**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM 10-KSB/A**


Amendment
        No. 2








x
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934** **For the fiscal year ended
              December 31,
              2006**





o
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**


**For
                the transition period from ______ to
                ______**





Commission
      file number: 000-51476





**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


(Name
      of
      small business issuer in its charter)







**Delaware**
            
            **20-2903526**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                Number)**248
                Route 25A, No. 2**
              **East
                Setauket, New York**
            
            **11733**(Address
                of principal executive offices)
            
            (Zip
                Code)




Issuer’s
      telephone number: **(631)
      942-7959**





Securities
      registered under Section 12(b) of the Act: None.





Securities
      registered under Section 12(g) of the Act: Common Stock, $0.000 par value
      per share.





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  ̈





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to the best of the registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o





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





Issuer’s
      revenues for its fiscal year ended December 31, 2006: $0


Aggregate
      market value of the common stock held by non-affiliates of the Issuer as of
      March 15, 2007 was approximately $0.





There
      were 26,582,183 shares of the Company’s common stock outstanding on March 15,
      2007.




Documents
      incorporated by reference: None.





Transitional
      Small Business Disclosure Format: Yes o No x





**Introductory
      Comment**




*Throughout
      this Annual Report on Form 10-KSB, the terms “we,” “us,” “our,” “our company,”
“Company” and “the Registrant” refer to Lixte Biotechnology Holdings, Inc.., a
      Delaware corporation formerly known as SRKP 7, Inc.*




**FORWARD-LOOKING
      STATEMENTS**




This
      Annual Report on Form 10KSB (the “Report”) 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
      Report.




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 Report 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 Report or to conform
      these statements to actual results.




**PART
      I**




**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**




**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
      to Dr. Kovach in exchange for all of the issued and outstanding shares of Lixte
      Biotechnology, Inc. 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. On December 7, 2006, we changed our name from SRKP 7, Inc.
      to
      Lixte Biotechnology Holdings, Inc. Throughout this Report, when we refer to
      Lixte, we are referring to Lixte Biotechnology, Inc., our operating
      subsidiary.





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). On March 22, 2006, 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.




On
        February 6, 2006, we filed a provisional patent application  naming as
        co-inventors Dr. Zhuang and several other NIH investigators, and
        Dr. Kovach covering certain methods and classes of molecules that are
        expected to be the foundation of product development and commercialization
        efforts with respect to human brain tumors. On February 6, 2007, we filed
        on behalf of the NIH co-inventors and Dr. Kovach a PCT international patent
        including all countries participating in the Patent Cooperation Treaty (except
        the USA) and an identical non-provisional patent in the USA. These two patent
        applications contain all claims in the provisional patent of February 6,
        2006 plus additional claims.
 
 Both
        February 6, 2007 patent filings fall under the CRADA agreement with NINDS,
        NIH. Patents resulting from these applications are jointly owned by Lixte
        Biotechnology, Inc. and the U.S. Government. All NIH co-inventors are required
        to assign their rights to NIH. As specified in the CRADA agreement between
        us
        and NINDS, NIH, we are entitled to obtain an exclusive license from NIH to
        all
        claims in these patents.
 
 Also
        on
        February 6, 2007, we filed a new US provisional application in our sole
        name. This application identifies a method of synthesis and documents activity
        against glioblastoma multiforme cell lines in vitro of a proprietary lead
        compound synthesized by the company. This provisional patent also describes
        a
        series of homologs of this lead compound.




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.


3


**GLOSSARY**




The
      following technical terms are used in this Report:




**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.


4


**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.


5


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.




**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**




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. In February 2007, a PCT international
      patent covering all countries participating in the Patent Cooperation Treaty
      except the USA was filed containing all claims in the provisional patent plus
      additional claims. A non-provisional patent application with the same claims
      was
      filed in the USA. The PCT application and the non-provisional application
      include data supporting the original claims in the provisional patent and a
      number of new claims, including evidence that several drugs mentioned in the
      provisional patent may mimic the activity of the lead drugs named in the
      provisional patent, and do, in fact, have anti-tumor activity against human
      glioblastoma cell lines.




6


Both
      February patent 2007 filings, the PCT application and the non-provisional
      application, fall under the CRADA agreement with NINDS, NIH. As such, we are
      entitled to obtain an exclusive license to such claims as specified in the
      standard NIH CRADA agreement. In addition, patents resulting from these
      applications will be jointly owned by Lixte and the U.S. Government. The terms
      of the license (including term and royalty) will be subject to negotiations
      between us and NINDS, NIH in the future.




In
      February 2007, a new US provisional application was filed on behalf of Lixte
      Biotechnology Holdings, Inc. This provisional patent application identifies
      a
      new lead compound that has activity against glioblastoma multiform cell lines
      in
      vitro. This provisional patent application also describes a series of homologs
      of the lead compound.




**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. On January 5, 2007 we entered into a
      two-year 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. 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. Pursuant to the Agreement, the University will provide us with certain
      samples of primary cancer tissue and related biological fluids to be obtained
      from patients affiliated with specified types of cancer. The University will
      also provide certain information relating to such patients. The University
      is to
      be paid 72,000 Euros (approximately $99,702) in two installments of 36,000
      Euros. The first installment was paid on March 7, 2007, and the second
      installment will be paid within 60 days of the earlier of (i) January
      5, 2008 or (ii) the University's fulfillment of certain obligations relating
      to
      the delivery of materials.




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, Rochester, Minnesota,
      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 cancers studied by us are those of brain cancers and, to a lesser extent,
      breast and kidney 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.




**Access
      to Chemical Compounds**




On
      February 5, 2007, we entered into an agreement with Chem-Master International,
      Inc. pursuant to which we engaged Chem-Master to synthesize the compound
      designated LB-1 and any other compound synthesized by Chem-Master pursuant
      to
      our request, which has potential use in treating a disease, including, without
      limitation, cancers such as glioblastomas. Pursuant to the Agreement, we agreed
      to grant to Chem-Master a five-year option to purchase 100,000 shares of our
      common stock with an exercise price of $0.333 per share. Additionally, provided
      that the Agreement is not terminated by us without cause or by any party for
      cause prior to the second anniversary of the Agreement, we agreed to grant
      to
      Chem-Master a five-year option to purchase an additional 100,000 shares of
      the
      Company’s common stock at $0.333 share. We have agreed to reimburse Chem-Master
      for the cost of materials, labor and expenses in providing the
      synthesis.




7


**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.




8


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.




9


**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.


10


**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.


11


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
      December 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 20% 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.




12


**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.




We
      have entered into 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. Clinical trials are research studies
      to
      answer specific questions about new therapies or new ways of using known
      treatments. Clinical trials are use to determine whether new drugs or treatments
      are both safe and effective and the FDA has determined that carefully conducted
      clinical trials are the fastest and safest way to find treatment that work
      in
      people.




The
      ultimate objective of our CRADA is to identify, characterize, and bring to
      clinical trial regimens for the treatment of human brain tumors (GBMs). We
      estimate that we are at least one year from being in a position to begin
      discussing development of a clinical trial. Such a clinical trial would most
      likely be conducted by us in association with a pharmaceutical company in
      association with NIH under the existing CRADA or under a new CRADA or with
      a
      pharmaceutical company without association with NIH. In either case, we would
      be
      primarily responsible for filing and obtaining approval from the FDA of an
      Investigational New Drug Application (IND). In the event that we seek to raise
      sufficient capital to conduct a phase I clinical trial without a partner in
      the
      pharmaceutical industry in collaboration with NIH or independently, we would
      become subject to FDA regulation as we sought to obtain an IND for clinical
      evaluation of a therapeutic regimen with the long-range goal of receiving FDA
      approval of the drug for commercial use. Acquisition of an IND from the FDA
      is
      the process that triggers FDA review and oversight as federal law requires
      that
      a drug be the subject of an approved marketing application before it is
      transported to clinical investigations, unless exempted. The IND is the means
      through which we would obtain such exemption. During a new drug's early
      preclinical development, our primary goal is to determine if the product is
      reasonably safe for initial use in humans, and if the compound exhibits
      pharmacological activity that justifies commercial development. When a product
      is identified as a viable candidate for further development, we would then
      focus
      on collecting the data and information necessary to establish that the product
      will not expose humans to unreasonable risks when used in limited, early-stage
      clinical studies. FDA's role in the development of a new drug begins when we,
      having screened the new molecule for pharmacological activity and acute toxicity
      potential in animals, want to test its diagnostic or therapeutic potential
      in
      humans. At that point, the molecule changes in legal status under the Federal
      Food, Drug, and Cosmetic Act and becomes a new drug subject to specific
      requirements of the drug regulatory system. Once the IND is submitted, we must
      wait 30 calendar days before initiating any clinical trials. During this time,
      FDA has an opportunity to review the IND for safety to assure that research
      subjects will not be subjected to unreasonable risk.




13


The
      first
      phase of clinical trials, Phase I trials, are the initial studies to determine
      the metabolism and pharmacologic action of drugs in humans, the side effects
      associated with increasing doses, and to gain early evidence of effectiveness.
      If we were to conduct clinical trials on our own, it is likely that only a
      Phase
      I type trial would be done. In such a trial a new investigational drug or
      combination of drugs is first introduced into humans. For the evaluation of
      anticancer drugs, patients entering such trials are those for whom no means
      of
      therapy is known to be associated with benefit. Such studies are closely
      monitored and require approval from the FDA including a proposal for the conduct
      of the clinical trial.




