LIXTE BIOTECHNOLOGY HOLDINGS, INC. - Quarter Report: 2008 September (Form 10-Q)

 

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

 

 

LIXTE BIOTECHNOLOGY HOLDINGS, INC. AND SUBSIDIARY

(a development stage company)

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30, 2008			December 31, 2007
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	23,784		$	508,070
Advances on research and development contract services			50,000			88,180
Prepaid expenses			25,454			32,117
Total current assets			99,238			628,367
Office equipment, net of accumulated depreciation of $1,640 at September 30,      2008 and $1,167 at December 31, 2007			269			742
Total assets		$	99,507		$	629,109
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses		$	101,021		$	73,741
Liquidated damages payable under registration rights agreement			74,000			74,000
Research and development contract liabilities			—			11,725
Due to stockholder			92,717			92,717
Total current liabilities			267,738			252,183
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 - 27,932,178 shares at September 30, 2008 and     27,832,178 shares at December 31, 2007			2,793			2,783
Additional paid-in capital			3,065,400			2,600,839
Deficit accumulated during the development stage			(3,236,424	)		(2,226,696	)
Total stockholders’ equity (deficiency)			(168,231	)		376,926
Total liabilities and stockholders’ equity (deficiency)		$	99,507		$	629,109

See accompanying notes to condensed consolidated financial statements.

 

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 LIXTE BIOTECHNOLOGY HOLDINGS, INC. AND SUBSIDIARY

(a development stage company)

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

														Period from August 9, 2005 (Inception) to
		Three Months Ended September 30,						Nine Months Ended September 30,						September 30, 2008
		2008			2007			2008			2007			(Cumulative)
Revenues		$	—		$	—		$	—		$	—		$	—
Costs and expenses:
General and administrative, including     $254,915 and $773,356 of stock-   based expense during  the three   months ended September 30, 2008   and 2007, respectively, $319,709 and   $791,064 of stock-based expense   during the nine months ended   September 30, 2008 and 2007,   respectively, and $1,307,553 of   stock-based expense for the period   from August 9, 2005 (inception) to   September 30, 2008 (cumulative)			323,514			819,490			541,385			1,018,735			1,993,306
Depreciation			155			148			473			444			1,640
Research and development costs,     including $61,493 and $4,918 of   stock-based expense during the three   months ended September 30, 2008   and 2007, respectively, $144,862 and   $35,918 of stock-based expense   during the nine months ended   September 30, 2008 and 2007,   respectively, and $195,698 of stock   based expense for the period from     August 9, 2005 (inception) to     September 30, 2008 (cumulative)			172,818			102,178			471,051			339,769			1,143,106
Reverse merger costs			—			—			—			—			50,000
Total costs and expenses			496,487			921,816			1,012,909			1,358,948			3,188,052
			(496,487	)		(921,816	)		(1,012,909	)		(1,358,948	)		(3,188,052	)
Interest income			342			862			3,181			9,169			25,628
Liquidated damages under registration   rights agreement			—			—			—			—			(74,000	)
Net loss		$	(496,145	)	$	(920,954	)	$	(1,009,728	)	$	(1,349,779	)	$	(3,236,424	)
Net loss per common share -   basic and diluted		$	(0.02	)	$	(0.03	)	$	(0.04	)	$	(0.05	)
Weighted average common shares   outstanding -   basic and diluted			27,932,178			26,612,074			27,921,959			26,592,256

See accompanying notes to condensed consolidated financial statements.

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LIXTE BIOTECHNOLOGY HOLDINGS, INC. AND SUBSIDIARY

(a development stage company)

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS’ EQUITY (DEFICIENCY)

Period from August 9, 2005 (Inception) to September 30, 2008

 

