K E N E T H I. D E N O S, P. C.
11585 SOUTH STATE, SUITE 102
DRAPER, UTAH 84020
(801)816-2511
FAX:(801)816-2599
KDENOS@DENOSLAW.COM
February 17, 2005
VIA FEDERAL EXPRESS
Mr. Jay Ingram
Mr. John Reynolds
U.S. SECURITIES AND EXCHANGE COMMISSION
Division of Corporate Finance
Office of Emerging Growth Companies
450 Fifth Street, N.W., Mail Stop 0511
Washington, D.C. 20549
Telephone (202) 942-2791
Facsimile (202) 942-9516
Re: Cancer Therapeutics, Inc.
Registration Statement on Form SB-2
File No. 333-119915
Dear Messrs. Ingram and Reynolds:
This firm serves as counsel to Cancer Therapeutics, Inc. in connection
with its submission of a registration statement with the Securities and Exchange
Commission on Form SB-2. We acknowledge receipt of your second set of comments
to our initial filing on Form SB-2 on January 25, 2005. We thank you for your
input and this letter is intended to respond accordingly. Each paragraph number
of this letter corresponds to your comments to us dated January 25, 2005, and we
have attached two redlined copies and one clean copy, each such copy bound, of
our amended registration statement on Form SB-2 for your timely review and
comment as appropriate. We note to you that references to page numbers in the
registration statement will be with respect to the redlined copies.
General
_______
1. COMMENT. Please file on EDGAR a redlined version of each future
amendment to your registration statement. See Rule 472 of Regulation
C.
RESPONSE: We have filed the redlined version of this amendment in
accordance with Rule 472 of Regulation C.
2. COMMENT. Supplementally confirm your awareness that, prior to any
involvement of any broker-dealer in the offering, such broker-dealer
must seek and obtain clearance of the underwriting compensation and
arrangements from the NASD Corporate Finance.
RESPONSE: We are aware that prior to any involvement of any
broker-dealer in the offering, such broker-dealer must seek and obtain
clearance of the underwriting compensation and arrangements from NASD
Corporate Finance.
Registration Statement Facing Page
__________________________________
3. COMMENT. Please include the Commission registration number on the
facing page of all future amendments to this registration statement.
RESPONSE: We have included the Commission registration number on the
facing page.
Prospectus Cover Page
_____________________
4. COMMENT. Delete the final two paragraphs on the cover page. See Item
501(a) of Regulation S-B.
RESPONSE: We have deleted the final two paragraphs on the cover page.
Table of Contents
_________________
5. COMMENT. Remove the last three items of the table unless these items
are to be delivered with final prospectus.
RESPONSE: We have removed these items from the table of contents.
6. COMMENT. The EDGAR filing does not contain page numbers. Please
revise.
RESPONSE: We have included page numbers in the EDGAR filing.
Prospectus Summary - Going Concern
__________________________________
7. COMMENT. Typographical errors in this section should be corrected for
the "three month period ended August 31, 2003" (should be "2004") and
"accumulated deficit of $2,726,721" (should be "$2,752,899). Please
revise.
RESPONSE: We have corrected the errors in this section. Please see the
corrections on page 2.
Risk Factors
____________
8. COMMENT. The Second risk factor is vague and mitigating. The company
has no working capital, will be insolvent even after the maximum
offering proceeds, is in default on several loan obligations and has
an Internal Revenue lien against its assets. "The financial condition
is dire" per several other disclosures in the prospectus. Please
revise the risk factor.
RESPONSE: Please see the additional disclosures on page 3.
9. COMMENT. We reissue our previous comment 10 because some of your risk
factors are still too broad and generic and do not state the material
risk specific to Cancer Therapeutics, Inc. We remind you that, as a
general rule, a risk factor is probably too generic if it is readily
transferable to other offering documents or describes circumstances or
factual situations that are equally applicable to other similarly
situated businesses. The following risk factors should be revised,
deleted or moved to another section of the prospectus as appropriate:
10, 12, 14, and 15.