The
      FDA
      also requires that an independent review body consider the benefits and risks
      of
      a clinical trial and grant approval for the proposed study including selecting
      of initial doses, plans for escalation of dose, plans for modification of dose
      if toxicity is encountered, plans for monitoring the well being of individuals
      participating in the study and for defining and measuring to the extent possible
      any untoward effects related to drug administration. Serious adverse effects
      such as life-threatening toxicities and death are immediately reportable to
      the
      review body and to the FDA. To minimize risk when studying a new drug, the
      initial dose is well below that expected on the basis of animal studies to
      cause
      any toxicity. No more than three patients are entered at a given dose and in
      general dose is not escalated within patients. Once safety is established by
      the
      absence of toxicity or low toxicity in a group of three patients, a planned
      higher dose is then evaluated in a subsequent group of three individuals and
      so
      on until dose limiting toxicity is encountered. The dose level producing
      definite but acceptable toxicity is then selected as the dose level to be
      evaluated in Phase II trials. Thus, the goal of Phase I studies is to determine
      the appropriate dose level for evaluation of drug efficacy in patients with
      the
      same type of tumor at comparable stages of progression for whom no beneficial
      treatment is established. The
      duration of a Phase I trial is generally from 4 to 9 months.




We
        expect
        to participate in clinical trials of new therapies only in partnership with
        an
        organization experienced in such undertakings. The partnering organization
        may
        be either a clinical branch of NIH or a pharmaceutical company with expertise
        in
        the conduct of clinical trials. Our present position is to take one or more
        of
        our new therapies for the treatment of glioblastoma multiforme through
        pre-clinical evaluation as part of our CRADA agreement with NINDS, NIH. After
        completing pre-clinical evaluation, we will consider partnering with NIH to
        conduct a phase I trial or jointly with NIH seek a third party, most
        probably a large pharmaceutical company to carry the new therapies into
        phase I trials.
 
 After
        completion of phase I trials, we, potentially in partnership with NIH or on
        our own, would collaborate with the third party to carry new therapies found
        to
        be safe for administration to humans in the phase I trials into
        phase II trials.
 
 Phase II
        trials test the safety and effectiveness, as well as the best estimate of
        the
        proper dose of the new therapies in a group of patients with the same type
        of
        cancer at the same stage. For our initial studies the focus will be brain
        tumors. The duration of phase II trials may run from 6 to 24 months. New
        regimens showing beneficial activity in phase II trials may then be
        considered for evaluation in phase III trials. Phase III trials for
        the evaluation of new cancer treatments are comparative trials in which the
        therapeutic benefit of a new regimen is compared to the therapeutic benefit
        of
        the best standard regimen in a randomized study.
 
 Whether
        we will participate or be in a position to participate in any clinical trials
        will depend upon partnerships and specific licensing agreements. In all cases
        of
        clinical trial participation, however, we will be subject to FDA regulation.
        These regulations are specific and form the basis for assessing the potential
        clinical benefit of new therapeutic regimens while safeguarding the health
        of
        patients participating in investigational studies. Even after a drug receives
        approval from the FDA for sale as a new treatment for a specific disease
        indication, the sponsors of the drug are subject to reporting potentially
        adverse effects of a new regimen to the FDA.




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.




14


**RISK
      FACTORS**




Please
      consider the following risk factors together with the other information
      presented in this Report, including the financial statements and the notes
      thereto.




**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




·
            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
        funds
        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 $969,372 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.




15


***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
      December 31, 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 for Lixte, our operating subsidiary, were funded
      by
      advances from Dr. John Kovach, Lixte’s founder, our current Chief Executive
      Officer. 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
      $446,433.




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.




16


***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.***




On
        February 6, 2006, we filed a provisional patent application naming as
        co-inventors Dr. Zhuang and several other NIH investigators, and
        Dr. Kovach covering certain methods and classes of molecules that are
        expected to be the foundation of product development and commercialization
        efforts with respect to human brain tumors. On February 6, 2007, we filed
        on behalf of the NIH co-inventors and Dr. Kovach a PCT international
        patent including all countries participating in the Patent Cooperation Treaty
        (except the USA) and an identical non-provisional patent in the USA. These
        two
        patent applications contain all claims in the provisional patent of
        February 6, 2006 plus additional claims.
 
 Both
        February 6, 2007 patent filings fall under the CRADA agreement with NINDS,
        NIH. Patents resulting from these applications are jointly owned by Lixte
        Biotechnology, Inc. and the U.S. Government. All NIH co-inventors are required
        to assign their rights to NIH. As specified in the CRADA agreement between
        us
        and NINDS, NIH, we are entitled to obtain an exclusive license from NIH to
        all
        claims in these patents.
 
 Also
        on
        February 6, 2007, we filed a new US provisional application in our sole
        name. This application identifies a method of synthesis and documents activity
        against glioblastoma multiforme cell lines in vitro of a proprietary lead
        compound synthesized by the company. This provisional patent also describes
        a
        series of homologs of this lead compound.


Should
      we
      be unable to reach an agreement on patents shared with NIH, 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.




***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.




17


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:




·
            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.




***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. He 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. Dr. Zhengping Zhuang is a full-time employee
      of
      NIH.  He participates with the company under a formal agreement with NIH, a
      CRADA, that defines the scope of his collaboration, and he does not face a
      conflict of interest.




18


***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.




19


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.




20


***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:




·
            our
                ability to generate revenues and achieve
                profitability;




·
            the
                future revenues and profitability of our potential customers, suppliers
                and collaborators; and




·
            the
                availability of capital.




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:




·
            our
                ability to provide acceptable evidence of safety and
                efficacy;




·
            convenience
                and ease of administration;




·
            prevalence
                and severity of adverse side
                effects;




·
            availability
                of alternative treatments or diagnostic
                tests;




·
            cost
                effectiveness;




·
            effectiveness
                of our marketing strategy and the pricing of any product that we
                may
                develop;




21


·
            publicity
                concerning our products or competitive products;
                and




·
            our
                ability to obtain third-party coverage or
                reimbursement.




***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:




·
            we
                or our licensors might not have been the first to make the inventions
                covered by our pending or future patent
                applications;




·
            we
                or our licensors might not have been the first to file patent applications
                for these inventions;




·
            others
                may independently develop similar or alternative technologies or
                duplicate
                any of our technologies;




·
            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;




·
            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;




·
            any
                patent issued to us in the future or under which we hold rights may
                not be
                valid or enforceable; or




·
            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.




22


***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.




23


***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, on January 5, 2007, we
      entered into an agreement with the Institute of Pathology at the University
      of
      Regensburg in Germany to collect samples of colon, kidney, bladder, stomach,
      breast, prostate, and ovarian cancers for biomarker discovery programs focused
      on these cancers. 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. All tissue samples are de-identified when they are sent
      to
      us.  We have no way to link any of our studies to an individual
      patient.  Therefore, the risk of an individual patient objecting to
      development of any product is extremely remote.




***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:




·
            receiving
                patent protection for our product
                candidates;




·
            preventing
                others from infringing our intellectual property rights;
                and




·
            maintaining
                our patent rights and trade
                secrets.




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 for a Patent
      Cooperation Treaty patent and a non-provisional patent in the U.S. related
      to
      inventions that form the basis of our research arrangements with the NIH and
      potential pipeline of future products. We also filed a new provisional
      application in the U.S. in February 2007 relating to a lead compound that has
      activity against glioblastoma multiform cell lines in vitro. 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.




24


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.




25


**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:




·
            the
                issuance of new equity securities pursuant to a future offering or
                acquisition;




·
            changes
                in interest rates;




·
            competitive
                developments, including announcements by competitors of new products
                or
                services or significant contracts, acquisitions, strategic partnerships,
                joint ventures or capital
                commitments;




·
            variations
                in quarterly operating results;




·
            changes
                in financial estimates by securities
                analysts;




·
            the
                depth and liquidity of the market for our common
                stock;




·
            investor
                perceptions of our company and the medical device industry generally;
                and




·
            general
                economic and other national
                conditions.




26


***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.***




Dr.
      John
      Kovach, our current Chief Executive Officer, was the former stockholder of
      Lixte, our operating subsidiary, and received shares of our stock in the Reverse
      Merger. He 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 and
      our
      Chief Executive Officer, beneficially owns approximately 64% 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.




27


***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.




**ITEM
      2.**  **DESCRIPTION
      OF PROPERTY**




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.




**ITEM
      3.**  **LEGAL
      PROCEEDINGS**




We
      are
      not a party to any legal proceedings.




**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**




There
      were no matters submitted to a vote of the Company’s security holders during the
      quarterly period ended December 31, 2006.




