**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**





x
      QUARTERLY REPORT UNDER
      SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934


For
      the
      quarterly period ended March 31, 2008





OR





o
      TRANSITION REPORT UNDER SECTION 13 OR
      15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934


For
      the
      transition period from _______ to _______





Commission
      File Number 0-16686





**VIOQUEST
      PHARMACEUTICALS, INC.**





(Exact
      name of registrant 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 102, Basking Ridge, New Jersey 07920


(Address
      of Principal Executive Offices)





(908)
      766-4400


(Registrant’s
      telephone number, including area code)





(Former
      name, former address and former fiscal year, if changed from last
      report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x  No
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filer o
            Accelerated
                filer oNon-accelerated
              filer
              o (Do not check if a smaller
              reporting company)
            Smaller reporting
              company x




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





As
      of May
      12, 2008 there were 5,461,644 shares of the issuer’s common stock, $0.001 par
      value, outstanding.





**Index**





Page**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Unaudited
                Condensed Consolidated Financial Statements
            1Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            13Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            21Item
                4T.
            Controls
                and Procedures
            21**PART
                II**
            **OTHER
                INFORMATION**Item
                1A.
            Risk
                Factors
            22Item
                6.
            Exhibits
            23Signatures
            23Index
                To Exhibits Filed With This Report
            24





**PART
      I – FINANCIAL INFORMATION**





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





**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**AS
      OF MARCH 31, 2008 (UNAUDITED) AND DECEMBER 31, 2007**





**March 31, 2008**
              **(Unaudited)**
            
            **December 31, 2007**
              **(Note 1A)****ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            305,561
            
            $
            694,556Prepaid
                clinical research costs
            
            
            287,055
            
            
            189,359Deferred
                financing costs
            
            
            -
            
            
            357,581Other
                current assets
            
            
            57,925
            
            
            66,836Total
                Current Assets
            
            
            650,541
            
            
            1,308,332**PROPERTY
                AND EQUIPMENT, NET**
            
            
            32,464
            
            
            34,789**SECURITY
                DEPOSITS**
            
            
            15,232
            
            
            15,232**TOTAL
                ASSETS**
            
            $
            698,237
            
            $
            1,358,353**LIABILITIES,
                MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
                DEFICIENCY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            2,635,869
            
            $
            1,873,500Accrued
                compensation and related taxes
            
            
            255,208
            
            
            373,460Other
                accrued expenses
            
            
            561,070
            
            
            665,273Convertible
                notes, net of unamortized debt discount of $0 and $917,612
            
            
            -
            
            
            2,930,388**TOTAL
                LIABILITIES**
            
            
            3,452,147
            
            
            5,842,621**MANDATORILY
                REDEEMABLE CONVERTIBLE PREFERRED STOCK; $0.001 par value: 10,000,000
                shares authorized**Series
                A mandatorily redeemable convertible preferred stock; 765 shares
                issued
                and outstanding at March 31, 2008
            
            
            6,321
            
            
            -Series
                B mandatorily redeemable convertible preferred stock; 3,910 shares
                issued
                and outstanding at March 31, 2008
            
            
            3,910,165
            
            
            -Dividends
                payable in shares of common stock
            
            
            14,947
            
            
            -**TOTAL
                MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
                STOCK**
            
            
            3,931,433
            
            
            -**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS'
                DEFICIENCY**Common
                stock; $0.001 par value: 200,000,000 shares authorized, 5,462,112shares
                issued and outstanding
            
            
            5,462
            
            
            5,462Additional
                paid-in capital
            
            
            35,822,473
            
            
            34,942,567Accumulated
                deficit
            
            
            (42,513,278
            )
            
            (39,432,297
            )Total
                Stockholders' Deficiency
            
            
            (6,685,343
            )
            
            (4,484,268
            )**TOTAL
                LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
                STOCKHOLDERS' DEFICIENCY**
            
            $
            698,237
            
            $
            1,358,353





See
      accompanying notes to condensed consolidated financial
      statements.


1


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(UNAUDITED)**





**For the Three**
              **Months****Ended**
              **March 31,****2008**
            
            **For the Three**
              **Months Ended**
              **March 31, 2007****OPERATING
                EXPENSES**Research
                and development
            
            $
            979,094
            
            $
            1,368,811General
                and administrative
            
            
            690,339
            
            
            913,651Total
                Operating Expenses
            
            
            1,669,433
            
            
            2,282,462**LOSS
                FROM OPERATIONS**
            
            
            (1,669,433
            )
            
            (2,282,462
            )**INTEREST
                (EXPENSE) / INCOME, NET**
            
            
            (1,411,548
            )
            
            25,684**LOSS
                FROM CONTINUING OPERATIONS**
            
            
            (3,080,981
            )
            
            (2,256,778
            )**LOSS
                FROM DISCONTINUED OPERATIONS**
            
            
            -
            
            
            (261,475
            )**NET
                LOSS**
            
            $
            (3,080,981
            )
            $
            (2,518,253
            )**NET
                LOSS PER COMMON SHARE:****CONTINUING
                OPERATIONS**
            
            $
            (0.63
            )
            $
            (0.49
            )**DISCONTINUED
                OPERATIONS**
            
            
            -
            
            
            (0.06
            )**NET
                LOSS PER SHARE – BASIC AND DILUTED**
            
            $
            (0.63
            )
            $
            (0.55
            )**WEIGHTED
                AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED**
            
            
            4,905,426
            
            
            4,605,672





See
      accompanying notes to condensed consolidated financial
      statements.


2


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


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


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008**


**(UNAUDITED)**


Common Stock
              
              Additional Paid-In Capital
              
              Accumulated
                Deficit
              
              Total
                Stockholders'
                DeficiencyShares
              
              AmountBalance, January
                  1, 2008
              
              
              5,462,112
              
              $
              5,462
              
              $
              34,942,567
              
              $
              (39,432,297
              )
              $
              (4,484,268
              )Net
                  loss for the three months ended March 31, 2008
              
              
              
              
              
              
              
              
              
              
              
              (3,080,981
              )
              
              (3,080,981
              )Value
                  of warrants issued to placement agents with March 14, 2008 Series
                  A
                  mandatorily redeemable convertible preferred stock
              
              
              
              
              
              
              
              
              140,164
              
              
              
              
              
              140,164Value
                  of warrants issued to investors and beneficial conversion feature
                  embedded
                  in Series A mandatorily redeemable convertible preferred
                  stock
              
              
              
              
              
              
              
              
              531,286
              
              
              
              
              
              531,286Accretion
                  of discount on Series A mandatorily redeemable convertible preferred
                  stock
              
              
              
              
              
              
              
              
              (6,321
              )
              
              
              
              
              (6,321
              )Discount
                  on convertible notes
              
              
              
              
              
              
              
              
              62,166
              
              
              
              
              
              62,166Stock-based
                  compensation to employees
              
              
              
              
              
              
              
              
              152,599
              
              
              
              
              
              152,599Stock-based
                  compensation to consultants and finder
              
              
              
              
              
              
              
              
              12
              
              
              
              
              
              12Balance,
                  March 31, 2008
              
              
              5,462,112
              
              $
              5,462
              
              $
              35,822,473
              
              $
              (42,513,278
              )
              $
              (6,685,343
              )





See
      accompanying notes to condensed consolidated financial
      statements.


3


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(UNAUDITED)**





**For the Three**
              **Months Ended**
              **March 31, 2008**
            
            **For the Three**
              **Months Ended**
              **March 31, 2007****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (3,080,981
            )
            $
            (2,518,253
            )Loss
                from discontinued operations
            
            
            -
            
            
            261,475Loss
                from continuing operations
            
            
            (3,080,981
            )
            
            (2,256,778
            )Adjustments
                to reconcile loss from continuing operations to net cash used in
                continuing operating activities:Depreciation
            
            
            2,325
            
            
            2,307Stock-based
                compensation to employees
            
            
            152,599
            
            
            221,771Stock-based
                compensation to consultants and finder
            
            
            12
            
            
            53,178Amortization
                of debt discount and deferred financing fees
            
            
            1,399,524
            
            
            -Dividends
                payable on mandatorily redeemable convertible preferred
                stock
            
            
            14,947
            
            
            -Changes
                in operating assets and liabilities:Prepaid
                clinical research costs
            
            
            (97,696
            )
            
            17,215Other
                assets
            
            
            8,911
            
            
            (100,907
            )Accounts
                payable
            
            
            762,369
            
            
            759,403Accrued
                expenses
            
            
            (222,455
            )
            
            (43,297
            )Net
                Cash Used in Continuing Operating Activities
            
            
            (1,060,445
            )
            
            (1,347,108
            )Net
                Cash Used in Discontinued Operating Activities:
            
            
            -
            
            
            (342,098
            )Net
                Cash Used in Operating Activities
            
            
            (1,060,445
            )
            
            (1,689,206
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Payments
                for purchased equipment
            
            
            -
            
            
            (2,277
            )Net
                Cash Used in Continuing Investing Activities
            
            
            -
            
            
            (2,277
            )Net
                Cash Used in Discontinued Investing Activities:
            
            
            -
            
            
            (23,555
            )Net
                Cash Used in Investing Activities
            
            
            -
            
            
            (25,832
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                from issuance of mandatorily redeemable convertible preferred stock
                with
                warrants, net of cash costs of $93,550
            
            
            671,450
            
            
            -Repayment
                of note payable
            
            
            -
            
            
            (75,000
            )Net
                Cash Provided By / (Used in) Continuing Financing
                Activities
            
            
            671,450
            
            
            (75,000
            )**NET
                DECREASE IN CASH AND CASH EQUIVALENTS**
            
            
            (388,995
            )
            
            (1,790,038
            )**CASH
                AND CASH EQUIVALENTS – BEGINNING OF PERIOD**
            
            
            694,556
            
            
            2,931,265**CASH
                AND CASH EQUIVALENTS – END OF PERIOD**
            
            $
            305,561
            
            $
            1,141,227**Supplemental
                Schedule of Non-Cash Investing and Financing
                Activities:**Value
                of warrants issued to the placement agent in connection with issuance
                of
                mandatorily redeemable convertible preferred stock
            
            $
            140,164
            
            $
            -Value
                of beneficial conversion feature related to mandatorily redeemable
                convertible preferred stock
            
            $
            531,286
            
            $
            -Conversion
                of convertible notes into mandatorily redeemable convertible series
                B
                preferred stock
            
            $
            3,910,165
            
            $
            -





See
      accompanying notes to condensed consolidated financial
      statements.