		Common Stock						Additional Paid-in			Deficit Accumulated During the Development			Total Stockholders’  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 for the period August 9, 2005 (inception) to   December 31, 2005			—			—			—			(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 $214,517			3,555,220			355			969,017			—			969,372
Stock-based compensation			—			—			97,400			—			97,400
Net loss for the year			—			—			—			(562,084	)		(562,084	)
Balance, December 31, 2006			26,582,183			2,658			1,128,114			(578,208	)		552,564
Shares issued in private placement, net of offering   costs of $118,680			999,995			100			531,220			—			531,320
Stock-based compensation			250,000			25			890,669			—			890,694
Stock-based research and development costs			—			—			50,836			—			50,836
Net loss for the year												(1,648,488	)		(1,648,488	)
Balance, December 31, 2007			27,832,178			2,783			2,600,839			(2,226,696	)		376,926
Stock-based compensation			—			—			319,709			—			319,709
Stock-based research and development costs			100,000			10			144,852			—			144,862
Net loss for the nine months ended September 30,   2008			—			—			—			(1,009,728	)		(1,009,728	)
Balance, September 30, 2008 (unaudited)			27,932,178		$	2,793		$	3,065,400		$	(3,236,424	)	$	(168,231	)

 

See accompanying notes to condensed consolidated financial statements.

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LIXTE BIOTECHNOLOGY HOLDINGS, INC. AND SUBSIDIARY

(a development stage company)

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

		Nine Months Ended September 30,						Period from August 9, 2005 (Inception) to September 30, 2008
		2008			2007			(Cumulative)
Cash flows from operating activities
Net loss		$	(1,009,728	)	$	(1,349,779	)	$	(3,236,424	)
Adjustments to reconcile net loss to net cash used in operating   activities:
Depreciation			473			444			1,640
Stock-based compensation			319,709			791,064			1,307,553
Stock-based research and development costs			144,862			35,918			195,698
Changes in operating assets and liabilities:
(Increase) decrease in -
Advances on research and development contract services			38,180			(74,963	)		(50,000	)
Prepaid expenses			6,663			(2,463	)		(25,454	)
Increase (decrease) in -
Accounts payable and accrued expenses			27,280			6,145			101,021
Research and development contract liabilities			(11,725	)		38,335			—
Liquidated damages payable under registration rights      Agreement			—			—			74,000
Net cash used in operating activities			(484,286	)		(555,299	)		(1,631,966	)
Cash flows from investing activities
Purchase of office equipment			—			(272	)		(1,909	)
Net cash used in investing activities			—			(272	)		(1,909	)
Cash flows from financing activities
Proceeds from sale of common stock to consulting firm			—			—			250
Proceeds from sale of common stock to founder			—			—			1,500
Cash acquired in reverse merger transaction			—			—			62,500
Gross proceeds from sale of common stock			—			—			1,833,889
Payment of private placement offering costs			—			—			(333,197	)
Advances from stockholder			—			—			92,717
Net cash provided by financing activities			—			—			1,657,659
Net increase (decrease) in cash			(484,286	)		(555,571	)		23,784
Cash at beginning of period			508,070			679,640			—
Cash at end of period		$	23,784		$	124,069		$	23,784

(continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months and Nine Months Ended September 30, 2008 and 2007 (Unaudited)

 

1. Organization and Business Operations

 

Organization

On June 30, 2006, Lixte Biotechnology, Inc., a privately-held Delaware corporation (“Lixte”), completed a reverse merger transaction with SRKP 7, Inc. (“SRKP”), a non-trading 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.

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.

Unless the context indicates otherwise, SRKP and Lixte are hereinafter referred to as the “Company”. On December 7, 2006, the Company amended its Certificate of Incorporation to change its name from SRKP 7, Inc. to Lixte Biotechnology Holdings, Inc. (“Holdings”).

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.

 

The condensed consolidated financial statements at September 30, 2008, for the three months and nine months ended September 30, 2008 and 2007, and for the period from August 9, 2005 (inception) to September 30, 2008 (cumulative), are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) have been made that are necessary to present fairly the financial position of the Company as of September 30, 2008, the results of its operations for the three months and nine months ended September 30, 2008 and 2007, and for the period from August 9, 2005 (inception) to September 30, 2008 (cumulative), and its cash flows for the nine months ended September 30, 2008 and 2007, and for the period from August 9, 2005 (inception) to September 30, 2008 (cumulative). Operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full fiscal year. The condensed consolidated balance sheet at December 31, 2007 has been derived from the Company’s audited financial statements as of that date.

 

The statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. 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. These financial statements should be read in conjunction with the financial statements and other information included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007, as filed with the Securities and Exchange Commission.