**ITEM
      5.**  **MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**




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:




28


·
            Our
                ability to obtain additional financing and, if available, the terms
                and
                conditions of the financing;




·
            Our
                financial position and results of
                operations;




·
            Concern
                as to, or other evidence of, the safety or efficacy of any future
                proposed
                products and services or our competitors’ products and
                services;




·
            Announcements
                of technological innovations or new products or services by us or
                our
                competitors;




·
            U.S.
                and foreign governmental regulatory
                actions;




·
            The
                development of litigation against
                us;




·
            Period-to-period
                fluctuations in our operating
                results;




·
            Changes
                in estimates of our performance by any securities
                analysts;




·
            Possible
                regulatory requirements on our
                business;




·
            The
                issuance of new equity securities pursuant to a future
                offering;




·
            Changes
                in interest rates;




·
            Competitive
                developments, including announcements by competitors of new products
                or
                services or significant contracts, acquisitions, strategic partnerships,
                joint ventures or capital
                commitments;




·
            Variations
                in quarterly operating results;




·
            Change
                in financial estimates by securities
                analysts;




·
            The
                depth and liquidity of the market for our common
                stock;




·
            Investor
                perceptions of us; and




·
            General
                economic and other national
                conditions.




**Holders**




As
      of
      December 31, 2006, we currently have 26,582,183 shares of our common stock
      outstanding. As of December 31, 2006, our shares of common stock are held by
      approximately 66 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.




29


**Dividends**




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.




**Sales
      of Unregistered Securities**




On
      May
      26, 2005, we sold 2,700,000 shares of common stock to five accredited investors
      (two of whom were officers and directors) for aggregate cost consideration
      of
      $25,000. Such shares were issued after we issued a stock dividend of 11% to
      stockholders or record on May 8, 2006. 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
      May
      17, 2006, we issued 905,000 shares of our common stock to TMC Ulster Holdings,
      Inc. for $100,000. The shares were issued pursuant to Section 4(2) of the
      Securities Act of 1933, as amended. The purchaser represented that it was
      acquiring the securities for its own account, and a legend was placed on the
      securities.




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.




On
        February 5, 2007, in connection with an agreement with Chem-Master
        International, Inc., we agreed to issue to Chem-Master a five-year option
        to
        purchase 100,000 shares of our Common Stock at an exercise price of $0.333
        per
        share and an additional 5-year option to purchase 100,000 shares at the same
        exercise price subject to certain conditions. The options will be issued
        pursuant to Section 4(2) of the Securities Act of 1933.




**SECURITIES
      AUTHORIZED FOR ISSUANCE UNDER EQUITY INCENTIVE PLANS**




Set
      forth
      in the table below is information regarding awards made through compensation
      plans or arrangements through December 31, 2006, the most recently completed
      fiscal year.




**Plan
                Category**
            
            **Number
                of Securities to be issued upon exercise of outstanding
                options,warrants and rights**
            
            **Weighted
                average price of outstanding options, warrants and
                rights**
            
            **Number
                of securities remaining available for future issuanceunder
                equity compensation plans (excluding securities reflected
                in column 2)**Equity
                Compensation Plans Approved by Security Holders
            
            N/A
            
            N/A
            
            N/AEquity
                Compensation Plans Not Approved by Security Holders
            
            
            490,000
            
            $
            3.33
            
            
            N/A




30


**ITEM
      6.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**


**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. On December 7, 2006, we
          changed our name to Lixte Biotechnology Holdings, Inc. Lixte Biotechnology
          Holdings, Inc. is a holding company for Lixte Biotechnology, Inc., the
          company
          acquired in the reverse merger and our operating company. When we refer
          to
          "Lixte," we are referring to Lixte Biotechnology, Inc., our operating
          subsidiary.
  **Overview**
  Lixte
          Biotechnology, Inc. 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.
 
 **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.




31


**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.
 
 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.
  On
          February 6, 2006, we filed a provisional patent application naming as
          co-inventors Dr. Zhuang and several other NIH investigators, and
          Dr. Kovach covering certain methods and classes of molecules that are
          expected to be the foundation of product development and commercialization
          efforts with respect to human brain tumors. On February 6, 2007, we filed
          on behalf of NIH co-inventors and Dr. Kovach a PCT international patent
          including all countries participating in the Patent Cooperation Treaty
          (except
          the USA) and an identical non-provisional patent in the USA. These two
          patent
          applications contain all claims in the provisional patent of February 6,
          2006 plus additional claims. We have received a draft of the proposed exclusive
          patent license agreement with NIH. Under the proposed agreement, we will
          pay a
          non-creditable, nonrefundable upfront fee of $150,000 within thirty days
          from
          the effective date of the agreement, a royalty of 6% on net sales with
          a minimum
          annual royalty of $30,000 and royalties upon achieving the following benchmarks:
          (a) $50,000 upon starting Phase I Clinical Trials; (b) $100,000 upon starting
          Phase II Clinical Trials; (c) $200,000 upon starting Phase III Clinical
          Trials;
          (d) $300,000 upon filing an IND submission; and (e) $500,000 upon the first
          commercial sale. Additionally, we are required to pay royalties of 15%
          of the
          consideration received for the guaranty of sublicensing rights. We intend
          to
          negotiate these economic terms in order to attempt to obtain economic terms
          more
          advantageous to us. We believe that the other terms of the proposed agreement
          are customary for agreements of this type.




32




Both
          February 6, 2007 patent filings fall under the CRADA agreement with NINDS,
          NIH. Patents resulting from these applications are jointly owned by Lixte
          Biotechnology, Inc. and the U.S. Government. All NIH co-inventors are required
          to assign their rights to NIH. As specified in the CRADA agreement between
          us
          and NINDS, NIH, we are entitled to obtain an exclusive license from NIH
          to all
          claims in these patents. We have received a draft of the proposed exclusive
          patent license agreement with NIH. Under the proposed agreement, we will
          pay a
          non-creditable, nonrefundable upfront fee of $150,000 within thirty days
          from
          the effective date of the agreement, a royalty of 6% on net sales with
          a minimum
          annual royalty of $30,000 and royalties upon achieving the following benchmarks:
          (a) $50,000 upon starting Phase I Clinical Trials; (b) $100,000 upon starting
          Phase II Clinical Trials; (c) $200,000 upon starting Phase III Clinical
          Trials;
          (d) $300,000 upon filing an IND submission; and (e) $500,000 upon the first
          commercial sale.Additionally, we are required to pay royalties of 15% of
          the
          consideration received for the guaranty of sublicensing rights. We intend
          to
          negotiate these economic terms in order to attempt to obtain economic terms
          more
          advantageous to us. We believe that the other terms of the proposed agreement
          are customary for agreements of this type.
  We
          expect
          that the products will derive directly from our intellectual property,
          which
          will consist of 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 - December 31, 2006 -
          Going Concern” below).
  We
          have
          two major goals to achieve over the next 12 months. The prime objective,
          in
          collaboration with the National Institute of Neurological Diseases and
          Stroke
          (NINDS) under CRADA # 02165, is to extend the characterization of potentially
          more effective drugs and drug combinations (identified by us and jointly
          with
          NINDS) for the treatment of the incurable human brain tumor, glioblastoma
          multiforme (GBM). The second goal is to obtain well characterized samples
          of
          common human cancers other than GBM under conditions needed to identify
          new
          biomarkers for the earlier detection and identification of biochemical
          pathways
          as potential targets for new treatments.
  **Goal
          I: Development of more effective regimens for the treatment of
          GBM**
  Over
          the
          next 12 months, we will continue to develop preclinical data supporting
          the
          potential effectiveness of several drugs for the treatment of GBM when
          used
          alone or in combination. The drugs that have been identified as active
          in vitro
          have never been used for the treatment of GBM in humans. Some of these
          compounds
          were included in claims of a provisional patent filed jointly by the company
          and
          NINDS in February, 2006. Over the past 6 months, the activity of these
          drugs has
          been documented and several new lead compounds were identified. This work
          was
          done under the CRADA. The combinations of several pairs of lead drugs appear
          to
          have some specificity for GBM in that at equimolar doses these drugs are
          more
          active against GBMs than against other human cancer cell types tested.
          Some of
          the drug combinations are synergistic in their ability to inhibit the growth
          of
          GBMs, e.g. the combination of two drugs inhibits GBMs to a greater extent
          than
          would be expected from the sum of their inhibitory effects when used alone.






33


For
          several of the lead compounds, toxicity in mice was determined previously
          by
          others and for two lead compounds, doses that are tolerable in man and
          the
          specific toxicities induced by those doses are known. None of the lead
          compounds, however, have been evaluated as potential treatments for GBM.
  Over
          the
          next 6-12 months, we will evaluate two or more lead compounds alone and
          in
          combination for activity against human GBMs in an animal (mouse) model.
          These
          evaluations will be done at NIH under protocols developed by NINDS and
          us. The
          protocols will be approved by NIH committees responsible for approving
          the
          conduct of animal research at NIH and will be carried out by NIH personnel
          as a
          joint activity under the CRADA. The CRADA agreement specifies evaluation
          of drug
          regimens in animal models as one of the activities to be pursued by the
          company
          and NINDS. It is anticipated that the animal studies will include 3 regimens
          identified under the CRADA that have never been investigated as treatment
          for
          human GBMs. We expect these animal studies to be completed in September,
          2007.
  As
          the
          effectiveness of lead regimens against GBMs in the animal model is determined,
          a
          decision will be made as to which regimens are most promising for development
          for human studies. This decision will be made jointly by the company with
          the
          advice of its scientific advisory board and its CRADA partner, NINDS. At
          this
          point, NINDS and the company will consider whether development of specific
          regimens for evaluation in humans should proceed via an extension of the
          existing CRADA, under a new CRADA with NINDS, or possibly with another
          institute
          at NIH and/or with a partner in the pharmaceutical industry interested
          in and
          capable of taking the drug though the IND process and conducting clinical
          evaluations.
  We
          expect
          to participate in clinical trials of new therapies only in partnership
          with an
          organization experienced in such undertakings. The partnering organization
          may
          be either a clinical branch of NIH or a pharmaceutical company with expertise
          in
          the conduct of clinical trials. Our present position is to take one or
          more of
          our new therapies for the treatment of glioblastoma multiforme through
          pre-clinical evaluation as part of our CRADA agreement with NINDS, NIH.
          After
          completing pre-clinical evaluation, we will consider partnering with NIH
          to
          conduct a phase I trial or jointly with NIH seek a third party, most
          probably a large pharmaceutical company to carry the new therapies into
          phase I trials.
 
