**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 June 30, 2005
 
 OR
 
 |_|
           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)
 
 (former
        name, former address and former fiscal year, if changed from last
        report)
 
 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
        |_|
 
 As
        of
        August 15, 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 |_| No |X|
  
 Index  
 Page**PART
                  I**
              **FINANCIAL
                  INFORMATION**Item
                  1.
              Condensed
                  Consolidated Financial Statements
              1Item
                  2.
              Management’s
                  Discussion and Analysis
              10or
                  Plan of OperationsItem
                  3.
              Controls
                  and Procedures
              15**PART
                  II**
              **OTHER
                  INFORMATION**Item
                  6.
              Exhibits
              16Signatures
              17Exhibit
                  Index
              18
 
 **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 JUNE 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004**
 
 **June
                      30, 2005**
                    **(Unaudited)**
                  
                  
                  
                  **December
                      31,2004(Note 1)****ASSETS****CURRENT
                      ASSETS**Cash
                      and cash equivalents
                  
                  
                  
                  $
                  1,154,869
                  
                  
                  
                  $
                  3,065,547Accounts
                      receivable, net of allowance for doubtful accounts of $10,000
                      at June 30,
                      2005 and $0 at December 31, 2004, respectively
                  
                  
                  
                  
                  229,380
                  
                  
                  
                  
                  318,585Inventories
                  
                  
                  
                  
                  379,682
                  
                  
                  
                  
                  360,147Prepaid
                      expenses
                  
                  
                  
                  
                  59,551
                  
                  
                  
                  
                  64,377Total Current Assets
                  
                  
                  
                  
                  1,823,482
                  
                  
                  
                  
                  3,808,656**PROPERTY
                      AND EQUIPMENT, NET**
                  
                  
                  
                  
                  775,861
                  
                  
                  
                  
                  493,632**SECURITY
                      DEPOSITS**
                  
                  
                  
                  
                  60,756
                  
                  
                  
                  
                  31,000**INTELLECTUAL
                      PROPERTY RIGHTS, NET**
                  
                  
                  
                  
                  570,775
                  
                  
                  
                  
                  543,453**OTHER
                      ASSETS**
                  
                  
                  
                  
                  55,335
                  
                  
                  
                  
                  —**TOTAL
                      ASSETS**
                  
                  
                  
                  $
                  3,286,209
                  
                  
                  
                  $
                  4,876,741**LIABILITIES
                      AND STOCKHOLDERS' EQUITY****CURRENT
                      LIABILITIES**Accounts payable
                  
                  
                  
                  $
                  1,368,557
                  
                  
                  
                  $
                  303,392Accrued expenses
                  
                  
                  
                  
                  302,426
                  
                  
                  
                  
                  219,715Deferred revenue
                  
                  
                  
                  
                  125,210
                  
                  
                  
                  
                  563,842**TOTAL
                      LIABILITIES**
                  
                  
                  
                  
                  1,796,193
                  
                  
                  
                  
                  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 June 30, 2005 and December 31, 2004
                  
                  
                  
                  
                  178,279
                  
                  
                  
                  
                  178,279Additional
                      paid-in capital
                  
                  
                  
                  
                  11,508,715
                  
                  
                  
                  
                  11,508,715Deferred
                      expenses
                  
                  
                  
                  
                  (316,742
                  )
                  
                  
                  
                  (462,439
                  )Accumulated
                      deficit
                  
                  
                  
                  
                  (9,880,236
                  )
                  
                  
                  
                  (7,434,763
                  )Total Stockholders' Equity
                  
                  
                  
                  
                  1,490,016
                  
                  
                  
                  
                  3,789,792**TOTAL
                      LIABILITIES AND STOCKHOLDERS' EQUITY**
                  
                  
                  
                  $
                  3,286,209
                  
                  
                  
                  $
                  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 AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004**
 **(UNAUDITED)**
 
 
 **For
                  the ThreeMonths EndedJune 30, 2005**
              
              **For
                  the ThreeMonths EndedJune 30, 2004**
              
              **For
                  the SixMonths EndedJune 30, 2005**
              
              **For
                  the SixMonths EndedJune 30, 2004****REVENUE**
              
              $
              1,502,171
              
              $
              357,200
              
              $
              2,099,939
              
              $
              735,123**COST
                  OF GOODS SOLD (Excluding Depreciation)**
              
              
              1,058,771
              
              
              294,188
              
              
              1,455,531
              
              
              377,249**GROSS
                  PROFIT**
              
              
              443,400
              
              
              63,012
              
              
              644,408
              
              
              357,874**OPERATING
                  EXPENSES**Management
                  and consulting fees
              
              
              139,374
              
              
              124,660
              
              
              256,722
              
              
              237,892Research
                  and development
              
              
              137,785
              
              
              244,840
              
              
              661,798
              
              
              553,947Selling,
                  general and administrative
              
              
              1,250,146
              
              
              923,729
              
              
              2,061,040
              
              
              1,512,053Depreciation
                  and amortization
              
              
              68,397
              
              
              62,608
              
              
              122,061
              
              
              92,605Total
                  Operating Expenses
              
              
              1,595,702
              
              
              1,355,837
              
              
              3,101,621
              
              
              2,396,497**LOSS
                  FROM OPERATIONS**
              
              
              (1,152,302
              )
              
