**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM 10-KSB**





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




**For the fiscal year ended December 31, 2007**





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
                Setau****ket,
                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 ,
      $0.0001
      par value .





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





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
xNo 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. x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act): Yes oNo
x





Issuer’s
      revenues for its fiscal year ended December 31, 2007: $0





Aggregate
      market value of the common stock held by non-affiliates of the Issuer as of
      March 15, 2008 was approximately $9,729,352.





There
      were 27,832,178 shares of the Company’s common stock outstanding on March 15,
      2008.





Transitional
      Small Business Disclosure Format: Yes oNo 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 10K-SB (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 C ompany
      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.




**Business**




The
      Company 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.




The
      Company is currently focusing on developing new treatments for the most common
      and most aggressive type of brain cancer of adults, glioblastoma multiforme
      (“GBM”). The Company has expanded the scope of its anti-cancer investigational
      activities to include the most common brain tumor of children, medulloblastoma,
      and also to several other types of more common cancers. This expansion of
      activity is based on documentation that each of two distinct types of drugs
      being developed by the Company inhibits the growth of cell lines of breast,
      colon, lung, prostate, pancreas, ovary, stomach and liver cancer, as well as
      the
      major types of leukemias.




The
      research on brain tumors is proceeding in collaboration with the National
      Institute of Neurological Disorders and Stroke (“NINDS”) of the National
      Institutes of Health (“NIH”) under a Cooperative Research and Development
      Agreement (“CRADA”) entered
      into on March 22,
      2006 ,
      as
      amended .
      The
      research at NINDS continues to be led by Dr. Zhengping Zhuang, an
      internationally recognized investigator in the molecular pathology of cancer.
      Dr. Zhuang is aided by two senior research technicians supported by the
      Company as part of the CRADA. The goal of the CRADA is to develop more effective
      drugs for the treatment of GBM through the processes required to gain Food
      and
      Drug Administration (“FDA”) approval for clinical trials. The Company’s
      contribution to the CRADA has been $200,000 annually for two years. The
      CRADA is
      presently scheduled to end June 30, 2008, with current discussions exploring
      a
      several month extension supported by funds remaining from the original
      agreement,  followed
      by a potential one-year extension at a cost of $200,000.




The
      Company has filed a series of patent applications jointly with NIH covering
      certain methods of treatment of brain tumors of adults and children. On February
      14, 2007, provisional patent applications were converted to a U.S.
      non-provisional patent and a patent cooperation treaty application on behalf
      of
      the Company and NIH.




Patent
      applications filed with NIH are jointly owned by NIH and Lixte. All NIH
      co-inventors assigned their rights to NIH. Under the CRADA, Lixte is entitled
      to
      negotiate an exclusive license from NIH to all claims in these patent
      applications. The Company is continuing its negotiations on the details of
      the
      terms under which NIH will provide an exclusive license and anticipates
      finalizing terms of the agreement with the NIH in mid-2008.




The
      Company has also filed patent applications for intellectual property owned
      solely by the Company. These applications identify two series of new anti-cancer
      agents referred to as the LB-1 series and the LB-2 series. The applications
      include identification of the structure of molecules, their synthesis, and
      their
      activity against GBM, medulloblastoma, and more recently, the common cancers
      and
      leukemias as mentioned above. At the present time, the efficacies of the LB-1
      and LB-2 series are based on activity in cell culture and in animal models
      of
      GBM and medulloblastoma. The Company is in the process of documenting the
      activities of both series of drugs against the more common tumor types in animal
      models.




2




In
      February 2008, the Company converted provisional patents relating to the nature
      and activity of the LB-1 series of drugs with the filing of a U.S.  non-provisional
      and a PCT patent application.




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




The
      Company expects that its products will derive directly from the intellectual
      property from its research activities. Progress to date has borne out this
      expectation. The development of lead compounds with different mechanisms of
      action that have now been shown to have activity against brain tumors and
      several other much more common human cancers, as well as serious fungal
      infections, originated from its original focus on a biochemical defect in GBM.
      The Company will continue to use discovery and/or recognition of molecular
      variants characteristic of specific human cancers as a guide to drug discovery
      and potentially new diagnostic tests.




The
      Company elected to exercise its right to terminate the second year of an
      agreement with the University of Regensburg, Germany, for collection of certain
      numbers of tumors and other biological samples for research programs in the
      future. Under the agreement, the University of Regensburg will complete
      ascertainment of 50% of the original number of samples. Lixte estimates that
      this collection will be sufficient for its needs for the next two to three
      years. In addition, Lixte has identified a commercial source of such materials
      that can be purchased in quantities as needed. Cancellation of the second year
      of the agreement resulted in a saving of Euro 36,000 (about
      $52,000).




During
      2008, the Company will also start to make public presentations of some of its
      data at national and international scientific meetings. A presentation was
      made
      at the First International Drug Discovery and Development Meeting, in Dubai,
      UAE, in February 2008, and a presentation will be made at the Annual Meeting
      of
      the American Association of Cancer Research in San Diego, California, in April
      2008.




The
      Company had planned to begin its own analyses of tumor types other than GBM
      for
      new biomarkers by late 2008. However, in order to do this, the Company would
      need to establish and operate an independent laboratory. The creation and
      operation of such a laboratory for two years is estimated to cost approximately
      $2,000,000. Accordingly, the Company is deferring plans to open and staff an
      independent laboratory until the full intellectual property value of its initial
      lead compounds for treatment of brain tumors is determined.




A
      goal of
      the Company is to continue the synthesis of new compounds that target other
      components of molecular pathways already identified by the Company and its
      CRADA
      partner to be vulnerable to attack by small molecule drugs, and to explore
      the
      vulnerability of additional potential new targets revealed through the molecular
      characterization of the effects of the Company’s lead compounds.




The
      Company expects to participate in clinical trials of new therapies 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. The
      Company’s present position is to take one or more of its new therapies for the
      treatment of glioblastoma multiforme through pre-clinical evaluation as part
      of
      the CRADA with the NINDS of the NIH. After completing pre-clinical evaluation,
      the Company will consider partnering with the NIH to conduct a Phase I
      Trial or jointly with the NIH to 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, the Company, potentially in partnership
      with the NIH, 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.




3




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 the Company’s 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
      the Company will participate in or be in a position to participate in any
      clinical trials will depend upon partnerships and specific licensing agreements.
      However, in all cases of clinical trial participation, the Company 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 the new regimen to the FDA.




Given
      the
      progress in identifying two lead compounds with activity in animal models of
      GBM, the Company is devoting its resources to bring the agents to a point at
      which an Investigational New Drug (“IND”) application can be submitted to the
      FDA for a Phase I clinical trial. One lead compound (LB-1) is the most advanced
      in the process and the Company plans to be ready for IND submission by early
      2009. The other lead compound (LB-2.5), which inhibits cancer cells by a
      mechanism distinct from that of LB-1, is anticipated to complete its evaluation
      by the end of 2009.


The
        Company faces several potential challenges to its goal of commercial success.
        These include raising sufficient capital to fund its business plan, achieving
        commercially applicable results from its research programs, competition from
        more established, well-funded companies with competitive technologies, and
        future competition from companies developing new competitive technologies.
        Because of these challenges, there is substantial uncertainty as to the
        Company’s ability to fund its operations and continue as a going
        concern .




**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 Report, “ **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 .




4




**Cell
      Growth**




Cell
      growth is the
      ability of an individual cell to reproduce by dividing into two cells. During
      normal development and subsequently during the life of the adult, this process
      is highly controlled. Loss of this control is the distinguishing feature of
      cancer cells. Although all cancer cells gain the capacity for uncontrolled
      growth, in most instances they retain many of the highly specialized features
      (and associated specific molecular components) that were characteristic of
      the
      normal tissue before loss of growth control. For example, breast cancer cells
      and brain cancer cells have lost control of growth and may be unrecognizable
      by
      their appearance under the microscope but
      identifiable by the presence of biomarkers specific to breast or brain
      cells .




**CRADA**




A CRADA (Cooperative Research and Development Agreement) is a formal contractual
      mechanism by which a variety of federal government agencies may agree to work
      collaboratively with a non-governmental entity to study and advance a particular
      idea, observation, or process under a defined plan of work.




**Gene**




A gene is a
      unit of information that specifies the structure of one or more gene
      products .
      Collectively, genes determine the precise composition of all molecules needed
      for maintenance of the functions of life: reproduction, development,
      organization, growth and metabolism. Genes are
      often referred to as units of heredity because they pass on the information
      necessary for all characteristics of an individual. For mammals like ourselves,
      one set of genes is received from each parent.




**Gene
      Products**




The
      products of genes are the thousands of different chemical structures, called
      molecules, needed for development of all cells. Most gene products are proteins.
      Most proteins are enzymes, molecules that can carry out work such as digesting
      and utilizing food for energy, signaling the cell to produce other gene products
      in response to changing conditions in the body, and controlling cell
      growth .
      When
      proteins controlling cell growth are altered, as occurs in all cancers, they
      become prime candidates for biomarkers that
      reveal the presence of cancer.




**Glioblastoma
      Multiforme (GBM)**




GBM is the
      most common and most aggressive type of primary human brain cancer. The name
      derives from the fact that the brain cell that loses growth control and becomes
      a brain cancer cell is a glial cell (glioblastoma); as the altered glial cells
      grow without restraint, they take on many different shapes (multiforme). Recent
      studies suggest, however, that GBMs may arise from primitive brain stem cells
      rather than from glial cells. GBM is the
      initial target of Lixte .




**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.




5




**Mutation**




A mutation is a
      change in one or more building blocks of a gene. Some changes can be tolerated
      without altering the integrity (function) of the product of the gene but other
      changes can result in cancer.




For
      the
      purposes of the cancer projects described in this memorandum, it is important
      to
      distinguish between inherited mutations (inborn mutations) and acquired
      (environmentally caused) mutations.




Some
      inborn mutations predispose an individual to development of one or more kinds
      of
      cancer. Because these mutations are inherited, they are present in every cell
      in
      the body. Such mutations are responsible for the higher frequency of certain
      cancers in particular families and ethnic groups. Examples are the breast cancer
      predisposing genes known as BRCA I and BRCA II.




Research
      on biomarkers ,
      however, is directed at finding the gene products (proteins) of acquired
      mutations. Acquired mutations that change a single cell to a cancer cell are
      present ONLY in that cell and cells arising from its uncontrolled cell growth.
      If the products of the altered genes in these cancer cells are detectable in
      the
      body, they may reveal the presence of the cancer at a stage when it is curable
      by surgery.




**Prognosis**




Prognosis refers
      to the likely course of a disease at specific stage of development. For example,
      a breast or prostate cancer that is not confined to the tissue of origin,
      e.g. , is also
      present in a lymph node when first detected, has a greater likelihood of
      recurrence, a worse prognosis, than if it were confined to the tissue of
      origin.




Thus,
      the
      presence of lymph node metastases is an indicator of poor
      prognosis.




It
      is
      hoped that specific biomarkers for
      cancers will be found that have prognostic value. With assays for such markers,
      patients with poor prognoses could consider more aggressive treatments before
      obvious spread of disease and patients with good prognoses could be spared
      unnecessary treatment.




**Proteins**




Proteins are
      molecules that have many functions important to the nature and behavior of
      the
      cell. Many proteins are enzymes that regulate and integrate a myriad of
      biochemical processes essential to life.




Certain
      enzymes are critical to an integrated system of cellular signaling that
      regulates cell behavior in response to a constantly changing environment and
      maintains the specialized nature of different types of cells. It is likely
      that
      some biomarkers of cancers have perverted signaling functions that perpetuate
      the abnormal behavior of the cancer.




Thus,
      discovery of biomarkers of known function that are unique or overly abundant
      in
      specific types of cancers may provide clues as to the biochemical
      vulnerabilities of these cancers, weaknesses that can be attacked selectively
      by
      specific classes of drugs.




**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 United
      States 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
      U nited
      States .
      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 of
      the NIH.
      As such, we are entitled to obtain an exclusive license to such claims as
      specified in the standard NIH CRADA .
      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) is subject to continuing negotiations between us and NINDS of
      the  NIH
      in
      the future.




The
      Company has also filed patent applications for intellectual property owned
      solely by the Company. These applications identify two series of new anti-cancer
      agents referred to as the LB-1 series and the LB-2 series. The applications
      include identification of the structure of molecules, their synthesis, and
      their
      activity against GBM, medulloblastoma, and more recently, the common cancers
      and
      leukemias as mentioned above. At the present time, the efficacies of the LB-1
      and LB-2 series are based on activity in cell culture and in animal models
      of
      GBM and medulloblastoma. The Company is in the process of documenting the
      activities of both series of drugs against the more common tumor types in animal
      models.




In
      February 2008, the Company converted provisional patents relating to the nature
      and activity of the LB-1 series of drugs with the filing of a U.S.  non-provisional
      and a PCT patent application.




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




The
      Company expects that its products will derive directly from the intellectual
      property from its research activities. Progress to date has borne out this
      expectation. The development of lead compounds with different mechanisms of
      action that have now been shown to have activity against brain tumors and
      several other much more common human cancers, as well as serious fungal
      infections, originated from its original focus on a biochemical defect in GBM.
      The Company will continue to use discovery and/or recognition of molecular
      variants characteristic of specific human cancers as a guide to drug discovery
      and potentially new diagnostic tests.




**Access
      to Clinical Materials**




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 also agreed
      to
      provide certain information relating to such patients. Lixte agreed to pay
      the
      University 72,000 Euros in two equal installments. The first installment of
      36,000 Euros ($48,902) was paid on March 7, 2007. On January 12, 2008, Lixte
      terminated the Services Agreement in accordance with its terms, as a result
      of
      which payment of the second installment of 36,000 Euros was cancelled. The
      University agreed to deliver 50% of the aforementioned samples under the
      terminated Services Agreement.




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.




7




**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.




**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.




8




If
      we do
      not have the resources needed to develop the clinical potential of a given
      biomarker ourselves, we intend to try to find partners in large diagnostic
      and/or pharmaceutical companies. These companies are increasingly dependent
      upon
      new biomarkers discovered by academic groups and small biotechnology companies
      to maintain a pipeline of promising drugs and new diagnostic tools.




We believe that
      the
      molecular approaches that led to the discovery of the biomarker for GBMs (and
      the subject of the Provisional Patent Application) could also 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 currently 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 our
      recently terminated agreement with the Institute of Pathology at the University
      of Regensburg in Germany has provided us with the clinical
      samples needed for our program .
      We understand that the se samples were 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 ,
      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.




9




**3.**  **Detection
      and Identification of Biomarkers**




The
      search for molecular elements with features unique to a specific cancer type
      is
      accomplished using highly reproducible physical techniques. These techniques
      are
      not proprietary but involve technologies used in sequences that are not obvious.
      The most prominent biomarkers for each tumor type are identified by mass
      spectrometric sequencing. We will select for patenting and clinical evaluation
      biomarkers present at high frequency in all cancers of the same
      type.




