SB-2/A: Optional form for registration of securities to be sold to the public by small business issuers
Published on December 1, 2006
AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1,
2006
REGISTRATION
NO. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
NO. 1
TO
FORM SB-2
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SRKP
7, INC.
(Exact
name of small business issuer in its charter)
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DELAWARE
(State
or other jurisdiction of incorporation or organization)
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6770
(Primary
Standard Industrial Classification Code Number)
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20-2903526
(I.R.S.
employer identification number)
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248
Route 25A, No. 2
East
Setauket, New York 11733
(631)
942-7959
(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive
offices)
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JOHN S.
KOVACH
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Chairman
of the Board and Chief Executive Officer
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248
Route 25A, No. 2
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East
Setauket, New York 11733
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(631)
942-7959
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(Name,
address, including zip code, and telephone number, including area
code, of
agent for service)
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COPIES
TO:
DAVID
FICKSMAN, ESQ.
TROY
& GOULD, P.C.
1801
CENTURY PARK EAST. SUITE 1600
LOS
ANGELES, CA. 90067
(310)
553-4441
APPROXIMATE
DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM
TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box. o
If
this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: o
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CALCULATION
OF REGISTRATION
FEE
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|||||||||||||
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Title
Of Each Class Of
Securities
To Be Registered(1)
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Amount
To
Be
Registered
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Proposed
Maximum
Offering
Price
Per
Unit(1)
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Proposed
Maximum
Aggregate
Offering
Price
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Amount
Of
Registration
Fee
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|||||||||
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Common
Stock, $0.0001
par value
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6,135,581
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$
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0.33
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$
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2,024,741
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$
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216.65
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||||||
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Estimated
solely for the purpose of calculating the registration fee in accordance
with Rule 457 of the Securities Act of 1933, as amended, based upon a
per share amount of $0.33, the negotiated price per share in the
private
sale by which the selling stockholders received the common stock
identified herein to be registered. There is currently no trading
market
for the Registrant’s common stock.
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THE
COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
PROSPECTUS
SRKP
7, INC.
6,135,581
Shares of Common Stock, $0.0001 Par Value
This
prospectus relates to the offer of up to 6,135,581 shares of the common stock
of
SRKP 7, Inc. by certain selling stockholders. The shares may be sold at
fixed prices, or prevailing market prices or privately negotiated prices
after
the shares are quoted on the OTC Bulletin.
There
is
not currently, and there has never been, any market for any of our securities.
Our securities are not eligible for trading on any national securities exchange,
the Nasdaq or other over-the-counter markets, including the OTC Bulletin
Board.
INVESTMENT
IN THE
COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES A HIGH DEGREE OF RISK. YOU
MAY
LOSE YOUR ENTIRE INVESTMENT. CONSIDER CAREFULLY THE “RISK FACTORS” BEGINNING ON
PAGE 5 OF THIS PROSPECTUS BEFORE INVESTING.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
accurate or complete. It is illegal for anyone to tell you otherwise.
The
date
of this prospectus is December 1, 2006.
You
should rely only on the information contained in this prospectus. We have not,
and the selling stockholders have not, authorized anyone to provide you with
additional or different information. If anyone provides you with different
information, you should not rely on it. We are not, and the selling stockholders
are not, making an offer to sell these securities in any jurisdiction where
the
offer or sale is not permitted. You should assume that the information contained
in this prospectus is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
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F-1
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This
summary does not contain all of the information that you should consider
before
investing in our common stock. You should read the entire prospectus carefully,
including the more detailed information regarding our company, the risks
of
purchasing our common stock discussed under “risk factors,” and our financial
statements and the accompanying notes.
Company
Overview
We
were
organized as a blank check company formed for the purpose of effecting a
business combination with an operating business. On June 30, 2006, pursuant
to a
Share Exchange Agreement dated as of June 8, 2006 among us, Dr. John S. Kovach
and Lixte Biotechnology, Inc., we issued 19,021,786 shares of our common stock
in exchange for all of the issued and outstanding shares of Lixte. As a result
of this transaction, Lixte is now our wholly owned subsidiary, though from
an
historical perspective it was deemed to have been the acquirer in the reverse
merger and the survivor of the reorganization.
Lixte
was
created to capitalize on opportunities for the company to develop low cost,
specific, and sensitive tests for the early detection of cancers to better
estimate prognosis, to monitor treatment response, and to reveal targets for
development of more effective treatments.
Lixte
is
concentrating on discovering biomarkers for common cancers for which better
diagnostic and therapeutic measures are needed. For each of these diseases
a
biomarker that would enable identification of the presence of cancer at a stage
curable by surgery could possibly save thousands of lives annually. In addition,
biomarkers specific to these diseases may also provide clues as to processes
(biological pathways) that characterize specific cancer types and that may
be
vulnerable to drug treatment targeted to the activity of the
biomarker.
Lixte’s
initial focus is on developing new treatments for the most common and most
aggressive type of primary brain cancer, gliobastoma multiforme (which we
refer
to as GBM). Lixte entered into a Cooperative Research and Development Agreement
(which we refer to as the CRADA) with the National Institute of Neurological
Diseases and Stroke (which we refer to as NINDS) of the National Institutes
of
Health (which we refer to as NIH) to identify and evaluate drugs that target
a
specific biochemical pathway for GBM cell differentiation. The CRADA also
covers
research to determine whether expression of a component of this pathway
correlates with prognosis in glioma patients.
The
lead
scientist at NINDS collaborating with Lixte under the CRADA is
Dr. Zhengping Zhuang. Dr. Zhuang is internationally recognized for his
research in molecular pathology. Dr. Zhuang has four issued and two pending
patents related to molecular pathology of human cancers. He has recently
discovered a biomarker of relevance to the growth of GBMs that Lixte believes
can be used as a tool for identifying drugs that affect the growth of GBM cells.
Under the CRADA, Lixte will support two persons at NIH to work under the
direction of Dr. Zhuang. The goal is to identify drugs that inhibit GBM
cell growth and to determine if the identified biomarker may be useful for
estimation of prognosis. Lixte’s annual contribution to the collaborative
research done by Lixte and NIH is $200,000 for each of two years for two
research assistants expected to be at the post-doctoral level and supplies.
Lixte
sponsored the development and submission of a provisional patent application
filed February 6, 2006 naming as co-inventors Dr. Zhuang, several
other NIH investigators, and Dr. Kovach. When the final patent application
is filed in early 2007, the named inventors will assign their rights in the
inventions to their employers, meaning that any patent (or patents) arising
out
of the application will be jointly owned by the U.S. Government and Lixte.
Lixte
is currently in negotiations with the NIH to obtain the exclusive commercial
rights to the inventions covered by the Provisional Patent Application. As
its
research progresses, Lixte expects to file further patent applications relating
to the categories of products described below. Patent applications arising
out
of research pursuant to the CRADA are likely to be jointly owned by Lixte
and
the U.S. Government. In such cases of joint ownership, Lixte
will
likely
seek to obtain the exclusive commercial rights to those inventions, the terms
of
which are presently unknown.
Lixte’s
products will derive directly from its intellectual property consisting of
its
Provisional Patent Application and other patents it anticipates will arise
out
of its research activities. Those patents are expected to cover biomarkers
uniquely associated with specific types of cancer, patents on methods to
identify drugs that inhibit growth of specific tumor types and combinations
of
drugs and potential therapeutic agents for the treatment of specific cancers.
We
face
several potential challenges in our drive for commercial success, including
raising sufficient capital to fund our business plan, achieving commercially
applicable results of our research program, continued access to tissue and
blood
samples from cancer patients, competition from established, well funded
companies with competitive technologies, and future competition from companies
that are developing competitive technologies, some of whom are larger companies
with greater capital resources than us.
Private
Placement
We
have
filed this registration statement because we sold in private placements on
June 30, 2006 and July 27, 2006, an aggregate of 3,555,220 shares of common
stock to accredited investors at a per share price of $0.333, resulting in
aggregate gross proceeds of $1,118,889. We paid to WestPark Capital, Inc.
as
placement agent, a commission of 10% and a nonaccountable fee of 4% on the
gross
proceeds of the private placement and issued two five year warrants to purchase
common stock for a total of 12% of the number of shares sold in the private
placement exercisable at $0.333 per share.
We
have
also agreed to include the shares of common stock owned by certain of our
original stockholders in the registration statement.
The
Offering
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Securities
Offered by certain of our original stockholders
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Up
to 2,580,359 shares of our common stock.
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Securities
Offered by investors in the private placement
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Up
to 3,555,220 shares of our common stock that are currently
outstanding.
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Use
of Proceeds
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We
will not receive any proceeds from the sale of shares by the selling
stockholders in this offering.
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Risk
Factors
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An
investment in our common stock involves a high degree of risk and
could
result in a loss of your entire
investment.
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Executive
Offices
Our
executive offices are located at 248 Route 25A, No. 2, East Setauket, New
York 11733. Our telephone number is (631) 942-7959.
Summary
Historical Financial Information
The
financial statements presented reflect the condensed and consolidated financial
results of our company and Lixte. Our equity survives the reorganization.
All
costs associated with the reverse merger were expensed as incurred. Information
with respect to shares is based on a stock dividend of 11% to stockholders
of
record on May 18, 2006.
You
should read the following selected financial data presented below together
with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our financial statements and related notes included in this
prospectus.
SRKP
7, INC. AND SUBSIDIARY
(a
development stage company)
CONDENSED
CONSOLIDATED BALANCE SHEETS
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December 31,
2005
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September 30,
2006
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|||||
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(Unaudited)
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|||||
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ASSETS
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|||||
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Current
assets:
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|||||
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Cash
and cash equivalents
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$ |
4,946
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$ |
723,737
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|||
| Advances on research and development contract services, net |
—
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100,000
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|||||
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Prepaid
insurance
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—
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27,552
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|||||
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Total
current assets
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4,946
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851,289
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|||||
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Office
equipment,
net of accumulated depreciation of $113 at December 31, 2005
and
$457 at September 30, 2006
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1,026
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920
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Total
assets
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$
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5,972
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$
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852,209
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LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
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|||||||
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Current
liabilities:
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|||||||
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Accounts
payable and accrued expenses
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$
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14,650
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$
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17,229
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Due
to stockholder
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5,946
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92,717
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|||||
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Total
current liabilities
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20,596
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109,946
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|||||
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Commitments
and contingencies
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|||||||
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Stockholders’
equity (deficiency):
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|||||||
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Preferred
stock, $0.0001 par value;
authorized
- 10,000,000 shares; issued - none
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—
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—
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|||||
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Common
stock, $0.0001 par value;
authorized
- 100,000,000 shares; issued and outstanding - 19,021,786 shares
at
December 31, 2005 and 26,582,183 shares at September 30,
2006
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1,902
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2,658
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Additional
paid-in capital
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(402
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)
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1,100,689
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Deficit
accumulated during the development stage
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(16,124
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)
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(361,084
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)
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|||
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Total
stockholders’ equity (deficiency)
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(14,624
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)
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742,263
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||||
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Total
liabilities and stockholders’ equity (deficiency)
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$
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5,972
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$
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852,209
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|||
SRKP
7, INC. AND SUBSIDIARY
(a
development stage company)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
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Three
Months
Ended
September 30,
2006
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Nine
Months
Ended
September 30,
2006
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Period from
August 9,
2005
(Inception)
to
September 30,
2005
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Period from
August 9,
2005
(Inception)
to
September 30,
2006
(Cumulative)
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||||||||||
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Revenues
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$
|
—
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$
|
—
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$
|
—
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$
|
—
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|||||
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|
|||||||||||||
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Costs
and expenses:
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|||||||||||||
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General
and administrative (including
stock-based
compensation to director
of
$8,917 and $88,483 during the
three
months and nine months ended
September
30, 2006, respectively)
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65,251
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201,104
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333
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217,115
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|||||||||
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Depreciation
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115
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344
|
—
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457
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|||||||||
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Research
and development costs
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50,100
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100,100
|
—
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100,100
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|||||||||
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Reverse
merger costs
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—
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50,000
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—
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50,000
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|||||||||
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Interest
income
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(6,588
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)
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(6,588
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)
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—
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(6,588
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)
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||||||
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Total
costs and expenses
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108,878
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344,960
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333
|
361,084
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|||||||||
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Net
loss
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$
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(108,878
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)
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$
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(344,960
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)
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$
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(333
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)
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$
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(361,084
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)
|
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Net
loss per common share -
basic
and diluted
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$
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(0.00
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)
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$
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(0.02
|
)
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$
|
(0.00
|
)
|
||||
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Weighted
average number of common
shares
outstanding -
basic
and diluted
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26,152,469
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21,458,613
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19,021,786
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-4-
Please
consider the following risk factors together with the other information
presented in this prospectus, including the financial statements and the notes
thereto, before investing in our common stock. The trading price of common
stock
could decline due to any of the following risks, and you might lose all or
part
of your investment.
Any
investment in our common stock involves a high degree of risk. The following
risk factors relating to us should be carefully considered.
RISKS
RELATED TO BUSINESS
We
are engaged in early stage research and as such may not be successful in our
efforts to develop a portfolio of commercially viable
products.
A
key
element of our strategy is to discover, develop and commercialize a portfolio
of
new drugs and diagnostic tests. We are seeking to do so through our internal
research programs. A significant portion of the research that we are conducting
involves new and unproven technologies. Research programs to identify new
disease targets and product candidates require substantial technical, financial
and human resources whether or not any candidates or technologies are ultimately
identified. Our research programs may initially show promise in identifying
potential product candidates, yet fail to yield product candidates for clinical
development for any of the following reasons:
|
·
|
the
research methodology used may not be successful in identifying potential
product candidates;
|
|
·
|
product
candidates for diagnostic tests may on further study be shown to
not
obtain an acceptable level of accuracy;
or
|
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·
|
product
candidates for drugs may on further study be shown to have harmful
side
effects or other characteristics that indicate they are unlikely
to be
effective drugs.
|
Although
we have identified one potential product candidate in the area of brain tumors,
the work needed to demonstrate its commercial viability is at a very early
stage. The follow-up research needed to demonstrate the viability of the product
is costly and time-consuming and may reveal that the product does not function
as expected or that it is otherwise not commercially viable.
If
we are
unable to discover suitable potential product candidates, develop additional
delivery technologies through internal research programs or in-license suitable
products or delivery technologies on acceptable business terms, our business
prospects will suffer.
We
do not expect to obtain any revenues for several years and there is no assurance
that we will ever generate revenue or be profitable. If we do not generate
revenues and achieve profitability, we will be forced to cease or substantially
curtail our operations and you may lose your entire investment.
Because
we are currently engaged in research at a very early stage, significant time
may
be required to develop any product or intellectual property capable of
generating revenues. As such, our business is unlikely to generate any revenue
in the next several years and may never do so. Even if we are able to generate
revenues in the future through licensing our technologies or through product
sales, there is no assurance that our revenues will exceed our expenses. Should
we fail to achieve profitability, you may lose your entire investment.
We
will
need to raise additional funds in the future and these funds may not be
available on acceptable terms or at all.
The
fund
we raised in the private placement will not be sufficient to fully develop
and
commercialize any products that may arise from our research. We will also need
to raise additional funds in order to satisfy our future liquidity requirements.
Most immediately, in addition to the $1.118 million from the Private Placement,
we expect to require up to $2.3 million in the near term to enable us to
obtain a wet lab to further advance our research projects. Additionally, the
amount and timing of future cash requirements will depend on market acceptance
of our products, if any, and the resources we devote to developing and
supporting our products. We will need to fund these cash requirements from
either one or a combination of additional financings, mergers or acquisitions,
or via the sale or license of certain of our assets.
Current
market conditions present uncertainty as to
our
ability to secure additional funds, as well as our ability
to reach
profitability. There can be no assurances that
we
will be able to secure additional financing, or obtain favorable terms on such
financing if it is available,
or as to
our ability to achieve positive cash flow from operations. Continued negative
cash flows and lack of liquidity
create significant uncertainty about our ability to fully implement our
operating plan and we may have
to
reduce the scope of our planned operations. If cash and cash equivalents are
insufficient to satisfy our liquidity requirements, we would be required to
scale back or discontinue our product development program, or obtain funds
if
available through strategic alliances that may require us to relinquish rights
to certain of our technologies or discontinue our operations.
Our
auditors have included a going concern assumption in
their
opinion.
Our
auditors opinion regarding our financial statements include concerns about
our
ability
to continue as a going concern in view of the fact that we are in the
development stage and
have
not commenced operations. All
activity through September 30, 2006 related to our formation, capital raising
efforts and initial research and development activities. As such, we have
yet to
generate any cash flows from operations, and are essentially dependent
on debt
and equity funding from both related and unrelated parties to finance our
operations. Prior to June 30 2006, cash requirements were funded by advances
from Lixte’s founder. On June 30, 2006, we completed an initial closing of a
private placement, selling 1,973,869 shares of common stock at a price
of $0.333
per share and receiving net proceeds of $522,939. On July 27, 2006, we
completed
a second closing of a private placement, selling 1,581,351 shares of common
stock at a price of $0.333 per share and receiving net proceeds of $427,925.
Because
we are currently engaged in research at a very early stage, it will likely
take
a significant amount of time to develop any product or intellectual property
capable of generating revenues. As such, our business is unlikely to
generate
any revenue in the next several years and may never do so. Even if we
are able
to generate revenues in the future through licensing our technologies
or through
product sales, there can be no assurance that such revenues will exceed
our
expenses.
Based
on
the proceeds received from the private placement, we may not have sufficient
resources to completely fund our planned operations for the next twelve
months.
We do not have sufficient resources to fully develop and commercialize
any
products that may arise from our research. Accordingly, we will need
to raise
additional funds in order to satisfy our future working capital requirements.
In
the short-term, in addition to the net proceeds from the private placement,
we
estimate that it will approximately require additional funding of approximately
$2,300,000. Additionally, the amount and timing of future cash requirements
will
depend on market acceptance of our products, if any, and the resources
that we
devote to developing and supporting our products. We will need to fund
these
cash requirements from either one or a combination of additional financings,
mergers or acquisitions, or via the sale or license of certain of our
assets.
Current
market conditions present uncertainty as to our ability to secure additional
funds, as well as our ability to reach profitability. There can be no
assurances
that we will be able to secure additional financing, or obtain favorable
terms
on such financing if it is available, or as to our ability to reach
profitability. There can be no assurances that we will be able to secure
additional financing, or obtain favorable terms on such financing if
it is
available, or as to our ability to achieve positive cash flow from operations.
Continued negative cash flows and lack of liquidity create significant
uncertainty about our ability to fully implement our operating plan and
we may
have to reduce the scope of our planned operations. If cash and cash
equivalents
are insufficient to satisfy our liquidity requirements, we would be required
to
scale back or discontinue our product development program, or obtain
funds if
available through strategic alliances that may require us to relinquish
rights
to certain of our technologies or discontinue our operations.
If
we are unable to secure licenses to technologies or materials vital to our
business, or if the rights to technologies that we have licensed terminate,
our
commercialization efforts could be delayed or fail.
In
February 2006, a provisional patent application was filed covering certain
methods and classes of molecules that we expect to be the foundation of our
product development and commercialization efforts with respect to human brain
tumors that are subject to the CRADA. Any patents resulting from that
application are likely to be jointly owned by us and the U.S. Government. We
are
currently in negotiations with the government to obtain exclusive
commercialization rights with respect to those patents and expect to execute
an
agreement shortly, the terms of which are presently unknown. However, should
we
be unable to reach such an agreement, or should we be unable to reach such
an
agreement in the future pertaining to other technologies owned by the government
or third parties, this could harm our businesses. Additionally, if those
licenses terminate and we are unable to renew them, or must renew them only
on
unfavorable terms, such events could require us to cease providing products
or
services using such licensed technology and, therefore, would likely result
in
loss of revenue for our business.
Additionally,
our business depends on obtaining well-characterized blood, tissue and other
samples from patients to enable us to locate biomarkers. To that end, we intend
to collaborate with researchers at the Institute of Pathology at the University
of Regensburg in Germany, who will collect samples of brain, stomach, breast,
prostate, colon, ovarian, bladder, and kidney cancers and transmit them to
us.
We have not yet executed an agreement committing the researchers to provide
us
with these materials, however, though we expect to execute such an agreement
shortly. Should negotiations on such an agreement break down, however, or should
future circumstances cause our arrangement with those researchers to terminate,
we will be forced to find other sources for those materials, and this may not
be
possible or may entail a significantly greater expense.
If
we were to materially breach our present collaboration agreement or any future
license or collaboration agreements, we could lose our ability to commercialize
the related technologies, and our business could be materially and adversely
affected.
We
are
party to a research collaboration agreement and intend to enter into
intellectual property licenses and agreements, all of which will be integral
to
our business. These licenses and agreements impose various research,
development, commercialization, sublicensing, royalty, indemnification,
insurance and other
obligations
on us. If we or our collaborators fail to perform under these agreements or
otherwise breach obligations imposed by them, we could lose intellectual
property rights that are important to our business.
We
may not be successful in establishing additional strategic collaborations,
which
could adversely affect our ability to develop and commercialize
products.
In
the
future, we may seek opportunities to establish new collaborations, joint
ventures and strategic collaborations for the development and commercialization
of products we discover. We face significant competition in seeking appropriate
collaborators and the negotiation process is time-consuming and complex. We
may
not be successful in our efforts to establish additional strategic
collaborations or other alternative arrangements. Even if we are successful
in
our efforts to establish a collaboration or agreement, the terms that we
establish may not be favorable to us. Finally, such strategic alliances or
other
arrangements may not result in successful products and associated
revenue.
The
life sciences industry is highly competitive and subject to rapid technological
change.
The
life
sciences industry is highly competitive and subject to rapid and profound
technological change. Our present and potential competitors include major
pharmaceutical companies, as well as specialized biotechnology and life sciences
firms in the United States and in other countries. Most of these companies
have
considerably greater financial, technical and marketing resources than we do.
Additional mergers and acquisitions in the pharmaceutical and biotechnology
industries may result in even more resources being concentrated in our
competitors. Our existing or prospective competitors may develop processes
or
products that are more effective than ours or be more effective at implementing
their technologies to develop commercial products faster. Our competitors may
succeed in obtaining patent protection and/or receiving regulatory approval
for
commercializing products before us. Developments by our competitors may render
our product candidates obsolete or non-competitive.
We
also
experience competition from universities and other research institutions, and
we
are likely to compete with others in acquiring technology from those sources.
There can be no assurance that others will not develop technologies with
significant advantages over those that we are seeking to develop. Any such
development could harm our business.
We
may be unable to compete successfully with our
competitors.
We
face
competition from other companies seeking to identify and commercialize cancer
biomarkers. We also compete with universities and other research institutions
engaged in research in these areas. Many of our competitors have greater
technical and financial resources than we do.
Our
ability to compete successfully is based on numerous factors,
including:
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the
cost-effectiveness of any product we ultimately commercialize relative
to
competing products;
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the
ease of use and ready availability of any product we bring to
market;
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the
accuracy of a diagnostic test designed by us in detecting cancers,
including overcoming the propensity for “false positive” results;
and
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the
relative speed with which we are able to bring any product resulting
from
our research to market in our target
markets.
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If
we are
unable to distinguish our products from competing products, or if competing
products reach the market first, we may be unable to compete successfully with
current or future competitors. This would cause our revenues to decline and
affect our ability to achieve profitability.
We
depend on certain key scientific personnel for our success who do not work
full
time for us. The loss of any such personnel could adversely affect our business,
financial condition and results of operations.
