**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, 2006





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 small business issuer as specified in its charter)








Delaware
            58-1486040(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)





180
      Mount
      Airy Road, Suite 203, Basking Ridge, New Jersey 07920


(Address
      of Principal Executive Offices)





(908)
      766-4400


(Issuer’s
      telephone number, Including area code)





(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
      |_|





Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 of the Exchange Act). Yes |_|  No |X|





As
      of
      August 11, 2006 there were 46,729,519 shares of the issuer’s common stock,
      $0.001 par value, outstanding.





Traditional
      Small Business Disclosure Format (check one): Yes |_| No |X|









**Index**





Page**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Unaudited
                Condensed Consolidated Financial Statements
            1Item
                2.
            Management’s
                Discussion and Analysisor
                Plan of Operations
            11Item
                3.
            Controls
                and Procedures
            15**PART
                II**
            **OTHER
                INFORMATION**Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            16Item
                5.
            Other
                Information
            16Item
                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 Operations” 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,” “plan,” “anticipate,” “believe,” “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
      following:





·
            the
                possibility that the results of clinical trials will not be successful;


·
            the
                possibility that our development efforts relating to our product
                candidates, including VQD-001 and VQD-002, will not be successful;


·
            the
                inability to obtain regulatory approval of our product
                candidates;


·
            our
                reliance on third-parties to develop our product
                candidates;


·
            our
                lack of experience in developing and commercializing pharmaceutical
                products;


·
            the
                possibility that our licenses to develop and commercialize our product
                candidates may be terminated;


·
            the
                continued availability of the chief technology officer of our chiral
                business;


·
            our
                ability to obtain additional financing;


·
            our
                ability to develop and maintain customer relationships in our chiral
                business;


·
            regulatory
                developments relating to and the general success of our and our chiral
                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,
      2005.









**PART
      I - FINANCIAL INFORMATION**





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





**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**AS
      OF JUNE 30, 2006 (UNAUDITED) AND DECEMBER 31, 2005**




**June
                30, 2006**
              **(Unaudited)**
            
            **December
                31, 2005**
              **(Note
                1A)****ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            2,326,919
            
            $
            6,021,399Accounts
                receivable
            
            
            430,061
            
            
            227,695Inventory
            
            
            716,695
            
            
            625,158Other
                current assets
            
            
            266,413
            
            
            49,184Total
                Current Assets
            
            
            3,740,088
            
            
            6,923,436**PROPERTY
                AND EQUIPMENT, NET**
            
            
            658,795
            
            
            757,151**SECURITY
                DEPOSITS**
            
            
            71,291
            
            
            69,819**INTELLECTUAL
                PROPERTY RIGHTS, NET**
            
            
            655,382
            
            
            628,897**OTHER
                ASSETS**
            
            
            33,026
            
            
            -**TOTAL
                ASSETS**
            
            $
            5,158,582
            
            $
            8,379,303**LIABILITIES
                AND STOCKHOLDERS' EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            1,086,514
            
            $
            1,135,681Accrued
                compensation
            
            
            306,614
            
            
            480,000Accrued
                expenses
            
            
            250,436
            
            
            119,990Note
                payable - Paramount BioCapital (See Note 5)
            
            
            264,623
            
            
            264,623Deferred
                revenue
            
            
            40,000
            
            
            40,000**TOTAL
                LIABILITIES**
            
            
            1,948,187
            
            
            2,040,294**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS'
                EQUITY**Preferred
                stock; $0.001 par value: 10,000,000 shares authorized, 0 shares issued
                and
              outstanding at June 30, 2006 and December 31, 2005
            
            
            -
            
            
            -Common
                stock; $0.001 par value: 100,000,000 shares authorized at June 30,
                2006
                and December 31, 2005, 46,729,519 shares issued and outstanding at
                June
                30, 2006 and December 31, 2005
            
            
            46,729
            
            
            46,729Additional
                paid-in capital
            
            
            27,113,156
            
            
            26,561,672Accumulated
                deficit
            
            
            (23,949,490
            )
            
            (20,269,392
            )Total
                Stockholders' Equity
            
            
            3,210,395
            
            
            6,339,009**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            5,158,582
            
            $
            8,379,303








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, 2006 AND 2005**


**(UNAUDITED)**





**For
                the Three**
              **Months
                Ended**
              **June
                30, 2006**
            
            **For
                the Three**
              **Months
                Ended**
              **June
                30, 2005**
            
            **For
                the Six**
              **Months
                Ended**
              **June
                30, 2006**
            
            **For
                the Six**
              **Months
                Ended**
              **June
                30, 2005****REVENUE**
            
            $
            857,320
            
            $
            1,502,171
            
            $
            1,456,196
            
            $
            2,099,939**COST
                OF GOODS SOLD (Excluding Depreciation)**
            
            
            623,773
            
            
            1,058,771
            
            
            941,922
            
            
            1,455,531**GROSS
                PROFIT**
            
            
            233,547
            
            
            443,400
            
            
            514,274
            
            
            644,408**OPERATING
                EXPENSES**Management
                and consulting fees
            
            
            87,085
            
            
            139,374
            
            
            139,173
            
            
            256,722Research
                and development
            
            
            430,833
            
            
            137,785
            
            
            1,025,870
            
            
            661,798Selling,
                general and administrative
            
            
            1,456,659
            
            
            1,250,146
            
            
            2,920,992
            
            
            2,061,040Depreciation
                and amortization
            
            
            79,453
            
            
            68,397
            
            
            157,637
            
            
            122,061Total
                Operating Expenses
            
            
            2,054,030
            
            
            1,595,702
            
            
            4,243,672
            
            
            3,101,621**LOSS
                FROM OPERATIONS**
            
            
            (1,820,483
            )
            
            (1,152,302
            )
            
            (3,729,398
            )
            
            (2,457,213
            )**INTEREST
                INCOME, NET**
            
            
            2,132
            
            
            5,254
            
            
            49,300
            
            
            11,740**NET
                LOSS**
            
            $
            (1,818,351
            )
            $
            (1,147,048
            )
            $
            (3,680,098
            )
            $
            (2,445,473
            )**NET
                LOSS PER COMMON SHARE - BASIC AND DILUTED**
            
            $
            (0.05
            )
            $
            (0.06
            )
            $
            (0.10
            )
            $
            (0.14
            )**WEIGHTED
                AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED**
            
            
            38,165,124
            
            
            17,827,924
            
            
            38,165,124
            
            
            17,827,924





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, 2006**


**(UNAUDITED)**




**Common
                Stock****Shares**
            
            **Amount**
            
            **Additional**
              **Paid-In**
              **Capital**
            
            **Accumulated**
              **Deficit**
            
            **Total**
              **Stockholders’**
              **Equity**Balance,
                January 1, 2006
            
            
            46,729,519
            
            $
            46,729
            
            $
            26,561,672
            
            $
            (20,269,392
            )
            $
            6,339,009Impact
                ofemployee
                and directorstock-based compensation
            
            
            —
            
            
            —
            
            
            514,051
            
            
            —
            
            
            514,051Impact
                of stock-based compensation to consultants
            
            
            —
            
            
            —
            
            
            37,433
            
            
            —
            
            
            37,433Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,680,098
            )
            
            (3,680,098
            )Balance,
                June 30, 2006
            
            
            46,729,519
            
            $
            46,729
            
            $
            27,113,156
            
            $
            (23,949,490
            )
            $
            3,210,395








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, 2006 AND 2005**


**(UNAUDITED)**






**For
                the Six**
              **Months
                Ended**
              **June
                30, 2006**
            