              (1,292,825
              )
              
              (2,457,213
              )
              
              (2,038,623
              )**INTEREST
                  INCOME, NET**
              
              
              5,254
              
              
              11,100
              
              
              11,740
              
              
              15,807**NET
                  LOSS**
              
              $
              (1,147,048
              )
              $
              (1,281,725
              )
              $
              (2,445,473
              )
              $
              (2,022,816
              )**NET
                  LOSS PER COMMON SHARE - BASIC AND DILUTED**
              
              $
              (.06
              )
              $
              (.07
              )
              $
              (.14
              )
              $
              (.12
              )**WEIGHTED
                  AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED**
              
              
              17,827,924
              
              
              17,827,924
              
              
              17,827,924
              
              
              16,342,722
 
 See
        accompanying notes to condensed consolidated financial statements.
 
 2
 
  
 **VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2005**
 **(UNAUDITED)**
 
 
 **Common
                      Stock**
                  
                  
                  **Additional**
                    **Paid-In**
                    **Capital**
                  
                  **Deferred
                      Consulting**
                    **Expenses**
                  
                  
                  **Accumulated**
                    **Deficit**
                  
                  
                  **Total**
                    **Stockholders’**
                    **Equity****Shares**
                  
                  **Amount**Balance,
                      January 1, 2005
                  
                  
                  17,827,924
                  
                  $
                  178,279
                  
                  
                  $
                  11,508,715
                  
                  $
                  (462,439
                  )
                  
                  $
                  (7,434,763
                  )
                  
                  $
                  3,789,792Amortization
                      of deferred consulting expenses
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  145,697
                  
                  
                  
                  —
                  
                  
                  
                  145,697Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  (2,445,473
                  )
                  
                  
                  (2,445,473
                  )Balance,
                      June 30, 2005
                  
                  
                  17,827,924
                  
                  $
                  178,279
                  
                  
                  $
                  11,508,715
                  
                  $
                  (316,742
                  )
                  
                  $
                  (9,880,236
                  )
                  
                  $
                  1,490,016
 See
        accompanying notes to condensed consolidated financial statements.
 
 3
 
  
 **VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004**
 **(UNAUDITED)**
  **For
                        the SixMonths
                        EndedJune
                        30, 2005**
                    
                    
                    
                    
                    **For
                        the SixMonths EndedJune 30, 2004****CASH
                      FLOWS FROM OPERATING ACTIVITES:**Net
                        loss
                    
                    $
                    (2,445,473
                    )
                    
                    
                    
                    $
                    (2,022,816
                    )Adjustments to reconcile net loss to net cash used in operating
                        activities:Depreciation and amortization
                    
                    
                    122,061
                    
                    
                    
                    
                    
                    92,605Amortization of deferred expenses
                    
                    
                    145,697
                    
                    
                    
                    
                    
                    150,687Changes in operating assets and liabilities:Accounts receivable
                    
                    
                    89,205
                    
                    
                    
                    
                    
                    (117,300
                    )Inventories
                    
                    
                    (19,535
                    )
                    
                    
                    
                    
                    (1,916
                    )Prepaid expenses
                    
                    
                    4,826
                    
                    
                    
                    
                    
                    10,202Other assets
                    
                    
                    (55,335
                    )
                    
                    
                    
                    
                    -Security deposits
                    
                    
                    (29,756
                    )
                    
                    
                    
                    
                    5,000Accounts payable
                    
                    
                    1,065,165
                    
                    
                    
                    
                    
                    180,648Accrued expenses
                    
                    
                    82,711
                    
                    
                    
                    
                    
                    (46,362
                    )Deferred revenue
                    
                    
                    (438,632
                    )
                    
                    
                    
                    
                    (143,745
                    )Net Cash Used In Operating Activities
                    
                    
                    (1,479,066
                    )
                    
                    
                    
                    
                    (1,892,997
                    )**CASH
                        FLOWS FROM INVESTING ACTIVITIES:**Payments
                        for purchased equipment
                    
                    
                    (407,600
                    )
                    
                    
                    
                    
                    (156,850
                    )Payments
                        for intellectual property
                    
                    
                    (24,012
                    )
                    
                    
                    
                    
                    (92,279
                    )Net Cash Used In Investing Activities
                    
                    
                    (431,612
                    )
                    
                    
                    
                    
                    (249,129
                    )**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**
                    
                    
                    (1,910,678
                    )
                    
                    
                    
                    
                    4,599,505**CASH
                        AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
                    
                    
                    3,065,547
                    
                    
                    
                    
                    
                    659,117**CASH
                        AND CASH EQUIVALENTS - END OF PERIOD**
                    
                    $
                    1,154,869
                    
                    
                    
                    
                    $
                    5,258,622**Supplemental
                        Schedule of Non-Cash Investing and Financing Activities:**Reclassification of deferred financing costs to additional
                        paid-in capital
                        in connection with the private placement
                    
                    $
                    —
                    
                    
                    
                    
                    $
                    50,000
 
 
 See
        accompanying notes to condensed consolidated financial statements.
 
