UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q


x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the quarterly period ended March 31, 2009
  o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
      1934




Commission
file number: 000-51476




LIXTE
BIOTECHNOLOGY HOLDINGS, INC.


(Exact
name of registrant as specified in its charter)




Delaware
            20-2903526(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      Number)




248
Route 25A, No. 2


East
Setauket, New York 11733


(Address
of principal executive offices)




(631)
942-7959


(Registrant’s
telephone number, including area code)




Not
applicable


(Former
name, former address and former fiscal year, if changed since last
report)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x No o


Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes o No o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).




Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer o
            Smaller
      reporting company x




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




As of May
8, 2009, the Company had 29,352,178 shares of common stock, $0.0001 par value,
issued and outstanding.





Documents
incorporated by reference: None




1




LIXTE
BIOTECHNOLOGY HOLDINGS, INC.





INDEX





Page
                                  NumberPART
      I - FINANCIAL INFORMATIONItem
      1. Condensed Consolidated Financial StatementsCondensed
      Consolidated Balance Sheets -March
      31, 2009 (Unaudited) and December 31, 2008
                                
                                4Condensed
      Consolidated Statements of Operations (Unaudited) -Three
      Months Ended March 31, 2009 and 2008, and Period from August 9, 2005
      (Inception)
                                  to
      March 31 2009 (Cumulative)
                                
                                5Condensed
      Consolidated Statement of Changes in Stockholders’ Equity (Deficiency)
      –
                                  August 9,
      2005 (Inception) to March 31, 2009
                                
                                6Condensed
      Consolidated Statements of Cash Flows (Unaudited) -Three
      Months Ended March 31, 2009 and 2008, and Period from August 9, 2005
      (Inception)
                                  to
      March 31, 2009 (Cumulative)
                                
                                7Notes
      to Condensed Consolidated Financial Statements (Unaudited)
    -Three
      Months Ended September 30, 2009 and 2008, and Period from August 9, 2005
      (Inception)
                                  to
      March 31, 2009 (Cumulative)
                                
                                8Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of OperationsItem
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                                
                                34Item
      4T. Controls and Procedures
                                
                                34PART
      II - OTHER INFORMATION
                                
                                35Item
      1. Legal Proceedings
                                
                                35Item
      1A. Risk Factors
                                
                                35Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds
                                
                                35Item
      3. Defaults Upon Senior Securities
                                
                                35Item
      4. Submission of Matters to a Vote of Security
Holders
                                
                                35Item
      5. Other Information
                                
                                35Item
      6. Exhibits
                                
                                35SIGNATURES
                                
                                36




2




Forward-Looking
Statements




This
Quarterly Report on Form 10-Q contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934. For example, statements regarding the Company’s
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. The
Company believes that the assumptions and expectations reflected in such
forward-looking statements are reasonable, based on information available to it
on the date hereof, but the Company cannot provide assurances that these
assumptions and expectations will prove to have been correct or that the Company
will take any action that the Company 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, available cash, research results, 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 Item 1of this Quarterly Report on
Form 10-Q.




3




LIXTE
BIOTECHNOLOGY HOLDINGS, INC.


AND
SUBSIDIARY


(a
development stage company)




CONDENSED
CONSOLIDATED BALANCE SHEETS




March 31,
                                
                                December 31,2009
                                
                                
                                2008(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                
                                $
                                86,809
                                
                                
                                $
                                10,381Advances
      on research and development contract services
                                
                                
                                6,250
                                
                                
                                
                                12,500Prepaid
      expenses and other current assets
                                
                                
                                22,064
                                
                                
                                
                                28,644Total
      current assets
                                
                                
                                115,123
                                
                                
                                
                                51,525Office
      equipment, net of
      accumulated depreciation of $1,909 and $1,782 at
                                  March
      31, 2009 and December 31, 2008, respectively
                                
                                
                                —
                                
                                
                                
                                128Total
      assets
                                
                                $
                                115,123
                                
                                
                                $
                                51,653LIABILITIES
      AND STOCKHOLDERS’ DEFICIENCYCurrent
      liabilities:Accounts
      payable and accrued expenses
                                
                                $
                                91,897
                                
                                
                                $
                                108,484Note
      payable to consultant
                                
                                
                                —
                                
                                
                                
                                100,000Liquidated
      damages payable under registration rights agreement
                                
                                
                                74,000
                                
                                
                                
                                74,000Due
      to stockholder
                                
                                
                                92,717
                                
                                
                                
                                92,717Total
      current liabilities
                                
                                
                                258,614
                                
                                
                                
                                375,201Commitments
      and contingenciesStockholders’
      deficiency:Preferred
      stock, $0.0001 par value;
                                  authorized
      - 10,000,000 shares; issued – none
                                
                                
                                —
                                
                                
                                
                                —Common
      stock, $0.0001 par value;
                                  authorized
      - 100,000,000 shares;
                                  issued
      and outstanding - 28,852,178 shares and 27,932,178 shares at
                                  March 31, 2009 and December 31, 2008, respectively
                                
                                
                                2,885
                                
                                
                                
                                2,793Additional
      paid-in capital
                                
                                
                                3,631,411
                                
                                
                                
                                3,171,877Deficit
      accumulated during the development stage
                                
                                
                                (3,777,787
                                )
                                
                                
                                (3,498,218
                                )Total
      stockholders’ deficiency
                                
                                
                                (143,491
                                )
                                
                                
                                (323,548
                                )Total
      liabilities and stockholders’ deficiency
                                
                                $
                                115,123
                                
                                
                                $
                                51,653





See
accompanying notes to condensed consolidated financial statements.




4




LIXTE
BIOTECHNOLOGY HOLDINGS, INC.


AND
SUBSIDIARY


(a
development stage company)




CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)




Period from
                                    August 9,
                                    2005
                                    (Inception) to
                                    March 31,
                                    2009
                                    (Cumulative)Three Months Ended
                                    March 31,2009
                                  
                                  
                                  2008Revenues
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  —Costs
      and expenses:General
      and administrative costs, including $37,514,
                                    $165,149
      and $1,345,831 of stock-based compensation
                                    during
      the three months ended March 31, 2009 and 2008, and
                                    the
      period from August 9, 2005 (inception) to March 31, 2009
                                    (cumulative),
      respectively
                                  
                                  
                                  153,119
                                  
                                  
                                  
                                  268,817
                                  
                                  
                                  
                                  2,269,242Depreciation
                                  
                                  
                                  127
                                  
                                  
                                  
                                  159
                                  
                                  
                                  
                                  1,909Research
      and development costs, including $39,862,
                                    $108,933
      and $263,897 of stock-based compensation during
                                    the
      three months ended March 31, 2009 and 2008, and the
                                    period
      from August 9, 2005 (inception) to March 31, 2009
                                    (cumulative),
      respectively
                                  
                                  
                                  125,878
                                  
                                  
                                  
                                  236,451
                                  
                                  
                                  
                                  1,406,666Reverse
      merger costs
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  50,000Total
      costs and expenses
                                  
                                  
                                  279,124
                                  
                                  
                                  
                                  505,427
                                  
                                  
                                  
                                  3,727,817Loss
      before other income (expense)
                                  
                                  
                                  (279,124
                                  )
                                  
                                  
                                  (505,427
                                  )
                                  
                                  
                                  (3,727,817
                                  )Interest
      income
                                  
                                  
                                  7
                                  
                                  
                                  
                                  2,105
                                  
                                  
                                  
                                  25,719Interest
      expense
                                  
                                  
                                  (452
                                  )
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (1,689
                                  )Liquidated
      damages under registration rights agreement
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (74,000
                                  )Net
      loss
                                  
                                  $
                                  (279,569
                                  )
                                  
                                  $
                                  (503,322
                                  )
                                  
                                  $
                                  (3,777,787
                                  )Net
      loss per common share – Basic and diluted
                                  
                                  $
                                  (0.01
                                  )
                                  
                                  $
                                  (0.02
                                  )Weighted
      average common shares outstanding - Basic and diluted
                                  
                                  
                                  28,374,845
                                  
                                  
                                  
                                  27,901,409





See
accompanying notes to condensed consolidated financial statements.




5




LIXTE
BIOTECHNOLOGY HOLDINGS, INC.


AND
SUBSIDIARY


(a
development stage company)




CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIENCY)





Period
from August 9, 2005 (Inception) to March 31, 2009





Common Stock
                              
                              
                              Additional
                                Paid-in
                              
                              
                              Deficit
                                Accumulated
                                During the
                                Development
                              
                              
                              Total
                                Stockholders’
                                EquityShares
                              
                              
                              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
                              )
                              
                              
                              376,926Stock-based
      compensation
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              357,987
                              
                              
                              
                              —
                              
                              
                              
                              357,987Stock-based
      research and development costs
                              
                              
                              100,000
                              
                              
                              
                              10
                              
                              
                              
                              213,051
                              
                              
                              
                              —
                              
                              
                              
                              213,061Net
      loss
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (1,271,522
                              )
                              
                              
                              (1,271,522
                              )Balance,
      December 31, 2008
                              
                              
                              27,932,178
                              
                              
                              
                              2,793
                              
                              
                              
                              3,171,877
                              
                              
                              
                              (3,498,218
                              )
                              
                              
                              (323,548
                              )Shares
      issued in private placement, net of offering costs of
      $77,750
                              
                              
                              920,000
                              
                              
                              
                              92
                              
                              
                              
                              382,158
                              
                              
                              
                              —
                              
                              
                              
                              382,250Stock-based
      compensation
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              37,514
                              
                              
                              
                              —
                              
                              
                              
                              37,514Stock-based
      research and development costs
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              39,862
                              
                              
                              
                              —
                              
                              
                              
                              39,862Net
      loss for the three months ended March 31, 2009
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (279,569
                              )
                              
                              
                              (279,569
                              )Balance,
      March 31, 2009 (Unaudited)
                              
                              
                              28,852,178
                              
                              
                              $
                              2,885
                              
                              
                              $
                              3,631,411
                              
                              
                              $
                              (3,777,787
                              )
                              
                              $
                              (143,491
                              )




See
accompanying notes to condensed consolidated financial statements.




