Published on January 23, 2007
January
23, 2007
Via
Federal Express & Edgar
Russell
Mancuso, Branch Chief
Securities
and Exchange Commission
Mail
Stop
6010
Division
of Corporation Finance
100
F
Street, N.E.
Washington,
D.C. 20549-0406
| Re: |
SRKP
7, Inc.
Amendment
No. 1 to Form SB-2
Filed
December 1, 2006
File
No.
333-137208
|
Dear
Mr.
Mancuso:
This
is
in response to your comment letter dated December 15, 2006.
Amendment
No. 1 to Form SB-2
Prospectus
cover
|
1.
|
We
note your response to comment 1 in our letter to you dated October 4,
2006. Your revised disclosure does not disclose the price at which
your
selling shareholders will sell their securities, therefore, we
reissue the
first sentence of comment 1.
|
Company
Response
We
have
revised the disclosure to reflect the fact that until the Company’s shares are
traded on the OTC Bulletin Board, the shares will be sold at a fixed price
of
$0.33, the price of the private placement.
The
Offering, page 2
|
2.
|
Please
ensure that the information disclosed here matches the number of
securities included in the fee table and the numbers in your table
of
selling stockholders.
|
Company
Response
We
have
corrected the minor error in the fee table to reflect the fact that 6,135,579
shares are being sold rather than 6,135,581 shares.
Russell
Mancuso, Branch Chief
Securities
and Exchange Commission
January 23,
2007
Page
2
Risk
Factors, page 5
If
our
products were derived from tissue or other samples from a patient...,
page 13
|
3.
|
We
note your response to comment 9. However, that comment sought
disclosure in your prospectus. Please revise your document to disclose
when the negotiations began and update any changes in the status
of the
negotiations. If the negotiations are completed, please file the
resulting
agreement as an exhibit and disclose in an appropriate section
of your
document the material terms, including duration and termination
provisions.
|
Company
Response
We
have
indicated in the Risk Factor that the Company has entered into Agreement
with
the University of Regensburg and have described the terms under “BUSINESS -
Access for Clinical Materials.”
Management’s
Discussion and Analysis, page 24
Results
of Operations, page 26
|
4.
|
Please
refer to prior comment 16. We note your expanded disclosure included
under “Going Concern” on page 27 about the additional funding of
approximately $2.3 million to establish a wet laboratory. However, to
adequately address all of the requirements in Item 303(a) of
Regulation S-B, add a separate section to describe in detail your
plan of operations for the next twelve
months.
|
Company
Response
We
have
added a separate section pursuant to your request.
Research
and Development Costs, page 26
|
5.
|
We
note in the first sentence of the second paragraph of this section
that
you state the current amount due pursuant to the CRADA “was recorded as a
liability”. Based on your response to prior comment 49 and revisions
made on the balance sheet as of September 30, 2006, please tell us
where the referenced liability is presented in your September 30,
2006 balance sheet or revise the filing as necessary based on oar
concern.
|
Russell
Mancuso, Branch Chief
Securities
and Exchange Commission
January 23,
2007
Page
3
Company
Response
The
following is the first sentence of the second paragraph under Management’s
Discussion and Analysis of Financial Condition and Results of Operations
- Three
Months and Nine Months Ended September 30, 2006 - Research and Development
Costs.
“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.”
In
order
to clarify this issue, the Company has revised this sentence as
follows:
“The
amount currently due pursuant to the CRADA was recorded as a liability (and
was
subsequently reduced by any applicable payments), with the related amount
of
such contract recorded as advances on research and development contract services
on our balance sheet.”
At
June 30, 2006, the liability related to current amounts due under this
contract was $197,000 ($200,000 less payments of $3,000 in May and June 2006),
which was paid in full on July 6, 2006. The final payment of $200,000 under
the CRADA is not currently due; pursuant to the contract, it is due within
30
days of March 22, 2007. Accordingly, there was no liability under the CRADA
at September 30, 2006.