**4.**  **Development
      of Assays for Biomarkers in the Blood**




Whether
        to develop an assay for selected biomarkers is an important decision point.
        Assay development is an expensive component of the discovery process but
        also an
        essential step in establishing commercial value. For each cancer type, we
        expect
        to screen sera of affected and unaffected persons for the five most promising
        biomarkers of known sequence for which patent protection seems achievable.
        Maximum value of the product for diagnostics is achieved by demonstrating
        the
        presence of specific biomarkers in the serum of patients harboring the cancer
        of
        interest and their absence in the sera of patients without the
        cancer.


Biomarkers
      not useful for diagnostic assays may still have significant value as markers
      of
      prognosis and/or as drug targets. For example, although it is not yet clear
      whether the new biomarker discovered by Dr. Zhuang will serve as a useful
      diagnostic assay for GBMs, that biomarker is nevertheless valuable because
      it
      was demonstrated to provide a tool for identification of new drug combinations
      active against GBMs in vitro.




Using
      stringent criteria for biomarker selection, analysis of small numbers of a
      given
      type of cancer is sufficient for detection of relevant biomarkers. If potential
      biomarkers for early diagnosis are discovered for several types of cancer,
      such
      as the one already identified for GBMs, we will prioritize their development
      in
      the following order: stomach, ovary, prostate, colon, bladder, and kidney.
      If a
      particularly compelling opportunity arises, we have the flexibility to quickly
      direct resources to maximize chances of developing a clinically useful
      product.




**Product
      Overview**




Our
      products will derive directly from our intellectual property consisting of
      our
      Provisional Patent Application and other patents we anticipate will arise from
      our research activities. Those patents are expected to cover biomarkers uniquely
      associated with specific types of cancer that may provide the bases for assays
      suitable for cancer detection and patents on methods to identify drugs that
      inhibit growth of specific tumor types and combinations of drugs as potential
      therapeutic agents for the treatment of specific cancers.




We
      believe that there are four main markets for potential products that may be
      developed by Lixte.




1.  **Improved
      Cancer Treatments.** Improved
      chemotherapy regimens for cancers not curable by surgery or
      radiation;




2.  **Diagnostic
      Assays.** Improved
      assays of body fluids, primarily blood, for the diagnosis of cancers at stages
      when cure is possible through surgery and/or radiotherapy;




3.  **Estimation
      of Prognosis.** Improved
      methods for estimation of prognosis by molecular sub-classification of
      histologically indistinguishable tumor subtypes; and




4.  **Assessment
      of Therapeutic Effectiveness.** Improved
      methods to assess therapeutic effectiveness by monitoring with biomarker assays
      persistence or reappearance of cancer during and after treatment and during
      drug
      development.




Each
      market is discussed below.




10




**1.**  **Improved
      Cancer Treatments**




We
      will
      seek to develop improved therapeutic regimens when biomarkers provide insight
      into pathways vulnerable to chemical and/or immunological attack. Some tumor
      biomarkers have specific (enzymatic) functions and are “drugable,” that is,
      their function can be altered pharmacologically. For example, the identification
      of the biomarker specific to regulation of GBMs has led to development of an
      assay for screening compounds for anti-GBM activity.




**2.**  **Diagnostic
      Assays**




We
        intend
        to work under the CRADA with NINDS to assess the clinical potential of the
        new
        biomarker for GBM. Using the approach developed by Dr. Zhuang to identify
        markers for GBM and for other rare tumors, we also intend to initiate searches
        for biomarkers in other common cancers for which there is no highly specific
        and
        sensitive blood test for early detection. The initial focus, in addition
        to
        GBMs, is 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 we are successful in increasing our resources, 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.




11




**Competition**




The
      life
      sciences industry is highly competitive and subject to rapid and profound
      technological change. We believe that several companies are investigating
      biomarkers for every human cancer. These companies include firms seeking a
      better understanding of molecular variability in human brain tumors with the
      objective to be able to use such information to design better treatments. Our
      present and potential competitors include major pharmaceutical companies, as
      well as specialized biotechnology and life sciences firms in the United States
      and in other countries. Most of these companies have considerably greater
      financial, technical and marketing resources than we do. Additional mergers
      and
      acquisitions in the pharmaceutical and biotechnology industries may result
      in
      even more resources being concentrated in our competitors. Our existing or
      prospective competitors may develop processes or products that are more
      effective than ours or be more effective at implementing their technologies
      to
      develop commercial products faster. Our competitors may succeed in obtaining
      patent protection and/or receiving regulatory approval for commercializing
      products before us. Developments by our competitors may render our product
      candidates obsolete or non-competitive.




We
      also
      experience competition from universities and other research institutions, and
      we
      are likely to compete with others in acquiring technology from those sources.
      There can be no assurance that others will not develop technologies with
      significant advantages over those that we are seeking to develop. Any such
      development could harm our business.




We
      face
      competition from other companies seeking to identify and commercialize cancer
      biomarkers. We also compete with universities and other research institutions
      engaged in research in these areas. Many of our competitors have greater
      technical and financial resources than we do.




Our
      ability to compete successfully is based on numerous factors,
      including:




·
            the
                cost-effectiveness of any product we ultimately commercialize relative
                to
                competing products;




·
            the
                ease of use and ready availability of any product we bring to
                market;




·
            the
                accuracy of a diagnostic test designed by us in detecting cancers,
                including overcoming the propensity for “false positive” results;
                and




·
            the
                relative speed with which we are able to bring any product resulting
                from
                our research to market in our target
                markets.




If
      we are
      unable to distinguish our products from competing products, or if competing
      products reach the market first, we may be unable to compete successfully with
      current or future competitors. This would cause our revenues to decline and
      affect our ability to achieve profitability.




**Employees**




As
        of
        December 31, 2007, we had no full-time employees. Dr. Kovach is a Professor
        in
        the Department of Preventive Medicine at SUNY, in Stony Brook, New York.
        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 work under the supervision of Dr. Zhuang on the
        objectives of the CRADA. Dr. Kovach devotes approximately 30 hours per week
        with
        respect to his activities involving the Company, including research planning
        and
        design and monitoring of the research progress under the CRADA. Dr. Kovach’s
        contributions are made outside of his academic responsibilities.


12




**Properties**




At
        present, we conduct all laboratory activities at NIH under the CRADA. We
        also
        collected and stored samples of human tumors other than brain cancers under
        a
        service agreement with the University of Regensburg, Germany, which was
        terminated in January 2008. 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.


**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) of the National Institutes of Health
        (NIH). 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
        negotiated 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 of Regensburg
        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. This agreement was
        terminated on January 12, 2008.


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 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.




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.




13




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. The 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.




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 plan high
      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.




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 not 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.




15




The
        funds
        we raised in the private placements 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.
        In the near term, we expect to require approximately $3,000,000 of additional
        funding to enable us to develop our lead compounds to a point allowing for
        submission of an IND to the FDA to institute Phase I trials. 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
        a
        combination of debt or equity financings and the sale, licensing or joint
        venturing of our intellectual properties. Current market conditions present
        uncertainty as to our ability to secure additional funds, as well as our
        ability
        to reach profitability. There can be no assurances that we will be able to
        secure additional financing, or obtain favorable terms on such financing
        if it
        is available, or as to our ability to achieve positive cash flow from
        operations. Continued negative cash flows and lack of liquidity create
        significant uncertainty about our ability to fully implement our operating
        plan
        and we may have to reduce the scope of our planned operations. If cash and
        cash
        equivalents are insufficient to satisfy our liquidity requirements, we would
        be
        required to scale back or discontinue our product development program, or
        obtain
        funds if available through strategic alliances that may require us to relinquish
        rights to certain of our technologies or discontinue our
        operations.


***Our
      auditors have included a going concern assumption in their
      opinion.***




The
        opinion of our auditors regarding our financial statements includes 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 generated revenues
        from operations. All activity through December 31, 2007 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. On December 12, 2007, we
        completed another private placement, selling 999,995 shares of common stock
        at a
        price of $0.65 per share and receiving net proceeds of $531,320.


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 December 2007 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. We will need
        to
        raise approximately $3,000,000 of additional funds in order to satisfy our
        near-term working capital requirements. 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 a combination of debt or
        equity financings and the sale, licensing or joint venturing of our intellectual
        properties.




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.***




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
      was
      filed and a similar non-provisional patent was filed in the U.S, containing
      all
      claims in the provisional patent plus additional claims. Any patents resulting
      from these applications will be jointly owned by us and the U.S.  Government. We are negotiating with the government on the terms of exclusive
      commercialization rights with respect to those patents. However, should we
      be
      unable to reach such an agreement, or should we be unable to reach such an
      agreement in the future pertaining to other technologies owned by the government
      or third parties, this could harm our businesses. Additionally, if those
      licenses terminate and we are unable to renew them, or must renew them only
      on
      unfavorable terms, such events could require us to cease providing products
      or
      services using such licensed technology and, therefore, would likely result
      in
      loss of revenue for our business.




***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 71 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 approximately 30 hours per week
        to
        our business activities. 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 a Professor in the Department
        of
        Preventive Medicine at Stony Brook University, New York. 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.  Under a formal agreement with the NIH, he participates
        with the Company under a CRADA that defines the scope of his collaboration,
        and
        he therefore 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, Minnesota. 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 new treatments
          to
          clinical trials, an agreement will be negotiated with NIH to conduct the
          trial
          as part of a new CRADA or 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. The Agreement has now been terminated. Although we believe
      that all necessary consents have been and 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 of
      Regensburg .
      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 new patent applications
      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 re - examination
      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.




25




Another
      development that may affect the pricing of drugs is regulatory action regarding
      drug reimportation into the United States. The Medicare Prescription Drug,
      Improvement and Modernization Act of 2003, which became law in December 2003,
      requires the Secretary of the U.S.  Department
      of Health and Human Services to promulgate regulations allowing drug
      reimportation from Canada into the United States under certain circumstances.
      These provisions will become effective only if the Secretary certifies that
      such
      imports will pose no additional risk to the public’s health and safety and
      result in significant cost savings to consumers. To date, the Secretary has
      made
      no such finding, but he could do so in the future. Proponents of drug
      reimportation may also attempt to pass legislation that would remove the
      requirement for the Secretary’s certification or allow reimportation under
      circumstances beyond those anticipated under current law. If legislation is
      enacted, or regulations issued, allowing the reimportation of drugs, it could
      decrease the reimbursement we would receive for any products that we may
      commercialize, negatively affecting our anticipated revenues and prospects
      for
      profitability.




**RISKS
      RELATED TO CAPITAL STRUCTURE**




***There
      is no assurance of an established public trading market, which would adversely
      affect the ability of our investors to sell their securities in the public
      market.***




Although
        our common stock is registered under the Exchange Act, our common stock was
        not
        publicly traded until recently. On September 24, 2007, our common stock
        commenced trading on the OTC Bulletin Board, although there has been very
        limited trading activity to date. In addition, the NASD limits quotations
        on the
        OTC Bulletin Board to securities of issuers that are current in their reports
        filed with the Securities and Exchange Commission. The NASD also periodically
        proposes rule changes that could have an impact on the market for out stock.
        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.




***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 sole stockholder
        of
        Lixte, our operating subsidiary, and received shares of our stock in the
        Reverse
        Merger. He is currently eligible to sell 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”), subject to certain
        limitations. Rule 144 also permits the sale of securities, without any
        limitations, by a non-affiliate that has satisfied a six-month holding period.
        Any substantial sale of common stock pursuant to this prospectus or Rule
        144
        could have an adverse effect on the market price of our common stock by creating
        an excessive supply. In this connection, we have sold an aggregate of 3,555,220
        shares of common stock in private placements occurring in June and July 2006,
        all of which are currently eligible to be sold under Rule 144, and 999,995
        shares in a December 2007 private placement, all of which will be eligible
        to be
        sold under Rule 144 on June 12, 2008.


26




***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 of 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 $2,000,000, if in
        business more than a continuous three years, or with average revenues of
        less
        than $6,000,000 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 their 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 61% of our outstanding
        voting stock. 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.


***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.




27




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




At
      present, we conduct all laboratory activities at NIH under the CRADA. 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.




**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, 2007.




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




Since
        September 21, 2007, our common stock has traded on the OTC Bulletin Board
        under
        the symbol “LIXT.” There is very limited trading of our stock on the Bulletin
        Board, and it should not be deemed to be an “established trading market”. 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:


·
            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 bysecurities
                analysts;




·
            Possible
                regulatory requirements on our
                business;




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




·
            Changes
                in interest rates;




28


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




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




·
            Investor
                perceptions of us; and




·
            General
                economic and other national
                conditions.




The
        following table sets forth the range of reported closing prices of the Company’s
        common stock during the periods that the stock traded on the OTC Bulletin
        Board.
        Such quotations reflect prices between dealers in securities and do not include
        any retail mark-up, mark-down or commissions, and may not necessarily represent
        actual transactions.


Fiscal
                Year Ended December 31, 2007
            
            High
            
            LowThree
                months ended September 30, 2007 (beginning September 21,
                2007)
            
            $
            1.05
            
            $
            0.75Three
                months ended December 31, 2007
            
            $
            1.10
            
            $
            0.75




29




**Holders**
  As
        of
        December 31, 2007, we currently have 27,832,178 shares of our common stock
        outstanding. As of December 31, 2007, 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.
  **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. We do
        not currently plan to pay cash dividends on our common stock in the foreseeable
        future.
  **Sales
        of Unregistered Securities**
  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 five-year option to purchase 100,000 shares at
          the same
          exercise price subject to certain conditions. The option was issued pursuant
          to
          Section 4(2) of the Securities Act of 1933, as amended.
 On
        September 12, 2007, in conjunction with his appointment as a director of
        the
        Company, the Company granted to Dr. Stephen Carter stock options to purchase
        an
        aggregate of 200,000 shares of common stock under the 2007 Plan, exercisable
        for
        a period of five years from vesting date at $0.333 per share, with one-half
        (100,000 shares) vesting annually on each of September 12, 2008 and 2009.
        The
        shares were issued pursuant to Section 4(2) of the Securities Act of 1933,
        as
        amended.
  On
        September 12, 2007, the Company entered into a consulting agreement with
        Gil
        Schwartzberg and granted to Mr. Schwartzberg stock options to purchase an
        aggregate of 1,000,000 shares of common stock, exercisable for a period of
        four
        years from vesting date at $1.00 per share, with one-half of the options
        (500,000 shares) vesting immediately and one-half (500,000 shares) vesting
        on
        September 12, 2008. The shares were issued pursuant to Section 4(2) of the
        Securities Act of 1933, as amended.
  On
        September 12, 2007, the Company entered into a consulting agreement with
        Francis
        Johnson and granted to Professor Johnson stock options to purchase an aggregate
        of 300,000 shares of common stock, exercisable for a period of four years
        from
        vesting date at $0.333 per share, with one-third (100,000 shares) vesting
        annually on each of September 12, 2008, 2009 and 2010. The shares were issued
        pursuant to Section 4(2) of the Securities Act of 1933, as amended.
  On
        September 20, 2007, the Company entered into a one-year consulting agreement
        (the “Mirador Agreement”) with Mirador Consulting, Inc. (“Mirador”), pursuant to
        which Mirador was to provide the Company with various financial services.
        Pursuant to the Mirador Agreement, Lixte agreed to sell Mirador 250,000 shares
        of the Company’s restricted common stock for $250 ($0.001 per share). The shares
        were issued pursuant to Section 4(2) of the Securities Act of 1933, as
        amended.
  On
        December 12, 2007, we sold 999,995 shares of common stock to accredited
        investors in a private placement at a per share price of $0.65. 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 120,000 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.
  30


**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, 2007, 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 issuance under equity
                compensation plans (excluding securities reflected in column
                2)**Equity
                Compensation Plans Approved by Security Holders
            
            
            200,000
            
            $
            0.333
            
            
            2,300,000Equity
                Compensation Plans Not Approved by Security Holders
            
            
            N/A
            
            
            N/A
            
            
            N/A




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




**Overview**




On
      June
      30, 2006, Lixte Biotechnology, Inc., a privately-held Delaware corporation
      (“Lixte”), completed a reverse merger transaction with SRKP 7, Inc. (“SRKP”), a
      non-trading public “shell” company, whereby Lixte became a wholly-owned
      subsidiary of SRKP. For financial reporting purposes, Lixte was considered
      the
      accounting acquirer in the merger and the merger was accounted for as a reverse
      merger. Accordingly, the historical financial statements presented herein are
      those of Lixte and do not include the historical financial results of SRKP.
      The
      stockholders’ equity section of SRKP has been retroactively restated for all
      periods presented to reflect the accounting effect of the reverse merger
      transaction. All costs associated with the reverse merger transaction were
      expensed as incurred.