6




LIXTE
BIOTECHNOLOGY HOLDINGS, INC.


AND
SUBSIDIARY


(a
development stage company)




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)




Three Months Ended
                                                March 31,
                                              
                                              
                                              Period from
                                                August 9,
                                                2005
                                                (Inception) to
                                                March 31,
                                                2009
                                                (Cumulative)2009
                                              
                                              
                                              2008Cash
      flows from operating activities:Net
      loss
                                              
                                              $
                                              (279,569
                                              )
                                              
                                              $
                                              (503,322
                                              )
                                              
                                              $
                                              (3,777,787
                                              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                                              
                                              
                                              127
                                              
                                              
                                              
                                              159
                                              
                                              
                                              
                                              1,909Stock-based
      compensation
                                              
                                              
                                              37,514
                                              
                                              
                                              
                                              165,149
                                              
                                              
                                              
                                              1,383,345Stock-based
      research and development
                                              
                                              
                                              39,862
                                              
                                              
                                              
                                              108,933
                                              
                                              
                                              
                                              303,759Changes
      in operating assets and liabilities:(Increase)
      decrease in -Advances
      on research and development contract services
                                              
                                              
                                              6,250
                                              
                                              
                                              
                                              45,038
                                              
                                              
                                              
                                              (6,250
                                              )Prepaid
      expenses and other current assets
                                              
                                              
                                              6,580
                                              
                                              
                                              
                                              20,575
                                              
                                              
                                              
                                              (22,064
                                              )Increase
      (decrease) in -Accounts
      payable and accrued expenses
                                              
                                              
                                              (16,586
                                              )
                                              
                                              
                                              (8,101
                                              )
                                              
                                              
                                              91,897Liquidated
      damages payable under registration rights agreement
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              74,000Research
      and development contract liabilities
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (7,335
                                              )
                                              
                                              
                                              —Net
      cash used in operating activities
                                              
                                              
                                              (205,822
                                              )
                                              
                                              
                                              (178,904
                                              )
                                              
                                              
                                              (1,951,191
                                              )Cash
      flows from investing activities:Purchase
      of office equipment
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (1,909
                                              )Net
      cash used in investing activities
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (1,909
                                              )Cash
      flows from financing activities:Proceeds
      from sale of common stock to consulting firm
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              250Proceeds
      from sale of common stock to founder
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,500Proceeds
      from note payable to consultant
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              100,000Repayment
      of note payable to consultant
                                              
                                              
                                              (100,000
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (100,000
                                              )Cash
      acquired in reverse merger transaction
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              62,500Gross
      proceeds from sale of common stock
                                              
                                              
                                              460,000
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2,293,889Payment
      of private placement offering costs
                                              
                                              
                                              (77,750
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (410,947
                                              )Advances
      from stockholder
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              92,717Net
      cash provided by financing activities
                                              
                                              
                                              282,250
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2,039,909Net
      increase (decrease) in cash
                                              
                                              
                                              76,428
                                              
                                              
                                              
                                              (178,904
                                              )
                                              
                                              
                                              86,809Cash
      at beginning of period
                                              
                                              
                                              10,381
                                              
                                              
                                              
                                              508,070
                                              
                                              
                                              
                                              —Cash
      at end of period
                                              
                                              $
                                              86,809
                                              
                                              
                                              $
                                              329,166
                                              
                                              
                                              $
                                              86,809Supplemental
      disclosures of cash flow information:Cash
      paid for -Interest
                                              
                                              $
                                              834
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              834Income
      taxes
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —





See
accompanying notes to condensed consolidated financial statements.




7




LIXTE
BIOTECHNOLOGY HOLDINGS, INC.


AND
SUBSIDIARY


(a
development stage company)




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)





Three
Months Ended March 31, 2009 and 2008, and


Period
from August 9, 2005 (Inception) to March 31, 2009 (Cumulative)




1.
Basis of Presentation




The
condensed consolidated financial statements of Lixte Biotechnology Holdings,
Inc. and its wholly-owned subsidiary, Lixte Biotechnology, Inc. (the “Company”)
at March 31, 2009, for the three months ended March 31, 2009 and 2008, and for
the period from August 9, 2005 (inception) to March 31, 2009 (cumulative), are
unaudited. In the opinion of management, all adjustments (including normal
recurring adjustments) have been made that are necessary to present fairly the
financial position of the Company as of March 31, 2009, the results of its
operations for the three months ended March 31, 2009 and 2008, and for the
period from August 9, 2005 (inception) to March 31, 2009 (cumulative), and its
cash flows for the three months ended March 31, 2009 and 2008, and for the
period from August 9, 2005 (inception) to March 31, 2009 (cumulative). Operating
results for the interim periods presented are not necessarily indicative of the
results to be expected for a full fiscal year. The condensed balance sheet at
December 31, 2008 has been derived from the audited financial
statements.




The
statements and related notes have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the financial statements and other
information included in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, as filed with Securities and Exchange
Commission.





2.
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. On December 7, 2006, SRKP amended its Certificate of Incorporation to
change its name to Lixte Biotechnology Holdings, Inc.
(“Holdings”).  Unless the context indicates otherwise, Lixte and
Holdings are hereinafter referred to as the “Company”.





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.





The
Company is considered a “development stage company” as defined in Statement of
Financial Accounting Standards (“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.





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




8




Operating
Plans





The
Company is concentrating on developing new treatments for the most common and
most aggressive type of brain cancer of adults, glioblastoma multiforme (“GBM”),
and the most common cancer of children, neuroblastoma. 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. Activity of
lead compounds of both types of drugs was recently demonstrated against human
pancreatic cancer cells in a mouse model. Because there is a great need for any
kind of effective treatment for pancreatic cancer, this cancer will be studied
concomitantly with the primary target of the Company’s research program focused
on brain cancers.




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 CRADA was extended and is presently scheduled
to end on September 30, 2009.




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




During
the three months ended March 31, 2009, the Company filed eight patent
applications.  The U.S. Patent Office Examiner began review of the
initial patent submitted jointly by the Company and the NINDS.  The
chemical formula of one of the Company’s lead compounds, LB-100, was disclosed
in that patent, and was found to be novel.  The Company considers this
finding a milestone in the development of the Company’s intellectual
property.  The specific claims for the structures and methods of
synthesis of all compounds in the LB series were filed on the same day in a
separate patent application and are the sole property of the
Company.  The review of this patent will be the determinant of the
validity of the novelty of the LB-100 compounds, and the outcome thereof will
therefore have a material impact on the future business prospects of the
Company.





The
results of studies characterizing the novel and potent anti-cancer activity and
mechanism of action of LB-102 alone and in combination with standard
chemotherapy drugs have been submitted for publication in a leading scientific
journal.  In addition, an abstract of the characterization of the
neuroprotective effects of two lead compounds in standard assays of injury to
normal embryonic mouse neurons will be submitted in May 2009 for presentation at
one of the larger neurological society meetings in the United
States.





The
Company continues to evaluate compounds for 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. The Company is also exploring indications that its compounds
have against strains of fungi that cause the most common fungal infections of
the skin and nails. Discussions are in progress with experts in fungal
infections regarding the most reliable methods of assessing the potential of new
agents for the management of common fungal diseases.




The
Company expects that its products will derive directly from the intellectual
property from its research activities. The development of lead compounds with
different mechanisms of action that have activity against brain tumors and other
common human cancers, as well as against serious fungal infections, originated
from the discovery of a biomarker 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.
Examples of the productivity of this approach to discovery of new therapeutics
are: (1) the recent patent application filing for a new biomarker of several
common cancers that when targeted by certain of the Company’s drugs results in
inhibition of growth and death of cancer cells displaying the marker; and (2)
the filing of a patent on certain homologs of one group of compounds as
potentially useful for the treatment of neurodegenerative diseases.




9




Management’s
primary focus in 2009 is securing a strategic partnership with a pharmaceutical
company with major programs in cancer, anti-fungal treatments, and/or
neuroprotective measures.  The significant diversity of the potential
therapeutic value of the Company’s compounds stems from the fact that these
agents modify critical pathways in cancer cells and in microorganisms such as
fungi and appear to ameliorate pathologic processes that lead to brain injury,
caused by trauma or toxins or through as yet unknown mechanisms that underlie
the major chronic neurologic diseases including Alzheimer’s Disease, Parkinson’s
Disease, and Amyotrophic Lateral Sclerosis (ALS, or Lou Gherig’s
Disease).  Studies of the potential neuroprotective effects of
homologs of each class of the Company’s compounds are continuing under a
contract with Southern Research Institute, Birmingham, Alabama.





Going
Concern




The
Company’s consolidated 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.  Furthermore, the Company has experienced recurring losses and
has a stockholders’ deficiency at March 31, 2009.  As a result, the
Company’s independent registered public accounting firm, in their report on the
Company’s 2008 consolidated financial statements, have raised substantial doubt
about the Company’s ability to continue as a going concern.




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





At March
31, 2009, the Company had not yet commenced any revenue-generating operations.
All activity through March 31, 2009 has been related to the Company’s formation,
capital raising efforts and research and development activities. As such, the
Company has yet to generate any cash flows from operations, and is dependent on
debt and equity funding from both related and unrelated parties to finance its
operations. Prior to June 30, 2006, the Company’s cash requirements were funded
by advances from the Company’s founder.