 4
  
  **VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED
        FINANCIAL STATEMENTS**
 **JUNE
        30, 2005**
 
 **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 audited consolidated financial
        statements included in the Annual Report on Form 10-KSB (as amended by Amendment
        No. 1 on Form 10-KSB/A) of VioQuest Pharmaceuticals, Inc. as of and for the
        year
        ended December 31, 2004. As used herein, the terms the “Company” or “VioQuest”
        refer to VioQuest Pharmaceuticals, Inc. (formerly Chiral Quest, Inc.) together
        with its subsidiaries.
 
 ***(B)
        Nature of Operations and Liquidity***
 
 Since
        its
        inception in October 2000, VioQuest 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”). Chiral Quest 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 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 (see Note 4), has not realized any revenue
        and
        has not incurred any material expenses.
 
 Through
        June 30, 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 continue to grow through the
        commercialization of our ligands and catalysts, and the development of our
        next
        generation of technological products of building blocks, 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 $9,880,236 through June 30,
        2005.
        For the three and six months ended June 30, 2005, the Company had net losses
        of
        $1,147,048 and $2,445,473, respectively. These matters raise substantial
        doubt
        about the Company’s 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 and the developing one or more drug candidates. There can be
        no
        assurance that the Company will ever be able to operate profitably.
 
 As
        of
        June 30 2005, the Company had working capital of $27,289 and cash and cash
        equivalents of $1,154,869. Unless the Company is able to significantly increase
        its revenues, it will most likely require additional financing by September
        30,
        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.
 
 5
 
 
 
 **VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2005**
 
 The
        Company’s net cash used in operating activities for the six months ended June
        30, 2005 was $1,479,066. The Company’s net cash used in operating activities
        primarily resulted from a net loss of $2,445,473, a decrease in accounts
        receivable of $89,205, an increase in accounts payable of $1,065,165 attributed
        to purchases for inventory, recruiting and operational expenditures, and
        a
        decrease in deferred revenue as a result of the Company receiving cash
        collections in advance of shipments which occurred in the second quarter
        2005.
 
 The
        Company’s net cash used in investing activities for the six months ended June
        30, 2005 totaled $431,612, which resulted from costs related to the Chiral
        Quest, Jiashan, China laboratory expansion of $243,561, purchases of laboratory,
        computer and office equipment of $164,039 related to the New Jersey facility,
        in
        addition to payments for intellectual property of $24,012.
 
 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 Chiral Quest’s, 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 may be needed by the Company in the future may not be available
        on
        reasonable terms, or at all. If adequate financing is not available, the
        Company
        may be required to terminate or significantly curtail its operations, or
        enter
        into arrangements with collaborative partners or others that may require
        the
        Company to relinquish rights to certain of its technologies, or potential
        markets that the Company would not otherwise relinquish.
 
 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 September 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 before September 30,
        2005
        in order to fund operations. The most likely source of financing includes
        private isssuances of our 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.
 
 ***(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 and amortizes the value over
        the vesting period. 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, (“SFAS 123”)”* to
        employee stock options, net loss and net loss per share for the three and
        six
        months ended June 30, 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**
 **JUNE
        30, 2005**
 
 **For
                  the ThreeMonths EndedJune 30, 2005**
              ****
              **For
                  the ThreeMonths EndedJune 30, 2004**
              ****
              **For
                  the SixMonths EndedJune 30, 2005**
              ****
              **For
                  the SixMonths EndedJune 30, 2004**Net
                  loss as reported
              
              $
              (1,147,048
              )
              $
              (1,281,725
              )
              $
              (2,445,473
              )
              $
              (2,022,816
              )Total
                  stock-based employee compensation expenses using the fair value
                  based
                  method for all awards, net of related tax effects
              
              
              (130,637
              )
              
              (8,542
              )
              
              (240,303
              )
              
              (48,205
              )Net
                  loss, pro forma
              
              $
              (1,277,685
              )
              $
              (1,290,267
              )
              $
              (2,685,776
              )
              $
              (2,071,021
              )Basic
                  and diluted net loss per common share:As
                  reported
              
              $
              (.06
              )
              $
              (.07
              )
              $
              (.14
              )
              $
              (.12
              )Pro
                  forma
              
              $
              (.07
              )
              $
              (.07
              )
              $
              (.15
              )
              $
              (.13
              )Black-Scholes
                  option pricing assumptionsRisk-free
                  interest rate
              
              
              2%-5
              %
              
              3%-4.5
              %
              
              2%-5
              %
              
              3.6%-4.5
              %Volatility
              
              
              64%-128
              %
              
              64%-77
              %
              
              64%-128
              %
              
              39%-127
              %Lives
                  in years
              
              
              10
              
              
              10
              
              
              10
              
              
              10Dividend
                  yield
              
              
              0
              %
              
              0
              %
              
              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. The values of 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 6,296,405 at June 30, 2005. There were 4,980,009 potentially
        dilutive securities at June 30, 2004.
 