RESPONSE: Please see the additional disclosures on pages 4-6.
10. COMMENT. We reissue our previous comment 11. To the extent possible,
avoid the generic conclusion you make in some of your risk factors
that the risk discussed would have a material adverse effect on your
business, income, financial condition, and/or operating results or
your business may be harmed. For example, see the third risk factor.
Instead, replace this language with specific disclosure of how your
business, financial condition, and/or operating results would be
affected.
RESPONSE: Please see the additional disclosures on page 3-6.
Use of Proceeds
_______________
11. COMMENT. Commensurate with Item 504 of Regulation S-B, please disclose
the priority of each purpose. Also, please address the full range of
offering proceeds. Currently, you merely provide disclosure assuming
the minimum and maximum amounts are sold.
RESPONSE: We have modified this section on Page 7 consistent with the
above comment.
Dilution - Net Tangible Book Value
__________________________________
12. COMMENT. We note your discussion of post offering pro forma net book
values does not appear to factor in the effect of offering expenses
($68,559). Please revise your computations to factor in such costs and
revise the table to provide us with a supplemental schedule supporting
the revised amounts.
RESPONSE: We have revised this section on pages 8 and 9 accordingly.
Management's Discussion and Analysis
____________________________________
Overview
________
13. COMMENT. Please provide a basis for your statement that Cancer
Therapeutics is "an experienced U.S. producer and provider of
treatments for cancer ...." To this extent, we reissue our previous
comment 17. The company is merely in the research stage and has
minimal revenues of any kind.
RESPONSE: Please see the additional disclosures on page 10.
14. COMMENT. We note reliance on what appear to be market analyses. See,
for example, reference to the American Cancer Society's Cancer
Statistics 2004. We thus partially reissue our previous comment 33 and
urge you to disclose whether the source is publicly available for no
or nominal charge. If the sources are not available for no or nominal
charge, then the company must adopt the information as the company's
own or provide a consent for it's' use. Some examples include the
following. This is not an exhaustive list.
a. The disclosure in the second, third, and fourth paragraphs of the
"Overview" subsection on page 13;
b. The disclosure in the
"Conventional Cancer Treatment Modalities" subsection on page 19;
c. The disclosure in the "Biotherapy Treatment" section on page 20;
d. The disclosure in the "Annual Target Market" subsection commencing
on page 20.
RESPONSE: Please see the additional disclosures on pages 10-20.
15. Please provide a basis for the statement appearing on page 13 that
reads, "[e]ven if 10% of 1.4 million newly diagnosed patients choose
to store their tumors, this equates to a $175 million market
opportunity." All projections must comply with the guidelines for
projections in Item 10 of Regulations S-K and S_B. We may have further
comment.
RESPONSE: The Company has deleted this statement. Please see page 10.
Results of Operations
_____________________
Results of Operations and Statements of Operations, page F/S-5
16. COMMENT. Refer to prior comments 24 and 56. Based on the expanded
disclosure provided on bad debt expense, supplementally explain how
the amounts written off were "loans" since payments were made to
volunteers you were attempting to employ and no repayment was expected
once the volunteer left the Company. It appears that the funds
provided were never intended as loans, and in substance, the
transactions were equivalent to paying contractors for services
rendered and should have been accounted for as such. We may have
further comment after reviewing your response.
RESPONSE: The Commission's position is correct, and the Company has
revised its financial statements accordingly. Please see changes to the
Management's Discussion and Analysis of Financial Condition and Results
of Operation on page 11, as well as the Company's Statements of
Operations for each of the fiscal years ended May 31, 2003 and 2004 on
page F/S-5.
Bad Debt Expense
17. COMMENT. The "employee and related party loans written off...during
the fiscal years ended May 31, 2004 and 2003" should be fully
discussed hereunder and/or in Certain Relationships and Related
Transactions section, including names, amounts and reasons pursuant to
Item 404 of Regulation S-B.