The Company is considered a “development stage company” as defined in SFAS No. 7, “Accounting and Reporting by Development Stage Enterprises”, as it has not yet commenced any revenue-generating operations, does not have any cash flows from operations, and is dependent on debt and equity funding to finance its operations. The Company has selected December 31 as its fiscal year end.

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Operations

The Company is developing new treatments for several human cancers for which better treatments are urgently needed. The primary focus is on the most common and most aggressive type of brain cancer of adults, glioblastoma multiforme (“GBM”). The Company, however, has expanded the scope of its drug development program to other cancers of neural tissue (nerve and brain), including medulloblastoma, the most common brain tumor of children, and neuroblastoma, the most common cancer of children, and to several of the most common cancers. The expansion of the scope of the program is based on documentation that each of two distinct types of drugs being developed by the Company inhibits the growth of cell lines of GBM, medulloblastoma, neuroblastoma, and pancreatic cancer in animal models of these diseases and is also active against breast, colon, lung, prostate, ovary, stomach and liver cancer and the major types of leukemias in cell culture. The Company has also recently shown that certain of its compounds are active against fungi that cause life-threatening diseases and other compounds are active against fungi responsible for the majority of skin and nail infections. In addition, the Company found that still other of its compounds affect biochemical pathways such that they may be potentially useful for the treatment of common neurodegenerative diseases such as Alzheimer’s disease. These non-cancer applications are under evaluation in collaboration with outside experts.

The research on brain tumors is being conducted with the National Institute of Neurological Disorders and Stroke (“NINDS”) of the National Institutes of Health (“NIH”) under a Cooperative Research and Development Agreement (“CRADA”) initiated on March 22, 2006. The research at NINDS is led by Dr. Zhengping Zhuang, an internationally recognized investigator in the molecular pathology of cancer. Dr. Zhuang is aided by two senior research technicians supported by the Company under the CRADA. The goal of the CRADA is to develop more effective drugs for the treatment of GBM through the steps needed to gain Food and Drug Administration (“FDA”) approval for clinical trials.

Patent applications on work done under the CRADA are jointly owned by NIH and Lixte. NIH co-inventors assign their rights to NIH. Under the CRADA, Lixte is entitled to negotiate an exclusive license from NIH to all claims in these patent applications. The Company and NIH concluded negotiations and executed an exclusive license on seven patent filings effective September 19, 2008. The Company has also filed patent applications for intellectual property owned solely by the Company. These applications concern two series of new anti-cancer agents referred to as the LB-100 series and the LB-200 series. The applications include identification of the structure of molecules, their synthesis, and their anti-cancer, anti-fungal, and potential neuroprotective activities. In February 2008, the Company converted provisional patent applications relating to the nature and activity of the LB-100 series of drugs with the filing of a U.S. non-provisional and a PCT patent application and is in the process of converting provisional patent applications for the LB-200 series.

The Company filed five patent applications on August 1, 2008. Two of these filings deal with applications filed earlier jointly with NIH for work done under the CRADA: (1) a filing entering the regional stage of a PCT application involving the use of certain compounds to treat human tumors expressing a biomarker for brain and other human cancers; and (2) an application for the treatment of the pediatric tumors, medulloblastoma (the most common brain tumor in children) and neuroblastoma (a tumor arising from neural cells outside the brain that is the most common cancer of children). The three new patent applications include: (1) a joint application with NIH identifying a new biomarker for many common human cancers that when targeted by compounds developed by the Company result in inhibition of growth and death of cancer cells; (2) an application by the Company regarding the structure, synthesis and use of a group of new homologs of its LB-1 compounds; and (3) an application by the Company for the use of certain homologs of its drugs as neuroprotective agents with potential application to common neurodegenerative conditions such as Alzheimer’s and Parkinson’s diseases.

During 2007, the Company also documented that some of its compounds have activity against several types of fungi that cause serious infections, particularly in immuno-compromised individuals, such as those with HIV-AIDS and those having bone marrow transplantations. This finding extends the potential use of some of Lixte’s compounds to the large and important field of therapy of life-threatening mycotic infections.