Our
success depends on the continued availability and contributions of our Chief
Executive Officer and founder, Dr. John S. Kovach, as well as the
continued availability and contributions of Dr. Zhengping Zhuang and other
collaborators at the NIH. In particular, Dr. Kovach is 70 years old,
and, because of his arrangement with the State University of New York, does
not
devote his full time to us although Dr. Kovach generally devotes a minimum
of
twenty hours a week to our business. The loss of services of any of these
persons could delay or reduce our product development and commercialization
efforts. Furthermore, recruiting and retaining qualified scientific personnel
to
perform future research and development work will be critical to our success.
The loss of members of our scientific personnel, or our inability to attract
or
retain other qualified personnel or advisors, could significant weaken our
management, harm our ability to compete effectively and harm our
business.\
Our
key
personnel are involved in
other
business activities and
may
face a conflict in selecting between their other business interests
and our business.
Dr.
John
Kovach, our Chief Executive Officer, also is Chair of the Department of
Preventive
Medicine at Stony Brook University. Dr. Zhengping Zhuang, a consultant
to us, is
employed
at the NIH. They may also become involved in the future with other business
opportunities, which may become available. Accordingly, our key personnel
may
face a conflict in selecting between us and their other business interests.
We
have not formulated a policy for the
resolution of such conflicts.
We
expect to rely heavily on third parties for the conduct of clinical trials
of
our product candidates. If these clinical trials are not successful, or if
we or
our collaborators are not able to obtain the necessary regulatory approvals,
we
will not be able to commercialize our product
candidates.
In
order
to obtain regulatory approval for the commercial sale of our product candidates,
we and our collaborators will be required to complete extensive preclinical
studies as well as clinical trials in humans to demonstrate to the FDA and
foreign regulatory authorities that our product candidates are safe and
effective.
Dr. Kovach
is experienced in the design and conduct of early clinical cancer trials,
having
been the lead investigator for a National Cancer Institute Phase I contract
for
ten years at the Mayo Clinic, Rochester, MN. Lixte, however, has no experience
in conducting clinical trials and expects to rely heavily on collaborative
partners and contract research organizations for their performance and
management of clinical trials of our product candidates.
Clinical
development, including preclinical testing, is a long, expensive and uncertain
process. Prior
to
conducting preclinical studies and clinical trials in humans, we anticipate
that
the following
steps will be taken: Identification of lead compounds in
vitro studies,
followed by documentation
of activity in an animal model of a particular disease entity, and determination
of toxicity
of the new therapy(s) in an animal system usually consisting of the mouse
and
often the dog.
For
new diagnostic tests, pre-clinical studies involve demonstration of recognition
of specific
endpoints associated with the presence or progression of disease in a manner
that suggest
relevance to clinical diagnosis and/or assessment of prognosis. It is expected
that for us to
carry
its new treatments to clinical trials-an agreement will be negotiated with
(1)
NIH to conduct
the trial as part of a new CRADA or (2) a pharmaceutical company, most probably
in conjunction with NIH as co-inventor of the new therapies.Accordingly,
preclinical testing and clinical trials, if any, of our product candidates
under
development may not be successful. We and our collaborators could experience
delays in preclinical or clinical trials of any of our product candidates,
obtain unfavorable results in a development program, or fail to obtain
regulatory approval for the commercialization of a product. Preclinical studies
or clinical trials may produce negative, inconsistent or inconclusive results,
and we or our collaborators may decide, or regulators may require us, to
conduct
additional preclinical studies or clinical trials. The results from early
clinical trials may not be statistically significant or predictive of results
that will be obtained from expanded, advanced clinical
trials.
Furthermore,
the timing and completion of clinical trials, if any, of our product candidates
depend on, among other factors, the number of patients we will be required
to
enroll in the clinical trials and the rate at which those patients are enrolled.
Any increase in the required number of patients, decrease in recruitment rates
or difficulties retaining study participants may result in increased costs,
program delays or both.
Also,
our
products under development may not be effective in treating any of our targeted
disorders or may prove to have undesirable or unintended side effects,
toxicities or other characteristics that may prevent or limit their commercial
use. Institutional review boards or regulators, including the FDA, may hold,
suspend or terminate our clinical research or the clinical trials of our product
candidates for various reasons, including non-compliance with regulatory
requirements or if, in their opinion, the participating subjects are being
exposed to unacceptable health risks. Additionally, the failure of third parties
conducting or overseeing the operation of the clinical trials to perform their
contractual or regulatory obligations in a timely fashion could delay the
clinical trials. Failure of clinical trials can occur at any stage of testing.
Any of these events would adversely affect our ability to market a product
candidate.
The
development process necessary to obtain regulatory approval is lengthy, complex
and expensive. If we and our collaborative partners do not obtain necessary
regulatory approvals, then our business will be unsuccessful and the market
price of our common stock will substantially decline.
To
the
extent that we, or our collaborative partners, are able to successfully advance
a product candidate through the clinic, we, or such partner, will be required
to
obtain regulatory approval prior to marketing and selling such
product.
The
process of obtaining FDA and other required regulatory approvals is expensive.
The time required for FDA and other approvals is uncertain and typically takes
a
number of years, depending on the complexity and novelty of the
product.
Any
regulatory approval to market a product may be subject to limitations on the
indicated uses for which we, or our collaborative partners, may market the
product. These limitations may restrict the size of the market for the product
and affect reimbursement by third-party payors. In addition, regulatory agencies
may not grant approvals on a timely basis or may revoke or significantly modify
previously granted approvals.
We,
or
our collaborative partners, also are subject to numerous foreign regulatory
requirements governing the manufacturing and marketing of our potential future
products outside of the United States. The approval procedure varies among
countries, additional testing may be required in some jurisdictions, and the
time required to obtain foreign approvals often differs from that required
to
obtain FDA approvals. Moreover, approval by the FDA does not ensure approval
by
regulatory authorities in other countries, and vice versa.
As
a
result of these factors, we or our collaborators may not successfully begin
or
complete clinical trials in the time periods estimated, if at all. Moreover,
if
we or our collaborators incur costs and delays in development programs or fail
to successfully develop and commercialize products based upon our technologies,
we may not become profitable and our stock price could decline.
Even
if our products are approved by regulatory authorities, if we fail to comply
with ongoing regulatory requirements, or if we experience unanticipated problems
with our products, these products could be subject to restrictions or withdrawal
from the market.
Any
product for which we obtain marketing approval, along with the manufacturing
processes, post-approval clinical data and promotional activities for such
product, will be subject to continual review and periodic inspections by the
FDA
and other regulatory bodies. Even if regulatory approval of a product is
granted, the approval may be subject to limitations on the indicated uses for
which the product may be marketed or contain requirements for costly
post-marketing testing and surveillance to monitor the safety or efficacy of
the
product. Later discovery of previously unknown problems with our products,
including unanticipated adverse events or adverse events of unanticipated
severity or frequency, manufacturer or manufacturing processes, or failure
to
comply with regulatory requirements, may result in restrictions on such products
or manufacturing processes, withdrawal of the products from the market,
voluntary or mandatory recall, fines, suspension of regulatory approvals,
product seizures, injunctions or the imposition of civil or criminal
penalties.
Failure
to obtain regulatory approval in foreign jurisdictions will prevent us from
marketing our products abroad.
We
intend
to market our products in international markets. In order to market our products
in the European Union and many other foreign jurisdictions, we must obtain
separate regulatory approvals. The approval procedure varies among countries
and
can involve additional testing, and the time required to obtain approval may
differ from that required to obtain FDA approval. The foreign regulatory
approval process may include all of the risks associated with obtaining FDA
approval. We may not obtain foreign regulatory approvals on a timely basis,
if
at all. Approval by the FDA does not ensure approval by regulatory authorities
in other countries, and approval by one foreign regulatory authority does not
ensure approval by regulatory authorities in other foreign countries or by
the
FDA. We may not be able to file for regulatory approvals and may not receive
necessary approvals to commercialize our products in any market.
We
are subject to uncertainty relating to health care reform measures and
reimbursement policies which, if not favorable to our product candidates, could
hinder or prevent our product candidates’ commercial
success.
The
continuing efforts of the government, insurance companies, managed care
organizations and other payors of health care costs to contain or reduce costs
of health care may adversely affect:
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our
ability to generate revenues and achieve
profitability;
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the
future revenues and profitability of our potential customers, suppliers
and collaborators; and
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the
availability of capital.
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In
certain foreign markets, the pricing of prescription pharmaceuticals is subject
to government control. In the United States, given recent federal and state
government initiatives directed at lowering the total cost of health care,
the
U.S. Congress and state legislatures will likely continue to focus on health
care reform, the cost of prescription pharmaceuticals and on the reform of
the
Medicare and Medicaid systems. For example, legislation was enacted on
December 8, 2003, which provides a new Medicare prescription drug benefit
beginning in 2006 and mandates other reforms. While we cannot predict the full
effects of the implementation of this new legislation or whether any legislative
or regulatory proposals affecting our business will be adopted, the
implementation of this legislation or announcement or adoption of these
proposals could have a material and adverse effect on our business, financial
condition and results of operations.
Our
ability to commercialize our product candidates successfully will depend in
part
on the extent to which governmental authorities, private health insurers and
other organizations establish appropriate reimbursement levels for the cost
of
our products and related treatments. Third-party payors are increasingly
challenging the prices charged for medical products and services. Also, the
trend toward managed health care in the United States, which could significantly
influence the purchase of health care services and products, as well as
legislative proposals to reform health care or reduce government insurance
programs, may result in lower prices for our product candidates or exclusion
of
our product candidates from reimbursement programs. The cost containment
measures that health care payors and providers are instituting and the effect
of
any health care reform could materially and adversely affect our results of
operations.
If
physicians and patients do not accept the products that we may develop, our
ability to generate product revenue in the future will be adversely
affected.
The
product candidates that we may develop may not gain market acceptance among
physicians, healthcare payors, patients and the medical community. This will
adversely affect our ability to generate revenue. Market acceptance of and
demand for any product that we may develop will depend on many factors,
including:
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our
ability to provide acceptable evidence of safety and
efficacy;
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convenience
and ease of administration;
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prevalence
and severity of adverse side
effects;
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availability
of alternative treatments or diagnostic
tests;
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cost
effectiveness;
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effectiveness
of our marketing strategy and the pricing of any product that we
may
develop;
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publicity
concerning our products or competitive products;
and
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our
ability to obtain third-party coverage or
reimbursement.
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We
face the risk of product liability claims and may not be able to obtain
insurance.
Our
business exposes us to the risk of product liability claims that is inherent
in
the testing, manufacturing, and marketing of drugs and related devices. Although
we will obtain product liability and clinical trial liability insurance when
appropriate, this insurance is subject to deductibles and coverage limitations.
We may not be able to obtain or maintain adequate protection against potential
liabilities. In addition, if any of our product candidates are approved for
marketing, we may seek additional insurance coverage. If we are unable to obtain
insurance at acceptable cost or on acceptable terms with adequate coverage
or
otherwise protect against potential product liability claims, we will be exposed
to significant liabilities, which may harm our business. These liabilities
could
prevent or interfere with our product commercialization efforts. Defending
a
suit, regardless of merit, could be costly, could divert management attention
and might result in adverse publicity or reduced acceptance of our products
in
the market.
We
cannot be certain we will be able to obtain patent protection to protect our
product candidates and technology.
We
cannot
be certain that any patent or patents will be issued based on the pending
provisional patent application we recently filed. If a third party has also
filed a patent application relating to an invention claimed by us or our
licensors, we may be required to participate in an interference proceeding
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial uncertainties and cost for us,
even
if the eventual outcome is favorable to us. The degree of future protection
for
our proprietary rights is uncertain. For example:
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we
or our licensors might not have been the first to make the inventions
covered by our pending or future patent
applications;
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we
or our licensors might not have been the first to file patent applications
for these inventions;
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others
may independently develop similar or alternative technologies or
duplicate
any of our technologies;
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it
is possible that our patent applications will not result in an issued
patent or patents, or that the scope of protection granted by any
patents
arising from our patent applications will be significantly narrower
than
expected;
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any
patents under which we hold ultimate rights may not provide us with
a
basis for commercially-viable products, may not provide us with any
competitive advantages or may be challenged by third parties as not
infringed, invalid, or unenforceable under United States or foreign
laws;
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any
patent issued to us in the future or under which we hold rights may
not be
valid or enforceable; or
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we
may develop additional proprietary technologies that are not patentable
and which may not be adequately protected through trade secrets;
for
example if a competitor independently develops duplicative, similar,
or
alternative technologies.
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If
we are not able to protect and control our unpatented trade secrets, know-how
and other technological innovation, we may suffer competitive
harm.
We
also
rely on proprietary trade secrets and unpatented know-how to protect our
research and development activities, particularly when we do not believe that
patent protection is appropriate or available. However, trade secrets are
difficult to protect. We will attempt to protect our trade secrets and
unpatented know-how by requiring our employees, consultants and advisors to
execute a confidentiality and non-use agreement. We cannot guarantee that these
agreements will provide meaningful protection, that these agreements will not
be
breached, that we will have an adequate remedy for any such breach, or that
our
trade secrets will not otherwise become known or independently developed by
a
third party. Our trade secrets, and those of our present or future collaborators
that we utilize by agreement, may become known or may be independently
discovered by others, which could adversely affect the competitive position
of
our product candidates.
We
may incur substantial costs enforcing our patents, defending against third-party
patents, invalidating third-party patents or licensing third-party intellectual
property, as a result of litigation or other proceedings relating to patent
and
other intellectual property rights.
We
may
not have rights under some patents or patent applications that may cover
technologies that we use in our research, drug targets that we select, or
product candidates that we seek to develop and commercialize. Third parties
may
own or control these patents and patent applications in the United States and
abroad. These third parties could bring claims against us or our collaborators
that would cause us to incur substantial expenses and, if successful against
us,
could cause us to pay substantial damages. Further, if a patent infringement
suit were brought against us or our collaborators, we or they could be forced
to
stop or delay research, development, manufacturing or sales of the product
or
product candidate that is the subject of the suit. We or our collaborators
therefore may choose to seek, or be required to seek, a license from the
third-party and would most likely be required to pay license fees or royalties
or both. These licenses may not be available on acceptable terms, or at all.
Even if we or our collaborators were able to obtain a license, the rights may
be
nonexclusive, which would give our competitors access to the same intellectual
property. Ultimately, we could be prevented from commercializing a product,
or
forced to cease some aspect of our business operations, as a result of patent
infringement claims, which could harm our business.
There
has
been substantial litigation and other proceedings regarding patent and other
intellectual property rights in the pharmaceutical and biotechnology industries.
Although we are not currently a party to
any
patent litigation or any other adversarial proceeding, including any
interference proceeding declared before the United States Patent and Trademark
Office, regarding intellectual property rights with respect to our products
and
technology, we may become so in the future. We are not currently aware of any
actual or potential third party infringement claim involving our products.
The
cost to us of any patent litigation or other proceeding, even if resolved in
our
favor, could be substantial. The outcome of patent litigation is subject to
uncertainties that cannot be adequately quantified in advance, including the
demeanor and credibility of witnesses and the identity of the adverse party,
especially in biotechnology related patent cases that may turn on the testimony
of experts as to technical facts upon which experts may reasonably disagree.
Some of our competitors may be able to sustain the costs of such litigation
or
proceedings more effectively than we can because of their substantially greater
financial resources. If a patent or other proceeding is resolved against us,
we
may be enjoined from researching, developing, manufacturing or commercializing
our products without a license from the other party and we may be held liable
for significant damages. We may not be able to obtain any required license
on
commercially acceptable terms or at all.
Uncertainties
resulting from the initiation and continuation of patent litigation or other
proceedings could harm our ability to compete in the marketplace. Patent
litigation and other proceedings may also absorb significant management
time.
If
our products were derived from tissue or other samples from a patient without
the patient’s consent, we could be forced to pay royalties or cease selling our
products.
An
essential component of our business is our ability to obtain well-characterized
tissue and other samples from patients. To that end, we are negotiating an
agreement with the Institute of Pathology at the University of Regensburg
in
Germany to collect samples of stomach, breast, prostate, and ovarian cancers
for
biomarker discovery programs focused on these cancers. We expect the agreement
to be signed in December 2006. Although we believe that all necessary consents
will be obtained from any patient who donates samples for our research purposes,
there is a risk that, without our knowledge and through inadvertence
or neglect, proper consents will not be obtained from all patients.
The responsibility for obtaining the consents is vested in the physicians
at the
University. If a patient does not give a proper consent and we develop a
product
using a sample obtained from him or her, we could be forced to pay royalties
or
to cease selling that product.
If
we are unable to protect our intellectual property rights, our competitors
may
develop and market products with similar features that may reduce demand for
our
potential products.
The
following factors are important to our success:
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receiving
patent protection for our product
candidates;
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preventing
others from infringing our intellectual property rights;
and
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maintaining
our patent rights and trade
secrets.
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We
will
be able to protect our intellectual property rights in patents and trade secrets
from unauthorized use by third parties only to the extent that such intellectual
property rights are covered by valid and enforceable patents or are effectively
maintained as trade secrets.
To
date,
we have sought to protect our proprietary position by filing a U.S. provisional
patent application related to inventions that form the basis of our research
arrangements with the NIH and potential pipeline of future products. We
anticipate that we will apply for further patents based on our ongoing research.
Because issues of patentability involve complex legal and factual questions,
the
issuance, scope and enforceability of patents cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or circumvented.
U.S. patents and patent applications may also be subject to interference
proceedings, and U.S. patents may be subject to reexamination proceedings in
the
U.S. Patent and Trademark Office and
foreign
patents may be subject to opposition or comparable proceedings in corresponding
foreign patent offices, which proceedings could result in either loss of the
patent or denial of the patent application or loss or reduction in the scope
of
one or more of the claims of the patent or patent application. In addition,
such
interference, reexamination and opposition proceedings may be costly. Thus,
any
patents that we own or license from others may not provide any protection
against competitors. Furthermore, an adverse decision in an interference
proceeding can result in a third-party receiving the patent rights sought by
us,
which in turn could affect our ability to market a potential product to which
that patent filing was directed. Our pending patent applications, those that
we
may file in the future, or those that we may license from third parties may
not
result in patents being issued. If issued, they may not provide us with
proprietary protection or competitive advantages against competitors with
similar technology. Furthermore, others may independently develop similar
technologies or duplicate any technology that we have developed. Many countries,
including certain countries in Europe, have compulsory licensing laws under
which a patent owner may be compelled to grant licenses to third parties. For
example, compulsory licenses may be required in cases where the patent owner
has
failed to “work” the invention in that country, or the third-party has patented
improvements. In addition, many countries limit the enforceability of patents
against government agencies or government contractors. In these countries,
the
patent owner may have limited remedies, which could materially diminish the
value of the patent. Moreover, the legal systems of certain countries,
particularly certain developing countries, do not favor the aggressive
enforcement of patent and other intellectual property protection, which makes
it
difficult to stop infringement.
In
addition, our ability to enforce our patent rights depends on our ability to
detect infringement. It is difficult to detect infringers who do not advertise
the compounds that are used in their products. Any litigation to enforce or
defend our patent rights, even if we prevail, could be costly and time-consuming
and would divert the attention of management and key personnel from business
operations.
We
will
also rely on trade secrets, know-how and technology, which are not protected
by
patents, to maintain our competitive position. We will seek to protect this
information by entering into confidentiality agreements with parties that have
access to it, such as strategic partners, collaborators, employees and
consultants. Any of these parties may breach these agreements and disclose
our
confidential information or our competitors might learn of the information
in
some other way. If any trade secret, know-how or other technology not protected
by a patent were disclosed to, or independently developed by, a competitor,
our
business, financial condition and results of operations could be materially
adversely affected.
If
our third-party manufacturers’ facilities do not follow current good
manufacturing practices, our product development and commercialization efforts
may be harmed.
There
are
a limited number of manufacturers that operate under the FDA’s and European
Union’s good manufacturing practices regulations and are capable of
manufacturing products. Third-party manufacturers may encounter difficulties
in
achieving quality control and quality assurance and may experience shortages
of
qualified personnel. A failure of third-party manufacturers to follow current
good manufacturing practices or other regulatory requirements and to document
their adherence to such practices may lead to significant delays in the
availability of products for commercial use or clinical study, the termination
of, or hold on, a clinical study, or may delay or prevent filing or approval
of
marketing applications for our products. In addition we could be subject to
sanctions being imposed on us, including fines, injunctions and civil penalties.
Changing manufacturers may require additional clinical trials and the
revalidation of the manufacturing process and procedures in accordance with
FDA
mandated current good manufacturing practices and will require FDA approval.
This revalidation may be costly and time consuming. If we are unable to arrange
for third-party manufacturing of our products, or to do so on commercially
reasonable terms, we may not be able to complete development or marketing of
our
products.
If
we
fail to obtain an adequate level of reimbursement for our products by
third-party payors, there may be no commercially viable markets for our products
or the markets may be much smaller than expected.
The
availability and levels of reimbursement by governmental and other third-party
payors affect the market for our products. The efficacy, safety and
cost-effectiveness of our products as well as the efficacy, safety and
cost-effectiveness of any competing products will determine the availability
and
level of reimbursement. These third-party payors continually attempt to contain
or reduce the costs of healthcare by challenging the prices charged for
healthcare products and services. In certain countries, particularly the
countries of the European Union, the pricing of prescription pharmaceuticals
is
subject to governmental control. In these countries, pricing negotiations with
governmental authorities can take six to twelve months or longer after the
receipt of regulatory marketing approval for a product. To obtain reimbursement
or pricing approval in some countries, we may be required to conduct clinical
trials that compare the cost-effectiveness of our products to other available
therapies. If reimbursement for our products is unavailable, limited in scope
or
amount or if pricing is set at unsatisfactory levels, our revenues would be
reduced.
Another
development that may affect the pricing of drugs is regulatory action regarding
drug reimportation into the United States. The Medicare Prescription Drug,
Improvement and Modernization Act of 2003, which became law in December 2003,
requires the Secretary of the U.S. Department of Health and Human Services
to
promulgate regulations allowing drug reimportation from Canada into the United
States under certain circumstances. These provisions will become effective
only
if the Secretary certifies that such imports will pose no additional risk to
the
public’s health and safety and result in significant cost savings to consumers.
To date, the Secretary has made no such finding, but he could do so in the
future. Proponents of drug reimportation may also attempt to pass legislation
that would remove the requirement for the Secretary’s certification or allow
reimportation under circumstances beyond those anticipated under current law.
If
legislation is enacted, or regulations issued, allowing the reimportation of
drugs, it could decrease the reimbursement we would receive for any products
that we may commercialize, negatively affecting our anticipated revenues and
prospects for profitability.
RISKS
RELATED TO CAPITAL STRUCTURE
There
is no assurance of an established public trading market, which would adversely
affect the ability of our investors to sell their securities in the public
market.
Although
our common stock is registered under the Exchange Act, our common stock is
not
and has never been publicly traded. As such, a regular trading market for the
securities does not yet exist and may not exist or be sustained in the future.