4


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2008 (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,
      2008
      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. for the year ended December 31, 2007. The accompanying
      condensed consolidated balance sheet as of December 31, 2007 has been derived
      from the audited balance sheet as of that date included in the Form 10-KSB.
      References to the “Company,” the “Registrant,” “we,” “us,” “our” or in this
      Quarterly Report on Form 10-Q refer to VioQuest Pharmaceuticals, Inc., a
      Delaware corporation, and its consolidated subsidiaries, together taken as
      a
      whole, unless the context indicates otherwise. XyfidTM is our trademark for 1%
      uracil topical cream that we are developing for the treatment and prevention
      of
      palmar-plantar erythrodysesthesia (PPE), also known as hand-foot syndrome (HFS),
      a relatively common dose-limiting side effect of cytotoxic chemotherapy and
      to
      treat dry skin conditions and to relieve and to manage the burning and itching
      associated with various dermatoses including atopic dermatitis, irritant contact
      dermatitis, radiation dermatitis and other dry skin conditions, by maintaining
      a
      moist wound and skin environment. LenoctaTM, previously referred to as VQD-001,
      or sodium stibogluconate, is our trademark for our oncology product candidate.
      All other trademarks and trade names mentioned in this Form 10-Q are the
      property of their respective owners.





The
      accompanying consolidated financial statements include the accounts of VioQuest
      Pharmaceuticals, Inc. and its current and former subsidiaries. All significant
      intercompany accounts and transactions have been eliminated in consolidation.
      Our formerly wholly-owned, discontinued subsidiary, Chiral Quest, Ltd., Jiashan
      China’s functional currency was the United States Dollar. As such, all
      transaction gains and losses were recorded in discontinued
      operations.





On
      September 29, 2006, the Company’s Board of Directors determined to seek
      strategic alternatives with respect to the Company’s Chiral Quest, Inc.
      subsidiary (“Chiral Quest”), which included a possible sale or other disposition
      of the operating assets of that business. Accordingly, the chiral products
      and
      services operations and the assets of Chiral Quest are presented in these
      financial statements as discontinued operations. On July 16, 2007, the Company
      completed the sale of Chiral Quest to Chiral Quest Acquisition Corp. (“CQAC”)
      for total cash consideration of approximately $1,700,000. As a result of this
      transaction, the Company reported a gain of $438,444, which is included in
      its
      loss from discontinued operations in the third quarter of 2007. Chiral Quest
      had
      accounted for all sales of the Company from its inception. The Company’s
      continuing operations, which have not generated any revenues, will focus on
      the
      remaining drug development operations of VioQuest Pharmaceuticals, Inc. and
      accordingly, the Company has only one segment. As a result of these
      reclassifications, the Company no longer provides segment reporting. See Note
      2
      for a complete discussion on discontinued operations.





The
      consolidated balance sheets as of December 31, 2007 and the consolidated
      statements of operations for the three months ended March 31, 2008 and 2007
      include reclassifications to reflect discontinued operations.




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




Since
      August 2004, the Company has focused on acquiring technologies for purposes
      of
      development and commercialization of pharmaceutical drug candidates in the
      areas
      of supportive care products, oncology, and infectious diseases for which there
      are unmet medical needs. Since October 2005, the Company has held license rights
      to develop and commercialize its two oncology drug candidates, Lenocta (sodium
      stibogluconate), formerly VQD-001, an inhibitor of specific protein tyrosine
      phosphatases, and VQD-002 (triciribine phosphate monohydrate), an inhibitor
      of
      activated Akt. The rights to these two oncology drug candidates, Lenocta and
      VQD-002, are governed by license agreements with The Cleveland Clinic Foundation
      and the University of South Florida Research Foundation, respectively. In March
      2007, the Company acquired license rights to develop and commercialize Xyfid
      (1%
      uracil topical), an adjunctive therapy for the treatment and prevention of
      Hand-Foot Syndrome (“HFS”), a common and serious side effect of chemotherapy
      treatments. The Company’s rights to Xyfid are governed by a license agreement
      with Asymmetric Therapeutics, LLC and Onc Res, Inc., as assigned to the Company
      by Fiordland Pharmaceuticals, Inc.


5


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2008 (UNAUDITED)**





***(C)
      Liquidity***





Since
      inception, the Company has incurred an accumulated deficit of $42,513,278
      through March 31, 2008. For the three months ended March 31, 2008 and 2007,
      the
      Company had losses from continuing operations of $3,080,981 and $2,256,778,
      respectively, and used $1,060,445 and $1,347,108 of cash in continuing operating
      activities for the three months ended March 31, 2008 and 2007, respectively.
      For
      the three months ended March 31, 2008 and 2007, the Company had a net loss
      of
      $3,080,981 and a net loss of $2,518,253 (which included $2,256,778 from
      continuing operations), respectively. As of March 31, 2008, the Company had
      a
      working capital deficit of $2,801,606 and cash and cash equivalents of $305,561.
      The Company has incurred negative cash flow from operating activities since
      its
      inception. The Company has spent, and expects to continue to spend, substantial
      amounts in connection with executing its business strategy, including planned
      development efforts relating to the Company’s drug candidates, clinical trials
      and other research and development efforts. As a result, we have insufficient
      funds to cover our current obligations or future operating expenses. To conserve
      funds, we will continue to complete our current ongoing Phase I and Phase II
      studies for VQD-002 and Lenocta, respectively, however we will not initiate
      any
      new clinical studies unless and until we receive additional funding. Our current
      resources are inadequate to continue to fund operations; therefore, we will
      need
      to raise capital by the end of the third quarter of 2008 if not sooner.
      Furthermore, based upon the amount of capital we are required to raise by the
      end of the third quarter of 2008 to continue operations, we may need to raise
      additional capital before then to continue to fund our operations at our desired
      pace throughout 2008, by selling shares of our equity securities or issuing
      debt, or by potentially sublicensing our rights to our products. These matters
      raise substantial doubt about the ability of the Company to continue as a going
      concern.





On
      March
      14, 2008, the Company received gross proceeds of $765,000 from the sale of
      Series A Mandatorily Redeemable Convertible Preferred Stock (“Series A
      Preferred”). See Note 4. The Company’s cash and cash equivalents at March 31,
      2008 reflect the remaining cash proceeds to the Company from this
      transaction.





Management
      anticipates that the Company’s capital resources will be adequate to fund its
      operations into the third quarter of 2008. Additional financing or potential
      sublicensing of our rights to our product(s) will be required during the third
      quarter of 2008 in order to continue to fund operations. The most likely sources
      of additional financing include the private sale of the Company’s equity or debt
      securities, including bridge loans to the Company from third party lenders.
      The
      Company’s working capital requirements will depend upon numerous factors, which
      include the progress of its drug development and clinical programs, including
      associated costs relating to milestone payments, maintenance and license fees,
      manufacturing costs, patent costs, regulatory approvals and the hiring of
      additional employees.





Additional
      capital that is urgently needed by the Company 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 or cease 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.





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





The
      Company issued options and warrants to purchase an aggregate of 885,000 shares
      of its common stock during the three months ended March 31, 2008, comprised
      of
      120,000 shares subject to stock options to employees and 765,000 shares subject
      to warrants issued to investors and placement agents.





Vesting
      terms for the Company’s stock option plans differ based on the type of grant
      made. Generally, stock options and warrants granted to employees and
      non-employee directors vest as to one-third of the shares on each of the first,
      second and third anniversaries of the grant date. However, vesting has ranged
      in
      length from immediate vesting to vesting periods in accordance with the period
      covered by employment contracts. There were stock options to purchase 15,000
      shares of common stock granted to a non-employee director in the first quarter
      of 2006, of which 7,500 vested immediately and 7,500 vested on the first
      anniversary of the grant date, stock options to purchase 40,000 shares of common
      stock granted to four non-employee directors in the third quarter of 2007,
      of
      which one-third vested immediately and one-third of the shares vest on each
      of
      the first and second anniversaries of the grant date, stock options to purchase
      501,334 shares of common stock granted to the President and Chief Executive
      Officer, which vest as to 25% of the shares on each of the first, second, third
      and fourth anniversaries of the grant date and stock options to purchase 85,644
      shares of common stock granted to the President and Chief Executive Officer,
      which will vest in four equal annual installments commencing on the first
      anniversary of the grant date. However, this option is only exercisable to
      the
      extent that the shares of the Company’s common stock held in an escrow account
      in favor of the former stockholders of Greenwich Therapeutics, Inc. in
      connection with the Company’s October 2005 acquisition of Greenwich are released
      from escrow. As of March 31, 2008, 35% of the common stock held in escrow had
      been released and the Company has determined that it is probable that another
      35% of the common stock held in escrow will be released by the June 30, 2008
      deadline.


6


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2008 (UNAUDITED)**





Stock
      options and warrants granted to parties other than employees and non-employee
      directors vest over individually agreed upon terms. The Company issued 765,000
      warrants that vested immediately to investors and the placement agent that
      participated in the March 14, 2008 financing relating to the issuance and sale
      of Series A Preferred stock. See Note 4.





Following
      the vesting periods, options are exercisable until the earlier of 90 days after
      an employee’s employment with the Company terminates or the tenth anniversary of
      the initial grant, subject to adjustment under certain conditions. The Company
      recorded total compensation charges in the three months ended March 31, 2008
      related to the fair value of employee and non-employee director stock option
      grants of $152,599.





The
      Company uses the Black-Scholes option pricing model to calculate the fair value
      of options and warrants granted under Statement of Financial Accounting
      Standards (“SFAS”) No. 123R, Share-based Payment (“SFAS 123R”). 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
      set forth below, the weighted average fair values of the stock options granted
      during the three months ended March 31, 2008 were $0.12.





The
      table
      below sets forth the key assumptions used in the valuation calculations for
      options granted in the three months ended March 31, 2008 and 2007:





Three
                Months Ended
              March
                31,2008
            
            2007Term
            
            
            7
                years
            
            
            7
                yearsVolatility
            
            
            298
            %
            
            232-233
            %Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %Risk-free
                interest rate
            
            
            3.3
            %
            
            4.5-4.9
            %Forfeiture
                rate
            
            
            0%-26
            %
            
            22
            %




The
      following table summarizes information about the Company’s stock options as of
      and for the three months ended March 31, 2008:





Number of
              Shares
            
            Weighted
              Average
              Exercise Price
            
            Weighted Average
              Remaining Contractual
              Life (Years)
            
            Aggregate
              Intrinsic ValueBalance,
                January 1, 2008
            
            
            1,013,339
            
            $
            9.90Granted
            
            
            120,000
            
            $
            1.20Exercised
            
            
            -
            
            
            -Forfeited
                or expired
            
            
            (18,600
            )
            $
            6.00Outstanding
                at March 31, 2008
            
            
            1,114,739
            
            $
            4.60
            
            
            7.75
            
            $
            -Exercisable
                at March 31, 2008
            
            
            311,261
            
            $
            8.50
            
            
            3.00
            
            $
            -





As
      of
      March 31, 2008, there was $2,026,372 of unrecognized compensation costs related
      to stock options. These costs are expected to be recognized over a weighted
      average period of approximately 3.28 years.