Also,
please refer to the Company’s response to Comment No. 15
below.
Intellectual
Property, page 29
|
6.
|
Please
file and disclose the material terms of the December 2006 agreement
mentioned in your response to prior
comment 19.
|
Company
Response
We
have
included those terms under “Access to Clinical Materials.” The Company has filed
an 8-K with respect to the Agreement and included a copy thereof as an
Exhibit.
|
7.
|
Please
name the patent counsel mentioned in the fourth paragraph. Also,
file
counsel’s consent as an exhibit that expressly states that counsel
consents to your summarization of its opinion in the registration
statement.
|
Russell
Mancuso, Branch Chief
Securities
and Exchange Commission
January 23,
2007
Page
4
Company
Response
The
patent counsel’s firm has a policy about being named as an expert. In lieu of
the reference to the patent counsel, we have revised the sentence to indicated
that the “we have been advised that….”
Government
Regulation, page 34
|
8.
|
We
note your response to prior comment 24. Please disclose the nature of
the FDA regulation to which you will be subject when you “begin to pursue
clinical trials.”
|
Company
Response
We
have
added the requested disclosure.
Management,
page 35
|
9.
|
We
note your response to prior comment 28 and the description of
Dr. Palmedo’s work for the Government of Sudan in 1980. However, you
did not address whether you have other past, current or anticipated
contacts with Sudan, through subsidiaries, affiliates or other
direct or
indirect arrangements. If you have no past, current or anticipated
contacts with Sudan in addition to Dr. Palmedo’s contacts described
in your December 1, 2006 letter, please state
so.
|
Company
Response
The
Company has never had nor does it anticipate having any contact with Sudan
directly or indirectly.
Scientific
Advisory Committee, page 37
|
10.
|
We
note your revised disclosure in response to comment 31. It is not
clear why you have identified the committee in the management section
of
your prospectus given your response that the committee does not
serve any
management function. Please move this disclosure to an appropriate
section
of your prospectus.
|
Company
Response
The
disclosure was in a separate section. We have adjusted the heading to minimize
confusion.
Russell
Mancuso, Branch Chief
Securities
and Exchange Commission
January 23,
2007
Page
5
Security
Ownership, page 39
|
11.
|
Please
provide the disclosure requested in the last sentence of prior
comment 32.
|
Company
Response
We
have
made the disclosure.
General,
page 40
|
12.
|
Please
tell us why your disclosure in response to prior comment 39 does not
address the warrants mentioned in the fourth paragraph on
page 40.
|
Company
Response
We
have
added the warrants issued to WestPark Capital.
Selling
Stockholders, page 41
|
13.
|
We
note your response to comment 40. However, it does not appear that
the selling stockholder table has been revised to address the comment.
We
reissue comment 40.
|
Company
Response
We
respectfully point out that we believe that the table complies with the
instructions to Form SB-2 and Regulation S-B. Additionally, the Company does
not
have the information as to the beneficial owners of trust and pension plans
from
investors who purchased substantially less than 5% of the Company’s outstanding
shares.
Financial
Statements, page F-1
|
14.
|
Please
expand your response to prior comment 44 to cite with specificity the
authority that permits you to incorporate a Form 8-K into a
Form SB-2.
|
Company
Response
The
following is the last sentence of the third paragraph of Note 1.
Organization and Basis of Presentation to the Company’s condensed consolidated
financial statements at December 31, 2005 and September 30,
2006:
Russell
Mancuso, Branch Chief
Securities
and Exchange Commission
January 23,
2007
Page
6
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.
It
is not
the Company’s intention to incorporate by reference these financial statements
into the SB-2/A registration statement, nor does the Company believe that
the
foregoing statement does so. The purpose of this statement is to refer the
reader to other related financial statements available in the Company’s
previously filed Current Report on Form 8-K, similar to what is done by
registrants in the presentation section of the notes to interim financial
statements, wherein the reader is referred to the registrant’s audited financial
statements previously filed in a Form 10-KSB Annual Report.