 After
          completion of phase I trials, we, potentially in partnership with NIH or on
          our own, would collaborate with the third party to carry new therapies
          found to
          be safe for administration to humans in the phase I trials into
          phase II trials.
 
 Phase II
          trials test the safety and effectiveness, as well as the best estimate
          of the
          proper dose of the new therapies in a group of patients with the same type
          of
          cancer at the same stage. For our initial studies the focus will be brain
          tumors. The duration of phase II trials may run from 6 to 24 months. New
          regimens showing beneficial activity in phase II trials may then be
          considered for evaluation in phase III trials. Phase III trials for
          the evaluation of new cancer treatments are comparative trials in which
          the
          therapeutic benefit of a new regimen is compared to the therapeutic benefit
          of
          the best standard regimen in a randomized study.
 
 Whether
          we will participate or be in a position to participate in any clinical
          trials
          will depend upon partnerships and specific licensing agreements. In all
          cases of
          clinical trial participation, however, we will be subject to FDA regulation.
          These regulations are specific and form the basis for assessing the potential
          clinical benefit of new therapeutic regimens while safeguarding the health
          of
          patients participating in investigational studies. Even after a drug receives
          approval from the FDA for sale as a new treatment for a specific disease
          indication, the sponsors of the drug are subject to reporting potentially
          adverse effects of a new regimen to the FDA.
  **Goal
          II: Collection of Human Tumor Samples**
  Over
          the
          next 12 months, samples of human tumors and associated blood and urine
          samples
          will be collected by the University of Regensburg under our January 5,
          2007
          agreement with the Free State of Bavaria, Germany. Technology comparable
          to that
          used to detect the biomarker for GBM will be applied to these tumors to
          identify
          new biomarkers for cancers of the breast, colon, stomach, kidney, bladder,
          prostate, and ovary. The present CRADA with NINDS is limited to the study
          of
          GBM.
  **Plans
          Beyond the Next 12 Months**


In
        early
        2008, we expect to be in a position to begin analyses of tumor types other
        than
        GBM. The Company plans to establish a laboratory to proceed with biomarker
        discovery independent of NIH. To do this we will need approximately $2.3
        million
        to establish and operate the laboratory for 2 years i.e., to January 2010.
        The
        creation and operation of the laboratory for two years until December 2009
        will
        cost about $1.7 million. During this period, patent, auditing and office
        management expenses are estimated at $500,000. Thus, the company will need
        to
        raise about $2.3 million at the end of 2007 and the beginning of 2008 to
        take
        the next step to biomarker discovery in cancers other than GBM. Funds are
        expected to come from either payments as part of licensing rights to
        compounds for the treatment of GBMs or though the sale
        of stock.






34


The
          laboratory (rented space) is expected to be located in a biotechnology
          incubator of the State of Maryland in close proximity to NIH or comparable
          incubator near an academic biomedical research center. This incubator offers
          low-cost, high-quality space and shared resources necessary for a molecular
          biology research. Because of proximity to NIH or other academic biomedical
          research center, we will have access to many highly trained scientists and
          technical personnel to staff the laboratory.
  Projected
          major expenses for the wet laboratory are:
 
 Year
                    1:$
                    48,000
                for
                    rental of 800 sq, ft. wet lab in MD incubator ($4000/month plus
                    utilities/phone/internet)$300,000
                for
                    staff salaries plus fringe (1 scientist & 2
                    technicians)$100,000
                for
                    disposable equipment and reagents (~33K/lab person)$300,000
                for
                    equipment (one time expense)$100,000
                for
                    outsourced technical services (LC/MS/MS, immunoassay
                    development)Total
                    Year 1:
                $848,000Year
                    2:$
                    50,400
                for
                    rental of wet lab$315,000
                for
                    staff salaries$105,000
                for
                    supplies$300,000
                for
                    outsource technology services (LC/MS/MS, immunoassay
                    development)Total
                    Year 2:
                $770,400
  Total
          costs for Laboratory Start Up and 2 Years of Operation =
          $1,618,400
  **Results
          of Operations - Year Ended December 31, 2006**
  Comparative
          financial statements for the period ended December 31, 2005 reflect the
          results
          of operations of Lixte, our operating subsidiary, for the period August
          9, 2005
          (inception) to December 31, 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 this period were nominal.
  We
          are a
          development stage company and have not yet commenced revenue-generating
          operations.
  General
          and Administrative. For the year ended December 31, 2006, general and
          administrative expenses were $299,420, which included $97,400 for the vested
          portion of the fair value of stock options issued to a director and certain
          members of the Company’s 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 year ended December 31, 2006, depreciation expense was
          $462.
  Research
          and Development Costs. 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.


35


The
          current amount 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 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. For the year ended December 31, 2006, research and development
          costs aggregating $150,100 were charged to operations.
  Reverse
          Merger Costs. On June 30, 2006, pursuant to a Share Exchange Agreement
          dated as
          of June 8, 2006 by and among us, Dr. John S. Kovach and Lixte, we issued
          19,021,786 shares of our 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 year ended December
          31,
          2006.
  Estimated
          Liquidated Damages Under Registration Rights Agreement. 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. 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. 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 is required to pay each investor prorated
          liquidated damages equal to 1.0% of the amount raised. The liquidated damages
          are payable monthly in cash. 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.
  In
          accordance with EITF 00-19-2, on the date of the closing of the private
          placement, the Company believed it would meet the deadlines under the Agreement
          with respect to filing a registration statement and having it declared
          effective
          by the SEC. As a result, the Company did not record any liabilities associated
          with the registration rights agreement at June 30, 2006 or at September
          30,
          2006. At December 31, 2006, the Company has determined that the registration
          statement covering the shares sold in the private placement would not be
          declared effective within the requisite timeframe; management currently
          estimates that the registration statement will be declared effective during
          May
          2007. As a result, the Company has recorded six months liquidated damages
          under
          the registration rights agreement aggregating approximately $74,000 as
          a charge
          to operations and a current liability at December 31, 2006. The Company
          will
          continue to review the status of the registration statement and adjust
          the
          accrued liquidated damages under the registration rights agreement at each
          quarter end as appropriate.
  Net
          Loss.
          For the year ended December 31, 2006, we incurred a net loss of
          $562,084.
  **Liquidity
          and Capital Resources - December 31, 2006**
  **Going
          Concern**
  At
          December 31, 2006, we had not yet commenced any revenue-generating operations
          and were therefore considered a “development stage company”. All activity
          through December 31, 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 its operations.
          Prior
          to June 30 2006, Lixte’s cash requirements were funded by advances from Lixte’s
          founder, Dr. John Kovach, our Chief Executive Officer. On June 30, 2006,
          we
          completed an initial closing of our 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 our private
          placement, selling 1,581,351 shares of common stock at a price of $0.333
          per
          share and receiving net proceeds of $446,433.
  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 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, we may not have sufficient
          resources to completely fund our planned operations for the next twelve
          months. The strain on our limited cash resources has been further exacerbated
          by
          the accrual of a registration penalty obligation under EITF 00-19-2 at
          December
          31, 2006 of $74,000 (reflecting the cash amount payable for the registration
          penalty through mid-May 2007, as described above at “Results of Operations—Year
          Ended December 31, 2006—Estimated Liquidated Damages Under Registration Right
          Agreement”). If our registration statement has not been declared effective by
          mid-May 2007 (or we do not maintain its effectiveness after it has been
          declared
          effective), we would be subject to a registration penalty at the rate of
          approximately $12,000 per 30-day period thereafter, continuing through
          July
          2008, for a total potential maximum liability of approximately $300,000.
          Since
          we only have cash of $679,640 and working capital of $551,502 (net of the
          $74,000 registration penalty obligation referred to above) at December
          31, 2006,
          this short-term cash obligation and the uncertainty as to how long it may
          continue to accrue could have a material adverse impact on our ability
          to fund
          our business plan and conduct operations.
  The
          Company does not have sufficient resources to fully develop and commercialize
          any products that may arise from its research. Accordingly, we 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, we estimate that it will 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 its products. We
          will need
          to fund these cash requirements from either one or a combination of additional
          debt and/or equity financings, mergers or acquisitions, or via the sale
          or
          license of certain of its assets.