We intend to seek a listing on the OTC Bulletin Board. No assurance can be
given
that such listing will be obtained or the timing of the listing. Even if such
listing is obtained, the NASD has enacted recent changes that limit quotations
on the OTC Bulletin Board to securities of issuers that are current in their
reports filed with the Securities and Exchange Commission. The effect on the
OTC
Bulletin Board of these rule changes and other proposed changes cannot be
determined at this time. The OTC Bulletin Board is an inter-dealer,
over-the-counter market that provides significantly less liquidity than the
NASD’s automated quotation system (the “NASDAQ Stock Market”). Quotes for stocks
included on the OTC Bulletin Board are not listed in the financial sections
of
newspapers as are those for the NASDAQ Stock Market. Therefore, prices for
securities traded solely on the OTC Bulletin Board may be difficult to obtain
and holders of common stock may be unable to resell their securities at or
near
their original offering price or at any price. Market prices for our common
stock will be influenced by a number of factors, including:
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the
issuance of new equity securities pursuant to a future offering or
acquisition;
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competitive
developments, including announcements by competitors of new products
or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
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variations
in quarterly operating results;
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changes
in financial estimates by securities
analysts;
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the
depth and liquidity of the market for our common
stock;
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investor
perceptions of our company and the medical device industry generally;
and
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general
economic and other national
conditions.
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Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of outstanding stock in the
public marketplace could reduce the price of our common
stock.
The
former stockholder of Lixte who received shares of our stock in the Reverse
Merger will be eligible to sell all or some of his shares of common stock by
means of ordinary brokerage transactions in the open market pursuant to
Rule 144 promulgated under the Securities Act (“Rule 144”), commencing
one year after the Reverse Merger, subject to certain limitations. In general,
pursuant to Rule 144, a stockholder (or stockholders whose shares are
aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common
stock
or the average weekly trading volume of the class during the four calendar
weeks
prior to such sale if the shares are listed on a national exchange or on NASDAQ.
Rule 144 also permits, under certain circumstances, the sale of securities,
without any limitations, by a non-affiliate that has satisfied a two-year
holding period. Additionally, this prospectus covers the resale of shares issued
in the private placement and the shares owed by certain of our stockholders
immediately prior to the Reverse Merger. Any substantial sale of common stock
pursuant to this prospectus or Rule 144 may have an adverse effect on the
market price of our common stock by creating an excessive supply.
Our
common stock is considered a “penny stock” and may be difficult to
sell.
Our
common stock is considered to be a “penny stock” since it meets one or more of
the definitions in Rules 15g-2 through 15g-6 promulgated under
Section 15(g) of the Exchange Act. These include but are not limited to the
following: (i) the stock trades at a price less than $5.00 per share;
(ii) it is NOT traded on a “recognized” national exchange; (iii) it is
NOT quoted on the NASDAQ Stock Market, or even if so, has a price less than
$5.00 per share; or (iv) it is issued by a company with net tangible assets
less than $2.0 million, if in business more than a continuous three years,
or with average revenues of less than $6.0 million for the past three
years. The principal result or effect of being designated a “penny stock” is
that securities broker-dealers cannot recommend the stock but must trade in
it
on an unsolicited basis.
Additionally,
Section 15(g) of the Exchange Act and Rule 15g-2 promulgated
thereunder by the SEC require broker-dealers dealing in penny stocks to provide
potential investors with a document disclosing the risks of penny stocks and
to
obtain a manually signed and dated written receipt of the document before
effecting any transaction in a penny stock for the investor’s
account.
Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be “penny stock.”
Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the
account of any investor for transactions in such stocks before selling any
penny
stock to that investor. This procedure requires the broker-dealer to
(i) obtain from the investor information concerning his or her financial
situation, investment experience and investment objectives;
(ii) reasonably
determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience
as to
be reasonably capable of evaluating the risks of penny stock transactions;
(iii) provide the investor with a written statement setting forth the basis
on which the broker-dealer made the determination in (ii) above; and
(iv) receive a signed and dated copy of such statement from the investor,
confirming that it accurately reflects the investor’s financial situation,
investment experience and investment objectives. Compliance with these
requirements may make it more difficult for holders of our common stock to
resell their shares to third parties or to otherwise dispose of them in the
market or otherwise.
Our
principal stockholder has significant influence over our
company.
As
a
result of the Reverse Merger, Dr. John Kovach, our principal stockholder,
beneficially owns approximately 71.55% of our outstanding voting stock after
giving effect to the private placement. As a result, Dr. Kovach possesses
significant influence, giving him the ability, among other things, to elect
all
of the members of the Board of Directors and to approve significant corporate
transactions. Such stock ownership and control may also have the effect of
delaying or preventing a future change in control, impeding a merger,
consolidation, takeover or other business combination or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control
of
us.
Standards
for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are
uncertain, and if we fail to comply in a timely manner, our business could
be
harmed and our stock price could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of
2002 require annual assessment of our internal control over financial reporting,
and attestation of our assessment by our independent registered public
accountants. On September 22, 2005, the SEC extended the compliance dates
for non-accelerated filers, as defined by the SEC, by one year. Accordingly,
we
believe that this requirement will first apply to our annual report for fiscal
2007. The SEC has recently proposed new rules on compliance with Section
404. In
any event, the standards that must be met for management to assess the internal
control over financial reporting as effective are new and complex, and require
significant documentation, testing and possible remediation to meet the detailed
standards. We may encounter problems or delays in completing activities
necessary to make an assessment of our internal control over financial
reporting. In addition, the attestation process by our independent registered
public accountants is new and we may encounter problems or delays in completing
the implementation of any requested improvements and receiving an attestation
of
our assessment by our independent registered public accountants. If we cannot
assess our internal control over financial reporting as effective, or our
independent registered public accountants are unable to provide an unqualified
attestation report on such assessment, investor confidence and share value
may
be negatively impacted.
We
do not foresee paying cash dividends in the foreseeable
future.
We
have
not paid cash dividends on our stock and do not plan to pay cash dividends
on
our common stock in the foreseeable future.
This
Prospectus contains certain forward-looking statements. For example,
statements regarding our financial position, business strategy and other
plans
and objectives for future operations, and assumptions and predictions about
future product demand, supply, manufacturing, costs, marketing and pricing
factors are all forward-looking statements. These statements are generally
accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,”
“potential(ly),” “continue,” “forecast,” “predict,” “plan,” “may,” “will,”
“could,” “would,” “should,” “expect” or the negative of such terms or other
comparable terminology. We believe that the assumptions and expectations
reflected in such forward-looking statements are reasonable, based on
information available to us on the date hereof, but we cannot assure you
that
these assumptions and expectations will prove to have been correct or that
we
will take any action that we may presently be planning. However, these
forward-looking statements are inherently subject to known and unknown risks
and
uncertainties. Actual results or experience may differ materially from those
expected or anticipated in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to,
regulatory policies, competition from other similar businesses, and market
and
general policies, competition from other similar businesses, and market and
general economic factors. This discussion should be read in conjunction with
the
condensed consolidated financial statements and notes thereto included in
this
prospectus.
If
one or
more of these or other risks or uncertainties materialize, or if our underlying
assumptions prove to be incorrect, actual results may vary materially from
what
we project. Any forward-looking statement you read in this prospectus reflects
our current views with respect to future events and is subject to these and
other risks, uncertainties and assumptions relating to our operations, results
of operations, growth strategy, and liquidity. All subsequent forward-looking
statements attributable to us or individuals acting on our behalf are expressly
qualified in their entirety by this paragraph. You should specifically consider
the factors identified in this prospectus, which would cause actual results
to
differ before making an investment decision. We are under no duty to update
any
of these forward-looking statements after the date of this prospectus or to
conform these statements to actual results.
The
following technical terms are used in this Prospectus:
Assay
An
assay
is a
method to determine the presence, absence, or the amount of a particular
substance in a sample. Assays
of body
fluids such as blood and urine can be used to detect specific products
(biomarkers)
that
indicate the presence of a specific type of cancer.
Biomarker
A
biomarker
is a
component of a cell that is uniquely or strongly associated with a particular
feature of that cell. The detection of the biomarker in body fluid by an
assay
indicates that a particular cell is very likely to be present in the body.
In
this memorandum, “biomarkers”
refer
primarily to proteins
that are
uniquely produced by specific types of cancer cells or that are produced in
excess by the cancer cells compared to non—cancer cells of the same tissue or
organ.
Cancer
A
disease
characterized by loss or enhancement of one or more mechanisms that regulate
the
growth of cells of a specific tissue. Loss of these control mechanisms or gain
of abnormal mechanisms in a single cell that put cell
growth
into
overdrive allows that cell to grow, invade local tissue, and to spread to other
regions of the body. This spreading of altered cells to distant sites is the
process called metastasis.
Cell
Growth
Cell
growth
is the
ability of an individual cell to reproduce by dividing into two cells. During
normal development and subsequently during the life of the adult, this process
is highly controlled. Loss of this control is the distinguishing feature of
cancer cells. Although all cancer cells gain the capacity for uncontrolled
growth, in most instances they retain many of the highly specialized features
(and associated specific molecular components) that were characteristic of
the
normal tissue before loss of growth control. For example, breast cancer cells
and brain cancer cells have lost control of growth and may be unrecognizable
by
their appearance under the microscope but
identifiable by the presence of biomarkers specific to breast or brain
cells.
CRADA
A
CRADA
(Cooperative Research and Development Agreement) is a formal contractual
mechanism by which a variety of federal government agencies may agree to work
collaboratively with a non-governmental entity to study and advance a particular
idea, observation, or process under a defined plan of work.
Gene
A
gene
is a
unit of information that specifies the structure of one or more gene
products.
Collectively, genes determine the precise composition of all molecules needed
for maintenance of the functions of life: reproduction, development,
organization, growth and metabolism. Genes
are
often referred to as units of heredity because they pass on the information
necessary for all characteristics of an individual. For mammals like ourselves,
one set of genes is received from each parent.
Gene
Products
The
products of genes are the thousands of different chemical structures, called
molecules, needed for development of all cells. Most gene products are proteins.
Most proteins are enzymes, molecules that can carry out work such as digesting
and utilizing food for energy, signaling the cell to produce other gene products
in response to changing conditions in the body, and controlling cell
growth.
When
proteins controlling cell
growth
are
altered, as occurs in all cancers, they become prime candidates for biomarkers
that
reveal the presence of cancer.
Glioblastoma
Multiforme (GBM)
GBM
is the
most common and most aggressive type of primary human brain cancer. The name
derives from the fact that the brain cell that loses growth control and becomes
a brain cancer cell is a glial cell (glioblastoma); as the altered glial cells
grow without restraint, they take on many different shapes (multiforme). Recent
studies suggest, however, that GBMs may arise from primitive brain stem cells
rather than from glial cells. GBM
is the
initial target of Lixte Biotechnology, Inc.
Metastasis
Metastasis
is the
process by which cancers acquire the ability to spread to other parts of the
body by entry and dissemination through the blood and/or lymph systems. The
devastating aspect of metastasis is the ability of the cancer cells to grow
in a
new environment (new tissue) Examples are the metastasis of breast cancer cells
to the brain and liver and prostate cancer cells to bone.
Cure
of
cancers is much more difficult to achieve after metastasis
has
occurred. A major goal of our biomarker research is to develop assays
for
detection of cancers before they have invaded extensively or metastasized,
allowing complete removal by surgery.
Mutation
A
mutation
is a
change in one or more building blocks of a gene. Some changes can be tolerated
without altering the integrity (function) of the product of the gene but other
changes can result in cancer.
For
the
purposes of the cancer projects described in this memorandum, it is important
to
distinguish between inherited mutations (inborn mutations) and acquired
(environmentally caused) mutations.
Some
inborn mutations predispose an individual to development of one or more kinds
of
cancer. Because these mutations are inherited, they are present in every cell
in
the body. Such mutations are responsible for the higher frequency of certain
cancers in particular families and ethnic groups. Examples are the breast cancer
predisposing genes known as BRCA I and BRCA II.
Research
on biomarkers,
however, is directed at finding the gene products (proteins) of acquired
mutations. Acquired mutations that change a single cell to a cancer cell are
present ONLY in that cell and cells arising from its uncontrolled cell
growth.
If the
products of the altered genes in these cancer cells are detectable in the body,
they may reveal the presence of the cancer at a stage when it is curable by
surgery.
Prognosis
Prognosis
refers
to the likely course of a disease at specific stage of development. For example,
a breast or prostate cancer that is not confined to the tissue of origin, e.g.
is also present in a lymph node when first detected, has a greater likelihood
of
recurrence, a worse prognosis, than if it were confined to the tissue of
origin.
Thus,
the
presence of lymph node metastases is an indicator of poor
prognosis.
It
is
hoped that specific biomarkers
for
cancers will be found that have prognostic value. With assays for such markers,
patients with poor prognoses could consider more aggressive treatments before
obvious spread of disease and patients with good prognoses could be spared
unnecessary treatment.
Proteins
Proteins
are
molecules that have many functions important to the nature and behavior of
the
cell. Many proteins are enzymes that regulate and integrate a myriad of
biochemical processes essential to life.
Certain
enzymes are critical to an integrated system of cellular signaling that
regulates cell behavior in response to a constantly changing environment and
maintains the specialized nature of different types of cells. It is likely
that
some biomarkers
of
cancers have perverted signaling functions that perpetuate the abnormal behavior
of the cancer.
Thus,
discovery of biomarkers of known function that are unique or overly abundant
in
specific types of cancers may provide clues as to the biochemical
vulnerabilities of these cancers, weaknesses that can be attacked selectively
by
specific classes of drugs.
We
will
not receive any proceeds from the resale of any of the shares offered by this
prospectus by the selling stockholders.
Since
our
shares are not listed or quoted on any exchange or quotation system, the
offering price of the shares of common stock was arbitrarily determined. The
offering price of the common stock registered hereunder was determined by the
price shares sold to our stockholders in our recent private placements completed
on June 30, 2006 and July 27, 2006. The offering price of the shares of common
stock that is being registered hereunder was negotiated by us, the respective
investors and placement agent under the offerings.
This
offering price does not necessarily bear any relationship to our book value,
assets, financial condition or any other established criteria of value. Although
our common stock is not listed on a public exchange, we intend to seek a listing
on the Over-the-Counter Bulletin Board (OTCBB) as soon as practicable following
the effective date of the registration statement that contains this prospectus.
However, there is no assurance that our common stock, once it becomes listed
on
a public exchange, will trade at market prices in excess of the initial public
offering price as prices for the common stock in any public market which may
develop will be determined in the marketplace, and may be influenced by many
factors, including the depth and liquidity of the market for the common stock,
investor perception of us and general economic and market conditions.
There
is
no trading of our capital stock on any publicly traded market. Even if such
stock becomes publicly tradable, the price of our common stock will likely
fluctuate in the future. The stock market in general has experienced extreme
stock price fluctuations in the past few years. In some cases, these
fluctuations have been unrelated to the operating performance of the affected
companies. Many companies have experienced dramatic volatility in the market
prices of their common stock. We believe that a number of factors, both within
and outside our control, could cause the price of our common stock to fluctuate,
perhaps substantially. Factors such as the following could have a significant
adverse impact on the market price of our common stock:
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Our
ability to obtain additional financing and, if available, the terms
and
conditions of the financing;
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Our
financial position and results of
operations;
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Concern
as to, or other evidence of, the safety or efficacy of any future
proposed
products and services or our competitors’ products and
services;
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Announcements
of technological innovations or new products or services by us or
our
competitors;
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U.S.
and foreign governmental regulatory
actions;
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The
development of litigation against
us;
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Period-to-period
fluctuations in our operating
results;
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Changes
in estimates of our performance by any securities
analysts;
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Possible
regulatory requirements on our
business;
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The
issuance of new equity securities pursuant to a future
offering;
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Changes
in interest rates;
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Competitive
developments, including announcements by competitors of new products
or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
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Variations
in quarterly operating results;
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Change
in financial estimates by securities
analysts;
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The
depth and liquidity of the market for our common
stock;
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Investor
perceptions of us; and
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General
economic and other national
conditions.
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Holders
As
of October 31, 2006, we currently have 26,582,183 shares of our common
stock outstanding. As of October 31, 2006, our shares of common stock are
held by approximately 64 stockholders
of record. This does not include an indeterminate number of beneficial
owners of securities whose shares are held in the names of various dealers
and
clearing agencies.
Our
dividend policy will be determined by our Board of Directors and will depend
upon a number of factors, including our financial condition and performance,
our
cash needs and expansion plans, income tax consequences, and the restrictions
that applicable laws and our credit arrangements then impose.
AND
RESULTS OF OPERATIONS
Recent
Events
On
June
30, 2006, Lixte Biotechnology, Inc., a privately-held Delaware corporation,
completed a reverse merger transaction with our company, a public “shell”
company, whereby Lixte became our wholly-owned subsidiary. For financial
reporting purposes, Lixte was considered the accounting acquirer in the merger
and the merger was accounted for as a reverse merger. Accordingly, the
historical financial statements presented herein are those of Lixte and do
not
include our historical financial results. All costs associated with the reverse
merger transaction were expensed as incurred. We intend to change our name
to
Lixte Biotechnology Holdings, Inc. and we have distributed an Information
Statement to our stockholders with respect to the name change which we expect
to
occur during December 2006.
Overview
Lixte
was
incorporated in Delaware on August 9, 2005 to capitalize on opportunities to
develop low cost, specific and sensitive tests for the early detection of
cancers to better estimate prognosis, to monitor treatment response, and to
reveal targets for development of more effective treatments.
As
a
result of the reverse merger, we are now concentrating on discovering biomarkers
for common cancers for which better diagnostic and therapeutic measures are
needed. For each of these diseases, a biomarker that would enable identification
of the presence of cancer at a stage curable by surgery could possibly save
thousands of lives annually. In addition, biomarkers specific to these diseases
may also provide clues as to processes (biological pathways) that characterize
specific cancer types and that may be vulnerable to drug treatment targeted
to
the activity of the biomarker.
Plan
of Operation
Our
initial focus is on developing new treatments for the most common and most
aggressive type of primary brain cancer, glioblastoma multiforme (“GBM”). We
entered into a Cooperative Research and Development Agreement with the National
Institute of Neurological Diseases and Stroke of the National Institutes
of
Health to identify and evaluate drugs that target a specific biochemical
pathway for GBM cell differentiation. The CRADA also covers research to
determine whether expression of a component of this pathway correlates with
prognosis in glioma patients.
The
lead
scientist at NINDS collaborating with us under the CRADA is Dr. Zhengping
Zhuang. Dr. Zhuang is internationally recognized for his research in molecular
pathology. Dr. Zhuang has four issued and two pending patents related to
molecular pathology of human cancers. Dr. Zhuang recently discovered a biomarker
of relevance to the growth of GBMs that we believe can be used as a tool for
identifying drugs that affect the growth of GBM cells. Under the CRADA, we
will
support two persons at NIH to work under the direction of Dr. Zhuang. The goal
is to identify drugs that inhibit GBM cell growth and to determine if the
identified biomarker may be useful for estimation of prognosis. Our contribution
to the collaborative research done by us and NIH is $200,000 annually for two
years to fund two research assistants expected to be at the post-doctoral level,
as well as supplies and travel expenses.
We
sponsored the development and submission of a provisional patent application
filed February 6, 2006 naming as co-inventors Dr. Zhuang, several other NIH
investigators, and Dr. John S. Kovach. When the final patent application
is
filed in early 2007, the named inventors will assign their rights in the
inventions to their employers, meaning that any patent (or patents) arising
out
of the application will be jointly owned by the U.S. Government and us. We
are
currently in negotiations with the NIH to obtain the exclusive commercial
rights
to the inventions covered by the Provisional Patent Application. As our
research progresses, we expect to file further patent applications relating
to the categories of products described below. Patent applications arising
out
of research pursuant to the CRADA are likely to be jointly owned by us and
the
U.S. Government. In such cases of joint ownership, we will likely seek to
obtain
the exclusive commercial rights to those inventions
We
expect
that the products will derive directly from our intellectual property, which
will consist of the Provisional Patent Application and other patents that we
anticipate will arise out of our research activities. These patents are expected
to cover biomarkers uniquely associated with the specific types of cancer,
patents on methods to identify drugs that inhibit growth of specific tumor
types, and combinations of drugs and potential drugs and potential therapeutic
agents for the treatment of specific cancers.
We
face
several potential challenges in our efforts to achieve commercial success,
including raising sufficient capital to fund our business plan, achieving
commercially applicable results of our research program, continued access to
tissue and blood samples from cancer patients, competition from more
established, well-funded companies with competitive technologies, and future
competition from companies that are developing competitive technologies, some
of
whom are larger companies with greater capital resources than us.
There
is
substantial uncertainty as to our ability to fund our operations and continue
as
a going concern (see “Liquidity and Capital Resources - Going Concern”
below).
Critical
Accounting Policies and Estimates
We
prepared the consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires the use of estimates and assumptions
that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period.
Management periodically evaluates the estimates and judgments made. Management
bases its estimates and judgments on historical experience and on various
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates as a result of different assumptions
or
conditions.
The
following critical accounting policies affect the more significant judgments
and
estimates used in the preparation of our consolidated financial statements.
Research
and Development
Research
and development costs are expensed as incurred. Amounts due on research
and
development contracts with third parties are recorded as a liability, with
the
related amount of such contracts recorded as advances on research and
development contract services on the Company’s balance sheet. Such advances on
research and development contract services are expensed over their life
on the
straight-line basis, unless the achievement of milestones, the completion
of
contracted work, or other information indicates that a different expensing
schedule is more appropriate.
Stock-Based
Compensation
In
December 2004, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”).
SFAS 123R requires all share-based payments, including grants of employee
stock
options to employees, to be recognized in the financial statements based
on
their grant date fair values. Effective
January 1, 2006, SFAS No. 123R requires that the Company measure the cost
of
employee services received in exchange for equity awards based on the grant
date
fair value of the awards, with the cost to be recognized as compensation
expense
in the Company’s financial statements over the vesting period of the
awards.
Income
Taxes
We
account for income taxes under Statement of Financial Accounting Standards
No.
109, “Accounting for Income Taxes”, which requires the recognition of deferred
tax assets and liabilities for the expected impact of differences between the
financial statements and the tax basis of assets and liabilities.
For
federal income tax purposes, substantially all expenses must be deferred until
we commence business operations and then they may be written off over a 60-month
period. These expenses will not be deducted for tax purposes and will represent
a deferred tax asset. We will provide a valuation allowance for the full amount
of the deferred tax asset since there is no assurance of future taxable income.
Tax deductible losses can be carried forward for 20 years until
utilized.
Results
of Operations - Three Months and Nine Months Ended September 30,
2006
Comparative
financial statements for the interim periods ended September 30, 2005 reflect
the results of operations of Lixte for the period August 9, 2005 (inception)
to
September 30, 2005 as Lixte, the accounting acquirer in the reverse merger
transaction, was not formed until August 9, 2005. As such, our operations
during these periods, was nominal.
We
are a development stage company and have not yet commenced
revenue-generating operations.
General
and Administrative. For the three months and nine months ended September
30,
2006, general and administrative expenses were $62,251 and $201,104,
respectively, which included $8,917 and $88,483 in the three months and
nine
months ended September 30, 2006, respectively, for the vested portion of
the
fair value of stock options issued to a director and certain members of
our
Scientific Advisory Committee on June 30, 2006. Significant components
of
general and administrative expenses to date consist of board compensation
and
legal and accounting fees.
Depreciation.
For the three months and nine months ended September 30, 2006, depreciation
expense was $115 and $334, respectively.
Research
and Development Costs. Effective March 22, 2006, we entered into a
Cooperative Research and Development Agreement with the U.S. Department
of
Health and Human Services, as represented by National Institute of Neurological
Disorders and Stroke of the National Institutes of Health. The CRADA is
for a
term of two years from the effective date and may be unilaterally terminated
by
either party by providing written notice within sixty days. Pursuant to
the
CRADA, Lixte agreed to provide total payments of $400,000 over the term
of the
CRADA.