If
the
Staff continues to object to this disclosure, the Company is prepared to
remove
it from the registration statement.
Note
6. Commitments and Contingencies, page F-21
|
15.
|
Please
refer to prior comment 49. We note the revisions made on the balance
sheet as of September 30, 2006 and see you now present an asset
labelled “advances on research and development contract services, net” of
$100,000. We further note that through the end of this period you
have
made aggregate payments of $200,000 and recorded research and development
expenses of $100,100 in connection with the CRADA agreement. It
is still
not clear to us why the $100,000 “advance” satisfies the definition of an
asset as described in paragraph 25 of CON6. Please tell us and revise
the notes to the financial statements to specifically indicate
why you
believe it is appropriate to record the referenced amount as an
asset.
Alternatively, revise the filing as necessary to expense the amount
in
question. Your response should address whether you have the right
to
receive a refund or return of amounts paid (and presented as an
asset)
under the agreement in this regard Article 10.3 of the agreement
appears to indicate no such right exists. Note the guidance at
SFAS 2
and the concepts outlined in FIN 4. Finally, we note you included a
copy of the agreement in Exhibit 10.1. Please revise the filing to
attach Appendix B, which includes the payment schedule as indicated
in Article 5.3 of the CRADA, to this
exhibit.
|
Company
Response
Please
find attached as Appendix A an analysis of the accounts related to the Company’s
research and development activities from August 9, 2005 (inception) through
September 30, 2006, which has been provided in order to assist the Staff in
reviewing the Company’s response to this comment as shown below.
Russell
Mancuso, Branch Chief
Securities
and Exchange Commission
January 23,
2007
Page
7
The
Company has reviewed the definition of an asset as contained in CON 6,
paragraphs 25 through 31, and notes the following:
The
common characteristic possessed by all assets is “future economic benefit”
(Par. 28). The right to receive services of other entities for specified or
determinable future periods can be assets of particular entities (Par. 31).
Although the ability of an entity to obtain benefit from an asset and to
control
others’ access to it generally rests on a foundation of legal rights, legal
enforceability of a claim to the benefit is not a prerequisite for a benefit
to
qualify as an asset if the entity has the ability to obtain and control the
benefit in other ways (Par. 26). Money (i.e., cash) was expended in regard
to this transaction, and is the basis for its value and future economic benefits
(Par. 29).
The
Company has reviewed SFAS 2, “Accounting for Research and Development
Costs”. The Company acknowledges that SFAS 2 states that all research and
development costs encompassed by SFAS 2 shall be charged to expense
when
incurred
[emphasis added] (Par. 12), and that the cost of services performed by
others in connection with research and development activities by an enterprise,
including research and development conducted by others on behalf of the
enterprise, shall be included in research and development costs (Par. 11d).
The Company has also reviewed FIN 4, “Applicability of FASB Statement
No. 2 to Business Combinations Accounted for by the Purchase Method”, which
discusses the applicability of SFAS 2 to the cost of tangible and
intangible assets to be used in research and development activities of an
enterprise when those assets are acquired in a business combination accounted
by
the purchase method. The Company does not believe that the concepts contained
in
FIN 4 are applicable to the matters discussed herein.
The
Company believes that the funds paid to The U.S. Department of Health and
Human
Services (as represented by the National Institute of Neurological Disorders
and
Stroke, or the “ICD”), pursuant to the CRADA effective March 22, 2006,
represent an advance
on
research and development costs and therefore have future economic benefit.