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





As
previously disclosed, the Company estimates that it will require minimum funding
in calendar 2009 of approximately $750,000 in order to fund operations and
continuing drug discovery and to attempt to bring two drugs through the
pre-clinical evaluation process needed for submission of an Investigational New
Drug (“IND”) application. Towards that objective, the Company recently completed
a private placement of its securities, which generated net proceeds from three
closings in February, March and April 2009 aggregating approximately $597,000.
The Company utilized a portion of such net proceeds to repay a $100,000
short-term note in February 2009, as described at Note 6.





Since the
Company did not reach its target of $750,000 in its recent private placement,
the Company has modified its 2009 budget to reflect the available operating
funds.  The Company believes that its current resources are adequate
to fund operations through 2009 at a level that will allow the continuation of
the Company’s two drug development programs currently in process, but will not
allow expansion of its research activities.  Depending on the results
of the Company’s efforts to enter into a strategic partnership with a large- or
medium-sized pharmaceutical company that would provide adequate financial
resources for the Company to continue its research and development activities,
the Company may consider a further private placement in the latter part of
2009.  The Company is in various preliminary discussions with regard
to a potential strategic partnership.  In view of the Company’s
limited cash resources, the failure to accomplish such a strategic partnership
or to raise additional capital by the end of 2009 would seriously compromise the
Company’s ability to continue to conduct operations in 2010.




10




The
amount and timing of future cash requirements will depend on the market’s
evaluation of the Company’s technology and products, if any, and the resources
that it devotes to developing and supporting its activities. The Company will
need to fund these cash requirements from a combination of additional debt or
equity financings, or the sale, licensing or joint venturing of its intellectual
properties.  Current market conditions present uncertainty as to the
Company’s ability to secure additional funds, as well as its ability to reach
profitability. There can be no assurances that the Company will be able to
secure additional financing, or obtain favorable terms on such financing if it
is available, or as to the Company’s ability to achieve positive earnings and
cash flows from operations. Continued negative cash flows and lack of liquidity
create significant uncertainty about the Company’s ability to fully implement
its operating plan, as a result of which the Company may have to reduce the
scope of its planned operations. If cash resources are insufficient to satisfy
the Company’s liquidity requirements, the Company would be required to scale
back or discontinue its technology and product development programs, or obtain
funds, if available, through strategic alliances that may require the Company to
relinquish rights to certain of its technologies products, or to discontinue its
operations entirely.





3.
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, “Accounting for Nonrefundable Advance Payments for Goods or
Services Received for Use in Future Research and Development
Activities”.




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





Patent
Costs




Due to
the significant uncertainty associated with the successful development of
one or more commercially viable products based on the Company's research efforts
and any related patent applications, all patent costs, including patent-related
legal fees, are expensed as incurred. Patent costs were $20,766 and $40,000 for
the three months ended March 31, 2009 and 2008, respectively, and $346,456 for
the period from August 9, 2005 (inception) to March 31, 2009 (cumulative).
Patent costs are included in research and development costs in the Company's
condensed consolidated statement of operations.





Income
Taxes




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




11




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




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.





On
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 are 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 March 31, 2009, no liability for
unrecognized tax benefits was required to be recorded.





The
Company files income tax returns in the U.S. federal jurisdiction and is subject
to income tax examinations by federal tax authorities for the year
2005 and thereafter.  The Company’s policy is to record interest and
penalties on uncertain tax provisions as income tax expense. As of March 31,
2009, the Company has no accrued interest or penalties related to uncertain tax
positions.




Stock-Based
Compensation





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




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




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




12




Earnings
Per Share




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




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




At March
31, 2009 and 2008, the Company excluded the outstanding securities summarized
below, which entitle the holders thereof to acquire shares of common stock, from
its calculation of earnings per share as their effect would have been
anti-dilutive.




March 31,2009
                          
                          
                          2008Warrants
                          
                          
                          1,687,426
                          
                          
                          
                          546,626Stock
      options
                          
                          
                          2,540,000
                          
                          
                          
                          2,290,000Total
                          
                          
                          4,227,426
                          
                          
                          
                          2,836,626





Equipment




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




Fair
Value of Financial Instruments





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




Use of
Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those
estimates.




Recent
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
(“SFAS No. 157”), which establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, clarifies the
definition of fair value within that framework and expands disclosures about
fair value measurements. SFAS No. 157 applies whenever other standards require
(or permit) assets or liabilities to be measured at fair value, except for the
measurement of share-based payments. The Company adopted SFAS No. 157 on January
1, 2008.  However, since the issuance of SFAS No. 157, the FASB has
issued several FASB Staff Positions (FSPs) to clarify the application of SFAS
No. 157. FSPs apply to financial assets within the scope of accounting
pronouncements that require or permit fair value measurements in accordance with
SFAS No. 157.  In February 2008, the FASB released FSP No. 157-2,
“Effective Date of FASB Statement No. 157”, which delayed the effective date of
SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually).  In October 2008, the FASB
issued FSP No. 157-3, “Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active”, which clarifies the application of SFAS
No. 157 in a market that is not active and provides guidance in key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active.  FSP No. 157-3 became
effective immediately, and includes prior period financial statements that have
not yet been issued.  In April 2009, the FASB issued FSP No. 157-4,
“Determining the Fair Value When the Volume and Level of Activity for the Asset
or Liability Have Significantly Decreased and Identifying Transactions That Are
Not Orderly”, which provides additional guidance for estimating fair value in
accordance with SFAS No. 157, when the volume and level of activity for the
asset or liability have significantly decreased.  FSP No. 157-4 also
provides guidance on identifying circumstances that indicate a transaction is
not orderly.  FSP No. 157-4 is effective for interim and periods
ending after June 15, 2009, and shall be applied prospectively




13




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




In
December 2007, the FASB issued Statement of Financial Accounting Standards
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 Statement of Financial Accounting Standards 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. The Company adopted SFAS No. 141(R) on January
1, 2009.  The adoption of SFAS No. 141(R) will affect how the Company
accounts for a business combination in 2009 and beyond.




In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Noncontrolling Interests in Consolidated Financial Statements —
an amendment of ARB No. 51” (“SFAS No. 160”), which requires that
ownership interests in subsidiaries held by parties other than the parent, and
the amount of consolidated net income, be clearly identified, labeled and
presented in the consolidated financial statements.  SFAS No. 160 also
requires that once a subsidiary is deconsolidated, any retained noncontrolling
equity investment in the former subsidiary be initially measured at fair
value.  Sufficient disclosures are required to 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, and requires retroactive adoption of the
presentation and disclosure requirements for existing minority interests. 
All other requirements are applied prospectively.  The Company adopted SFAS
No. 160 on January 1, 2009.  The adoption of SFAS No. 160 did not have any
impact on the Company’s consolidated financial statement presentation or
disclosures.




14




In
March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161, “Disclosures about Derivative Instruments and Hedging Activities —
an amendment of FASB Statement No. 133” (“SFAS No. 161”).  SFAS
No. 161 amends and expands the disclosure requirements of SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS No. 133”). The objective of SFAS No. 161 is to provide users of
financial statements with an enhanced understanding of how and why an entity
uses derivative instruments, how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations, and
how derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  SFAS No. 161
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements.  SFAS No. 161 applies to
all derivative financial instruments, including bifurcated derivative
instruments (and nonderivative instruments that are designed and qualify as
hedging instruments pursuant to paragraphs 37 and 42 of SFAS No. 133) and
related hedged items accounted for under SFAS No. 133 and its related
interpretations.  SFAS No. 161 also amends certain provisions of SFAS
No. 133. SFAS No. 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged.  SFAS No. 161 encourages, but does not
require, comparative disclosures for earlier periods at initial adoption. 
The Company adopted SFAS No. 161 on January 1, 2009.  The adoption of SFAS
No. 161 did not have any impact on the Company’s consolidated financial
statement presentation or disclosures.





In
May 2008, the FASB issued Statement of Financial Accounting Standards
No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS
No. 162”). SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. SFAS No. 162 became effective on
November 15, 2008. The adoption of SFAS No. 162 did not have any impact on
the Company’s consolidated financial statement presentation or
disclosures.





In June 2008, the FASB ratified
Emerging Issues Task Force (“EITF”) Issue No. 07-05, “Determining Whether
an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF
07-05”). EITF 07-05 mandates a two-step process for evaluating whether an
equity-linked financial instrument or embedded feature is indexed to the
entity’s own stock. Warrants that a company issues that contain a strike price
adjustment feature, upon the adoption of EITF 07-05, results in the instruments
no longer being considered indexed to the company’s own stock. Accordingly,
adoption of EITF 07-05 will change the current classification (from equity to
liability) and the related accounting for such warrants outstanding at that
date. EITF 07-05 is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The Company adopted EITF
07-05 on January 1, 2009.  The adoption of EITF 07-05 did not have any
impact on the Company’s consolidated financial statement presentation or
disclosures.





In April
2009, the FASB issued FSP 107-1, “Interim Disclosures about Fair Value of
Financial Instruments”, which requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements.  FSP 107-1 also amends APB Opinion
No. 28, “Interim Financial Reporting”, to require those disclosures in
summarized financial information at interim reporting. FSP 107-1 is effective
for interim reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009.  The Company is
currently evaluating the potential impact of FSP 107-1 on its consolidated
financial statement presentation and disclosures.




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





4.
Share Exchange Agreement and Private Placement




Share
Exchange Agreement




On June
30, 2006, pursuant to a Share Exchange Agreement dated as of June 8, 2006 (the
“Share Exchange Agreement”) by and among Holdings, Dr. John S. Kovach (“Seller”)
and Lixte, Holdings issued 19,021,786 shares of its common stock in exchange for
all of the issued and outstanding shares of Lixte (the “Exchange”). Previously,
on October 3, 2005, Lixte had issued 1,500 shares of its no par value common
stock to its founder for $1,500, which constituted all of the issued and
outstanding shares of Lixte prior to the Exchange. As a result of the Exchange,
Lixte became a wholly-owned subsidiary of Holdings.