On April 23, 2008, the Company announced that its CRADA collaborators, Dr. Jie Lu and Dr. Zhengping Zhuang of the Surgical Neurology Branch, NINDS, reported the activity of compound, LB-100, against human glioblastoma multiforme cells in a mouse model of cancer at the Annual Meeting of the American Association of Cancer Research. On August 8, 2008, the Company announced that lead compounds from both the LB-100 and LB-200 series inhibit human pancreatic cancer cells growing in mice. The pancreatic cancer studies are early and there is no evidence that these drugs are able to eliminate pancreatic cancers but rather may slow their growth.

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The Company expects that its products will derive directly from the intellectual property generated by its research. Progress to date has borne out this expectation. The development of lead compounds with different mechanisms of action that have now been shown to have activity against brain tumors and several other more common cancers as well as serious fungal infections, originated from the discovery of a biomarker most prominent in GBM. The Company continues to use biomarker discovery to provide insights as to the potential biochemical vulnerabilities of cancers expressing the biomarker.

Going Concern

 

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 generated any revenues from operations to date.

 

The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and to ultimately achieve profitable operations. The Company’s financial statements do not include any adjustments that might result from the outcome of these uncertainties.

At September 30, 2008, the Company had not yet commenced any revenue-generating operations. All activity through September 30, 2008 is 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 dependent on debt and equity funding from both related and unrelated parties to finance its operations. Prior to June 30, 2006, the Company’s cash requirements were funded by advances from Lixte’s founder.

Because the Company is currently engaged in research at an 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 the Company will be able to generate a profit.

  

The Company does not have sufficient resources to fund its operations, including the Company’s research activities with respect to its intellectual property, for the next twelve months. In addition, the Company does not have sufficient resources to fully develop and commercialize any products that may arise from its research. Accordingly, the Company needs to raise additional funds in order to satisfy its future working capital requirements.

 

The Company estimates that it will require additional funding of approximately $2,000,000 for the remainder of 2008 and 2009 to fund operations and continuing drug discovery and to bring two drugs through the pre-clinical evaluation process needed for submission of an Investigational New Drug (“IND”) application. The Company is currently attempting to complete a $2,000,000 private placement of its securities during 2008, although there can be no assurances that the Company will be successful in this regard. Pursuant to an unsecured demand promissory note bearing interest at the rate of 5% per annum, the Company borrowed $100,000 from one of its consultants during October 2008 to fund short-term cash requirements while it attempts to complete the $2,000,000 private placement of its securities. In view of the Company’s limited cash position, failure to complete the private placement offering would result in the Company being unable to repay the loan. Additionally, the amount and timing of future cash requirements will depend on the market’s evaluation of the Company’s technology and products, if any, and the resources that it devotes to developing and supporting its activities. The Company will need to fund these cash requirements from a combination of additional debt or equity financings, or the sale, licensing or joint venturing of its intellectual properties.

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 the Company’s ability to achieve positive earnings and cash flows from operations. Continued negative cash flows and lack of liquidity create significant uncertainty about the Company’s ability to fully implement its operating plan, as a result of which the Company may have to reduce the scope of its planned operations. If cash resources are insufficient to satisfy the Company’s liquidity requirements, the Company would be required to scale back or discontinue its technology and product development programs, or obtain funds, if available, through strategic alliances that may require the Company to relinquish rights to certain of its technologies products, or to discontinue its operations entirely.

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2. Summary of Significant Accounting Policies

 

Principles of Consolidation 

 

The accompanying consolidated financial statements include the financial statements of Holdings 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.

Research and Development  

Research and development costs are expensed as incurred.  Research and development expenses consist primarily of fees paid to consultants and outside service providers, patent fees and costs, royalty costs, and other expenses relating to the acquisition, design, development and testing of the Company's treatments and product candidates. 

 

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. The Company accounts for its research and development contracts in accordance with EITF 07-3.

 

The funds paid to NINDS of the NIH, pursuant to the CRADA effective March 22, 2006, as amended, represented an advance on research and development costs and therefore had future economic benefit. As such, such costs were being charged to expense when they were actually expended by the provider, which is, effectively, as they performed the research activities that they were contractually committed to provide. Absent information that would indicate that a different expensing schedule was more appropriate (such as, for example, from the achievement of performance milestones or the completion of contract work), such advances were expensed over the contractual service term on a straight-line basis, which reflected a reasonable estimate of when the underlying research and development costs were being incurred.