 
 **NOTE
        2**  **INVENTORIES**
 
 The
        principal components of inventory are as follows:
 
 **June
                    30, 2005(Unaudited)**
                
                
                
                
                **December
                    31,2004**Raw
                    material compounds
                
                
                
                
                $
                196,291
                
                
                
                
                $
                308,456Work
                    in process
                
                
                
                
                
                179,391
                
                
                
                
                
                47,691Finished
                    goods
                
                
                
                
                
                4,000
                
                
                
                
                
                4,000Total
                    Inventory
                
                
                
                
                $
                379,682
                
                
                
                
                $
                360,147
 
 
 
 7
 
 
 **VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2005**
 
 **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.
 
 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 SixMonths EndedJune 30, 2005**Balance,
                  January 1, 2005
              
              
              2,244,877Granted
              
              
              1,159,396Exercised
              
              
              0Expired
              
              
              0Terminated
              
              
              (4,000
              )Balance,
                  March 31, 2005
              
              
              3,400,273
 
 **NOTE
        4** **** **PROPOSED
        MERGER TRANSACTION**
 
 In
        July
        2005, the Company entered into an Agreement and Plan of Merger (the “Merger
        Agreement”) with Greenwich Therapeutics, Inc. (“Greenwich”), and VQ Acquisition
        Corp., a wholly-owned subsidiary of the Company. Under the terms of the Merger
        Agreement, VQ Acquisition will merge with and into Greenwich, with
        Greenwich remaining as the surviving corporation and a wholly-owned subsidiary
        of the Company. Greenwich is a
        privately-held New York biotechnology company focused on the development
        of
        novel compounds with broad therapeutic applications in oncology. As a result
        of
        the proposed merger, the Company (through its ownership of Greenwich) would
        acquire rights to two anti-cancer agents - Sodium Stibogluconate (SSG) and
        API-2. In connection with the proposed merger, the stockholders of Greenwich
        will receive a number of shares of the Company’s common stock and warrants to
        purchase common stock such that, immediately following completion of the
        merger,
        the stockholders of Greenwich will hold approximately 47% of the Company’s
        common stock on a fully diluted basis (i.e., assuming the issuance of all
        shares
        of common stock issuable upon exercise of options and warrants). One-half
        of the
        shares and warrants issued to the Greenwich stockholders will be deposited
        into
        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 as follows:
 
 (i)
              35%
                  of the escrowed securities shall be released upon the conclusion
                  of a
                  Phase I clinical trial pursuant to an investigational new drug,
                  or IND,
                  application accepted by the U.S. Food and Drug Administration,
                  of FDA, for
                  Sodium Stibogluconate, or SSG;
 
 (ii)
              15%
                  of the escrowed securities shall be released immediately upon conclusion
                  of a Phase II clinical trial for SSG under a VioQuest-sponsored
                  IND;
                  provided that a majority of the members of VioQuest’s then existing
                  medical advisory board conclude that such trial yielded results
                  which, in
                  the opinion of such advisory board, warrant initiation of Phase
                  III
                  trial(s) (provided that this milestone shall be deemed to have
                  been
                  satisfied in the event a new drug application, or NDA, relating
                  to SSG has
                  been accepted for review by the FDA prior to any determination
                  by the
                  medical advisory board to initiate a Phase III
                  trial);
 
 (iii)
              35%
                  of such escrowed securities shall be released immediately upon
                  the
                  conclusion of a Phase I clinical trial pursuant to a VioQuest-sponsored
                  IND application accepted by the FDA for Triciribine, or TCN-P;
                  and
 
 8
 
 
 **VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2005**
 
 (iv)
              15%
                  of such escrowed securities shall be released immediately upon
                  conclusion
                  of a Phase II clinical trial for TCN-P under a VioQuest-sponsored
                  IND;
                  provided that a majority of the members of VioQuest’s then existing
                  medical advisory board conclude that such trial yielded results
                  which, in
                  the opinion of such advisory board, warrant initiation of Phase
                  III
                  trial(s) (provided that this milestone shall be deemed to have
                  been
                  satisfied in the event an NDA relating to TCN-P has been accepted
                  for
                  review by the FDA prior to any determination by the medical advisory
                  board
                  to initiate a Phase III trial:
 
 In
        the
        event the escrowed securities relating to the milestones described above
        have
        not been released to Greenwich stockholders by June 30, 2008, any escrowed
        securities still remaining in the escrow shall be released and delivered
        to
        VioQuest for cancellation, and the Greenwich stockholders will have no further
        right, title or interest to such escrowed shares.
 
 Dr.
        Lindsay A. Rosenwald and certain trusts established for the benefit of Dr.
        Rosenwald and his family collectively hold approximately 48% of Greenwich’s
        capital stock. Together, Dr. Rosenwald and such trusts also beneficially
        own
        approximately 16% of the Company’s common stock. The Minnesota Business
        Corporation Act (the “MBCA”), to which the Company is currently subject as a
        Minnesota corporation, prohibits a “business combination” transaction between
        the Company and Dr. Rosenwald, including an entity of which Dr. Rosenwald
        owns
        at least 10 percent of its outstanding stock. The General Corporation Law
        of
        Delaware (the “DGCL”), which governs Delaware corporations, would not prohibit
        the proposed Merger with Greenwich. Accordingly, the Company cannot complete
        the
        proposed Merger as a Minnesota corporation, but could if it reincorporated
        under
        Delaware law before completing the transaction. The Company intends to call
        a
        meeting of its shareholders as promptly as possible for the purpose of
        considering such an action.
 