Lixte
      was
      incorporated in Delaware on August 9, 2005 to capitalize on opportunities to
      develop low cost, specific and sensitive tests for the early detection of
      cancers to better estimate prognosis, to monitor treatment response, and to
      reveal targets for development of more effective treatments.




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




The
      Company’s financial statements have been presented on the basis that it is a
      going concern, which contemplates the realization of assets and satisfaction
      of
      liabilities in the normal course of business. The Company is in the development
      stage and has not generated any revenues from operations to date. The Company’s
      ability to continue as a going concern is dependent upon its ability to develop
      additional sources of capital and to ultimately achieve profitable operations.
      The financial statements do not include any adjustments that might result from
      the outcome of these uncertainties (see “Liquidity and Capital Resources -
      December 31, 2007 - Going Concern”).




31




**Recent
      Developments**




On
      December 12, 2007, the Company sold an aggregate of 999,995 shares of its common
      stock to accredited investors in a second private placement at a per share
      price
      of $0.65, resulting in aggregate gross proceeds to the Company of $650,000.
      The
      Company paid to WestPark Capital, Inc., as placement agent, a commission of
      10%
      and a non-accountable fee of 4% of the gross proceeds of the private placement
      and issued five-year warrants to purchase common stock equal to (a) 10% of
      the
      number of shares sold in the private placement exercisable at $0.65 per share
      and (b) an additional 2% of the number of shares sold in the private placement
      also exercisable at $0.65 per share. Net cash proceeds to the Company were
      $531,320.




**Adoption
      of New Accounting Policies**




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”. 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 chose to early adopt EITF 00-19-2
      effective December 31, 2006.




Effective
      January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
      Accounting for Income Taxes” (“FIN 48”). FIN 48 addresses the determination of
      whether tax benefits claimed or expected to be claimed on a tax return should
      be
      recorded in the financial statements. Under FIN 48, the Company may recognize
      the tax benefit from an uncertain tax position only if it is more likely than
      not that the tax position will be sustained on examination by the taxing
      authorities, based on the technical merits of the position. The tax benefits
      recognized in the financial statements from such a position should be measured
      based on the largest benefit that has a greater than fifty percent likelihood
      of
      being realized upon ultimate settlement. FIN 48 also provides guidance on
      de-recognition, classification, interest and penalties on income taxes,
      accounting in interim periods and requires increased disclosures. The adoption
      of the provisions of FIN 48 did not have a material effect on the Company’s
      financial statements. As of December 31, 2007, no liability for unrecognized
      tax
      benefits was required to be recorded.




The
      Company files income tax returns in the U.S. federal jurisdiction and various
      states. The Company is subject to U.S. federal or state income tax examinations
      by tax authorities for years after 2004.




The
      Company’s policy is to record interest and penalties on uncertain tax provisions
      as income tax expense. As of December 31, 2007, the Company has no accrued
      interest or penalties related to uncertain tax positions.




**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 (“GAAP”). SFAS No. 157 defines and codifies the many definitions of
      fair value included among various other authoritative literature, clarifies
      and,
      in some instances, expands on the guidance for implementing fair value
      measurements, and increases the level of disclosure required for fair value
      measurements. Although SFAS No. 157 applies to and amends the provisions of
      existing FASB and American Institute of Certified Public Accountants (“AICPA”)
      pronouncements, it does not, of itself, require any new fair value measurements,
      nor does it establish valuation standards. SFAS No. 157 applies to all other
      accounting pronouncements requiring or permitting fair value measurements,
      except for: SFAS No. 123R, share-based payment and related pronouncements,
      the
      practicability exceptions to fair value determinations allowed by various other
      authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9
      that deal with software revenue recognition. 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 financial statements.




32




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 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 financial
      statements.




In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”
(“SFAS No. 141(R)”), which requires an acquirer to recognize in its
      financial statements as of the acquisition date (i) the identifiable assets
      acquired, the liabilities assumed, and any noncontrolling interest in the
      acquiree, measured at their fair values on the acquisition date, and (ii)
      goodwill as the excess of the consideration transferred plus the fair value
      of
      any noncontrolling interest in the acquiree at the acquisition date over the
      fair values of the identifiable net assets acquired. Acquisition-related costs,
      which are the costs an acquirer incurs to effect a business combination, will
      be
      accounted for as expenses in the periods in which the costs are incurred and
      the
      services are received, except that costs to issue debt or equity securities
      will
      be recognized in accordance with other applicable GAAP. SFAS No. 141(R) makes
      significant amendments to other Statements and other authoritative guidance
      to
      provide additional guidance or to conform the guidance in that literature to
      that provided in SFAS No. 141(R). SFAS No. 141(R) also provides guidance as
      to
      what information is to be disclosed to enable users of financial statements
      to
      evaluate the nature and financial effects of a business combination.
      SFAS No. 141(R) is effective for financial statements issued for fiscal
      years beginning on or after December 15, 2008. Early adoption is
      prohibited. The Company has not yet determined the effect on its consolidated
      financial statements, if any, upon adoption of SFAS No. 141(R).




33




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




**Critical
      Accounting Policies and Estimates**




The
      Company prepared its 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 the Company’s consolidated financial
      statements.




**Research
      and Development**




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




Amounts
      due, pursuant to contractual commitments, on research and development contracts
      with third parties are recorded as a liability, with the related amount of
      such
      contracts recorded as advances on research and development contract services
      on
      the Company’s balance sheet. Such advances on research and development contract
      services are expensed over their life on the straight-line basis, unless the
      achievement of milestones, the completion of contracted work, or other
      information indicates that a different expensing schedule is more appropriate.
      The Company accounts for its research and development contracts in accordance
      with EITF 07-3.




**Patent
      Costs**




Due
      to
      the significant uncertainty associated with the successful development of
      one or more commercially viable products based on the Company's research efforts
      and any related patent applications, all patent costs, including patent-related
      legal fees, are expensed as incurred.




34




**Stock-Based
      Compensation**




Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), "Share-Based
      Payment" ("SFAS No. 123R"), a revision to SFAS No. 123, "Accounting for
      Stock-Based Compensation". SFAS No. 123R requires that the Company measure
      the
      cost of employee services received in exchange for equity awards based on the
      grant date fair value of the awards, with the cost to be recognized as
      compensation expense in the Company’s financial statements over the vesting
      period of the awards.




The
      Company accounts for stock option and warrant grants issued and vesting to
      non-employees in accordance with EITF No. 96-18, “Accounting for Equity
      Instruments that are Issued to Other Than Employees for Acquiring, or in
      Conjunction with Selling, Goods or Services”, and EITF 00-18, “Accounting
      Recognition for Certain Transactions involving Equity Instruments Granted to
      Other Than Employees”, whereas the value of the stock compensation is based upon
      the measurement date as determined at either (a) the date at which a performance
      commitment is reached or (b) at the date at which the necessary performance
      to
      earn the equity instruments is complete.




**Income
      Taxes**




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




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.




**Plan
      of Operation**




General
      Overview of Plans




The
      Company 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.




The
      Company is currently focusing on developing new treatments for the most common
      and most aggressive type of brain cancer of adults, glioblastoma multiforme
      (“GBM”). The Company has expanded the scope of its anti-cancer investigational
      activities to include the most common brain tumor of children, medulloblastoma,
      and also to several other types of more common cancers. This expansion of
      activity is based on documentation that each of two distinct types of drugs
      being developed by the Company inhibits the growth of cell lines of breast,
      colon, lung, prostate, pancreas, ovary, stomach and liver cancer, as well as
      the
      major types of leukemias.




35




The
      research on brain tumors is proceeding in collaboration with the National
      Institute of Neurological Disorders and Stroke (“NINDS”) of the National
      Institutes of Health (“NIH”) under a Cooperative Research and Development
      Agreement (“CRADA”) entered into on March 22, 2006, as amended. The research at
      NINDS continues to be led by Dr. Zhengping Zhuang, an internationally recognized
      investigator in the molecular pathology of cancer. Dr. Zhuang is aided by two
      senior research technicians supported by the Company as part of the CRADA.
      The
      goal of the CRADA is to develop more effective drugs for the treatment of GBM
      through the processes required to gain Food and Drug Administration (“FDA”)
      approval for clinical trials. The Company’s contribution to the CRADA has been
      $200,000 annually for two years. The CRADA is presently scheduled to end June
      30, 2008, with current discussions exploring a several month extension supported
      by funds remaining from the original agreement, followed by a potential one-year
      extension at a cost of $200,000.




The
      Company has filed a series of patent applications jointly with NIH covering
      certain methods of treatment of brain tumors of adults and children. On February
      6, 2007, provisional patent applications were converted to a U.S.
      non-provisional patent and a patent cooperation treaty application on behalf
      of
      the Company and NIH.




Patent
      applications filed with NIH are jointly owned by NIH and Lixte. All NIH
      co-inventors assigned their rights to NIH. Under the CRADA, Lixte is entitled
      to
      negotiate an exclusive license from NIH to all claims in these patent
      applications. The Company is continuing its negotiations on the details of
      the
      terms under which NIH will provide an exclusive license and anticipates
      finalizing terms of the agreement with the NIH in mid-2008.




The
      Company has also filed patent applications for intellectual property owned
      solely by the Company. These applications identify two series of new anti-cancer
      agents referred to as the LB-1 series and the LB-2 series. The applications
      include identification of the structure of molecules, their synthesis, and
      their
      activity against GBM, medulloblastoma, and more recently, the common cancers
      and
      leukemias as mentioned above. At the present time, the efficacies of the LB-1
      and LB-2 series are based on activity in cell culture and in animal models
      of
      GBM and medulloblastoma. The Company is in the process of documenting the
      activities of both series of drugs against the more common tumor types in animal
      models.




In
      February 2008, the Company converted provisional patents relating to the nature
      and activity of the LB-1 series of drugs with the filing of a U.S.
      non-provisional and a PCT patent application.




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




The
      Company expects that its products will derive directly from the intellectual
      property from its research activities. Progress to date has borne out this
      expectation. The development of lead compounds with different mechanisms of
      action that have now been shown to have activity against brain tumors and
      several other much more common human cancers, as well as serious fungal
      infections, originated from its original focus on a biochemical defect in GBM.
      The Company will continue to use discovery and/or recognition of molecular
      variants characteristic of specific human cancers as a guide to drug discovery
      and potentially new diagnostic tests.




The
      Company elected to exert its right to terminate the second year of an agreement
      with the University of Regensburg, Germany, for collection of certain numbers
      of
      tumors and other biological samples for research programs in the future. Under
      the agreement, the University of Regensburg will complete ascertainment of
      50%
      of the original number of samples. Lixte estimates that this collection will
      be
      sufficient for its needs for the next two to three years. In addition, Lixte
      has
      identified a commercial source of such materials that can be purchased in
      quantities as needed. Cancellation of the second year of the agreement resulted
      in a saving of Euro 36,000 (about $52,000).




36




The
      Company faces several potential challenges to its goal of commercial success.
      These include raising sufficient capital to fund its business plan, achieving
      commercially applicable results from its research programs, competition from
      more established, well-funded companies with competitive technologies, and
      future competition from companies developing new competitive technologies.
      Because of these challenges, there is substantial uncertainty as to the
      Company’s ability to fund its operations and continue as a going concern (see
“Liquidity and Capital Resources - December 31, 2007 - Going Concern”
below).




Plans
      for
      the Next 12 Months




The
      Company has three major goals for the next 12 months.




The
      first
      goal is to evaluate lead compounds of the LB-1 and LB-2 series for effectiveness
      in a rat model of brain cancer in which drugs are administered systemically
      or
      by direct infusion into the diseased area of the brain. The latter method of
      administration is called “convection administration”. These studies will be done
      by the Company’s partner at NIH that has substantial expertise in the evaluation
      of the treatment of brain diseases. In addition, under the CRADA, the
      effectiveness of drugs of each series given in combination with each other
      and
      in combination with the standard drug used clinically for the treatment of
      GBM
      will be studied.




The
      second goal is to evaluate the anti-cancer activity of lead compounds from
      the
      LB-1 and LB-2 series against a series of common human cancers. Lung and
      pancreatic cancer will be the first of this group to be studied in an animal
      model because there is an urgent need for better drug for the treatment of
      these
      almost uniformly fatal cancers. These studies are being done independently
      of
      NIH and are therefore not part of the CRADA.




The
      Company will seek the interest of NIH in supporting development of one or two
      lead compounds from the LB-1 series through pre-clinical studies necessary
      to
      receive FDA approval to take the drugs into Phase I clinical trials. The NIH
      offers opportunities for academic laboratories, including laboratories at NIH
      with a for-profit partner, to seek NIH support and expertise in expediting
      development of particularly promising new compounds as anti-cancer drugs. The
      Company will also explore the potential interest of two or more major
      pharmaceutical companies in collaborating in the development of one or more
      of
      its lead compounds through Phase I clinical trials of their anti-cancer
      activity.