Pursuant
to the Exchange, Holdings issued to the Seller 19,021,786 shares of its common
stock. Holdings had a total of 25,000,832 shares of common stock issued and
outstanding after giving effect to the Exchange and the 1,973,869 shares of
common stock issued in the initial closing of the private
placement.




As a
result of the Exchange and the shares of common stock issued in the initial
closing of the private placement, on June 30, 2006, the stockholders of the
Company immediately prior to the Exchange owned 4,005,177 shares of common
stock, equivalent to approximately 16% of the issued and outstanding shares of
the Company’s common stock, and the former stockholder of Lixte acquired control
of the Company.




15




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
Placements





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





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




In
conjunction with the private placement of common stock, the Company issued a
total of 426,626 five-year warrants to WestPark Capital, Inc. exercisable at the
per share price of the common stock sold in the private placement ($0.333 per
share). The warrants issued to WestPark Capital, Inc. do not contain any price
anti-dilution provisions. However, such warrants contain cashless exercise
provisions and demand registration rights, but the warrant holder has agreed to
waive any claims to monetary damages or financial penalties for any failure by
the Company to comply with such registration requirements. Based on the
foregoing, the warrants were accounted for as equity and were not accounted for
separately from the common stock and additional paid-in capital
accounts.  The warrants had no accounting impact on the Company’s
consolidated financial statements.




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





In
accordance with EITF 00-19-2, “Accounting for Registration Payment
Arrangements”, on the date of the closing of the private placement, the Company
believed it would meet the deadlines under the registration rights agreement
with respect to filing a registration statement and having it declared effective
by the Securities and Exchange Commission. As a result, the Company did not
record any liabilities associated with the registration rights agreement at June
30, 2006. At December 31, 2006, the Company determined that the registration
statement covering the shares sold in the private placement would not be
declared effective within the requisite time frame and therefore accrued six
months liquidated damages under the registration rights agreement aggregating
approximately $74,000, which has been presented as a current liability at
December 31, 2008 and 2007. The Company’s registration statement on Form SB-2
was declared effective by the Securities and Exchange Commission on May 14,
2007. At March 31, 2009 the registration penalty to the investors had not been
paid.





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




16




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 were accounted for as equity and were not
accounted for separately from the common stock and additional paid-in capital
accounts.  The warrants had no accounting impact on the Company’s
consolidated financial statements.




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.





On
February 10, 2009, the Company sold an aggregate of 658,000 common stock units
to accredited investors in a first closing of a third private placement at a per
unit price of $0.50, resulting in aggregate gross proceeds to the Company of
$329,000. Net cash proceeds to the Company were $269,790.





On March
2, 2009, the Company sold an aggregate of 262,000 common stock units to
accredited investors in a second closing of the third private placement at a per
unit price of $0.50, resulting in aggregate gross proceeds to the Company of
$131,000. Net cash proceeds to the Company were $112,460.




Each unit
consists of one share of the Company’s common stock and a five-year warrant to
purchase an additional share of the Company’s common stock on a cashless
exercise basis at an exercise price of $0.50 per common share. 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 third private placement
and issued five-year warrants to purchase common stock equal to (a) 10% of the
number of shares sold in the third private placement exercisable at $0.50 per
share and 10% of the number of shares issuable upon exercise of warrants issued
in the third private placement exercisable at $0.50 per share; and (b) an
additional 2% of the number of shares sold in the third private placement also
exercisable at $0.50 per share and 2% of the number of shares issuable upon
exercise of the warrants issued in the third private placement exercisable at
$0.50 per share.





In
conjunction with the first and second closings of the third private placement of
common stock units during the three months ended March 31, 2009, the Company
issued to investors a total of 920,000 shares of common stock and 920,000
warrants to acquire common stock. Additionally, the Company issued a total of
220,800 five-year warrants to WestPark Capital, Inc., which are exercisable at
the per unit price of the common stock units sold in the third private placement
($0.50 per unit). Included in the 220,800 warrants issued to WestPark Capital,
Inc. are 110,400 warrants which only exercisable with respect to common shares
that are acquired by investors upon their exercise of the warrants acquired as
part of the units sold in the third private placement. 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 were
accounted for as equity and were not accounted for separately from the common
stock and additional paid-in capital accounts.  The warrants had no
accounting impact on the Company’s consolidated financial
statements.





At the
request of the holders, the Company has agreed to include any shares sold in the
third private placement and any shares issuable upon exercise of the related
warrants to be included in any registration statement filed with the Securities
and Exchange Commission permitting the resale of such shares, subject to
customary cutbacks, at the Company’s sole cost and expense.




17




5.
Related Party Transactions




Prior to
June 30, 2006, the Company’s founding stockholder and Chief Executive Officer,
Dr. John Kovach, had periodically made advances to the Company to meet operating
expenses. Such advances are non-interest-bearing and are due on demand. At March
31, 2009 and 2008, 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 three months
ended March 31, 2009 and 2008, and for the period from August 9, 2005
(inception) through March 31, 2009 (cumulative), 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.





6.
Note Payable to Consultant





On
October 3, 2008, the Company borrowed $100,000 from Gil Schwartzberg, a
consultant to the Company (see Note 8), pursuant to an unsecured demand
promissory note with interest at 5% per annum, to fund the Company’s short-term
working capital requirements. The note, including accrued interest of $834, was
repaid on February 7, 2009. An additional interest payment of $851 was made on
April 27, 2009.





7.
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 consist of common stock with a
par value of $0.0001 per share and 10,000,000 shares consist of 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.




8.
Stock Options and Warrants




On June
30, 2006, effective with the closing of the Exchange, the Company granted to
Dr. Philip Palmedo, an outside director of the Company, stock options to
purchase an aggregate of 200,000 shares of common stock, exercisable for a
period of five years at $0.333 per share, with one-third of the options (66,666
shares) vesting immediately upon joining the Board and one-third vesting
annually on each of June 30, 2007 and 2008. The fair value of these options, as
calculated pursuant to the Black-Scholes option-pricing model, was determined to
be $62,000 ($0.31 per share), of which $20,666 was charged to operations on June
30, 2006, and the remaining $41,334 was charged to operations ratably from July
1, 2006 through June 30, 2008. During the three month ended March 31, 2008,
the Company recorded a charge to operations of $5,167 with respect to these
options.




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




On June
30, 2006, effective with the closing of the Exchange, the Company granted to
certain members of its Scientific Advisory Committee stock options to purchase
an aggregate of 100,000 shares of common stock exercisable for a period of five
years at $0.333 per share, with one-half of the options vesting annually on each
of June 30, 2007 and June 30, 2008. The fair value of these options, as
calculated pursuant to the Black-Scholes option-pricing model, was charged to
operations ratably from July 1, 2006 through June 30, 2008. During the three
months ended March 31, 2008, the Company recorded a charge to operations of
$14,594 with respect to these options.





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




18




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





On
September 12, 2007, in conjunction with his appointment as a director of the
Company, the Company granted to Dr. Stephen Carter stock options to purchase an
aggregate of 200,000 shares of common stock under the 2007 Plan, exercisable for
a period of five years from vesting date at $0.333 per share, with one-half
(100,000 shares) vesting annually on each of September 12, 2008 and 2009. The
fair value of these options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $204,000 ($1.02 per share), and is
being charged to operations ratably from September 12, 2007 through September
12, 2009. During the three months ended March 31, 2009 and 2008, the Company
recorded a charge to operations of $25,151 and $25,361, respectively, with
respect to these options.





On
September 12, 2007, the Company entered into a consulting agreement with Gil
Schwartzberg, pursuant to which the Company granted to Mr. Schwartzberg stock
options to purchase an aggregate of 1,000,000 shares of common stock,
exercisable for a period of four years from the vesting date at $1.00 per share,
with one-half of the options (500,000 shares) vesting immediately and one-half
(500,000 shares) vesting on September 12, 2008. The fair value of these options,
as calculated pursuant to the Black-Scholes option-pricing model, was initially
determined to be $945,000 ($0.945 per share), of which $465,000 was attributed
to the fully-vested options and was thus charged to operations on September 12,
2007. The remaining portion of the fair value of the options was charged to
operations ratably from September 12, 2007 through September 12, 2008. On March
31, 2008, the fair value of these options, as calculated pursuant to the
Black-Scholes option-pricing model, was determined to be $380,000 ($0.76 per
share).  During the three months ended March 31, 2008, the Company
recorded a charge to operations of $120,027 with respect to these options (see
Note 6).




On
September 12, 2007, the Company entered into a consulting agreement with Francis
Johnson, a co-owner of Chem-Master International, Inc., and granted to Professor
Johnson stock options to purchase an aggregate of 300,000 shares of common
stock, exercisable for a period of four years from the vesting date at $0.333
per share, with one-third (100,000 shares) vesting annually on each of September
12, 2008, 2009 and 2010. The fair value of these options, as calculated pursuant
to the Black-Scholes option-pricing model, was initially determined to be
$300,000 ($1.00 per share), and is being charged to operations ratably from
September 12, 2007 through September 12, 2010. On March 31, 2009 and 2008, the
fair value of these options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $165,000 ($0.55 per share) and
$255,000 ($0.85 per share), respectively, which resulted in a charge to
operations of $12,959 and $26,844 during the three months ended March 31, 2009
and 2008, respectively.




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 March 31, 2008, the fair value of the aforementioned stock options
was calculated (for stock options revalued pursuant to EITF 98-16) using the
following Black-Scholes input variables:  stock price - $0.95;
exercise price - $0.333 to $1.00; expected life – 4.45 years; expected
volatility – 120.1%; expected dividend yield - 0%; risk-free interest rate -
3.09%. On March 31, 2009, 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 - $0.55;
exercise price - $0.333; expected life - 4.48 years; expected volatility –
414.1%; expected dividend yield - 0%; risk-free interest rate – 1.89%. As the
Company’s common stock commenced trading on September 24, 2007, the Company was
able to utilize such trading data to generate revised volatility factors at
March 31, 2009 and 2008.