As
      of
      March 31, 2008, an aggregate of 235,261 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)
      Warrants Issued With Convertible Debt and Mandatorily Redeemable Convertible
      Preferred Stock***





The
      Company accounts for the value of warrants and the intrinsic value of beneficial
      conversion rights arising from the issuance of convertible debt instruments
      and
      mandatorily redeemable convertible preferred stock with nondetachable conversion
      rights that are in-the-money at the commitment date pursuant to the consensuses
      for EITF Issue No. 98-5, EITF Issue No. 00-19 and EITF Issue No. 00-27. Such
      values are determined by allocating an appropriate portion of the proceeds
      received from the debt instruments to the debt and warrants based on their
      relative fair value and an appropriate portion of the proceeds received from
      the
      preferred stock to the preferred stock and warrants based on their relative
      fair
      value.


7


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2008 (UNAUDITED)**





The
      fair
      value allocated to the warrants issued with convertible debt is recorded as
      additional paid-in capital and as debt discount, which is charged to interest
      expense over the term of the debt instrument. The fair value allocated to the
      warrants issued with mandatorily redeemable convertible preferred stock is
      recorded as additional paid-in capital and as preferred stock discount, which
      is
      accreted through a charge to accumulated deficit through the date of earliest
      conversion.





The
      intrinsic value of the beneficial conversion rights at the commitment date
      may
      also be recorded as additional paid-in capital and debt or preferred stock
      discount as of that date or, if the terms of the debt instrument or preferred
      stock are contingently adjustable, may only be recorded if a triggering event
      occurs and the contingency is resolved.





***(F)
      Net Loss Per Common Share***





Basic
      net
      loss per common share is calculated by dividing net loss by the weighted-average
      number of common shares outstanding for the period, excluding 556,686 common
      shares held in escrow based upon clinical milestones of Lenocta and VQD-002,
      as
      a result of the acquisition of Greenwich Therapeutics. Diluted net loss per
      share is the same as basic net loss per share, since potentially dilutive
      securities from the assumed exercise of stock options and stock warrants would
      have an antidilutive effect because the Company incurred a net loss applicable
      to common shareholders during each period presented. The amount of potentially
      dilutive securities including options and warrants in the aggregate excluded
      from the calculation were 4,451,372 (including the 556,686 common
      shares held in escrow, 2,779,947 warrants, and 1,114,739 stock options) at
      March
      31, 2008 and 3,130,459 at December 31, 2007.





***(G)
      Restatement of Net Loss Per Common Share***





As
      a
      result of the Company effecting a 1-for-10 reverse stock split on April 25,
      2008, all common shares, warrants and options have been restated as of December
      31, 2007. In accordance with the reverse stock split, each share of the
      Company’s common stock, warrants and options, were reissued and repriced to
      purchase or receive one-tenth times the number of shares of common stock
      immediately theretofor purchasable and the purchase price per is 1,000 percent
      of the purchase price per share.





**NOTE
      2** **** **DISCONTINUED
      OPERATIONS**





As
      explained in Note 1, the Company determined that it would dispose of Chiral
      Quest on September 29, 2006 and accordingly, the operations and assets of Chrial
      Quest have been presented in these financial statements as discontinued
      operations. On July 16, 2007, the Company completed the sale of Chiral Quest
      to
      CQAC for total cash consideration of approximately $1,700,000. As a result
      of
      this transaction, the Company reported a gain of $438,444 in the third quarter
      of 2007. Retention bonuses of $106,761 and accrued severance of $90,000 paid
      to
      certain Chiral Quest employees have been offset against the gain on sale.
      Revenues from discontinued operations for the three months ended March 31,
      2008
      and 2007 were $0 and $803,784, respectively. Loss from discontinued operations
      for the three months ended March 31, 2008 and 2007, which consisted of revenues
      less cost of goods sold, management and consulting fees, research and
      development, selling, general and administrative expenses and depreciation
      and
      amortization, totaled $0 and $261,475, respectively.





On
      July
      16, 2007, the Company entered into a sublease agreement with CQAC that will
      expire on May 30, 2008 to lease its office and laboratory space, which was
      utilized by Chiral Quest before it was sold to CQAC. CQAC, the subtenant, agreed
      to make all payments of base rent and additional rent totaling approximately
      $28,000 per month for a total commitment of $56,000 remaining on the sublease
      agreement payable directly to the landlord. If CQAC were to default on payment
      during the sublease agreement’s term, the Company would be obligated to provide
      payment on behalf of CQAC through the remainder of the original lease term,
      and
      the Company will have the right to cancel and terminate the sublease with CQAC
      upon five days notice to subtenant. As of March 31, 2008, CQAC has fully
      complied with the sublease agreement with the Company.


8


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2008 (UNAUDITED)**





**NOTE
      3** **** **CONVERTIBLE
      NOTES**





On
      June
      29, 2007 and July 3, 2007, the Company issued and sold a series of 8%
      convertible promissory notes (the “Bridge Notes”) in the aggregate principal
      amount of $3,700,000 with a term of one year from the date of final closing.
      Investors could have elected, at any time during the term, to convert all unpaid
      principal plus any accrued but unpaid interest thereon on the Bridge Notes
      into
      shares of the Company’s common stock. In the event that the investors had not
      elected to convert the Bridge Notes, all unpaid principal plus any accrued
      interest would have automatically converted into the Company’s common stock upon
      the completion of an equity financing or series of related equity financings
      by
      the Company resulting in aggregate gross cash proceeds to the Company of at
      least $7,000,000. If the Bridge Notes and accrued interest were not converted
      into shares of the Company’s common stock, all unpaid principal plus any accrued
      interest would be due and payable on the first anniversary of the final
      closing.





The
      face
      value of the Bridge Notes issued on June 29, 2007 and July 3, 2007, was
      $2,967,500 and $732,500, respectively. The Company incurred commissions and
      related costs in association with the Bridge Notes of $245,450 and $50,750
      (as
      explained below) for the June 29, 2007 and July 3, 2007 closings, respectively.
      The Company also issued to investors five-year warrants (“Bridge Warrants”) to
      purchase an aggregate of approximately 243,000 (195,000 and 48,000 for the
      June
      29, 2007 and July 3, 2007 closings, respectively) shares of the Company’s common
      stock at an exercise price of $4.00 per share, which had a fair value of
      $736,935 and $172,301 as of June 29, 2007 and July 3, 2007, respectively. The
      Company allocated proceeds from the sale to the Bridge Warrants of $590,334
      and
      $139,489 as of June 29, 2007 and July 3, 2007, respectively, based on their
      relative fair values to the fair value of the Bridge Notes, which was recorded
      as a discount to the Bridge Notes. Gross proceeds allocated to the Bridge Notes
      were $2,377,166 for the June 29, 2007 issuances, and $593,011 for the July
      3,
      2007 issuances. The discount associated with the value of the warrants will
      be
      amortized to interest expense over the term of the Bridge Notes.





As
      a
      result of the allocation of proceeds to the Bridge Warrants, the Bridge Notes
      contained a Beneficial Conversion Feature (“BCF”) of $590,334 for the June 29,
      2007 closing, and $139,489 for the July 3, 2007 closing, which were attributable
      to an effective conversion price for the Company’s common stock that was less
      than the market values on the dates of issuance. Additional BCF’s are recorded
      as convertible interest is accrued. These amounts are recorded as additional
      debt discount and additional paid-in capital, which reduces the initial carrying
      value of the Bridge Notes. The discount associated with the BCF will also be
      amortized to interest expense over the term of the Bridge Notes.





In
      connection with the Bridge Notes, the Company issued five-year warrants to
      placement agents to purchase an aggregate of 120,250 shares of common stock,
      which are exercisable at a price of $4.20 per share. Based on the Black-Scholes
      option pricing model, the warrants had a fair value of $356,425 for the June
      29,
      2007 closing and $73,441 for the July 3, 2007 closing. Additionally, the Company
      incurred commissions of $205,450, a non-accountable expense allowance of $24,271
      to the placement agents and escrow fees of $5,000 for the June 29, 2007 closing
      and commissions of $50,575 for the July 3, 2007 closing. The Company engaged
      Paramount BioCapital, Inc. (“Paramount”) as one of its placements agents. Dr.
      Lindsay A. Rosenwald is the Chairman, CEO and sole stockholder of Paramount
      and
      a substantial stockholder of the Company. Stephen C. Rocamboli, the Company’s
      chairman, was employed by Paramount at the time of the Company’s engagement. Of
      the total consideration provided to the placement agents, the Company issued
      warrants to Paramount to purchase 45,000 shares of common stock and paid
      commissions of approximately $119,700. The fair value of the warrants,
      commissions and fees totaling $591,146 for the June 29, 2007 closing and
      $124,016 for the July 3, 2007 closing have been recognized as deferred financing
      costs, which will be amortized to interest expense over the term of the Bridge
      Notes.





As
      a
      condition to the March 14, 2008 private placement, the majority of the holders
      of the June 29, 2007 and July 3, 2007 convertible promissory notes agreed to
      convert such notes, together with accrued interest, into approximately 3,910
      shares of the Company’s newly-designated Series B Mandatorily Redeemable
      Convertible Preferred Stock (“Series B Preferred”). See Note 4 for further
      discussion. The conversion of the Bridge Notes to Series B Preferred stock
      resulted in a loss on the early extinguishment of debt of $814,355, which is
      included in interest expense for the three months ended March 31, 2008. The
      loss
      is related to non-cash items, such as write-off of unamortized debt issuance
      costs, BCF and deferred financing costs.





The
      following assumptions were used for the Black-Scholes calculations for the
      warrants related to the Bridge Notes:





Term
            
            
            5
                yearsVolatility
            
            
            240
            %Dividend
                yield
            
            
            0.0
            %Risk-free
                interest rate
            
            
            4.9-5.0
            %


9


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2008 (UNAUDITED)**





**NOTE
      4** **** **MANDATORILY
      REDEEMABLE CONVERTIBLE PREFERRED STOCK**





On
      March
      14, 2008, the Company issued 765 shares of Series A Preferred stock at a price
      of $1,000 per share together with five-year warrants to purchase an aggregate
      of
      approximately 637,500 shares of our common stock at an exercise price of $1.00
      per share for an aggregate purchase price of $765,000. The Company received
      approximately $671,000 in net cash proceeds after closing costs.





Each
      share of Series A Preferred stock sold is convertible into shares of the
      Company's common stock at $0.60 per share, or approximately 1,275,000 shares
      of
      common stock in the aggregate. A holder of Series A Preferred stock may convert
      the shares of Series A Preferred stock to common stock at any time and from
      time
      to time upon the holder’s election. The Series A Preferred stock shall
      automatically convert into common stock in the event that the closing price
      of
      the common stock is equal to at least $3.80 per share (as adjusted for stock
      splits, combinations and similar events) for 20 consecutive trading days. In
      the
      event that there has not been a voluntary conversion or mandatory conversion
      of
      the Series A Preferred stock by July 3, 2009, the holders of Series A Preferred
      stock shall have a right to require the Company to redeem their Series A
      Preferred stock out of funds lawfully available.