            **For
                the Six**
              **Months
                Ended**
              **June
                30, 2005****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (3,680,098
            )
            $
            (2,445,473
            )Adjustments
                to reconcile net loss to net cash used in operating activities:Depreciation
                and amortization
            
            
            157,637
            
            
            122,061Impact
                of employee and director stock-based compensation
            
            
            514,051
            
            
            -Impact
                of consultant stock-based compensation
            
            
            37,433
            
            
            145,697Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (202,366
            )
            
            89,205Inventory
            
            
            (91,537
            )
            
            (19,535
            )Other
                assets
            
            
            (250,255
            )
            
            (50,509
            )Security
                deposits
            
            
            (1,472
            )
            
            (29,756
            )Accounts
                payable
            
            
            (49,167
            )
            
            1,065,165Accrued
                expenses
            
            
            (42,940
            )
            
            82,711Deferred
                revenue
            
            
            -
            
            
            (438,632
            )Net
                Cash Used In Operating Activities
            
            
            (3,608,714
            )
            
            (1,479,066
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Payments
                for purchased equipment
            
            
            (34,892
            )
            
            (407,600
            )Payments
                for intellectual property rights
            
            
            (50,874
            )
            
            (24,012
            )Net
                Cash Used In Investing Activities
            
            
            (85,766
            )
            
            (431,612
            )**NET
                DECREASE IN CASH AND CASH EQUIVALENTS**
            
            
            (3,694,480
            )
            
            (1,910,678
            )**CASH
                AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
            
            
            6,021,399
            
            
            3,065,547**CASH
                AND CASH EQUIVALENTS - END OF PERIOD**
            
            $
            2,326,919
            
            $
            1,154,869








See
      accompanying notes to condensed consolidated financial statements.




4





**VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2006 (UNAUDITED)**






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





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





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information and the rules and
      regulations of the Securities and Exchange Commission. Accordingly, the
      financial statements do not include all information and footnotes required
      by
      accounting principles generally accepted in the United States of America for
      complete annual financial statements. In the opinion of management, the
      accompanying unaudited condensed consolidated financial statements reflect
      all
      adjustments, consisting of only normal recurring adjustments, considered
      necessary for a fair presentation. Interim operating results are not necessarily
      indicative of results that may be expected for the year ending December 31,
      2006
      or for any subsequent period. These unaudited condensed consolidated financial
      statements should be read in conjunction with the audited consolidated financial
      statements included in the Annual Report on Form 10-KSB of VioQuest
      Pharmaceuticals, Inc. as of and for the year ended December 31, 2005. The
      accompanying condensed consolidated balance sheet as of December 31, 2005 has
      been derived from the audited balance sheet as of that date included in the
      Form
      10-KSB. As used herein, the terms the “Company” or “VioQuest” refer to VioQuest
      Pharmaceuticals, Inc. (formerly Chiral Quest, Inc.) together with its
      subsidiaries.





The
      accompanying consolidated financial statements include the accounts of VioQuest
      Pharmaceuticals, Inc. and its subsidiaries. All significant intercompany
      accounts and transactions have been eliminated in consolidation. The functional
      currency of Chiral Quest, Ltd., Jiashan, China, a wholly-owned subsidiary of
      the
      Company, is the United States Dollar. As such, all transaction gains and losses
      are recorded in operations.





***(B)
      Nature of Operations***





Since
      its
      inception in October 2000, the Company has provided innovative chiral products
      and services to pharmaceutical and fine chemical companies in all stages of
      their products’ lifecycles. 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
      owned by the Pennsylvania State University Research Foundation (“PSRF”), the
      technology arm of The Pennsylvania State University (“PSU”). 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. The PSRF
      license agreement requires the Company to use its reasonable best efforts to
      achieve gross revenues of at least $500,000 in calendar year 2006, and each
      subsequent year thereafter. Should the Company fail to obtain this milestone,
      the PSRF has the right, but not the obligation, to terminate the license
      agreement on the grounds that the Company did not use its best efforts to
      achieve those milestones.




In
      August
      2004, the Company expanded its business plan to focus additionally on acquiring
      technologies for purposes
      of development and commercialization of pharmaceutical drug candidates for
      the
      treatment of oncology and antiviral diseases and disorders for which there
      are
      unmet medical needs. In accordance with this expanded business plan, in October
      2005, the Company acquired in a merger transaction Greenwich Therapeutics,
      Inc.,
      a privately-held New York-based biotechnology company that held exclusive rights
      to develop and commercialize two oncology drug candidates - Sodium
      Stibogluconate or VQD-001, and Triciribine-Phosphate or VQD-002. The rights
      to
      these two oncology drug candidates, VQD-001 and VQD-002, are governed by license
      agreements with The Cleveland Clinic Foundation and the University of South
      Florida Research Foundation, respectively. As a result of the Company’s
      acquisition of Greenwich Therapeutics, the Company holds exclusive rights to
      develop, manufacture, use, commercialize, lease, sell and/or sublicense VQD-001
      and VQD-002.





From
      the
      Company’s inception through June 30, 2006, Chiral Quest has accounted for all of
      the sales generated by the Company, which have not provided any net profits.
      With respect to the Company’s Chiral Quest operations, management believes that
      the Company’s sales, marketing, and manufacturing capacities 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 continue to
      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 laboratory
      space located in Jiashan, China that was leased in December 2004.




5




**VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2006 (UNAUDITED)**





***(C)
      Liquidity***





Since
      inception, the Company has incurred an accumulated deficit of $23,949,490
      through June 30, 2006. For the three and six months ended June 30, 2006, the
      Company had net losses of $1,818,351 and $3,680,098, respectively, and used
      $3,608,714 of cash in operating activities for the six months ended June 30, 2006.





Management
      expects the Company’s losses to increase over the next several years, primarily
      due to the expansion of its drug development business, costs associated with
      the
      clinical development of VQD-001 and VQD-002, resources allocated to the
      Company’s Chiral Quest subsidiary for the hiring of business development sales
      personnel, the hiring of additional chemists, marketing and advertising
      programs, and the expansion of its manufacturing capabilities. There can be
      no
      assurance that the Company will ever be able to operate profitably. These
      matters raise substantial doubt about the ability of the Company to continue
      as
      a going concern.





The
      accompanying condensed consolidated financial statements have been prepared
      assuming that the Company will continue as a going concern. The Company has
      incurred negative cash flow from operations since the business was started.
      The
      Company has spent, and expects to continue to spend, substantial amounts in
      connection with executing the business strategy, including planned development
      efforts relating to the Company’s drug candidates, clinical trials, and research
      and development efforts.





As
      of
      June 30, 2006, the Company had working capital of $1,791,901 and cash and cash
      equivalents of $2,326,919. Management anticipates that the Company’s capital
      resources will be adequate to fund its operations through the third quarter
      of
      2006. Additional financing will be required during 2006 in order to fund
      operations. The most likely source of financing includes the private sale of
      the
      Company’s equity or debt securities, or bridge loans to the Company from third
      party lenders. However, changes may occur that would consume available capital
      resources before that time. The Company’s working capital requirements will
      depend upon numerous factors. For example, with respect to the Company's drug
      development business, its working capital requirements will depend on, among
      other factors, the progress of its drug development and clinical programs,
      including associated costs relating to milestone payments, license fees,
      manufacturing costs, regulatory approvals, and the hiring of additional
      employees. The Company's working capital requirements will also depend on
      factors relating to its Chiral Quest business, including without
      limitation, the resources it devotes to Chiral Quest's sales and marketing
      capabilities, and manufacturing expansions, the progress of its R&D
      programs' technological advances, the status of competitors, its ability to
      establish sales arrangements with new customers, and the expansion of the China
      facility's office and laboratory space lease agreements, along with the hiring
      of additional employees. The Company's management believes that by opening
      the facility in China, its Chiral Quest business will be able to decrease
      manufacturing costs and expenses significantly, which will enable
      the Company to produce ligands, catalysts, contract synthesis development
      projects, and other end user products cost-effectively, and more competitively
      to current and potential customers.