On
October 7, 2008, the Company appointed Dr. Mel Sorensen to its Board of
Directors. Dr. Sorensen is a medical oncologist with extensive experience in
cancer drug development, first at the National Cancer Institute, then at Bayer
and GlaxoSmithKline, before becoming President and CEO of a new cancer
therapeutics company, Ascenta Therapeutics, in 2004. Dr. Sorensen is being paid
an annual consulting fee of $40,000, payable in quarterly installments over a
one year period commencing October 7, 2008, to assist the Company in identifying
a strategic partner. Dr. Sorensen was also granted a stock option to purchase
200,000 shares of the Company’s common stock, exercisable at $0.50 per share for
a period of five years from each tranche’s vesting date. The option vests as to
25,000 shares on January 1, 2009, and a further 25,000 shares on the first day
of each subsequent calendar quarter until all of the shares are vested. The fair
value of these options, as calculated pursuant to the Black-Scholes
option-pricing model, was determined to be $100,000 ($0.50 per share), and is
being charged to operations ratably from October 7, 2008 through October 7,
2010. During the three months ended March 31, 2008, the Company recorded a
charge to operations of $12,363 with respect to these options.




19




On
October 7, 2008, the fair value of the aforementioned stock options was
calculated using the following Black-Scholes input variables:  stock
price - $0.50; exercise price - $0.50; expected life - 5 years; expected
volatility – 275.7%; expected dividend yield - 0%; risk-free interest rate –
2.48%.





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





Additional
information with respect to common stock warrants and stock options issued is
provided at Notes 4, 9 and 10.  Warrants to purchase common stock that
were issued in conjunction with the Company’s private placements in 2006, 2007,
2008 and 2009 are included in the tables presented below.





If and
when the aforementioned stock options and warrants are exercised, the Company
expects to satisfy such stock obligations through the issuance of authorized but
unissued shares of common stock.





A summary
of stock option and warrant activity for the years ended December 31, 2007 and
2008, and the three months ended March 31, 2009 is presented below.




Number
                                                    of
                                                    Shares
                                                  
                                                  
                                                  Weighted
                                                    Average
                                                    Exercise
                                                    Price
                                                  
                                                  
                                                  Weighted
                                                    Average
                                                    Remaining
                                                    Contractual
                                                    Life
                                                    (in Years)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
                                                  
                                                  
                                                  
                                                  4.32Granted
                                                  
                                                  
                                                  500,000
                                                  
                                                  
                                                  
                                                  0.927
                                                  
                                                  
                                                  
                                                  4.71Exercised
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  —Cancelled
                                                  
                                                  
                                                  (50,000
                                                  )
                                                  
                                                  
                                                  0.333
                                                  
                                                  
                                                  
                                                  2.75Options
      and warrants outstanding at December 31, 2008
                                                  
                                                  
                                                  3,086,626
                                                  
                                                  
                                                  $
                                                  0.658
                                                  
                                                  
                                                  
                                                  3.55Granted
                                                  
                                                  
                                                  1,140,800
                                                  
                                                  
                                                  
                                                  0.500
                                                  
                                                  
                                                  
                                                  4.88Exercised
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  —Cancelled
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  —Options
      and warrants outstanding at March 31, 2009
                                                  
                                                  
                                                  4,227,426
                                                  
                                                  
                                                  $
                                                  0.615
                                                  
                                                  
                                                  
                                                  3.73Options
      and warrants exercisable at December 31, 2008
                                                  
                                                  
                                                  2,286,626
                                                  
                                                  
                                                  $
                                                  0.641
                                                  
                                                  
                                                  
                                                  3.06Options
      and warrants exercisable at March 31, 2009
                                                  
                                                  
                                                  3,442,026
                                                  
                                                  
                                                  $
                                                  0.589
                                                  
                                                  
                                                  
                                                  3.51




The
intrinsic value of exercisable but unexercised in-the-money stock options and
warrants at March 31, 2009 was $327,628, based on a fair market value of $0.55
per share on March 31, 2009. The intrinsic value of exercisable but unexercised
in-the-money stock options and warrants at December 31, 2008 was $276,490, based
on a fair market value of $0.57 per share on December 31, 2008.





Total
deferred compensation expense for the outstanding value of unvested stock
options was approximately $269,000 at March 31, 2009, which will be recognized
subsequent to March 31, 2009 over a weighted-average period of 16.7 months.
Total deferred compensation expense for the outstanding value of unvested stock
options was approximately $351,000 at December 31, 2008, which will be
recognized subsequent to December 31, 2008 over a weighted-average period of
18.3 months.





Information
regarding stock options and warrants outstanding and exercisable is summarized
as follows at March 31, 2009 and December 31, 2008:




20







March 31,
2009:


Warrants
                      and
                    
                    
                    Warrants
                      andOptions
                      Outstanding
                    
                    
                    Options
                      ExercisableExercise
      Prices
                    
                    (Shares)
                    
                    
                    (Shares)$0.333
                    
                    
                    1,566,626
                    
                    
                    
                    1,266,626$0.500
                    
                    
                    1,340,800
                    
                    
                    
                    1,055,400$0.650
                    
                    
                    120,000
                    
                    
                    
                    120,000$1.000
                    
                    
                    1,000,000
                    
                    
                    
                    1,000,000$1.650
                    
                    
                    200,000
                    
                    
                    
                    —4,227,426
                    
                    
                    
                    3,442,026





December
31, 2008:


Warrants
                      and
                    
                    
                    Warrants
                      andOptions
                      Outstanding
                    
                    
                    Options
                      ExercisableExercise
      Prices
                    
                    (Shares)
                    
                    
                    (Shares)$0.333
                    
                    
                    1,566,626
                    
                    
                    
                    1,166,626$0.500
                    
                    
                    200,000
                    
                    
                    
                    —$0.650
                    
                    
                    120,000
                    
                    
                    
                    120,000$1.000
                    
                    
                    1,000,000
                    
                    
                    
                    1,000,000$1.650
                    
                    
                    200,000
                    
                    
                    
                    —3,086,626
                    
                    
                    
                    2,286,626





Outstanding
options and warrants to acquire 675,000 shares and 800,000 shares of the
Company’s common stock had not vested at March 31, 2009 and December 31, 2008,
respectively. At March 31, 2009, warrants and options exercisable do not include
warrants to acquire 110,400 shares of common stock that are contingent upon the
exercise of warrants contained in units sold as part of the third private
placement (see Note 4).





9. Commitments and
Contingencies





Effective
March 22, 2006, the Company entered into a CRADA, as amended, with the NINDS of
the NIH. The CRADA was for a term of 42 months from the effective date and could
be unilaterally terminated by either party by providing written notice within
sixty days. The CRADA provided for the collaboration between the parties in the
identification and evaluation of agents that target the Nuclear Receptor
CoRepressor (N-CoR) pathway for glioma cell differentiation. The CRADA also
provided that NINDS and the Company would conduct research to determine if
expression of N-CoR correlates with prognosis in glioma patients. Pursuant to
the CRADA, the Company agreed to provide funds under the CRADA in the amount of
$200,000 per year to fund two technical assistants for the technical,
statistical and administrative support for the research activities, as well as
to pay for supplies and travel expenses. The first $200,000 was due within 180
days of the effective date and was paid in full on July 6, 2006. The second
$200,000 was paid in full on June 29, 2007. In June 2008, the CRADA was extended
to September 30, 2009, with no additional funding required for the period
between July 1, 2008 and September 30, 2008. However, for the period from
October 1, 2008 through September 30, 2009, the Company has agreed to provide
additional funding under the CRADA of $200,000, to be paid in four quarterly
installments of $50,000 each commencing on October 1, 2008. The first and second
quarterly installments of $50,000 were paid on September 29, 2008 and March 5,
2009, respectively.




On
January 5, 2007, the Company entered into a Services Agreement with The Free
State of Bavaria (Germany) represented by the University of Regensburg (the
“University”) pursuant to which the Company 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.
The Company 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, the Company 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.




21




On
February 5, 2007, the Company entered into a two-year agreement (the
“Chem-Master Agreement”) with Chem-Master International, Inc. (“Chem-Master”), a
company co-owned by Francis Johnson, a consultant to the Company, pursuant to
which the Company engaged Chem-Master to synthesize a compound designated as
“LB-1”, and any other compound synthesized by Chem-Master pursuant to the
Company’s request, which have potential use in treating a disease, including,
without limitation, cancers such as glioblastomas. Pursuant to the Chem-Master
Agreement, the Company 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. The Company 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 had
not been terminated prior to such date, the Company 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. As of September
30, 2008, the Company determined that it was likely that this option would be
issued. Accordingly, the fair value of the option has been reflected as a charge
to operations for the period from October 1, 2008 through February 5, 2009. On
February 5, 2009, the fair value of this option, as calculated pursuant to the
Black-Scholes option-pricing model, was determined to be $60,000 ($0.60 per
share), which resulted in a charge to operations of $19,143 during the three
months ended March 31, 2009. The Company granted the second five-year option on
February 5, 2009.




On
September 30, 2008, the fair value of the aforementioned stock option was
initially calculated using the following Black-Scholes input variables: stock
price - $0.50; exercise price - $0.333; expected life – 5.35 years; expected
volatility – 275.7%; expected dividend yield - 0%; risk-free interest rate –
2.48%. On February 5, 2009, the fair value of the aforementioned stock option
was calculated (for the stock option revalued pursuant to EITF 98-16) using the
following Black-Scholes input variables: stock price - $0.60; exercise price -
$0.333; expected life – 5 years; expected volatility – 414.1%; expected dividend
yield - 0%; risk-free interest rate – 1.89%.