The
      third
      goal is to assess the interest of pharmaceutical companies in collaborating
      with
      the Company or in licensing from the Company rights to some of its lead
      compounds as anti-fungal drugs. Certain molecular pathways essential for growth
      by cancer cells are also used by microorganisms, including fungi. Anti-fungal
      therapy is an additional potentially large market for the Company’s compounds,
      but one in which outside expertise will be necessary to plan efficient
      assessment and development of their potential value. Management is engaging
      in
      discussions with contract research organizations with the expertise to determine
      the magnitude of anti-fungal activity in animal models of the most important
      fungal infections in humans.




The
      Company expects to complete its explorations of interest in collaboration with
      NIH and pharmaceutical companies by mid-2008. At that time, a decision will
      be
      made as to where to place emphasis on the Company’s research and development of
      compounds of the LB-1 and LB-2 series. Depending upon the interest of NIH and/or
      pharmaceutical companies to support development of one or more of its products,
      the Company will adjust the estimate of its financial requirements discussed
      below for the next year of operation. The Company has sufficient financial
      resources to carry out the approaches described above through 2008.




37




Existing
      resources, however, will not permit evaluation of activity of the Company’s lead
      drugs against many of the common cancers against which the Company’s compounds
      may have anti-cancer activity. Current resources also will not be sufficient
      to
      carry out pre-clinical studies necessary to apply to the FDA for approval of
      drug evaluations in Phase I trials. The Company estimates the cost of
      pre-clinical development by outsourcing to a leading clinical research
      organization at $1,000,000 per drug. Thus, additional financing will need to
      be
      completed by late 2008 to give the Company the ability to accelerate drug
      development in the absence of a partner. Management is currently planning to
      proceed with pre-clinical development of one lead compound from the LB-1 and
      LB-2 series at a cost of $2,000,000, extend the CRADA with NIH at a cost of
      $200,000 for one additional year, and increase the Company’s research in
      assessing new anti-cancer compounds being created with its collaborating
      chemists. Accordingly, management will be seeking to raise approximately
      $3,000,000 in 2008 for expansion of the Company’s intellectual property and to
      capitalize on its initial successes in anti-cancer drug development by bringing
      at least one compound to clinical evaluation in 2009.




The
      Company faces several potential challenges in its efforts to achieve commercial
      success, including raising sufficient capital to fund its business plan,
      achieving commercially applicable results of its research program, 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 the
      Company. There is substantial uncertainty as to the Company’s ability to fund
      its operations and continue as a going concern (see “Liquidity and Capital
      Resources - December 31, 2007 - Going Concern”). Should the Company be unable to
      raise the required capital on a timely basis, the Company’s business plans would
      be materially adversely effected.




During
      2008, the Company will also start to make public presentations of some of its
      data at national and international scientific meetings. A presentation was
      made
      at the First International Drug Discovery and Development Meeting, in Dubai,
      UAE, in February 2008, and a presentation will be made at the Annual Meeting
      of
      the American Association of Cancer Research in San Diego, California, in April
      2008.




The
      Company had planned to begin its own analyses of tumor types other than GBM
      for
      new biomarkers by late 2008. However, in order to do this, the Company would
      need to establish and operate an independent laboratory. The creation and
      operation of such a laboratory for two years is estimated to cost approximately
      $2,000,000. The Company is deferring plans to open and staff an independent
      laboratory until the full intellectual property value of its initial lead
      compounds for treatment of brain tumors is determined.




Plans
      Beyond the Next 12 Months




A
      goal of
      the Company is to continue the synthesis of new compounds that target other
      components of molecular pathways already identified by the Company and its
      CRADA
      partner to be vulnerable to attack by small molecule drugs, and to explore
      the
      vulnerability of additional potential new targets revealed through the molecular
      characterization of the effects of the Company’s lead compounds.




The
      Company expects to participate in clinical trials of new therapies 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. The
      Company’s present position is to take one or more of its new therapies for the
      treatment of glioblastoma multiforme through pre-clinical evaluation as part
      of
      the CRADA with the NINDS of the NIH. After completing pre-clinical evaluation,
      the Company will consider partnering with the NIH to conduct a Phase I
      Trial or jointly with the NIH to 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, the Company, potentially in partnership
      with the NIH, 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.




38




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 the Company’s 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
      the Company will participate in or be in a position to participate in any
      clinical trials will depend upon partnerships and specific licensing agreements.
      However, in all cases of clinical trial participation, the Company 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 the new regimen to the FDA.




Given
      the
      progress in identifying two lead compounds with activity in animal models of
      GBM, the Company is devoting its resources to bring the agents to a point at
      which an Investigational New Drug (“IND”) application can be submitted to the
      FDA for a Phase I clinical trial. One lead compound (LB-1) is the most advanced
      in the process and the Company plans to be ready for IND submission by early
      2009. The other lead compound (LB-2.5), which inhibits cancer cells by a
      mechanism distinct from that of LB-1, is anticipated to complete its evaluation
      by the end of 2009.




**Results
      of Operations****- Years Ended December 31, 2007 and 2006**




The
      Company is a development stage company and had not commenced revenue-generating
      operations at December 31, 2007.




General
      and Administrative Expenses .
      For the
      year ended December 31, 2007, general and administrative expenses were
      $1,234,616, which consisted of stock-based compensation of $890,444, consulting
      and professional fees of $248,903, insurance expense of $27,312, laboratory
      supplies of $30,895, filing fees of $11,164, and other operating costs of
      $25,898. For the year ended December 31, 2006, general and administrative
      expenses were $268,951, which consisted of stock-based compensation of $97,400,
      consulting and professional fees of $140,814, insurance expense of $8,385,
      laboratory supplies of $555, filing fees of $4,799, and other operating costs
      of
      $16,998.




Depreciation .
      For the
      years ended December 31, 2007 and 2006, depreciation expense was $592 and $462,
      respectively.




Research
      and Development Costs .
      For the
      year ended December 31, 2007, research and development costs were $423,829,
      including $50,836 for the vested portion of the fair value of stock options
      issued to a consultant and the fair value of a five-year stock option to
      purchase 100,000 shares of the Company’s common stock at $0.333 per share issued
      to Chem-Master International, Inc. on February 5, 2007 that was fully vested
      and
      non-forfeitable on the date of issuance. Research and development costs were
      $180,569 for the year ended December 31, 2006. For the years ended December
      31,
      2007 and 2006, research and development costs included patent costs of $94,232
      and $30,469, respectively.




Reverse
      Merger Costs .
      In
      conjunction with the reverse merger transaction completed on June 30, 2006,
      WestPark Capital, Inc. was paid an aggregate cash fee of $50,000, which was
      charged to operations during the year ended December 31, 2006.




Interest
      Income .
      For the
      year ended December 31, 2007, interest income was $10,549, as compared to
      interest income of $11,898 for the year ended December 31,
      2006.




39




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




In
      accordance with EITF 00-19-2, “Accounting for Registration Payment
      Arrangements”, on the date of the closing of the private placement, the Company
      believed it would meet the deadlines under the registration rights agreement
      with respect to filing a registration statement and having it declared effective
      by the SEC. As a result, the Company did not record any liabilities associated
      with the registration rights agreement at June 30, 2006. At December 31, 2006,
      the Company determined that the registration statement covering the shares
      sold
      in the private placement would not be declared effective within the requisite
      time frame and therefore accrued six months liquidated damages under the
      registration rights agreement aggregating approximately $74,000, which has
      been
      presented as a current liability at December 31, 2007 and 2006. No further
      registration penalty accrual was required at December 31, 2007, as the Company’s
      registration statement on Form SB-2 was declared effective by the Securities
      and
      Exchange Commission on May 14, 2007. The Company will continue to review the
      status of the registration statement at each quarter end in the future and
      record further liquidated damages under the registration rights agreement as
      necessary. At December 31, 2007, the registration penalty to the investors
      was
      still due and payable.




Net
      Loss .
      For the
      year ended December 31, 2007, the Company incurred a net loss of $1,648,488,
      as
      compared to a net loss of $562,084 for the year ended December 31,
      2006.




**Liquidity
      and Capital Resources - December 31, 2007**




**Going
      Concern**




The
      Company’s financial statements have been presented on the basis that it is a
      going concern, which contemplates the realization of assets and satisfaction
      of
      liabilities in the normal course of business. The Company is in the development
      stage and has not generated any revenues from operations to date.




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




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, 2007, the Company had not yet commenced any revenue-generating
      operations. All activity through December 31, 2007 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 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, the Company completed
      a
      second closing of the 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.
      On
      December 12, 2007, the Company completed a second private placement, selling
      999,995 shares of common stock at a price of $0.65 per share and receiving
      net
      proceeds of $531,320.




40




Because
      the Company is currently engaged in research at an early stage, it will likely
      take a significant amount of time to develop any product or intellectual
      property capable of generating revenues. As such, the Company’s business is
      unlikely to generate any revenue in the next several years and may never do
      so.
      Even if the Company is able to generate revenues in the future through licensing
      its technologies or through product sales, there can be no assurance that such
      revenues will exceed its expenses.




The
      Company current resources may not be sufficient to fully fund all of the
      Company’s planned operations for the next twelve months. The Company does not
      have sufficient resources to fully develop and commercialize any products that
      may arise from its research. Accordingly, the Company will need to raise
      additional funds in order to satisfy its future working capital requirements.
      The Company expects that the net proceeds from the second private placement
      which closed in December 2007 of approximately $531,000 will be adequate to
      fund
      the Company’s updated and revised 2008 operating budget. Thereafter, the Company
      currently estimates that it will require approximately $3,000,000 of additional
      funding to finance future operations by late 2008, including the costs of the
      pre-clinical evaluation and submission to the FDA of two lead compounds in
      2009.
      The amount and timing of future cash requirements will depend on the market’s
      evaluation of the Company’s technology and products, and the resources that the
      Company devotes to developing and supporting its activities. The Company
      anticipates funding these cash requirements from a combination of debt or equity
      financings and the sale, licensing or joint venturing of its intellectual
      properties.




Current
      market conditions present uncertainty as to the Company’s ability to secure
      additional funds, as well as its ability to reach profitability. There can
      be no
      assurances that the Company will be able to secure additional financing, or
      obtain favorable terms on such financing if it is available, or as to 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, as a result of which the Company
      may have to reduce the scope of its planned operations. If cash resources are
      insufficient to satisfy the Company’s liquidity requirements, the Company would
      be required to scale back or discontinue its technology and product development
      programs, or obtain funds, if available, through strategic alliances that may
      require the Company to relinquish rights to certain of its technologies
      products, or to discontinue its operations.




Operating
      Activities .
      For the
      year ended December 31, 2007, operating activities utilized cash of $702,868,
      as
      compared to utilizing cash of $443,451 for the year ended December 31, 2006,
      primarily as a result of increased expenditures for both general and
      administrative and research and development activities in 2007 as compared
      to
      2006.




The
      Company had working capital of $376,184 at December 31, 2007, primarily as
      a
      result of the sale of the Company’s common stock pursuant to a second private
      placement in December 2007 that generated net proceeds of $531,320.




Investing
      Activities .
      For the
      years ended December 31, 2007 and 2006, investing activities utilized cash
      of
      $272 and $498, respectively, for the purchase of office equipment.




Financing
      Activities .
      For the
      year ended December 31, 2007, financing activities provided net cash of
      $531,570, consisting of the gross proceeds from the sale of common stock of
      $650,000, reduced by the payment of private placement offering costs of
      $118,680. 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.




41




**Principal
      Commitments**




At
      December 31, 2007, the Company did not have any material commitments for capital
      expenditures. The Company had paid its second and final installment due under
      the CRADA of $200,000 on June 29, 2007. The Company’s principal commitments at
      December 31, 2007 consisted of the liquidated damages payable under the
      registration rights agreement of $74,000 and the contractual obligations as
      summarized below.




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 also agreed
      to
      provide certain information relating to such patients. Lixte agreed to pay
      the
      University 72,000 Euros in two equal installments. The first installment of
      36,000 Euros ($48,902) was paid on March 7, 2007. On January 12, 2008, Lixte
      terminated the Services Agreement in accordance with its terms, as a result
      of
      which payment of the second installment of 36,000 Euros was cancelled. The
      University agreed to deliver 50% of the aforementioned samples under the
      terminated Services Agreement.




On
      February 5, 2007, Lixte entered into a two-year agreement (the “Chem-Master
      Agreement”) with Chem-Master International, Inc. (“Chem-Master”) pursuant to
      which Lixte engaged Chem-Master to synthesize a compound designated as “LB-1”,
      and any other compound synthesized by Chem-Master pursuant to Lixte’s request,
      which have potential use in treating a disease, including, without limitation,
      cancers such as glioblastomas. Pursuant to the Chem-Master Agreement, Lixte
      agreed to reimburse Chem-Master for the cost of materials, labor, and expenses
      for other items used in the synthesis process, and also agreed to grant
      Chem-Master a five-year option to purchase 100,000 shares of the Company’s
      common stock at an exercise price of $0.333 per share. Lixte has the right
      to
      terminate the Chem-Master Agreement at any time during its term upon sixty
      days
      prior written notice.  On February 5, 2009, provided that the Chem-Master
      Agreement has not been terminated prior to such date, the Company has
      agreed to grant Chem-Master a second five-year option to purchase an
      additional 100,000 shares of the Company’s common stock at an exercise price of
      $0.333 per share.




On
      September 20, 2007, the Company entered into a one-year consulting agreement
      (the “Mirador Agreement”) with Mirador Consulting, Inc. (“Mirador”), pursuant to
      which Mirador was to provide the Company with various financial services.
      Pursuant to the Mirador Agreement, Lixte agreed to pay Mirador $5,000 per month
      and also agreed to sell Mirador 250,000 shares of the Company’s restricted
      common stock for $250 ($0.001 per share). The Company made payments under the
      Mirador Agreement aggregating $10,000 during 2007. The Mirador Agreement was
      amended in February 2008 such that Mirador forgave all accrued but unpaid
      monthly fees through February 29, 2008 and the Company agreed to pay Mirador
      a
      fee of $2,000 per month for the remaining six months of the Mirador
      Agreement.




**Off-Balance
      Sheet Arrangements**




At
      December 31, 2007, the Company did not have any transactions, obligations or
      relationships that could be considered off-balance sheet
      arrangements.




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




Our
      financial statements and notes thereto and the related report of our independent
      registered public 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.




42




**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 15d-15(b),
      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 are effective to ensure the
      information required to be disclosed in our reports filed or submitted under
      the
      Exchange Act is timely recorded, processed and reported within the time periods
      specified in the SEC’s rules and forms.




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.




**Management’s
      Annual Report on Internal Control Over Financial Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) under the
      Exchange Act. Our internal control over financial reporting is designed to
      ensure that material information regarding our operations is made available
      to
      management and the board of directors to provide them reasonable assurance
      that
      the published financial statements are fairly presented. There are limitations
      inherent in any internal control, such as the possibility of human error and
      the
      circumvention or overriding of controls. As a result, even effective internal
      controls can provide only reasonable assurance with respect to financial
      statement preparation. As conditions change over time so too may the
      effectiveness of internal controls.