The
current amount due pursuant to the CRADA was recorded as a liability, with
the
related amount of such contract recorded as advances on research and development
contract services on our balance sheet. Such advances on research and
development contract services are expensed over their life on the straight-line
basis, unless the achievement of milestones, the completion of contracted
work,
or other information indicates that a different expensing schedule is more
appropriate. For the three months and nine months ended September 30, 2006,
research and development costs expensed were $50,100 and $100,100,
respectively.
Reverse
Merger Costs. On June 30, 2006, pursuant to a Share Exchange Agreement
dated as
of June 8, 2006 by and among SRKP, John S. Kovach and Lixte, SRKP issued
19,021,786 shares of its common stock in exchange for all of the issued
and
outstanding shares of Lixte, and Lixte became a wholly-owned subsidiary
of SRKP.
In connection with this transaction, we paid WestPark Capital, Inc. a cash
fee of $50,000, which was charged to operations during the nine months
ended
September 30, 2006.
Net
Loss.
For the three months and nine months ended September 30, 2006, we incurred
a net
loss of $108,878 and $334,960, respectively.
Liquidity
and Capital Resources - September 30, 2006
Going
Concern
At
September 30, 2006, we had not yet commenced any revenue-generating operations
and we are therefore considered a “development stage company”. All activity
through September 30, 2006 related to our formation, capital raising efforts
and
initial research and development activities. As such, we have yet to
generate any cash flows from operations, and is essentially dependent on
debt
and equity funding from both related and unrelated parties to finance our
operations. Prior to June 30 2006, cash requirements were funded by advances
from Lixte’s founder. On June 30, 2006, we completed an initial closing of
a private placement, selling 1,973,869 shares of common stock at a price
of
$0.333 per share and receiving net proceeds of $522,939. On July 27, 2006,
we
completed a second closing of its private placement, selling 1,581,351
shares of
common stock at a price of $0.333 per share and receiving net proceeds
of
$427,925.
Because
we are currently engaged in research at a very early stage, it will likely
take a significant amount of time to develop any product or intellectual
property capable of generating revenues. As such, our business is unlikely
to
generate any revenue in the next several years and may never do so. Even
if we
are able to generate revenues in the future through licensing our
technologies or through product sales, there can be no assurance that such
revenues will exceed our expenses.
Based
on
the proceeds received from the private placement, we may not have sufficient
resources to completely fund our planned operations for the next twelve
months.
We do not have sufficient resources to fully develop and commercialize
any
products that may arise from our research. Accordingly, we will need to
raise
additional funds in order to satisfy our future working capital requirements.
In
the short-term, in addition to the net proceeds from the private placement,
we
estimate that we will require additional funding of approximately
$2,300,000 to establish a wet laboratory at the end of our second year
of
operation. The
laboratory would be needed to apply a technology similar to that being
pursued
to develop
biomarkers and therapies for brain tumors to other types of human tumors
obtained under
the
service agreement with the Institute of Pathology in Germany. The costs
would
include
(1) rental of laboratory space in a biotech incubator associated with a
university or state government,
(2) salary of a lead junior scientist experienced in the cell and molecular
techniques required, and (3) technical support, and some fixed and disposable
equipment. Additionally, the amount and timing of future cash
requirements will depend on market acceptance of our products, if any,
and the
resources that we devote to developing and supporting our products. We will
need to fund these cash requirements from either one or a combination of
additional financings, mergers or acquisitions, or via the sale or license
of
certain of our assets.
Current
market conditions present uncertainty as to our ability to secure additional
funds, as well as our ability to reach profitability. There can be no assurances
that we will be able to secure additional financing, or obtain favorable
terms
on such financing if it is available, or as to our ability to achieve positive
cash flow from operations. Continued negative cash flows and lack of liquidity
create significant uncertainty about our ability to fully implement our
operating plan and we may have to reduce the scope of our planned
operations. If cash and cash equivalents are insufficient to satisfy our
liquidity requirements, we would be required to scale back or discontinue
our
product development program, or obtain funds if available through strategic
alliances that may require us to relinquish rights to certain of our
technologies or discontinue our operations.
Operating
Activities. For the nine months ended September 30, 2006, operating activities
utilized cash of $381,106.
We
had
working capital of $741,343 at September 30, 2006, as compared to a working
capital deficiency of $15,650 at December 31, 2005, primarily as a result
of the
private placement closings on June 30, 2006 and July 27, 2006, which generated
net proceeds of $522,939 and $427,925, respectively.
Investing
Activities. For the nine months ended September 30, 2006, investing activities
utilized net cash of $238 for the purchase of office equipment.
Financing
Activities. For the nine months ended September 30, 2006, financing activities
provided net cash of $1,100,135, consisting of the gross proceeds from
the sale
of common stock of $1,183,889, the cash acquired in the reverse merger
transaction of $62,500, and advances from stockholder of $86,771, reduced
by the
payment of private placement offering costs of $233,025.
Principal
Commitments
At
September 30, 2006, we did not have any material commitments for capital
expenditures. Our principal commitment at September 30, 2006 consisted
of the
second installment on the CRADA of $200,000 which is due and payable in
April
2007.
Effective
March 22, 2006, we entered into a Cooperative Research and Development
Agreement
with the U.S. Department of Health and Human Services, as represented by
National Institute of Neurological Disorders and Stroke of the National
Institutes of Health. The CRADA is for a term of two years from the effective
date and may be unilaterally terminated by either party by providing written
notice within sixty days. Pursuant to the CRADA, we agreed to provide total
payments of $400,000 over the term of the CRADA.
Off-Balance
Sheet Arrangements
At
September 30, 2006, we did not have any transactions, obligations or
relationships that could be considered off-balance sheet
arrangements.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
(“SFAS No. 157”), which establishes a formal framework for measuring fair value
under GAAP. SFAS No. 157 defines and codifies the many definitions of fair
value
included among various other authoritative literature, clarifies and, in
some
instances, expands on the guidance for implementing fair value measurements,
and
increases the level of disclosure required for fair value measurements.
Although
SFAS No. 157 applies to and amends the provisions of existing FASB and
AICPA
pronouncements, it does not, of itself, require any new fair value measurements,
nor does it establish valuation standards. SFAS No. 157 applies to all
other
accounting pronouncements requiring or permitting fair value measurements,
except for: SFAS No. 123(R), share-based payment and related pronouncements,
the
practicability exceptions to fair value determinations allowed by various
other
authoritative pronouncements, and AICPA Statements of Position 97-2 and
98-9
that deal with software revenue recognition. SFAS No. 157 is effective
for
financial statements issued for fiscal years beginning after November 15,
2007,
and interim periods within those fiscal years.
Our
Company
We
were
incorporated in the State of Delaware on May 27, 2005. Immediately prior
to the
completion of the Reverse Merger, we did not conduct any business operations
and
had minimal assets and liabilities. Upon the Reverse Merger, there was a
change
of control and Dr. John Kovach, our Chief Executive Officer, acquired a
controlling interest as a result of the share exchange involving Lixte. Our
management immediatedly prior to the Reverse Merger also served as officers
and
directors of SRKP 1, Inc., SRKP 2, Inc., SRKP 3, Inc., SRKP
5, Inc., SRKP 6, Inc., SRKP 8, Inc., SRKP 9, Inc., SRKP
10, Inc., SRKP 11, Inc., SRKP 12, Inc. and SRKP 14, Inc.,
all of which are or were “blank check”
companies.
Lixte
was
created to capitalize on opportunities for the company to develop specific,
and
sensitive tests for the early detection of cancers to better estimate prognosis,
to monitor treatment response, and to reveal targets for development of more
effective treatments.
Research
Objectives
In
the
first year of operation, we will concentrate on exploiting the biomarker pathway
associated with the growth of GBMs to identify drugs with potential selective
activity against this type of tumor. In the first year, we will also collect
the
clinical samples needed for the identification of biomarkers for ovarian
and
stomach
cancer. Subsequently, we will include cancers of the breast, prostate, colon,
bladder, and kidney. For each of these diseases, a biomarker that would enable
identification of the presence of cancer at a stage curable by surgery would
save thousands of lives annually. Biomarkers specific to these diseases may
also
provide clues as to processes (biological pathways) that may be important to
the
growth of the cancer and therefore be vulnerable to drug treatments targeted
to
the biomarker pathway.
We
will
seek to identify new treatments for the most common and most aggressive type
of
primary brain cancer, glioblastoma multiforme (“GBM”) under a Cooperative
Research and Development Agreement (“CRADA”) with the National Institute of
Neurological Diseases and Stroke (“NINDS”) of the National Institutes of Health
(“NIH”). A second goal of the CRADA is to determine whether expression of a
component of the biomarker pathway correlates with prognosis in glioma patients.
The
collaborating NIH laboratory is directed by Dr. Zhengping Zhuang, who is an
internationally recognized molecular pathologist. He has four issued and two
pending patents related to molecular pathology of human cancers. Dr. Zhuang
and
colleagues at NIH recently discovered a biomarker that we believe can be used
as
a tool for identifying drugs that affect the growth of GBM cells. Under the
CRADA, we will support studies in Dr. Zhuang’s laboratory with $200,000 annually
for two years for two research assistants expected to be at the post-doctoral
level and supplies. Dr. Zhuang will make the selection of the research
personnel.
Intellectual
Property
We
sponsored the development and submission of a provisional patent application
filed February 6, 2006 (the “Provisional Patent Application”) naming as
co-inventors Dr. Zhuang, several other NIH investigators, and Dr. Kovach.
When
the final patent application is filed in early 2007, the named inventors
will
assign their rights in the inventions to their employers, meaning that any
patent (or patents) arising out of the application will be jointly owned
by the
U.S. Government and us.
We
are
currently in the negotiations with the NIH to obtain the exclusive commercial
rights to the inventions covered by the Provisional Patent Application. Our
patent lawyer is in discussions with the Office of Technology Transfer, NIH.
The
discussions
relate solely to the claims in a provisional patent filed prior to finalization
of the CRADA. This provisional patent includes co-inventors from NIH and
Dr.
Kovach. Management does not expect any material difficulty to obtain an
exclusive license to the claims of
this
provisional patent. Moreover, under the CRADA the claims in the provisional
patent are being
reduced to practice. This data substantiates the claims in the provisional
patent. The new data
(all
obtained as an activity done as part of the CRADA) will lead to new claims
that
will be filed
in
a second patent. Under the CRADA agreement, the company has a right to an
exclusive license to the patent claims made as part of the CRADA agreement.
In
the event that no agreement
can be reached with the Office of Technology Transfer, NIH regarding an
exclusive license to the initial provisional patent, that patent would likely
lapse but be incorporated into new
patents describing work conducted under the CRADA.
We
expect
to file further patent applications relating to the categories of products
described below. Patent applications arising out of research pursuant to
the
CRADA are likely to be jointly
owned by
Lixte and the U.S. Government. In such cases of joint ownership, we will
likely
seek to obtain the exclusive commercial rights to those inventions.
Dr.
Kovach was the first to point out the possibilities for developing clinically
feasible therapeutic
combinations relating to molecular observations made by the other co-inventors.
He suggested that NIH consider pursuing a patent. NIH considered the possibility
and declined but supported pursuit of Dr. Kovach's suggestions under a
CRADA.
Furthermore, NIH expressed willingness
to participate in a patent developed by Lixte around the suggestions made
by
Dr.
Kovach.
Both NIH and a well-regarded biotechnology patent lawyer reviewed the language
of the
patent and agreed that Dr. Kovach is a co-inventor for his contributions
to the
recognition of the
use
of observations made by NIH personnel, the delineation of a specific method
for
using the
phenomenon discovered regarding aspects of the biology of human brain tumor
cells for screening
agents for anti-brain tumor activity, and for indicating several types
of agents
not previously recognized for use in certain combinations as lead possibilities
for activity against human
brain tumor cells.
Access
to Clinical Materials
To
detect
and to assess the clinical relevance of biomarkers, we need access to human
tissue, blood and perhaps other body fluids of patients with and without
the
specific types of cancer under study. We are negotiating an agreement with
the
Institute of Pathology at the University of Regensburg in Germany to receive
a
supply of high quality, accurately annotated tissue and blood samples for
cancers other than brain cancers. We expect the agreement to be signed in
December 2006. This arrangement provides us with appropriate clinical samples
for which permission has been obtained to study any molecular feature of
the
tissue for commercial purposes. This is an absolute requirement for success
of a
for-profit company in this field.
Clinical
samples will be obtained from patients who have given their signed informed
consent
by persons identified by the University of Regensburg, Germany. These are
employees of
the
University who have approval by the University to seek such permission
under a
consent form
approved by the University. The scope of use has been narrowed to the study
of
human cancers
for the purposes of developing improved methods of diagnosis, estimation
of
prognosis, treatment
and understanding causation of human cancers.
The
collection, selection, histological characterization, and processing of tissue
samples and collection of blood samples will be managed by Arndt Hartmann,
M.D.,
a Professor in the Institute of Pathology at the University of Regensburg.
Dr.
Hartmann is an expert clinical and molecular pathologist and is
keenly
interested in the project. His research is focused on the molecular genetics
of
breast, bladder, prostate and kidney cancer. He was a research fellow for three
years in Dr. Kovach’s laboratory at the Mayo Clinic in Rochester before
completing his residency in pathology and joining the faculty at Regensburg
University. Dr. Hartmann is a member of the Scientific Advisory Committee
of Lixte.
To
date, the only cancers studied by us are those of brain cancers, and
all such studies have been done at the NIH under the CRADA. All brain cancer
cell lines and human tumor cells were provided by NIH.
The
Market
We
believe that a sensitive, specific, reasonably priced assay for the detection
of
any common human cancer at an early stage could save thousands of lives
annually, reduce health care costs, and generate significant income.
Brain
Cancer
The
most
malignant type of brain cancer, GBM, although less common than stomach, breast
and prostate cancers, is almost invariably fatal. Typically, survival after
surgery and radiation is only 12 to 18 months. A biomarker reflecting disease
progression and, most importantly, providing a method to develop more specific
and effective treatments of GBM would be an important discovery.
Stomach
Cancer
We
believe that stomach cancer (gastric cancer) is a target for biomarker
identification because of its high prevalence in certain of the world’s
population, particularly in Asia. Since gastric cancer is uncommon in the West,
development of new diagnostics and treatments is not a priority for many
pharmaceutical and diagnostic companies, providing a special opportunity for
us.
Current
screening for gastric cancer entails passing a tube into the stomach
(gastroscopy) and sampling of suspicious areas. The invasive nature and cost
of
gastroscopy with sedation limits systematic screening of large numbers of
individuals at risk. We believe that a blood test for the early detection of
stomach cancer could save many lives and significantly reduce health care costs
in countries with a high prevalence of the disease.
Ovarian
Cancer
Although
ovarian cancer is much less common than breast cancer, cancer of the ovary
is
responsible for the death of almost half as many women who die from breast
cancer. Less than 50% of women are cured of ovarian cancer because the disease
is almost always in an advanced stage before it produces symptoms. Yet, if
ovarian cancer is found early, the cure rate is 90% or better. A blood test
for
screening women at risk (all women who are 50 or older) is urgently needed.
Marketing
Plan
Once
a
biomarker has been identified, depending on the projected cost for evaluation,
we expect to either conduct the initial assessment using our resources or seek
partners in industry for clinical development. If we have the resources, we
prefer to generate evidence of clinical value on our own to maximize financial
value of the product.
If
we do
not have the resources needed to develop the clinical potential of a given
biomarker ourselves, we intend to try to find partners in large diagnostic
and/or pharmaceutical companies. These companies are increasingly dependent
upon
new biomarkers discovered by academic groups and small biotechnology companies
to maintain a pipeline of promising drugs and new diagnostic tools.
We
are
confident that the molecular approaches that led to the discovery of the
biomarker for GBMs (and the subject of the Provisional Patent Application) could
lead to the discovery of equally promising new biomarkers for other cancers.
If
discovered and developed, the challenge will be to decide which products to
license early and which to carry into clinical evaluation without a
pharmaceutical company partner.
Research
and Development
Our
primary objective is to develop sensitive and specific assays for identification
of potential therapeutic targets and for the early detection for several common
cancers. Most cancers produce abnormal proteins or abnormal amounts of normal
proteins. How many of these potential biomarkers are present at detectable
concentrations in the blood is not known.
There
are
four steps in our biomarker detection and validation process:
|
1.
|
Tissue
Acquisition
|
The
acquisition of well-characterized cancer tissue and blood samples from cancer
patients and control individuals is the most critical step to success. We
believe that we should have access to the clinical samples needed for our
program from the Institute of Pathology at University of Regensburg in Germany.
We expect that the samples we will obtain will be or have been collected under
the regulatory requirements of the European Union and of the Office of
Protection of Research Subjects in the United States. Those regulations require
that each patient be fully informed about the process, the use of the samples,
and any attendant risks. Though there is a negligible medical risk related
to
the collection of the samples for Lixte’s purposes, the consent form points out
that the tissue is not needed for clinical purposes and that the research done
will not affect the patient’s care in any way.
The
consent specifies further that the samples will be used to develop diagnostic
tests and/or treatments for cancer that may have commercial value and that
the
participants will not be entitled to any of the financial benefits from the
product’s development. All samples are coded and the privacy of all participants
is assured because personal identifiers are never shared with us by the
University of Regensburg. Obtaining consent is the responsibility of the
collaborating institution, but all consent processes and forms will be jointly
approved by the collaborating institution and by us.
Under
the
CRADA agreement, any tissue that might be studied at NIH must meet the
requirements
of the Office of Protection of Research Subjects in the United States.
Before
any samples
collected by us would be used under the CRADA, the informed consent
process pertaining to the samples, including determination that
anonymization of the samples was carried out, would be reviewed with
NIH and deemed acceptable with respect to the requirements of NIH.
|
2.
|
Tissue
Processing
|
For
maximum efficiency in detecting biomarkers, cancer cells must be isolated from
a
complex matrix of normal cells and other structural elements of tissue in which
the cancer has arisen under conditions that do not alter potential biomarkers.
The procedures used minimize destruction and alteration of cell components.
Once
processed, preparations can be transported without compromising their integrity.
|
3.
|
Detection
and Identification of
Biomarkers
|
The
search for molecular elements with features unique to a specific cancer type
is
accomplished using highly reproducible physical techniques. These techniques
are
not proprietary but involve technologies used in sequences that are not obvious.
The most prominent biomarkers for each tumor type are identified by mass
spectrometric sequencing. We will select for patenting and clinical evaluation
biomarkers present at high frequency in all cancers of the same type.
|
4.
|
Development
of Assays for Biomarkers in the
Blood
|
Whether
to develop an assay for selected biomarkers is an important decision point.
Assay development is an expensive component of the discovery process but also
an
essential step in establishing commercial value. For each cancer type, we expect
to screen sera of affected and unaffected persons for the five most promising
biomarkers of known sequence for which patent protection seems achievable.
Maximum value of the product for diagnostics is achieved by demonstrating the
presence of specific biomarkers in the serum of patients harboring the cancer
of
interest and their absence in the sera of patients without the cancer.
Biomarkers
not useful for diagnostic assays may still have significant value as markers
of
prognosis and/or as drug targets. For example, although it is not yet clear
whether the new biomarker discovered by Dr. Zhuang will serve as a useful
diagnostic assay for GBMs, that biomarker is nevertheless valuable because
it
was demonstrated to provide a tool for identification of new drug combinations
active against GBMs in vitro.
Using
stringent criteria for biomarker selection, analysis of small numbers of a
given
type of cancer is sufficient for detection of relevant biomarkers. If potential
biomarkers for early diagnosis are discovered for several types of cancer,
such
as the one already identified for GBMs, we will prioritize their development
in
the following order: stomach, ovary, prostate, colon, bladder, and kidney.
If a
particularly compelling opportunity arises, we have the flexibility to quickly
direct resources to maximize chances of developing a clinically useful product.
Product
Overview
Our
products will derive directly from our intellectual property consisting of
our
Provisional Patent Application and other patents we anticipate will arise from
our research activities. Those patents are expected to cover biomarkers uniquely
associated with specific types of cancer that may provide the bases for assays
suitable for cancer detection and patents on methods to identify drugs that
inhibit growth of specific tumor types and combinations of drugs as potential
therapeutic agents for the treatment of specific cancers.
We
believe that there are four main markets for potential products that may be
developed by Lixte.
1. Improved
Cancer Treatments. Improved
chemotherapy regimens for cancers not curable by surgery or
radiation;
2. Diagnostic
Assays. Improved
assays of body fluids, primarily blood, for the diagnosis of cancers at stages
when cure is possible through surgery and/or radiotherapy;
3. Estimation
of Prognosis. Improved
methods for estimation of prognosis by molecular sub-classification of
histologically indistinguishable tumor subtypes; and
4. Assessment
of Therapeutic Effectiveness. Improved
methods to assess therapeutic effectiveness by monitoring with biomarker assays
persistence or reappearance of cancer during and after treatment and during
drug
development.
Each
market is discussed below.
|
1.
|
Improved
Cancer Treatments
|
We
will
seek to develop improved therapeutic regimens when biomarkers provide insight
into pathways vulnerable to chemical and/or immunological attack. Some tumor
biomarkers have specific (enzymatic) functions and are “drugable,” that is,
their function can be altered pharmacologically. For example, the identification
of the biomarker specific to regulation of GBMs has led to development of an
assay for screening compounds for anti-GBM activity.
|
2.
|
Diagnostic
Assays
|
We
intend
to work under the CRADA with NINDS to assess the clinical potential of the
new
biomarker for GBM. Using the approach developed by Dr. Zhuang to identify
markers for GBM and for other rare tumors, we also intend to initiate searches
for biomarkers in other common cancers for which there is no highly specific
and
sensitive blood test for early detection. The focus for the first two years,
in
addition to GBMs, will be ovarian and gastric cancer. For these diseases, a
reliable blood test for their detection at an
early
surgically curable stage would save many lives. If our resources increase as
anticipated, research will likely be extended to the identification of
biomarkers for stomach and ovarian cancer and subsequently to biomarkers for
breast, prostate, colon, bladder, and kidney cancers.
|
3.
|
Estimation
of Prognosis
|
There
is
a wide spectrum of aggressiveness and responsiveness to drug treatments for
many
cancers that are clinically indistinguishable with present methods of
classification. Judgment of the aggressiveness of most cancers is currently
based on their morphologic appearance under the microscope and, for some tumors,
on a few molecular features such as hormone receptors associated with breast
cancers. There are few biomarkers sufficiently reliable to predict the prognosis
of a given cancer patient so that treatment intensity can be adjusted with
confidence toward less or more toxic regimens.
|
4.
|
Assessment
of Therapeutic
Effectiveness
|
We
believe that specific and sensitive biomarkers for any human cancer are in
great
demand by pharmaceutical companies and by the National Cancer Institute as
aids
to drug development and to the development of targeted drug treatment. In
addition, we believe that biomarkers that reflect disease progression and
regression during initial clinical evaluation of new therapeutic agents could
greatly reduce the cost of new drug development. To assess the effectiveness
of
a specific treatment, it would be less expensive and more efficient to monitor
the appearance and disappearance of a biomarker in the blood than to monitor
the
course of disease by radiological imaging.
