performance. We use words such as we “expect,” “anticipate,”
“believe,” and “intend” and similar expressions to identify forward-looking
statements. A number of important factors could, individually or in the
aggregate, cause actual results to differ materially from those expressed or
implied in any forward-looking statements. Such factors include, but are not
limited to, the continued availability of our chief technology officer, our
ability to obtain additional financing, our ability to develop and maintain
customer relationships, regulatory developments relating to and the general
success of our customers’ products, and our ability to protect our proprietary
technology. Other risks are described under the section entitled “Risk Factors”
following Item 1 in Part I of our Annual Report on Form 10-KSB for the year
ended December 31, 2004.













**PART
I - FINANCIAL INFORMATION**





**Item
1. Unaudited Condensed Consolidated Financial Statements**





**VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**CONDENSED
CONSOLIDATED BALANCE SHEETS**


**AS
OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004**





**March
      31, 2005**
      **(Unaudited)**
    
    **December
      31, 2004**
      **(Note
      1)****ASSETS****CURRENT
      ASSETS**Cash and cash equivalents
    
    $
    1,484,080
    
    $
    3,065,547Accounts
      receivable
    
    
    499,386
    
    
    318,585Inventories
    
    
    431,831
    
    
    360,147Prepaid expenses
    
    
    50,243
    
    
    64,377Total Current Assets
    
    
    2,465,540
    
    
    3,808,656**PROPERTY
      AND EQUIPMENT, NET**
    
    
    685,222
    
    
    493,632**SECURITY
      DEPOSITS**
    
    
    51,463
    
    
    31,000**INTELLECTUAL
      PROPERTY RIGHTS, NET**
    
    
    552,087
    
    
    543,453**TOTAL
      ASSETS**
    
    $
    3,754,312
    
    $
    4,876,741**LIABILITIES
      AND STOCKHOLDERS' EQUITY****CURRENT
      LIABILITIES**Accounts payable
    
    $
    548,863
    
    $
    303,392Accrued expenses
    
    
    66,123
    
    
    219,715Deferred revenue
    
    
    575,109
    
    
    563,842**TOTAL
      LIABILITIES**
    
    
    1,190,095
    
    
    1,086,949**COMMITMENTS
      AND CONTINGENCIES****STOCKHOLDERS'
      EQUITY**Common
      stock, $.01 par value, 50,000,000 shares authorized, 17,827,924 shares
      issued and outstanding at March 31, 2005 and December 31, 2004
    
    
    178,279
    
    
    178,279Additional
      paid-in capital
    
    
    11,508,715
    
    
    11,508,715Deferred
      consulting expenses
    
    
    (389,591
    )
    
    (462,439
    )Accumulated
      deficit
    
    
    (8,733,186
    )
    
    (7,434,763
    )Total Stockholders' Equity
    
    
    2,564,217
    
    
    3,789,792**TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY**
    
    $
    3,754,312
    
    $
    4,876,741








See
accompanying notes to condensed consolidated financial statements.




1







**VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS**


**FOR
THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004**


**(UNAUDITED)**




For
      the Three Months Ended March 31, 2005
    
    For
      the Three Months Ended March 31, 2004**REVENUE**
    
    $
    597,768
    
    $
    377,923**COST
      OF GOODS SOLD (Excluding Depreciation)**
    
    
    396,760
    
    
    83,061**GROSS
      PROFIT**
    
    
    201,008
    
    
    294,862**OPERATING
      EXPENSES**Management
      and consulting fees
    
    
    117,348
    
    
    113,232Research
      and development
    
    
    524,013
    
    
    396,689Selling,
      general and administrative
    
    
    810,892
    
    
    500,742Depreciation
      and amortization
    
    
    53,664
    
    
    29,997Total
      Operating Expenses
    
    
    1,505,917
    
    
    1,040,660**LOSS
      FROM OPERATIONS**
    
    
    (1,304,909
    )
    
    (745,798
    )**INTEREST
      INCOME, NET**
    
    
    6,486
    
    
    4,707**NET
      LOSS**
    
    $
    (1,298,423
    )
    $
    (741,091
    )**NET
      LOSS PER COMMON SHARE - BASIC AND DILUTED**
    
    $
    (.07
    )
    $
    $
      (.05
    )**WEIGHTED
      AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED**
    
    
    17,827,924
    
    
    14,857,520




See
accompanying notes to condensed consolidated financial statements.