36




Current
          market conditions present uncertainty as to our ability to secure additional
          funds, as well as its 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 its 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 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, we 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.
  Operating
          Activities. For the year ended December 31, 2006, operating activities
          utilized
          cash of $443,451.
  The
          Company had working capital of $551,502 at December 31, 2006, primarily
          as a
          result of the Company’s private placement closings on June 30, 2006 and July 27,
          2006, which generated net proceeds of $522,939 and $446,433,
          respectively.
  Investing
          Activities. For the year ended December 31, 2006, investing activities
          utilized
          net cash of $498 for the purchase of office equipment.
  Financing
          Activities. For the year ended December 31, 2006, financing activities
          provided
          net cash of  $1,118,643, 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 $214,517.
  **Principal
          Commitments**
  At
          December 31, 2006, we did not have any material commitments for capital
          expenditures. Our principal commitments at December 31, 2006 consisted
          of the
          estimated liquidated damages payable under the registration rights
          agreement (see "Results of Operations—Year Ended December 31, 2006" above and to
          contractual obligations as summarized below.
  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,
          of
          which $200,000 had been paid at December 31, 2006 and $200,000 is scheduled
          for payment in July 2007.
  On
          January 5, 2007, Lixte entered into a Services Agreement with The Free
          State of
          Bavaria (Germany) represented by the University of Regensburg (the “University”)
          pursuant to which Lixte retained the University to provide to it certain
          samples
          of primary cancer tissue and related biological fluids to be obtained from
          patients afflicted with specified types of cancer. The University will
          also
          provide certain information relating to such patients. Lixte will pay the
          University 72,000 Euros (approximately $99,700) in two installments of
          36,000
          Euros (approximately $49,850). The first installment was paid on March
          7, 2007, and the second installment will be paid within sixty days of
          the earlier of (i) January 5, 2008 or (ii) the University’s fulfillment of
          certain obligations relating to the delivery of materials.
  On
          February 5, 2007, we entered into an agreement (the “Agreement”) with
          Chem-Master International, Inc. (“Chem-Master”) pursuant to which the Company
          engaged Chem-Master to synthesize a compound designated as “LB-1”, and any other
          compound synthesized by Chem-Master pursuant to the Company’s request, which
          have potential use in treating a disease, including, without limitation,
          cancers
          such as glioblastomas. Pursuant to the Agreement, we agreed to reimburse
          Chem-Master for the cost of materials, labor and expenses for other items
          used
          in synthesis process, and to grant to Chem-Master a five-year option to
          purchase
          100,000 shares of our common stock with an exercise price of $0.333 per
          share.
          Additionally, provided that the Agreement is not terminated by us without
          cause
          or by any party for cause prior to the second anniversary of the Agreement,
          we
          agreed to grant to Chem-Master a five-year option to purchase an additional
          100,000 shares of the Company’s common stock at $0.333 per
          share.




37


**Off-Balance
        Sheet Arrangements**




At
        December 31, 2006, the Company 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 generally accepted accounting principles. 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. The Company is currently assessing the potential effect of
        SFAS
        No. 157 on its consolidated financial statements.




In
        December 2006, the FASB issued FSP EITF 00-19-2, “Accounting for Registration
        Payment Arrangements (“EITF 00-19-2”), which addresses an issuer’s accounting
        for registration payment arrangements. EITF 00-19-2 specifies that the
        contingent obligation to make future payments or otherwise transfer
        consideration under a registration payment arrangement, whether issued as
        a
        separate agreement or included as a provision of a financial instrument or
        other
        agreement, should be separately recognized and measured in accordance with
        FASB
        No. 5, “Accounting for Contingencies”. The guidance in EITF 00-19-2 amends
        FASB No. 133, “Accounting for Derivative Instruments and Hedging
        Activities” and FASB No. 150, “Accounting for Certain Financial Instruments
        with Characteristics of both Liabilities and Equity”, and FASB Interpretation
        No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees,
        Including Indirect Guarantees of Indebtedness of Others”, to include scope
        exceptions for registration payment arrangements. EITF 00-19-2 further clarifies
        that a financial instrument subject to a registration payment arrangement
        should
        be accounted for in accordance with other applicable generally accepted
        accounting principles without regard to the contingent obligation to transfer
        consideration pursuant to the registration payment arrangement. EITF 00-19-2
        is
        effective immediately for registration payment arrangements and the financial
        instruments subject to those arrangements that are entered into or modified
        subsequent to the date of issuance of EITF 00-19-2. For registration payment
        arrangements and financial instruments subject to those arrangements that
        were
        entered into prior to the issuance of EITF 00-19-2, EITF 00-19-2 is effective
        for financial statements issued for fiscal years beginning after December
        15,
        2006, and interim periods within those fiscal years. Early adoption of EITF
        00-19-2 for interim or annual periods for which financial statements or interim
        reports have not been issued is permitted. The Company has chosen to early
        adopt
        EITF 00-19-2 effective December 31, 2006, the effect of which is discussed
        above
        at “Results of Operations - Year Ended December 31, 2006 - Estimated Liquidated
        Damages Under Registration Rights Agreement”.




In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        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. SFAS No. 159 is effective as of the beginning of a company’s first fiscal
        year beginning after November 15, 2007. Early adoption is permitted as of
        the
        beginning of the previous fiscal year provided that the company makes that
        choice in the first 120 days of that fiscal year and also elects to apply
        the
        provisions of SFAS No. 157. The Company is currently assessing the potential
        effect of SFAS No. 159 on its consolidated financial
        statements.




Management
        does not believe that any other recently issued, but not yet effective,
        accounting standards, if currently adopted, would have a material effect
        on the
        Company's financial statements.




38


**ITEM
      7.**  **FINANCIAL
      STATEMENTS**




Our
      financial statements and notes thereto and the related report of our independent
      registered accounting firm are attached to this Report beginning on page
      F-1.




**ITEM
      8.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**




Not
      Applicable.




**ITEM
      8A.**  **CONTROLS
      AND PROCEDURES**




We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in the reports that we file with the SEC
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in the SEC’s rules and forms and that such
      information is accumulated and communicated to our management, including our
      principal executive and financial officers, as appropriate, to allow for timely
      decisions regarding required disclosure. As required by SEC Rule 13a-15, we
      carried out an evaluation, under the supervision and with the participation
      of
      the our management, including our principal executive and financial officer,
      of
      the effectiveness of the design and operation of our disclosure controls and
      procedures as of the end of the most recent fiscal year covered by this report.
      Based on the foregoing, our principal executive and financial officer concluded
      that our disclosure controls and procedures (as defined in Rule 13a-15) are
      effective.




There
      has
      been no change in our internal control over financial reporting during our
      most
      recent fiscal quarter that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.




**ITEM
      8B.**  **OTHER
      INFORMATION**




None




**ITEM
      9.**  **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16H
      OF THE EXCHANGE ACT**




The
      following table and text set forth the names of all directors and executive
      officer of our Company as of December 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 RegistrantDr.
                John S. Kovach
            
            70
            
            Chief
                Executive Officer, DirectorDr.
                Philip F. Palmedo
            
            72
            
            Director




39


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.




40


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 which is not part of management 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.




41


***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.




42


**Code
      of Ethics**




Our
      Board
      of Directors adopted a code of ethics covering all of our executive officers
      and
      key employees. A copy of our code of ethics will be furnished without charge
      to
      any person upon written request. Requests should be sent to: Secretary, Lixte
      Biotechnology Holdings, Inc., 248 Route 25A, No. 2, Setauket, New York 11733.




**Compliance
      with Section 16(a) of the Securities Exchange Act of 1934, as
      Amended:**




Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
      directors and executive officers and persons who own more than 10% of a
      registered class of the Company’s equity securities to file various reports with
      the Securities and Exchange Commission concerning their holdings of, and
      transactions in, securities of the Company. Copies of these filings must be
      furnished to the Company.




To
      the
      Company’s knowledge based solely on its review of the copies of the Section
      16(a) reports furnished to the Company and written representations to the
      Company that no other reports were required, the Company believes that all
      individual filing requirements applicable to the Company’s directors and
      executive officers were complied with under Section 16(a) during
      2006.




**ITEM
      10.**  **EXECUTIVE
      COMPENSATION**




For
      the
      fiscal years ended December 31, 2006 and 2005, no individual, including Richard
      Rappaport, who served as our President in 2005 through the date of the reverse
      merger, and Dr. John Kovach, our current Chief Executive Officer, received
      any
      compensation. Dr. Kovach will be reimbursed for any out-of-pocket expenses.
      Any
      future compensation arrangements will be subject to the approval of the board
      of
      directors.




**Option
      Grants in 2005 and 2006**




None.




**Aggregated
      Option Exercises in 2005 and 2006 Option Values at December 31, 2005 and at
      2006**




None.




**Employment
      Agreements; Compensation**




We
      have
      not entered into any employment agreements. As of December 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.




43




**DIRECTOR
      COMPENSATION TABLE**




**Name
                and Principal Position**
            
            **Year**
            
            **Salary
                ($)**
            
            **Bonus
                ($)**
            
            **Stock
                Awards ($)**
            
            **Option
                Awards ($)**
            
            **Non-Equity
                Incentive Plan Compensation ($)**
            
            **Non-Qualified
                Deferred Compensation Earnings ($)**
            
            **All
                Other Compensation ($)(1)**
            
            **Total
                ($)**Philip
                F. Palmedo Director
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            120,900
            
            
            0
            
            
            0
            
            
            --
            
            
            120,900





***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.




**ITEM
      11.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS**




**AND
      MANAGEMENT**




The
      following table sets forth, as of January 15, 2007, 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 January 15, 2007, 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 January 15, 2007, 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.