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, the
      ability to discover and develop products (specifically new ligands), and to
      sell
      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, the Company will not realize
      any significant revenues from its technology. Moreover, there can be no
      assurance that the Company will ever achieve significant revenues or profitable
      operations from the sale of any of its products or technologies.





***(D)
      Stock-Based Compensation***





In
      December 2004, the Financial Accounting Standards Board issued the Statement
      of
      Financial Accounting Standards No. 123(R) (“FAS 123R”), “Share-Based Payment”,
      revising the Statement of Financial Accounting Standards No. 123 (“FAS 123”)
      requiring that the fair value of all share-based payments to employees be
      recognized in the financial statements over the service period. The Company
      adopted FAS 123R effective January 1, 2006, using the modified-prospective
      transition method. Under this method, the Company is required to recognize
      compensation expense for the fair value of all awards granted to employees
      after
      the date of adoption and for the unvested portion of previously granted options
      that remain outstanding as of the adoption date.





The
      Company accounts for stock options granted to non-employees on a fair value
      basis using the Black-Scholes option pricing method in accordance with FAS
      123R
      and Emerging Issues Task Force No. 96-18, “Accounting for Equity Instruments
      That are Issued to Other Than Employees for Acquiring, or in Conjunction with
      Selling, Goods or Services.” The initial non-cash charge to operations for
      non-employee options with vesting is subsequently adjusted at the end of each
      reporting period based upon the change in the fair value of the Company’s common
      stock until such options vest.




6




**VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2006 (UNAUDITED)**





The
      Company has a stock incentive plan (the “Plan”) under which incentive stock
      options may be granted. In January 2006, the Board approved an amendment to
      the
      Plan, increasing the number of common shares available for grant to
      6,500,000 stock options for the purchase of its $0.001 par value of common
      stock. Grants
      under the Plan may be made to employees (including officers), directors,
      consultants, advisors, or other independent contractors who provide services
      to
      the Company or its subsidiaries.





The
      Company issued options
      to purchase an aggregate of 114,000
      and 1,182,000 shares
      of its common
      stock, $0.001
      par value per
      share, during
      the three and six months ended June 30, 2006, respectively.





With
      the
      exception of the immediate vesting of 75,000 stock options granted to a
      non-employee director in the first quarter of 2006, and 50,000 performance - based
      stock options granted to a consultant and 10,000 stock options granted to
      Scientific Advisory Board members during the second quarter of 2006, options
      granted to employees and non-employee directors during the three and six months
      ended June 30, 2006 vest as to 33% of the shares on the first, second and third
      anniversary of the vesting commencement date.





Following
      the vesting periods, options are exercisable until the earlier of 90 days after
      the employee’s termination with the Company or the ten-year anniversary of the
      initial grant, subject to adjustment under certain conditions.





The
      Company recorded compensation expense in the three and six months ended June
      30,
      2006 for employee and director stock options of $249,513 and $514,051,
      respectively.





Prior
      to
      adopting FAS 123R, the Company applied the intrinsic value-based method of
      accounting prescribed in APB Opinion No. 25, “Accounting for Stock Issued to
      Employees,” (“APB 25”) and, accordingly, did not recognize compensation expense
      for stock option grants to employees and directors made at an exercise price
      equal to or in excess of the fair market value of the stock at the date of
      grant.





The
      following table details the pro forma effect on the Company’s net loss and basic
      and diluted net loss per share had compensation expense for stock-based awards
      been recorded in the three and six months ended June 30, 2005 based on the
      fair
      value method under FAS 123 instead of the intrinsic value method under APB
      25:





Three
                Months
              Ended
              June
                30, 2005
            
            Six
                Months
              Ended
              June
                30, 2005Net
                loss, as reported
            
            $
            (1,147,048
            )
            $
            (2,445,473
            )Deduct:
                Stock-based employee compensationexpense
                determined under fair value basedmethod
                for all awards, net of taxes
            
            
            (130,637
            )
            
            (240,303
            )Pro
                forma, net loss
            
            $
            (1,277,685
            )
            $
            (2,685,776
            )Basic
                and diluted net loss per share, as reported
            
            $
            (0.06
            )
            $
            (0.14
            )Basic
                and diluted net loss per share, pro forma
            
            $
            (0.07
            )
            $
            (0.15
            )





The
      Company used the Black-Scholes option pricing model to calculate the fair value
      of options under FAS 123R and APB 25. The key assumptions for this valuation
      method include the expected term of the option, stock price volatility,
      risk-free interest rate, dividend yield, exercise price, and forfeiture rate.
      Many of these assumptions are judgmental and highly sensitive in the
      determination of compensation expense. Under the assumptions indicated below,
      the weighted average fair values of the stock options issued at the dates of
      grant in the periods ended June 30, 2006 and 2005 were $0.84 and $0.85,
      respectively. The table below indicates the key assumptions used in the
      valuation calculations for options granted in the three and six months ended
      June 30, 2006 and 2005:




7




**VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2006 (UNAUDITED)**





Three
                Months Ended
              June
                30,
            
            Six
                Months Ended
              June
                30,2006
            
            2005
            
            2006
            
            2005Term
            
            
            7
                years
            
            
            10
                years
            
            
            7
                years
            
            
            10
                yearsVolatility
            
            
            217.17
            %
            
            64%-128
            %
            
            210.14%-217.17
            %
            
            64%-128
            %Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %Risk-free
                interest rate
            
            
            4.96
            %
            
            2%-5
            %
            
            4.37%-4.96
            %
            
            2%-5
            %Forfeiture
                rate
            
            
            23
            %
            
            
            
            
            22%-23
            %
            
            0
            %





The
      following table summarizes information about the Company’s stock incentive plan
      for the six months ended June 30, 2006:





Number
                of
              Options
            
            Weighted
              Average
              Exercise
                Price
            
            Weighted
              Average
              Remaining
              Contractual
                Life
            
            Aggregate
              Intrinsic
              ValueBalance,
                January 1, 2006
            
            
            4,975,852
            
            $
            1.10Options
                granted
            
            
            1,182,000
            
            $
            0.81Options
                cancelled
            
            
            (80,000
            )
            
            -Options
                outstanding, June 30, 2006
            
            
            6,077,852
            
            $
            0.86
            
            
            7.5
            
            $
            1,144,508Options
                exercisable, June 30, 2006
            
            
            1,930,612
            
            $
            1.28
            
            
            6.1
            
            $
            610,221





As
      of
      June 30, 2006, there was $4,056,453 of total unrecognized compensation cost
      related to stock options. These costs are expected to be recognized over a
      period of approximately 3 years.





There
      were no options exercised during the three and six months ended June 30,
      2006.





As
      of
      June 30, 2006, an aggregate of 422,148 shares remained available for future
      grants and awards under the Company’s stock incentive plan, which covers stock
      options and restricted stock awards. The Company issues unissued shares to
      satisfy stock option exercises and restricted stock awards.