As
such, the Company believes that such costs should be charged to expense when
they are actually expended by the provider, which is, effectively, as they
perform the research activities that they are contractually committed to
provide. Absent information that would indicate that a different expensing
schedule is more appropriate (such as, for example, from the achievement
of
performance milestones or the completion of contract work), the Company believes
that such advances should be expensed over the contractual service term on
a
straight-line basis, which reflects a reasonable estimate of when the underlying
research and development costs are being incurred. Since the Company’s payments
under the CRADA during May, June and July 2006 aggregating $200,000 are intended
to fund ongoing research and development activities through March 2007, the
Company believes that charging the amounts paid under the CRADA to expense
at
the time of the actual payments is not appropriate under the circumstances,
and
would provide a distorted presentation in the financial statements.
Russell
Mancuso, Branch Chief
Securities
and Exchange Commission
January 23,
2007
Page
8
Although
the CRADA does not specifically provide for a right of refund or return of
amounts paid, the Company does not believe that this would prevent the payments
from being accounted for as an asset. As noted in CON 6, Par. 26,
although the ability of an entity to obtain benefit from an asset and to
control
others’ access to it generally rests on a foundation of legal rights, legal
enforceability of a claim to the benefit is not a prerequisite for a benefit
to
qualify as an asset if the entity has the ability to obtain and control the
benefit in other ways. The Company has a legally binding, fully enforceable,
contract requiring the ICD to perform certain activities and to therefore
deliver specific future benefits to the Company, and the Company has paid
in
full the consideration provided for under the contract on a timely basis.
In
addition, Article 10.3 of the CRADA specifically refers to the ICD’s right
to retain funds previously received by it, at its option, only
in the
event of a unilateral termination by the Company. As such, the triggering
of
this provision in Article 10.3 is fully under the control of the Company,
and the Company does not believe that it should prevent the accounting treatment
noted above.
The
Company will revise the notes to its financial statements to more fully explain
the accounting for this contract.
We
have
refiled the entire agreement, as amended, with all appendices.
Recent
Sales of Unregistered Securities, page II-2
|
16.
|
With
a view toward disclosure, please tell us the date and amount of
the
reverse split mentioned in the first sentence. Also tell us when
shareholders approved the split.
|
Company
Response
We
have
added a sentence referring to the stock dividend of 11% to stockholders of
record on May 18, 2006 and deleted the reference to a reverse stock
split.
|
17.
|
Please
provide us a table that clearly reconciles the information in this
section
with the number of your outstanding
shares.
|
Company
Response
We
attach
a table as Appendix B which reconciles the information.
Russell
Mancuso, Branch Chief
Securities
and Exchange Commission
January 23,
2007
Page
9
Undertakings,
page II-4
|
18.
|
We
note your revised disclosure and response to comment 52. It does not
appear that you have provided the 512(a)(4) undertakings. Please
provide
the undertakings required by Item 512(a)(4) of
Regulation S-B.
|
Company
Response
We
respectfully point out that Item 512(a)(4) refers to a primary offering of
securities and is not applicable to this offering.
Exhibits
|
19.
|
We
note your response to prior comment 53. Please file complete exhibits
with all attachments.
|
Company
Response
We
have
included all attachments to the exhibits.
Signatures
|
20.
|
We
reissue prior comment 55 in part. Please clarify below the second
paragraph required on the Signature page who is signing the document
in
the capacity of controller or principal accounting
officer.
|
Company
Response
We
have
indicated that Dr. Kovach is signing the document in his capacity as principal
accounting officer.
|
21.
|
Please
clarify whether a majority of your board of directors signed the
document.
|
Company
Response
As
indicated in the document, there are only two directors, both of whom are
signatories. Dr. Kovach executed the Registration Statement on behalf of
Dr.
Palmedo as attorney in fact.
Russell
Mancuso, Branch Chief
Securities
and Exchange Commission
January 23,
2007
Page
10
Form 10-QSB
filed November 14, 2006
Item
3. Controls and Procedures, page 19
|
22.
|
We
note that your disclosure under the caption “Changes in Internal Controls”
refers only to internal controls. In future filings, if you are
referring
to the information in Item 308(c) of Regulation S-B, please
revise to state clearly that you are referring to internal controls
over
financial reporting.
|
Company
Response
We
note
your comment.