RESPONSE: In accordance with our response to comment 16, we have also
updated the disclosure under Related Party Transactions on Page 25.
Business
________
Corporate Organization
______________________
18. COMMENT. Immune Complex Corporation may be considered a predecessor of
the company as defined in Rule 405 of Regulation C under the
Securities Act. Please address and, if so, include the history and
development of the predecessor. Any insolvency proceedings against it
esulting in the liquidation should be discussed. Indicate any overlap
of officers and directors with those of the company.
RESPONSE: Please see the additional disclosures on page 13.
19. Consider the exemption from registration available for the spin-off
and advise. See Staff Legal Bulletin No. 4 dated September 16, 1997 in
this regard.
RESPONSE: We note that Staff Legal Bulletin No. 4 (September 16, 1997)
("Bulletin") provides that spun off shares will not have to be
registered with the Commission if the following five conditions are
met:
1. The shareholders of Immune Complex Corporation do not provide
consideration for their receipt of Cancer Therapeutics shares;
2. The spin off is pro-rata to the shareholders of Cancer
Therapeutics;
3. Immune Complex Corporation provides adequate information about
the spin off and Cancer Therapeutics to its shareholders and to
trading markets;
4. Immune Complex Corporation has a valid business purpose for the
spin off; and
5. Immune Complex Corporation has either formed Cancer Therapeutics
or has held its Cancer Therapeutics shares for more than two
years.
Pursuant to the Bulletin, the spin off of Cancer Therapeutics in
liquidation of Immune Complex Corporation met the following conditions:
1. The shareholders of Immune Complex Corporation did not provide
consideration for their receipt of Cancer Therapeutics shares;
2. The spin off of Cancer Therapeutics shares was pro-rata to the
shareholders of Immune Complex Corporation; and
3. The spin off of Cancer Therapeutics was the result of a business
decision by the board of Immune Complex Corporation, a defunct
company, to allow its shareholders to directly hold shares of
Cancer Therapeutics with the hope that the growth and development
of Cancer Therapeutics would permit the Immune Complex
Corporation Shareholders to recover a portion of their losses in
holding Immune Complex Corporation shares.
Immune Complex Corporation only held its shares of Cancer Therapeutics
for approximately 21 months and, consequently, the required holding period
has not been met. It is therefore clear that the spin off of Cancer
Therapeutics did not specifically meet all of the criteria of the Bulletin
and that the relevant analysis would appear to turn on whether the spin off
is a distribution of securities. But whether or not the spin off is indeed
a distribution, what course of action would be in the best interests of the
shareholders of Immune Complex Corporation shareholders to enable them to
benefit from their receipt of Cancer Therapeutics shares? We believe that,
since the underlying purpose of the securities laws is to provide full and
fair disclosure to investors, particularly investors who provide
consideration in exchange for securities, the dissemination of the
registration statement and future annual reports filed under the Exchange
Act (including other Exchange Act Filings Accessible on the EDGAR system)
to Immune Complex Corporation shareholders who received Cancer Therapeutics
shares is the course of action that best positions them to benefit from a
transaction that, although was three months short of
technical compliance with the Bulletin, strives to achieve its intent. We,
of course, welcome the Commission's further comments on this position.
20. COMMENT. Please define "biotherapy" and "oncology markets".
RESPONSE: We have defined "biotherapy" and "oncology markets." on
pages 1 and 13.
The Business of Cancer Therapeutics
___________________________________
Services
21. COMMENT. Please continue to revise your disclosure consistent with our
previous comment 36. Because you are still in the developmental state
of advancing the service associated with Tumor Derived Activated
Cells, please provide an estimated timeframe associated with the
developmental process, i.e., discuss how long the service will be in
the developmental stage.
RESPONSE: Please see the additional disclosures on pages 14 and 15.
Outlook
_______
22. COMMENT. We note reference to the possibility that some patients may
be cured of cancer through the use of biotherapy. Clarify whether
cancer may be "cured" and if so, please provide a basis for your
assertion that a "cure" is possible through biotherapy or delete the
paragraph.