On
January 29, 2008, the Chem-Master Agreement was amended to extend its term to
February 15, 2014, and to expressly provide for the design and synthesis of a
new series of compounds designated as “LB-3”. Pursuant to the amendment, the
Company issued 100,000 shares of its restricted common stock, valued at $75,000,
and granted an option to purchase 200,000 shares of common stock. The option is
exercisable for a period of two years from the vesting date at $1.65 per share,
with one-half (100,000 shares) vesting on August 1, 2009, and one-half (100,000
shares) vesting on February 1, 2011. The fair value of this option, as
calculated pursuant to the Black-Scholes option-pricing model, was initially
determined to be $96,000 ($0.48 per share) using the following Black-Scholes
input variables: stock price on date of grant - $0.75; exercise price - $1.65;
expected life - 5 years; expected volatility - 120.1%; expected dividend yield -
0%; risk-free interest rate - 3.09%.





The fair
value of the restricted common stock issued was charged to operations as
research and development costs on January 29, 2008. On March 31, 2009, the fair
value of the aforementioned stock options was determined to be $110,000 ($0.55
per share) calculated using the following Black-Scholes input variables: stock
price - $0.55; exercise price - $1.65; expected life - 3.84 years; expected
volatility – 414.1%; expected dividend yield - 0%; risk-free interest rate -
1.99%, which resulted in a charge to operations of $7,760 during the three
months ended March 31, 2009. On March 31, 2008, the fair value of the
aforementioned stock options was determined to be $126,000 ($0.63 per share)
calculated using the following Black-Scholes input variables: stock price -
$0.95; exercise price - $1.65; expected life - 4.84 years; expected volatility –
120.1%; expected dividend yield - 0%; risk-free interest rate - 3.09%, which
resulted in a charge to operations of $7,089 during the three months ended March
31, 2008.




Pursuant
to the Chem-Master Agreement, the Company reimbursed Chem-Master for the costs
of materials, labor, and expenses aggregating $9,000 and $8,750 during the three
months ended March 31, 2009 and 2008, respectively.





On
September 12, 2007, the Company entered into two consulting agreements for
financial and scientific services. Compensation related to these agreements was
primarily in the form of stock options (see Note 8).




22





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, the Company 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,
pursuant to which Mirador agreed to forgive 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.




In
September 2008, the Company engaged an internet-based investor information
service to enhance awareness of the Company’s progress in developing a portfolio
of pharmacological agents at an initial cost of $2,500, plus $500 per month for
a period of twelve months.




Effective
as of September 19, 2008, the Company entered into an agreement with the NIH
providing the Company with an exclusive license for all patents submitted
jointly with the NIH under the CRADA. The agreement provided for an initial
payment of $25,000 to NIH within 60 days of September 19, 2008, and for a
minimum annual royalty of $30,000 on January 1 of each calendar year following
the year in which the CRADA is terminated. The agreement also provides for the
Company to pay specified royalties based on (i) net sales by the Company and its
sub-licensees, (ii) the achievement of certain clinical benchmarks, and (iii)
the granting of sublicenses. The Company paid the initial $25,000 obligation on
November 10, 2008 and charged the amount to general and administrative costs
during the year ended December 31, 2008.





During
October 2008, the Company engaged Southern Research Institute, Birmingham,
Alabama, to assess one lead compound from each of two classes of its proprietary
pharmacological agents for effects on normal neuronal cells and to determine if
the compounds protect normal brain cells from injury in several different models
of chemical and traumatic brain injury. The goal is to determine if these agents
have promise as potentially useful for the prevention, amelioration or delay of
progression of neurodegenerative diseases such as Alzheimer’s disease and other
neurological diseases or impairments resulting from trauma and/or other diverse
or unknown origins. The Company agreed to pay a fee not to exceed $50,000 over a
four-month period for such services, of which an advance of $12,500 was paid
during 2008.





10.
Subsequent Events





On April
6, 2009, the Company sold an aggregate of 500,000 common stock units to
accredited investors in a third closing of the third private placement at a per
unit price of $0.50, resulting in aggregate gross proceeds to the Company of
$250,000. Net cash proceeds to the Company were $214,800.





In
conjunction with the third closing of the third private placement of common
stock units, the Company issued a total of 120,000 five-year warrants to
WestPark Capital, Inc. exercisable at the per unit price of the common stock
units sold in the third private placement ($0.50 per unit). 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 will
be accounted for as equity and will not be accounted for separately from the
common stock and additional paid-in capital accounts. The warrants will not have
any accounting impact on the Company’s consolidated financial
statements.


23





ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




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




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.




The
Company is considered a “development stage company” as defined in Statement of
Financial Accounting Standards (“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 consolidated 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. Furthermore, the Company has experienced recurring losses and has a
stockholders’ deficiency at March 31, 2009. As a result, the Company’s
independent registered public accounting firm, in their report on the Company’s
2008 consolidated financial statements, have raised substantial doubt about the
Company’s ability to continue as a going concern.




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





At March
31, 2009, the Company had not yet commenced any revenue-generating operations.
All activity through March 31, 2009 has been related to the Company’s formation,
capital raising efforts and research and development activities. As such, the
Company has yet to generate any cash flows from operations, and is dependent on
debt and equity funding from both related and unrelated parties to finance its
operations. Prior to June 30, 2006, the Company’s cash requirements were funded
by advances from the Company’s founder.





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





As
previously disclosed, the Company estimates that it will require minimum funding
in calendar 2009 of approximately $750,000 in order to fund operations and
continuing drug discovery and to attempt to bring two drugs through the
pre-clinical evaluation process needed for submission of an Investigational New
Drug (“IND”) application. Towards that objective, the Company recently completed
a private placement of its securities, which generated net proceeds from three
closings in February, March and April 2009 aggregating approximately $597,000.
The Company utilized a portion of such net proceeds to repay a $100,000
short-term note in February 2009.




24





Since the
Company did not reach its target of $750,000 in its recent private placement,
the Company has modified its 2009 budget to reflect the available operating
funds. The Company believes that its current resources are adequate to fund
operations through 2009 at a level that will allow the continuation of the
Company’s two drug development programs currently in process, but will not allow
expansion of its research activities. Depending on the results of the Company’s
efforts to enter into a strategic partnership with a large- or medium-sized
pharmaceutical company that would provide adequate financial resources for the
Company to continue its research and development activities, the Company may
consider a further private placement in the latter part of 2009. The Company is
in various preliminary discussions with regard to a potential strategic
partnership. In view of the Company’s limited cash resources, the failure to
accomplish such a strategic partnership or to raise additional capital by the
end of 2009 would seriously compromise the Company’s ability to continue to
conduct operations in 2010.





The
amount and timing of future cash requirements will depend on the market’s
evaluation of the Company’s technology and products, if any, and the resources
that it devotes to developing and supporting its activities. The Company will
need to fund these cash requirements from a combination of additional debt or
equity financings, or the sale, licensing or joint venturing of its intellectual
properties. Current market conditions present uncertainty as to the Company’s
ability to secure additional funds, as well as its ability to reach
profitability. There can be no assurances that the Company will be able to
secure additional financing, or obtain favorable terms on such financing if it
is available, or as to the Company’s ability to achieve positive earnings and
cash flows from operations. Continued negative cash flows and lack of liquidity
create significant uncertainty about the Company’s ability to fully implement
its operating plan, as a result of which the Company may have to reduce the
scope of its planned operations. If cash resources are insufficient to satisfy
the Company’s liquidity requirements, the Company would be required to scale
back or discontinue its technology and product development programs, or obtain
funds, if available, through strategic alliances that may require the Company to
relinquish rights to certain of its technologies products, or to discontinue its
operations entirely.




Recent
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
(“SFAS No. 157”), which establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, clarifies the
definition of fair value within that framework and expands disclosures about
fair value measurements. SFAS No. 157 applies whenever other standards require
(or permit) assets or liabilities to be measured at fair value, except for the
measurement of share-based payments. The Company adopted SFAS No. 157 on January
1, 2008. However, since the issuance of SFAS No. 157, the FASB has issued
several FASB Staff Positions (FSPs) to clarify the application of SFAS No. 157.
In February 2008, the FASB released FSP No. 157-2, “Effective Date of FASB
Statement No. 157”, which delayed the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). In October 2008, the FASB issued FSP No. 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active”, which clarifies the application of SFAS No. 157 in a market that
is not active and provides guidance in key considerations in determining the
fair value of a financial asset when the market for that financial asset is not
active. FSPs apply to financial assets within the scope of accounting
pronouncements that require or permit fair value measurements in accordance with
SFAS No. 157. In April 2009, the FASB issued FSP No. 157-4, “Determining the
Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly”,
which provides additional guidance for estimating fair value in accordance with
SFAS No. 157, when the volume and level of activity for the asset or liability
have significantly decreased. FSP No. 157-4 also provides guidance on
identifying circumstances that indicate a transaction is not orderly. FSP No.
157-4 is effective for interim and periods ending after June 15, 2009, and shall
be applied prospectively





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




25




In
December 2007, the FASB issued Statement of Financial Accounting Standards 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 Statement of
Financial Accounting Standards 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. The Company adopted SFAS No. 141(R) on January 1,
2009. The adoption of SFAS No. 141(R) will affect how the Company accounts for a
business combination in 2009 and beyond.




In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, “Noncontrolling Interests in Consolidated Financial Statements — an
amendment of ARB No. 51” (“SFAS No. 160”), which requires that ownership
interests in subsidiaries held by parties other than the parent, and the amount
of consolidated net income, be clearly identified, labeled and presented in the
consolidated financial statements. SFAS No. 160 also requires that once a
subsidiary is deconsolidated, any retained noncontrolling equity investment in
the former subsidiary be initially measured at fair value. Sufficient
disclosures are required to 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, and requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests. All other requirements are applied prospectively. The Company adopted
SFAS No. 160 on January 1, 2009. The adoption of SFAS No. 160 did not have any
impact on the Company’s consolidated financial statement presentation or
disclosures.