In
      the
      event of a liquidation, bankruptcy, dissolution or similar proceeding, the
      holders of the Series A Preferred stock shall rank pari passu with the Series
      B
      Preferred stock and shall receive an amount equal to 100% of the Series A
      Preferred stock price plus any accrued but unpaid dividends. The Series A
      Preferred stock will be protected against dilution if the Company effects a
      subdivision or combination of its outstanding common stock or in the event
      of a
      reclassification, stock dividend or other distribution payable in securities
      of
      the Company and shall have full-ratchet antidilution protection, subject to
      standard exceptions. The holders of Series A Preferred stock will vote together
      with all other holders of the Company’s voting stock on all matters submitted to
      a vote of holders generally, with the holder of each share of Series A Preferred
      stock being entitled to one vote for each share of common stock into which
      such
      shares of Series A Preferred stock could then be converted.





Based
      upon the Black-Scholes option pricing model, the investor warrants are estimated
      to be valued at approximately $701,000. The Company allocated the consideration
      received from the sale of the Series A Preferred stock between the Series A
      Preferred stock and the warrants on the basis of their relative fair values
      at
      the date of issuance, allocating approximately $366,000 to the warrants. The
      value of the warrants was recognized as an increase in additional paid-in
      capital and as a discount to the Series A Preferred stock. Furthermore, the
      fair
      value of the common shares into which the Series A Preferred stock is
      convertible on the date of issuance exceeded the proceeds allocated to the
      Series A Preferred stock, resulting in a beneficial conversion feature of
      approximately $165,000 that was recognized as an increase in additional paid-in
      capital and as a discount to the Series A Preferred stock. The discounts are
      being accreted to the redemption value of the Series A Preferred stock over
      the
      mandatory redemption period, using the effective interest method, through a
      charge to additional paid-in capital.





In
      connection with the offering, the Company engaged Paramount as our placement
      agent. Dr. Lindsay A. Rosenwald is the Chairman, CEO and sole stockholder of
      Paramount and a substantial stockholder of the Company. Dr. Rosenwald
      participated in this financing through a family investment partnership, of
      which
      he is the managing member. The family investment partnership purchased 500
      shares of Series A Preferred stock and received warrants to purchase 416,700
      shares of common stock. Based upon the Black-Scholes option pricing model,
      the
      family investment partnership’s investor warrants are estimated to be valued at
      approximately $458,000. In consideration for the placement agent’s services, the
      Company paid an aggregate of approximately $54,000 in commissions to Paramount
      in connection with the offering. The Company also paid to Paramount $35,000
      as a
      non-accountable expense allowance. In addition, the Company issued to Paramount
      five-year warrants to purchase an aggregate of approximately 127,500 shares
      of
      common stock, which are exercisable at a price of $0.80 per share. Based upon
      the Black-Scholes option pricing model, the warrants issued to Paramount are
      estimated to be valued at approximately $140,000. The fair value of the
      warrants, commissions and fees totaling approximately $234,000 that was
      recognized as a decrease to the Series A Preferred stock. The discount is being
      accreted to Series A Preferred stock over the mandatory redemption period,
      using
      the effective interest method, through a charge to additional paid-in capital.
      For the three months ended March 31, 2008, the Company accreted $6,321 of Series
      A Preferred stock discount.





The
      Series A Preferred stock shall be entitled to an annual dividend equal to 6%
      of
      the applicable issuance price per annum, payable semi-annually in cash or shares
      of common stock, at the option of the Company. If the Company chooses to pay
      the
      dividend in shares of common stock, the price per share of common stock to
      be
      issued shall be equal to 90% of the average closing price of the common stock
      for the 20 trading days prior to the date that such dividend becomes payable.
      During the three months ended March 31, 2008, the Company accrued $1,913
      associated with this dividend obligation, which was recorded as interest expense
      on the accompanying condensed consolidated statements of
      operations.


10


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2008 (UNAUDITED)**





As
      a
      condition to the March 14, 2008 closing of the private placement, the majority
      of the holders of the June 29, 2007 and July 3, 2007 convertible promissory
      notes agreed to convert such notes, together with accrued interest, into
      approximately 3,910 shares of Series B Preferred stock. The Series B Preferred
      stock contains substantially the same economic terms as the previously
      outstanding senior convertible notes. A holder of Series B Preferred stock
      may
      convert the shares of Series B Preferred stock to common stock at any time
      and
      from time to time upon the holder’s election. The Series B Preferred stock shall
      automatically convert into common stock in the event that the closing price
      of
      the common stock is equal to at least $3.80 per share (as adjusted for stock
      splits, combinations and similar events) for 20 consecutive trading days. The
      Series B Preferred stock is subject to mandatory redemption on July 3,
      2009.





Each
      share of Series B Preferred stock sold is convertible into shares of the
      Company's common stock at $3.80 per share, or approximately 1,029,000 shares
      of
      common stock in the aggregate. The Series B Preferred stock shall be entitled
      to
      an annual dividend equal to 8% of the applicable issuance price per annum,
      payable semi-annually in cash or shares of common stock, at the option of the
      Company. If the Company chooses to pay the dividend in shares of common stock,
      the price per share of common stock to be issued shall be equal to 90% of the
      average closing price of the common stock for the 20 trading days prior to
      the
      date that such dividend becomes payable. During the three months ended March
      31,
      2008, the Company accrued $13,034 associated with this dividend obligation,
      which was recorded as interest expense on the accompanying condensed
      consolidated statements of operations.





In
      the
      event of a liquidation, bankruptcy, dissolution or similar proceeding, the
      holders of the Series B Preferred stock shall rank pari passu with the Series
      A
      Preferred stock and shall receive an amount equal to 100% of the Series B
      Preferred stock price plus any accrued but unpaid dividends.





The
      following assumptions were used for the Black-Scholes calculations for the
      warrants related to the financing:





Term
            
            
            5
                yearsVolatility
            
            
            301
            %Dividend
                yield
            
            
            0.0
            %Risk-free
                interest rate
            
            
            2.4
            %





**NOTE
      5** **** **SUBSEQUENT
      EVENTS**





On
      April
      15, 2008, the Company’s Board of Directors authorized an amendment to the
      Company’s certificate of incorporation to provide for the combination of the
      Company’s common stock in the form of a 1-for-10 reverse stock split. In
      accordance with the reverse stock split, each share of the Company’s common
      stock was reissued and repriced for each 10 shares of common stock exchanged
      by
      the holders of record at 12:01 a.m. on April 25, 2008 (the “Effective Time”).
      Further, each option to purchase shares of common stock outstanding as of the
      Effective Time and any other outstanding and unexercised warrants or similar
      rights to purchase or receive shares of common stock outstanding immediately
      prior to the Effective Time provides the right to purchase or receive one-tenth
      times the number of shares of common stock immediately theretofor purchasable
      and the purchase price per share shall be 1,000 percent of the purchase price
      per share immediately theretofor payable. The number of shares reserved for
      issuance under the Company’s 2003 Stock Option Plan shall become one-tenth the
      number of shares reserved for issuance as of the Effective Time.





On
      April
      14, 2008, the Company appointed Vernon L. Alvarez, Ph.D., as Vice President
      of
      Research and Development.





On
      April
      11, 2008, Edward C. Bradley, M.D., the Company’s Chief Scientific Officer,
      resigned from his part-time position with the Company. In consideration of
      Dr.
      Bradley’s service, the Company accelerated the vesting of Dr. Bradley’s stock
      options to purchase an additional 23,333 shares of the Company’s common stock.
      Furthermore, the exercise period for his vested options is extended until
      December 31, 2008. Incremental compensation cost is incurred when the terms
      of
      his award are modified. Based upon the Black-Scholes option pricing model,
      the
      incremental cost is approximately $15,000, which is measured by comparing the
      fair value of the modified award with the fair value of the award immediately
      before the modification.





On
      April
      9, 2008, the Company issued 2,194.5 shares of Series A Preferred stock at a
      price of $1,000 per share together with five-year warrants to purchase an
      aggregate of approximately 1.83 million shares of our common stock at an
      exercise price of $1.00 per share for an aggregate purchase price of $2,195,000.
      The Company received approximately $2,041,000 in net cash proceeds after closing
      costs. In addition, the Company reissued the 765 shares of Series A Preferred
      stock originally sold on March 14, 2008, on the same terms as if the shares
      had
      been purchased on April 9, 2008.


11


**VIOQUEST
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2008 (UNAUDITED)**





Each
      share of Series A Preferred stock sold is convertible into shares of the
      Company's common stock at $0.60 per share, or approximately 3.66 million shares
      of common stock in the aggregate. A holder of Series A Preferred stock may
      convert the shares of Series A Preferred stock to common stock at any time
      and
      from time to time upon the holder’s election. The Series A Preferred stock shall
      automatically convert into common stock in the event that the closing price
      of
      the common stock is equal to at least $3.80 per share (as adjusted for stock
      splits, combinations and similar events) for 20 consecutive trading days. The
      Series A Preferred stock is subject to mandatory redemption on July 3, 2009.





As
      of
      April 1, 2008, the Series B Preferred stockholders are foreclosed from
      exercising their Series B Preferred stock participation rights and may not
      convert any of their Series B Preferred stock into the securities. A “Series B
      Participation Right” means the right of the Series B Preferred stockholder to
      convert all or any portion of such Series B Preferred stockholder’s shares of
      Series B Preferred stock into the securities, as follows: for each $1.00 of
      new
      money invested in the April 9, 2008 offering by the Series B Preferred
      stockholder, such Series B Preferred stockholder shall be entitled to convert
      $1.00 of Series B Preferred stock into the securities at a price equal to the
      April 9, 2008 offering price.





Certain
      Series B Preferred stockholders exercised their right to convert Series B
      Preferred stock into Series A Preferred stock by investing new money in the
      April 9, 2008 offering. These holders invested $505,000 of new money in the
      April 9, 2008 offering and earned the right to convert $505,000 of Series B
      Preferred stock, convertible into shares of the Company’s common stock at $3.80
      per share, into Series A Preferred stock, convertible into shares of the
      Company’s common stock at $0.60 per share. As such, the Company will record a
      charge for the induced conversion of Series B Preferred stock of approximately
      $709,000, which will be included in net loss applicable to common shareholders.
      The converting stockholders received 505 shares of Series A Preferred
      Stock.





In
      connection with the offering, the Company engaged Paramount as our placement
      agent. In consideration for the placement agent’s services, the Company paid an
      aggregate of approximately $153,000 in commissions to Paramount in connection
      with the offering. In addition, the Company issued to Paramount five-year
      warrants to purchase an aggregate of approximately 365,800 shares of common
      stock, which are exercisable at a price of $0.80 per share. Based upon the
      Black-Scholes option pricing model, the warrants issued to Paramount are
      estimated to be valued at approximately $366,000. The Series A Preferred stock
      shall be entitled to an annual dividend equal to 6% of the applicable issuance
      price per annum, payable semi-annually in cash or shares of common stock, at
      the
      option of the Company. If the Company chooses to pay the dividend in shares
      of
      common stock, the price per share of common stock to be issued shall be equal
      to
      90% of the average closing price of the common stock for the 20 trading days
      prior to the date that such dividend becomes payable.