***(E)
      Loss Per Share***





Basic
      net
      loss per share is calculated by dividing net loss by the weighted-average number
      of common shares outstanding for each period presented. Diluted net loss per
      share is the same as basic net loss per share, since potentially dilutive shares
      from the assumed exercise of stock options and stock warrants would have had
      an
      antidilutive effect because the Company incurred a net loss during each period
      presented. The number of potentially dilutive shares excluded from the
      calculation was 27,128,366 (of which 12,486,119 were warrants, 8,564,395 were
      common shares held in escrow based upon clinical milestones of VQD-001 and
      VQD-002, as a result of the acquisition of Greenwich Therapeutics, and 6,077,852
      stock options) at June 30, 2006 and 6,296,405 at June 30, 2005.





**NOTE
      2**  **INVENTORY**





The
      principal components of inventory are as follows:




June
                30, 2006
              (Unaudited)
            
            December
                31,
              2005Raw
                material compounds
            
            $
            404,508
            
            $
            410,912Work
                in process
            
            
            73,671
            
            
            11,868Finished
                goods
            
            
            238,516
            
            
            202,378Total
                Inventory
            
            $
            716,695
            
            $
            625,158





**NOTE
      3** **** **COMMITMENTS**





In
      January 2006, the Company entered into an amendment to its lease agreement,
      extending the lease term to May 31, 2009 for its laboratory and office space
      located in Monmouth Junction, New Jersey. Effective June 1, 2006, the Company’s
      base rent for the remainder of the term is $19,439 per month.




8




**VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2006 (UNAUDITED)**





Upon
      six
      months prior written notice to the landlord, the Company will have a one-time
      option, without penalty, to terminate this lease effective as of May 31, 2008.
      As of June 30, 2006, the Company’s total remaining lease commitment was
      approximately $964,670 for rent, utilities and maintenance fees. In May 2003,
      the Company also issued the landlord stock options to purchase 20,000 shares
      of
      common stock attributed. The fair value of the options issued to the landlord
      of
      $9,845 is being amortized on a straight-line basis over the term of the option
      agreement and included in rent expense.





On
      February 14, 2006, the Company entered into an employment agreement with Pamela
      Harris, M.D., F.A.C.P., its Chief Medical Officer. The agreement is for an
      indefinite term beginning on March 15, 2006 and provides for an initial base
      salary of $250,000, plus an annual target bonus of up to 20% of base salary
      based upon personal performance and an additional amount of up to 10% of base
      salary based upon Company performance. The agreement provides that for fiscal
      year 2006, Dr. Harris will be guaranteed at least 50% of the target bonus.
      The
      employment agreement also provides that Dr. Harris is entitled to receive
      options to purchase 200,000 shares of the Company’s common stock. The options
      will vest in three equal annual installments, commencing in March 15, 2007
      and
      will be exercisable at $0.84 per share. The options had an approximate fair
      value of $159,000, which is being amortized over three years. In addition,
      Dr.
      Harris shall be entitled, based on performance, to receive options to purchase
      an additional 200,000 shares of the Company’s common stock. These
      performance-based options will be divided into three separate grants and will
      vest in annual installments over a 3-year period. Entitlement to the performance
      based options and the exact vesting schedule have not yet been determined.
      The
      performance-based options criteria will be established by the President and
      CEO
      after consideration of the development timelines relating to the Company’s two
      product candidates.





All
      terms
      of the options will be in accordance with the Company’s 2003 Stock Option Plan
      (the “Plan”) and all of the options will be exercisable by Dr. Harris as long as
      she remains employed by the Company; provided, however, that if a “change of
      control” (as defined in the Plan) occurs during Dr. Harris’ employment, the
      options will be deemed vested. Pursuant to the terms of the employment
      agreement, Dr. Harris is entitled to a housing allowance of up to $10,000 and
      relocation assistance for up to an additional $10,000. In the event that the
      Company terminates Dr. Harris’ employment without cause, Dr. Harris is entitled
      to receive her then annualized base salary for a period of six months from
      such
      termination.





**NOTE
      4** **** **SEGMENT
      REPORTING**





The
      Company has two business segments: Drug Development and Chiral Products and
      Services. The Company’s drug development business which is operated through
      VioQuest, focuses on acquiring, developing and eventually commercializing human
      therapeutics in the areas of oncology, and antiviral diseases and disorders
      for
      which there are current unmet medical needs. The Company has the exclusive
      rights to develop and commercialize two oncology drug candidates. The Company’s
      chiral business, which is operated through Chiral Quest, provides innovative
      chiral products, technology and custom synthesis development services to
      pharmaceutical and fine chemical companies in all stages of a product lifecycle.
      For the three and six months ended June 30, 2006, the Company’s drug development
      business expenses primarily consisted of manufacturing, licensing, regulatory,
      and clinical development costs, administrative and rent expenses, totaling
      approximately $700,000 and $2,433,000, or approximately 34 %
      and 57%
      of the Company’s total operating expenses, respectively. The Company’s chiral
      business in the United States and China contributed all of the revenue and
      the
      other 66 %
      and 43%
      of the Company’s operating expenses during the three and six months ended
      June 30, 2006 and
      all of the revenue and substantially all of the operating expenses for the
      three and six months ended
      June 30, 2005. Of
      the Company’s total assets, approximately 8% are attributable to its Chiral
      Quest, Ltd. Jiashan, China facility as of June 30, 2006. Chiral Quest,
      Ltd., Jiashan, China contributed approximately 3% of the Company’s
      overall net loss for the three and six
      months ended June 30, 2006.





**NOTE
      5** **** **MERGER**





On
      October 18, 2005, the Company completed a merger with Greenwich Therapeutics,
      Inc., (“Greenwich”), a New York-based biotechnology company. In exchange for
      their shares of Greenwich common stock and pursuant to the merger agreement,
      the
      stockholders of Greenwich received an aggregate of 17,128,790 shares of the
      Company’s common stock and five-year warrants to purchase an additional
      4,000,000 shares of the Company’s common stock at an exercise price of $1.41 per
      share.





Additionally,
      as contemplated by the merger agreement, on October 18, 2005, the Company
      assumed outstanding indebtedness of Greenwich of $823,869, all of which was
      payable to Paramount BioCapital Investments, LLC, pursuant to a promissory
      note
      dated October 17, 2005, referred to as the (“Note”). As of June 30, 2006,
      approximately $293,000 of principal and accrued interest remained outstanding
      under the Note.




9




**VIOQUEST
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2006 (UNAUDITED)**


At
        the
        closing of the merger, the Note was amended to provide that one-third would
        be
        converted into securities of the Company on the same terms as the Company’s
        October 2005 private placement, one-third of the outstanding indebtedness
        under
        the Note would be repaid upon the completion by the Company of a financing
        resulting in gross proceeds of at least $5 million, and the final one-third
        would be payable upon completion by the Company of one or more financings
        resulting in aggregate gross proceeds of at least $10 million (inclusive
        of the
        amounts raised in its previous $8.4 million financing).


Accordingly,
      on October 18, 2005, upon completion of the private placement of common stock
      for $7.5 million, net of expenses, the Company satisfied a portion of the total
      indebtedness outstanding under the Note by making a cash payment of $264,623
      and
      another portion by issuing to Paramount BioCapital Investments, LLC 392,830
      shares valued at the $.75 offering price of the October 2005 private placement,
      the equivalent of $294,623 of the Company’s common stock. In the event that the
      Company does not complete the financing(s) resulting in aggregate gross proceeds
      of at least $10 million prior to the Note’s maturity date, the Company will be
      required to satisfy the final portion of $264,623 at maturity in October
      2006.