2












**VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY**


**FOR
THE THREE MONTHS ENDED MARCH 31, 2005**


**(UNAUDITED)**




**Common
      Stock**
    
    **Additional
      Paid-In**
    
    **Deferred**
      **Consulting**
    
    **Accumulated**
    
    **Total**
      **Stockholders’****Shares**
    
    **Amount**
    
    **Capital**
    
    **Expenses**
    
    
    **Deficit**
    
    
    **Equity**Balance,
      January 1, 2005
    
    
    17,827,924
    
    $
    178,279
    
    $
    11,508,715
    
    $
    (462,439
    )
    $
    (7,434,763
    )
    $
    3,789,792Amortization
      of deferred consulting expenses
    
    
    —
    
    
    —
    
    
    —
    
    
    72,848
    
    
    —
    
    
    72,848Net
      loss
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    (1,298,423
    )
    
    (1,298,423
    )Balance,
      March 31, 2005
    
    
    17,827,924
    
    $
    178,279
    
    $
    11,508,715
    
    $
    (389,591
    )
    $
    (8,733,186
    )
    $
    2,564,217




See
accompanying notes to condensed consolidated financial statements.





3




**VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004**


**(UNAUDITED)**





**For
      the Three**
      **Months
      Ended**
      **March
      31, 2005**
    
    **For
      the Three**
      **Months
      Ended**
      **March
      31, 2004****CASH
      FLOWS FROM OPERATING ACTIVITIES:**Net
      loss
    
    $
    (1,298,423
    )
    $
    (741,091
    )Adjustments to reconcile net loss to net cash used in operating
      activities:Depreciation and amortization
    
    
    53,664
    
    
    29,997Amortization of deferred consulting expenses
    
    
    72,848
    
    
    77,232Changes in operating assets and liabilities:(Increase) in accounts receivable
    
    
    (180,801
    )
    
    (57,647
    )(Increase) in inventories
    
    
    (71,684
    )
    
    (71,883
    )Decrease in prepaid expenses
    
    
    14,134
    
    
    6,748(Increase) Decrease in security deposits
    
    
    (20,463
    )
    
    5,000Increase (Decrease) in accounts payable
    
    
    245,471
    
    
    (108,789
    )Decrease in accrued expenses
    
    
    (153,592
    )
    
    (55,761
    )Increase in deferred revenue
    
    
    11,267
    
    
    4,815Net Cash Used In Operating Activities
    
    
    (1,327,579
    )
    
    (911,379
    )**CASH
      FLOWS FROM INVESTING ACTIVITIES:**Payments for purchased equipment
    
    
    (253,888
    )
    
    (61,760
    )Net Cash Used In Investing Activities
    
    
    (253,888
    )
    
    (61,760
    )**CASH
      FLOWS FROM FINANCING ACTIVITIES:**Private placement of common stock
    
    
    -
    
    
    6,741,631Net Cash Provided By Financing Activities
    
    
    -
    
    
    6,741,631**NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
    
    
    (1,581,467
    )
    
    5,768,492**CASH
      AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
    
    
    3,065,547
    
    
    659,117**CASH
      AND CASH EQUIVALENTS - END OF PERIOD**
    
    $
    1,484,080
    
    $
    6,427,609




See
accompanying notes to condensed consolidated financial statements.




4


****


**VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005 (UNAUDITED)**





**NOTE
1**  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND LIQUIDITY**





***(A)
Basis of Presentation***





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, the
financial statements do not include all information and footnotes required by
accounting principles generally accepted in the United States of America for
complete annual financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation. Interim operating results are not necessarily
indicative of results that may be expected for the year ending December 31, 2005
or for any subsequent period. These unaudited condensed consolidated financial
statements should be read in conjunction with the Annual Report on Form 10-KSB
of VioQuest Pharmaceuticals, Inc. (formerly Chiral Quest, Inc.) and its
subsidiary (the “Company” or “VioQuest”) as of and for the year ended December
31, 2004 as referenced in the Company’s audited balance sheet from the Annual
Report on form 10-KSB.





***(B)
Nature of Operations and Liquidity***





Since its
inception in October 2000, VioQuest Pharmaceuticals, Inc. (formerly Chiral
Quest, Inc.) has provided pharmaceutical and fine chemical companies in all
stages of the product lifecycles with innovative chiral products and services.
Since August 2004, the Company has provided such products and services through
its wholly-owned subsidiary, Chiral Quest, Inc. Chiral Quest, Inc. develops
chemical catalysts used in the synthesis of desired isomers of chiral molecules
using asymmetrical catalysis technology (the “Technology”) owned by the
Pennsylvania State University Research Foundation (“PSRF”), the technology arm
of The Pennsylvania State University (“Penn State”). Chiral Quest, Inc. has a
worldwide, exclusive license from PSRF for the inventions covered by the
license. The original license agreement was entered into on November 8, 2000.