12


**Item
      2.**  **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.**





**Overview**





We
      are a
      biopharmaceutical company focused on the acquisition, development and
      commercialization of clinical stage drug therapies targeting both the molecular
      basis of cancer and side effects of cancer treatment. Our lead compound under
      development is Xyfid (1% topical uracil) for the treatment and prevention of
      Hand-Foot Syndrome (“HFS”), a common and serious side effect of chemotherapy
      treatments. In parallel, Xyfid is also being developed to treat dry skin
      conditions and manage the burning and itching associated with various diseases
      of the skin, or dermatoses. We expect to initiate a Phase IIb program for Xyfid
      in 2008 for HFS, and are exploring a parallel 510(k) Premarket Notification
      submission during 2008 for Xyfid to treat various dermatoses. Additionally,
      we
      are developing VQD-002 (triciribine phosphate monohydrate or TCN-P), a small
      molecule anticancer compound that inhibits activation of protein kinase B (PKB
      or AKT), a key component of a signaling pathway known to promote cancer cell
      growth and survival as well as resistance to chemotherapy and radiotherapy.
      VQD-002 is currently in Phase I clinical development for multiple tumor types
      and we expect to advance VQD-002 into Phase II clinical development during
      2008.
      We are also developing Lenocta (sodium stibogluconate), which we previously
      referred to as VQD-001, a selective, small molecule inhibitor of certain protein
      tyrosine phosphatases (“PTPs”), such as SHP-1, SHP-2 and PTP1B, with
      demonstrated anti-tumor activity against a wide spectrum of cancers both alone
      and in combination with other approved immune activation agents, including
      IL-2
      and interferons. Lenocta is currently in a Phase IIa clinical trial as a
      potential treatment for melanoma, renal cell carcinoma, and other solid tumors.
      In addition to its potential role as a cancer therapeutic, sodium stibogluconate
      has been approved in most of the world for first-line treatment of
      leishmaniasis, an infection typically found in tropic and sub-tropic developing
      countries. Based on historical published data and a large observational study
      by
      the U.S. Army, data from approximately 400 patients could be utilized to support
      a New Drug Application (“NDA”) with the U.S. Food and Drug Administration
      (“FDA”) in 2008. Lenocta has been granted Orphan Drug status for leishmaniasis.
      To date, we have not received approval for the sale of any of our drug
      candidates in any market and, therefore, have not generated any product sales
      from our drug candidates.





Through
      our drug development business, we acquire, develop, and intend to commercialize
      novel drug therapies targeting both the molecular basis of cancer and side
      effects of treatment. Through our acquisition of Greenwich Therapeutics, Inc.
      in
      October 2005, we obtained the rights to develop and commercialize two oncology
      drug candidates - Lenocta and VQD-002. We hold our rights to Lenocta and
      VQD-002, pursuant to license agreements with The Cleveland Clinic Foundation
      and
      the University of South Florida Research Foundation, respectively. In March
      2007, the Company acquired license rights to develop and commercialize Xyfid.
      The Company’s rights to Xyfid are governed by a license agreement with
      Asymmetric Therapeutics, LLC and Onc Res, Inc., as assigned to the Company
      by
      Fiordland Pharmaceuticals, Inc. These licenses give us the right to develop,
      manufacture, use, commercialize, lease, sell and/or sublicense Lenocta, VQD-002
      and Xyfid.





·
            **XyfidTM
                (1% uracil topical).**VioQuest has been developing Xyfid for the treatment and prevention
                of
                palmar-plantar erythrodysesthesia (PPE), also known as hand-foot
                syndrome
                (HFS), a relatively common dose-limiting side effect of cytotoxic
                chemotherapy - most frequently fluoropyrimidines, such as continuous
                infusion 5-fluorouracil (5-FU), and the oral 5-FU prodrug capecitabine
                (Xeloda® by Roche). Fluoropyrimidines are among the most commonly used
                cancer chemotherapeutics nearly 50 years after their introduction.
                Fluoropyrimidines, alone or in combination therapy, are commonly
                given for
                cancers of the head and neck, breast, cervix, and gastrointestinal
                tract.





There
      are
      currently no treatments or preventative agents for HFS, which is characterized
      by the progressive redness and cracking of the hands and feet. The severity
      of
      HFS is typically defined by three grade levels: Grade 1: numbness, tingling,
      painless swelling; Grade 2: painful discomfort, swelling; Grade 3: ulceration,
      blistering, severe pain and discomfort, unable to work or perform activities
      of
      daily living. Up to 60% of all capecitabine patients experience HFS and up
      to
      20% experience severe HFS (Grade 3). According to the prescribing information
      for capecitabine, if grade 2 or 3 HFS occurs, administration of capecitabine
      should be interrupted until the event resolves or decreases in intensity to
      grade 1. Following grade 3 HFS, subsequent doses of capecitabine should be
      decreased.





Uracil,
      the active ingredient in Xyfid, is a naturally occurring substrate for enzymes,
      such as thymidine phosphorylase (TP) and and dihydropyrimidine dehydrogenase
      (DPD), that metabolize fluoropyrimidines into toxic metabolites. Addition of
      uracil to systemic fluoropyrimidine treatment regimens, such as tegafur-uracil,
      or UFT, is well-established to significantly diminish the incidence of HFS.
      Whereas such combination products have been licensed in Japan and much of
      Europe, they have not been approved for use in the United States due, in part,
      to FDA questions regarding the demonstrable non-inferiority of the combination
      drug compared with fluoropyrimidines alone.





In
      contrast to systemic exposure, topical application of uracil would potentially
      allow for the treatment and prevention of HFS without compromising the efficacy
      of systemic fluoropyrimidine therapy. In a small pilot study, Xyfid has been
      effective at preventing the both the incidence and recurrence of dose limiting
      HFS when applied topically.


13




VioQuest
        is considering parallel regulatory paths for two separate indications for
        Xyfid:


*510(k)
      Premarket Notification*





During
      March 2008, we signed an agreement with Medical Device Consultants, Inc. (MDCI)
      for MDCI to assist us in obtaining clearance to market Xyfid pursuant to Section
      510(k) of the Food, Drug and Cosmetic Act, or FDCA, and in particular, the
      “premarket notification” provisions of Section 510(k). To qualify for 510(k)
      premarket notification, a product must be substantially equivalent to another
      device that is legally marketed in the U.S. A device is substantially equivalent
      if, in comparison to a predicate it:





·
            has
                the same intended use as the predicate; and


·
            has
                the same technological characteristics as the
                predicate.





A
      claim
      of substantial equivalence does not mean the new and predicate devices must
      be
      identical. Substantial equivalence is established with respect to intended
      use,
      design, energy used or delivered, materials, chemical composition, manufacturing
      process, performance, safety, effectiveness, labeling, biocompatibility,
      standards, and other characteristics, as applicable.





We
      believe that Xyfid may be substantially equivalent to several predicate devices
      designed to improve dry skin conditions and to relieve and to manage the burning
      and itching associated with various dermatoses including atopic dermatitis,
      irritant contact dermatitis, radiation dermatitis and other dry skin conditions,
      by maintaining a moist wound and skin environment.




*New
        Drug Application (NDA) Process*
 
 A
        pilot
        clinical study in patients has demonstrated that topical application of Xyfid
        to
        the hands and feet may be effective in preventing the recurrence of dose
        limiting HFS. On this basis, an investigational new drug application (IND)
        was
        submitted and accepted by the FDA. Subsequently, Xyfid was granted fast track
        designation for the prevention of HFS in patients receiving capecitabine
        for the
        treatment of advanced metastatic breast cancer.
 
 Pursuant
        to this IND, we expect to evaluate the safety, tolerability and activity
        of
        Xyfid and its ability to reduce the incidence of HFS. We are considering
        a
        30-patient Phase IIb study in breast cancer patients receiving capecitabine
        that
        could begin during 2008. The outcome of the Phase IIb study could support
        plans
        for registration of Xyfid under the NDA process. Xyfid has been awarded
        fast-track status by the FDA in this setting.


·
            **VQD-002
                (triciribine phosphate monohydrate).**VQD-002, a tricyclic nucleoside that inhibits the activation of Akt,
                has
                demonstrated anti-tumor activity against a wide spectrum of cancers
                in
                preclinical and clinical studies. Amplification, overexpression,
                or
                activation of Akt, also named protein kinase B, have been detected
                in a
                number of human malignancies, including prostate, breast, ovarian,
                colorectal, pancreatic, and hematologic cancers. Activation of Akt
                is
                associated with cell survival, malignant transformation, tumor
                invasiveness, and chemo-resistance, while inhibition of Akt activity
                has
                been shown to cause cell death. These attributes make Akt an attractive
                target for cancer therapy.





VQD-002
      was first synthesized in 1971 and identified as an antineoplastic agent. Phase
      I
      clinical trials on VQD-002 proved that its safety and side effects were dose
      dependent. However, as a single drug in Phase II trials, VQD-002 failed to
      show
      efficacy against advanced breast, colon, and lung cancer even at very high
      doses.





A
      few
      years ago, researchers at Moffitt Cancer Center found that VQD-002 inhibits
      Akt
      activation and has antitumor activity as a single agent against tumors with
      activated Akt. Inhibition of Akt activation plays a key role in VQD-002’s
      antitumor activity. Thus, Phase I trials of VQD-002 have been initiated for
      tumors with activated Akt using much lower doses of VQD-002 than those
      previously used that caused toxicity.





During
      October 2007, preclinical study results were published demonstrating that
      combining VQD-002 with trastuzumab (Herceptin® by Genentech) may be a clinically
      applicable strategy to overcome trastuzumab resistance, particularly that caused
      by loss of PTEN, a tumor suppressor protein. Trastuzumab resistance is a
      clinically devastating problem and this study suggests a rational improvement
      to
      trastuzumab-based therapy, which could directly affect the clinical management
      of breast cancer patients in general and particularly those with PTEN-deficient
      tumors.





During
      January 2008, preclinical study results were published demonstrating that
      VQD-002 disrupts a specific signaling pathway associated with chemoresistance
      and cancer cell survival in ovarian cancer. The preclinical study results
      indicate that VQD-002 could play a role in reversing drug resistance in ovarian
      cancer for patients treated with chemotherapy in the years ahead.





In
      our
      current Phase I solid tumor study, VQD-002 was administered intravenously over
      a
      28-day cycle on days 1, 8, and 15. Cohorts of 3 patients received escalating
      doses of VQD-002 at 15, 25, 35, and 45 mg/m2. Patients had progressive disease
      despite receiving a median of 3 prior treatment regimens (range 1-4).
      Preliminary Phase I data from this solid tumor study demonstrated that VQD-002
      was well tolerated; one melanoma subject had stable disease for 8
      months.