44




**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
            
            
            17,021,786
            
            
            64.03
            %Dr.
                Philip F. Palmedo
              248
                Route 25A, No. 2East
                Setauket, New York 11733
            
            
            256,666
            (1)
            
            0.96
            %Richard
                Rappaport(2)
              1900
                Avenue of the Stars
              Los
                Angeles, California 90067
            
            
            1,581,471
            
            
            5.85
            %All
                Officers and directors as a group (two persons)
            
            
            17,278,452
            (1)
            
            64.37
            %







(1)
            Includes
                options to purchase an aggregate of 256,666 shares of common stock,
                which
                are immediately exercisable.




(2)
            Mr.
                Rappaport served as the Company's President from May 2005 until June
                30,
                2006. Mr. Rappaport is the Chief Executive Officer of WestPark Capital
                Inc. The number in the table includes 426,626 shares of our common
                stock
                issuable upon the exercise of warrants issued to WestPark Capital,
                Inc.
                with respect to which Mr. Rappaport disclaims beneficial
                ownership.





**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED PARTY TRANSACTIONS**




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 December 31, 2006.




On
      May
      26, 2005, we sold 1,155,000 shares and 270,000 shares of our common 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
      the
      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.


45


Also,
      Dr.
      Kovach, our President, has advanced to us an aggregate of $92,717 through
      December 31, 2006 to meet operating expenses. Such advances are
      non-interest bearing and are due on demand.




**ITEM
      13.**  **EXHIBITS**




**Exhibit
                No.**
            
            **Description**2.1
            
            Share
                Exchange Agreement dated as of June 8, 2006 among the Company, John
                S.
                Kovach and Lixte Biotechnology, Inc.12.2
            
            Securities
                Purchase Agreement32.3
            
            Registration
                Rights Agreement33.1
            
            Certificate
                of Incorporation, as filed with the Delaware Secretary of State on
                May 24,
                2005.23.2
            
            Certificate
                of Amendment of Certificate of Incorporation3.2
            
            Bylaws210.1
            
            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.410.2
            
            Services
                Agreement between Lixte and the Free State of Bavaria represented
                by the
                University of Regensburg dated as of January 5, 2007.710.3
            
            Agreement
                between Lixte Biotechnology Holdings, Inc. and Chem-Master International,
                Inc. dated as of February 5, 2007.631
            
            Officer’s
                Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232
            
            Officer’s
                Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
                20021Filed
                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.
              2Filed
                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.
              3Filed
                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.
              4Filed
                as an Exhibit to the Company’s Registration on Form SB-2 as filed with the
                Securities and Exchange Commission on March 13, 2007 and incorporated
                herein by reference.
              5Filed
                as an Exhibit to the Company’s Registration Statement on Form SB-2 as
                filed with the Securities and Exchange Commission on January 11,
                2007 and
                incorporated herein by reference.
              6Filed
                as an Exhibit to the Company’s Current Report on Form 8-K as filed with
                the Securities and Exchange Commission on February 9, 2007 and
                incorporated herein by reference.





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND EXPENSES**




The
      Company has appointed AJ.
      Robbins, P.C. as our
      independent registered public accounting firm for the fiscal year ended December
      31, 2006 . The
      following table shows the fees that were billed by us for audit and other
      services provided by AJ.
      Robbins, P.C. for
      the
      2005 and 2006 fiscal years.




**2006**
            
            **2005****Audit
                Fees (1)**
            
            $
            40,000
            
            $
            4,750**Audit-Related
                Fees (2)**
            
            
            **-**
            
            
            **-****Tax
                Fees (3)**
            
            
            5,000
            
            
            1,000**All
                Other Fees**
            
            
            **-**
            
            
            **-****Total**
            
            $
            45,000
            
            $
            5,750




(1)
            Audit
                fees represent fees for professional services provided in connection
                with
                the audit of our annual financial statements and the review of our
                financial statements included in our Form 10-QSB quarterly reports
                and
                services that are normally provided in connection with statutory
                or
                regulatory filings for the 2005 and 2006 fiscal
                years.


46


(2)
            Audit-related
                fees represent fees for assurance and related services that are reasonably
                related to the performance of the audit or review of our financial
                statements and not reported above under “Audit Fees.”




(3)
            Tax
                fees represent fees for professional services related to tax compliance,
                tax advice and tax planning.




All
      audit
      related services, tax services and other services rendered by AJ
      Robbins were
      pre-approved by our Board of Directors. The Board Committee has adopted a
      pre-approval policy that provides for the pre-approval of all services performed
      for us by AJ.
      Robbins, P.C.


47


**SIGNATURES**




In
        accordance with Section 13 and 15(d) of the Securities Exchange Act of 1934,
        the
        Registrant caused Amendment No. 2 to this report to be signed on its behalf
        by
        the undersigned thereunto duly authorized.




Date:May
                  14, 2007
              **LIXTE
                BIOTECHNOLOGY HOLDINGS, INC.**By:
              /s/ John
                S.
                KovachName:
                John S. KovachTitle:Chief
                Executive Officer





In
        accordance with the Securities Exchange Act of 1934, Amendment No. 2 to this
        report has been signed below by the following persons on behalf of the
        Registrant in the capacity and on the dates indicated.




**Signature**
              
              **Title**
              
              **Date**/s/
                  John S. Kovach
              
              Chief
                  Executive Officer, Principal Financial Officer,
              
              May
                  14, 2007**John
                  S. Kovach**
              
              Principal
                  Accounting Officer and Director/s/
                  Philip F. Palmedo
              
              Director
              
              May
                  14, 2007**Philip
                  F. Palmedo**







**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**


**(FORMERLY
        SRKP 7, INC.)**


**AND
        SUBSIDIARY**


(a
        development stage company)




**CONSOLIDATED
        FINANCIAL STATEMENTS (Restated)**




**December
        31, 2006**




Report
                  of Independent Registered Public Accounting Firm
              
              F-2Consolidated
                  Balance Sheet - December 31, 2006
              
              F-3Consolidated
                  Statements of Operations - Year Ended December 31, 2006, August 9,
                  2005 (Inception) to December 31, 2005, and August 9, 2005 (Inception)
                  to December 31, 2006 (Cumulative)
              
              F-4Consolidated
                  Statement of Changes in Stockholders’ Equity (Deficiency) - August 9,
                  2005 (Inception) to December 31, 2006
              
              F-5Consolidated
                  Statements of Cash Flows - Year Ended December 31, 2006, August 9,
                  2005 (Inception) to December 31, 2005, and August 9, 2005 (Inception)
                  to December 31, 2006 (Cumulative)
              
              F-6Notes
                  to Consolidated Financial Statements - December 31,
                  2006
              
              F-8







F-1







REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To
        the
        Board of Directors


Lixte
        Biotechnology Holdings, Inc.


East
        Setauket, New York





We
        have
        audited the accompanying consolidated balance sheet of Lixte Biotechnology
        Holdings, Inc. (formerly SRKP 7, Inc.) and subsidiary (a development stage
        company) as of December 31, 2006, and the related consolidated statements
        of
        operations, changes in stockholders’ equity (deficiency) and cash flows for the
        year then ended and for the periods from August 9, 2005 (inception) to December
        31, 2006 and 2005, respectively. These consolidated financial statements
        are the
        responsibility of the Company's management. Our responsibility is to express
        an
        opinion on these consolidated financial statements based on our
        audits.





We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits 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
        audits provide a reasonable basis for our opinion.





In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Lixte Biotechnology
        Holdings, Inc. and subsidiary as of December 31, 2006, and the results of
        their
        operations and their cash flows for the year then ended and for the periods
        from
        August 9, 2005 (inception) to December 31, 2006 and 2005, respectively, in
        conformity with accounting principles generally accepted in the United States
        of
        America.




As
          discussed in Note 8 to the consolidated financial statements, the accompanying
          consolidated balance sheet as of December 31, 2006, and the related consolidated
          statements of operations, cash flows, and stockholders’ equity (deficiency) for
          the year ended December 31, 2006 have been restated to properly account
          for
          registration payment arrangements.


The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note 2 to the
        consolidated 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 consolidated financial statements do not
        include any adjustments that might result from the outcome of this
        uncertainty.




AJ.
        ROBBINS, P.C.


CERTIFIED
        PUBLIC ACCOUNTANTS








Denver,
        Colorado


February
        5, 2007 except for Note 8, as to which the date is April 4,
        2007




F-2





**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**


**(FORMERLY
        SRKP 7, INC.)**


**AND
        SUBSIDIARY**


(a
        development stage company)




**CONSOLIDATED
        BALANCE SHEET (Restated)**





**December
        31, 2006**


ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              679,640Advances
                  on research and development contract services
              
              
              50,000Prepaid
                  insurance
              
              
              20,365Total
                  current assets
              
              
              750,005Office
                  equipment**,**net of accumulated depreciation of $575
              
              
              1,062Total
                  assets
              
              $
              751,067LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCurrent
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              31,786Estimated
                  liquidated damages payable under registration rights
                  agreement
              
              
              74,000Due
                  to stockholder
              
              
              92,717Total
                  current liabilities
              
              
              198,503Commitments
                  and contingenciesStockholders’
                  equity: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 - 26,582,183
                  shares
              
              
              2,658Additional
                  paid-in capital
              
              
              1,128,114Deficit
                  accumulated during the development stage
              
              
              (578,208
              )Total
                  stockholders’ equity
              
              
              552,564Total
                  liabilities and stockholders’ equity
              
              $
              751,067




See
        accompanying notes to consolidated financial statements.