Patent Costs  

 

Due to the significant uncertainty associated with the successful development of one or more commercially viable products based on the Company's research efforts and any related patent applications, all patent costs, including patent-related legal fees, are expensed as incurred. Patent costs were $53,075 and $20,340 for the three months ended September 30, 2008 and 2007, respectively, $127,299 and $66,931 for the nine months ended September 30, 2008 and 2007, respectively, and $288,208 for the period from August 9, 2005 (inception) to September 30, 2008 (cumulative). Patent costs are included in research and development costs in the Company's statement of operations. 

Income Taxes

 

The Company accounts for income taxes pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes” (“SFAS No. 109”), which establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. SFAS No. 109 requires an asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.

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For federal income tax purposes, substantially all expenses, except for interest, taxes, and research and development, are deemed start-up and organization costs and must be deferred until the Company commences business operations at which time they may be written off over a 180-month period. The Company has elected to deduct research and development costs currently.

 

The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.

For federal income tax purposes, net operating losses can be carried forward for a period of 20 years until they are either utilized or until they expire.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The Company adopted the provisions of FIN 48 on January 1, 2007.

 

Stock-Based Compensation

The Company accounts for share-based payments pursuant to 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 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.

 

In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 (“SAB 110”), which expresses the views of the staff regarding the use of a “simplified” method, as discussed in Staff Accounting Bulletin No. 107, in developing an estimate of expected term of “plain vanilla” share options in accordance with SFAS No. 123R. The staff indicated that it will accept a company’s election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. SAB 110 was effective January 1, 2008, and did not have a significant impact on the Company’s consolidated financial statements.

 

The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with EITF No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”, and EITF 00-18, “Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees”, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments is complete. In accordance with EITF 96-18, options granted to Scientific Advisory Board committee members and outside consultants are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting.

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Earnings Per Share  

 

The Company computes earnings per share (“EPS”) in accordance with SFAS No. 128, “Earnings per Share” and SEC Staff Accounting Bulletin No. 98.  SFAS No. 128 requires companies with complex capital structures to present basic and diluted EPS.  Basic EPS is measured as the income (loss) available to common shareholders divided by the weighted average common shares outstanding for the period.  Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., warrants and options) as if they had been converted at the beginning of the periods presented, or issuance date, if later.  Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

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.  

 

At September 30, 2008 and December 31, 2007, the Company had securities outstanding entitling the holder thereof to acquire shares of common stock as follows:  

 

		September 30, 2008			December 31, 2007
Warrants			546,626			546,626
Stock options			2,240,000			2,090,000
Total			2,786,626			2,636,626

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.

 

Fair Value of Financial Instruments

 

The carrying amounts of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses and due to stockholder approximate their respective fair values due to the short-term nature of these items.

 

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.

 

Reclassification

 

Certain reclassifications have been made to prior period balances to conform to the September 30, 2008 presentation. Such reclassifications did not have any effect on results of operations.

 

Adoption of New Accounting Policies

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which establishes a formal framework for measuring fair value under Generally Accepted Accounting Principles (“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 American Institute of Certified Public Accountants (“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. The Company adopted SFAS No. 157 on January 1, 2008.

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In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”), which provides companies with an option to report selected financial assets and liabilities at fair value. SFAS No. 159’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS No. 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. SFAS No. 159 also requires companies to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS No. 157 and SFAS No. 107. The Company adopted SFAS No. 159 on January 1, 2008.

The adoption of SFAS No. 157 and SFAS No. 159 on January 1, 2008 did not have any effect on the Company’s consolidated financial statement presentation or disclosures.