14





In our
      Phase I hematological malignancies study, VQD-002 was administered intravenously
      over a 28-day cycle on days 1, 8, and 15. Cohorts of 3 patients received
      escalating doses of VQD-002 at 15, 25, 35, 45 and 55 mg/m2. Enrollment to higher
      doses is ongoing, which we are currently at 65 mg/m2. Patients had progressive
      disease despite receiving a median of 3 prior treatment regimens (range 1-4).
      Interim results of a Phase I trial in hematologic malignancies demonstrate
      that
      VQD-002 is well-tolerated and shows signs of clinical activity in patients
      with
      advanced leukemias. The Phase I trial is designed to assess the safety,
      tolerability and pharmacokinetics of VQD-002 and to establish a recommended
      Phase II dose for further studies among patients. In results presented to date,
      a total of 38 patients have been enrolled at two clinical sites. Twenty-nine
      patients are evaluable for toxicity and response, six patients are evaluable
      for
      toxicity only, and three patients are not evaluable.





Preliminary
      results from this trial show that patients with relapsed, refractory acute
      myeloid leukemia, or AML, experienced a decrease in peripheral blood
      myeloblasts, a measure of clinical activity. In particular, four patients
      treated at the 25 mg/m2 or 35 mg/m2 dose level of VQD-002 experienced up to
      50
      percent reductions in peripheral blast cells. Additional hematological
      improvements included six patients achieving major improvements in platelet
      count lasting up to 36 days and seven patients achieving major improvements
      in
      neutrophil count lasting up to 40 days while on therapy. VQD-002 was
      well-tolerated at the doses studied.





We
      filed
      with the FDA an IND relating to VQD-002, which was accepted in April 2006.
      Pursuant to this IND, we are currently evaluating the safety, tolerability
      and
      activity of VQD-002 in two Phase I clinical trials, including one at the Moffitt
      Cancer Center in up to 42 patients with hyper-activated, phosphorylated Akt
      in
      solid tumors and a second clinical trial, with up to 40 patients, at the M.D.
      Anderson Cancer Center and the Moffitt Cancer Center in hematological tumors,
      with particular attention in leukemias. We expect to complete our Phase I
      studies in 2008. During 2008, the FDA granted orphan drug designation to VQD-002
      for the treatment of multiple myeloma. We expect to advance VQD-002 into Phase
      II clinical development during 2008.





·
            **LenoctaTM
                (sodium stibogluconate).**Lenocta is a selective, small molecule inhibitor of certain protein
                tyrosine phosphatases (PTPs), such as SHP-1, SHP-2 and PTP1B, with
                demonstrated anti-tumor activity against a wide spectrum of cancers
                both
                alone and in combination with other approved immune activation agents,
                including IL-2 and interferons. PTPs are a family of proteins that
                regulate signal transduction pathways in cells and have been implicated
                in
                a number of diseases including cancer, diabetes, and
                neurodegeneration.





Lenocta
      has been shown to have anti-proliferative activity against a broad number of
      tumor cell lines, including melanoma and renal cell lines. Pre-clinical work
      in
      nude mice with cancer xenografts has shown that Lenocta can control malignancies
      in vivo as well. These effects were seen whether used as part of a combination
      therapy with existing treatments, including interferon and interleukin-2, or
      alone. In addition, preclinical data also suggests that monotherapy with Lenocta
      may be useful to treat certain other tumor types, including prostate
      cancer.





The
      preclinical data suggests that Lenocta utilizes multiple modes of action,
      including having a direct effect on cancer cells, as well as generally enhancing
      the body’s immune system. These multiple modes of action, along with Lenocta’s
      known historical toxicity profile, demonstrate that Lenocta is a potentially
      attractive drug candidate to evaluate as an anti-cancer agent.





Phase
      I
      data from our combination trial of Lenocta and alpha interferon (“IFN a -2b”)
      demonstrated pharmacodynamic activity in some solid tumors as demonstrated
      by
      increases in the activities of natural killer cells, CD8 and type II dendritic
      cells, and two patients with ocular melanoma (1) and adenocystic carcinoma
      (1)
      have remained stable by Response Evaluation Criteria in Solid Tumors, or RECIST,
      on first assessment. There have been seventeen subjects evaluable for
      response.





A
      complete treatment cycle is for six weeks, with week 1 the patient is
      intravenously dosed with Lenocta for five days as a monotherapy, week 2 the
      patient is dosed with Lenocta and IFN a -2b,
      week
      3 is a rest period, weeks 4 and 5 the patient is dosed with Lenocta and IFN a -2b,
      and
      then there is a week rest before a subsequent cycle is initiated. Patients
      have
      been given five different dose cohorts: 400 mg/m2, 600 mg/m2, 900 mg/m2, 1350
      mg/m2 and a dose reduced cohort of 1125 mg/m2. Lenocta with IFN a -2b
      has
      been well tolerated at doses up to 900 mg/m2. We plan to initiate an expansion
      phase for 20 patients to have twelve subjects evaluable for response at a dose
      of 900 mg/m2.





We
      filed
      with the FDA an IND for Lenocta, which the FDA accepted in August 2006, allowing
      us to commence clinical trials of Lenocta. Lenocta is currently being studied
      at
      the M.D. Anderson Cancer Center and the University of New Mexico in a Phase
      IIa
      corporate-sponsored clinical trial in combination with IFN a -2b
      in up
      to 54-patients with melanoma, renal cell carcinoma, and other solid tumors
      that
      have been non-responsive in previous cytokine therapy. In November 2007, we
      dosed our first patient in our Phase IIa solid tumor study. We expect to
      complete enrollment in our Phase IIa solid tumor study in 2008. The Phase IIa
      trial has been designed to evaluate the clinical efficacy and biological
      effectiveness of Lenocta at the highest tolerable does in combination with
      IFN a -2b
      in
      patients with advanced-stage solid tumors.





*Additional
      Potential Indication of Lenocta*





As
      we
      continue to develop Lenocta for indications primarily used for an oncology
      drug
      candidate, we are also in the process of evaluating its potential development
      as
      a treatment for leishmaniasis. According to the World Health Organization,
      leishmaniasis currently threatens 350 million men, women and children in 88
      countries around the world. The leishmaniases are parasitic diseases with a
      wide
      range of clinical symptoms, including skin ulcers, partial or total destruction
      of the mucus membrane and irregular bouts of fever, substantial weight loss,
      swelling of the spleen and liver, and anaemia (occasionally serious). In
      collaboration with the U.S. Army, through an executed Cooperative Research
      and
      Development Agreement, we are evaluating the potential development of Lenocta
      in
      the treatment of leishmaniasis. Lenocta was granted orphan drug designation
      by
      the FDA in the second half of 2006 for the treatment of leishmaniasis. The
      Company has also convened an advisory board to evaluate the potential submission
      of an NDA to the FDA for Lenocta for the treatment of leishmaniasis in
      2008.


15





To
      date,
      we have not received approval for the sale of any drug candidates in any market
      and, therefore, have not generated any revenues from our drug candidates. The
      successful development of our product candidates is highly uncertain. Product
      development costs and timelines can vary significantly for each product
      candidate and are difficult to accurately predict. Various laws and regulations
      also govern or influence the manufacturing, safety, labeling, storage, record
      keeping and marketing of each product. The lengthy process of seeking these
      approvals, and the subsequent compliance with applicable statutes and
      regulations, require the expenditure of substantial resources. Any failure
      by us
      to obtain, or any delay in obtaining, regulatory approvals could materially
      adversely affect our business.





Developing
      pharmaceutical products is a lengthy and very expensive process. Assuming we
      do
      not encounter any unforeseen safety issues during the course of developing
      our
      product candidates, we do not expect to complete the development of a product
      candidate until approximately 2008 for the treatment of leishmaniasis, 2008
      for
      Xyfid through a 510(k) submission, 2010 for Xyfid through an NDA submission,
      and
      2013 for oncology indications of VQD-002 and then 2013 for oncology indications
      of Lenocta, if ever. In addition, as we continue the development of our product
      candidates, our research and development expenses will significantly increase.
      To the extent we are successful in acquiring additional product candidates
      for
      our development pipeline, our need to finance further research and development
      will continue to increase. Accordingly, our success depends not only on the
      safety and efficacy of our product candidates, but also on our ability to
      finance the development of these product candidates. Our major sources of
      working capital have been proceeds from various private financings, primarily
      private sales of our common stock and other equity securities.





Research
      and development expenses consist primarily of salaries and related personnel
      costs, fees paid to consultants and outside service providers for clinical
      development, legal expenses resulting from intellectual property protection,
      business development and organizational affairs and other expenses relating
      to
      the acquiring, design, development, testing, and enhancement of our product
      candidates, including milestone payments for licensed technology. We expense
      our
      research and development costs as they are incurred.




**Results
      of Operations – For the Three Months Ended March 31, 2008 vs. March 31,
      2007**





**Continuing
      Operations:**





The
      Company has had no revenues from its continuing operations through March 31,
      2008.





Research
      and development, or R&D, expenses for the three months ended March 31, 2008
      were $979,094 as compared to $1,368,811 during the three months ended March
      31,
      2007. R&D expense consists of clinical development costs, milestone license
      fees, maintenance fees paid to our licensing institutions, outside manufacturing
      costs, outside clinical research organization costs, regulatory and patent
      filing costs associated with our three oncology compounds, Lenocta, VQD-002
      and
      Xyfid.





The
      following table sets forth the research and development expenses per compound,
      for the periods presented.





Three
                Months Ended March 31,2008
            
            2007
            
            Cumulative
              amounts during
              developmentLenocta
            
            $
            285,330
            
            $
            456,525
            
            $
            3,165,324VQD-002
            
            
            530,613
            
            
            477,624
            
            
            3,663,633Xyfid
            
            
            163,151
            
            
            434,662
            
            
            958,018Total
            
            $
            979,094
            
            $
            1,368,811
            
            $
            7,786,975





The
      following table sets forth the research and development expenses for the three
      months ended March 31, 2008 by expense category, for our three oncology
      compounds.


16





Drug
                CandidateLenocta
            
            VQD-002
            
            Xyfid
            
            Three Months
              Ended March
              31, 2008Clinical
                Research Costs
            
            $
            160,759
            
            $
            217,708
            
            $
            104,293
            
            $
            482,760Labor
                Costs
            
            
            64,403
            
            
            167,448
            
            
            25,761
            
            
            257,612Regulatory
                / Legal Fees
            
            
            51,118
            
            
            132,907
            
            
            20,447
            
            
            204,472Licensing
                / Milestone Fees
            
            
            8,750
            
            
            6,250
            
            
            -
            
            
            15,000Other
            
            
            300
            
            
            6,300
            
            
            12,650
            
            
            19,250Total
            
            $
            285,330
            
            $
            530,613
            
            $
            163,151
            
            $
            979,094





The
      following table sets forth the research and development expenses for the three
      months ended March 31, 2007 by expense category, for our three oncology
      compounds.