Product
Development
We
will
become subject to FDA regulations at such time as we pursue development of
clinical trials. Additionally, any product for which we obtain marketing
approval, along with the manufacturing processes, post-approval clinical
data
and promotional activities for such product, will be subject to continual
review
and periodic inspections by the FDA and other regulatory bodies. Even if
regulatory approval
of a
product is granted, the approval may be subject to limitations on the indicated
uses for which the product may be marketed or contain requirements for costly
post-marketing testing and surveillance to monitor the safety or efficacy
of the
product. Later discovery of previously unknown problems with our products,
including unanticipated adverse events or adverse events of unanticipated
severity or frequency, manufacturer or manufacturing processes, or failure
to
comply with regulatory requirements, may result in restrictions on such products
or manufacturing processes, withdrawal of the products from the market,
voluntary or mandatory recall, fines, suspension of regulatory approvals,
product seizures, injunctions or the imposition of civil or criminal
penalties.
Competition
The
life
sciences industry is highly competitive and subject to rapid and profound
technological change. We believe that several companies are investigating
biomarkers for every human cancer. These companies include firms seeking
a
better understanding of molecular variability in human brain tumors with
the
objective to be able to use such information to design better treatments.
Our
present and potential competitors include major pharmaceutical companies,
as
well as specialized biotechnology and life sciences firms in the United States
and in other countries. Most of these companies have considerably greater
financial, technical and marketing resources than we do. Additional mergers
and
acquisitions in the pharmaceutical and biotechnology industries may result
in
even more resources being concentrated in our competitors. Our existing or
prospective competitors may develop processes or products that are more
effective than ours or be more effective at implementing their technologies
to
develop commercial products faster. Our competitors may succeed in obtaining
patent protection and/or receiving regulatory approval for commercializing
products before us. Developments by our competitors may render our product
candidates obsolete or non-competitive.
We
also
experience competition from universities and other research institutions, and
we
are likely to compete with others in acquiring technology from those sources.
There can be no assurance that
others
will not
develop
technologies with significant advantages over those that we are seeking to
develop. Any such development could harm our business.
We
face
competition from other companies seeking to identify and commercialize cancer
biomarkers. We also compete with universities and other research institutions
engaged in research in these areas. Many of our competitors have greater
technical and financial resources than we do.
Our
ability to compete successfully is based on numerous factors,
including:
|
·
|
the
cost-effectiveness of any product we ultimately commercialize relative
to
competing products;
|
|
·
|
the
ease of use and ready availability of any product we bring to
market;
|
|
·
|
the
accuracy of a diagnostic test designed by us in detecting cancers,
including overcoming the propensity for “false positive” results;
and
|
|
·
|
the
relative speed with which we are able to bring any product resulting
from
our research to market in our target
markets.
|
If
we are
unable to distinguish our products from competing products, or if competing
products reach
the
market first, we may be unable to compete successfully with current or future
competitors. This would cause our revenues to decline and affect our ability
to
achieve profitability.
Employees
As
of
July 31, 2006, we had no full-time employees. Dr. Kovach is Chair of the
Department of Preventive Medicine at SUNY, in Stony Brook. He received approvals
from the School of Medicine of Stony Brook University and from the New York
State Ethics Commission to operate the company (or to serve as CEO of the
company) and to hold greater than 5% of our outstanding shares.
Our
investment commitments in the research efforts pursuant to the CRADA fund two
technical assistants who will work under the supervision of Dr. Zhuang on the
aims of the CRADA. Dr. Kovach will devote 0.2 person of his efforts per year
to
research planning and design and will monitor the research progress under the
CRADA. Dr. Kovach’s contributions will be made outside of his academic
responsibilities.
Properties
At
present, we conduct all laboratory activities at NIH under the CRADA agreement.
We will
also
collect and store samples of human tumors other than brain cancers under
a
service agreement
with the University of Regensburg, Germany. The company maintains a single
office in
a
designated area of Dr. Kovach's residence and receives mail at the post
office
depot, 248 Route
25A, No. 2, East Setauket, New York 11733. No additional facilities are
needed
until the company
develops its independent laboratory.
Government
Regulation
At
its
present stage of development, our business is not subject to any specific
government regulation
with respect to its ongoing research and plan service agreement. Our only
collaborator at present is National Institute of Neurological Diseases
and
Stroke (NINDS), National Institutes of Health. This collaboration is defined
in
CRADA
2165 under which NINDS evaluates compounds for their ability to inhibit
the
growth
of
brain tumor cells. The NINDS laboratory that is carrying out this activity
is a
research laboratory that operates in compliance with various federal and
state's
statutes and regulations including the OSHA. All activities of this laboratory
are monitored by the
compliance office of NINDS.
Our
business is also currently negotiating a service agreement with Regensburg
University, Germany for access to “waste”
samples of
various human cancers and serum and urine from individuals with cancers.
The
collection, preparation, storage, and transfer of these materials are subject
to
the investigational review board of the University, which operates under
the
requirements of the Free State of Bavaria. The materials are anonymized
by the
personnel by the University so that the business has no way to link clinical
samples to any individuals. This process is in compliance with the requirements
of the CRADA and with FDA regulations concerning the study of clinical
material.
There
are
no other regulations affecting the pursuit of the goals
of the
business. In the future,
if and when we develop an independent laboratory,
that laboratory would be subject to the same regulations that apply to
any
laboratory carrying out research
on biological samples. Should we develop
an independent laboratory, it will engage a compliance expert to formally
assess
the status of the laboratory with respect
to federal occupational and environmental regulations and also those regulations
of the state in which the laboratory is located as these regulations pertain
to
the operation of
the
laboratory.
In
the
future, we
anticipate that as part of the CRADA agreement with NINDS lead
compounds identified as active in vitro by the NINDS laboratory will be
assessed
for activity in animal models (mouse/rat) of human brain tumors. Such activities
by NINDS and the business would be carried out in compliance with all applicable
Statutes, Executive Capital Orders, HHS regulations and all FDA, CDC, and
NIH
policies as specified
in Article 13, 13.1 and 13.2, of the PHS CRADA agreement.
Our
business will become subject to the regulations of the FDA when we
begin to pursue development of clinical trials. In
addition to regulations imposed by the FDA, depending on our future activities
we may become subject to regulation under various federal and state
statutes and regulations such as the Occupational Safety and Health Act,
the
Environmental Protection Act, the Toxic Substances Control Act, the Research
Conservation and Recovery Act, national restrictions on technology
transfer, and import, export and customs regulations. From time to time,
other
federal agencies and congressional committees have indicated an interest
in
implementing further regulation of biotechnology applications. We are not
able
to predict whether any such regulations will be adopted or whether, if adopted,
such
regulations will apply to our business, or whether we or our collaborators
would
be able to comply with any applicable regulations.
In
addition, as we intend to market our products in international markets, we
may
be required to obtain separate regulatory approvals from the European Union
and
many other foreign jurisdictions. Approval by the FDA does not ensure approval
by regulatory authorities in other countries, and approval by one foreign
regulatory authority does not ensure approval by regulatory authorities in
other
foreign countries or by the FDA. We may not be able to file for regulatory
approvals and may not receive necessary approvals to commercialize our products
in any market. As we are currently in the development stage, we can predict
the
impact on us from any such regulations.
We
are
not a party to any legal proceedings.
The
following table and text set forth the names of all directors and executive
officer of our Company as of October 31, 2006. The Board of Directors is
comprised of only one class. All of the directors will serve until the next
annual meeting of stockholders and until their successors are elected and
qualified, or until their earlier death, retirement, resignation or removal.
There are no family relationships between or among the directors, executive
officers or persons nominated or charged by our Company to become directors
or
executive officers. The executive officer serves at the discretion of the
Board
of Directors, and is appointed to serve until the first Board of Directors
meeting following the annual meeting of stockholders. The brief descriptions
of
the business experience of each director and executive officer and an indication
of directorships held by each director in other companies subject to the
reporting requirements under the Federal securities laws are provided herein
below. Also provided are the biographies of the members of the Scientific
Advisory Committee.
Our
directors and executive officer are as follows:
|
Name
|
Age
|
Position
Held with the Registrant
|
||
|
Dr. John S.
Kovach
|
70
|
Chief
Executive Officer, Director
|
||
|
Dr. Philip F.
Palmedo
|
72
|
Director
|
We
intend
to add at least one more independent director as soon as possible.
Biographies
of Directors and Executive Officer:
Dr.
John S. Kovach
Dr. John S.
Kovach, age 70, founded Lixte in August 2005 and was its President and a
member
of the Board of Directors. He received a BA (cum laude) from Princeton
University and an MD (AOA) from the College of Physicians & Surgeons,
Columbia University. Dr. Kovach trained in Internal Medicine and Hematology
at Presbyterian Hospital, Columbia University and spent six years in the
laboratory of Chemical Biology, National Institute of Arthritis and Metabolic
diseases studying control of gene expression in bacterial
systems.
Dr. Kovach
was recruited to Stony Brook University in 2000 to found the Long Island Cancer
Center (now named the Stony Brook University Cancer Center). He is presently
Chair of the Department of Preventive Medicine at Stony Brook University in
Stony Brook, New York. From 1994 to 2000, Dr. Kovach was Executive Vice
President for Medical and Scientific Affairs, City of Hope National Medical
Center in Los
Angeles,
California. His responsibilities included oversight of all basic and clinical
research initiatives at the City of Hope. During that time he was also Director
of the Beckman Research Center at City of Hope and a member of the Arnold and
Mabel Beckman Scientific Advisory Board in Newport Beach,
California.
From
1976
to 1994, Dr. Kovach was a consultant in oncology and director of the Cancer
Pharmacology Division at the Mayo Clinic in Rochester, Minnesota. During this
time, he directed the early clinical trials program for evaluation of new
anti-cancer drugs as principal investigator of contracts from the National
Cancer Institute. From 1986 to 1994, he was also Chair of the Department of
Oncology and Director of the NCI-designated Mayo Comprehensive Cancer Center.
During that time, Dr. Kovach, working with a molecular geneticist, Steve
Sommer MD, PhD, published extensively on patterns of acquired mutations in
human
cancer cells as markers of environmental mutagens and as potential indicators
of
breast cancer patient prognosis. Dr. Kovach has published over 100 articles
on the pharmacology, toxicity, and effectiveness of anti-cancer treatments
and
on the molecular epidemiology of breast cancer. Dr. Kovach directs Lixte
with the approval of the State University of New York at Stony Brook and the
New
York State Ethics Commission.
Chief
Executive Officer
Initially,
leadership and management of our company will be provided by Dr. Kovach
with the advice of the board of Directors and the Scientific Advisory Committee.
The activities for the first year at least will be confined to achieving the
goals of the CRADA through the collaborative arrangement of the company by
which
Dr. Kovach and Dr. Zhuang, aided by two full time technical personnel,
will pursue development of lead compounds for the treatment of malignant brain
tumors. During the initial year, Dr. Kovach will also oversee the
collection of the clinical samples needed to validate the biomarker observations
regarding GBMs and to be in a position to extend the discovery process to
ovarian and stomach cancers. At this point, we will consider seeking another
CRADA to extend the scope of our research or establishing an independent
laboratory. The timing of this expansion will depend on raising additional
capital of approximately $2.3 million by sale of additional shares of stock.
A
chief executive officer would then be recruited to manage our business affairs.
It is anticipated that this may require less than full time effort for the
second year with a need developing for a full time CEO and at least a part
time
financial officer in the third year of operation.
Dr.
Philip F. Palmedo
Dr.
Palmedo joined our board of directors on June 30, 2006. Dr. Palmedo has had
a
diversified career as a physicist, entrepreneur, corporate manager and writer.
Dr. Palmedo received his undergraduate degree from Williams College and
M.S. and Ph.D. degrees from MIT. He carried out experimental nuclear reactor
physics research at MIT, Oak Ridge National Laboratory, the French Atomic
Energy
Commission Laboratory at Saclay and Brookhaven National Laboratory (BNL).
At BNL
in 1972 he initiated and was the first head of the Energy Policy Analysis
Group.
In 1974 he served with the Energy Policy Office of the White House and in
the
following year initiated the BNL Developing Country Energy Program.
In
1979,
Dr. Palmedo founded the International Resources Group, an international
professional services firm in energy, environment and natural resources.
He
served as Chairman and CEO until 1988 and since that time remains as Chairman
of
the company. In 1985 the company was recognized by Inc.
Magazine
as one
of the 500 fastest growing private companies in the U.S.
In
1988,
Dr. Palmedo joined in the formation of Kepler Financial Management, Ltd., a
quantitative financial research and trading company. Dr. Palmedo held the
position of President and Managing Director until the end of 1991 when
Renaissance Technologies Corporation acquired the company. In 2005 he started
a
new hedge fund, Kepler Asset Management, and is a Managing Director of the
firm.
Dr. Palmedo
was the designer and, in 1992, became the first president of the Long Island
Research Institute. LIRI was formed by Brookhaven National Laboratory, Cold
Spring Harbor Laboratory, and Stony
Brook
University to facilitate the commercialization of technologies developed in
their research and development programs. LIRI guided fledgling companies and
started several new high tech entities. In order to provide “zero-stage”
financing, LIRI created the Long Island Venture Fund, which evolved into the
$250 million Topspin Fund.
Dr. Palmedo
served on the boards of Asset Management Advisors and the Teton Trust Company
and is currently a member of the Board of Directors of EHR Investments and
the
Gyrodyne Corporation of America. Dr. Palmedo also served on the Board of
Trustees of Williams College and of the Stony Brook (University) Foundation
and
chaired the Foundation’s Investment Committee. He is the founding Chairman of
the non-profit Cultural Preservation Fund.
Dr. Palmedo
has served as a consultant and advisor to numerous corporations and national
and
international agencies in science, technology and environmental policy including
the MacArthur Foundation, the U. S. National Academy of Sciences, International
Atomic Energy Agency, UNIDO, Organization of American States, the Governments
of
Sweden, Denmark, Dominican Republic, Indonesia, Somalia, Sudan, Egypt and Peru.
He is the author of many publications in nuclear reactor physics, energy and
environment, and technology and economic development. Dr. Palmedo has two
sons and lives in St. James, Long Island, N.Y. with his wife, Elisabeth.
SCIENTIFIC
ADVISORY COMMITTEE
The
Committee advises us in three areas: human molecular pathology; the
clinical
management of human brain tumors; and medicinal chemistry. It is planned
that
the committee
will meet as a group annually with some members participating via telephone
conference.
Thus far the Committee has been apprised of our general
objectives and
several of the specific challenges and leads for developing improved therapies
for human brain
tumors. The Committee members have not provided specific advice thus far
that
has modified
strategy nor do they serve in any management capacity. The scientific advisory
committee was formalized on June 30, 2006. The members of our Advisory
Committee
are:
Arndt
Hartmann, MD
Dr. Hartmann
is Professor of Pathology, Institute of Pathology, University of Regensburg,
Germany. He was trained in Internal Medicine at the University of Jena, Germany,
and in molecular genetics of cancer at Mayo Clinic, Rochester, MN. He was
subsequently trained in pathology at the University of Regensburg and the
University of Basel, Switzerland. His research is focused on methods development
in molecular pathology. He has specific expertise in genetic alterations in
cancers of the bladder, prostate, kidney and breast.
Ferdinand
Hofstadter, MD
Dr. Hofstadter
is Professor and Director of the Institute of Pathology, University of
Regensburg Medical School, Germany. He is Research Dean of the University of
Regensburg-Medical Faculty, Chairman of the Managing Board of the Association
of
German Tumor Centers, Chairman of the German Society for Pathology, a member
of
the editorial boards of Virchow’s Archives and the Journal of Pathology, and a
referee for Deutsche Forschungsgesellschaft, the Dr. Mildred
Scheel-Stiftung, EU, and the European Research Framework Program.
Stefan
Madajewicz, MD, PhD
Dr. Madajewicz
is Professor of Medicine. For the past 15 years, he has been Director of Cancer
Clinical Trials and for the past 10 years, Chief, Neoplastic Diseases at
SUNY-Stony Brook. Dr. Madajewicz is a Fellow, American College of
Physicians and a member of the American Society of Clinical Oncology, American
Association for Cancer Research, European Society of Medical Oncology an
affiliate of the Eastern Cooperative Oncology Group, and member of the National
Surgical Adjuvant Breast and Bowel Project. He is recognized as an outstanding
cancer clinician and for the design of clinical trials, particularly the
evaluation of new drugs in the treatment of cancers of the gastrointestinal
tract and brain.
Iwao
Ojima, BS, MS, PhD
Professor
Ojima is Distinguished Professor of Chemistry and Director, Institute of
Chemical Biology and Drug Discovery, SUNY-Stony Brook. He is an internationally
recognized expert in medicinal chemistry,
including
anticancer agents and enzyme inhibitors, development of efficient synthetic
methods for organic synthesis by means of organometallic reagents, homogeneous
catalysis and organometallic chemistry, peptide and peptide mimetics,
beta-lactam chemistry, and organoflourine chemistry at the biomedical
interface.
Dr. Ojima
is a recipient of the Arthur C. Cope Scholar Award (1994) and the
E. B. Hershberg Award (for important discovery of medicinally active
substances) (2001) from the American Chemical Society; The Chemical Society
of
Japan Award (for distinguished achievements) (1999); Outstanding Inventor Award
from the Research Foundation of the State University of New York (2002. He
is a
Fellow of the J.S. Guggenheim Memorial Foundation (1995-), the American
Association for the Advancement of Science (1997-), and The New York Academy
of
Sciences (2000-).
Dr. Ojima
is a member of the American Chemical Society, American Association for the
Advancement of Science, American Association for Cancer Research, American
Peptide Society, the Chemical Society of Japan, the Society of Synthetic Organic
Chemistry, Japan, New York Academy of Sciences, and Signa Xi. He has served
as a
consultant for E. I. du Pont, Eli Lilly, Air Products &
Chemicals, Mitsubishi Chem. Inc., Nippon Steel Corp., Life Science Division,
Rhone-Poulenc Rorer, ImmunoGen, Inc., Taiho Pharmaceutical Co., Milliken &
Co., Aventis Pharma, OSI Pharmaceuticals, Inc., Mitsubishi Chem. Corp.
(current).
Audit
Committee
We
do not
presently have an audit committee. The board of directors acts in that capacity
and has determined that we do not currently have an audit committee financial
expert serving on our audit committee.
For
the
current and prior fiscal year, Dr. Kovach has not and does not
anticipate receiving any compensation from us in view of our early stage
status.
He will be reimbursed for any out-of-pocket expenses. Any future compensation
arrangements will be subject to the approval of the board of directors. Richard
Rappaport, who served as our President in 2005 through the date of
the Reverse Merger, did not receive any compensation for that
period.
Option
Grants in 2005
None.
Aggregated
Option Exercises in 2005 and Option Values at December 31,
2005
None.
Employment
Agreements; Compensation
We
have
not entered into any employment agreements. As of October 31, 2006, we had
no
full-time employees. For the current fiscal year, Dr. Kovach does not
anticipate receiving any compensation from us in view of our early stage
status.
He will be reimbursed for any out-of-pocket expenses. Any future compensation
arrangements will be subject to the approval of the board of directors. Dr.
Phillip Palmedo, our sole outside director, has received options to purchase
200,000 shares of common stock at the initial private placement price of
$0.333
per share with one third of the options (66,666 shares) vesting immediately
upon
joining the board and one third vesting annually for two years on the
anniversary of that date. Dr. Palmedo has also received options to purchase
190,000 shares of common stock at $0.333 per share for services rendered
in
developing the business plan for Lixte.
Director
Compensation
Members
of the Board of Directors
On
June
30, 2006, Dr. Palmedo was granted options to purchase 200,000 shares of common
stock at the initial private placement price of $0.333 per share with one
third
of the options (66,666 shares) vesting on such date and one third vesting
annually for two years on the anniversary of that date. Any
additional outside member of the Board will receive options to purchase
200,000 shares of common stock at the fair market value as of the date of
the
grant with one third of the options (66,666 shares) vesting immediately upon
joining the board and one third vesting annually for two years on the
anniversary of that date. On June 30, 2006, Dr. Palmedo also was granted
options
to purchase 190,000 shares of common stock exercisable for a period of five
years at $0.333 per share for services rendered in developing our business
plan,
all of which were fully vested upon issuance.
Members
of the Scientific Advisory Committee
On
June
30, 2006 each member of the Scientific Advisory Committee (SAC), other than
Drs.
Hartmann and Hofstadter, received options to purchase 50,000 shares of
common stock at the initial private placement price of $0.333 per share with
one
half of the options (25,000 shares) vesting on the first anniversary of joining
the SAC and one half vesting on the second anniversary.
AND
MANAGEMENT
The
following table sets forth, as of October 31, 2006, certain information
regarding beneficial ownership of our common stock by (i) each person or
entity who is known by us to own beneficially more than 5% of the outstanding
shares of common stock, (ii) each of our directors, and (iii) all
directors and executive officers as a group. As of October 31, 2006, there
were
26,582,183 shares of our common stock issued and outstanding. In computing
the
number and percentage of shares beneficially owned by a person, shares of
common
stock that a person has a right to acquire within sixty (60) days of October
31,
2006, pursuant to options, warrants or other rights are counted as outstanding,
while these shares are not counted as outstanding for computing the percentage
ownership of any other person. Unless otherwise indicated, the address for
each
stockholder listed in the following table is c/o SRKP 7, Inc., 248 Route
25A,
No. 2, East Setauket, New York 11733. This table is based upon information
supplied by directors, officers and principal stockholders and reports filed
with the Securities and Exchange Commission.
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
of Class
|
|||||
|
Officers,
Directors and 5% stockholders
|
|
||||||
|
Dr. John S.
Kovach
248
Route 25A, No. 2
East
Setauket, New York 11733
|
19,021,786
|
71.56
|
%
|
||||
|
Dr. Philip F.
Palmedo
248
Route 25A, No. 2
East
Setauket, New York 11733
|
256,666(1
|
)
|
0.96
|
%
|
|||
|
All
Officers and directors as a group (two persons prior to and following
the
consummation of the Exchange)
|
19,278,452(1
|
)
|
71.83
|
%
|
|||
| (1) |
Includes
options to purchase an aggregate of 256,666 shares of common stock,
which
are immediately
exercisable.
|
This
section describes the transactions we have engaged in with persons who were
directors, officers or affiliates before and at the time of the transaction,
and
persons known by us to be the beneficial owners of 5% or more of our common
stock as of October 31, 2006.
On
May 26, 2005, we sold 1,155,000 shares and 270,000
shares of our comon stock to Richard Rappaport and Anthony Pintsopoulos at
a per
share price of $0.009. Messrs Rappaport and Pintsopoulos were our officers
and
directors prior to our reverse merger.
Most
office services are provided without charge by Dr. Kovach,
our president. Such costs are immaterial to the financial statements and
accordingly, have not been reflected therein. Our officer and director are
involved in other business activities and may, in the future, become involved
in
other business opportunities that become available, such person may face
a
conflict in selecting between us and his other business interests. We have
not
formulated a policy for the resolution of such conflicts.
In
connection with the private placement of our
securities in June and July 2006, we paid WestPark Capital, Inc. fees of
$165,744 representing a commission of 10% and a nonaccountable expense fee
of
4% on the gross proceeds. We also issued five year warrants to purchase an
aggregate of 426,626 shares of common stock equal to 12% of the number of
shares
sold in the private placement at an exercise price of $0.333 per share. We
also
paid WestPark Capital, Inc. a $50,000 fee in connection with the Reverse
Merger. Richard Rappaport, the Chief Executive Officer of WestPark Capital,
Inc.
was our President from our formation through the date of the Reverse
Merger.