 

Recent Accounting Pronouncements 

 

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”), which requires an acquirer to recognize in its financial statements as of the acquisition date (i) the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, measured at their fair values on the acquisition date, and (ii) goodwill as the excess of the consideration transferred plus the fair value of any noncontrolling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. Acquisition-related costs, which are the costs an acquirer incurs to effect a business combination, will be accounted for as expenses in the periods in which the costs are incurred and the services are received, except that costs to issue debt or equity securities will be recognized in accordance with other applicable GAAP. SFAS No. 141(R) makes significant amendments to other Statements and other authoritative guidance to provide additional guidance or to conform the guidance in that literature to that provided in SFAS No. 141(R). SFAS No. 141(R) also provides guidance as to what information is to be disclosed to enable users of financial statements to evaluate the nature and financial effects of a business combination. SFAS No. 141(R) is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. Early adoption is prohibited. The adoption of SFAS No. 141(R) will affect how the Company accounts for a business combination concluded after December 31, 2008.

 

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS No. 160”), which revises the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require (i) the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity, (ii) the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income, (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently as equity transactions, (iv) when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value, with the gain or loss on the deconsolidation of the subsidiary being measured using the fair value of any noncontrolling equity investment rather than the carrying amount of that retained investment, and (v) entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 amends FASB No. 128 to provide that the calculation of earnings per share amounts in the consolidated financial statements will continue to be based on the amounts attributable to the parent. SFAS No. 160 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. SFAS No. 160 shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements, which shall be applied retrospectively for all periods presented. The Company does not currently anticipate that the adoption of SFAS No. 160 will have any impact on its consolidated financial statement presentation or disclosures.

 

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In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). The objective of SFAS No. 161 is to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 applies to all derivative financial instruments, including bifurcated derivative instruments (and nonderivative instruments that are designed and qualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS No. 133) and related hedged items accounted for under SFAS No. 133 and its related interpretations. SFAS No. 161 also amends certain provisions of SFAS No. 131. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company does not currently anticipate that the adoption of SFAS No. 161 will have any impact on its consolidated financial statement presentation or disclosures.

 

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 Holdings, Dr. John S. Kovach (“Seller”) and Lixte, Holdings 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 Holdings.

 

Pursuant to the Exchange, Holdings issued to the Seller 19,021,786 shares of its common stock. Holdings 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 former stockholder of Lixte acquired control of the Company.

 

 

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Private Placements

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 accredited investors in an initial closing of a 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 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 $446,433.

 

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 cashless exercise provisions and demand registration rights, but the warrant holder has agreed to waive any claims to monetary damages or financial penalties for any failure by the Company to comply with such registration requirements. Based on the foregoing, the warrants have been accounted for as equity.

 

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) 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%.

As part of the Company’s private placement of its securities completed on July 27, 2006, the Company entered into a registration rights agreement with the purchasers, whereby the Company agreed to register the shares of common stock sold in the private placement, and to maintain the effectiveness of such registration statement, subject to certain conditions. The agreement required the Company to file a registration statement within 45 days of the closing of the private placement and to have the registration statement declared effective within 120 days of the closing of the private placement. On September 8, 2006, the Company filed a registration statement on Form SB-2 to register 3,555,220 shares of the common stock sold in the private placement. Since the registration statement was not declared effective by the Securities and Exchange Commission within 120 days of the closing of the private placement, the Company was required to pay each investor prorated liquidated damages equal to 1.0% of the amount raised per month, payable monthly in cash.

In accordance with EITF 00-19-2, “Accounting for Registration Payment Arrangements”, on the date of the closing of the private placement, the Company believed it would meet the deadlines under the registration rights agreement with respect to filing a registration statement and having it declared effective by the Securities and Exchange Commission. As a result, the Company did not record any liabilities associated with the registration rights agreement at June 30, 2006. At December 31, 2006, the Company determined that the registration statement covering the shares sold in the private placement would not be declared effective within the requisite time frame and therefore accrued six months liquidated damages under the registration rights agreement aggregating approximately $74,000, which has been presented as a current liability at September 30, 2008 and December 31, 2007. The Company’s registration statement on Form SB-2 was declared effective by the Securities and Exchange Commission on May 14, 2007. At September 30, 2008, the registration penalty to the investors had not been paid.

On December 12, 2007, the Company sold an aggregate of 999,995 shares of its common stock to accredited investors in a second private placement at a per share price of $0.65, resulting in aggregate gross proceeds to the Company of $650,000. 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 $0.65 per share and (b) an additional 2% of the number of shares sold in the private placement also exercisable at $0.65 per share. Net cash proceeds to the Company were $531,320.