F-3





**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**


**(FORMERLY
        SRKP 7, INC.)**


**AND
        SUBSIDIARY**


(a
        development stage company)




**CONSOLIDATED
        STATEMENTS OF OPERATIONS**




**Year**
                **Ended**
                **December 31,**
                **2006**
                **(Restated)**
              
              **Period from**
                **August 9,**
                **2005**
                **(Inception)
                  to**
                **December 31,**
                **2005**
              
              **Period from**
                **August 9,**
                **2005**
                **(Inception)
                  to**
                **December 31,**
                **2006**
                **(Cumulative)**
                **(Restated)**Revenues
              
              $
              —
              
              $
              —
              
              $
              —Costs
                  and expenses:General
                  and administrative, including $97,400 of stock-based compensation
                  to
                  director during the year ended December 31, 2006 and the period
                  from
                  August 9, 2005 inception) to December 31, 2006
                  (cumulative)
              
              
              299,420
              
              
              16,011
              
              
              315,431Depreciation
              
              
              462
              
              
              113
              
              
              575Research
                  and development costs
              
              
              150,100
              
              
              —
              
              
              150,100Reverse
                  merger costs
              
              
              50,000
              
              
              —
              
              
              50,000Total
                  costs and expenses
              
              
              499,982
              
              
              16,124
              
              
              516,106(499,982
              )
              
              (16,124
              )
              
              (516,106
              )Interest
                  income
              
              
              11,898
              
              
              —
              
              
              11,898Estimated
                  liquidated damages under registration rights agreement
              
              
              (74,000
              )
              
              ---
              
              
              (74,000
              )Net
                  loss
              
              $
              (562,084
              )
              $
              (16,124
              )
              $
              (578,208
              )Net
                  loss per common share - basic and diluted
              
              $
              (0.02
              )
              $
              (0.00
              )Weighted
                  average number of common shares outstanding - basic and
                  diluted
              
              
              22,750,033
              
              
              19,021,786





See
        accompanying notes to consolidated financial statements.




F-4




**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**


**(FORMERLY
        SRKP 7, INC.)**


**AND
        SUBSIDIARY**


(a
        development stage company)




**CONSOLIDATED
        STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
        (Restated)**





**Period
        from August 9, 2005 (Inception) to December 31, 2006**





**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
              )
              
              —
              
              
              1,500Net
                  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
              
              
              —
              
              
              62,500Shares
                  issued in private placement, net of
                offering
                  costs of $214,517
              
              
              3,555,220
              
              
              355
              
              
              969,017
              
              
              —
              
              
              969,372Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              97,400
              
              
              —
              
              
              97,400Net
                  loss (Restated)
              
              
              —
              
              
              —
              
              
              —
              
              
              (562,084
              )
              
              (562,084
              )Balance,
                  December 31, 2006 (Restated)
              
              
              26,582,183
              
              $
              2,658
              
              $
              1,128,114
              
              $
              (578,208
              )
              $
              552,564




See
        accompanying notes to consolidated financial statements.




F-5




**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**


**(FORMERLY
        SRKP 7, INC.)**


**AND
        SUBSIDIARY**


(a
        development stage company)




**CONSOLIDATED
        STATEMENTS OF CASH FLOWS**




**Year**
                **Ended**
                **December
                  31,**
                **2006**
                **(Restated)**
              
              **Period from**
                **August 9,**
                **2005**
                **(Inception)
                  to**
                **December 31,**
                **2005**
              
              **Period from**
                **August 9,**
                **2005**
                **(Inception)
                  to**
                **December
                  31,**
                **2006**
                **(Cumulative)**
                **(Restated)**Cash
                  flows from operating activitiesNet
                  loss
              
              $
              (562,084
              )
              $
              (16,124
              )
              $
              (578,208
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
              
              
              462
              
              
              113
              
              
              575Stock-based
                  compensation
              
              
              97,400
              
              
              —
              
              
              97,400Changes
                  in operating assets and liabilities:Decrease
                  in -Advances
                  on research and development contract services
              
              
              (50,000
              )
              
              —
              
              
              (50,000
              )Prepaid
                  insurance
              
              
              (20,365
              )
              
              —
              
              
              (20,365
              )Increase
                  in -Accounts
                  payable and accrued expenses
              
              
              17,136
              
              
              14,650
              
              
              31,786Estimated
                  liquidated damages payable under registration rights
                  agreement
              
              
              74,000
              
              
              ---
              
              
              74,000Net
                  cash used in operating activities
              
              
              (443,451
              )
              
              (1,361
              )
              
              (444,812
              )Cash
                  flows from investing activitiesPurchase
                  of office equipment
              
              
              (498
              )
              
              (1,139
              )
              
              (1,637
              )Net
                  cash used in investing activities
              
              
              (498
              )
              
              (1,139
              )
              
              (1,637
              )Cash
                  flows from financing activitiesProceeds
                  from sale of common stock to founder
              
              
              —
              
              
              1,500
              
              
              1,500Cash
                  acquired in reverse merger transaction
              
              
              62,500
              
              
              —
              
              
              62,500Gross
                  proceeds from sale of common stock
              
              
              1,183,889
              
              
              —
              
              
              1,183,889Payment
                  of private placement offering costs
              
              
              (214,517
              )
              
              —
              
              
              (214,517
              )Advances
                  from stockholder
              
              
              86,771
              
              
              5,946
              
              
              92,717Net
                  cash provided by financing activities
              
              
              1,118,643
              
              
              7,446
              
              
              1,126,089Net
                  increase in cash
              
              
              674,694
              
              
              4,946
              
              
              679,640Cash
                  at beginning of period
              
              
              4,946
              
              
              —
              
              
              —Cash
                  at end of period
              
              $
              679,640
              
              $
              4,946
              
              $
              679,640




(continued)




F-6





**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**


**(FORMERLY
        SRKP 7, INC.)**


**AND
        SUBSIDIARY**


(a
        development stage company)




**CONSOLIDATED
        STATEMENTS OF CASH FLOWS (continued)**




**Year**
                **Ended**
                **December
                  31,**
                **2006**
                **(Restated)**
              
              **Period from**
                **August 9,**
                **2005**
                **(Inception)
                  to**
                **December 31,**
                **2005**
              
              **Period from**
                **August 9,**
                **2005**
                **(Inception)
                  to**
                **December
                  31,**
                **2006**
                **(Cumulative)**
                **(Restated)**Supplemental
                  disclosures of cash flow information:Cash
                  paid for -Interest
              
              $
              —
              
              $
              —
              
              $
              —Income
                  taxes
              
              $
              —
              
              $
              —
              
              $
              —




See
      accompanying notes to consolidated financial statements.




F-7




**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**


**(FORMERLY
        SRKP 7, INC.)**


**AND
        SUBSIDIARY**


(a
        development stage company)





**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)**





**December
        31, 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 period ended December 31, 2005 reflect
        the results of operations of Lixte for the period August 9, 2005 (inception)
        to
        December 31, 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 this period, was nominal. 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”).




**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
        December 31, 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 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.




F-8




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.





At
        December 31, 2006, the Company had not yet commenced any revenue-generating
        operations. All activity through December 31, 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,
        the Company’s 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
        $446,433.




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
        strain on the Company’s cash
        resources has been further exacerbated by the accrual of a registration penalty
        obligation under EITF 00-19-2 at December 31, 2006 of $74,000 (reflecting
        the
        cash amount payable for the registration penalty through mid-May 2007, as
        described at Note 3). If the Company’s registration
        statement has not been declared effective by mid-May 2007 (or the Company
        does not maintain its effectiveness after it has been declared effective),
        the Company would be subject to a registration penalty at the rate of
        approximately $12,000 per 30-day period thereafter, continuing through July
        2008, for a total potential maximum liability of approximately $300,000.
        Since
        the Company only has cash of $679,640 and working capital of $551,502 (net
        of the $74,000 registration penalty obligation referred to above) at December
        31, 2006, this short-term cash obligation and the uncertainty as to how long
        it
        may continue to accrue could have a material adverse impact on the Company’s ability
        to
        fund its business plan and conduct operations.




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 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 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.




***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, 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 60-month period. The Company has elected
        to
        deduct research and development costs currently.




F-9




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.





***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. 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 year ended December 31, 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 or 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, 2005 (Inception) to December 31, 2005, Lixte had no stock options
        or
        warrants outstanding. Accordingly, no pro forma financial disclosure has
        been
        presented for the period from August 9, 2005 (Inception) to December 31,
        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 year ended
        December 31, 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
              
              
              5.00Exercised
              
              
              —
              
              
              —
              
              
              —Cancelled
              
              
              —
              
              
              —
              
              
              —Options
                  and warrants outstanding at December 31, 2006
              
              
              916,626
              
              $
              0.333
              
              
              4.51Options
                  and warrants exercisable at December 31, 2006
              
              
              683,292
              
              $
              0.333
              
              
              4.52




F-10




***Recent
        Accounting Pronouncements***




In
        September 2006, the 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 generally accepted accounting
        principles. 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. The Company is currently
        assessing the potential effect of SFAS No. 157 on its consolidated financial
        statements.