The
      acquisition of Greenwich on October 18, 2005 was accounted for under the
      purchase method of accounting and accordingly, the results of operations of
      Greenwich have been have been consolidated with those of the Company only from
      the date of acquisition.





The
      following unaudited pro forma financial information presents the condensed
      consolidated results of operations of the Company and Greenwich for the three
      and six months ended June 30, 2005 assuming the acquisition had been consummated
      at the beginning of that period. The pro forma information does not necessarily
      reflect the results of operations that would have occurred had the entities
      been
      a single company during the period ($000's, except per share
      information).





Three
                Months
              Ended
              June
                30, 2005
            
            Six
                Months
              Ended
              June
                30, 2005Net
                loss
            
            $
            (1,273
            )
            $
            (3,171
            )Basic
                and diluted net loss per share, as reported
            
            $
            (0.03
            )
            $
            (0.08
            )Weighted
                average common shares outstanding - basic and diluted
            
            
            37,965
            
            
            37,965





**NOTE
      6** **** **SUBSEQUENT
      EVENTS**





On
      August
      8, 2006, the Company entered into a Severance Benefits Agreement (the
“Agreement”) with the Company’s Chief Financial Officer, Brian Lenz. The
      Agreement provides that, in the event Mr. Lenz’s employment is terminated within
      one year following a Change of Control (as defined in the Agreement) and such
      termination is either without Cause, or is a Constructive Termination (as such
      terms are defined in the Agreement), then (A) Mr. Lenz shall be entitled to
      receive 12 months of his then annual compensation, payable in semi-monthly
      installments, (B) any and all outstanding options to purchase shares of the
      Company’s stock granted to Mr. Lenz shall immediately vest and become
      immediately exercisable (whether entered into before or after this date of
      this
      Agreement) and (C) Mr. Lenz shall be entitled to participate in the Company’s
      healthcare and insurance benefits program for a period of 12 months thereafter.
      If Mr. Lenz’s employment is terminated at a time other than a one-year period
      following a Change of Control and without Cause, then Mr. Lenz shall be entitled
      to receive (A) one-half of his then annual compensation, payable in semi-monthly
      installments over a period of six months and (B) the Company’s healthcare and
      insurance benefits program over a period of six months thereafter.




10





**Item
      2.**  **Management’s
      Discussion and Analysis or Plan of Operations.**





**Overview**





Since
      our
      inception in October 2000, we have provided pharmaceutical and fine chemical
      companies in all stages of the product lifecycles with innovative chiral
      products and services. Since August 2004, we have provided such products and
      services through our 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
      owned by the Pennsylvania State University Research Foundation (“PSRF”), the
      technology arm of The Pennsylvania State University (“PSU”). 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. The PSRF
      license agreement requires us to use our reasonable best efforts to achieve
      gross revenues of at least $500,000 in calendar year 2006, and each subsequent
      year thereafter. Should we fail to obtain this milestone, the PSRF has the
      right, but not the obligation, to terminate the license agreement on the grounds
      that we did not use our best efforts to achieve those milestones.





In
      August
      2004, we expanded our business plan to focus additionally on acquiring
      technologies for purposes of development and commercialization of pharmaceutical
      drug candidates for the treatment in oncology and antiviral diseases and
      disorders for which there are unmet medical needs. In accordance with this
      expanded business plan, in October 2005, we acquired, in a merger transaction
      Greenwich Therapeutics, Inc., a privately-held New York-based biotechnology
      company that held exclusive rights to develop and commercialize two oncology
      drug candidates - Sodium Stibogluconate or VQD-001, and Triciribine-Phosphate
      or
      VQD-002. The rights to these two oncology drug candidates, VQD-001 and VQD-002,
      are governed by license agreements with The Cleveland Clinic Foundation and
      the
      University of South Florida Research Foundation, respectively. As a result
      of
      our acquisition of Greenwich Therapeutics, we hold exclusive rights to develop,
      manufacture, use, commercialize, lease, sell and/or sublicense VQD-001 and
      VQD-002.





As
      a
      result of this acquisition, we immediately undertook funding development of
      VQD-001 and VQD-002, which has significantly increased our expected cash
      expenditures and will continue to increase our expenditures over the next 12
      months and thereafter. The completion of development of VQD-001 and VQD-002,
      both of which are only in early stages of clinical development, is very lengthy
      and expensive process. Until such development is complete and the U.S. Food
      and
      Drug Administration (“FDA”) (or the comparable regulatory authorities of other
      countries) approve VQD-001 and VQD-002 for sale, we will not be able to sell
      these products.





On
      April
      11, 2006, we received an acceptance letter for our Investigational New Drug
      Application (IND) for VQD-002 from the FDA. The FDA completed their review
      of
      our IND submission and have concluded that the clinical investigations (s)
      described in the protocol may begin.





From
      our
      inception through June 30, 2006, we have generated sales but not any net
      profits. With respect to our Chiral Quest operations, management believes that
      our sales, marketing, and manufacturing capacities will need to grow in order
      for us to be able to obtain significant licensing and manufacturing agreements
      with large fine chemical and pharmaceutical companies. Management believes
      that
      our manufacturing capacity will continue to be enhanced with our expanded office
      and laboratory space located in Monmouth Junction, New Jersey that was leased
      in
      May 2003, in addition to the laboratory space leased in December 2004, located
      in Jiashan, China.





Our
      ability to achieve profitability depends upon, among other things, our ability
      to discover and develop products (specifically new “ligands”), and to sell our
      products on a commercial scale through a cost-effective and efficient process.
      To the extent that were are unable to produce, directly or indirectly, ligands
      in quantities required for commercial use, we will not realize any significant
      revenues from our 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.





The
      accompanying condensed consolidated financial statements have been prepared
      assuming that we will continue as a going concern. Since inception, we have
      incurred an accumulated deficit of $23,949,490 through June 30, 2006. For the
      three and six months ended June 30, 2006, we had net losses of $1,818,351 and
      $3,680,098, respectively, and used $3,608,714 of cash in operating activities.
      Management expects our losses to increase over the next several years, primarily
      due to the costs related to the development and commercialization of our two
      recently-acquired anti-cancer therapeutic compounds, in addition to the
      expansion of our research and development programs, the hiring of additional
      chemists, and the expansion of our manufacturing capabilities. There can be
      no
      assurance that we will ever be able to operate profitably.





On
      October 18, 2005, we sold 11,179,975 shares of our common stock at a price
      of
      $0.75 per share resulting in gross proceeds of approximately $8.38 million.
      In
      addition to the shares of our common stock, investors also received 5-year
      warrants to purchase an aggregate of 4,471,975 shares of our common stock at
      an
      exercise price of $1.00 per share. In connection with the private placement,
      we
      paid an aggregate of approximately $587,000 in commissions to Paramount
      BioCapital, Inc., which served as the placement agent in connection with the
      offering, together with an accountable expense allowance of $50,000, and issued
      5-year warrants to purchase an aggregate of 1,117,997 shares of common stock
      at
      a price of $1.00 per share.




11





Our
      net
      proceeds, after deducting placement agent fees and other expenses relating
      to
      the private placement, were approximately $7.5 million.