In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative Instruments and Hedging Activities — an amendment
of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 amends and expands the
disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments
and Hedging Activities” (“SFAS No. 133”). The objective of SFAS No. 161 is to
provide users of financial statements with an enhanced understanding of how and
why an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and how derivative instruments and related hedged items affect
an entity’s financial position, financial performance, and cash flows. SFAS No.
161 requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. SFAS No. 161 applies to all
derivative financial instruments, including bifurcated derivative instruments
(and nonderivative instruments that are designed and qualify as hedging
instruments pursuant to paragraphs 37 and 42 of SFAS No. 133) and related hedged
items accounted for under SFAS No. 133 and its related interpretations. SFAS No.
161 also amends certain provisions of SFAS No. 133. SFAS No. 161 is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged. SFAS No. 161
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption. The Company adopted SFAS No. 161 on January 1, 2009. The
adoption of SFAS No. 161 did not have any impact on the Company’s consolidated
financial statement presentation or disclosures.





In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The
Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS
No. 162 identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with GAAP. SFAS No.
162 became effective on November 15, 2008. The adoption of SFAS No. 162 did not
have any impact on the Company’s consolidated financial statement presentation
or disclosures.




26





In June 2008, the FASB ratified
Emerging Issues Task Force (“EITF”) Issue No. 07-05, “Determining Whether an
Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF
07-05”). EITF 07-05 mandates a two-step process for evaluating whether an
equity-linked financial instrument or embedded feature is indexed to the
entity’s own stock. Warrants that a company issues that contain a strike price
adjustment feature, upon the adoption of EITF 07-05, results in the instruments
no longer being considered indexed to the company’s own stock. Accordingly,
adoption of EITF 07-05 will change the current classification (from equity to
liability) and the related accounting for such warrants outstanding at that
date. EITF 07-05 is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The Company adopted EITF
07-05 on January 1, 2009. The adoption of EITF 07-05 did not have any impact on
the Company’s consolidated financial statement presentation or
disclosures.





In April
2009, the FASB issued FSP 107-1, “Interim Disclosures about Fair Value of
Financial Instruments”, which requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. FSP 107-1 also amends APB Opinion No. 28,
“Interim Financial Reporting”, to require those disclosures in summarized
financial information at interim reporting. FSP 107-1 is effective for interim
reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. The Company is currently evaluating the
potential impact of FSP 107-1 on its consolidated financial statement
presentation and disclosures.




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





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, “Accounting for Nonrefundable Advance Payments for Goods or
Services Received for Use in Future Research and Development
Activities”.





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.




Stock-Based
Compensation




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




27




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




Income
Taxes




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




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 developing new treatments for the most common and
most aggressive type of brain cancer of adults, glioblastoma multiforme (“GBM”),
and the most common cancer of children, neuroblastoma. 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. Activity of
lead compounds of both types of drugs was recently demonstrated against human
pancreatic cancer cells in a mouse model. Because there is a great need for any
kind of effective treatment for pancreatic cancer, this cancer will be studied
concomitantly with the primary target of the Company’s research program focused
on brain cancers.




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 CRADA was extended and is presently scheduled
to end on September 30, 2009.




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




28





During
the three months ended March 31, 2009, the Company filed eight patent
applications. The U.S. Patent Office Examiner began review of the initial patent
submitted jointly by the Company and the NINDS. The chemical formula of one of
the Company’s lead compounds, LB-100, was disclosed in that patent, and was
found to be novel. The Company considers this finding a milestone in the
development of the Company’s intellectual property. The specific claims for the
structures and methods of synthesis of all compounds in the LB series were filed
on the same day in a separate patent application and are the sole property of
the Company. The review of this patent will be the determinant of the validity
of the novelty of the LB-100 compounds, and the outcome thereof will therefore
have a material impact on the future business prospects of the
Company.





The
results of studies characterizing the novel and potent anti-cancer activity and
mechanism of action of LB-102 alone and in combination with standard
chemotherapy drugs have been submitted for publication in a leading scientific
journal. In addition, an abstract of the characterization of the neuroprotective
effects of two lead compounds in standard assays of injury to normal embryonic
mouse neurons will be submitted in May 2009 for presentation at one of the
larger neurological society meetings in the United States.





The
Company continues to evaluate compounds for 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. The Company is also exploring indications that its compounds
have against strains of fungi that cause the most common fungal infections of
the skin and nails. Discussions are in progress with experts in fungal
infections regarding the most reliable methods of assessing the potential of new
agents for the management of common fungal diseases.




The
Company expects that its products will derive directly from the intellectual
property from its research activities. The development of lead compounds with
different mechanisms of action that have activity against brain tumors and other
common human cancers, as well as against serious fungal infections, originated
from the discovery of a biomarker 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.
Examples of the productivity of this approach to discovery of new therapeutics
are: (1) the recent patent application filing for a new biomarker of several
common cancers that when targeted by certain of the Company’s drugs results in
inhibition of growth and death of cancer cells displaying the marker; and (2)
the filing of a patent on certain homologs of one group of compounds as
potentially useful for the treatment of neurodegenerative diseases.




Management’s
primary focus in 2009 is securing a strategic partnership with a pharmaceutical
company with major programs in cancer, anti-fungal treatments, and/or
neuroprotective measures. The significant diversity of the potential therapeutic
value of the Company’s compounds stems from the fact that these agents modify
critical pathways in cancer cells and in microorganisms such as fungi and appear
to ameliorate pathologic processes that lead to brain injury, caused by trauma
or toxins or through as yet unknown mechanisms that underlie the major chronic
neurologic diseases including Alzheimer’s Disease, Parkinson’s Disease, and
Amyotrophic Lateral Sclerosis (ALS, or Lou Gherig’s Disease). Studies of the
potential neuroprotective effects of homologs of each class of the Company’s
compounds are continuing under a contract with Southern Research Institute,
Birmingham, Alabama.





Plans
for 2009 and Beyond




The
Company’s primary objective is to raise funds to cover ongoing operations and
development of its lead compounds for the treatment of brain cancers of adults
and neuroblastoma in children and to expand its research to include another
devastating human cancer, pancreatic cancer. The Company also wishes to raise
sufficient capital to explore, most likely in partnership with a pharmaceutical
company, recently discovered activity of some derivatives of its lead drugs for
the treatment of fungal diseases and neurodegenerative diseases. In this regard,
the Company has made preliminary presentations to several large pharmaceutical
companies with respect to one or both of its lead compounds.




The first
goal is to initiate preclinical studies of two of its lead compounds required
for submission of an application to the FDA for evaluation in clinical trials.
The initial target cancers will be glioblastoma multiforme, neuroblastoma and/or
medulloblastoma. The final choice will depend in part upon discussions at a
pre-IND meeting with the FDA. Subject to the availability of sufficient
resources, the Company will also initiate preclinical evaluation of a second
compound.




29




The
second goal is further characterization of the fungal activity of certain
homologs of drugs of the LB-200 series. These studies will be done in
collaboration with academic partners. Recently, the Company confirmed that its
lead compound of the LB-200 series has potential to cure two types of fungi in a
guinea pig model that are representative of the most common skin infections of
humans and domestic animals. Cure was achieved by topical application of the
drug on a daily basis for 14 days, with no evidence of toxicity.




The
Company is also screening other homologs of lead compounds of the LB-100 and
LB-200 series for neuroprotective activity in laboratory models of brain cell
injury. During October 2008, the Company engaged Southern Research Institute,
Birmingham, Alabama, to assess one lead compound from each of two classes of its
proprietary pharmacological agents for effects on normal neuronal cells and to
determine if the compounds protect normal brain cells from injury in several
different models of chemical and traumatic brain injury. The goal is to
determine if these agents have promise as potentially useful for the prevention,
amelioration or delay of progression of neurodegenerative diseases such as
Alzheimer’s disease and other neurological diseases or impairments resulting
from trauma and/or other diverse or unknown origins. The initial studies in the
test tube support the Company’s hypothesis that one of its lead compounds
appears to have a beneficial effect upon the growth and differentiation of
normal brain cells.




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 in mid-2010.
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 2010. If the Company is able to achieve support from and/or partnership with
a large pharmaceutical company to co-develop its compounds, this schedule may be
accelerated. The drugs are well characterized from the standpoints of activity
and mechanism of action. The pre-clinical activity toxicology and
pharmacokinetic characterization, which are elements needed for IND submission,
could be accomplished quickly with adequate financial resources or by a partner
with expertise in characterization of drugs for introduction into the
clinic.




On
January 29, 2008, the Chem-Master Agreement was amended to extend its term to
February 15, 2014, pursuant to which Chem-Master was engaged to synthesize
certain compounds, and to expressly provide for the expansion of the Company’s
drug development program, through consultation with the medicinal chemists at
Chem-Master. The Company is exploring the synthesis of additional novel
anti-cancer drugs. Several targets for anti-cancer drug development are under
consideration. When the next group of compounds is developed, it will be
designated as “LB-3”, as distinguished from the first two classes of compounds
that were designated as “LB-1” and “LB-2”. This process is currently in the
planning stage and no compounds have been made as yet.




Existing
resources will not permit evaluation of activity of the Company’s lead drugs
against all 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 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 programs, competition
from more established, well-funded companies with competitive technologies, and
future competition from companies that are developing new competitive
technologies, some of whom are larger companies with greater capital resources
than the Company. 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 “Going Concern” above). Should the Company be unable to raise the
required capital on a timely basis, the Company’s business plans would be
materially adversely affected, and the Company may not be able to continue to
conduct operations.




Results
of Operations




The
Company is a development stage company and had not commenced revenue-generating
operations at March 31, 2009.