In
        December 2006, the FASB issued FSP EITF 00-19-2, “ Accounting
        for Registration Payment Arrangements (“EITF 00-19-2”), which addresses an issuer’s accounting for registration payment arrangements. EITF
        00-19-2 specifies that the contingent obligation to make future payments
        or
        otherwise transfer consideration under a registration payment arrangement,
        whether issued as a separate agreement or included as a provision of a financial
        instrument or other agreement, should be separately recognized and measured
        in
        accordance with FASB No. 5, “ Accounting
        for Contingencies” .
        The guidance in EITF 00-19-2 amends FASB No. 133, “ Accounting
        for Derivative Instruments and Hedging Activities” and FASB No. 150, “Accounting
        for Certain Financial Instruments with Characteristics of both Liabilities
        and
        Equity”, and FASB
        Interpretation No. 45, “ Guarantor’s
        Accounting and Disclosure Requirements for Guarantees, Including Indirect
        Guarantees of Indebtedness of Others”, to include scope exceptions for registration payment arrangements. EITF 00-19-2
        further clarifies that a financial instrument subject to a registration payment
        arrangement should be accounted for in accordance with other applicable
        generally accepted accounting principles without regard to the contingent
        obligation to transfer consideration pursuant to the registration payment
        arrangement. EITF 00-19-2 is effective immediately for registration payment
        arrangements and the financial instruments subject to those arrangements
        that
        are entered into or modified subsequent to the date of issuance of EITF 00-19-2.
        For registration payment arrangements and financial instruments subject to
        those
        arrangements that were entered into prior to the issuance of EITF 00-19-2,
        EITF
        00-19-2 is effective for financial statements issued for fiscal years beginning
        after December 15, 2006, and interim periods within those fiscal years. Early
        adoption of EITF 00-19-2 for interim or annual periods for which financial
        statements or interim reports have not been issued is permitted. The Company
        has
        chosen to early adopt EITF 00-19-2 effective December 31, 2006, the effect
        of
        which is discussed at Note 3.





In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        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. SFAS No. 159 is effective as of the beginning of a
        company’s first fiscal year beginning after November 15, 2007.  Early
        adoption is permitted as of the beginning of the previous fiscal year provided
        that the company makes that choice in the first 120 days of that fiscal year
        and
        also elects to apply the provisions of SFAS No. 157. The Company is currently
        assessing the potential effect of SFAS No. 159 on its consolidated financial
        statements.





Management
        does not believe that any other recently issued, but not yet effective,
        accounting standards, if currently adopted, would have a material effect
        on the
        Company's financial statements.





***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.




F-11




***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.




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
        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),
        such advances will 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. 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.




***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.




***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 and/or the current
        interest rates payable in relation to current market
        conditions.




**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 Company is now controlled by the former
        stockholder of Lixte.





The
        Share
        Exchange Agreement was determined through arms-length negotiations between
        Holdings, the Seller and Lixte. In connection with the Exchange, the Company
        paid WestPark Capital, Inc. a cash fee of $50,000.




F-12




***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
        $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. 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. 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 is required to pay each
        investor prorated liquidated damages equal to 1.0% of the amount raised.
        The
        liquidated damages are payable monthly in cash. 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.





In
        accordance with EITF 00-19-2, on the date of the closing of the private
        placement, the Company believed it would meet the deadlines under the Agreement
        with respect to filing a registration statement and having it declared effective
        by the SEC. As a result, the Company did not record any liabilities associated
        with the registration rights agreement at June 30, 2006 or at September 30,
        2006. At December 31, 2006, the Company has determined that the registration
        statement covering the shares sold in the private placement would not be
        declared effective within the requisite timeframe; management currently
        estimates that the registration statement will be declared effective during
        May
        2007. As a result, the Company has recorded six months liquidated damages
        under
        the registration rights agreement aggregating approximately $74,000 as a
        charge
        to operations and a current liability at December 31, 2006. The Company will
        continue to review the status of the registration statement and adjust the
        accrued liquidated damages under the registration rights agreement at each
        quarter end as appropriate.





***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 year ended December 31, 2006, the Company
        recorded a charge to operations of $31,000 with respect to these
        options.




F-13




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 December 31, 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
        $7,500
        during the year ended December 31, 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 December 31, 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 4.5
        years.




**4.
        Related Party Transactions**




Since
        inception, Dr. John Kovach, 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, 2006 stockholder
        advances totaled $92,717.




Through
        December 31, 2006, the Company’s office facilities have been provided without
        charge by the Company’s founding stockholder and President. Such costs were not
        material to the financial statements and accordingly, have not been reflected
        therein.




Through
        December 31, 2006, Dr. John Kovach, 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.




Dr.
        John
        Kovach, the Company’s President, is involved in other business activities and
        may, in the future, become involved in other business opportunities that
        become
        available. Accordingly, the President may face a conflict in selecting between
        the Company and his other business interests. The Company has not yet 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 common stock with a par
        value of $0.0001 per share and 10,000,000 shares are preferred stock with
        a par
        value of $0.0001 per share.




The
        Company is authorized to issue 10,000,000 shares of preferred stock with
        such
        designations, voting and other rights and preferences, as may be determined
        from
        time to time by the Board of Directors.




F-14




**6.**  **Income
        Taxes**




Deferred
        income taxes reflect the net tax effects of temporary differences between
        the
        carrying amounts of assets and liabilities for financial reporting purposes
        and
        the amounts used for income tax purposes. Significant components of the
        Company's deferred tax assets as of December 31, 2006 are as
        follows:






Start-up
                  and organization costs
              
              $
              129,000Contingent
                  liability
              
              
              31,000Net
                  operating loss carryforwards
              
              
              58,000Total
                  deferred tax assets
              
              
              218,000Valuation
                  allowance
              
              
              (
                  218,000
              )Net
                  deferred tax assets
              
              $
              —





No
        federal tax provision has been provided for the periods ended December 31,
        2006 and 2005 due to the losses incurred to date.





The
        reconciliation between the income tax rate computed by applying the U.S.
        federal
        statutory rate and the effective rate for the periods ended December 31,
        2006
        and 2005 is as follows:




**Periods
                  Ended**
                **December
                  31,****2006**
              
              **2005**U.
                  S. federal statutory tax rate
              
              
              (34.0
              %)
              
              (34.0
              %)Pre-merger
                  loss of accounting acquiree
              
              
              (3.7
              %)
              
              (69.3
              %)State
                  income taxes
              
              
              (6.3
              %)
              
              (22.8
              %)Non-deductible
                  merger costs
              
              
              3.0
              %
              
              ---Non-deductible
                  stock-based compensation
              
              
              5.9
              %
              
              ---Change
                  in valuation allowance
              
              
              35.1
              %
              
              126.1
              %Effective
                  tax rate
              
              
              0.0
              %
              
              0.0
              %





At
        December 31, 2006, the Company has available net operating loss carryforwards
        for federal income tax purposes of approximately $139,000 which, if not utilized
        earlier, expire in 2025.





**7.**  **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. 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 scheduled for payment in July
        2007.




On
        January 5, 2007, Lixte entered into a Services Agreement with The Free State
        of
        Bavaria (Germany) represented by the University of Regensburg (the “University”)
        pursuant to which Lixte retained the University to provide to it certain
        samples
        of primary cancer tissue and related biological fluids to be obtained from
        patients afflicted with specified types of cancer. The University will also
        provide certain information relating to such patients. Lixte will pay the
        University 72,000 Euros (approximately $99,700) in two installments of 36,000
        Euros (approximately
        $49,850). The first installment was paid on March 7, 2007, and the second
        installment will be paid within sixty days of the earlier of (i) January
        5, 2008
        or (ii) the University’s fulfillment of certain obligations relating to the
        delivery of materials.




F-15





On
        February 5, 2007, the Company entered into an agreement (the “Agreement”) with
        Chem-Master International, Inc. (“Chem-Master”) pursuant to which the Company
        engaged Chem-Master to synthesize a compound designated as “LB-1”, and any other
        compound synthesized by Chem-Master pursuant to the Company’s request, which
        have potential use in treating a disease, including, without limitation,
        cancers
        such as glioblastomas. Pursuant to the Agreement, the Company agreed to
        reimburse Chem-Master for the cost of materials, labor and expenses for other
        items used in synthesis process, and to grant to Chem-Master a five-year
        option
        to purchase 100,000 shares of the Company’s common stock with an exercise price
        of $0.333 per share. Additionally, provided that the Agreement is not terminated
        by the Company without cause or by any party for cause prior to the second
        anniversary of the Agreement, the Company agreed to grant to Chem-Master
        a
        five-year option to purchase an additional 100,000 shares of the Company’s
        common stock at $0.333 per share.





**8.
        Restatement**





As
        a result of recognizing a charge to operations of $74,000 at December 31,
        2006
        for estimated liquidated damages under the registration rights agreement
        associated with the shares of common stock sold in 2006 but not yet registered
        with the SEC (see Note 3), the Company restated its previously issued financial
        statements as of and for the year ended December 31, 2006. The impact of
        such
        restatement is summarized below.





For
        the
        year ended December 31, 2006, net loss increased by $74,000, to $562,084
        ($0.02
        per share) from $488,084 ($0.02 per share). Cash flows from operating activities
        did not change.





As
        of
        December 31, 2006, current liabilities (and total liabilities) increased
        by
        $74,000, to $198,503 from $124,503, as a result of which working capital
        decreased to $551,502 from $625,502, and shareholders’ equity decreased to
        $552,564 from $626,564. Total assets did not change.




F-16