As
      of
      June 30, 2006, we had working capital of $1,791,901 and cash and cash
      equivalents of $2,326,919. Management anticipates that our capital resources
      as
      of June 30, 2006 will be adequate to fund our operations through the third
      quarter of 2006. Additional financing will be required during 2006 in order
      to
      fund operations.





Our
      combined capital requirements will depend on numerous factors, including:
      acquiring, developing and commercializing therapies for oncology, metabolic
      and
      inflammatory diseases and disorders; 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;
      the
      establishment and funding of the Chiral Quest, Jiashan, China facility; the
      development and regulatory approval progress of our customers’ product
      candidates into which our technology will be incorporated; and the costs
      associated with the drug development process related to acquiring, developing
      and commercializing a drug candidate.





**Results
      of Operations - For the Three Months Ended June 30, 2006 vs. June 30, 2005**





Our
      revenues for the three months ended June 30, 2006 were $857,320 as compared
      to
      $1,502,171 for the three months ended June 30, 2005. For the three months ended
      June 30, 2006, sales comprised of customized process development services sold
      to third parties accounted for 73% of total revenue, sales of our proprietary
      technology consisting of catalysts, ligands and building blocks accounted for
      23% of total revenue, and 4% of total revenue was derived from feasibility
      screening services and additional contract services. The decrease in revenues
      is
      attributed to a significant customer requiring a lesser quantity of product
      for
      a specific project in the second quarter of 2006 as compared to the second
      quarter of 2005. Revenues
      from this customer are expected to continue throughout 2006 and beyond, however,
      these foreseeable revenues are predicated based upon their clinical trial
      programs and progress.




Cost
      of
      goods sold for three months ended June 30, 2006 was $623,773 as compared to
      $1,058,771 during the three months ended June 30, 2005. The decrease in cost
      of
      goods sold is attributed to producing and selling a lower quantity of product
      to
      a significant customer during the second quarter of 2006 as compared to the
      second quarter of 2005.





Our
      gross
      profit percentage decreased to approximately 27% for the three months ended
      June
      30, 2006 as compared to 30% for the three months ended June 30, 2005. The
      primary reason that the gross profit percentage decreased is attributed to
      selling a greater quantity of our proprietary technology consisting of
      catalysts, ligands and building blocks, which are produced from our New Jersey
      facility, as compared to the three months ended June 30, 2005 when we sold
      a
      greater percentage of customized process development services, yielding higher
      gross profits.





Management
      and consulting fees for the three months ended June 30, 2006 were $87,085 as
      compared to $139,374 during the three months ended June 30, 2005. Management
      and
      consulting fees consist of the consulting agreement with our Chief Technology
      Officer (“CTO”), at a rate of $10,000 per month effective May 15, 2003.
      Management and consulting fees also consist of approximately $21,000 of stock
      option charges resulting from changes in the fair value of options issued to
      consultants for the three months ended June 30, 2006, and scientific advisory
      board members granted during 2003 accounted for under variable accounting.
      The
      decrease in management and consulting fees in 2006 compared to 2005 is a result
      of our amortization for deferred consulting expenses for the CTO and PSRF
      licensing arrangement, ending in the third quarter 2005, in addition to lower
      expenses resulting from the issuance of stock options to consultants and
      scientific advisory board members during the second quarter 2006.





Our
      research and development (“R&D”) expenses for the three months ended June
      30, 2006 were $430,833 as compared to $137,785 during the three months ended
      June 30, 2005. R&D expenses primarily include costs associated with the
      clinical development, manufacturing, licensing and regulatory costs of VQD-001
      and VQD-002, in addition to purchases of laboratory materials and supplies
      such
      as chemicals, solvents, glassware used as part of the facility’s test pilot
      programs for the formulation. Research and development expenses also include
      costs associated with analyzing our proprietary catalysts, ligands, and our
      next
      generation technology of building blocks to determine their technological
      feasibility, and sponsoring two post doctorates at PSU to develop reports on
      the
      technological feasibility of our proprietary technology through preparing sample
      batches for analysis in the Monmouth Junction, New Jersey office. The primary
      increase in R&D expenses is a result of our drug development costs
      associated with the clinical development of VQD-001 and VQD-002, which commenced
      in October 2005 through the acquisition of Greenwich Therapeutics.





Selling,
      general and administrative (“SG&A”) expenses for the three months ended June
      30, 2006 were $1,456,659 as compared to $1,250,146 during the three months
      ended
      June 30, 2005. This increase in SG&A expenses was due in part to the impact
      of expensing employee and director stock options in accordance with FAS 123R,
      increased rent expense for the New Jersey facilities as a result of our
      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 including our
      President and CEO hired in February 2005, our Vice President of Corporate
      Business Development hired in July 2005, and our Chief Medical Officer hired
      in
      March 2006, in addition to other related employee costs such as increased
      insurance, and employer payroll taxes.




12





Depreciation
      and amortization expenses for the three months ended June 30, 2006 were $79,453
      as compared to $68,397 during the three months ended June 30, 2005. This
      increase was primarily related to the fixed asset purchases for office, computer
      equipment and laboratory equipment, leasehold improvements for the leased
      facilities and recent expansions in New Jersey, in addition to the equipment
      and
      leasehold improvement expenditures related to the newly leased Jiashan facility
      which was fully operational as of May 2005.





Interest
      income, net of interest expense for the three months ended June 30, 2006 was
      $2,132 as compared to $5,254 for the three months ended June 30, 2005. Interest
      income received during the three months ended June 30, 2006 was approximately
      $30,000 which was offset by interest expense of approximately $28,000, for
      the
      repayment of the final one third amount of debt owed, of approximately $264,000
      to Paramount BioCapital, which was assumed as part of the October 2005
      acquisition of Greenwich Therapeutics.





Our
      net
      loss for the three months ended June 30, 2006 was $1,818,351 as compared to
      $1,147,048 for the three months ended June 30, 2005. The increased net loss
      for
      the three months ended June 30, 2006 as compared to the three months ended
      June
      30, 2005 was attributable to higher SG&A expenses, due in part to the impact
      of expensing employee and director stock options of approximately $250,000
      in
      accordance with FAS 123R, increased rent expense for the New Jersey facilities
      as a result of our 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 which
      include the President and CEO hired in February 2005, the Vice President of
      Corporate Business Development hired in July 2005, and the Chief Medical Officer
      hired in March 2006, in addition to other related employee costs such as
      increased insurance, and employer payroll taxes. Increased R&D expenses also
      contributed to the higher net loss for the three months ended June 30, 2006
      as
      compared to the three months ended June 30, 2005,
      which were related to our drug development costs, including, manufacturing,
      licensing, and clinical development costs for the VQD-001 and VQD-002 programs.
      We expect losses to continue in the next year from the costs associated with
      the
      drug development process related to developing our drug candidates, in addition
      to continue to expand operations in New Jersey and in Jiashan.





**Results
      of Operations - For the Six Months Ended June 30, 2006 vs. June 30, 2005**





Our
      revenues for the six months ended June 30, 2006 were $1,456,196 as compared
      to
      $2,099,939 for the six months ended June 30, 2005. For the six months ended
      June
      30, 2006, substantially all of our revenue was derived from customized process
      development services sold to third parties (accounting for approximately 60%
      of
      total revenue), sales of our catalysts and ligands (accounting for approximately
      34% of total revenue) and feasibility screening reports and other contract
      services revenue accounting for approximately 6% of total revenue.