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In conjunction with the second private placement of common stock, the Company issued a total of 120,000 five-year warrants to WestPark Capital, Inc. exercisable at the per share price of the common stock sold in the private placement ($0.65 per share). The warrants issued to WestPark Capital, Inc. do not contain any price anti-dilution provisions. However, such warrants contain cashless exercise provisions and demand registration rights, but the warrant holder has agreed to waive any claims to monetary damages or financial penalties for any failure by the Company to comply with such registration requirements. Based on the foregoing, the warrants have been accounted for as equity.

The fair value of the warrants, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $115,200 ($0.96 per share) using the following Black-Scholes input variables: stock price on date of grant - $1.10; exercise price - $0.65; expected life - 5 years; expected volatility - 118.6%; expected dividend yield - 0%; risk-free interest rate - 4%.

 

As part of the Company’s second private placement of its securities completed on December 12, 2007, the Company entered into a registration rights agreement with the purchasers, whereby the Company agreed to register the shares of common stock sold in the second private placement at its sole cost and expense. The registration rights agreement terminates at such time as the common shares may be sold in market transactions without regard to any volume limitations. The registration rights agreement requires the Company to file a registration statement within 75 days of receipt of written demand from holders who represent at least 50% of the common shares issued pursuant to the second private placement, provided that no demand shall be made for less than 500,000 shares, and to use its best efforts to cause such registration statement to become and remain effective for the requisite period. The registration rights agreement also provides for unlimited piggyback registration rights. The registration rights agreement does not provide for any penalties in the event that the Company is unable to comply with its terms.

The Company’s common stock was listed for trading on the OTC Bulletin Board commencing September 24, 2007.

6. Stock Options and Warrants

 

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 was charged to operations ratably from July 1, 2006 through June 30, 2008. During the three months and nine months ended September 30, 2007, the Company recorded a charge to operations of $5,167 and $15,501 with respect to these options.  During the three months and nine months ended September 30, 2008, the Company recorded a charge to operations of $-0-and $10,332, 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 charged to operations ratably from July 1, 2006 through June 30, 2008. During the three months and nine months ended September 30, 2007, the Company recorded a charge to operations of $12,316 and $19,692, respectively, with respect to these options.  During the three months and nine months ended September 30, 2008, the Company recorded a charge (credit) to operations of $-0- and $(3,336), respectively, with respect to these options.

On June 30, 2006, the fair value of the aforementioned stock options was initially calculated using the following Black-Scholes input variables: stock price - $0.333; exercise price - $0.333; expected life - 5 to 7 years; expected volatility - 150%; expected dividend yield - 0%; risk-free interest rate - 5%. On June 30, 2007, the Black-Scholes input variables utilized to determine the fair value of the aforementioned stock options were stock price - $0.333; exercise price - $0.333; expected life - 4 to 6 years; expected volatility - 150%; expected dividend yield - 0%; risk-free interest rate - 4.5%. On June 30, 2008, the fair value of the aforementioned stock options was calculated using the following Black-Scholes input variables: stock price - $0.30; exercise price - $0.333; expected life - 3 to 5 years; expected volatility - 154.5%; expected dividend yield - 0%; risk-free interest rate - 3.28%.

In August 2008, a member of the Scientific Advisory Committee resigned from his position and waived his right to his vested stock option to purchase 50,000 shares of common stock.

On June 20, 2007, the Board of Directors of the Company approved the 2007 Stock Compensation Plan (the “2007 Plan”), which provides for the granting of awards, consisting of common stock options, stock appreciation rights, performance shares, or restricted shares of common stock, to employees and independent contractors, for up to 2,500,000 shares of the Company’s common stock, under terms and condition, as determined by the Company’s Board of Directors.

On September 12, 2007, in conjunction with his appointment as a director of the Company, the Company granted to Dr. Stephen Carter stock options to purchase an aggregate of 200,000 shares of common stock under the 2007 Plan, exercisable for a period of five years from vesting date at $0.333 per share, with one-half (100,000 shares) vesting annually on each of September 12, 2008 and 2009. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $204,000 ($1.02 per share), and is being charged to operations ratably from September 12, 2007 through September 12, 2009. During the three months ended September 30, 2008 and 2007, the Company recorded a charge to operations of $25,653 and $5,016, respectively, with respect to these options.  During the nine months ended September 30, 2008 and 2007, the Company recorded a charge to operations of $76,375 and $5,016, respectively, with respect to these options.