Our
      management, with the participation of our chief executive officer and chief
      financial officer, has evaluated our internal control over financial reporting
      as of December 31, 2007 based on the framework in Internal Control - Integrated
      Framework issued by the Committee of Sponsoring Organizations (COSO) of the
      Treadway Commission. Based on this assessment, our management concluded that
      our
      internal control over financial reporting was effective as of December 31,
      2007.




This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this annual report.




**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, 2007. 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.




43




Our
      directors and executive officer are as follows:




Name
            
            Age
            
            Positions
                Held with the CompanyDr.
                John S. Kovach
            
            71
            
            Chief
                Executive Officer, Chief Financial Officer, DirectorDr.
                Philip F. Palmedo
            
            73
            
            DirectorDr.
                Stephen K. Carter
            
            70
            
            Director





**Biographies
      of Directors and Executive Officer:**




***Dr.
      John S. Kovach***




Dr.
      John
      S. Kovach 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 a Professor in 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 manages Lixte with the
      approval of the State University of New York at Stony Brook and the New York
      State Ethics Commission.




***Chief
      Executive Officer***




Leadership
      and management of our Company is provided by Dr. Kovach, with the advice of
      the
      Board of Directors and the Scientific Advisory Committee. The activities to
      date
      have been 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, are pursuing development of lead compounds for
      the treatment of malignant brain tumors. During this period of time, Dr. Kovach
      has also been supervising the collection of the clinical samples needed to
      validate the biomarker observations regarding GBMs and to be able to extend
      the
      discovery process to ovarian and stomach cancers. The Company intends to seek
      an
      extension of the CRADA for an additional year. Depending on various factors,
      including raising approximately $3,000,000 of new funding during 2008, the
      Company may recruit a full-time chief executive officer to manage the Company’s
      business affairs, as well as a part-time chief financial officer.




44




***Dr.
      Philip F. Palmedo***




Dr.
      Palmedo joined our Board of Directors on June 30, 2006. Dr. Palmedo has had
      a
      diversified career as a physicist, entrepreneur, corporate manager and writer.
      Dr. Palmedo received his undergraduate degree from Williams College and M.S.
      and
      Ph.D. degrees from MIT. He carried out experimental nuclear reactor physics
      research at MIT, Oak Ridge National Laboratory, the French Atomic Energy
      Commission Laboratory at Saclay and Brookhaven National Laboratory (BNL). At
      BNL
      in 1972, he initiated and was the first head of the Energy Policy Analysis
      Group. In 1974, he served with the Energy Policy Office of the White House
      and
      in the following year initiated the BNL Developing Country Energy
      Program.




In
      1979,
      Dr. Palmedo founded the International Resources Group, an international
      professional services firm in energy, environment and natural resources. He
      served as Chairman and CEO until 1988 and since that time has remained as
      chairman. In 1985, the company was recognized by Inc. Magazine as one of the
      500
      fastest growing private companies in the United States.




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.
      Stephen Carter***




Dr.
      Carter is a highly experienced leader and administrator in cancer therapeutics
      and cancer drug development. For 13 years, he was associated with Bristol-Meyers
      Co. and Bristol-Meyers Squibb Co., holding successively the positions of Senior
      Vice President, Anti-Cancer Research; President, Division of Pharmaceutical
      Research and Development; and ultimately, Senior Vice President, Worldwide
      Clinical Research and Development, Pharmaceutical Research Institute. Most
      recently, Dr. Carter was Senior Vice President of Clinical and Regulatory
      Affairs at Sugen, Inc., after serving as Senior Vice President for Research
      and
      Development at Boehringer Ingelheim Pharmaceuticals, Inc. Dr. Carter has held
      leadership roles in academia and government, including Deputy Director, Division
      of Cancer Treatment, National Cancer Institute and Director, Northern California
      Cancer Program.




45




Dr.
      Carter is currently a member of the board of directors of Cytogen Corporation
      (NASDAQ:CYTO), Alfacell Corporation (NASDAQ:ACEL), Tapestry Pharmaceuticals,
      Inc. (NASDAQ:TPPH), Callisto Pharmaceuticals, Inc. (AMEX:KAL), Vion
      Pharmaceuticals, Inc. (NASDAQ:VION) and Celator, a privately-held
      biopharmaceutical company.




**SCIENTIFIC
      ADVISORY COMMITTEE**




The
      Scientific Advisory 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 members have 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 Scientific Advisory Committee are:




***Arndt
      Hartmann, MD***




Dr.
      Hartmann is Chair, Department of Pathology, University of Erlangen, Germany.
      He
      was trained in Internal Medicine at the University of Jena, Germany, and in
      molecular genetics of cancer at Mayo Clinic, Rochester, Minnesota. He was
      subsequently trained in pathology at the University of Regensburg and the
      University of Basel, Switzerland. His research is focused on methods development
      in molecular pathology. He has specific expertise in genetic alterations in
      cancers of the bladder, prostate, kidney and breast.




***Ferdinand
      Hofstadter, MD***




Dr.
      Hofstadter is Professor and Director of the Institute of Pathology, University
      of Regensburg Medical School, Germany. He is Research Dean of the University
      of
      Regensburg-Medical Faculty, Chairman of the Managing Board of the Association
      of
      German Tumor Centers, Chairman of the German Society for Pathology, a member
      of
      the editorial boards of Virchow’s Archives and the Journal of Pathology, and a
      referee for Deutsche Forschungsgesellschaft, the Dr. Mildred Scheel-Stiftung,
      EU, and the European Research Framework Program.




***Stefan
      Madajewicz, MD, PhD***




Dr.
      Madajewicz is Professor of Medicine. For the past 15 years, he has been Director
      of Cancer Clinical Trials and for the past 10 years, Chief, Neoplastic Diseases
      at SUNY-Stony Brook. Dr. Madajewicz is a Fellow, American College of Physicians,
      and a member of the American Society of Clinical Oncology, American Association
      for Cancer Research, European Society of Medical Oncology, an affiliate of
      the
      Eastern Cooperative Oncology Group, and member of the National Surgical Adjuvant
      Breast and Bowel Project. He is recognized as an outstanding cancer clinician
      and for the design of clinical trials, particularly the evaluation of new drugs
      in the treatment of cancers of the gastrointestinal tract and
      brain.




***Iwao
      Ojima, BS, MS, PhD***




Professor
      Ojima is Distinguished Professor of Chemistry and Director, Institute of
      Chemical Biology and Drug Discovery, SUNY-Stony Brook. He is an internationally
      recognized expert in medicinal chemistry, including anti-cancer 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.




46




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); and 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 a financial expert serving
      on
      our Board of Directors.




**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.




**Director
      Independence**




The
      Company considers Dr. Palmedo and Dr. Carter to be independent directors
      according to applicable standards.




**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
      2007.




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




For
      the
      fiscal years ended December 31, 2007 and 2006, no individual, including Dr.
      John
      Kovach, our current Chief Executive Officer, received any compensation. Dr.
      Kovach is reimbursed for any out-of-pocket expenses. Any future compensation
      arrangements will be subject to the approval of the Board of
      Directors.




47




**Option
      Grants to Officers in 2006 and 2007**




None **.**




**Aggregate
      Option Exercises in 2006 and 2007; Option Values at December 31,
      2007**




None;
      not
      applicable.




**Employment
      Agreements; Compensation**




We
      have
      not entered into any employment agreements. As of December 31, 2007, 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.




**Consulting
      Agreements**




On
      September 12, 2007, the Company entered into a consulting agreement with Gil
      Schwartzberg and granted to Mr. Schwartzberg stock options to purchase an
      aggregate of 1,000,000 shares of common stock, exercisable for a period of
      four
      years from vesting date at $1.00 per share, with one-half of the options
      (500,000 shares) vesting immediately and one-half (500,000 shares) vesting
      on
      September 12, 2008. The fair value of these options, as calculated pursuant
      to
      the Black-Scholes option-pricing model, was initially determined to be $945,000
      ($0.945 per share), of which $465,000 was attributed to the fully-vested options
      and was thus charged to operations on September 12, 2007. The remaining portion
      of the fair value of these options is being charged to operations ratably from
      September 12, 2007 through September 12, 2008. During the year ended December
      31, 2007, the Company recorded a charge to operations of $553,662 with respect
      to these options.




On
      September 12, 2007, the Company entered into a consulting agreement with Francis
      Johnson and granted to Professor Johnson stock options to purchase an aggregate
      of 300,000 shares of common stock, exercisable for a period of four years from
      vesting date at $0.333 per share, with one-third (100,000 shares) vesting
      annually on each of September 12, 2008, 2009 and 2010. The fair value of these
      options, as calculated pursuant to the Black-Scholes option-pricing model,
      was
      initially determined to be $300,000 ($1.00 per share), and is being charged
      to
      operations ratably from September 12, 2007 through September 12, 2010. On
      December 31, 2007, the fair value of these options, as calculated pursuant
      to
      the Black-Scholes option-pricing model, was determined to be $198,000 ($0.66
      per
      share), which resulted in a charge to operations of $19,836 during the year
      ended December 31, 2007.




**Director
      Compensation**




***Members
      of the Board of Directors***




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 is being charged to operations ratably
      from
      July 1, 2006 through June 30, 2008. During the years ended December 31, 2007
      and
      2006, the Company recorded a charge to operations of $20,668 and $31,000,
      respectively, with respect to these options.




48




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
      September 12, 2007, in conjunction with his appointment as a director of the
      Company, the Company granted to Dr. Stephen Carter stock options to purchase
      an
      aggregate of 200,000 shares of common stock under the 2007 Plan, exercisable
      for
      a period of five years from vesting date at $0.333 per share, with one-half
      (100,000 shares) vesting annually on each of September 12, 2008 and 2009. The
      fair value of these options, as calculated pursuant to the Black-Scholes
      option-pricing model, was determined to be $204,000 ($1.02 per share), and
      is
      being charged to operations ratably from September 12, 2007 through September
      12, 2009, which resulted in a charge to operations of $30,655 during the year
      ended December 31, 2007. Any additional outside member of the Board of Directors
      will generally 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.




**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 ($)**
            
            **Total
                ($)**Philip
                F. Palmedo
              Director
            
            
            2007
              2006
            
            
            0
              0
            
            
            0
              0
            
            
            0
              0
            
            
            0
              120,900
            
            
            0
              0
            
            
            0
              0
            
            
            0
              0
            
            
            0
              120,900Stephen
                Carter
              Director
            
            
            2007
            
            
            0
            
            
            0
            
            
            0
            
            
            204,000
            
            
            0
            
            
            0
            
            
            0
            
            
            204,000




***Members
      of the Scientific Advisory Committee***




On
      June
      30, 2006, each member of the Scientific Advisory Committee, other than Dr.
      Hartmann and Dr. 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 committee and one-half vesting on the second
      anniversary.




Accordingly,
      on June 30, 2006, 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), and is being charged to operations ratably from July 1,
      2006
      through June 30, 2008. On December 31, 2007 and 2006, the fair value of these
      options, as calculated pursuant to the Black-Scholes option-pricing model,
      was
      determined to be $63,000 ($0.63 per share) and $30,000 ($0.30 per share),
      respectively, which resulted in a charge to operations of $23,212 and $7,500
      during the years ended December 31, 2007 and 2006, respectively.




49




**Aggregated
      Option Exercises in 2006 and 2007; Option Values at December 31,
      2007**




There
      were no option exercises in 2006 or 2007.




The
      value
      of vested and unvested unexercised in-the-money stock options held by our
      Officers and Directors at December 31, 2007 was $134,830 and $111,200,
      respectively, which was calculated by determining the difference between the
      weighted average exercise price of the stock options of $0.333 per share and
      the
      market price for the Company’s common stock of $0.75 per share at December 31,
      2007.




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


**AND
      MANAGEMENT**




The
      following table sets forth, as of March 15, 2008, 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 March 15, 2008, there were 27,832,178 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 March 15, 2008, 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 Lixte Biotechnology Holdings, Inc., 248
      Route 25A, No. 2, East Setauket, New York 11733. This table is based upon
      information supplied by directors, officers and principal stockholders and
      reports filed with the Securities and Exchange Commission.




**Name
                and Address of Beneficial Owner**
            
            **Amount
                and Nature of Beneficial Ownership**
            
            **Percent
                of Class****Officers,
                Directors and 5% stockholders**Dr.
                John S. Kovach
              248
                Route 25A, No. 2
              East
                Setauket, New York 11733
            
            
            17,021,786
            
            
            61.15
            %Dr.
                Philip F. Palmedo
              248
                Route 25A, No. 2East
                Setauket, New York 11733
            
            
            390,000
            (1)
            
            1.4
            %Dr.
                Stephen K. Carter
              248
                Route 25A, No. 2East
                Setauket, New York 11733
            
            
            100,000
            (2)
            
            —All
                Officers and Directors as a group (three persons)
            
            
            17,511,786
            (1)
                (2)
            
            62.9
            %





(1)  Includes
      options to purchase an aggregate of 390,000 shares of common stock which are
      immediately exercisable or within six months.




(2)  Consists
      of options to purchase 100,000 shares of common stock which vest within six
      months.




50





**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, 2007.




Most
      office services are provided without charge by our president, Dr. John Kovach.
      Such costs are immaterial to the financial statements and accordingly, have
      not
      been reflected therein. Our officer and directors are involved in other business
      activities and may, in the future, become involved in other business
      opportunities that become available, and 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.




Also,
      Dr.
      Kovach has advanced to us an aggregate of $92,717 through December 31, 2007
      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, 2007.610.4
            
            Stock
                Option Agreement between Lixte Biotechnology Holdings, Inc. and Stephen
                K.
                Carter dated September 12, 2007.710.5
            
            Stock
                Option Agreement between Lixte Biotechnology Holdings, Inc. and Francis
                Johnson dated September 12, 2007.710.6
            
            Stock
                Option Agreement between Lixte Biotechnology Holdings, Inc. and Gil
                Schwartzberg dated September 12, 2007.710.7
            
            Consulting
                Agreement between Lixte Biotechnology Holdings, Inc. and Gil Schwartzberg
                dated September 12, 2007.710.8
            
            Consulting
                Agreement between Lixte Biotechnology Holdings, Inc. and Mirador
                Consulting, Inc. dated September 20, 2007.710.9
            
            Consulting
                Agreement between Lixte Biotechnology Holdings, Inc. and Francis
                Johnson
                dated September 12, 2007.731
            
            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
                2002







1
              
              Filed
                  as an Exhibit to the Company’s Current Report on Form 8-K as filed with
                  the Securities and Exchange Commission on July 7, 2006, and incorporated
                  herein by reference.
  51
 2
              
              Filed
                  as an Exhibit to the Company’s Registration Statement on Form 10-SB, as
                  filed with the Securities and Exchange Commission on August 3,
                  2005 and
                  incorporated herein by reference.3
              
              Filed
                  as an Exhibit to the Company’s Registration Statement on Form SB-2 as
                  filed with the Securities and Exchange Commission on September
                  8, 2006 and
                  incorporated herein by reference.4
              
              Filed
                  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.5
              
              Filed
                  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.6
              
              Filed
                  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.7
              
              Filed
                  as an Exhibit to the Company’s Quarterly Report as filed with the
                  Securities and Exchange Commission on November 11, 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 years ended December
      31,
      2006 and 200 7. The
      following table shows the fees that were paid or accrued by us for audit and
      other services provided by AJ.
      Robbins, P.C. for
      the
      years ended December 31, 2006 and 2007.