The
      overall decrease in revenues for the six months ended June 30, 2006 compared
      to
      the same period in 2005 is primarily attributable to a significant customer
      ordering a lesser quantity of product for a specific project during the six
      months ended June 30, 2006 as compared to the six months ended June
      30,
      2005. Revenues
      from this customer are expected to continue throughout 2006 and beyond, however,
      these foreseeable revenues are predicated based upon their clinical trial
      programs and progress.





Cost
      of
      goods sold for the six months ended June 30, 2006 was $941,922 as compared
      to
      $1,455,531 during
      the six months ended June 30, 2005. The decrease in cost of goods sold is
      primarily attributed to our producing and selling a lower quantity of product
      to
      a significant customer during the six months ended 2006 as compared to the
      six
      months ended 2005.





Our
      gross
      profit increased to approximately 35% for the six months ended June 30, 2006,
      as
      compared to approximately 31% for the six months ended June 30, 2005. The gross
      profit increase is a result of achieving lower cost of good sold expenditures
      for the six months ended June 30, 2006 compared to the to the same period in
      2005, which is attributed to our utilizing a greater percentage of our China
      facility and resources for our product manufacturing.





Management
      and consulting expenses for the six months ended June 30, 2006 were $139,173
      as
      compared to $256,722 during the six months ended June 30, 2005. 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 consist of approximately $37,000 of stock option charges
      resulting from changes in the fair value of options for the six months ended
      June 30, 2006, which were issued to consultants, scientific advisory board
      members. The decrease in management and consulting fees in 2006 compared to
      2005
      is a result of our amortization for deferred consulting expenses for the CTO
      and
      PSRF licensing arrangement, ending in the third quarter 2005, in addition to
      lower expenses resulting from the issuance of stock options to consultants,
      and
      scientific advisory board members during the second quarter 2006.




13





Our
      R&D expenses for the six months ended June 30, 2006 were $1,025,870 as
      compared to $661,798 during the six months ended June 30, 2005. R&D
      primarily includes costs associated to the clinical development, manufacturing,
      licensing and regulatory costs of VQD-001 and VQD-002, in addition to Clinical
      Research Organizational costs, milestone fees incurred in connection with
      receiving acceptance of our Investigational New Drug Application filing for
      VQD-002 in April 2006. Also included in R&D expenses 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 our next generation technology of
      building blocks to determine their technological feasibility and also costs
      for
      sponsoring two post doctorates at PSU to develop reports on our technological
      feasibility of our proprietary technology through preparing sample batches
      for
      analysis in the Monmouth Junction, New Jersey office. The primary increase
      is a
      result of our drug development costs associated with the clinical development
      of
      VQD-001 and VQD-002, which commenced in October 2005 through the acquisition
      of
      Greenwich Therapeutics.





SG&A
      expenses for the six months ended June 30, 2006 were $2,920,992 as compared
      to
      $2,061,040 during the six months ended June 30, 2005. This increase in SG&A
      expenses was due in part to the impact of expensing employee and director stock
      options in accordance with FAS 123R, increased rent expense for the New Jersey
      facilities as a result of our 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 which include the President and CEO hired in February 2005, the Vice
      President of Corporate Business Development hired in July 2005, and the Chief
      Medical Officer hired in March 2006, in addition to other related employee
      costs
      such as increased insurance, and employer payroll taxes.





Depreciation
      and amortization expenses for the six months ended June 30, 2006 were $157,637
      as compared to $122,061 during the six months ended June 30, 2005. 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, 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, 2006 was $49,300 as compared to $11,740
      for the six months ended June 30, 2005. Interest income received during the
      six
      months ended June 30, 2006 was approximately $77,000, which was offset by
      interest expense of approximately $28,000, for the repayment of the final one
      third amount of debt owed, of approximately $264,000, to Paramount BioCapital,
      which was assumed as part of the October 2005 acquisition of Greenwich
      Therapeutics.





Our
      net
      loss for the six months ended June 30, 2006 was $3,680,098 as compared to
      $2,445,473 for the six months ended June 30, 2005. The increased net loss for
      the six months ended June 30, 2006 as compared to June 30, 2005 was primarily
      due to the to higher SG&A expenses due in part to the impact of expensing
      employee and director stock options of approximately $514,000 in accordance
      with
      FAS 123R, increased rent expense for the New Jersey facilities as a result
      of
      our 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 which include
      the
      President and CEO hired in February 2005, the Vice President of Corporate
      Business Development hired in July 2005, and the Chief Medical Officer hired
      in
      March 2006, in addition to other related employee costs such as increased
      insurance, and employer payroll taxes. Increased R&D expenses also
      contributed to the higher net loss for the six months ended June 30, 2006 as
      compared to the six months ended June 30, 2005, which were related to our drug
      development costs, including, manufacturing, licensing, and clinical development
      costs. We expect losses to continue in the next year from the costs associated
      with the drug development process related to developing our drug candidates,
      in
      addition to continue to expand operations in New Jersey and in Jiashan.





**Liquidity
      and Capital Resources**





Since
      inception, we have incurred an accumulated deficit of $23,949,490 through June
      30, 2006. For the three and six months ended June 30, 2006, we had net losses
      of
      $1,818,351 and $ 3,680,098 ,
      respectively, and used $3,608,714 in cash from operating activities for the
      six
      months ended June 30, 2006.
      As
      of June 30, 2006, we had working capital of $1,791,901 and cash and cash
      equivalents of $2,326,919. We expect losses to increase over the next several
      years, primarily due to the costs related to the development and
      commercialization of our two anti-cancer therapeutic compounds, such as costs
      associated with clinical trials, regulatory approvals, uses of consultants,
      license milestone payments to the Cleveland Clinic Foundation and the University
      of South Florida and patent filing expenses, in addition to the expansion of
      our
      research and development programs, the hiring of additional chemists, and the
      expansion of our manufacturing capabilities. There can be no assurance that
      we
      will ever operate profitably. Management anticipates that our capital resources
      will be adequate to fund our operations through the third quarter of 2006.
      Additional financing will be required during 2006 in order to fund operations.
      These matters raise doubt about our ability to continue as a going
      concern.




14





Our
      net
      cash used in operating activities for the six months ended June 30, 2006 was
      $3,608,714. Our net cash used in operating activities primarily resulted from
      a
      net loss of $3,680,098 offset by non-cash items consisting of the impact of
      expensing employee and director stock options in accordance with FAS 123R of
      $514,051, depreciation and amortization of $157,637, and the impact of expensing
      consultants’ options in accordance with EITF 96-18 for $37,433. Other uses of
      cash in operating activities include an increase in accounts receivable of
      $202,366, and prepaid expenses and other assets of $250,255 which primarily
      consists of payments to our Clinical Research Organization and clinical drug
      development sites attributed to the development of our two drug compounds.
      Additionally, a decrease in accounts payable and accrued expenses resulted
      in
      uses of cash totaling $49,167 and $42,940, respectively.





Our
      net
      cash used in investing activities for the six months ended June 30, 2006 totaled
      $85,766, which resulted from capital expenditures of $34,892 were attributed
      to
      the purchases of laboratory, computer and office equipment for the New Jersey
      and China facilities. Additionally, payments for intellectual property totaling
      $50,874 were attributed to patent defense and filing costs.