Also,
Dr. Kovach, our President, has advanced to us an
aggregate of $92,717 through September 30, 2006 to meet operating expenses.
Such advances are non-interest bearing and are due on demand.
General
Our
authorized capital consists of 100,000,000 shares of common stock, par value
$0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001
per share. As of October 31, 2006, we had 26,582,183 shares of common stock
outstanding. We have no shares of preferred stock issued or
outstanding, and options to purchase 490,000 shares. We have granted
registration rights to the investors in the private placement and certain
of the
shareholders who were such at the time of the reverse merger. The registration
statement of which this prospectus is a part covers the resale of such shares.
We do not believe that any outstanding shares are currently eligible to be
sold
under Rule 144.
Common
Stock
Subject
to rights which may be granted to holders of preferred stock in the future,
each
share of our common stock is entitled to one vote at all meetings of our
stockholders. Our common stockholders are not permitted to cumulate votes in
the
election of directors. All shares of our common stock are equal to each other
with respect to liquidation rights and dividend rights. There are no preemptive
rights to purchase any additional shares of our common stock. In the event
of
our liquidation, dissolution or winding up, holders of our common stock will
be
entitled to receive, on a pro rata basis, all of our assets remaining after
satisfaction of all liabilities and preferences of outstanding preferred stock,
if any.
On
May 18, 2006, we approved a stock dividend of 11% of
the issued and outstanding shares of common stock to be issued to all
stockholders of record as of May 18, 2006.
Transfer
Agent
Our
transfer agent is US Stock Transfer Corporation, located at 1745 Gardena Avenue,
Glendale, CA 91204, telephone (818) 502-1404.
Future
sales of a substantial number of shares of our common stock in the public market
could adversely affect market prices prevailing from time to time. Under the
terms of this offering, the shares of common stock offered may be resold without
restriction or further registration under the Securities Act of 1933, except
that any shares purchased by our “affiliates,” as that term is defined under the
Securities Act, may generally only be sold in compliance with Rule 144
under the Securities Act.
Sale
of Restricted Shares
Certain
shares of our outstanding common stock were issued and sold by us in private
transactions in reliance upon exemptions from registration under the Securities
Act and have not been registered for resale. Additional shares may be issued
pursuant to outstanding warrants and options. Such shares may be sold only
pursuant to an effective registration statement filed by us or an applicable
exemption, including the exemption contained in Rule 144 promulgated under
the Securities Act. The shares owned by the stockholders immediately prior
to
the reverse merger may only be sold pursuant to an effective registration
statement.
Rule 144
In
general, under Rule 144 as currently in effect, a stockholder, including
one of our affiliates, may sell shares of common stock after at least one year
has elapsed since such shares were acquired from us or our affiliate. The number
of shares of common stock which may be sold within any three-month period is
limited to the greater of: (i) one percent of our then outstanding common
stock, or (ii) the average weekly trading volume in our common stock during
the four calendar weeks preceding the date on which notice of such sale was
filed under Rule 144. Certain other requirements of Rule 144
concerning availability of public information, manner of sale and notice of
sale
must also be satisfied. In addition, a stockholder who is not our affiliate,
who
has not been our affiliate for 90 days prior to the sale, and who has
beneficially owned shares acquired from us or our affiliate for over two years
may resell the shares of common stock without compliance with many of the
foregoing requirements under Rule 144. The shares owned by the stockholders
immediately prior to the reverse merger may only be sold pursuant to an
effective registration statement.
The
securities being offered hereunder are being offered by the selling stockholders
listed below or their respective transferees, pledgees, donees or successors.
Each selling stockholder may from time to time offer and sell any or all of
such
selling stockholder’s shares that are registered under this prospectus. Because
no selling stockholder is obligated to sell shares, and because the selling
stockholders may also acquire publicly traded shares of our common stock, we
cannot accurately estimate how many shares each selling stockholder will own
after the offering.
All
expenses incurred with respect to the registration of the common stock covered
by this prospectus will be borne by us, but we will not be obligated to pay
any
underwriting fees, discounts, commissions or other expenses incurred by any
selling stockholder in connection with the sale of shares.
The
following table sets forth, with respect to each selling stockholder
(i) the number of shares of common stock beneficially owned as
of October 31, 2006 and prior to the offering contemplated hereby,
(ii) the maximum number of shares of common stock which may be sold by the
selling stockholder under this prospectus, and (iii) the number of shares
of common stock which will be owned after the offering by the selling
stockholder. All stockholders listed below are eligible to sell their shares.
None of the stockholders listed below have had any position, office or other
material relationship with us within the past 3 years. All New Investors
have
entered into a Securities Purchase Agreement and a Registration Rights Agreement
with us. The percentage ownership set forth below is based upon 26,582,183
shares outstanding.
|
Prior
to Offering
|
After
Offering
|
|||||||||||||||
|
Investor
Name
|
Shares
|
Percent
|
Shares
Offered
|
Shares
|
Percent
|
|||||||||||
|
Existing
Stockholders (1)
|
||||||||||||||||
|
Debbie
Schwartzberg
|
1,154,845
|
4.3
|
%
|
1,154,845
|
0
|
0
|
%
|
|||||||||
|
Tom
Poletti
|
269,973
|
1.0
|
%
|
269,973
|
0
|
0
|
%
|
|||||||||
|
Glenn
Krinsky
|
149,985
|
*
|
149,985
|
0
|
0
|
%
|
||||||||||
|
TMC
Ulster Holdings, Inc. (2)
|
1,005,556
|
3.8
|
%
|
1,005,556
|
0
|
0
|
%
|
|||||||||
|
New
Investors (3)
|
||||||||||||||||
|
Israel
Freeman
884
Oreo Place
Pacific
Palisades, CA 90272
|
150,150
|
*
|
150,150
|
0
|
0
|
%
|
||||||||||
|
Prior
to Offering
|
After
Offering
|
|||||||||||||||
|
Investor
Name
|
Shares
|
Percent
|
Shares
Offered
|
Shares
|
Percent
|
|||||||||||
|
Solomon
Blisko
55
Broad St.
New
York, NY 10004
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Alvin
S. Michaelson, Esq.,
Professional
Corporate Retirement Plan
1901
Avenue of the Stars, Suite 615
Los
Angeles, CA 90067
|
100,000
|
*
|
100,000
|
0
|
0
|
%
|
||||||||||
|
Dennis
O'Donnell
66
South Stone Hedge Dr.
Basking
Ridge, NJ 07920
|
24,024
|
*
|
24,024
|
0
|
0
|
%
|
||||||||||
|
Richard
& Donna Hoefer
42239
Nottingwood Ct.
Northville,
MI 48618-2024
|
75,075
|
*
|
75,075
|
0
|
0
|
%
|
||||||||||
|
Kagel
Family Trust
1801
Century Park East, #2500
Los
Angeles, CA 90067
|
150,150
|
*
|
150,150
|
0
|
0
|
%
|
||||||||||
|
Allan
Berry
16940
SW 94th Ct.
Palmetto
Bay, FL 33157
|
30,030
|
*
|
30,030
|
0
|
0
|
%
|
||||||||||
|
Jane
M. Trigg
24
Terra Pines Gate
Yaphank,
NY 11980
|
3,000
|
*
|
3,000
|
0
|
0
|
%
|
||||||||||
|
Darryl
J. Tyson
3800
Lovers Lane
Dallas,
TX 75225
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Arthur
Berrick & Sharon Berrick
3901
Rock Hampton Drive
Tarzana,
CA 91356
|
150,150
|
*
|
150,150
|
0
|
0
|
%
|
||||||||||
|
Dennis
Holman
6819
Shadowcreek Drive
Maumee,
OH 43537
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Frederic
Colman
165
Harcross Road
Woodside,
CA 94106
|
240,240
|
*
|
240,240
|
0
|
0
|
%
|
||||||||||
|
Scott
F. Jasper
111
W. Belden St
Sherman
, Texas 75092
|
30,030
|
*
|
30,030
|
0
|
0
|
%
|
||||||||||
|
Mitchell
J. Lipcon Profit Sharing Keough Plan
9100
S Dadeland Blvd Suite 400
Miami,
Florida 33156
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Prior
to Offering
|
After
Offering
|
|||||||||||||||
|
Investor
Name
|
Shares
|
Percent
|
Shares
Offered
|
Shares
|
Percent
|
|||||||||||
|
J
& N Invest LLC
152-E
9th St.
Lakewood,
NJ 08761
|
150,150
|
*
|
150,150
|
0
|
0
|
%
|
||||||||||
|
John
W. Hardy
2920
N. Foothill Dr
Provo,
UT
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
David
Clarke
Po
Box 210999
Palm
Beach, Florida 33421
|
60,060
|
*
|
60,060
|
0
|
0
|
%
|
||||||||||
|
William
& Ann Collins
64
Upper Loudon Road
Loudonville,
NY 12211
|
60,060
|
*
|
60,060
|
0
|
0
|
%
|
||||||||||
|
Howard
Izes
7900
Old York Road
Elkins
Park, PA 19027
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Brent
D. Butcher
5960
Fardown Ct.
Salt
Lake City, Utah 84121
|
60,060
|
*
|
60,060
|
0
|
0
|
%
|
||||||||||
|
Rita
M. Lurie
93
Taylor Lane
Harrison,
NY 10528
|
75,075
|
*
|
75,075
|
0
|
0
|
%
|
||||||||||
|
David
C. Katz
54
Tarn Dr.
Morris
Plains, NY 07950
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Mike
Lichtie
4198
Wildcreek
Sandy,
UT 84092
|
60,060
|
*
|
60,060
|
0
|
0
|
%
|
||||||||||
|
Mark
Nielsen
572
25th St.
Hermosa
Beach, CA 90254
|
150,150
|
*
|
150,150
|
0
|
0
|
%
|
||||||||||
|
David
R. Falk
PO
Box 189
St.
Ansgar, IA 50472
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Mody
K. Boatright
629
Santa Monica
Corpus
Christi, TX 78411
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Samuel
Solomon
1
S. Greenleaf, Suite A
Gurnee,
IL 60031
|
30,030
|
*
|
30,030
|
0
|
0
|
%
|
||||||||||
|
Phillip
& Sherrine Thomas
3
Hazelwood Lane
Kinnelon,
NJ 07405
|
30,030
|
*
|
30,030
|
0
|
0
|
%
|
||||||||||
|
Prior
to Offering
|
After
Offering
|
|||||||||||||||
|
Investor
Name
|
Shares
|
Percent
|
Shares
Offered
|
Shares
|
Percent
|
|||||||||||
|
Tae
Kang
41
Constitution Way
Jersey
City, NJ 07305
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
George
B. Feussner
7106
NW 11th Place, Suite A
Gainesville,
FL 32605
|
60,060
|
*
|
60,060
|
0
|
0
|
%
|
||||||||||
|
Gerald
C. Holman
345
Terrents Pt.
Carmel,
IN 46032
|
36,036
|
*
|
36,036
|
0
|
0
|
%
|
||||||||||
|
Bart
Anderson
134
Magee Road
Ringwood,
NJ 07456
|
30,030
|
*
|
30,030
|
0
|
0
|
%
|
||||||||||
|
Marvin
Rosenblatt
80
Weston St.
Hartford,
CT 06120
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Paul
E. Northcutt
P.O.
Box 1669
Ponca
City, OK 74602
|
60,060
|
*
|
60,060
|
0
|
0
|
%
|
||||||||||
|
Glenn
S Shear
5690
Glen Erol Rd.
Atlanta,
GA 30327
|
30,030
|
*
|
30,030
|
0
|
0
|
%
|
||||||||||
|
Charanjit
S. Pangali
6333
Paseo Santa Maria
Pleasonton,
CA 94566
|
30,030
|
*
|
30,030
|
0
|
0
|
%
|
||||||||||
|
Doug
Kuber
575
Madison Avenue, 10th Floor
New
York, NY 10022
|
150,150
|
*
|
150,150
|
0
|
0
|
%
|
||||||||||
|
Richard
Rudin
17466
Farmers Mine Rd.
Paonia,
CO 81428
|
60,060
|
*
|
60,060
|
0
|
0
|
%
|
||||||||||
|
David
L. Boyer
P.O.
Box 672171
Chugiak,
AK 99567
|
75,075
|
*
|
75,075
|
0
|
0
|
%
|
||||||||||
|
Glenn
Izmarian
3381
Venture Drive
Huntington
Beach, CA 92649
|
30,000
|
*
|
30,000
|
0
|
0
|
%
|
||||||||||
|
Mody
K. Boatright (Round 2)
629
Santa Monica
Corpus
Christi, TX 78411
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Harvey
P. Weintraub
3936
W. Loyola
Lincolnwood,
IL 66712
|
90,090
|
*
|
90,090
|
0
|
0
|
%
|
||||||||||
|
Prior
to Offering
|
After
Offering
|
|||||||||||||||
|
Investor
Name
|
Shares
|
Percent
|
Shares
Offered
|
Shares
|
Percent
|
|||||||||||
|
Ens
Defined Benefit Plan
26
Spring Valley Dr.
Holmdel,
NJ 07733
|
90,090
|
*
|
90,090
|
0
|
0
|
%
|
||||||||||
|
Charles
M. Merkel
P.O.
Box 1388, 30 Delta Avenue
Clarksdale,
MS 38614
|
75,075
|
*
|
75,075
|
0
|
0
|
%
|
||||||||||
|
Dennis
O'Donnell (Round 2)
66
South Stone Hedge Dr.
Basking
Ridge, NJ 07920
|
66,066
|
*
|
66,066
|
0
|
0
|
%
|
||||||||||
|
Remedium
LLC
141
Broad St.
New
Britain, CT 06053
|
16,517
|
*
|
16,517
|
0
|
0
|
%
|
||||||||||
|
Richard
Pawlinger
5425
Powers Ferry Rd.
Atlanta,
GA 30327
|
75,075
|
*
|
75,075
|
0
|
0
|
%
|
||||||||||
|
John
W Lahr
3570
Outlook Avenue
Cincinnati,
OH 45208
|
75,075
|
*
|
75,075
|
0
|
0
|
%
|
||||||||||
|
Kathleen
Datys
11
Caskey Road
Glen
Spey, NY 12737
|
90,090
|
*
|
90,090
|
0
|
0
|
%
|
||||||||||
|
Rebecca
Utter
3947
Las Vegas Dr.
El
Paso, TX 79902
|
45,045
|
*
|
45,045
|
0
|
0
|
%
|
||||||||||
|
Richard
Metsch
7
Sundale Place
Scarsdale,
NY 10583
|
36,036
|
*
|
36,036
|
0
|
0
|
%
|
||||||||||
|
Joan
Metsch
23
Greenville Road
Scarsdale,
NY 10583
|
12,613
|
*
|
12,613
|
0
|
0
|
%
|
||||||||||
|
Cynthia
Metsch
50
Phillips Place
Northampton,
MA 01060
|
15,015
|
*
|
15,015
|
0
|
0
|
%
|
||||||||||
|
John
O. Forrer
1714
Hoban Rd. NW
Washington,
D.C. 20007
|
54,054
|
*
|
54,054
|
0
|
0
|
%
|
||||||||||
|
Miriam
S. Mooney Trust FBO Joan F. Connolly
1714
Hoban Rd. NW
Washington,
D.C. 20007
|
20,721
|
*
|
20,721
|
0
|
0
|
%
|
||||||||||
|
Prior
to Offering
|
After
Offering
|
|||||||||||||||
|
Investor
Name
|
Shares
|
Percent
|
Shares
Offered
|
Shares
|
Percent
|
|||||||||||
|
Miriam
S. Mooney Trust FBO David Forrerr
1714
Hoban Rd. NW
Washington,
D.C. 20007
|
36,036
|
*
|
36,036
|
0
|
0
|
%
|
||||||||||
|
Miriam
S. Mooney Trust FBO Catherine F. Sotto Forrer
1714
Hoban Rd. NW
Washington,
D.C. 20007
|
27,027
|
*
|
27,027
|
0
|
0
|
%
|
||||||||||
| * |
Less
than 1%
|
| (1) |
The
shares were issued to the existing stockholders on May 26, 2005
at a per
share price of $0.009.
|
| (2) |
The
beneficial holder of such shares is Guido
DaLessio.
|
| (3) |
The
shares issued to the new investors were sold in private placements
occuring on June 30, 2006 and July 27, 2006 at a per share price
of
$0.333.
|
General
Each
selling stockholder and any of their pledges, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on the on any stock exchange, market or trading facility
on
which the shares are traded or quoted or in private transactions. These sales
may be at fixed prices, or prevailing market prices or privately negotiated
prices after the shares are quoted on the OTC Bulletin Board. Each selling
stockholder will act independently from us in making decisions with respect
to
the manner, timing, price and size of each sale. A selling stockholder may
use
any one or more of the following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of
sale;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440; and in the case of a principal transaction a markup or
markdown in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
We
are
required to pay certain fees and expenses incurred by us, incident to the
registration of the shares. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
Because
selling stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus,
which qualify for sale pursuant to Rule 144 under the Securities Act, may
be sold under Rule 144 rather than under this prospectus. Each selling
stockholder has advised us that they have not entered into any written or oral
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by
the
selling stockholders.
Registration
Obligations
We
agreed
to keep this prospectus effective until the earlier of (i) the date on
which the shares may be resold by the selling stockholders without registration
and without regard to any volume limitations by reason of Rule 144(e) under
the Securities Act or any other rule of similar effect or (ii) all of the
shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will
be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale
in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the selling stockholders or any other
person. We will make copies of this prospectus available to the selling
stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale.
The
validity of the issuance of the common stock offered hereby will be passed
upon
for us by Troy & Gould P.C.
The
financial statements of Lixte, Inc. for the year ended December 31, 2005
appearing in this prospectus have been audited by AJ. Robbins, PC, Certified
Public Accountants, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Pursuant
to our certificate of incorporation and bylaws, we may indemnify an officer
or
director who is made a party to any proceeding, because of his position as
such,
to the fullest extent authorized by Delaware General Corporation Law, as the
same exists or may hereafter be amended. In certain cases, we may advance
expenses incurred in defending any such proceeding.
To
the
extent that indemnification for liabilities arising under the Securities Act
may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of
the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. If
a
claim for indemnification against such liabilities (other than the payment
by us
of expenses incurred or paid by a director, officer or controlling person of
our
company in the successful defense of any action, suit or proceeding) is asserted
by any of our directors, officers or controlling persons in connection with
the
securities being registered, we will, unless in the opinion of our counsel
the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of that issue.
We
have
filed with the SEC a registration statement on Form SB-2, which includes
exhibits, schedules and amendments, under the Securities Act, with respect
to
this offering of our securities. Although this prospectus, which forms a part
of
the registration statement, contains all material information included in the
registration statement, parts of the registration statement have been omitted
as
permitted by rules and regulations of the SEC. We refer you to the registration
statement and its exhibits for further information about us, our securities
and
this offering. The registration statement and its exhibits, as well as our
other
reports filed with the SEC, can be inspected and copied at the SEC’s public
reference room at 100 F Street, N.E., Washington, D.C. 20549-1004. The public
may obtain information about the operation of the public reference room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a web site
at
http://www.sec.gov, which contains the Form SB-2 and other reports, proxy
and information statements and information regarding issuers that file
electronically with the SEC.
|
Lixte,
Inc. Financial Statements for the period from August 9, 2005 (inception)
to
December 31, 2005
|
||
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Balance
Sheet
|
F-3
|
|
|
Statements
of Operations
|
F-4
|
|
|
Statement
of Changes in Stockholder’s Equity (Deficit)
|
F-5
|
|
|
Statements
of Cash Flows
|
F-6
|
|
|
Notes
to Financial Statements
|
F-7
|
|
|
SRKP
7, Inc. and Subsidiary Unaudited Interim Financial
Statements
|
||
|
Condensed
Consolidated Balance Sheet
|
F-10
|
|
|
December
31, 2005 and September 30, 2006 (unaudited)
|
||
|
Condensed
Consolidated Statements of Operations (unaudited)
|
F-11
|
|
|
Three
Months Ended September 30, 2006, Nine Months Ended September 30,
2006, and August 9, 2005 (Inception) to June 30, 2006
(Cumulative)
|
||
|
Condensed
Consolidated Statement of Stockholders’ Equity (Deficiency)
(unaudited)
|
F-12
|
|
|
August 9,
2005 (Inception) to December 31, 2005, and January 1, 2006 to
September 30, 2006
|
||
|
Condensed
Consolidated Statements of Cash Flows (unaudited)
|
F-13
|
|
|
Nine Months
Ended June 30, 2006, August 9, 2005 (Inception) to September 30, 2005
and August 9, 2005 (inception) to September 30, 2006
(Cumulative)
|
||
|
Notes
to Condensed Consolidated Financial Statements
|
F-14
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Lixte,
Inc.
East
Setauket, NY
We
have
audited the accompanying balance sheet of Lixte, Inc. (a development
stage
company) as of December 31, 2005, and the related statements of operations,
changes in stockholder’s equity (deficit), and cash flows for the period from
August 9, 2005 (inception) to December 31, 2005. These financial
statements are
the responsibility of the Company's management. Our responsibility
is to express
an opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public
Company
Accounting Oversight Board (United States). Those standards require
that we plan
and perform the audit to obtain reasonable assurance about whether
the financial
statements are free of material misstatement. An audit includes examining
on a
test basis, evidence supporting the amounts and disclosures in the
financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the
overall
financial statement presentation. We believe that our audit provides
a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly,
in all
material respects, the financial position of Lixte, Inc. as of December
31,
2005, and the results of its operations and its cash flows for the
period from
August 9, 2005 (inception) to December 31, 2005, in conformity with
accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that
the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company is in the development stage and has not commenced
operations. Its ability to continue as a going concern is dependent
upon its
ability to develop additional sources of capital, locate and complete
a merger
with another company and ultimately achieve profitable operations.
These
conditions raise substantial doubt about its ability to continue
as a going
concern. The financial statements do not include any adjustments
that might
result from the outcome of this uncertainty.
AJ.
ROBBINS, PC
CERTIFIED
PUBLIC ACCOUNTANTS
Denver,
Colorado
February
27, 2006, except for the event discussed in Note 6, dated August
15,
2006
LIXTE,
INC.
(A
Development Stage Company)
Balance
Sheet December 31, 2005
|
ASSETS
|
||||
|
CURRENT
ASSETS:
|
||||
|
Cash
in bank
|
$
|
4,946
|
||
|
Total
Current Assets
|
4,946
|
|||
|
EQUIPMENT,
net
|
1,026
|
|||
|
$
|
5,972
|
|||
|
LIABILITIES
AND STOCKHOLDER’S EQUITY (DEFICIT)
|
||||
|
LIABILITIES:
|
||||
|
Accounts
payable
|
$
|
14,650
|
||
|
Due
to stockholder
|
5,946
|
|||
|
Total
Current Liabilities
|
20,596
|
|||
|
STOCKHOLDER’S
EQUITY (DEFICIT)
|
||||
|
Preferred
stock, $.0001 par value, 10,000,000 shares authorized; none issued
and
outstanding
|
—
|
|||
|
Common
stock, $.0001 par value, 100,000,000 shares authorized; 19,021,786
shares
issued and outstanding
|
1,902
|
|||
|
Additional
paid-in capital
|
(402
|
)
|
||
|
(Deficit)
accumulated during development stage
|
(16,124
|
)
|
||
|
Total
Stockholder’s Equity (Deficit)
|
(14,624
|
)
|
||
|
$
|
5,972
|
|||
See
accompanying notes to financial statements.