Drug
                CandidateLenocta
            
            VQD-002
            
            Xyfid
            
            Three Months
              Ended March
              31, 2007Clinical
                Research Costs
            
            $
            182,497
            
            $
            329,474
            
            $
            -
            
            $
            511,971Labor
                Costs
            
            
            137,227
            
            
            77,227
            
            
            -
            
            
            214,454Regulatory
                / Legal Fees
            
            
            76,864
            
            
            60,048
            
            
            37,490
            
            
            174,402Licensing
                Fees
            
            
            8,752
            
            
            6,250
            
            
            369,588
            
            
            384,590Other
            
            
            51,185
            
            
            4,625
            
            
            27,584
            
            
            83,394Total
            
            $
            456,525
            
            $
            477,624
            
            $
            434,662
            
            $
            1,368,811





The
      decrease in R&D expenses for the three months ended March 31, 2008 as
      compared to the three months ended March 31, 2007 is primarily attributable
      to
      fees incurred during the three months ended March 31, 2007 in acquiring the
      worldwide license to certain patents for Xyfid. In addition, there was a
      reduction in clinical research costs, offset by increased labor costs and
      regulatory and legal fees related to our oncology drug candidates: VQD-002,
      Lenocta and Xyfid. Our R&D expense for the first quarter 2008 is primarily
      composed of outside clinical research organization costs of $482,760, employee
      costs of $257,612 and outside regulatory and legal fees of $204,472, which
      have
      been allocated to each of our three pharmaceutical product candidates. To
      conserve funds, we will continue to complete our current ongoing Phase I and
      Phase II studies for VQD-002 and Lenocta, respectively, however we will not
      initiate any new clinical studies unless and until we receive additional
      funding. We expect R&D spending to increase over the remainder of the year
      as we continue our existing clinical development programs and incur costs
      related to license fees, manufacturing of our products, regulatory costs, and
      the hiring of additional people in the clinical development area.





General
      and administrative, or G&A, expenses for the three months ended March 31,
      2008 were $690,339 as compared to $913,651 during the three months ended March
      31, 2007. This decrease in G&A expenses for the three months ended March 31,
      2008 as compared to the three months ended March 31, 2007 was primarily due
      to
      having fewer employees which resulted in reduced employee and non-employee
      director stock option expense in accordance with SFAS 123R as a result of
      forfeitures, a reduction of bonus expenses over prior year, no recruitment
      expenses and no employment agency fees.





Interest
      expense, net of interest income for the three months ended March 31, 2008 was
      $1,411,548 as compared to interest income, net of interest expense for the
      three
      months ended March 31, 2007 of $25,684. Interest expense for the three months
      ended March 31, 2008 was primarily composed of interest expenses recorded upon
      the extinguishment of the Bridge Notes of $1,399,524 and dividends payable
      on
      mandatorily redeemable convertible preferred stock of $14,947, which was offset
      by interest income of $2,923.





Our
      loss
      from continuing operations for the three months ended March 31, 2008 was
      $3,080,981 as compared to $2,256,778 for the three months ended March 31, 2007.
      The increased loss from continuing operations for the three months ended March
      31, 2008 as compared to the three months ended March 31, 2007 was attributable
      primarily to interest expenses recorded upon the extinguishment of the Bridge
      Notes, offset by decreased R&D and G&A expenses. The decrease in R&D
      expenses were related to fees incurred during the three months ended March
      31,
      2007 in acquiring the worldwide license to certain patents for Xyfid. In
      addition, there was a reduction in clinical research costs, offset by increased
      labor costs and regulatory and legal fees related to our oncology drug
      candidates: Lenocta, VQD-002 and Xyfid. The decrease in G&A expenses were
      primarily due to having fewer employees which resulted in reduced employee
      and
      non-employee director stock option expense in accordance with SFAS 123R as
      a
      result of forfeitures and workforce reductions, a reduction of bonus expenses
      and lower recruitment and employment agency fees.


17





**Discontinued
      Operations:**





Our
      loss
      from discontinued operations for the three months ended March 31, 2008 and
      2007
      was $0 and $261,475, respectively. Their were no discontinued operations for
      the
      three months ended March 31, 2008 due to the sale of Chiral Quest to Chiral
      Quest Acquisition Corp. during the third quarter of 2007.





**Liquidity
      and Capital Resources:**





In
      August
      2004, we decided to focus 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 business plan, in October 2005, we acquired
      Greenwich Therapeutics, Inc., a privately-held New York-based biotechnology
      company that held exclusive rights to develop and commercialize two oncology
      drug candidates: Lenocta and VQD-002. The rights to these two oncology drug
      candidates 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 Lenocta and VQD-002. In March 2007, we acquired license rights to
      develop and commercialize Xyfid an adjunctive therapy for a common and serious
      side effect of cancer chemotherapy. Our rights to Xyfid are governed by a
      license agreement with Asymmetric Therapeutics, LLC and Onc Res, Inc., as
      assigned to us by Fiordland Pharmaceuticals, Inc., an entity affiliated with
      Dr.
      Rosenwald, who is a significant stockholder of our Company.





As
      a
      result of acquiring the license rights to Lenocta, VQD-002 and Xyfid, we
      immediately undertook funding their development, which has significantly
      increased our expected cash expenditures and will continue to increase our
      expected cash expenditures over the next 12 months and thereafter. The
      completion of development of Lenocta, VQD-002 and Xyfid, all of which are only
      in early stages of clinical development, is a very lengthy and expensive
      process. Until such development is complete and the FDA (or the comparable
      regulatory authorities of other countries) approves Lenocta, VQD-002, or Xyfid
      for sale, we will not be able to sell these products.





Since
      inception, we have incurred an accumulated deficit of $42,513,278 through March
      31, 2008. For the three months ended March 31, 2008, we had losses from
      continuing operations of $3,080,981, and used $1,060,445 in cash from continuing
      operating activities. As of March 31, 2008, we had a working capital deficit
      of
      $2,801,606 and cash and cash equivalents of $305,561. As a result, we have
      insufficient funds to cover our current obligations or future operating
      expenses. To conserve funds, we will continue to complete our current ongoing
      Phase I and Phase II studies for VQD-002 and Lenocta, respectively, however
      we
      will not initiate any new clinical studies unless and until we receive
      additional funding. We expect our operating losses to increase over the next
      several years, due to the expansion of our drug development business, and
      related costs associated with the clinical development programs of Lenocta,
      VQD-002 and Xyfid, in addition to costs related to license fees, manufacturing
      of our products, regulatory costs, and the hiring of additional people in the
      clinical development area. These matters raise substantial doubt about our
      ability to continue as a going concern.





We
      anticipate that our capital resources will be adequate to fund our operations
      into the third quarter of 2008. Additional financing will be required during
      the
      third quarter of 2008 in order to continue to fund continuing operations. The
      other most likely sources of additional financing include the private sale
      of
      our equity or debt securities. However, changes may occur that would consume
      available capital resources before that time. Our working capital requirements
      will depend upon numerous factors, which include, the progress of our drug
      development and clinical programs, including associated costs relating to
      milestone payments, maintenance and license fees, manufacturing costs, patent
      costs, regulatory approvals, and the hiring of additional
      employees.





Our
      net
      cash used in continuing operating activities for the three months ended March
      31, 2008 was $1,060,445. Our net cash used in continuing operating activities
      primarily resulted from a net loss of $3,080,981 offset by noncash items
      consisting of the impact of expensing employee and director stock options in
      accordance with SFAS 123R of $152,599 the impact of expensing scientific
      advisory board member consultants’ options and non-employee finder’s fee options
      related to the license acquisition of Xyfid in accordance with Emerging Issues
      Task Force (“EITF”) 96-18 for $12, amortization of the discount on our bridge
      note of $1,399,524, dividends payable on mandatorily redeemable convertible
      preferred stock of $14,947 and depreciation of $2,325. Other uses of cash in
      continuing operating activities include a decrease in prepaid clinical research
      organization costs of $97,696 attributed to our three oncology compounds’
development and accrued expenses of $222,455, which was attributed to clinical
      development costs, professional fees and compensation, offset by an increase
      in
      other assets of $8,911 and an increase in accounts payable of $762,369, as
      a
      result of conserving cash.





We
      did
      not use cash in continuing investing activities for the three months ended
      March
      31, 2008.





Our
      net
      cash provided by continuing financing activities for the three months ended
      March 31, 2008 was $671,450, which was attributed to the issuance of preferred
      stock issued to investors for $765,000, net of cash costs of $93,550 for
      placement agents’ commissions and other related costs associated with issuing
      the stock.


18


We
      currently have three full-time employees and two consultants. We anticipate
      hiring additional full-time employees in the medical and clinical functions
      pending available financial resources. We intend to and will continue to use
      senior advisors, consultants, clinical research organizations and third parties
      to perform certain aspects of our products’ development, manufacturing, clinical
      and preclinical development, and regulatory and quality assurance
      functions.





At
      our
      current and desired pace of clinical development of our three products,
      currently in Phase I/IIa clinical trials, over the next 12 months we expect
      to
      spend approximately $5.3 million on clinical trials and research and development
      (including milestone payments that we expect to be triggered under the license
      agreements relating to our product candidates, maintenance fees payments that
      we
      are obligated to pay to the institutions we licensed our two oncology compounds
      from, salaries and consulting fees, pre-clinical and laboratory studies),
      approximately $200,000 on facilities, rent and other facilities costs, and
      approximately $1.4 million on general corporate and working
      capital.





On
      June
      29, 2007 and July 3, 2007 we issued a series of convertible promissory notes
      resulting in aggregate gross proceeds of $3.7 million. We also issued to
      investors five-year warrants to purchase an aggregate of approximately 243,000
      shares of the Company’s common stock at an exercise price of $4.00 per share.
      Based upon the Black-Scholes option pricing model, the investor warrants are
      estimated to be valued at approximately $909,000. In connection with the
      offering, we engaged Paramount as one of our placements agents. Dr. Lindsay
      A.
      Rosenwald is the Chairman, CEO and sole stockholder of Paramount and a
      substantial stockholder of the Company. Stephen C. Rocamboli, a director of
      the
      Company, was employed by Paramount at the time of the Company’s engagement. In
      consideration for the placement agents’ services, we paid an aggregate of
      approximately $256,000 in commissions to the placement agents in connection
      with
      the offering, of which $119,700 was paid to Paramount. We also paid to placement
      agents approximately $24,000 as a non-accountable expense allowance. In
      addition, we issued placement agents five-year warrants to purchase an aggregate
      of approximately 120,000 shares of common stock, of which 45,000 shares of
      common stock were issued to Paramount, which are exercisable at a price of
      $4.20
      per share. Based upon the Black-Scholes option pricing model, the placement
      agents’ warrants are estimated to be valued at approximately
      $430,000.