In August
2004, the Company formed VioQuest Drug Development, Inc., a wholly-owned
subsidiary, which will focus on acquiring and bringing to market therapies for
oncology, metabolic and inflammatory diseases and disorders that are current
unmet medical needs. To date, VioQuest Drug Development, Inc. has not yet
acquired any product candidates, has not realized any revenue and has not
incurred any materially related expenses.





Through
March 31, 2005, the Company has generated sales revenue but not any net profits.
Management believes that the Company’s research and development (“R&D”) and
manufacturing capacity will need to grow in order for the Company to be able to
obtain significant licensing and manufacturing agreements with large fine
chemical and pharmaceutical companies. Management believes that the Company’s
manufacturing capacity will be enhanced with its expanded office and laboratory
space located in Monmouth Junction, New Jersey that was leased in May 2003, in
addition to the leased space located in Jiashan, China.





The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Since inception the
Company has incurred an accumulated deficit of $8,733,186 through March 31,
2005. For the three months ended March 31, 2005 the Company had a net loss of
$1,298,423. These matters raise doubt about its ability to continue as a going
concern. Management expects the Company’s losses to increase over the next
several years, primarily due to expansion of its research and development
programs, the hiring of additional chemists, the expansion of its manufacturing
capabilities, and the costs related to acquiring a drug candidate. There can be
no assurance that the Company will ever be able to operate profitably.





As of
March 31, 2005, the Company had working capital of $1,275,445 and cash and cash
equivalents of $1,484,080. Unless the Company is able to significantly increase
its revenues, it will most likely require additional financing by the end of the
second quarter of 2005 in order to continue operations. The most likely sources
of financing include private placements of the Company’s equity or debt
securities or bridge loans to the Company from third party lenders, if
available.




5




**VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005 (UNAUDITED)**





The
Company’s net cash used in investing activities for the three months ended March
31, 2005 totaled $253,888 which consisted of costs related to the Chiral Quest,
Jiashan, China laboratory expansion of $144,801, in addition to purchases of
laboratory, computer and office equipment of $109,087 related to the New Jersey
facility.





The
Company’s capital requirements will depend on numerous factors, including:
competing technological and market developments, changes in our existing
collaborative relationships, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights and the outcome
if any potentially related litigation or other dispute, the purchase of
additional capital equipment, acquisition of technologies, the establishment and
funding of the Chiral Quest, Jiashan, China facility, and the development and
regulatory approval progress of its customers’ product candidates into which the
Company’s technology will be incorporated, in addition to the costs associated
with the drug development process related to acquiring a drug candidate.





Additional
capital that will 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.





The
Company’s ability to achieve profitability depends upon, among other things, its
ability to discover and develop products (specifically new “ligands”), and to
develop its products on a commercial scale through a cost effective and
efficient process. To the extent that the Company is unable to produce, directly
or indirectly, ligands in quantities required for commercial use, it will not
realize any significant revenues from its technology. Moreover, there can be no
assurance that it will ever achieve significant revenues or profitable
operations from the sale of any of its products or technologies.





Management
anticipates that the Company’s capital resources will be adequate to fund its
operations through June 30, 2005, assuming the Company achieves expected
increases in revenue. If the Company is unable to increase revenues as expected,
however, additional financing will likely be required as early as the second
quarter of 2005 in order to fund operations. The most likely source of financing
includes the private placements of our equity or debt securities or bridge loans
to the Company from third party lenders.





***(C)
Stock-Based Compensation***





The
Company accounts for its employee and director stock option plans using the
intrinsic value method in accordance with APB Opinion No. 25, “ *Accounting
For Stock Issued To Employees,* ” and
related interpretations. The Company measures compensation expense for employee
and director stock options as the aggregate difference between the market value
of its common stock and exercise prices of the options on the date that both the
number of shares the grantee is entitled to receive and the exercise prices are
known. For pro forma disclosure purposes, the Company values option issuances
using the Black-Scholes option pricing model. If the Company had elected to
recognize compensation cost for all outstanding options granted by the Company
to employees by applying the fair value recognition provisions of SFAS No. 123 *“Accounting
for Stock Based Compensation,”* to
employee stock options, and amortizing the fair value over the vesting period,
net loss and net loss per share for the three months ended March 31, 2005 and
2004 would have been increased to the pro forma amounts indicated below:


6




**VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005 (UNAUDITED)**





For
      the Three Months Ended March 31, 2005
    
    For
      the Three Months Ended March 31, 2004Net
      loss as reported
    
    $
    (1,298,423
    )
    $
    (741,091
    )Total
      stock-based employee compensation expenses using the fair value based
      method for all awards, net of related tax effects
    
    
    (114,508
    )
    
    (35,578
    )Net
      loss, pro forma
    
    $
    (1,412,931
    )
    $
    (776,669
    )Basic
      and diluted net loss per common share:As
      reported
    
    $
    (.07
    )
    $
    (.05
    )Pro
      forma
    
    $
    (.08
    )
    $
    (.05
    )Black-Scholes
      option pricing assumptionsRisk-free
      interest rate
    
    
    2%-5
    %
    
    2%-4
    %Volatility
    
    
    64%-128
    %
    
    64%-128
    %Lives
      in years
    
    
    10
    
    
    10Dividend
      yield
    
    
    0
    %
    
    0
    %







As a
result of amendments to SFAS 123, the Company will be required to expense the
fair value of employee stock options beginning with the first quarter of
2006.





