SecProbe.io

CORRESP
1
filename1.htm

Unassociated Document

         VioQuest

             PHARMACEUTICALS,
          INC.

    United
      States Securities and Exchange Commission
      450
      Fifth Street, N.W.

      Washington,
      D.C. 20549

      Attn:
      Jim B. Rosenberg

      Senior
      Assistant Chief Accountant

       June 6, 2005

    Re:

      VioQuest
      Pharmaceuticals, Inc. (the “Company”)

      Form
      10-KSB for the year ended December 31, 2004

      File
      No. 000-16686

Dear Mr.
Rosenberg:

This
letter will respond on behalf of the Company to your comment letter dated April
29, 2005 (the "Comment Letter") with respect to the Company's Annual Report on
Form 10-KSB for year ended December 31, 2004 (the “Form 10-KSB”). To facilitate
your review, we have included in this letter your original comments (in bold)
followed by our responses, which have been numbered to correspond to your
letter. In addition, enclosed herewith is a draft of the Company’s amendment to
the Form 10-KSB, which the Company proposes to file upon the completion of your
review of the Form 10-KSB.

Item
6. Management’s Discussion and Analysis of Financial Condition and Results of
Operations or Plan of Operations

Results
of Operations - Years ended December 31, 2004 vs. 2003 pages
21-22

1. The
discussion of revenues seems to focus on the sources of the revenues and
provides very little insight as to the drivers that caused the significant
increases in product sales for example. Please revise this discussion to include
more robust disclosure about what caused this increase in sales. As applicable,
include a quantified discussion of the impact of sales volumes and prices. To
the extent that these amounts are affected by discounts and returns, include a
discussion of the impact these items had on sales.

Response: As
suggested, in the proposed draft amendment, the Company has expanded the
discussion of revenues to include the reasons for its increased sales in 2004,
which resulted primarily from its expansion of production capabilities in
addition to the increased number of customers doubling over the prior year. See
page 21 of the draft amended Form 10-KSB.

2. It
appears that there was a substantial change in the gross profit generated on the
sales. Please revise the discussion to expand on what caused the gross profit to
decrease so significantly in the current period.

  Response:
In
accordance with this comment, the Company has expanded the discussion to include
the reasons for the decrease in the gross profit on 2004 sales generated, which
resulted primarily from a greater amount of revenue being attributed to sales of
the Company’s products and services in 2004 compared to 2003, where a greater
portion of revenue was derived from amortization of option fee license income.
See page 21 of the draft amended Form 10-KSB.

VioQuest
Pharmaceuticals, Inc.

Princeton
Corporate Plaza, Suite E

7
Deer Park Drive, Monmouth Junction, NJ 08852 USA

Telephone:
+1 732 274 0399 Fax: +1 732 274 0402

1

3. The
discussion of research and development costs states that a significant driver in
the increase was related to “Manufacturing commercial scale up.” Please explain
to us what exactly this means. Also include a discussion of why these costs are
appropriate to be included in research and development.

Response: The use
of the term manufacturing commercial scale up refers to the Company’s increased
production capabilities resulting in 2004. Prior to 2004, the Company was only
capable of producing its proprietary ligands in quantities useful for only
academic or research purposes, but could not produce product in quantities
sufficient for use in the commercial production of a drug or other fine chemical
product. In 2004, however, the Company expanded (or “scaled up”) its production
capabilities to be able to produce its ligands in commercial quantities.

Research
and Development costs include Company’s manufacturing commercial scale up costs
comprised of the purchases of additional laboratory materials and supplies such
as chemicals, solvents, glassware used as part of the facility’s expansions
during 2004. Management believes these Research and Development costs are
appropriately classified to R&D to further develop and enhance our
manufacturing processes, as well as transitioning our manufacturing capabilities
from an academic milligram and gram size product level, to a commercial kilogram
product level.

4. We
note in the statement of shareholders’ equity that the proceeds of the private
placement are shown net of costs. You state here that one source of additional
selling , general and administrative expenses was additional costs associated
with this private placement. Please explain to us why the costs referenced here
were not included as an offset to the proceeds from the offering. Also whenever
the company references factors like this, provide a quantification of the impact
that each factor had. This applies to all portions of management’s discussion
and analysis.

Response: The
Company has reconsidered the referenced discussion and has determined that it is
appropriate to remove the comment that the increase in SG&A expenses was due
in part by the legal and accounting fees associated with the private placement
of our common stock in February 2004. After further consideration, the Company
believes that such expenses were immaterial, as the Company incurred
approximately $49,000 of legal fees in connection with the private placement.
For fiscal 2004, the Company’s net loss was $4,024,000.