 In
        addition to Dr. Rosenwald’s relationship with Greenwich, two directors of the
        Company, Stephen C. Rocamboli and Michael Weiser, M.D., Ph.D., own approximately
        3.6% and 7%, respectively, of Greenwich’s outstanding common stock. Mr.
        Rocamboli and Dr. Weiser are also employees of Paramount BioCapital, of which
        Dr. Rosenwald is the chairman and sole stockholder.
 
 The
        closing of the proposed merger is subject to the following conditions: (i)
        the
        Company’s stockholders will have approved the reincorporation under Delaware
        law; (ii) holders of 98 percent of Greenwich’s common stock having completed a
        stockholder questionnaire; (iii) the execution of an escrow agreement; (iv)
        no
        more than 2 percent of Greenwich stockholders will have exercised their
        statutory appraisal rights under Delaware law; (v) receipt by VioQuest of
        a
        fairness opinion from its financial advisor; and (vi) customary officer
        certificates and tax and legal opinions will have been delivered.
   9
  
  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
        June 30, 2005, the Company has generated sales revenue through Chiral Quest’s
        but not any net profits. Management believes that the Company’s research and
        development (“R&D”) and manufacturing capacity will need to continue to grow
        through the commercialization of our ligands and catalysts, and the development
        of our next generation of technological products of building blocks, 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 Chiral Quest’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 $9,880,236
        through
        June 30, 2005. For the three and six months ended June 30, 2005, the Company
        had
        net losses of $1,147,048 and $2,445,473, respectively. 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 September 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 before September 30,
        2005
        in order to fund operations. The most likely source of financing includes
        private issuances of our 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.
 
 **Results
        of Operations - For the Three Months Ended June 30, 2005 vs. June 30, 2004**
 
 Our
        revenues for the three months ended June 30, 2005 were $1,502,171 as compared
        to
        $357,200 for the three months ended June 30, 2004. For the three months ended
        June 30, 2005, substantially all of our revenue was derived from customized
        process development services sold to third parties (accounting for 92% of
        total
        revenue); sales of our catalysts and ligands (3% of total revenue) and
        feasibility screening reports provided to clients (3% of total revenue) and
        2%
        of total revenue was derived from the amortization of option fee income
        pertaining to the licensing of our intellectual property. The overall increase
        for the three months ended June 30, 2005 compared to the same period in 2004
        is
        attributable primarily from a five fold increase in customized process
        development services.
  10
 
 
 In
        addition, the increase in 2005 revenues compared to the 2004 period is also
        attributable to our selling and production capabilities having transitioned
        from
        an academic Research and Development sales volume level, to a commercial
        sales
        volume quantity level for our ligands, catalysts, and customized process
        development services. For
        the
        three months ended June 30, 2004, approximately 92% of total revenue was
        comprised of sales or our ligands and catalysts, feasibility screenings,
        and
        customized process development services sold to third parties and 8% of total
        revenue was derived from the amortization of option fee income. 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.
 
 Our
        gross
        profit increased for the three months ended June 30, 2005, as compared to
        June
        30, 2004, as a result of our 2005 revenues consisting of sales our commercial
        quantity ligands, catalysts and process development services versus no
        commercial sales of our ligands, catalysts and process development services
        for
        the three months ended June 30, 2004. The primary reason gross profit increased
        from approximately 18% for the three months ended June 30, 2004 as compared
        to
        30% gross margin for the three months ended June 30, 2005 is a result of
        the
        Company selling greater quantities of commercial levels of our ligands and
        catalysts, producing higher margins, in addition to process and development
        projects producing higher margins for the three months ended June 30,
        2005.
 
 Cost
        of
        goods sold for three months ended June 30, 2005 was $1,058,771, as compared
        to
        $294,188 during the three months ended June 30, 2004. The increase in cost
        of
        goods sold is attributed to the increased sales, associated manufacturing
        costs
        for materials used in production for the increased shipments of projects
        during
        the second quarter ended June 30, 2005, along with the allocation of direct
        labor and overhead expenses to finished goods.
 
 Management
        and consulting expenses for the three months ended June 30, 2005 were $139,374,
        as compared to $124,660 during the three months ended June 30, 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, scientific advisory board members. The increase
        in management and consulting expenses is a result of the Company utilizing
        the
        consulting services of a Ph.D. scientist with expertise in chiral technology,
        located in China providing services for the Chiral Quest Jiashan operation.
 