In
addition, options are issued to non-employees such as consultants, scientific
advisory board members and directors. Any options issued to non-employees are
recorded in the consolidated financial statements as deferred expenses in the
stockholders’ equity section using the fair value method and then amortized to
expense over the applicable service periods.





***(D)
Loss Per Share***





Basic net
loss per share is calculated by dividing net loss by the weighted-average number
of shares outstanding for each period presented. Diluted net loss per share is
the same as basic net loss per share, since potentially dilutive securities from
the assumed exercise of stock options and stock warrants would have had an
antidilutive effect because the Company incurred a net loss during each period
presented. The amount of potentially dilutive securities excluded from the
calculation was 6,300,405 at March 31, 2005. There were 1,547,855 potentially
dilutive securities at March 31, 2004.





**NOTE
2**  **INVENTORIES**





The
principal components of inventory are as follows:





March
      31, 2005
      (Unaudited)****
    
    December
      31,
      2004****Raw
      material compounds
    
    $
    353,161
    
    $
    308,456Work
      in process
    
    
    74,670
    
    
    47,691Finished
      goods
    
    
    4,000
    
    
    4,000Total
      Inventory
    
    $
    431,831
    
    $
    360,147





**NOTE
3**  **STOCKHOLDERS’
EQUITY**





On
February 25, 2004, the Company completed the sale of its securities in a private
placement to accredited investors for gross proceeds of approximately $7.2
million. Investors in the private placement purchased an aggregate of
approximately 4.8 million shares of the Company’s common stock at a price per
share of $1.50. Additionally, investors received one 5-year warrant to purchase
one share of common stock at $1.65 per share for every two common shares
purchased in the offering (a total of 2.4 million warrants). ThinkEquity
Partners LLC, Paramount BioCapital, Inc. and Casimir Capital L.P. acted as the
placement agents for this offering and received fees of approximately $500,000
of which Paramount BioCapital, Inc., a related party, received $300,000. Net
proceeds to the Company, after deducting placement agent fees and other expenses
relating to the private placement, were approximately $6.7 million.





7





**VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005 (UNAUDITED)**





The table
below illustrates the number of stock options issued to: employees, scientific
advisory board members, board of directors and consultants which were issued for
services provided:





For
      the Three Months Ended March 31, 2005Balance,
      January 1, 2005
    
    
    2,244,877Granted
    
    
    1,159,396Exercised
    
    
    0Expired
    
    
    0Terminated
    
    
    0Balance,
      March 31, 2005
    
    
    3,404,273







**NOTE
4** **** **SUBSEQUENT
EVENTS**





In April
2005, the Company terminated the employment of Ronald Brandt, Chiral Quest’s
Business Unit Head. In accordance with the terms of Mr. Brandt’s June 17, 2004
employment agreement, as a result of the termination of his employment, Mr.
Brandt also resigned from the Company’s Board of Directors. Under the terms of
his employment agreement, Mr. Brandt will continue to receive his annualized
base salary of $210,000 for a 6-month period following the date of
separation.





In May
2005, the Company signed a non-binding letter of intent to complete a merger
transaction with Greenwich
Therapeutics, a
privately-held New York biotechnology company focused on the development of
novel compounds with broad therapeutic applications in oncology. In the proposed
merger, the Company would acquire the rights to two anti-cancer agents - Sodium
Stibogluconate (SSG) and Triciribine (API-2). As a result of the proposed
merger, the stockholders of Greenwich Therapeutics will receive up to
approximately 47% of the Company on a fully diluted, post-merger basis.
Approximately one-half of the additional equity will be set aside in escrow, and
will only be released incrementally upon the achievement of certain clinical
milestones relating to Phase I and Phase II clinical studies for each compound.
The Company will account for the proposed merger transaction with Greenwich
Therapeutics under the purchase method of accounting.