Liquidity
and Capital Resources, pages 23-24

5. It
appears that the current discussion related to cash flows from operations
reiterates the statement of cash flows, as opposed to discussion activities
performed by the company that generate and use cash. Please revise this
discussion to include a more robust analysis of the activities that actually
generate cash inflows and outflows form operations as well as the more likely
than not impact these items will have on known trends and uncertainties, in
particular the cash outflows from operations. For instance, it appears that a
large amount of deferred revenue was received during the year, generating a
significant inflow of cash. Include a discussion of that fact as well as any
known trends related to this receipt. Similarly provide a more detailed
explanation of the specific uses of cash as evidenced by the loss generated from
operations.

2

Response: The
Company has revised its discussion of cash flows, as requested. See page 24.

6. Please
note that Critical Accounting Policies should supplement, not duplicate, the
description of accounting policies that are disclosed in the notes to the
financial statements. Please revise your critical accounting policies which we
believe should be described as critical accounting “estimates” to disclose the
uncertainties involved in applying each principle and discuss the variability
that is reasonably likely to result from the application. For each policy
identified, ensure that management has analyzed and disclosed to the extent
possible the following factors:

Response: The
Company has revised its discussion of critical accounting policies and
estimates, as requested. See pages 24 - 25.

Financial
Statements

Consolidated
Balance Sheets, page F-3

7. We
note that you disclose the allowance for doubtful accounts for 2003 on the
balance sheet. Please revise to include the allowance for doubtful accounts for
2004 on the face of the balance sheet or in a note thereto. Also consider the
need to include a Schedule II reconciliation of this
amount.

Response: For the
year ended December 31, 2004, the Company’s allowance for doubtful accounts
balance was zero and deemed to be accurately stated as all accounts receivable
balances were collected within the Company’s normal terms. For all future
filings, the Company confirms that it will include the allowance for doubtful
account balances for each year audited on the face of the Balance Sheet. Because
the Company is an SB issuer and is, therefore, not subject to schedules in
Schedule II included in Article 12 of Regulation SX, it has determined not to
include such schedule.

Consolidated
Statements of Operations, page F-4

8. The
caption “Compensation” is not appropriate because it does not identify the
nature of the expense, i.e. within “Research and development” or “Selling,
general and administrative.” We note that “Compensation” may relate to each of
these expense categories. Please revise this statement to properly allocate the
amounts to the appropriate operating expense captions. Also revise the Selected
and Summary Consolidated Financial Data and the MD&A,
accordingly.

Response: For all
future filings, the Company confirms that it will exclude the caption
Compensation, allocating those expenses to Research and Development and Selling,
General and Administrative. Research and development costs for the fiscal years
ended December 31, 2004 and 2003 would have been $1,526,561 and $639,426
respectively. Selling, general and administrative costs for the fiscal years
ended December 31, 2004 and 2003 would have been $2,377,021 and $1,415,182
respectively.

Note 1
Summary of Significant Accounting Policies and Nature of
Operations

3

General

9. Elsewhere
in the filing you disclose that revenue consists of option fee income, drug
sales, and other services. Please tell us why disclosure of the revenue for each
of your services and/or products is not required by paragraph 37 of FAS
131.

Response: The
Company’s revenue policies and categorization of revenue generated have been
incorporated into the MD&A section. For all future filings, the Company
confirms that it will incorporate the percentage and classification of each
revenue category in the Notes to the financial statements.

(A)
Nature of Operations and Liquidity, pages F-7, F-8

10. The
disclosure related to the company’s ability to continue as a going concern does
not appear to adequately address management’s plan to remove the threat the
continuation of the business. Please revise this discussion to include
management’s plan related to this issue. Refer to FRC
607.02.

Response: Management’s
plan to remove the threat to the continuation of the business as a going concern
is addressed by indicating that the Company will likely require additional
financing, which includes private placements of the Company’s equity or debt
securities or bridge loans to the Company from third party lenders as stated in
Note 1, unless the Company can significantly increase its revenues.

Note 5
Rights to Intellectual Property, page F-14

11. We
note from the balance sheet that the company capitalized additional amounts
related to this intellectual property. It is unclear what resulted in these
additional costs, i.e. whether the company acquired additional rights from a
third party. Please explain to us and disclose more fully what resulted in these
additional costs along with a discussion of the accounting literature that
includes references to the specific paragraphs upon which the company relied
that allows this treatment.

Response: Management
has determined that the future economic benefits derived from the capitalized
patent costs will exceed their carrying value. The capitalized amounts of
intellectual property are comprised of domestic and international patent filing
fees, patent enhancement fees, in addition to attorney costs associated to the
defense of the Company’s patents. In future filings, the Company confirms that
it will include the response as stated above related to the capitalization and
increase of patent costs.

Upon
review of this response letter, if you have any additional questions or comments
concerning the Company or the Form 10-KSB, or if you wish to discuss any the
responses, please do not hesitate to contact the undersigned at (732) 274-0399,
ext. 17.

Yours
truly,

Brian
Lenz, CPA

Chief
Financial Officer

4