LIXTE,
INC.
(A
Development Stage Company)
Statements
of Operations
For
the
period from August 9, 2005 (inception) to December 31,
2005
|
For
the Period
|
Cumulative
From
|
||||||
|
From
August 9,
|
August
9,
|
||||||
|
2005
|
2005
(Inception)
|
||||||
|
To
|
To
|
||||||
|
December
31,
|
December
31,
|
||||||
|
2005
|
2005
|
||||||
|
REVENUE
|
$
|
—
|
$
|
—
|
|||
|
EXPENSES
|
16,124
|
16,124
|
|||||
|
NET
(LOSS)
|
$
|
(16,124
|
)
|
$
|
(16,124
|
)
|
|
|
NET
(LOSS) PER COMMON SHARE - BASIC
|
$
|
*
|
|||||
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
|
19,021,786
|
||||||
|
(*)
Less than $0.01
|
|||||||
See
accompanying notes to financial statements.
LIXTE,
INC.
(A
Development Stage Company)
Statement
of Changes in Stockholder’s Equity (Deficit)
For
the
period from August 9, 2005 (inception) to December 31, 2005|
Common
Stock
|
Additional
|
(Deficit)
Accumulated
|
Total
Stockholder’s
|
|||||||||||||
|
Shares
|
Amount
|
Paid-in
Capital
|
During
Stage
|
Equity(Deficit)
|
||||||||||||
|
Balances,
August 9, 2005
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||||
|
Shares
issued to founding stockholder
|
19,021,786
|
1,902
|
(402
|
)
|
—
|
1,500
|
||||||||||
|
Net
(loss)
|
—
|
—
|
—
|
(16,124
|
)
|
(16,124
|
)
|
|||||||||
|
Balances,
December 31, 2005
|
19,021,786
|
$
|
1,902
|
$
|
(402
|
)
|
$
|
(16,124
|
)
|
$
|
(14,624
|
)
|
||||
See
accompanying notes to financial statements.
LIXTE,
INC.
(A
Development Stage Company)
Statements
of Cash Flows
|
For
the Period
|
Cumulative
From
|
||||||
|
From
August 9,
|
August
9,
|
||||||
|
2005
|
2005
(Inception)
|
||||||
|
To
|
To
|
||||||
|
December
31,
|
December
31,
|
||||||
|
2005
|
2005
|
||||||
|
CASH
FLOWS FROM (TO) OPERATING ACTIVITIES:
|
|||||||
|
Net
(loss)
|
$
|
(16,124
|
)
|
$
|
(16,124
|
)
|
|
|
Adjustment
to reconcile net (loss) to net cash:
|
|||||||
|
Depreciation
|
113
|
113
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
payable
|
14,650
|
14,650
|
|||||
|
Net
Cash (Used In) Operating Activities
|
(1,361
|
)
|
(1,361
|
)
|
|||
|
CASH
FLOWS FROM (TO) INVESTING ACTIVITIES:
|
|||||||
|
Purchase
of equipment
|
(1,139
|
)
|
(1,139
|
)
|
|||
|
Net
Cash (Used In) Investing Activities
|
(1,139
|
)
|
(1,139
|
)
|
|||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||
|
Common
stock issued for cash
|
1,500
|
1,500
|
|||||
|
Advances
from stockholder
|
5,946
|
5,946
|
|||||
|
Net
Cash Provided By Financing Activities
|
7,446
|
7,446
|
|||||
|
NET
INCREASE IN CASH
|
4,946
|
4,946
|
|||||
|
CASH,
beginning
of period
|
—
|
—
|
|||||
|
CASH,
end of period
|
$
|
4,946
|
$
|
4,946
|
|||
See
accompanying notes to financial statements.
LIXTE,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History
Lixte,
Inc. (“the Company”), a development stage company, was organized under the laws
of the State of Delaware on August 9, 2005. The Company is in the development
stage as defined in Financial Accounting Standards Board Statement No.
7. The
fiscal year end is December 31.
Going
Concern and Plan of Operations
The
Company’s financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and satisfaction
of
liabilities in the normal course of business. The Company is in the development
stage and has not earned any revenues from operations to date, which raises
substantial doubt about its ability to continue as a going
concern.
The
Company’s ability to continue as a going concern is dependent upon its ability
to develop additional sources of capital, and ultimately achieve profitable
operations. The accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
The
Company is currently devoting its efforts to research and development related
to
specific cancer biomarkers for early detection, estimation of prognosis,
monitoring response to treatment, and development of targeted therapeutic
agents. The Company is seeking to exploit this opportunity through execution
of
its business plan and the development of related patents.
Income
Taxes
The
Company uses the liability method of accounting for income taxes pursuant
to
Statement of Financial Accounting Standards No. 109. Under this method,
deferred
income taxes are recorded to reflect the tax consequences in future years
of
temporary differences between the tax basis of the assets and liabilities
and
their financial amounts at year end.
For
federal income tax purposes, substantially all expenses must be deferred
until
the Company commences business and then they may be written off over 60-month
period. These expenses will not be deducted for tax purposes and will represent
a deferred tax asset. The Company will provide a valuation allowance in
the full
amount of the deferred tax asset since there is not assurance of future
taxable
income. Tax deductible losses can be earned forward for 20 years until
utilized.
Cash
and Cash Equivalents
Cash
and
cash equivalents consist primarily of cash in banks and highly liquid
investments with original maturities of 90 days or less.
Equipment
Equipment
is recorded at cost. Depreciation expense is provided on a straight-line
basis
using estimated useful lives of 3 years. Depreciation expense was $113
for the
period ended December 31, 2005. Maintenance and repairs are charged to
expense
as incurred. When assets are retired or otherwise disposed of, the property
accounts are relieved of costs and accumulated depreciation and any resulting
gain or loss is credited or charged to operations.
Concentrations
of Credit Risk
The
Company maintains all cash in deposit accounts, which at times may exceed
federally insured limits. The Company has not experienced a loss in such
accounts.
Earnings
Per Common Share
Earnings
per common share is computed based upon the weighted average number of
common
shares outstanding during the period. Diluted earnings per share consists
of
weighted average number of common shares outstanding plus the dilutive
effects
of options and warrants calculated using the treasury stock method. In
loss
periods, dilutive common equivalent shares are excluded as the effect would
be
anti-dilutive.
Use
of Estimates in the Preparation of Financial
Statements
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of asset and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements
and
the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from those estimates and
assumptions.
Recently
Issued Accounting Pronouncements
The
Company has adopted all recently issued accounting pronouncements. The
adoption
of the accounting pronouncements is not anticipated to have a material
effect on
the operations of the Company.
NOTE
2 - EQUIPMENT
Equipment
consists of the following at December 31, 2005:
|
Office
equipment
|
$
|
920
|
||
|
Software
|
219
|
|||
|
Total
|
1,139
|
|||
|
Less
accumulated depreciation
|
(113
|
)
|
||
|
$
|
1,026
|
NOTE
3 - STOCKHOLDER’S EQUITY
During
October 2005, the Company issued 1,500 shares of its common stock to one
investor for $1,500. See Note 6 for a discussion of the changes in stockholder's
equity.
NOTE
4 - RELATED PARTY TRANSACTIONS
Most
office services are provided without charge by the president. Such costs
are
immaterial to the financial statements and accordingly, have not been reflected
therein. The officer and director of the Company is involved in other business
activities and may, in the future, become involved in other business
opportunities that become available, such person may face a conflict in
selecting between the Company and his other business interests. The Company
has
not formulated a policy for the resolution of such conflicts.
NOTE
5 - DUE TO STOCKHOLDER
During
the period a stockholder advanced the Company $5,946 to pay for operating
expenses. These funds have been advanced interest free. Subsequent to year
end,
the stockholder has advanced approximately $13,000.
NOTE
6 - SUBSEQUENT EVENTS
In
April
2006, the Company changed its name to Lixte Biotechnology, Inc.
On
June
30, 2006, the Company completed a reverse merger transaction with SRKP
7, Inc.
(“SRKP”), a public “shell” company, whereby the Company became a wholly-owned
subsidiary of SRKP. For financial reporting purposes, the Company was
considered
the accounting acquirer in the merger and the merger was accounted for
as a
reverse merger. The stockholders’ equity section of the Company has been
retroactively restated for all periods presented to reflect the accounting
effect of the reverse merger transaction.
In
connection with the reverse merger transaction, SRKP issued 19,021,786
shares of its common stock in exchange for all of the issued and outstanding
shares of Lixte. Previously, on October 3, 2005, Lixte had issued 1,500
shares
of its no par value common stock to its founder for $1,500, which constituted
all of the issued and outstanding shares of Lixte prior to the exchange
of
shares.
SRKP
7, INC. AND SUBSIDIARY
(a
development stage company)
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
2005
|
September
30,
2006
|
|||||
|
|
|
(Unaudited)
|
|||||
|
ASSETS
|
|
|
|||||
|
Current
assets:
|
|
|
|||||
|
Cash
and cash equivalents
|
$
|
4,946
|
$
|
723,737
|
|||
|
Advances
on research and development contract services,
net
|
---
|
100,000
|
|||||
|
Prepaid
insurance
|
---
|
27,552
|
|||||
|
Total
current assets
|
4,946
|
851,289
|
|||||
|
Office
equipment,
net of accumulated depreciation of $113 at December 31, 2005
and
$457 at September 30, 2006
|
1,026
|
920
|
|||||
|
Total
assets
|
$
|
5,972
|
$
|
852,209
|
|||
|
|
|||||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable and accrued expenses
|
$
|
14,650
|
$
|
17,229
|
|||
|
Due
to stockholder
|
5,946
|
92,717
|
|||||
|
Total
current liabilities
|
20,596
|
109,946
|
|||||
|
|
|||||||
|
Commitments
and contingencies
|
|||||||
|
|
|||||||
|
Stockholders’
equity (deficiency):
|
|||||||
|
Preferred
stock, $0.0001 par value;
authorized
- 10,000,000 shares; issued - none
|
---
|
---
|
|||||
|
Common
stock, $0.0001 par value;
authorized
- 100,000,000 shares; issued and outstanding - 19,021,786 shares
at
December 31, 2005 and 26,582,183 shares at September 30,
2006
|
1,902
|
2,658
|
|||||
|
Additional
paid-in capital
|
(402
|
)
|
1,100,689
|
||||
|
Deficit
accumulated during the development stage
|
(16,124
|
)
|
(361,084
|
)
|
|||
|
Total
stockholders’ equity (deficiency)
|
(14,624
|
)
|
742,263
|
||||
|
Total
liabilities and stockholders’ equity (deficiency)
|
$
|
5,972
|
$
|
852,209
|
|||
See
accompanying notes to condensed consolidated financial statements.
SRKP
7, INC. AND SUBSIDIARY
(a
development stage company)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
|
|
Three
Months
Ended
September
30,
2006
|
|
Nine
Months
Ended
September
30,
2006
|
Period from
August 9,
2005
(Inception)
to
September 30,
2005
|
|
Period from
August 9,
2005
(Inception)
to
September 30,
2006
(Cumulative)
|
|
||||||||
|
Revenues
|
$
|
---
|
$
|
---
|
$
|
---
|
$
|
---
|
|||||||
|
Costs
and expenses:
|
|||||||||||||||
|
General
and administrative (including
stock-based
compensation to director
of
$8,917 and $88,483 during the
three
months and nine months ended
September
30, 2006, respectively)
|
65,251
|
201,104
|
333
|
217,115
|
|||||||||||
|
Depreciation
|
115
|
344
|
---
|
457
|
|||||||||||
|
Research
and development costs
|
50,100
|
100,100
|
---
|
100,100
|
|||||||||||
|
Reverse
merger costs
|
|
|
---
|
|
50,000
|
|
---
|
|
50,000
|
||||||
|
Interest
income
|
(6,588
|
)
|
(6,588
|
)
|
---
|
(6,588
|
)
|
||||||||
|
Total
costs and expenses
|
108,878
|
344,960
|
333
|
361,084
|
|||||||||||
|
Net
loss
|
$
|
(108,878
|
)
|
$
|
(344,960
|
)
|
$
|
(333
|
)
|
$
|
(361,084
|
)
|
|||
|
Net
loss per common share -
basic
and diluted
|
$
|
(0.00
|
)
|
$
|
(0.02
|
)
|
$
|
(0.00
|
)
|
||||||
|
Weighted
average number of common
shares
outstanding -
basic
and diluted
|
|
26,152,469
|
|
21,458,613
|
|
|
19,021,786
|
|
|
||||||
See
accompanying notes to condensed consolidated financial
statements.
SRKP
7, INC. AND SUBSIDIARY
(a
development stage company)
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
(unaudited)
|
|
|
Additional
|
Deficit
Accumulated
During
the
|
Total
Stockholders’
|
||||||||||||
|
|
Common
Stock
|
Paid-in
|
Development
|
Equity
|
||||||||||||
|
|
Shares
|
Amount
|
Capital
|
Stage
|
(Deficiency)
|
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
Balance,
August 9, 2005 (inception)
|
---
|
$
|
---
|
$
|
---
|
$
|
---
|
$
|
---
|
|||||||
|
Shares
issued to founding stockholder
|
19,021,786
|
1,902
|
(402
|
)
|
---
|
1,500
|
||||||||||
|
Net
loss
|
---
|
---
|
---
|
(16,124
|
)
|
(16,124
|
)
|
|||||||||
|
|
||||||||||||||||
|
Balance,
December 31, 2005
|
19,021,786
|
1,902
|
(402
|
)
|
(16,124
|
)
|
(14,624
|
)
|
||||||||
|
Shares
issued in connection with reverse
merger
transaction
|
4,005,177
|
401
|
62,099
|
---
|
62,500
|
|||||||||||
|
Shares
issued in private placement, net of
offering
costs of $233,025
|
3,555,220
|
355
|
950,509
|
---
|
950,864
|
|||||||||||
|
Stock-based
compensation
|
---
|
---
|
88,483
|
---
|
88,483
|
|||||||||||
|
Net
loss
|
---
|
---
|
---
|
(344,960
|
)
|
(344,960
|
)
|
|||||||||
|
|
||||||||||||||||
|
Balance,
September 30, 2006
|
26,582,183
|
$
|
2,658
|
$
|
1,100,689
|
$
|
(361,084
|
)
|
$
|
742,263
|
||||||
See
accompanying notes to condensed consolidated financial
statements.
SRKP
7, INC. AND SUBSIDIARY
(a
development stage company)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
|
Nine
Months
Ended
September
30,
2006
|
Period from
August 9,
2005
(Inception)
to
September 30,
2005
|
Period from
August 9,
2005
(Inception)
to
September
30,
2006
(Cumulative)
|
||||||||
|
Cash
flows from operating
activities
|
||||||||||
|
Net
loss
|
$
|
(344,960
|
)
|
$
|
(333
|
)
|
$
|
(361,084
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||
|
Depreciation
|
344
|
---
|
457
|
|||||||
|
Stock-based
compensation
|
88,483
|
---
|
88,483
|
|||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Decrease
in -
|
||||||||||
|
Advances
on research and development contract services
|
(100,000
|
)
|
---
|
(100,000
|
)
|
|||||
|
Prepaid
insurance
|
(27,552
|
)
|
---
|
(27,552
|
)
|
|||||
|
Increase
in -
|
||||||||||
|
Accounts
payable and accrued expenses
|
2,579
|
---
|
17,229
|
|||||||
|
Net
cash used in operating activities
|
(381,106
|
)
|
(333
|
)
|
(382,467
|
)
|
||||
|
|
||||||||||
|
Cash
flows from investing activities
|
||||||||||
|
Purchase
of office equipment
|
(238
|
)
|
(649
|
)
|
(1,377
|
)
|
||||
|
Net
cash used in investing activities
|
(238
|
)
|
(649
|
)
|
(1,377
|
)
|
||||
|
Cash
flows from financing activities
|
||||||||||
|
Proceeds
from sale of common stock to founder
|
---
|
---
|
1,500
|
|||||||
|
Cash
acquired in reverse merger transaction
|
62,500
|
---
|
62,500
|
|||||||
|
Gross
proceeds from sale of common stock
|
1,183,889
|
---
|
1,183,889
|
|||||||
|
Payment
of private placement offering costs
|
(233,025
|
)
|
---
|
(233,025
|
)
|
|||||
|
Advances
from stockholder
|
86,771
|
982
|
92,717
|
|||||||
|
Net
cash provided by financing activities
|
1,100,135
|
982
|
1,107,581
|
|||||||
|
|
||||||||||
|
Net
increase in cash
|
718,791
|
---
|
723,737
|
|||||||
|
Cash at
beginning of period
|
4,946
|
---
|
---
|
|||||||
|
Cash
at
end of period
|
$
|
723,737
|
$
|
---
|
$
|
723,737
|
||||
(continued)
SRKP
7, INC. AND SUBSIDIARY
(a
development stage company)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(continued)
|
Nine
Months
Ended
September
30,
2006
|
Period from
August 9,
2005
(Inception)
to
September 30,
2005
|
Period from
August 9,
2005
(Inception)
to
September
30,
2006
(Cumulative)
|
||||||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||
|
Cash
paid for -
|
||||||||||
|
Interest
|
$
|
---
|
$
|
---
|
$
|
---
|
||||
|
Income
taxes
|
$
|
---
|
$
|
---
|
$
|
---
|
||||
See
accompanying notes to condensed consolidated financial
statements.
SRKP
7, INC. AND SUBSIDIARY
(a
development stage company)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
December
31, 2005 and September 30, 2006
1.
Organization and Basis of Presentation
On
June
30, 2006, Lixte Biotechnology, Inc., a privately-held Delaware corporation
(“Lixte”), completed a reverse merger transaction with SRKP 7, Inc. (“SRKP”), a
public “shell” company, whereby Lixte became a wholly-owned subsidiary of SRKP.
For financial reporting purposes, Lixte was considered the accounting acquirer
in the merger and the merger was accounted for as a reverse merger. Accordingly,
the historical financial statements presented herein are those of Lixte
and do
not include the historical financial results of SRKP. The stockholders’ equity
section of SRKP has been retroactively restated for all periods presented
to
reflect the accounting effect of the reverse merger transaction. All costs
associated with the reverse merger transaction were expensed as incurred.
Comparative financial statements for the interim periods ended September
30,
2005 reflect the results of operations of Lixte for the period August 9,
2005
(inception) to September 30, 2005 as Lixte, the accounting acquirer in
the
reverse merger transaction, was not formed until August 9, 2005. As such,
the
operations of the Company during these periods, was nominal. Unless the
context
indicates otherwise, SRKP and Lixte are hereinafter referred to as the
“Company”. On August 28, 2006, the Company advised its stockholders that the
Board of Directors and majority stockholder had approved an amendment to
the
Company’s Certificate of Incorporation that will change the name of the
corporation to Lixte Biotechnology Holdings, Inc.
The
interim condensed consolidated financial statements are unaudited, but
in the
opinion of management of the Company, contain all adjustments, which include
normal recurring adjustments, necessary to present fairly the financial
position
at September 30, 2006, and the results of operations and cash flows for
the
three months and nine months ended September 30, 2006, and for the period
from
August 9, 2005 (inception) to September 30, 2006 (cumulative). The consolidated
balance sheet as of December 31, 2005 is derived from the Company’s audited
financial statements. Operating results for the interim periods presented
are
not necessarily indicative of the results of operations to be expected
for a
full fiscal year.
The
interim financial statements and related notes have been prepared pursuant
to
the rules and regulations of the U.S. Securities and Exchange Commission
(“SEC”)
with respect to interim financial statements. Accordingly, certain information
and footnote disclosures normally included in financial statements prepared
in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although management of the Company
believes that the disclosures in these financial statements are adequate
to make
the information presented therein not misleading. These financial statements
should be read in conjunction with the audited financial statements that
were
included in the Company’s Current Report on Form 8-K, as filed with the SEC on
July 7, 2006.
2.
Business Operations and Summary of Significant Accounting
Policies
Nature
of Operations
Lixte
was
incorporated in Delaware on August 9, 2005 to capitalize on opportunities
to
develop low cost, specific and sensitive tests for the early detection
of
cancers to better estimate prognosis, to monitor treatment response, and
to
reveal targets for development of more effective treatments.
The
Company’s initial focus is on developing new treatments for the most common and
most aggressive type of primary brain cancer, glioblastoma multiforme (“GBM”).
Lixte entered into a Cooperative Research and Development Agreement (“CRADA”)
with the National Institute of Neurological Diseases and Stroke (“NINDS”) of the
National Institutes of Health (“NIH”) to identify and evaluate drugs that target
a specific biochemical pathway for GBM cell differentiation. The CRADA
also
covers research to determine whether expression of a component of this
pathway
correlates with prognosis in glioma patients.
The
Company expects that its products will derive directly from its intellectual
property, which will consist of patents that it anticipates will arise
out of
its research activities. These patents are expected to cover biomarkers
uniquely
associated with the specific types of cancer, patents on methods to identify
drugs that inhibit growth of specific tumor types, and combinations of
drugs and
potential drugs and potential therapeutic agents for the treatment of specific
cancers.
At
September 30, 2006, the Company was considered a “development stage company” as
defined in Statement of Financial Accounting Standards No. 7, “Accounting and
Reporting by Development Stage Enterprises”, as it had not yet commenced any
revenue-generating operations, did not have any cash flows from operations,
and
was dependent on debt and equity funding to finance its operations. The
Company
has selected December 31 as its fiscal year-end.
Going
Concern
At
September 30, 2006, the Company had not yet commenced any
revenue-generating operations. All activity through September 30, 2006
related to the Company’s formation, capital raising efforts and initial research
and development activities. As such, the Company has yet to generate any
cash
flows from operations, and is essentially dependent on debt and equity
funding
from both related and unrelated parties to finance its operations. Prior
to June
30 2006, cash requirements were funded by advances from Lixte’s founder. On June
30, 2006, the Company completed an initial closing of its private placement
(see
Note 3), selling 1,973,869 shares of common stock at a price of $0.333
per share
and receiving net proceeds of $522,939. On July 27, 2006, the Company completed
a second closing of its private placement, selling 1,581,351 shares of
common
stock at a price of $0.333 per share and receiving net proceeds of $427,925.
Because
the Company is currently engaged in research at a very early stage, it
will
likely take a significant amount of time to develop any product or intellectual
property capable of generating revenues. As such, the Company’s business is
unlikely to generate any revenue in the next several years and may never
do so.
Even if the Company is able to generate revenues in the future through
licensing
its technologies or through product sales, there can be no assurance that
such
revenues will exceed its expenses.
Based
on
the proceeds received from the private placement (see Note 3), the Company
may
not have sufficient resources to completely fund its planned operations
for the
next twelve months. The Company does not have sufficient resources to fully
develop and commercialize any products that may arise from its research.
Accordingly, the Company will need to raise additional funds in order to
satisfy
its future working capital requirements. In the short-term, in addition
to the
net proceeds from the private placement, the Company estimates that it
will
approximately require additional funding of approximately $2,300,000.
Additionally, the amount and timing of future cash requirements will depend
on
market acceptance of the Company’s products, if any, and the resources that the
Company devotes to developing and supporting its products. The Company
will need
to fund these cash requirements from either one or a combination of additional
financings, mergers or acquisitions, or via the sale or license of certain
of
its assets.