8







**Item
      2.**
    **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.**




**Overview**





Since our
inception in October 2000, VioQuest Pharmaceuticals, Inc. (formerly Chiral
Quest, Inc.) has provided pharmaceutical and fine chemical companies in all
stages of the product lifecycles with innovative chiral products and services
(as used herein, the “Company” refers to VioQuest Pharmaceuticals, Inc. or
VioQuest Pharmaceuticals, Inc. together with its subsidiaries). Since August
2004, the Company has provided such products and services through its
wholly-owned subsidiary, Chiral Quest, Inc. Chiral Quest, Inc. develops chemical
catalysts used in the synthesis of desired isomers of chiral molecules using
asymmetrical catalysis technology (the “Technology”) owned by the
Pennsylvania State University Research Foundation (“PSRF”), the technology arm
of The Pennsylvania State University (“Penn State”). Chiral Quest, Inc. has a
worldwide, exclusive license from PSRF for the inventions covered by the
license. The original license agreement was entered into on November 8, 2000.





In August
2004, the Company formed VioQuest Drug Development, Inc., a wholly-owned
subsidiary, which will focus on acquiring and bringing to market therapies for
oncology, metabolic and inflammatory diseases and disorders that are current
unmet medical needs. To date, VioQuest Drug Development, Inc. has not yet
acquired any product candidates, has not realized any revenue and has not
incurred materially related any expenses.





Through
March 31, 2005, the Company has generated sales revenue but not any net profits.
Management believes that the Company’s research and development (“R&D”) and
manufacturing capacity will need to grow in order for the Company to be able to
obtain significant licensing and manufacturing agreements with large fine
chemical and pharmaceutical companies. Management believes that the Company’s
manufacturing capacity will be enhanced with its expanded office and laboratory
space located in Monmouth Junction, New Jersey that was leased in May 2003, in
addition to the leased space located in Jiashan, China.





Since
inception the Company has incurred an accumulated deficit of $8,733,186 through
March 31, 2005. For the three months ended March 31, 2005 the Company had a net
loss of $1,298,423. These matters raise doubt about its ability to continue as a
going concern. Management expects the Company’s losses to increase over the next
several years, primarily due to expansion of its research and development
programs, the hiring of additional chemists, the expansion of its manufacturing
capabilities, and the costs related to acquiring a drug candidate. There can be
no assurance that the Company will ever be able to operate profitably.





The
Company’s ability to achieve profitability depends upon, among other things, its
ability to discover and develop products (specifically new “ligands”), and to
develop its products on a commercial scale through a cost effective and
efficient process. To the extent that the Company is unable to produce, directly
or indirectly, ligands in quantities required for commercial use, it will not
realize any significant revenues from its technology. Moreover, there can be no
assurance that it will ever achieve significant revenues or profitable
operations from the sale of any of its products or technologies.





Management
anticipates that the Company’s capital resources will be adequate to fund its
operations through June 30, 2005, assuming the Company achieves expected
increases in revenue. If the Company is unable to increase revenues as expected,
however, additional financing will likely be required as early as the second
quarter of 2005 in order to fund operations. The most likely source of financing
includes the private placements of our equity or debt securities or bridge loans
to the Company from third party lenders if available. However, changes may occur
that would consume available capital resources before that time. The Company’s
combined capital requirements will depend on numerous factors, including:
competing technological and market developments, changes in our existing
collaborative relationships, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights and the outcome
of any potentially related litigation or other dispute, the purchase of
additional capital equipment, acquisition of technologies, the establishment and
funding of the Chiral Quest, Jiashan, China facility, and the development and
regulatory approval progress of its customers’ product candidates into which the
Company’s technology will be incorporated.




**Results
of Operations - For the Three Months Ended March 31, 2005 vs. March 31, 2004**





Our
revenues for the three months ended March 31, 2005 were $597,768 as compared to
$377,923 for the three months ended March 31, 2004. For the three months ended
March 31, 2005, approximately 4% of total revenue was derived from the
amortization of option fee income pertaining to the licensing of our
intellectual property and 96% of total revenue was derived from sales of our
ligands and catalysts, feasibility screenings, and customized process
development services sold to third parties. For the three months ended March 31,
2004, approximately 8% of total revenue was derived from the amortization of
option fee income and 92% of total revenue was comprised of sales or our ligands
and catalysts, feasibility screenings, and customized process development
services sold to third parties. It is anticipated that sales of our ligands,
molecular building blocks and customized chiral services will continue to
comprise a greater percentage of our revenues in the future as we expand our
manufacturing capabilities.




9







Cost of
goods sold for three months ended March 31, 2005 was $396,760 as compared to
$83,061 during the three months ended March 31, 2004. The increase in cost of
goods sold is attributed to the costs associated to the purchases of finished
goods used in production related to the increased shipments of projects during
the first quarter ended March 31, 2005, along with the allocation of direct
labor and overhead expenses to finished goods.