Years
                Ended December 31,2006
            
            2007Audit
                Fees (1)
            
            $
            40,000
            
            $
            60,853Audit-Related
                Fees (2)
            
            
            -
            
            
            -Tax
                Fees (3)
            
            
            5,000
            
            
            7,500All
                Other Fees
            
            
            -
            
            
            -Total
            
            $
            45,000
            
            $
            68,353




(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 during the 2006 and 2007 fiscal
                years.




(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 of Directors has adopted
      a
      pre-approval policy that provides for the pre-approval of all services performed
      for us by AJ.
      Robbin, P.C.




52




**SIGNATURES**




In
      accordance with Section 13 and 15(d) of the Securities Exchange Act of 1934,
      the
      Registrant caused this report to be signed on its behalf by the undersigned
      thereunto duly authorized.




**LIXTE
                BIOTECHNOLOGY HOLDINGS, INC.**Date:March
                31, 2008
            By:
            /s/ John
              S.
              KovachName:John
                S. Kovach
              Title:Chief
                Executive Officer




In
      accordance with the Securities Exchange Act of 1934, 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,
            
            March
                31, 2008**John
                S. Kovach**
            
            Principal
                Accounting Officer and Director/s/
                Philip F. Palmedo
            
            Director
            
            March
                31, 2008**Philip
                F. Palmedo**/s/
                Stephen K. Carter
            
            Director
            
            March
                31, 2008**Stephen
                K. Carter**




53


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)




**CONSOLIDATED
      FINANCIAL STATEMENTS**





**And**





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




**December
      31, 2007 and 2006**





**INDEX**




Report
                of Independent Registered Public Accounting Firm
            
            
            F-2Consolidated
                Balance Sheets - December 31, 2007 and 2006
            
            
            F-3Consolidated
                Statements of Operations - Years Ended December 31, 2007 and 2006,
                and
                August 9, 2005 (Inception) to December 31, 2007
                (Cumulative)
            
            
            F-4Consolidated
                Statement of Stockholders’ Equity (Deficiency) - August 9, 2005
                (Inception) to December 31, 2007
            
            
            F-5Consolidated
                Statements of Cash Flows - Years Ended December 31, 2007 and 2006,
                and
                August 9, 2005 (Inception) to December 31, 2007
                (Cumulative)
            
            
            F-6Notes
                to Consolidated Financial Statements
            
            
            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 sheets of Lixte Biotechnology
      Holdings, Inc. and subsidiary (a development stage company) as of December
      31,
      2007 and 2006, and the related consolidated statements of operations,
      stockholders’ equity (deficiency) and cash flows for the years then ended and
      for the period from August 9, 2005 (Inception) to December 31, 2007. 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. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audits included consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      we considered appropriate under the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. An audit includes examining on a test basis, evidence
      supporting the amounts and disclosures in the financial statements. Accordingly,
      we express no such opinion. 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, 2007 and 2006, and the results
      of their operations and their cash flows for the years then ended and for the
      period from August 9, 2005 (Inception) to December 31, 2007, in conformity
      with
      accounting principles generally accepted in the United States of
      America.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 1 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 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


March
      15,
      2008





F-2




**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)




**CONSOLIDATED
      BALANCE SHEETS**




**December
                31,**2007
            
            2006ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            508,070
            
            $
            679,640Advances
                on research and development contract services
            
            
            88,180
            
            
            50,000Prepaid
                expenses and other current assets
            
            
            32,117
            
            
            20,365Total
                current assets
            
            
            628,367
            
            
            750,005Office
                equipment**,**net of accumulated depreciation of $1,167 and $575 at December 31,
                2007
                and 2006, respectively
            
            
            742
            
            
            1,062Total
                assets
            
            $
            629,109
            
            $
            751,067LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Accounts
                payable and accrued expenses
            
            $
            73,741
            
            $
            31,786Liquidated
                damages payable under registration rights agreement
            
            
            74,000
            
            
            74,000Research
                and development contract liabilities
            
            
            11,725
            
            
            —Due
                to stockholder
            
            
            92,717
            
            
            92,717Total
                current liabilities
            
            
            252,183
            
            
            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 - 27,832,178 shares and 26,582,183 shares at December
                31,
                2007 and 2006, respectively
            
            
            2,783
            
            
            2,658Additional
                paid-in capital
            
            
            2,600,839
            
            
            1,128,114Deficit
                accumulated during the development stage
            
            
            (2,226,696
            )
            
            (578,208
            )Total
                stockholders’ equity
            
            
            376,926
            
            
            552,564Total
                liabilities and stockholders’ equity
            
            $
            629,109
            
            $
            751,067





See
      accompanying notes to consolidated financial statements.




F-3





**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




Years
                Ended December 31,**2007**
            
            **2006**
            
            **Period from**
              **August 9,**
              **2005**
              **(Inception)
                to**
              **December 31,**
              **2007**
              **(Cumulative)**Revenues
            
            $
            —
            
            $
            —
            
            $
            —Costs
                and expenses:General
                and administrative costs, including $890,444,
              $97,400
                and $987,844 of stock-based compensation
              during
                the years ended December 31, 2007 and 2006, and
              the
                period from August 9, 2005 (inception) to December
              31,
                2007 (cumulative), respectively
            
            
            1,234,616
            
            
            268,951
            
            
            1,504,928Depreciation
            
            
            592
            
            
            462
            
            
            1,167Research
                and development costs, including $50,836, $0 and
              $50,836
                of stock-based compensation during the years
              ended
                December 31, 2007 and 2006, and the period from
              August
                9, 2005 (inception) to December 31, 2007
              (cumulative),
                respectively
            
            
            423,829
            
            
            180,569
            
            
            619,048Reverse
                merger costs
            
            
            —
            
            
            50,000
            
            
            50,000Total
                costs and expenses
            
            
            1,659,037
            
            
            499,982
            
            
            2,175,143(1,659,037
            )
            
            (499,982
            )
            
            (2,175,143
            )Interest
                income
            
            
            10,549
            
            
            11,898
            
            
            22,447Liquidated
                damages under registration rights agreement
            
            
            —
            
            
            (74,000
            )
            
            (74,000
            )Net
                loss
            
            $
            (1,648,488
            )
            $
            (562,084
            )
            $
            (2,226,696
            )Net
                loss per common share - basic and diluted
            
            $
            (0.06
            )
            $
            (0.02
            )Weighted
                average common shares outstanding -
              basic
                and diluted
            
            
            26,707,525
            
            
            22,750,033





See
      accompanying notes to consolidated financial statements.





F-4




**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)




**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIENCY)**





**Period
      from August 9, 2005 (Inception) to December 31, 2007**





**Common
                Stock**
            
            **Additional****Paid-in**
            
            **Deficit**
              **Accumulated**
              **During
                the**Development****
            
            **Total**
              **Stockholders’Equity****Shares**
            
            **Amount**
            
            **Capital**
            
            **Stage**
            
            **(Deficiency)**Balance,
                August 9, 2005 (inception)
            
            
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Shares
                issued to founding stockholder
            
            
            19,021,786
            
            
            1,902
            
            
            (402
            )
            
            —
            
            
            1,500Net
                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
            
            
            —
            
            
            —
            
            
            —
            
            
            (562,084
            )
            
            (562,084
            )Balance,
                December 31, 2006
            
            
            26,582,183
            
            
            2,658
            
            
            1,128,114
            
            
            (578,208
            )
            
            552,564Shares
                issued in private placement, net of offering costs of
                $118,680
            
            
            999,995
            
            
            100
            
            
            531,220
            
            
            —
            
            
            531,320Stock-based
                compensation
            
            
            250,000
            
            
            25
            
            
            890,669
            
            
            —
            
            
            890,694Stock-based
                research and development costs
            
            
            —
            
            
            —
            
            
            50,836
            
            
            —
            
            
            50,836Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,648,488
            )
            
            (1,648,488
            )Balance,
                December 31, 2007
            
            
            27,832,178
            
            $
            2,783
            
            $
            2,600,839
            
            $
            (2,226,696
            )
            $
            376,926




See
      accompanying notes to consolidated financial statements.




F-5




**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**Years
                Ended December 31,****2007**
            
            **2006**
            
            **Period from**
              **August 9,**
              **2005**
              **(Inception)
                to**
              **December 31,**
              **2007**
              **(Cumulative)**Cash
                flows from operating activities:Net
                loss
            
            $
            (1,648,488
            )
            $
            (562,084
            )
            $
            (2,226,696
            )Adjustments
                to reconcile net loss to net cash used in
              operating
                activities:Depreciation
            
            
            592
            
            
            462
            
            
            1,167Stock-based
                compensation
            
            
            890,444
            
            
            97,400
            
            
            987,844Stock-based
                research and development
            
            
            50,836
            
            
            —
            
            
            50,836Changes
                in operating assets and liabilities:(Increase)
                decrease in -Advances
                on research and development contract services
            
            
            (38,180
            )
            
            (50,000
            )
            
            (88,180
            )Prepaid
                expenses and other current assets
            
            
            (11,752
            )
            
            (20,365
            )
            
            (32,117
            )Increase
                (decrease) in -Accounts
                payable and accrued expenses
            
            
            41,955
            
            
            17,136
            
            
            73,741Liquidated
                damages payable under registration rights
              agreement
            
            
            —
            
            
            74,000
            
            
            74,000Research
                and development contract liabilities
            
            
            11,725
            
            
            —
            
            
            11,725Net
                cash used in operating activities
            
            
            (702,868
            )
            
            (443,451
            )
            
            (1,147,680
            )Cash
                flows from investing activities:Purchase
                of office equipment
            
            
            (272
            )
            
            (498
            )
            
            (1,909
            )Net
                cash used in investing activities
            
            
            (272
            )
            
            (498
            )
            
            (1,909
            )Cash
                flows from financing activities:Proceeds
                from sale of common stock to consulting firm
            
            
            250
            
            
            —
            
            
            250Proceeds
                from sale of common stock to founder
            
            
            —
            
            
            —
            
            
            1,500Cash
                acquired in reverse merger transaction
            
            
            —
            
            
            62,500
            
            
            62,500Gross
                proceeds from sale of common stock
            
            
            650,000
            
            
            1,183,889
            
            
            1,833,889Payment
                of private placement offering costs
            
            
            (118,680
            )
            
            (214,517
            )
            
            (333,197
            )Advances
                from stockholder
            
            
            —
            
            
            86,771
            
            
            92,717Net
                cash provided by financing activities
            
            
            531,570
            
            
            1,118,643
            
            
            1,657,659Net
                increase (decrease) in cash
            
            
            (171,570
            )
            
            674,694
            
            
            508,070Cash
                at beginning of period
            
            
            679,640
            
            
            4,946
            
            
            —Cash
                at end of period
            
            $
            508,070
            
            $
            679,640
            
            $
            508,070




(continued)





F-6




**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)




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




Years
                    Ended December 31,**2007**
                
                
                **2006**
                
                
                **Period from**
                  **August 9,**
                  **2005**
                  **(Inception)
                    to**
                  **December 31,**
                  **2007**
                  **(Cumulative)**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.**


**AND
      SUBSIDIARY**


(a
      development stage company)





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**December
      31, 2007 and 2006**




**1.
      Organization and Business Operations**




*Organization*





On
      June
      30, 2006, Lixte Biotechnology, Inc., a privately-held Delaware corporation
      (“Lixte”), completed a reverse merger transaction with SRKP 7, Inc. (“SRKP”), a
      non-trading public “shell” company, whereby Lixte became a wholly-owned
      subsidiary of SRKP. For financial reporting purposes, Lixte was considered
      the
      accounting acquirer in the merger and the merger was accounted for as a reverse
      merger. Accordingly, the historical financial statements presented herein are
      those of Lixte and do not include the historical financial results of SRKP.
      The
      stockholders’ equity section of SRKP has been retroactively restated for all
      periods presented to reflect the accounting effect of the reverse merger
      transaction. All costs associated with the reverse merger transaction were
      expensed as incurred.





Lixte
      was
      incorporated in Delaware on August 9, 2005 to capitalize on opportunities to
      develop low cost, specific and sensitive tests for the early detection of
      cancers to better estimate prognosis, to monitor treatment response, and to
      reveal targets for development of more effective treatments.





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





*Operations*




The
      Company 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.




The
      Company is currently focusing on developing new treatments for the most common
      and most aggressive type of brain cancer of adults, glioblastoma multiforme
      (“GBM”). The Company has expanded the scope of its anti-cancer investigational
      activities to include the most common brain tumor of children, medulloblastoma,
      and also to several other types of more common cancers. This expansion of
      activity is based on documentation that each of two distinct types of drugs
      being developed by the Company inhibits the growth of cell lines of breast,
      colon, lung, prostate, pancreas, ovary, stomach and liver cancer, as well as
      the
      major types of leukemias.




F-8


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)





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





**December
      31, 2007 and 2006**




The
      Company is conducting its anti-cancer activities primarily through a
      collaborative program governed by a Cooperative Research and Development
      Agreement (“CRADA”) with the National Institute of Neurological Disorders and
      Stroke (“NINDS”) of the National Institutes of Health (“NIH”).




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
      other potential therapeutic agents for the treatment of specific cancers. The
      Company will continue to use discovery and/or recognition of molecular variants
      characteristic of specific human cancers as a guide to drug discovery and
      potentially new diagnostic tests.





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





*Going
      Concern*




The
      Company’s financial statements have been presented on the basis that it is a
      going concern, which contemplates the realization of assets and satisfaction
      of
      liabilities in the normal course of business. The Company is in the development
      stage and has not generated any revenues from operations to date.




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





The
      Company is currently devoting its efforts to research and development related
      to
      specific cancer biomarkers for early detection, estimation of prognosis,
      monitoring response to treatment, and development of targeted therapeutic
      agents. The Company is seeking to exploit this opportunity through execution
      of
      its business plan and the development of related patents.





At
      December 31, 2007, the Company had not yet commenced any revenue-generating
      operations. All activity through December 31, 2007 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 a 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 the 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. On December 12, 2007, the Company completed a second private
      placement, selling 999,995 shares of common stock at a price of $0.65 per share
      and receiving net proceeds of $531,320.