 Our
        R&D expenses for the three months ended June 30, 2005 were $137,785, as
        compared to $244,840 during the three months ended June 30, 2004. R&D costs
        include the sponsoring of four post doctorates at Penn State to develop reports
        on our technological feasibility of our proprietary technology in addition
        to
        preparing sample batches for analysis in the Princeton, NJ office. Also included
        in R&D are the purchases of laboratory materials and supplies such as
        chemicals, solvents, glassware used as part of the facility’s test pilot
        programs for the formulation and analyzing of our proprietary catalysts,
        ligands, and building blocks to determine their technological feasibility.
        This
        decrease was primarily caused by the purchases of numerous lab supplies and
        chemicals during the quarter ended June 30, 2004, associated to the laboratory
        expansion of the New Jersey laboratory space completed in April
        2004.
  Selling,
        general and administrative (“SG&A”) expenses for the three months ended June
        30, 2005 were $1,250,146 as compared to $923,729 during the three months
        ended
        June 30, 2004. This increase in SG&A expenses was due in part to
        nonrecurring recruiting fees associated with the hiring of the Company’s
        President and CEO in February 2005, and the hiring of the Vice President
        of
        Corporate Business Development in July 2005, in addition to utilizing the
        services 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 such as insurance
        and employer payroll taxes.
 
 Depreciation
        and amortization expenses for the three months ended June 30, 2005 were $68,397
        as compared to $62,608 during the three months ended June 30, 2004. This
        increase was primarily related to the fixed asset purchases for office
        equipment, computer equipment, laboratory equipment and leasehold improvements
        for the New Jersey leased facility and its expansions, in addition
        to the
        equipment and leasehold improvement expenditures related to the Jiashan facility
        which has become fully operational as of May 2005.
 
 Interest
        income for the three months ended June 30, 2005 was $5,254 as compared to
        $11,100 for the three months ended June 30, 2004. The decrease in interest
        income is attributed to having higher cash reserves for the three months
        ended
        June 30, 2004 as compared to the three months ended June 30, 2005, 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 June 30, 2005 was $1,147,048 as compared
        to
        $1,281,725 for the three months ended June 30, 2004. The decreased net loss
        for
        the three months ended June 30, 2005 as compared to June 30, 2004 was
        attributable to increased sales for the second quarter ended 2005. The decrease
        net loss was also attributed to a one time severance charge in 2004 of $375,000
        as a result of a resignation of our CEO in April 2004.  We expect
        losses to
        continue and increase in the next year as we continue to develop our
        next
        technological generation of building block proprietary products and expand
        operations in New Jersey, develop and fund our therapeutics strategy through
        the
        proposed acquisition of Greenwich Therapeutuics, as well as enhance
        our
        operations in Jiashan, China.
 
 11
  
 
 **Results
        of Operations - For the Six Months Ended June 30, 2005 vs. June 30, 2004**
 
 Our
        revenues for the six months ended June 30, 2005 were $2,099,939, as compared
        to
        $735,123 for the six months ended June 30, 2004. For the six months ended
        June
        30, 2005, substantially all of our revenue was derived from customized process
        development services sold to third parties (accounting for 82% of total
        revenue), sales of our catalysts and ligands (13% of total revenue) and
        feasibility screening reports provided to clients (3% of total revenue);
        and 2%
        of total revenue was derived from the amortization of option fee income
        pertaining to the licensing of our intellectual property.
 
 The
        overall increase for the six months ended June 30, 2005 compared to the same
        period in 2004 is attributable primarily from a three fold increase in
        customized process development services. In addition, the increase in 2005
        revenues is also attributable to our selling and production capabilities
        having
        transitioned from an academic Research and Development sales volume level,
        to a
        commercial sales volume quantity level for our ligands, catalysts, and
        customized process development services. For
        the
        six months ended June 30, 2004, approximately 92% of total revenue was derived
        from sales of our ligands, feasibility screening and customized process
        development services sold to third parties and 8% of total revenue was derived
        from the amortization of option fee income pertaining to the licensing of
        our
        intellectual property. 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.
 
 Our
        gross
        profit decreased for the six months ended June 30, 2005, as compared to June
        30,
        2004, as a result of our 2005 six month revenues being significantly derived
        from customized process development services versus a greater percentage
        of our
        revenues derived from our catalysts and ligands for the six months ended
        June
        30, 2004. The primary reason gross profit decreased from approximately 49%
        for
        the six months ended June 30, 2004 as compared to a 31% gross margin for
        the six
        months ended June 30, 2005 is a result of a greater proportion of the Company’s
        sales attributed to customized process development services for the six months
        ended June 30, 2005 versus a greater portion of sales attributed to license
        fee
        income, sales of our ligands and catalysts and feasibility screening reports,
        producing higher margins.
 
 Cost
        of
        goods sold for the six months ended June 30, 2005 was $1,455,531 as compared
        to
        $377,249 during the six months ended June 30, 2004. The increase in cost
        of
        goods sold is attributed to the increased sales, associated manufacturing
        costs
        for materials used in production for the increased shipments of projects
        during
        the second quarter ended June 30, 2005, along with the allocation of direct
        labor and overhead expenses to finished goods.
 