Management
and consulting expenses for the three months ended March 31, 2005 were $117,348
as compared to $113,232 during the three months ended March 31, 2004. Management
and consulting fees consist of the consulting agreement with our Chief
Technology Officer at a rate of $10,000 per month effective May 15, 2003.
Management and consulting expense also consists of the amortization of stock
options issued to consultants, and scientific advisory board members.





Our
R&D expenses for the three months ended March 31, 2005 were $524,013 as
compared to $396,689 during the three months ended March 31, 2004. The increase
was primarily caused by the increased number of chemists hired to work at the
new laboratory facility in New Jersey. R&D expenses also include the costs
associated to the purchases of laboratory chemicals, and supplies.





Selling,
general and administrative (“SG&A”) expenses for the three months ended
March 31, 2005 were $810,892 as compared to $500,742 during the three months
ended March 31, 2004. This increase in SG&A expenses was due in part to
increased usage of temporary contractors, higher legal and accounting fees,
increased rent expense for the New Jersey facility as a result of the facility’s
expansions, additional spending on advertising and promotion expenses, increased
travel expenses for new business development opportunities and higher
administrative expenses associated with having more employees on payroll in
addition to insurance and employer payroll taxes.





Depreciation
and amortization expenses for the three months ended March 31, 2005 were $53,664
as compared to $29,997 during the three months ended March 31, 2004. This
increase was primarily related to the fixed asset purchases for office
equipment, computer equipment, laboratory equipment and leasehold improvements
for the newly leased facility and expansions in New Jersey.





10


Interest
income for the three months ended March 31, 2005 was $6,486 as compared to
$4,707 for the three months ended March 31,2004. The increase in
interest income is attributed to having higher cash reserves for the three
months ended March 31, 2005 as compared to the three months ended March 31,
2004, as a result of the funds received from the private placement of the
Company’s common stock in February 2004.





Our net
loss for the three months ended March 31, 2005 was $1,298,423 as compared to
$741,091 for the three months ended March 31, 2004. The increased net loss for
the three months ended March 31, 2005 as compared to March 31, 2004 was
attributable to higher SG&A expenses related to operational expenditures
comprised of higher total rent expense due to the newly leased, and expansions
to the New Jersey facility in June 2003, April and September 2004 respectively,
higher legal and accounting expenses, higher payroll expenses associated with
having more employees along with increased usage of temporary contractors. We
expect losses to continue in the next year as we continue to expand operations
in New Jersey as well as commence operations in Jiashan.




**Liquidity
and Capital Resources**





Since
inception the Company has incurred an accumulated deficit of $8,733,186 through
March 31, 2005. For the three months ended March 31, 2005 the Company had a net
loss of $1,298,423. These matters raise doubt about its ability to continue as a
going concern. Management expects the Company’s losses to increase over the next
several years, primarily due to expansion of its research and development
programs, the hiring of additional chemists, the expansion of its manufacturing
capabilities, and the costs related to acquiring a drug candidate. There can be
no assurance that the Company will ever be able to operate profitably.





As of
March 31, 2005, the Company had working capital of $1,275,445 and cash and cash
equivalents of $1,484,080. Unless the Company is able to significantly increase
its revenues, it will most likely require additional financing by the end of the
second quarter of 2005 in order to continue operations. The most likely sources
of financing include private placements of the Company’s equity or debt
securities or bridge loans to the Company from third party lenders, if
available.





The
Company’s net cash used in operating activities for the three months ended March
31, 2005 was $1,327,579. The Company’s net cash used in operating activities
primarily consisted of a net loss of $1,298,423, an increase in accounts
receivable of $180,801 as a result of increase sales during the three months
ended March 31, 2005, an increase in accounts payable of $245,471 attributed to
purchases for inventory, recruiting and operational expenditures, and a decrease
of accrued expenses of $153,592.





The
Company’s net cash used in investing activities for the three months ended March
31, 2005 totaled $253,888 which consisted of costs related to the Chiral Quest,
Jiashan, China laboratory expansion of $144,801, in addition to purchases of
laboratory, computer and office equipment of $109,087 related to the New Jersey
facility.





The
Company’s capital requirements will depend on numerous factors, including:
competing technological and market developments, changes in our existing
collaborative relationships, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights and the outcome
if any potentially related litigation or other dispute, the purchase of
additional capital equipment, acquisition of technologies, the establishment and
funding of the Chiral Quest, Jiashan, China facility, and the development and
regulatory approval progress of its customers’ product candidates into which the
Company’s technology will be incorporated, in addition to the costs associated
with the drug development process related to acquiring a drug candidate.





Additional
capital that will 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.