Current
market conditions present uncertainty as to the Company’s ability to secure
additional funds, as well as its ability to reach profitability. There
can be no
assurances that the Company will be able to secure additional financing, or
obtain favorable terms on such financing if it is available, or as to its
ability to achieve positive cash flow from operations. Continued negative
cash
flows and lack of liquidity create significant uncertainty about the Company’s
ability to fully implement its operating plan and the Company may have
to reduce
the scope of its planned operations. If cash and cash equivalents are
insufficient to satisfy the Company’s liquidity requirements, the Company would
be required to scale back or discontinue its product development program,
or
obtain funds if available through strategic alliances that may require
the
Company to relinquish rights to certain of its technologies or discontinue
its
operations.
Principles
of Consolidation
The
accompanying consolidated financial statements include the financial statements
of SRKP and its wholly-owned subsidiary, Lixte. All intercompany balances
and
transactions have been eliminated in consolidation.
Cash
and Cash Equivalents and Concentrations
The
Company considers all highly liquid investments with an original maturity
of
three months or less when purchased to be cash equivalents. At times, such
cash
and cash equivalents may exceed federally insured limits. The Company has
not
experienced a loss in such accounts to date. The Company maintains its
accounts
with financial institutions with high credit ratings.
Income
Taxes
The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes”, which requires the
recognition of deferred tax assets and liabilities for the expected impact
of
differences between the financial statements and the tax basis of assets
and
liabilities.
For
federal income tax purposes, substantially all expenses must be deferred
until
the Company commences business operations and then they may be written
off over
a 60-month period. These expenses will not be deducted for tax purposes
and will
represent a deferred tax asset. The Company will provide a valuation allowance
for the full amount of the deferred tax asset since there is no assurance
of
future taxable income. Tax deductible losses can be carried forward for
20 years
until utilized.
Stock-
Based Compensation
In
December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No.
123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), a revision
to SFAS
No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123R superseded
APB
No. 25 and amended SFAS No. 95, "Statement of Cash Flows". Effective January
1,
2006, SFAS No. 123R requires that the Company measure the cost of employee
services received in exchange for equity awards based on the grant date
fair
value of the awards, with the cost to be recognized as compensation expense
in
the Company’s financial statements over the vesting period of the
awards.
The
Company adopted SFAS No. 123R effective January 1, 2006, and is using the
modified prospective method in which compensation cost is recognized beginning
with the effective date (a) based on the requirements of SFAS No. 123R
for all
share-based payments granted after the effective date and (b) based on
the
requirements of SFAS No. 123R for all awards granted to employees prior
to the
effective date of SFAS No. 123R that remain unvested on the effective date.
Accordingly,
the Company recognizes compensation cost for equity-based compensation
for all
new or modified grants issued after December 31, 2005. The Company did
not have
any modified grants during the three months and nine months ended September
30,
2006.
In
addition, commencing January 1, 2006, the Company is required to recognize
the
unvested portion of the grant date fair value of awards issued prior to
the
adoption of SFAS No. 123R based on the fair values previously calculated
for
disclosure purposes over the remaining vesting period of the outstanding
stock
options and warrants. The Company did not have any unvested outstanding
stock
options and warrants at December 31, 2005.
Pro
forma
information regarding net income (loss) per share is required by SFAS No.
123 as
if the Company had accounted for its employee stock options and warrants
under
the fair value method of such statement. However, during the period from
August 9 (Inception) to September 30, 2005, Lixte had no stock options or
warrants outstanding. Accordingly, no pro forma financial disclosure has
been
presented for the period from August 9 (Inception) to September 30,
2005.
Information
with respect to stock options and warrants issued during 2006 is presented
at
Note 3. A summary of stock option and warrant activity for the nine months
ended
September 30, 2006 is shown below.
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
||||||||
|
Options
and warrants outstanding at December 31, 2005
|
---
|
$---
|
---
|
|||||||
|
Granted
|
916,626
|
0.333
|
5.00
|
|||||||
|
Exercised
|
---
|
---
|
---
|
|||||||
|
Cancelled
|
---
|
---
|
---
|
|||||||
|
Options
and warrants outstanding at September 30, 2006
|
916,626
|
$
|
0.333
|
4.77
|
||||||
|
Options
and warrants exercisable at September 30, 2006
|
683,292
|
$
|
0.333
|
4.77
|
||||||
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
(“SFAS No. 157”), which establishes a formal framework for measuring fair value
under GAAP. SFAS No. 157 defines and codifies the many definitions of fair
value
included among various other authoritative literature, clarifies and, in
some
instances, expands on the guidance for implementing fair value measurements,
and
increases the level of disclosure required for fair value measurements.
Although
SFAS No. 157 applies to and amends the provisions of existing FASB and
AICPA
pronouncements, it does not, of itself, require any new fair value measurements,
nor does it establish valuation standards. SFAS No. 157 applies to all
other
accounting pronouncements requiring or permitting fair value measurements,
except for: SFAS No. 123R, share-based payment and related pronouncements,
the
practicability exceptions to fair value determinations allowed by various
other
authoritative pronouncements, and AICPA Statements of Position 97-2 and
98-9
that deal with software revenue recognition. SFAS No. 157 is effective
for
financial statements issued for fiscal years beginning after November 15,
2007,
and interim periods within those fiscal years.
Loss
per Common Share
Loss
per
common share is computed by dividing net loss by the weighted average number
of
shares of common stock outstanding during the respective periods. Basic
and
diluted loss per common share are the same for all periods presented because
all
warrants and stock options outstanding are anti-dilutive. The 19,021,786
shares
of common stock issued to the founder of Lixte in conjunction with the
closing
of the reverse merger transaction on June 30, 2006 have been presented
as
outstanding for all periods presented.
Research
and Development
Research
and development costs are expensed as incurred.
Amounts
due, pursuant to contractual commitments, on research and development contracts
with third parties are recorded as a liability, with the related amount
of such
contracts recorded as advances on research and development contract services
on
the Company’s balance sheet. Such advances on research and development contract
services are expensed over their life on the straight-line basis, unless
the
achievement of milestones, the completion of contracted work, or other
information indicates that a different expensing schedule is more
appropriate.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of
expenses during the reporting period. Actual results could differ from
those
estimates.
Equipment
Equipment
is recorded at cost. Depreciation expense is provided on a straight-line
basis
using estimated useful lives of 3 years. Maintenance and repairs are charged
to
expense as incurred. When assets are retired or otherwise disposed of,
the
property accounts are relieved of costs and accumulated depreciation and
any
resulting gain or loss is credited or charged to operations.
Reclassification
At
September 30, 2006, the Company reclassified contractual commitments not
yet due
until 2007 of $200,000 against the related asset. Accordingly, the balance
sheet
at September 30, 2006 reflects only amounts committed and currently due
and
payable. Such reclassification did not have any effect on net stockholders'
equity, results of operations or cash flows.
3.
Share Exchange Agreement and Private Placement
Share
Exchange Agreement
On
June
30, 2006, pursuant to a Share Exchange Agreement dated as of June 8, 2006
(the
“Share Exchange Agreement”) by and among SRKP, John S. Kovach (“Seller”) and
Lixte, SRKP issued 19,021,786 shares of its common stock in exchange for
all of
the issued and outstanding shares of Lixte (the “Exchange”). Previously, on
October 3, 2005, Lixte had issued 1,500 shares of its no par value common
stock
to its founder for $1,500, which constituted all of the issued and outstanding
shares of Lixte prior to the Exchange. As a result of the Exchange, Lixte
became
a wholly-owned subsidiary of SRKP.
Pursuant
to the Exchange, SRKP issued to the Seller 19,021,786 shares of its common
stock. SRKP had a total of 25,000,832 shares of common stock issued and
outstanding after giving effect to the Exchange and the 1,973,869 shares
of
common stock issued in the initial closing of the private placement.
As
a
result of the Exchange and the shares of common stock issued in the initial
closing of the private placement, on June 30, 2006, the stockholders of
the
Company immediately prior to the Exchange owned 4,005,177 shares of common
stock, equivalent to approximately 16% of the issued and outstanding shares
of
the Company’s common stock, and the Company is now controlled by the former sole
stockholder of Lixte.
The
Share
Exchange Agreement was determined through arms-length negotiations between
SRKP,
the Seller and Lixte. In connection with the Exchange, the Company paid
WestPark
Capital, Inc. a cash fee of $50,000.
Private
Placement
On
June
30, 2006, concurrently with the closing of the Exchange, the Company sold
an
aggregate of 1,973,869 shares of its common stock to 26 accredited investors
in
an initial closing of its private placement at a per share price of $0.333,
resulting in aggregate gross proceeds to the Company of $657,299. The Company
paid to WestPark Capital, Inc., as placement agent, a commission of 10%
and a
non-accountable fee of 4% of the gross proceeds of the private placement
and
issued five-year warrants to purchase common stock equal to (a) 10% of
the
number of shares sold in the private placement exercisable at $0.333 per
share
and (b) an additional 2% of the number of shares sold in the private placement
also exercisable at $0.333 per share. A total of 236,864 warrants were
issued.
Net cash proceeds to the Company, after the deduction of all private placement
offering costs and expenses, were $522,939.
On
July
27, 2006, the Company sold an aggregate of 1,581,351 shares of its common
stock
to 31 accredited investors in a second closing of the private placement
at a per
share price of $0.333 resulting in aggregate gross proceeds to the Company
of
$526,590. The Company paid to WestPark Capital, Inc., as placement agent,
a
commission of 10% and a non-accountable fee of 4% of the gross proceeds
of the
private placement and issued five-year warrants to purchase common stock
equal
to (a) 10% of the number of shares sold in the private placement exercisable
at
$0.333 per share and (b) an additional 2% of the number of shares sold
in the
private placement also exercisable at $0.333 per share. A total of 189,762
warrants were issued. Net cash proceeds to the Company were $427,925.
In
conjunction with the private placement of common stock, the Company issued
a
total of 426,626 five-year warrants to WestPark Capital, Inc. exercisable
at the
per share price of the common stock sold in the private placement ($0.333
per
share). The warrants issued to WestPark Capital, Inc. do not contain any
price
anti-dilution provisions. However, such warrants contain demand registration
rights (but no financial penalty associated therewith) and cashless exercise
provisions. The fair value of the warrants, as calculated pursuant to the
Black-Scholes option-pricing model, was determined to be $132,254 ($0.31
per
share). Based on the foregoing, the warrants have been accounted for as
equity.
The
fair
value of the aforementioned warrants was calculated using the following
Black-Scholes input variables: stock price on date of grant - $0.333; exercise
price - $0.333; expected life - 5 years; expected volatility - 150%; expected
dividend yield - 0%; risk-free interest rate - 5%.
Stock
Options
On
June
30, 2006, effective with the closing of the Exchange, the Company granted
to Dr.
Philip Palmedo, an outside director of the Company, stock options to purchase
an
aggregate of 200,000 shares of common stock, exercisable for a period of
five
years at $0.333 per share, with one-third of the options (66,666 shares)
vesting
immediately upon joining the Board and one-third vesting annually on each
of
June 30, 2007 and 2008. The fair value of these options, as calculated
pursuant
to the Black-Scholes option-pricing model, was determined to be $62,000
($0.31
per share), of which $20,666 was charged to operations on June 30, 2006,
and the
remaining $41,334 will be charged to operations ratably from July 1, 2006
through June 30, 2008. During the three months and nine months ended September
30, 2006, the Company recorded a charge to operations of $5,167 and $25,833,
respectively, with respect to these options.
On
June
30, 2006, effective with the closing of the Exchange, the Company also
granted
to Dr. Palmedo additional stock options to purchase 190,000 shares of common
stock exercisable for a period of five years at $0.333 per share for services
rendered in developing the business plan for Lixte, all of which were fully
vested upon issuance. The fair value of these options, as calculated pursuant
to
the Black-Scholes option-pricing model, was determined to be $58,900 ($0.31
per
share), and was charged to operations at June 30, 2006.
On
June
30, 2006, effective with the closing of the Exchange, the Company granted
to
certain members of its Scientific Advisory Committee stock options to purchase
an aggregate of 100,000 shares of common stock exercisable for a period
of five
years at $0.333 per share, with one-half of the options vesting annually
on each
of June 30, 2007 and June 30, 2008. The fair value of these options, as
calculated pursuant to the Black-Scholes option-pricing model, was initially
determined to be $31,000 ($0.31 per share). The fair value of such options
will
be charged to operations ratably from July 1, 2006 through June 30, 2008.
In
accordance with EITF 96-18, options granted to committee members are valued
each
reporting period to determine the amount to be recorded as an expense in
the
respective period. On September 30, 2006, the fair value of these options,
as
calculated pursuant to the Black-Scholes option-pricing model, was determined
to
be $30,000 ($0.30 per share) which resulted in a charge to operations of
$3,750
during three months and nine months ended September 30, 2006. As the options
vest, they will be valued one final time on each vesting date and an adjustment
will be recorded for the difference between the value already recorded
and the
then current value on the date of vesting.
On
June
30, 2006, the fair value of the aforementioned stock options was initially
calculated using the following Black-Scholes input variables: stock price
on
date of grant - $0.333; exercise price - $0.333; expected life - 5 years;
expected volatility - 150%; expected dividend yield - 0%; risk-free interest
rate - 5%. On September 30, 2006, the Black-Scholes input variables utilized
to
determine the fair value of the aforementioned stock options were deemed
to be
the same as at June 30, 2006, except for an expected life of 4.75 years.
4.
Related Party Transactions
Since
inception, Lixte’s founding stockholder has periodically made advances to the
Company to meet operating expenses. Such advances are non-interest-bearing
and
are due on demand. At December 31, 2005 and September 30, 2006, stockholder
advances totaled $5,946 and $92,717, respectively.
Through
September 30, 2006, the Company’s office facilities have been provided without
charge by the Company’s President. Such costs were not material to the financial
statements and accordingly, have not been reflected therein.
Through
September 30, 2006, the Company’s President did not receive any compensation
from the Company in view of the Company’s early stage status and limited
activities. Any future compensation arrangements will be subject to the
approval
of the Board of Directors.
The
President of the Company is involved in other business activities and may,
in
the future, become involved in other business opportunities that become
available. Accordingly, such person may face a conflict in selecting between
the
Company and his other business interests. The Company has not formulated
a
policy for the resolution of such potential conflicts.
5.
Common Stock and Preferred Stock
The
Company’s Certificate of Incorporation provides for authorized capital of
110,000,000 shares, of which 100,000,000 shares are $0.0001 par value common
stock and 10,000,000 shares are $0.0001 par value preferred
stock
The
Company is authorized to issue 10,000,000 shares of $0.0001 par value preferred
stock with such designations, voting and other rights and preferences,
as may be
determined from time to time by the Board of Directors.
6.
Commitments and Contingencies
Effective
March 22, 2006, Lixte entered into a Cooperative Research and Development
Agreement (the “CRADA”) with the U.S. Department of Health and Human Services,
as represented by National Institute of Neurological Disorders and Stroke
(“NINDS”) of the National Institutes of Health. The CRADA is for a term of two
years from the effective date and may be unilaterally terminated by either
party
by providing written notice within sixty days. Pursuant to the CRADA, Lixte
agreed to provide total payments of $400,000 over the term of the CRADA.
The
CRADA provides for the collaboration between the parties in the identification
and evaluation of agents that target the Nuclear Receptor CoRepressor (N-CoR)
pathway for glioma cell differentiation. The CRADA also provided that NINDS
and
Lixte will conduct research to determine if expression of N-CoR correlates
with
prognosis in glioma patients.
Pursuant
to the CRADA, Lixte agreed to provide funds under the CRADA in the amount
of
$200,000 per year to fund two technical assistants for the technical,
statistical and administrative support for the research activities, as
well as
to pay for supplies and travel expenses. The first installment of $200,000
was
due within 180 days of the effective date and was paid in full on July
6, 2006.
The second installment of $200,000 is due within thirty days of the first
anniversary of the effective date.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification of Directors and Officers.
Under
Section 145 of the General Corporation Law of the State of Delaware, we can
indemnify our directors and officers against liabilities they may incur in
such
capacities, including liabilities under the Securities Act of 1933, as amended
(the “Securities Act”). Our Certificate of Incorporation and Bylaws provide for
indemnification. The provisions in our certificate of incorporation, bylaws
and
the Delaware statute do not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director’s
duty of loyalty to us or our stockholders, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of the law,
for
actions leading to improper personal benefit to the director, and for payment
of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provisions also do not affect a director’s
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
We
have
been advised that in the opinion of the Securities and Exchange Commission,
insofar as indemnification for liabilities arising under the Securities Act
may
be permitted to our directors, officers and controlling persons pursuant to
the
foregoing provisions, or otherwise, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In
the
event a claim for indemnification against such liabilities (other than our
payment of expenses incurred or paid by our director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel
the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by us
is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of such issue.
We
may
enter into indemnification agreements with each of our present or future
directors and officers that are, in some cases, broader than the specific
indemnification provisions permitted by Delaware law, and that may provide
additional procedural protection. The indemnification agreements may require
us,
among other things, to:
|
·
|
indemnify
officers and directors against certain liabilities that may arise
because
of their status as officers or
directors;
|
|
·
|
advance
expenses, as incurred, to officers and directors in connection with
a
legal proceeding, subject to limited exceptions;
or
|
|
·
|
obtain
directors’ and officers’ insurance.
|
At
present, there is no pending litigation or proceeding involving our
director/officer or involving any of our employees in which indemnification
is
sought, nor are we aware of any threatened litigation that may result in claims
for indemnification.
Item
25. Other Expenses of Issuance and Distribution.
|
SEC
registration fee
|
||||
|
Accounting
fees and expenses
|
||||
|
Printing
and engraving expenses
|
||||
|
Legal
fees and expenses
|
||||
|
Miscellaneous
|
||||
|
Total
|
All
amounts in the above table are estimated. None of the expenses will be paid
by
selling stockholders.
Item
26. Recent Sales of Unregistered Securities.
On
May
26, 2005, we sold 2,700,000 shares of common stock (on a post reverse split
basis) to five accredited investors (two of whom were officers and directors)
for aggregate cost consideration of $25,000. The securities were issued pursuant
to Section 4(2) of the Securities Act of 1933, as amended. The issuees also
represented that they were acquiring the securities for their own account
and a
legend was placed on the stock certificates.
On
June 30, 2006, we issued 19,021,786 shares of common stock in connection
with the acquisition of Lixte Biotechnology, Inc., and sold an aggregate
of
1,973,871 shares of common stock to 26 accredited investors in a private
placement at a per share price of $0.333. On July 27, 2006, we sold an aggregate
of 1,581,351 shares of common stock to 57 accredited investors in a private
placement at a per share price of $0.333. We paid to WestPark Capital, Inc.,
as
placement agent, a commission of 10% and a non-accountable fee of 4% of the
gross proceeds and issued five year warrants to purchase 426,626 shares of
common stock in connection with the private placements. All of the issuees
were
accredited investors and the securities were issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder. The issuees also represented that they were acquiring
the securities for their own account and a legend was placed on the stock
certificates.
Item
27. Exhibits.
|
Exhibit
No.
|
Exhibit
Description
|
|
|
2.1
|
Share
Exchange Agreement dated as of June 8, 2006 among the Company,
John S.
Kovach and Lixte Biotechnology, Inc.1
|
|
|
2.2
|
Securities
Purchase Agreement3
|
|
|
2.3
|
Registration
Rights Agreement3
|
|
|
3.1
|
Certificate
of Incorporation, as filed with the Delaware Secretary of State
on May 24,
2005.2
|
|
|
3.2
|
Bylaws2
|
|
|
5.1
|
Opinion
of Troy & Gould*
|
|
|
10.1
|
Cooperative Research and Development Agreement (CRADA) between the U.S. Department of Health and Human Services, as represented by National Institute of Neurological Disorders and Stroke of the National Institutes of Health and Lixte Inc, as amended. | |
|
23.1
|
Consent
of Troy & Gould; contained in Opinion filed as
Exhibit 5.1*
|
|
|
23.2
|
Consent
of A.J.
Robbins, P.C.
|
|
|
24.1
|
Power
of Attorney contained on signature page hereto
|
|
|
1
|
Filed
as an Exhibit to the Company’s Current Report on Form 8-K as filed with
the Securities and Exchange Commission on July 7, 2006, and incorporated
herein by reference.
|
|
2
|
Filed
as an Exhibit to the Company’s Registration Statement on Form 10-SB, as
filed with the Securities and Exchange Commission on August 3,
2005 and
incorporated herein by reference.
|
| 3 | Filed as an Exhibit to the Company’s Registration Statement on Form SB-2 as filed with the Securities and Exchange Commission on September 8, 2006 and incorporated herein by reference. |
| * |
To
be filed by amendment.
|
Item
28. Undertakings.
(a) The
undersigned registrant hereby undertakes:
(1) To
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee”
table in the effective registration statement.
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That,
for
the purpose of determining any liability under the Securities Act of 1933,
each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the
offering.
(b) The
undersigned hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreements, certificates in such denominations
and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(c) Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of
such issue.
(d) The
undersigned registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon
Rule 430A
and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For
the
purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed
to
be a new registration statement relating to the securities offered therein,
and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(e) That,
for the
purpose of determining liability under the Securities Act to any
purchaser:
(1) If
the
undersigned issuer is relying on Rule 430B:
(i) Each
prospectus filed by the undersigned pursuant to Rule 424(b)(3) shall be
deemed
to be part of the registration statement as of the date the filed prospectus
was
deemed part of and included in the registration statement; and
(ii) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose
of
providing the information required by section 10(a) of the Securities Act
shall
be deemed to be part of and included in the registration statement as of
the
earlier of the date such form of prospectus is first used after effectiveness
or
the date of the first contract of sale of securities in the offering described
in the prospectus. As provided in Rule 430B, for liability purposes of
the
issuer and any person that is at that date an underwriter, such date shall
be
deemed to be a new effective date of the registration statement relating
to the
securities in the registration statement to which that prospectus relates,
and
the offering of such securities at that time shall be deemed to be the
initial
bona
fide
offering
thereof. Provided,
however,
that no
statement made in a registration statement or prospectus that is part of
the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part
of the
registration statement will, as to a purchaser with a time of contract
of sale
prior to such effective date, supersede or modify any statement that was
made in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective
date;
or
(2) Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on
Rule 430B
or other than prospectuses filed in reliance on Rule 430A shall be deemed
to be
part of and included in the registration statement as of the date it is
first
used after effectiveness. Provided,
however, that
no
statement made in a registration statement or prospectus that is part of
the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part
of the
registration statement will, as to a purchaser with a time of contract
of sale
prior to such first use, supersede or modify any statement that was made
in the
registration statement or prospectus that was part of the registration
statement
or made in any such document immediately prior to such date of first
use.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, we certify
that
we have reasonable grounds to believe that we meet all of the requirements
for
filing this Amendment No. 1 to Form SB-2 and have authorized this
registration statement to be signed on our behalf by the undersigned, thereunto
duly authorized, in East Setauket, State of New York on December 1,
2006.
| SRKP 7, INC. | ||
| |
|
|
| By: | /s/ John S. Kovach | |
|
|
||
|
Name:
John S. Kovach
Title:
Chief Executive Officer
|
||
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/
John S. Kovach
|
|
December
1, 2006
|
||
|
John S.
Kovach
|
Chief
Executive Officer, Principal Financial Officer and
Director
|
|||
|
|
Director
|
December
1, 2006
|
||
|
Philip F.
Palmedo
|
||||
|
By:
/s/ John S. Kovach
|
December
1, 2006
|
|||
|
John S.
Kovach
Attorney-in-Fact
|
||||
II-6