 Management
        and consulting expenses for the six months ended June 30, 2005 were $256,722
        as
        compared to $237,892 during the six months ended June 30, 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, scientific advisory board members. The increase in management
        and
        consulting expenses is a result of the Company utilizing the consulting services
        of Ph.D. in China on a consultancy basis for the Chiral Quest Jiashan operation.
        In addition, consulting expense increased due to the amortization of the
        fair
        value of stock options issued to consultants and scientific advisory board
        members, during the second, third and fourth quarters of 2003. The increased
        management and consulting expenses have been offset by a decrease in management
        expenses, charged by Paramount BioCapital LLC, for administrative services
        which
        are no longer required by the Company.
 
 Our
        R&D expenses for the six months ended June 30, 2005 were $661,798 as
        compared to $553,947 during the six months ended June 30, 2003. R&D costs
        include the sponsoring of four post doctorates at Penn State to develop reports
        on our technological feasibility of our proprietary technology in addition
        to
        preparing sample batches for analysis in the Princeton, NJ office. Also included
        in R&D are the purchases of laboratory materials and supplies such as
        chemicals, solvents, glassware used as part of the facility’s test pilot
        programs for the formulation and analyzing of our proprietary catalysts,
        ligands, and building blocks to determine their technological feasibility.
        This
        increase was primarily caused by increased utilization of the Penn State
        research resources in connection with the development of new generation ligands,
        catalysts and building blocks. The agreement with Penn State, which has been
        extended to October 14, 2005, provides for the Company to fund services of
        four
        post-doctorate fellows who, under the supervision of the CTO, conduct research
        and provide research quantities of chiral ligands to the Company. The future
        obligation payable by the Company through October 14, 2005 as of the end
        of the
        agreement is approximately $73,000. This amount consists principally of four
        post-doctorate salaries, fringe benefits, materials and supplies for the
        stated
        period. In addition, during the second quarter of 2003, we opened an additional
        laboratory facility in New Jersey, and have completed an expansion to the
        facility in April 2004, that enabled us to produce both research and commercial
        quantities of our ligands. In connection with the new facility and its
        expansion, numerous lab supplies and chemicals were purchased. Accordingly,
        we
        incurred increased expenses for the six months ended June 30, 2004, due to
        the
        opening and expansion of the New Jersey facility, along with the increased
        costs
        of using the facility and chemists at Penn State.
 
 12
  
 
 
 Selling,
        general and administrative (“SG&A”) expenses for the six months ended June
        30, 2005 were $2,061,040 as compared to $1,512,053 during the six months
        ended
        June 30, 2004. This increase in SG&A expenses was due in part to
        nonrecurring recruiting fees associated with the hiring of the Company’s
        President and CEO in February 2005, and the hiring of the Vice President
        of
        Corporate Business Development in July 2005, in addition to utilizing the
        services 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 such as insurance
        and employer payroll taxes.
 
 Depreciation
        and amortization expenses for the six months ended June 30, 2005 were $122,061
        as compared to $92,605 during the six months ended June 30, 2004. This increase
        was primarily related to the fixed asset purchases for office equipment,
        computer equipment, laboratory equipment and leasehold improvements for the
        New
        Jersey leased facility and its expansions, in addition to the equipment and
        leasehold improvement expenditures related to the Jiashan facility which
        has
        become fully operational as of May 2005.
 
 Interest
        income for the six months ended June 30, 2005 was $11,740 as compared to
        $15,807
        for the six months ended June 30, 2004. The decrease in interest income is
        attributed to having higher cash reserves for the six months ended June 30,
        2004
        as compared to the six months ended June 30, 2005, 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 six months ended June 30, 2005 was $2,445,473 as compared to
        $2,022,816 for the six months ended June 30, 2004. The increased net loss
        for
        the six months ended June 30, 2005 as compared to June 30, 2004 was primarily
        due to the increased operational expenditures comprised of higher total rent
        expense due to the newly leased, and expanded New Jersey facility in June
        2003
        and April 2004 respectively, higher legal and accounting expenses, higher
        payroll expenses associated with having more employees along with increased
        usage of temporary contractors. The decrease net loss was also attributed
        to a
        one time severance charge in 2004 of $375,000 as a result of a resignation
        of
        our CEO in April 2004.   We expect losses to continue and increase
        in
        the next year as we attempt to develop our next technological generation
        of
        building block proprietary products, develop and fund our therapeutics strategy
        through the proposed acquisition of Greenwich Therapeutuics, as well
        as
        enhance our operations in Jiashan, China.
  **Liquidity
        and Capital Resources**
 
 Since
        inception, we have incurred an accumulated deficit of $9,880,236 through
        June
        30, 2005. For the three and six months ended June 30, 2005, we had net losses
        of
        $1,147,048 and $2,445,473, respectively. These matters raise substantial
        doubt
        aboutour ability to continue as a going concern. We expect losses to increase
        over the next several years, primarily due to expansion of our research and
        development programs, the hiring of additional chemists, the expansion of
        our
        manufacturing capabilities, and the costs related to acquiring a drug candidate.
        There can be no assurance that we will ever be able to operate profitably.
 
 As
        of
        June 30, 2005, we had working capital of $27,289 and cash and cash equivalents
        of $1,154,869. Unless we are able to significantly increase our revenues,
        we
        will most likely require additional financing by September 30, 2005 in order
        to
        continue operations.
 