The
Company’s ability to achieve profitability depends upon, among other things, its
ability to discover and develop products (specifically new “ligands”), and to
develop its products on a commercial scale through a cost effective and
efficient process. To the extent that the Company is unable to produce, directly
or indirectly, ligands in quantities required for commercial use, it will not
realize any significant revenues from its technology. Moreover, there can be no
assurance that it will ever achieve significant revenues or profitable
operations from the sale of any of its products or technologies.





Management
anticipates that the Company’s capital resources will be adequate to fund its
operations through June 30, 2005, assuming the Company achieves expected
increases in revenue. If the Company is unable to increase revenues as expected,
however, additional financing will likely be required as early as the second
quarter of 2005 in order to fund operations. The most likely source of financing
includes private placements of its 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 combined
capital requirements will depend on numerous factors, including: competing
technological and market developments, changes in our existing collaborative
relationships, the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights and the outcome of any potentially
related litigation or other dispute, the purchase of additional capital
equipment, acquisition of technologies, the establishment and funding of the
Chiral Quest, Jiashan, China facility, and the development and regulatory
approval progress of its customers’ product candidates into which the Company’s
technology will be incorporated.





11





In
February 2004, we sold in a private placement 4.8 million shares of our common
stock plus warrants to purchase an additional 2.4 million shares of common stock
for aggregate gross proceeds of $7.2 million. Management believes that the
remaining capital resulting from the private placement and anticipated increased
revenue, will provide sufficient resources to fund our continued operational
expansion and corporate development through approximately the second quarter of
2005. Our long-term liquidity is contingent upon achieving increased sales
and/or obtaining additional financing.





We have
formed two China subsidiaries through which we intend to open a laboratory
facility in the People’s Republic of China. We have provided $400,000 of capital
to the China subsidiary as of the first quarter ended March 31, 2005. Our
management believes that by the opening of this facility in China to produce
non-proprietary chemical building blocks and related compounds, we will be able
to significantly decrease our manufacturing costs and expenses, enabling us to
cost-effectively produce our ligands and end products and make our products
substantially more competitive and even more attractive to current and potential
customers. We expect operations to commence on a limited basis during the second
quarter of 2005.





Our
working capital requirements will depend upon numerous factors, including
without limitation the progress of our R&D programs, the resources we devote
to developing manufacturing and marketing capabilities, technological advances,
the status of competitors, and our ability to establish sales arrangements with
new customers. Working capital will also be affected by the China facility
expansion of office and laboratory space lease agreements that were entered into
during 2004, along with the hiring of additional employees.





Our
working capital requirements will also be substantially impacted by the costs
associated with the company’s drug development process. These costs of
acquiring, developing and eventually commercializing human therapeutics in the
areas of oncology, metabolic and inflammatory diseases and disorders that are
current unmet medical needs will significantly impact our working capital based
upon milestone payments, license fees and manufacturing costs. Upon acquiring a
drug candidate, we will need substantial additional capital to fund the
activities necessary to develop and eventually gain regulatory approval to sell
the drug.




12







**Off-Balance
Sheet Arrangements**


****


We have no off-balance sheet arrangements.


****


**Recently
Issued Accounting Standards**





In July
2002, the FASB issued SFAS No. 146, “Accounting for Restructuring Costs.” SFAS
No. 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Those activities can
include eliminating or reducing product lines, terminating employees and
contracts and relocating plant facilities or personnel. Under SFAS No. 146, the
Company will record a liability for a cost associated with an exit or disposal
activity when that liability is incurred and can be measured at fair value. SFAS
No. 146 will require the Company to disclose information about its exit and
disposal activities, the related costs, and changes in those costs in the notes
to the interim and annual financial statements that include the period in which
an exit activity is initiated and in any subsequent period until the activity is
completed. SFAS No. 146 is effective prospectively for exit or disposal
activities initiated after December 31, 2002, with earlier adoption encouraged.
Under SFAS No. 146, a company cannot restate its previously issued financial
statements and the new statement grandfathers the accounting for liabilities
that a company had previously recorded under Emerging Issues Task Force Issue
94-3.


In May
2003, the FASB issued SFAS No. 150, “Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150
changes the accounting for certain financial instruments with characteristics of
both liabilities and equity that, under previous pronouncements, issuers could
account for as equity. The new accounting guidance contained in SFAS No. 150
requires that those instruments be classified as liabilities in the balance
sheet.