RESPONSE: We have deleted the paragraph. Please see page 16.
Competition
___________
23. COMMENT. We continue to note the disclosure regarding your
competitors. Although you disclose that you have received the
information from your competitors' websites and from their printed
information, the staff is troubled by the disclosure since it appears
that the company is making representations that are not properly
attributable to the named entities.
RESPONSE: Please see the additional disclosures on pages 19 and 20.
Governmental Approval
_____________________
24. COMMENT. We partially reissue our previous comment 42. Please explain
how the failure to possess FDA approval impacts your operations,
financially and otherwise.
RESPONSE: Please see the additional disclosures on pages 20 and 21.
Directors, Executive Officers...
________________________________
25. COMMENT. The employment or consulting agreements with Robert Oldham,
Michael Low and Walter Lewko should be filed as exhibits to the
amended registration statement.
RESPONSE: We have filed exhibits for Robert Oldham, Michael Low and
Walter Lewko detailing their employment or consulting agreements.
26. COMMENT. Business time being spent by each of the executive officers
should be stated.
RESPONSE: Please see the additional disclosures on page 22.
Certain Relationships and Related Party Transactions
____________________________________________________
27. COMMENT. We partially reissue our previous comment 46. The information
contained in Note 7 to the financial statements must be clearly
reflected in this section of the prospectus including outstanding
balances and interest rates. Currently, it is difficult to ascertain
how the information corresponds.
RESPONSE: Please see the additional disclosures on page 25, under
Related Party Transaction.
28. COMMENT. With respect to the financial advisory agreement with
Industrial Management & Equity Limited, we note reference to "business
combination transactions." Please add disclosure that addresses
whether your company's officers, directors, its affiliates or
associates have had any preliminary contact or discussions with and
whether there are any present plans, proposals, arrangements or
understandings with any representatives of the owners of any business
or company regarding the possibility of an acquisition or merger. We
may have further comment.
RESPONSE: Please see the additional disclosures on page 25.
29. COMMENT. Refer to prior comment 49. We note the disclosure added to
the first paragraph of this section. However, valuation of the shares
issued for services in May 2004 (to John Thomas - see page 29) are
more closely related to the shares sold for cash on May 28th (to a
related party) than to an assumed exercising price of attached
warrants. Therefore, the average purchase price indicated to support
such valuation of these is not acceptable. Please recalculate the
value assigned to the 1.3 million shares issued and apply the issuance
in excess of $65,000 (see page 11) against additional paid-in-capital.
RESPONSE: We have recalculated the value assigned to the 1.3 million
shares issued. Please see this disclosure on page 24.
30. COMMENT. We note the paragraph added at the end of this section
explaining how the valuation of shares issued was determined. However,
since all of the issuances in September 2004 were with related parties
and only within 10 days of each other, the varied share valuations do
not appear to be reasonable. Assuming the amounts owed (and in one
instance, the estimated value of services rendered) are known, the
number of shares issued should have been based on a more consistent
per share valuation. Since there were no shares sold for cash during
this period, the minimum per share amount should not be less than the
offering price of $.10 per share proposed in your initial filing. Any
issuances in excess of this amount should be applied against
additional paid-in-capital. Please revise.
RESPONSE: Management used its best efforts to negotiate the issuance of
the shares referenced above, and had to deal with each negotiation on a
separate basis, irrespective of its ability to negotiate more or less
favorable terms on other transactions during the same time period.
Nevertheless, the Company has revised its financial statements in
accordance with the Commissions recommendations. Please see the amended
disclosures on pages 24 and 25.
31. COMMENT. Information disclosed on page 29 indicates that the 1 million
shares issued to your Chief Financial Officer (CFO), Mr. Gardner, was
to "convert a preexisting obligation of $50,000" in connection with an
engagement for accounting services dated May 15, 2004. According to
page 25, Mr. Gardner has served as your CFO "since May 2004."