 Our
        net
        cash used in operating activities for the six months ended June 30, 2005
        was
        $1,479,066. Our net cash used in operating activities primarily resulted
        from a
        net loss of $2,445,473, a decrease in accounts receivable of $89,205, an
        increase in accounts payable of $1,065,165 attributed to purchases for
        inventory, recruiting and operational expenditures, and a decrease in deferred
        revenue as a result of the Company receiving cash collections in advance
        to
        shipments which occurred in the second quarter 2005.
 
 Our
        net
        cash used in investing activities for the six months ended June 30, 2005
        totaled
        $431,612 which resulted from costs related to the Chiral Quest, Jiashan,
        China
        laboratory expansion of $243,561, purchases of laboratory, computer and office
        equipment of $164,039 related to the New Jersey facility, in addition to
        payments for intellectual property of $24,012.
 
 Additional
        capital that may be needed by us in the future may not be available on
        reasonable terms, or at all. If adequate financing is not available, we may
        be
        required to terminate or significantly curtail its operations, or enter into
        arrangements with collaborative partners or others that may require us to
        relinquish rights to certain of its technologies, or potential markets that
        we
        would not otherwise relinquish.
 
 Our
        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 we are 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 we will ever achieve significant revenues or profitable operations from
        the
        sale of any of our products or technologies.
 
 13
  
 
 
 We
        anticipate that our capital resources will be adequate to fund our operations
        through approximately September 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 before September 30,
        2005
        in order to fund operations. The most likely source of financing includes
        private issuances of our equity or debt securities or bridge loans from third
        party lenders. However, changes may occur that would consume available capital
        resources before that time.
 
 Our
        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 proprietary technology will be incorporated. Capital requirements will
        also depend on the preclinical and clinical development and regulatory approval
        progress of its proposed in-licensed drug compounds as a result of the proposed
        Merger with Greenwich.
 
 We
        have
        formed two China subsidiaries through which we have opened a laboratory facility
        in the People’s Republic of China. We have provided $400,000 of capital to the
        China subsidiary as of June 30, 2005. We believe 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. The China facility’s operations
        have commenced on a limited basis as of the second quarter 2005.
 
 14
  
 Item 3. Controls and Procedures  
 As
        of the
        end of the fiscal quarter covered by this Quarterly Report on Form 10-QSB
        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
        as
        of that date were not effective because of the material weakness in internal
        control over financial reporting described below. We have taken, and are
        continuing to take, steps to address the weakness as described below. With
        the
        exception of such weakness, however, the Chief Executive Officer and the
        Chief
        Financial Officer believe that our current disclosure of controls and procedures
        are adequate to ensure that information required to be disclosed in the reports
        we file under the Securities Exchange Act is recorded, processed, summarized
        and
        reported on a timely basis.
 
 Material
        Weaknesses and Changes in Internal Controls. During the preparation of this
        Form
        10-QSB for the quarter ended June 30, 2005, our independent registered public
        accounting firm identified a material weakness, as of June 30, 2005, in the
        review process for the financial statement recording and disclosures of stock
        options that we have granted to non-employee consultants in accordance with
        Emerging Issues Task Force (“EITF”) 96-18. As defined by the Public Company
        Accounting Oversight Board Auditing Standard No. 2, a material weakness is
        a
        significant control deficiency or a combination of significant control
        deficiencies, that results in there being more than a remote likelihood that
        a
        material misstatement of the annual or interim financial statements will
        not be
        prevented or detected. This material weakness did not result in the restatement
        of any previously reported financial statements or any other related financial
        disclosure. Stock options that we have granted to non-employee consultants
        should have been accounted for under variable accounting and we have corrected
        the accounting for these stock options as of the end of the second quarter
        of
        2005. The changes that would have resulted in the financial statements for
        all
        prior periods through June 30, 2005 were deemed immaterial. We have instituted
        additional procedures in the review process for the financial statement
        recording and disclosures of options in order to remediate this issue.
        Subsequent to the second quarter of 2005, the Company has valued the options
        issued to non-employee consultants under variable accounting.
  There
        were no changes in internal controls during the
        period covered by this report that materially affected or are likely to
        materially affect internal controls over financial reporting except as set
        forth
        above.
 15
  
 PART II - OTHER INFORMATION  
 **Item
        6. Exhibits**
 
 **Exhibit
                  No.**
              
              **Description**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.
  
 16
  
  **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act of 1934, the registrant
        caused this report to be signed on its behalf by the undersigned, thereunto
        duly
        authorized.
  VIOQUEST
                  PHARMACEUTICALS, INC.Date: August
                15, 2005
              By:
              /s/ Daniel
                GreenleafDaniel
                  Greenleaf
                President
                  & Chief Executive Officer
  Date: August
                  15, 2005
                By:
                /s/ Brian
                  LenzBrian
                    Lenz
                  Chief
                    Financial Officer
 17
  
  EXHIBIT
        INDEX
 
 Exhibit
                        No.
                    
                    Description31.1
                    
                    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.
 18