Please
address any additional comments or questions to the undersigned at (310)
789-1290.
Sincerely,
/s/
David L. Ficksman
David
L.
Ficksman
of
Troy
& Gould
|
Appendix
A
|
|||||||
|
SRKP
7, Inc.
|
|||||||
|
Analysis
of R&D Related Accounts
|
|||||||
|
Period
from August 9, 2005 (Inception) to September 30, 2006
|
|
Advance
|
||||||||||||
|
on
R&D
|
R&D
|
|||||||||||
|
Contract
|
Contract
|
R&D
|
||||||||||
|
Service
|
Liability
|
Expense
|
||||||||||
|
8/9/2005
|
Balance
at inception
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||
|
3/22/2006
|
Record
CRADA contract:
|
|||||||||||
|
|
1st
payment due within 180 days
|
$
|
200,000
|
$
|
200,000
|
|||||||
|
|
2nd
payment due within 30 days of first anniversary
|
$
|
200,000
|
(A) |
$
|
200,000
|
||||||
|
5/11/2006
|
Payment
made towards first installment
|
$
|
(1,000
|
)
|
||||||||
|
6/4/2006
|
Payment
made towards first installment
|
$
|
(2,000
|
)
|
||||||||
|
6/30/2006
|
Amortization
for the quarter ($200,000 / 12 mo x 3 mo)
|
$
|
(50,000
|
)
|
$
|
50,000
|
||||||
|
|
||||||||||||
|
6/30/2006
|
Balance
|
$
|
350,000
|
$
|
397,000
|
$
|
50,000
|
|||||
|
7/6/2006
|
Payment
made towards first installment
|
$
|
(197,000
|
)
|
||||||||
|
9/15/2006
|
Other
R&D expense paid
|
$
|
100
|
|||||||||
|
9/30/2006
|
Amortization
for the quarter
($200,000
/ 12 mo x 3 mo)
|
|
$
|
(50,000
|
)
|
$
|
50,000
|
|||||
| 9/30/2006 |
Reclassify
commitment not yet due against the related
asset
|
$
|
(200,000
|
)
(A)
|
$
|
(200,000
|
)
|
|||||
|
9/30/2006
|
Balance
|
$
|
100,000
|
$
|
-
|
$
|
100,100
|
|||||
02392/0001
150480.1
Appendix
B
|
SRKP
7, INC. and SUBSIDIARY
|
|||||
|
Recap
of Common Share Transactions
|
|||||
|
Inception
to September 30, 2006
|
|
Pre-
|
Post-
|
|||||||||||
|
Reverse
Merger
|
Reverse
Merger
|
|||||||||||
|
Shares
|
Shares
|
|||||||||||
|
Lixte,
Inc.
|
SRKP
7, Inc.
|
SRKP
7, Inc
|
||||||||||
|
5/26/05
|
Initial
sale of common stock for $25,000
|
2,700,000
|
||||||||||
|
10/3/05
|
Initial
sale of common stock for $1,500
|
1,500
|
||||||||||
|
5/17/06
|
Private
placement for $100,000
|
905,000
|
||||||||||
|
5/18/06
|
11%
stock dividend
|
400,556
|
||||||||||
|
6/30/06
|
Reverse
merger transaction:
|
|||||||||||
|
|
Shares
issued to Lixte, Inc. stockholders
|
(1,500
|
)
|
19,021,786
|
||||||||
|
|
Shares
issued to SRKP 7, Inc. stockholders
|
(4,005,556
|
)
|
4,005,177
|
||||||||
|
6/30/06
|
Private
placement at $0.333 per share
|
1,973,869
|
||||||||||
|
7/27/06
|
Private
placement at $0.333 per share
|
1,581,351
|
||||||||||
|
9/30/06
|
Total
shares outstanding
|
0
|
0
|
26,582,183
|
||||||||