SFAS No.
150 affects the issuer’s accounting for three types of freestanding financial
instruments. One type is mandatorily redeemable shares, which the issuing
company is obligated to buy back in exchange for cash or other assets. A second
type includes put options and forward purchase contracts, which involves
instruments that do or may require the issuer to buy back some of its shares in
exchange for cash or other assets. The third type of instruments that are
liabilities under SFAS No. 150 are obligations that can be settled with shares,
the monetary value of which is fixed, tied solely or predominantly to a variable
such as a market index, or varies inversely with the value of the issuers’
shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.





Most of
the provisions of SFAS No. 150 are consistent with the existing definition of
liabilities in FASB Concepts Statement No. 6, “Elements of Financial
Statements.” The remaining provisions of SFAS No. 150 are consistent with the
FASB’s proposal to revise that definition to encompass certain obligations that
a reporting entity can or must settle by issuing its own shares. SFAS No. 150
shall be effective for financial instruments entered into or modified after May
31, 2003 and otherwise shall be effective at the beginning of the first interim
period beginning after June 15, 2003.





In
December 2003, the FASB issued revised FIN 46R, “Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.”
(“FIN 46R”). FIN 46R required the consolidation of an entity in which an
enterprise absorbs a majority of the entity’s expected losses, receives a
majority of the entity’s expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the entity (variable
interest entities, or “VIEs”). Currently, entities are generally consolidated by
an enterprise when it has a controlling financial interest through ownership or
a majority voting interest in the entity. FIN 46R is applicable for financial
statements of public entities that have interests in VIEs or potential VIEs
referred to as special-purpose entities for periods ending after December 31,
2003. Applications by public entities for all other types of entities are
required in financial statements for periods ending after March 15, 2004.





In
December 2004, the FASB issued SFAS No. 123R “Accounting for Stock-Based
Compensation.” SFAS 123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or services. This Statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS 123R requires that the fair value of such equity instruments, including all
employee stock options be recognized as an expense in the historical financial
statements as services are performed. Prior to SFAS 123R, only certain pro forma
disclosures of fair value were required. SFAS 123R shall be effective for the
Company as of the beginning of the first annual reporting period that
begins after December 15, 2005. The Company is evaluating the impact of this
pronouncement and its affects on our financial statements.





13




**Item
3. Controls and Procedures**





As of
March 31, 2005, we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in alerting them on a timely basis to
material information required to be disclosed in our periodic reports to the
Securities and Exchange Commission. During the fiscal three months ended March
31, 2005, there was no change in the Company’s internal control over financial
reporting that materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting.




14




PART II - OTHER INFORMATION


**Item
5. Other Events**





The
Company terminated the employment of Ronald Brandt, the head of the Chiral
Business Unit and a director of the Company, on April 4, 2005. In accordance
with the terms of Mr. Brandt’s June 17, 2004 employment agreement, in the event
his employment with the Company is terminated for any reason, he is
automatically deemed to have resigned from the Board of Directors as of such
date. Accordingly, Mr. Brandt’s resignation as a director of the Company is
effective as of April 4, 2005. Mr. Brandt did not hold any positions on any
committee of the board of directors at the time of his resignation. In
accordance with the terms of his employment agreement, Mr. Brandt is entitled to
receive severance payments in the aggregate amount of $105,000, payable over the
6-month period following his separation date. The Company has furnished Mr.
Brandt with a copy of the disclosures contained in this Item 5.





**Item
6. Exhibits**




Exhibit
      No.
    Description10.1
    Employment
      Agreement date February 1, 2005 by and between the Company and Daniel
      Greenleaf (incorporated by reference to Exhibit 10.16 of the Company’s
      Annual Report on Form 10-KSB for the year ended December 31,
      2004)31.1
    Certification
      of Chief Executive Officer31.2
    Certification
      of Chief Financial Officer32.1
    Certifications
      of Chief Executive and Chief Financial Officer pursuant to Section 906 of
      the
      Sarbanes-Oxley Act of 2002




15




****


**SIGNATURES**





In
accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




VIOQUEST
      PHARMACEUTICALS, INC.Date:
      May 13, 2005
    By:
    /s/
      Daniel GreenleafDaniel
      Greenleaf
      President
      & Chief Executive OfficerDate:
      May 13, 2005
    By:
    /s/
      Brian LenzBrian
      Lenz
      Chief
      Financial Officer




16







EXHIBIT INDEX





Exhibit
      No.
    Description10.1
    Employment
      Agreement date February 1, 2005 by and between the Company and Daniel
      Greenleaf (incorporated by reference to Exhibit 10.16 of the Company’s
      Annual Report on Form 10-KSB for the year ended December 31,
      2004)31.1
    Certification
      of Chief Executive Officer31.2
    Certification
      of Chief Financial Officer32.1
    Certifications
      of Chief Executive and Chief Financial Officer pursuant to Section 906
      of  the
      Sarbanes-Oxley Act of 2002






17