We
      had no
      financing activities in the six months ended June 30, 2006 and 2005. However,
      on
      October 18, 2005, we sold 11,179,975 shares of our common stock at a price
      of
      $0.75 per share resulting in gross proceeds of approximately $8.38 million.
      In
      addition to the shares of common stock, investors received 5-year warrants
      to
      purchase an aggregate of 4,471,975 shares of our common stock at an exercise
      price of $1.00 per share. In connection with the private placement, we paid
      an
      aggregate of approximately $587,000 in commissions to Paramount BioCapital,
      Inc., which served as the placement agent in connection with the offering,
      together with an accountable expense allowance of $50,000, and issued 5-year
      warrants to purchase an aggregate of 1,117,997 shares of our common stock at
      a
      price of $1.00 per share. Our net proceeds after deducting placement agent
      fees
      and other expenses relating to the private placement were approximately $7.5
      million.





We
      have
      formed two Chinese subsidiaries through which we have opened a laboratory
      facility in the People’s Republic of China. We have provided approximately
      $695,000 of capital to the Chinese subsidiary as of June 30, 2006. We believe
      that by opening this facility in China to produce our proprietary ligands,
      catalysts, chemical building blocks and related compounds, we will be able
      to
      significantly decrease our manufacturing costs and expenses, enabling us to
      produce our ligands and end products cost-effectively, more competitively and
      even more attractively to current and potential customers. The China facility’s
      operations commenced in the third quarter of 2005.





Our
      ability to achieve profitability depends upon, among other things, our ability
      to discover and develop products (specifically new ligands), and to develop
      our
      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, we will not realize any significant
      revenues from our 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.





Our
      working capital requirements will depend upon numerous factors. For example,
      with respect to our drug development business, our working capital requirements
      will depend on, among other factors, the progress of our drug development and
      clinical programs, including associated costs relating to milestone payments,
      license fees, manufacturing costs, regulatory approvals, and the hiring of
      additional employees. Our working capital requirements will also depend on
      factors relating to our Chiral Quest business, including without limitation,
      the
      resources we devotes to Chiral Quest’s sales and marketing capabilities, and
      manufacturing expansions, the progress of our R&D programs’ technological
      advances, the status of competitors, our ability to establish sales arrangements
      with new customers, and the expansion of the China facility’s office and
      laboratory space lease agreements, along with the hiring of additional
      employees. We believe that by opening the facility in China, our Chiral Quest
      business will be able to decrease manufacturing costs and expenses
      significantly, which will enable us to produce ligands, catalysts, contract
      synthesis development projects, and other end user products cost-effectively,
      and more competitively to current and potential customers.





Additional
      capital that we may need in the future may not be available on reasonable terms,
      or at all. If adequate financing is not available, we may be required to
      terminate or significantly curtail our operations, or enter into arrangements
      with collaborative partners or others that may require us to relinquish rights
      to certain of our technologies, or potential markets that we would not otherwise
      relinquish.





**Item
      3. Controls and Procedures.**





As
      of
      June 30, 2006, the Company carried out an evaluation, under the supervision
      and
      with the participation of the Company’s 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,
      the Chief Executive Officer and Chief Financial Officer concluded that as of
      that date the Company’s disclosure controls and procedures were effective in
      alerting them on a timely basis to material information required to be disclosed
      in the Company’s periodic reports to the Securities and Exchange Commission.
      During the three months ended June 30, 2006, 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.




15





**PART
      II - OTHER INFORMATION**





**Item
      4. Submission of Matters to a Vote of Security Holders.**





The
      Company held its Annual Meeting of Stockholders at the Somerset Hills Hotel,
      200
      Liberty Corner Road in Warren, New Jersey on May 19, 2006. The stockholders
      took
      the following actions:




(i)
      The
      stockholders elected seven directors to serve until the next Annual Meeting
      of
      Stockholders. The stockholders present in person or by proxy cast the following
      numbers of votes in connection with the election of directors, resulting in
      the
      election of all nominees:




**Nominee**
            
            **Votes
                For**
            
            **Votes****Withheld**Vincent
                M. Aita
            
            
            29,392,212
            
            
            71,912Daniel
                Greenleaf
            
            
            29,381,207
            
            
            82,917Johnson
                Y.N. Lau
            
            
            29,392,062
            
            
            72,062Stephen
                C. Rocamboli
            
            
            29,392,212
            
            
            71,912Stephen
                A. Roth
            
            
            29,392,212
            
            
            71,912Michael
                Weiser
            
            
            29,392,057
            
            
            72,067Xumu
                Zhang
            
            
            29,390,912
            
            
            73,212




(ii)
      The
      stockholders ratified and approved the Company’s 2003 Stock Option Plan. There
      were 25,531,546 votes cast for the proposal; 439,007 votes were cast against
      the
      proposal; 27,443 votes abstained; and there were 3,474,043 broker non-votes.




(iii)
      The
      stockholders ratified the appointment of J.H. Cohn LLP as the Company’s
      independent registered public accounting firm for 2006. There were 29,437,093
      votes cast for the proposal; 21,498 votes were cast against the proposal; 13,448
      votes abstained; and there were no broker non-votes.





**Item
      5. Other Information.**





Richard
      J. Welter, the Company’s Vice President, Corporate Business Development resigned
      his employment with the Company effective as of June 23, 2006.





On
      August
      8, 2006, the Company entered into a Severance Benefits Agreement (the
“Agreement”) with the Company’s Chief Financial Officer, Brian Lenz. The
      Agreement provides that, in the event Mr. Lenz’s employment is terminated within
      one year following a Change of Control (as defined in the Agreement) and such
      termination is either without Cause, or is a Constructive Termination (as such
      terms are defined in the Agreement), then (A) Mr. Lenz shall be entitled to
      receive 12 months of his then annual compensation, payable in semi-monthly
      installments, (B) any and all outstanding options to purchase shares of the
      Company’s stock granted to Mr. Lenz shall immediately vest and become
      immediately exercisable (whether entered into before or after this date of
      this
      Agreement) and (C) Mr. Lenz shall be entitled to participate in the Company’s
      healthcare and insurance benefits program for a period of 12 months thereafter.
      If Mr. Lenz’s employment is terminated at a time other than a one-year period
      following a Change of Control and without Cause, then Mr. Lenz shall be entitled
      to receive (A) one-half of his then annual compensation, payable in semi-monthly
      installments over a period of six months and (B) the Company’s healthcare and
      insurance benefits program over a period of six months thereafter.





**Item
      6. Exhibits and Reports on Form 8-K.**





(a)
      Exhibits








Exhibit
                No.
            Description10.1
            Summary
                terms of 2006 management bonus compensation plan (incorporated by
                reference to Exhibit 10.1 of the Company’s Form 8-K filed May 26,
                2006)10.2
            Summary
                terms of outside director compensation (incorporated by reference
                to
                Exhibit 10.2 of the Company’s Form 8-K filed May 26,
                2006).10.3
            Severance
                Benefits Agreement dated August 8, 2006 by and between Brian Lenz
                and the
                Company.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 11, 2006
            By:
            /s/
                Daniel GreenleafDaniel
                Greenleaf
              President
                & Chief Executive OfficerDate:
                August 11, 2006
            By:
            /s/
                Brian LenzBrian
                Lenz
              Chief
                Financial Officer








17




**EXHIBIT
      INDEX**








Exhibit
                No.
            Description10.1
            Summary
                terms of 2006 management bonus compensation plan (incorporated by
                reference to Exhibit 10.1 of the Company’s Form 8-K filed May 26,
                2006)10.2
            Summary
                terms of outside director compensation (incorporated by reference
                to
                Exhibit 10.2 of the Company’s Form 8-K filed May 26,
                2006).10.3
            Severance
                Benefits Agreement dated August 8, 2006 by and between Brian Lenz
                and the
                Company.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.





18