Because
      the Company is currently engaged in research at an early stage, it will likely
      take a significant amount of time to develop any product or intellectual
      property capable of generating revenues. As such, the Company’s business is
      unlikely to generate any revenue in the next several years and may never do
      so.
      Even if the Company is able to generate revenues in the future through licensing
      its technologies or through product sales, there can be no assurance that such
      revenues will exceed its expenses.





The
      Company current resources may not be sufficient to fully fund all of the
      Company’s planned operations for the next twelve months. The Company does not
      have sufficient resources to fully develop and commercialize any products that
      may arise from its research. Accordingly, the Company will need to raise
      additional funds in order to satisfy its future working capital requirements.
      The Company expects that the net proceeds from the second private placement
      which closed in December 2007 of approximately $531,000 will be adequate to
      fund
      the Company’s updated and revised 2008 operating budget. Thereafter, the Company
      currently estimates that it will require approximately $3,000,000 of additional
      funding to finance future operations by late 2008, including the costs of the
      pre-clinical evaluation and submission to the FDA of two lead compounds in
      2009,
      and the possible establishment of a laboratory (depending on the availability
      of
      capital and various other operating developments). The amount and timing of
      future cash requirements will depend on the market’s evaluation of the Company’s
      technology and products, and the resources that the Company devotes to
      developing and supporting its activities. The Company anticipates funding these
      cash requirements from a combination of debt or equity financings and the sale,
      licensing or joint venturing of its intellectual properties.




F-9


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)





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





**December
      31, 2007 and 2006**




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, as a result of which the Company
      may have to reduce the scope of its planned operations. If cash resources are
      insufficient to satisfy the Company’s liquidity requirements, the Company would
      be required to scale back or discontinue its technology and product development
      programs, or obtain funds, if available, through strategic alliances that may
      require the Company to relinquish rights to certain of its technologies
      products, or to discontinue its operations.





**2.
      Summary of Significant Accounting Policies**




*Principles
      of Consolidation*




The
      accompanying consolidated financial statements include the financial statements
      of Holdings and its wholly-owned subsidiary, Lixte. All intercompany balances
      and transactions have been eliminated in consolidation.





*Cash
      and Cash Equivalents and Concentrations*




The
      Company considers all highly liquid investments with an original maturity of
      three months or less when purchased to be cash equivalents. At times, such
      cash
      and cash equivalents may exceed federally insured limits. The Company has not
      experienced a loss in such accounts to date. The Company maintains its accounts
      with financial institutions with high credit ratings.




*Research
      and Development*





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




Amounts
      due, pursuant to contractual commitments, on research and development contracts
      with third parties are recorded as a liability, with the related amount of
      such
      contracts recorded as advances on research and development contract services
      on
      the Company’s balance sheet. Such advances on research and development contract
      services are expensed over their life on the straight-line basis, unless the
      achievement of milestones, the completion of contracted work, or other
      information indicates that a different expensing schedule is more appropriate.
      The Company accounts for its research and development contracts in accordance
      with EITF 07-3.




The
      funds
      paid to NINDS of the NIH, pursuant to the CRADA effective March 22, 2006,
      as amended, represent an advance on research and development costs and therefore
      have future economic benefit. As such, such costs are being 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 are
      being 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 $200,000 financial obligation due under
      the CRADA as of March 22, 2007, was paid on June 29, 2007, and is intended
      to
      fund ongoing research and development activities through June 30,
      2008.




F-10


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)





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





**December
      31, 2007 and 2006**




*Patent
      Costs*




Due
      to
      the significant uncertainty associated with the successful development of
      one or more commercially viable products based on the Company's research efforts
      and any related patent applications, all patent costs, including patent-related
      legal fees, are expensed as incurred. Patent costs were $94,232 and $30,469
      for
      the years ended December 31, 2007 and 2006, respectively, and $139,351 for
      the
      period from August 9, 2005 (inception) to December 31, 2007 (cumulative). Patent
      costs are included in research and development costs in the Company's statement
      of operations.





*Income
      Taxes*




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




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.




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*





Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), "Share-Based
      Payment" ("SFAS No. 123R"), a revision to SFAS No. 123, "Accounting for
      Stock-Based Compensation". SFAS No. 123R requires that the Company measure
      the
      cost of employee services received in exchange for equity awards based on the
      grant date fair value of the awards, with the cost to be recognized as
      compensation expense in the Company’s financial statements over the vesting
      period of the awards. 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 subsequent to December
      31, 2005.




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




F-11


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)





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





**December
      31, 2007 and 2006**




In
      addition, commencing January 1, 2006, the Company was 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.





The
      Company accounts for stock option and warrant grants issued and vesting to
      non-employees in accordance with EITF No. 96-18, “Accounting for Equity
      Instruments that are Issued to Other Than Employees for Acquiring, or in
      Conjunction with Selling, Goods or Services”, and EITF 00-18, “Accounting
      Recognition for Certain Transactions involving Equity Instruments Granted to
      Other Than Employees”, whereas the value of the stock compensation is based upon
      the measurement date as determined at either (a) the date at which a performance
      commitment is reached or (b) at the date at which the necessary performance
      to
      earn the equity instruments is complete.





*Earnings
      Per Share*




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





Loss
      per
      common share is computed by dividing net loss by the weighted average number
      of
      shares of common stock outstanding during the respective periods. Basic and
      diluted loss per common share are the same for all periods presented because
      all
      warrants and stock options outstanding are anti-dilutive. The 19,021,786 shares
      of common stock issued to the founder of Lixte in conjunction with the closing
      of the reverse merger transaction on June 30, 2006 have been presented as
      outstanding for all periods presented.





At
      December 31, 2007 and 2006, the Company had securities outstanding entitling
      the
      holder thereof to acquire shares of common stock as
      follows:




December
                31,2007
            
            
            2006Warrants
            
            
            546,626
            
            
            426,626Stock
                options
            
            
            2,090,000
            
            
            490,000Total
            
            
            2,636,626
            
            
            916,626





*Equipment*




Equipment
      is recorded at cost. Depreciation expense is provided on a straight-line basis
      using estimated useful lives of 3 years. Maintenance and repairs are charged
      to
      expense as incurred. When assets are retired or otherwise disposed of, the
      property accounts are relieved of costs and accumulated depreciation and any
      resulting gain or loss is credited or charged to operations.




*Fair
      Value of Financial Instruments*




The
      carrying amounts of cash and cash equivalents, prepaid expenses, accounts
      payable, accrued expenses and due to stockholder approximate their respective
      fair values due to the short-term nature of these items and/or the current
      interest rates payable in relation to current market conditions.




*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.




F-12


**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**
 **AND
        SUBSIDIARY**
 (a
        development stage company)
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **December
        31, 2007 and 2006**
  *Reclassification*




Certain
      reclassifications have been made to the December 31, 2006 balances to conform
      to
      the December 31, 2007 presentation. Such reclassifications did not have any
      effect on results of operations.




*Adoption
      of New Accounting Policies*





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”. 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 chose to early adopt EITF 00-19-2
      effective December 31, 2006 (see Note 3).




Effective
      January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
      Accounting for Income Taxes” (“FIN 48”). FIN 48 addresses the determination of
      whether tax benefits claimed or expected to be claimed on a tax return should
      be
      recorded in the financial statements. Under FIN 48, the Company may recognize
      the tax benefit from an uncertain tax position only if it is more likely than
      not that the tax position will be sustained on examination by the taxing
      authorities, based on the technical merits of the position. The tax benefits
      recognized in the financial statements from such a position should be measured
      based on the largest benefit that has a greater than fifty percent likelihood
      of
      being realized upon ultimate settlement. FIN 48 also provides guidance on
      de-recognition, classification, interest and penalties on income taxes,
      accounting in interim periods and requires increased disclosures. The adoption
      of the provisions of FIN 48 did not have a material effect on the Company’s
      financial statements. As of December 31, 2007, no liability for unrecognized
      tax
      benefits was required to be recorded.





The
      Company files income tax returns in the U.S. federal jurisdiction and various
      states. The Company is subject to U.S. federal or state income tax examinations
      by tax authorities for years after 2004.





The
      Company’s policy is to record interest and penalties on uncertain tax provisions
      as income tax expense. As of December 31, 2007, the Company has no accrued
      interest or penalties related to uncertain tax positions.





*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 (“GAAP”). SFAS No. 157 defines and codifies the many definitions of
      fair value included among various other authoritative literature, clarifies
      and,
      in some instances, expands on the guidance for implementing fair value
      measurements, and increases the level of disclosure required for fair value
      measurements. Although SFAS No. 157 applies to and amends the provisions of
      existing FASB and American Institute of Certified Public Accountants (“AICPA”)
      pronouncements, it does not, of itself, require any new fair value measurements,
      nor does it establish valuation standards. SFAS No. 157 applies to all other
      accounting pronouncements requiring or permitting fair value measurements,
      except for: SFAS No. 123R, share-based payment and related pronouncements,
      the
      practicability exceptions to fair value determinations allowed by various other
      authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9
      that deal with software revenue recognition. 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 financial statements.




F-13


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)





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





**December
      31, 2007 and 2006**




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 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 financial
      statements.





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”
(“SFAS No. 141(R)”), which requires an acquirer to recognize in its
      financial statements as of the acquisition date (i) the identifiable assets
      acquired, the liabilities assumed, and any noncontrolling interest in the
      acquiree, measured at their fair values on the acquisition date, and (ii)
      goodwill as the excess of the consideration transferred plus the fair value
      of
      any noncontrolling interest in the acquiree at the acquisition date over the
      fair values of the identifiable net assets acquired. Acquisition-related costs,
      which are the costs an acquirer incurs to effect a business combination, will
      be
      accounted for as expenses in the periods in which the costs are incurred and
      the
      services are received, except that costs to issue debt or equity securities
      will
      be recognized in accordance with other applicable GAAP. SFAS No. 141(R) makes
      significant amendments to other Statements and other authoritative guidance
      to
      provide additional guidance or to conform the guidance in that literature to
      that provided in SFAS No. 141(R). SFAS No. 141(R) also provides guidance as
      to
      what information is to be disclosed to enable users of financial statements
      to
      evaluate the nature and financial effects of a business combination.
      SFAS No. 141(R) is effective for financial statements issued for fiscal
      years beginning on or after December 15, 2008. Early adoption is
      prohibited. The Company has not yet determined the effect on its consolidated
      financial statements, if any, upon adoption of SFAS No. 141(R).





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




F-14


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)





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





**December
      31, 2007 and 2006**




**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. an aggregate cash fee of $50,000.




*Private
      Placement*




On
      June
      30, 2006, concurrently with the closing of the Exchange, the Company sold an
      aggregate of 1,973,869 shares of its common stock to accredited investors in
      an
      initial closing of a private placement at a per share price of $0.333, resulting
      in aggregate gross proceeds to the Company of $657,299. The Company paid to
      WestPark Capital, Inc., as placement agent, a commission of 10% and a
      non-accountable fee of 4% of the gross proceeds of the private placement and
      issued five-year warrants to purchase common stock equal to (a) 10% of the
      number of shares sold in the private placement exercisable at $0.333 per share
      and (b) an additional 2% of the number of shares sold in the private placement
      also exercisable at $0.333 per share. A total of 236,864 warrants were issued.
      Net cash proceeds to the Company, after the deduction of all private placement
      offering costs and expenses, were $522,939.





On
      July
      27, 2006, the Company sold an aggregate of 1,581,351 shares of its common stock
      to accredited investors in a second closing of the private placement at a per
      share price of $0.333 resulting in aggregate gross proceeds to the Company
      of
      $526,590. The Company paid to WestPark Capital, Inc., as placement agent, a
      commission of 10% and a non-accountable fee of 4% of the gross proceeds of
      the
      private placement and issued five-year warrants to purchase common stock equal
      to (a) 10% of the number of shares sold in the private placement exercisable
      at
      $0.333 per share and (b) an additional 2% of the number of shares sold in the
      private placement also exercisable at $0.333 per share. A total of 189,762
      warrants were issued. Net cash proceeds to the Company were
      $446,433.




In
      conjunction with the private placement of common stock, the Company issued
      a
      total of 426,626 five-year warrants to WestPark Capital, Inc. exercisable at
      the
      per share price of the common stock sold in the private placement ($0.333 per
      share). The warrants issued to WestPark Capital, Inc. do not contain any price
      anti-dilution provisions. However, such warrants contain cashless exercise
      provisions and demand registration rights, but the warrant holder has agreed
      to
      waive any claims to monetary damages or financial penalties for any failure
      by
      the Company to comply with such registration requirements. Based on the
      foregoing, the warrants have been accounted for as equity.




F-15


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)





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





**December
      31, 2007 and 2006**




The
      fair
      value of the warrants, as calculated pursuant to the Black-Scholes
      option-pricing model, was determined to be $132,254 ($0.31 per share) using
      the
      following Black-Scholes input variables: stock price on date of grant - $0.333;
      exercise price - $0.333; expected life - 5 years; expected volatility - 150%;
      expected dividend yield - 0%; risk-free interest rate - 5%.





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





In
      accordance with EITF 00-19-2, “Accounting for Registration Payment
      Arrangements”, on the date of the closing of the private placement, the Company
      believed it would meet the deadlines under the registration rights agreement
      with respect to filing a registration statement and having it declared effective
      by the SEC. As a result, the Company did not record any liabilities associated
      with the registration rights agreement at June 30, 2006. At December 31, 2006,
      the Company determined that the registration statement covering the shares
      sold
      in the private placement would not be declared effective within the requisite
      time frame and therefore accrued six months liquidated damages under the
      registration rights agreement aggregating approximately $74,000, which has
      been
      presented as a current liability at December 31, 2007 and 2006. No further
      registration penalty accrual was required at December 31, 2007, as the Company’s
      registration statement on Form SB-2 was declared effective by the Securities
      and
      Exchange Commission on May 14, 2007. The Company will continue to review the
      status of the registration statement at each quarter end in the future and
      record further liquidated damages under the registration rights agreement as
      necessary. At December 31, 2007, the registration penalty to the investors
      was
      still due and payable.





On
      December 12, 2007, the Company sold an aggregate of 999,995 shares of its common
      stock to accredited investors in a second private placement at a per share
      price
      of $0.65, resulting in aggregate gross proceeds to the Company of $650,000.
      The
      Company paid to WestPark Capital, Inc., as placement agent, a commission of
      10%
      and a non-accountable fee of 4% of the gross proceeds of the private placement
      and issued five-year warrants to purchase common stock equal to (a) 10% of
      the
      number of shares sold in the private placement exercisable at $0.65 per share
      and (b) an additional 2% of the number of shares sold in the private placement
      also exercisable at $0.65 per share. Net cash proceeds to the Company were
      $531,320.




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





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




F-16


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)





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





**December
      31, 2007 and 2006**




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





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





**4.
      Related Party Transactions**




Since
      inception, Lixte’s founding stockholder and Chief Executive Officer, Dr. John
      Kovach, 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, 2007 and 2006, stockholder advances totaled $92,717.