On
      July
      16, 2007, we completed the sale of our discontinued operations Chiral Quest,
      Inc., and received $1.7 million in gross proceeds, of which we recognized
      $197,000 in accrued compensation costs related to a severance agreement and
      retention bonuses payable to certain key employees. Additionally, the purchaser
      assumed liabilities in the aggregate amount of approximately $807,000 pursuant
      to the purchase agreement.





On
      March
      14, 2008, we issued 765 shares of Series A Preferred stock at a price of $1,000
      per share resulting in aggregate gross proceeds of $765,000. Each share of
      Series A Preferred stock sold is convertible into shares of the Company's common
      stock at $0.60 per share, or approximately 1.275 million shares of common stock
      in the aggregate. We also issued to investors five-year warrants to purchase
      an
      aggregate of approximately 640,000 shares of our common stock at an exercise
      price of $1.00 per share. Based upon the Black-Scholes option pricing model,
      the
      investor warrants are estimated to be valued at approximately $701,000. In
      connection with the offering, we engaged Paramount as our placement agent.
      Dr.
      Lindsay A. Rosenwald is the Chairman, CEO and sole stockholder of Paramount
      and
      a substantial stockholder of the Company. Dr. Rosenwald participated in this
      financing, through a family investment partnership, of which he is the managing
      member. The family investment partnership purchased 500 shares of Series A
      Preferred stock and received warrants to purchase 416,700 shares of common
      stock. In consideration for the placement agent’s services, we paid an aggregate
      of approximately $54,000 in commissions to Paramount in connection with the
      offering. We also paid to Paramount $35,000 as a non-accountable expense
      allowance. In addition, we issued to Paramount five-year warrants to purchase
      an
      aggregate of approximately 127,500 shares of common stock, which are exercisable
      at a price of $0.80 per share. Based upon the Black-Scholes option pricing
      model, the warrants issued to Paramount are estimated to be valued at
      approximately $140,000. The Series A Preferred stock shall be entitled to an
      annual dividend equal to 6% of the applicable issuance price per annum, payable
      semi-annually in cash or shares of common stock, at the option of the Company.
      If the Company chooses to pay the dividend in shares of common stock, the price
      per share of common stock to be issued shall be equal to 90% of the average
      closing price of the common stock for the 20 trading days prior to the date
      that
      such dividend becomes payable. As a condition to the initial closing of the
      private placement, the majority of the holders of the June 29, 2007 and July
      3,
      2007 convertible promissory notes agreed to convert such notes, together with
      accrued interest, into approximately 3,910 shares of the Company’s
      newly-designated Series B Preferred stock. The Series B Preferred stock contains
      substantially the same economic terms as the previously outstanding senior
      convertible notes.


19


On
      April
      9, 2008, we issued 2,194.5 shares of Series A Preferred stock at a price of
      $1,000 per share resulting in aggregate gross proceeds of $2,195,000. Each
      share
      of Series A Preferred stock sold is convertible into shares of the Company's
      common stock at $0.60 per share, or approximately 3.66 million shares of common
      stock in the aggregate. In addition, we issued 505 shares of Series A Preferred
      stock to two investors that converted their Series B Preferred stock into Series
      A Preferred stock on a dollar-for-dollar basis. We also issued to investors
      five-year warrants to purchase an aggregate of approximately 1.83 million shares
      of our common stock at an exercise price of $1.00 per share. Based upon the
      Black-Scholes option pricing model, the investor warrants are estimated to
      be
      valued at approximately $182,800. In connection with the offering, we engaged
      Paramount as our placement agent. In consideration for the placement agent’s
      services, the Company paid an aggregate of approximately $153,000 in commissions
      to Paramount in connection with the offering. In addition, the Company issued
      to
      Paramount five-year warrants to purchase an aggregate of approximately 366,000
      shares of common stock, which are exercisable at a price of $0.80 per share.
      Based upon the Black-Scholes option pricing model, the warrants issued to
      Paramount are estimated to be valued at approximately $366,000. The Series
      A
      Preferred stock shall be entitled to an annual dividend equal to 6% of the
      applicable issuance price per annum, payable semi-annually in cash or shares
      of
      common stock, at the option of the Company. If the Company chooses to pay the
      dividend in shares of common stock, the price per share of common stock to
      be
      issued shall be equal to 90% of the average closing price of the common stock
      for the 20 trading days prior to the date that such dividend becomes payable.
      As
      a condition to the initial closing of the private placement, the majority of
      the
      holders of the June 29, 2007 and July 3, 2007 convertible promissory notes
      agreed to convert such notes, together with accrued interest, into approximately
      3,910 shares of the Company’s newly-designated Series B Preferred stock. The
      Series B Preferred stock contain substantially the same economic terms as the
      previously outstanding senior convertible notes.





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. 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.


20


**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





We
      have
      no material exposures relating to our debt, as our debt bears interest at fixed
      rates.





*Forward-looking
      Information*





An
      investment in our securities involves a high degree of risk. Prior to making
      an
      investment, prospective investors should carefully consider the following
      factors, among others, and seek professional advice. In addition, this Form
      10-Q
      contains certain “forward-looking statements” within the meaning of Section 27A
      of the Securities Act and Section 21E of the Exchange Act. Such forward-looking
      statements, which are often identified by words such as “believes”,
“anticipates”, “expects”, “estimates”, “should”, “may”, “will” and similar
      expressions, represent our expectations or beliefs concerning future events.
      Numerous assumptions, risks, and uncertainties could cause actual results to
      differ materially from the results discussed in the forward-looking statements.
      Prospective purchasers of our securities should carefully consider the
      information contained herein or in the documents incorporated herein by
      reference.





This
      Form
      10-Q contains certain estimates, predictions, projections and other
      forward-looking statements (within the meaning of Section 27A of the Securities
      Act of 1933 and Section 21E of the Securities Exchange Act of 1934) that involve
      various risks and uncertainties. While these forward-looking statements, and
      any
      assumptions upon which they are based, are made in good faith and reflect
      management’s current judgment regarding the direction of the business, actual
      results will almost always vary, sometimes materially, from any estimates,
      predictions, projections, or other future performance suggested
      herein .
      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 Lenocta, VQD-002 and Xyfid, 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;


·
            our
                ability to obtain additional
                financing;


·
            our
                ability to protect our proprietary
                technology.





Any
      forward-looking statement speaks only as of the date on which it is made. For
      further details and a discussion of these and other risks and uncertainties,
      investors and security holders are cautioned to review the VioQuest 2007 Annual
      Report on Form 10-KSB, including the Forward-Looking Statement section therein,
      and other subsequent filings with the U.S. Securities and Exchange Commission
      including Current Reports on Form 8-K. The Company undertakes no obligation
      to
      publicly release the result of any revisions to any such forward-looking
      statements that may be made to reflect events or circumstances after the date
      hereof or to reflect the occurrence of unanticipated events.





**Item
      4T. Controls and Procedures.**





Under
      the
      supervision and with the participation of our management, including the Chief
      Executive Officer and Chief Financial Officer, we have evaluated the
      effectiveness of our disclosure controls and procedures as required by Exchange
      Act Rule 13a-15(b) as of the end of the period covered by this report. Based
      on
      that evaluation, the Chief Executive Officer and Chief Financial Officer have
      concluded that these disclosure controls and procedures are
      effective.





*Report
      of Management On Internal Control Over Financial Reporting*





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting for the Company. Internal control over
      financial reporting is a process to provide reasonable assurance regarding
      the
      reliability of our financial reporting for external purposes in accordance
      with
      accounting principles generally accepted in the United States of America.
      Internal control over financial reporting includes maintaining records that
      in
      reasonable detail accurately and fairly reflect our transactions; providing
      reasonable assurance that transactions are recorded as necessary for preparation
      of our consolidated financial statements; providing reasonable assurance that
      receipts and expenditures of company assets are made in accordance with
      management authorization; and providing reasonable assurance that unauthorized
      acquisition, use or disposition of company assets that could have a material
      effect on our consolidated financial statements would be prevented or detected
      on a timely basis. Because of its inherent limitations, internal control over
      financial reporting is not intended to provide absolute assurance that a
      misstatement of our consolidated financial statements would be prevented or
      detected.





Management
      conducted an evaluation of the effectiveness of our internal control over
      financial reporting based on the framework in Internal Control—Integrated
      Framework issued by the Committee of Sponsoring Organizations of the Treadway
      Commission. Based on this evaluation, management concluded that the Company’s
      internal control over financial reporting was effective as of March 31, 2008.
      There were no changes in our internal control over financial reporting during
      the quarter ended March 31, 2008 that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.


21





**PART
      II – OTHER INFORMATION**





**Item
      1A. Risk Factors**





There
      have been no material changes to our risk factors and uncertainties during
      the
      first three months of 2008. For a discussion of the Risk Factors, refer to
      the
“Risk Factors” section of Item 1 in the Company's Annual Report on Form 10-KSB
      for the period ended December 31, 2007.


22





**Item
      6. Exhibits**





Exhibit No.
            
            Description3.1
            
            Certificate
                of Designation of Series A Convertible Preferred Stock and Series
                B
                Convertible Preferred Stock filed with the Delaware Secretary of
                State on
                March 14, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s
                Form 8-K filed on March 20, 2008)4.1
            
            Form
                of warrant issued to investors by VioQuest Pharmaceuticals, Inc.
                on March
                14, 20084.2
            
            Form
                of First Amendment to Senior Convertible Promissory Note issued by
                VioQuest Pharmaceuticals, Inc. on June 29, 2007 and July 3,
                200710.1
            
            Form
                of Subscription Agreement between VioQuest Pharmaceuticals and various
                investors accepted as of March 14, 200831.1
            
            Certification
                of Chief Executive Officer31.2
            
            Certification
                of Chief Financial Officer32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002





**SIGNATURES**





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





VIOQUEST
                PHARMACEUTICALS, INC.Date:
                May 13, 2008
            By:
            /s/
                Michael BeckerMichael
                Becker
              President
                & Chief Executive OfficerDate:
                May 13, 2008
            By:
            /s/
                Brian LenzBrian
                Lenz
              Chief
                Financial Officer


23


**INDEX
      TO EXHIBITS FILED WITH THIS REPORT**





Exhibit No.
            
            Description4.1
            
            Form
                of warrant issued to investors by VioQuest Pharmaceuticals, Inc.,
                on March
                14, 20084.2
            
            Form
                of First Amendment to Senior Convertible Promissory Note issued by
                VioQuest Pharmaceuticals, Inc. on June 29, 2007 and July 3,
                200710.1
            
            Form
                of Subscription Agreement between VioQuest Pharmaceuticals, Inc.,
                and
                various investors accepted as of March 14, 200831.1
            
            Certification
                of Chief Executive Officer31.1
            
            Certification
                of Chief Financial Officer32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002


24