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On September 12, 2007, the Company entered into a consulting agreement with Gil Schwartzberg, pursuant to which the Company granted to Mr. Schwartzberg stock options to purchase an aggregate of 1,000,000 shares of common stock, exercisable for a period of four years from the vesting date at $1.00 per share, with one-half of the options (500,000 shares) vesting immediately and one-half (500,000 shares) vesting on September 12, 2008. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $945,000 ($0.945 per share), of which $465,000 was attributed to the fully-vested options and was thus charged to operations on September 12, 2007. The remaining portion of the fair value of these options was charged to operations ratably from September 12, 2007 through September 12, 2008. On September 12, 2008, the fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $325,000 ($0.65 per share), which resulted in a charge to operations of $229,262 and $236,338 during the three months and nine months ended September 30, 2008, respectively. During the three months and nine months ended September 30, 2007, the Company recorded a charge to operations of $23,607 with respect to these options.

On September 12, 2007, the Company entered into a consulting agreement with Francis Johnson, a co-owner of Chem-Master International, Inc., and granted to Professor Johnson stock options to purchase an aggregate of 300,000 shares of common stock, exercisable for a period of four years from the vesting date at $0.333 per share, with one-third (100,000 shares) vesting annually on each of September 12, 2008, 2009 and 2010. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $300,000 ($1.00 per share), and is being charged to operations ratably from September 12, 2007 through September 12, 2010. On September 12, 2008 and September 30, 2008, the fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $195,000 ($0.65 per share) and $150,000 ($0.50 per share), respectively, which resulted in a charge to operations of $45,925 and $47,630 during the three months and nine months ended September 30, 2008, respectively. During the three months and nine months ended September 30, 2007, the Company recorded a charge to operations of $4,918 with respect to these options.

 

On September 12, 2007, the fair value of the aforementioned stock options was initially calculated using the following Black-Scholes input variables: stock price - $1.05; exercise price - $0.333 to $1.00; expected life - 4 to 6 years; expected volatility - 150%; expected dividend yield - 0%; risk-free interest rate - 5%. On September 12, 2008, the fair value of the aforementioned stock options was calculated (for stock options revalued pursuant to EITF 98-16) using the following Black-Scholes input variables: stock price - $0.65; exercise price - $0.333 to $1.00; expected life - 4 years; expected volatility - 275.7%; expected dividend yield - 0%; risk-free interest rate - 2.48%. On September 30, 2008, the fair value of the aforementioned stock options was calculated (for stock options revalued pursuant to EITF 98-16) using the following Black-Scholes input variables: stock price - $0.50; exercise price - $0.333; expected life - 4.98 years; expected volatility - 275.7%; expected dividend yield - 0%; risk-free interest rate - 2.48%. As the Company’s common stock commenced trading on September 24, 2007, the Company was able to utilize such trading date to generate revised volatility factors at September 12, 2008 and September 30, 2008.

Additional information with respect to common stock warrants and stock options issued is provided at Notes 3 and 7.

7. Commitments and Contingencies

Effective March 22, 2006, Lixte entered into a CRADA, as amended, with the NINDS of the NIH. The CRADA was for a term of 42 months from the effective date and could be unilaterally terminated by either party by providing written notice within sixty days. The CRADA provided 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 would 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 $200,000 was due within 180 days of the effective date and was paid in full on July 6, 2006. The second $200,000 was paid in full on June 29, 2007. In June 2008, the CRADA was extended to September 30, 2009, with no additional funding required for the period between July 1, 2008 and September 30, 2008. However, for the period from October 1, 2008 through September 30, 2009, the Company has agreed to provide additional funding under the CRADA of $200,000, to be paid in four quarterly installments of $50,000 commencing on October 1, 2008. The first installment of $50,000 was paid on September 29, 2008.

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Item 1. Legal Proceedings

The Company is currently not a party to any pending or threatened legal proceedings.

 

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.