Three
Months Ended March 31, 2009 and 2008




General and Administrative
Expenses. For the three months ended March 31, 2009, general and
administrative expenses were $153,119, which consisted of stock-based
compensation of $37,514, consulting and professional fees of $97,145, insurance
expense of $5,955, travel and entertainment costs of $1,401, and other operating
costs of $11,104.




30




For the
three months ended March 31, 2008, general and administrative expenses were
$268,817, which consisted of stock-based compensation of $165,149, consulting
and professional fees of $71,725, insurance expense of $5,955, travel and
entertainment costs of $19,112, and other operating costs of
$6,876.




Depreciation. For the
three months ended March 31, 2009 and 2008, depreciation expense was $127 and
$159, respectively.




Research and Development
Costs. For the three months ended March 31, 2009, research and
development costs were $125,878, which consisted of the vested portion of the
fair value of stock options issued to a consultant and a vendor of $39,862,
patent costs of $20,766, laboratory supplies of $9,000, and other costs of
$56,250.




For the
three months ended March 31, 2008, research and development costs were $236,451,
which consisted of the fair value of restricted common stock issued to a vendor
of $75,000, the vested portion of the fair value of stock options issued to a
consultant and a vendor of $33,933, patent costs of $40,000, laboratory supplies
of $8,750, and other costs of $78,768.




Interest Income. For
the three months ended March 31, 2009, interest income was $7, as compared to
interest income of $2,105 for the three months ended March 31,
2008.





Interest Expense. For
the three months ended March 31, 2009, interest expense relating to a short-term
note payable to a consultant, which was repaid on February 7, 2009, was $452.
The Company had no interest expense for the three months ended March 31,
2008.




Net Loss. For the
three months ended March 31, 2009, the Company incurred a net loss of $279,569,
as compared to a net loss of $503,322 for the three months ended March 31,
2008.




Liquidity
and Capital Resources - March 31, 2009




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. Furthermore,
the Company has experienced recurring losses and has a stockholders’ deficiency
at March 31, 2009. 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 (see “Going Concern” above”).




Operating Activities.
For the three months ended March 31, 2009, operating activities utilized cash of
$205,822, as compared to utilizing cash of $178,904 for the three months ended
March 31, 2008.




The
Company had a working capital deficiency of $143,491 at March 31, 2009. At
December 31, 2008, the Company had a working capital deficiency of $323,676. The
reduction in the working capital deficiency was due primarily as a result of the
sale of the Company’s common stock pursuant to a first and second closing of a
third private placement in February and March 2009 that generated net proceeds
of $382,250.




Investing Activities.
There were no investing activities during the three months ended March 31, 2009
and 2008.




Financing Activities.For the three months ended March 31, 2009, financing activities provided
net cash of $282,250, consisting of the gross proceeds from the sale of common
stock of $460,000, reduced by the payment of private placement offering costs of
$77,750, and the repayment of a note payable to a consultant in the amount of
$100,000. There were no financing activities during the three months ended March
31, 2008.





Subsequent
to March 31, 2009, the Company sold an aggregate of 500,000 common stock units
on April 6, 2009 to accredited investors in a third closing of the third private
placement at a per unit price of $0.50, resulting in aggregate gross proceeds to
the Company of $250,000. Net cash proceeds to the Company were
$214,800.





Principal
Commitments




At March
31, 2009, the Company did not have any material commitments for capital
expenditures. The Company’s principal commitments at March 31, 2009 consisted of
the liquidated damages payable under the registration rights agreement of
$74,000, and the contractual obligations as summarized below.




31




Effective
March 22, 2006, Lixte entered into a CRADA, as amended, with the NINDS of the
NIH. The CRADA is for a term of 42 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 $200,000 was due within 180 days of the
effective date and was paid in full on July 6, 2006. The second $200,000 was
paid in full on June 29, 2007. In June 2008, the CRADA was extended to September
30, 2009, with no additional funding required for the period between July 1,
2008 and September 30, 2008. However, for the period from October 1, 2008
through September 30, 2009, the Company has agreed to provide additional funding
under the CRADA of $200,000, to be paid in four quarterly installments of
$50,000 each commencing on October 1, 2008. The first and second installments of
$50,000 were paid on September 29, 2008 and March 5, 2009,
respectively.




On
February 5, 2007, Lixte entered into a two-year agreement (the “Chem-Master
Agreement”) with Chem-Master International, Inc. (“Chem-Master”), a company
co-owned by Francis Johnson, a consultant to the Company, 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 had not
been terminated, the Company 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. The Company granted the second five-year
option on February 5, 2009.




On
January 29, 2008, the Chem-Master Agreement was amended to extend its term to
February 15, 2014, and to expressly provide for the design and synthesis of a
new series of compounds designated as “LB-3”. Pursuant to the amendment, the
Company issued 100,000 shares of its restricted common stock and granted an
option to purchase 200,000 shares of common stock. The option is exercisable for
a period of two years from vesting date at $1.65 per share, with one-half
(100,000 shares) vesting on August 1, 2009, and one-half (100,000 shares)
vesting on February 1, 2011.




Pursuant
to the Chem-Master Agreement, the Company reimbursed Chem-Master for the costs
of materials, labor, and expenses aggregating $9,000 and $8,750 during the three
month ended March 31, 2009 and 2008, respectively.




During
September 2008, the Company engaged an internet-based investor information
service, to enhance awareness of the Company’s progress in developing a
portfolio of pharmacological agents at an initial cost of $2,500, plus $500 per
month for a period of twelve months.




Effective
as of September 19, 2008, the Company entered into an agreement with the NIH
providing the Company with an exclusive license for all patents submitted
jointly with the NIH under the CRADA. The agreement provided for an initial
payment of $25,000 to NIH within 60 days of September 19, 2008, and for a
minimum annual royalty of $30,000 on January 1 of each calendar year following
the year in which the CRADA is terminated. The agreement also provides for the
Company to pay specified royalties based on (i) net sales by the Company and its
sub-licensees, (ii) the achievement of certain clinical benchmarks, and (iii)
the granting of sublicenses. The Company paid the initial $25,000 obligation on
November 10, 2008.




During
October 2008, the Company engaged Southern Research Institute, Birmingham,
Alabama, to assess one lead compound from each of two classes of its proprietary
pharmacological agents for effects on normal neuronal cells and to determine if
the compounds protect normal brain cells from injury in several different models
of chemical and traumatic brain injury. The goal is to determine if these agents
have promise as potentially useful for the prevention, amelioration or delay of
progression of neurodegenerative diseases such as Alzheimer’s disease and other
neurological diseases or impairments resulting from trauma and/or other diverse
or unknown origins. The Company agreed to pay a fee not to exceed $50,000 over a
four-month period for such services, of which an advance for $12,500 was paid
during 2008.




32




On
October 7, 2008, the Company appointed Dr. Mel Sorensen to its Board of
Directors. Dr. Sorensen is a medical oncologist with extensive experience in
cancer drug development, first at the National Cancer Institute, then at Bayer
and GlaxoSmithKline, before becoming President and CEO of a new cancer
therapeutics company, Ascenta Therapeutics, in 2004. Dr. Sorensen is being paid
an annual consulting fee of $40,000, payable in quarterly installments over a
one-year period commencing October 7, 2008, to assist the Company in identifying
a strategic partner. Dr. Sorensen was also granted a stock option to purchase
200,000 shares of the Company’s common stock, exercisable at $0.50 per share for
a period of five years from each tranche’s vesting date. The option vests as to
25,000 shares on January 1, 2009, and a further 25,000 shares on the first day
of each subsequent calendar quarter until all of the shares are
vested.




Off-Balance
Sheet Arrangements




At March
31, 2009, the Company did not have any transactions, obligations or
relationships that could be considered off-balance sheet
arrangements.


33





ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.




ITEM
      4T.
            CONTROLS
      AND PROCEDURES




(a)
Evaluation of Disclosure Controls and Procedures




Disclosure
Controls and procedures are designed to ensure that information required to be
disclosed in the reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in the reports filed under the
Exchange Act is accumulated and communicated to management.




As of
March 31, 2009, the Company’s Chief Executive Officer and Chief Financial
Officer (who is the same individual) evaluated the effectiveness of the design
and operation of the Company’s disclosure controls and procedures. Based upon
and as of the date of that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure controls and
procedures are effective to ensure that the information required to be disclosed
in the reports the Company files and submits under the Exchange Act is recorded,
processed, summarized, and reported as and when required.




(b)
Changes in Internal Controls Over Financial Reporting




There
were no changes in the Company’s internal control over financial reporting or in
other factors that materially affect, or are reasonably likely to materially
affect, those controls subsequent to the date of the Company’s most recent
evaluation.


34





PART
II. OTHER INFORMATION




Item 1.
Legal Proceedings





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




Item 1A.
Risk Factors





Not
applicable.





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





Not
applicable.





Item 3.
Defaults Upon Senior Securities





Not
applicable.




Item 4.
Submission of Matters to a Vote of Security Holders





Not
applicable.




Item 5.
Other Information





Not
applicable.




Item 6.
 Exhibits




A list of
exhibits required to be filed as part of this report is set forth in the Index
to Exhibits, which immediately precedes such exhibits, and is incorporated
herein by reference.


35





SIGNATURES




In
accordance with the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




LIXTE BIOTECHNOLOGY HOLDINGS,
      INC.(Registrant)Date: 
      May 12, 2009
              By:
              /s/ JOHN S. KOVACHJohn
      S. KovachChief
      Executive Officer and Chief Financial Officer(Principal
      financial and accounting
officer)


36


INDEX TO
EXHIBITS





Exhibit
                Number
              
              Description of Document31.1
              
              Certifications
      under Section 302 of the Sarbanes-Oxley Act of 2002.
(1)32.1
              
              Certifications
      under Section 906 of the Sarbanes-Oxley Act of 2002.
  (1)





(1)
            Filed
      herewith.


37