The
      Company’s office facilities have been provided without charge by Dr. Kovach.
      Such costs were not material to the financial statements and, accordingly,
      have
      not been reflected therein.




Dr.
      Kovach did not receive any compensation from the Company during the years ended
      December 31, 2007 and 2006, and for the period from August 9, 2005 (Inception)
      through December 31, 2005, in view of the Company’s development stage status and
      limited resources. Any future compensation arrangements will be subject to
      the
      approval of the Board of Directors.




Dr.
      Kovach is involved in other business activities and may, in the future, become
      involved in other business opportunities that become available. Accordingly,
      he
      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.





**6.
      Stock Options and Warrants**




On
      June
      30, 2006, effective with the closing of the Exchange, the Company granted to
      Dr. Philip Palmedo, an outside director of the Company, stock options to
      purchase an aggregate of 200,000 shares of common stock, exercisable for a
      period of five years at $0.333 per share, with one-third of the options (66,666
      shares) vesting immediately upon joining the Board and one-third vesting
      annually on each of June 30, 2007 and 2008. The fair value of these options,
      as
      calculated pursuant to the Black-Scholes option-pricing model, was determined
      to
      be $62,000 ($0.31 per share), of which $20,666 was charged to operations on
      June
      30, 2006, and the remaining $41,334 is being charged to operations ratably
      from
      July 1, 2006 through June 30, 2008. During the years ended December 31, 2007
      and
      2006, the Company recorded a charge to operations of $20,668 and $31,000,
      respectively, with respect to these options.




On
        June
        30, 2006, effective with the closing of the Exchange, the Company also granted
        to Dr. Palmedo additional stock options to purchase 190,000 shares of
        common stock exercisable for a period of five years at $0.333 per share for
        services rendered in developing the business plan for Lixte, all of which
        were
        fully vested upon issuance. The fair value of these options, as calculated
        pursuant to the Black-Scholes option-pricing model, was determined to be
        $58,900
        ($0.31 per share), and was charged to operations at June 30,
        2006.




F-17


**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**
 **AND
        SUBSIDIARY**
 (a
        development stage company)
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **December
        31, 2007 and 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), and is being charged to operations
      ratably from July 1, 2006 through June 30, 2008. On December 31, 2007 and 2006,
      the fair value of these options, as calculated pursuant to the Black-Scholes
      option-pricing model, was determined to be $63,000 ($0.63 per share) and $30,000
      ($0.30 per share), respectively, which resulted in a charge to operations of
      $23,212 and $7,500 during the years ended December 31, 2007 and 2006,
      respectively.





On
      June
      30, 2006, the fair value of the aforementioned stock options was initially
      calculated using the following Black-Scholes input variables: stock price -
      $0.333; exercise price - $0.333; expected life - 5 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. On December 31, 2007, the fair
      value of the aforementioned stock options was calculated using the following
      Black-Scholes input variables: stock price - $0.75; exercise price - $0.333
      to
      $1.00; expected life - 3.5 to 6.7 years; expected volatility - 118.6%; expected
      dividend yield - 0%; risk-free interest rate - 4%.





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





On
      September 12, 2007, in conjunction with his appointment as a director of the
      Company, the Company granted to Dr. Stephen Carter stock options to purchase
      an
      aggregate of 200,000 shares of common stock under the 2007 Plan, exercisable
      for
      a period of five years from vesting date at $0.333 per share, with one-half
      (100,000 shares) vesting annually on each of September 12, 2008 and 2009. The
      fair value of these options, as calculated pursuant to the Black-Scholes
      option-pricing model, was determined to be $204,000 ($1.02 per share), and
      is
      being charged to operations ratably from September 12, 2007 through September
      12, 2009, which resulted in a charge to operations of $30,655 during the year
      ended December 31, 2007.





On
      September 12, 2007, the Company entered into a consulting agreement with Gil
      Schwartzberg and granted to Mr. Schwartzberg stock options to purchase an
      aggregate of 1,000,000 shares of common stock, exercisable for a period of
      four
      years from vesting date at $1.00 per share, with one-half of the options
      (500,000 shares) vesting immediately and one-half (500,000 shares) vesting
      on
      September 12, 2008. The fair value of these options, as calculated pursuant
      to
      the Black-Scholes option-pricing model, was initially determined to be $945,000
      ($0.945 per share), of which $465,000 was attributed to the fully-vested options
      and was thus charged to operations on September 12, 2007. The remaining portion
      of the fair value of these options is being charged to operations ratably from
      September 12, 2007 through September 12, 2008. During the year ended December
      31, 2007, the Company recorded a charge to operations of $553,662 with respect
      to these options.





On
      September 12, 2007, the Company entered into a consulting agreement with Francis
      Johnson and granted to Professor Johnson stock options to purchase an aggregate
      of 300,000 shares of common stock, exercisable for a period of four years from
      vesting date at $0.333 per share, with one-third (100,000 shares) vesting
      annually on each of September 12, 2008, 2009 and 2010. The fair value of these
      options, as calculated pursuant to the Black-Scholes option-pricing model,
      was
      initially determined to be $300,000 ($1.00 per share), and is being charged
      to
      operations ratably from September 12, 2007 through September 12, 2010. On
      December 31, 2007, the fair value of these options, as calculated pursuant
      to
      the Black-Scholes option-pricing model, was determined to be $198,000 ($0.66
      per
      share), which resulted in a charge to operations of $19,836 during the year
      ended December 31, 2007.




F-18


**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**
 **AND
        SUBSIDIARY**
 (a
        development stage company)
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **December
        31, 2007 and 2006**


In
      accordance with EITF 96-18, options granted to committee members and outside
      consultants are revalued each reporting period to determine the amount to be
      recorded as an expense in the respective period. As the options vest, they
      are
      valued on each vesting date and an adjustment is recorded for the difference
      between the value already recorded and the then current value on the date of
      vesting.





On
      September 12, 2007, the fair value of the aforementioned stock options was
      initially calculated using the following Black-Scholes input variables: stock
      price - $1.05; exercise price - $0.333 to $1.00; expected life - 4 to 6 years;
      expected volatility - 150%; expected dividend yield - 0%; risk-free interest
      rate - 5%. On December 31, 2007, the fair value of the aforementioned stock
      options was calculated (for stock options revalued pursuant to EITF 98-16)
      using
      the following Black-Scholes input variables: stock price - $0.75; exercise
      price
      - $0.333 to $1.00; expected life - 4.7 years; expected volatility - 118.6%;
      expected dividend yield - 0%; risk-free interest rate - 4%. The Company used
      a
      revised volatility factor at December 31, 2007 as it had trading data commencing
      September 24, 2007.




Information
      with respect to common stock warrants issued during the years ended December
      31,
      2006 and 2007 is provided at Notes 3 and 8.





A
      summary
      of stock option and warrant activity for the years ended December 31, 2007
      and
      2006 is as follows:




**Number**
                **of**
                **Shares**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual**
                **Life**
                **(in
                  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
              
              
              4.51Granted
              
              
              1,720,000
              
              
              0.743
              
              
              4.35Exercised
              
              
              —
              
              
              —
              
              
              —Cancelled
              
              
              —
              
              
              —
              
              
              —Options
                  and warrants outstanding at December 31, 2007
              
              
              2,636,626
              
              $
              0.600
              
              
              4.32Options
                  and warrants exercisable at December 31, 2007
              
              
              1,519,958
              
              $
              0.577
              
              
              3.73




The
      intrinsic value of exercisable but unexercised in-the-money stock options and
      warrants at December 31, 2007 was $262,953, based on a fair market value of
      $0.75 per share on December 31, 2007.




F-19


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)





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





**December
      31, 2007 and 2006**




Information
      regarding stock options and warrants outstanding and exercisable at
      December 31, 2007 is summarized as follows:


Warrants
                  and
              
              
              Warrants
                  andOptions
                  Outstanding
              
              
              Options
                ExercisableExercise Prices
              
              
              (Shares)
              
              
              (Shares)$0.333
              
              
              1,516,626
              
              
              899,958$0.65
              
              
              120,000
              
              
              120,000$1.00
              
              
              1,000,000
              
              
              500,0002,636,626
              
              
              1,519,958




Information
      regarding the Company’s non-vested stock options and warrants as of December 31,
      2006 and 2007, and the changes during such years, is summarized as
      follows:




Number
                of SharesOptions
                and warrants outstanding but unvested at December 31, 2005
            
            
            —Granted
            
            
            916,626Vested
            
            
            (683,292
            )Forfeited
            
            
            —Expired
            
            
            —Options
                and warrants outstanding but unvested at December 31, 2006
            
            
            233,334Granted
            
            
            1,720,000Vested
            
            
            (836,666
            )Forfeited
            
            
            —Expired
            
            
            —Options
                and warrants outstanding but unvested at December 31, 2007
            
            
            1,116,668





**7.**  **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, 2007 and 2006 are
      summarized as follows:




December
                  31,2007
              
              
              2006Start-up
                  and organization costs
              
              $
              310,000
              
              $
              129,000Contingent
                  liability
              
              
              31,000
              
              
              31,000Net
                  operating loss carryforwards
              
              
              170,000
              
              
              58,000Total
                  deferred tax assets
              
              
              511,000
              
              
              218,000Valuation
                  allowance
              
              
              (511,000
              )
              
              (
                  218,000
              )Net
                  deferred tax assets
              
              $
              —
              
              $
              —




In
      assessing the potential realization of deferred tax assets, management considers
      whether it is more likely than not that some portion or all of the deferred
      tax
      assets will be realized. The ultimate realization of deferred tax assets is
      dependent upon the Company attaining future taxable income during the periods
      in
      which those temporary differences become deductible. As of December 31, 2007
      and
      2006, management was unable to determine if it is more likely than not that
      the
      Company’s deferred tax assets will be realized, and has therefore recorded an
      appropriate valuation allowance against deferred tax assets at such
      dates.




F-20


**LIXTE
        BIOTECHNOLOGY HOLDINGS, INC.**
 **AND
        SUBSIDIARY**
 (a
        development stage company)
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 
 **December
        31, 2007 and 2006**


No
      federal tax provision has been provided for the years ended December 31,
      2007 and 2006 due to the losses incurred during such periods. A reconciliation
      between the income tax rate computed by applying the U.S. federal statutory
      rate
      and the effective rate for the years ended December 31, 2007 and 2006 is as
      follows:




**Years
                  Ended December 31,****2007**
              
              **2006**U.
                  S. federal statutory tax rate
              
              
              (34.0
              %)
              
              (34.0
              %)Pre-merger
                  loss of accounting acquiree
              
              
              —
              
              
              (3.7
              %)Non-deductible
                  merger costs
              
              
              —
              
              
              3.0
              %Non-deductible
                  stock-based compensation
              
              
              19.4
              %
              
              5.9
              %Change
                  in valuation allowance
              
              
              14.6
              %
              
              28.8
              %Effective
                  tax rate
              
              
              0.0
              %
              
              0.0
              %




At
      December 31, 2007, the Company has available net operating loss carryforwards
      for federal income tax purposes of approximately $408,000 which, if not utilized
      earlier, expire in 2026.





**8.**  **Commitments
      and Contingencies**




Effective
      March 22, 2006, Lixte entered into a CRADA, as amended, with the NINDS of the
      NIH. The CRADA is for a term of 27 months 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 was paid in full on June 29, 2007. The CRADA was
      extended to June 30, 2008 from March 2008 at no additional cost as the funds
      provided by the Company are expected to support the collaboration at least
      until
      that date.





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 also agreed
      to
      provide certain information relating to such patients. Lixte agreed to pay
      the
      University 72,000 Euros in two equal installments. The first installment of
      36,000 Euros ($48,902) was paid on March 7, 2007. On January 12, 2008, Lixte
      terminated the Services Agreement in accordance with its terms, as a result
      of
      which payment of the second installment of 36,000 Euros was cancelled. The
      University agreed to deliver 50% of the aforementioned samples under the
      terminated Services Agreement.




On
      February 5, 2007, Lixte entered into a two-year agreement (the “Chem-Master
      Agreement”) with Chem-Master International, Inc. (“Chem-Master”) pursuant to
      which Lixte engaged Chem-Master to synthesize a compound designated as “LB-1”,
      and any other compound synthesized by Chem-Master pursuant to Lixte’s request,
      which have potential use in treating a disease, including, without limitation,
      cancers such as glioblastomas. Pursuant to the Chem-Master Agreement, Lixte
      agreed to reimburse Chem-Master for the cost of materials, labor, and expenses
      for other items used in the synthesis process, and also agreed to grant
      Chem-Master a five-year option to purchase 100,000 shares of the Company’s
      common stock at an exercise price of $0.333 per share. The fair value of this
      option, as calculated pursuant to the Black-Scholes option-pricing model, was
      determined to be $31,000 ($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 - 4.5%. The $31,000 fair value was charged to
      operations as research and development costs during the year ended December
      31,
      2007, since the option was fully vested and non-forfeitable on the date of
      issuance.  Lixte has the right to terminate the Chem-Master Agreement at
      any time during its term upon sixty days prior written notice.  On February
      5, 2009, provided that the Chem-Master Agreement has not been terminated
      prior to such date, the Company has agreed to grant Chem-Master a second
      five-year option to purchase an additional 100,000 shares of the Company’s
      common stock at an exercise price of $0.333 per share.




F-21


**LIXTE
      BIOTECHNOLOGY HOLDINGS, INC.**


**AND
      SUBSIDIARY**


(a
      development stage company)





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





**December
      31, 2007 and 2006**




On
      September 12, 2007, the Company entered into two consulting agreements for
      financial and scientific services. Compensation related to these agreements
      is
      primarily in the form of stock options (see Note 6).





On
      September 20, 2007, the Company entered into a one-year consulting agreement
      (the “Mirador Agreement”) with Mirador Consulting, Inc. (“Mirador”), pursuant to
      which Mirador was to provide the Company with various financial services.
      Pursuant to the Mirador Agreement, Lixte agreed to pay Mirador $5,000 per month
      and also agreed to sell Mirador 250,000 shares of the Company’s restricted
      common stock for $250 ($0.001 per share). The fair value of this transaction
      was
      determined to be in excess of the purchase price by $262,250 ($1.049 per share),
      reflecting the difference between the $0.001 purchase price and the $1.05 price
      per share as quoted on the OTC Bulletin Board on the transaction date, and
      was
      charged to operations as stock-based compensation during the year ended December
      31, 2007, since the shares were fully vested and non-forfeitable on the date
      of
      issuance. The Company made payments under the Mirador Agreement aggregating
      $10,000 during 2007. The Mirador Agreement was amended in February 2008 such
      that Mirador forgave all accrued but unpaid monthly fees through February 29,
      2008 and the Company agreed to pay Mirador a fee of $2,000 per month for the
      remaining six months of the Mirador Agreement.




F-22