Supplementally confirm that the services provided by Mr. Gardner for
which he earned $50,000 preceded his employment by the Company. In
this connection, describe what accounting services he provided. We may
have further comment after reviewing your response.
RESPONSE: The services provided by Mr. Gardner for which he earned
$50,000 were for accounting services for prior years as well as
accounting during the Company's 2004 fiscal year.
Market for Common Equity...
___________________________
32. COMMENT. Include the second paragraph hereunder as a risk factor.
RESPONSE: We have included this second paragraph as a risk factor on
page 5.
Plan of Distribution
____________________
33. COMMENT. Please identify the "officers and directors" who will offer
and sell the shares.
RESPONSE: We have identified the officers and directors on page 30 who
will be assisting the company in selling the shares..
34. COMMENT. The first sentence of the second paragraph is not correct.
RESPONSE: Please see the correction on page 30.
35. COMMENT. If a subscription agreement is to be used in the offering,
please file a form of agreement as an exhibit or attach it to the
amended prospectus.
RESPONSE: We have attached a form of the subscription agreement to the
amended prospectus.
36. COMMENT. An executed escrow agreement should be filed.
RESPONSE: We have attached an executed escrow agreement to the amended
prospectus.
Financial Statements
____________________
General
_______
37. COMMENT. Please note the updating requirements for the financial
statements pursuant to Item 310(g) of Regulations S-B.
RESPONSE: We have updated the financial statements in accordance with
Item 310(g) of Regulations S-B. Please see pages F/S-16 through F/S-31.
38. COMMENT. A currently dated consent of the independent accountants
should be included in any amendment to the registration statement.
RESPONSE: We have included a currently dated consent of the independent
accountants to this registration statement.
Note 2 - Significant Accounting Policies
________________________________________
d. Revenue Recognition Policy, pages F/S-8 and F/S-9
__________________________________________________________
39. COMMENT. Refer to prior comment 57. Based on your response, it appears
that you are using contract -------- accounting. We do not believe
that contract accounting is the appropriate method to be used to
recognize revenue because you are not providing services that are
essential to the construction or production of tangible assets. Refer
to footnote 1 of SOP 81-1. In accordance with SAB 101, you must
recognize revenue when you have completed (not commenced) all of the
services required by the --------- contract (single element
arrangement) or, if applicable, recognize revenue when you complete
individual elements of the contract (multiple element arrangement). We
note that your primary service is producing and providing treatments
for cancer described as "biotherapy." Although you do not describe the
nature of each of the services identified, it appears to us that your
contracts are
single element arrangements and have no stand-alone value. If you
believe that your contracts are multiple element arrangements and you
can recognize revenue at different stages of the contract, you must
demonstrate that each of the individual services you provide
represents a separate earnings process, and that a reliable,
verifiable and objectively determinable measure of fair value can be
determined for each individual element. Therefore, please explain to
us why you believe that your contracts are multiple element
arrangements and address in sufficient detail each condition of the
response to Question 4 of SAB 101: Revenue Recognition in Financial
Statements-Frequently Asked Questions and Answer, Topic
13.A.3-Substantial Performance and Acceptance. Refer also to the
guidance of EITF 00-21, Accounting for Multiple Element Revenue
Arrangements. We may have further comment upon review of your
response.
RESPONSE: Cancer Therapeutics provides Cryobank services, TDAC
feasibility and production and vaccine feasibility and production. A
contract is signed between Cancer Therapeutics and the patient at the
beginning of an engagement for services. The Company's contracts are
single element arrangements and provide for monthly services which are
typically for the storage and maintenance of biological specimens for
individuals or organizations. Revenue is recognized according to the
terms of each individual contract and in accordance with the Company's
revenue recognition policy.
40. COMMENT. Refer to prior comment 58. The explanation provided is not
clear regarding the absence of accounts receivable recording.
Considering the nature of your business, it doesn't appear that all
sales were for cash. Consequently, there should be an outstanding
accounts receivable balance. In this connection, disclose in this note
how services are billed each month. Assuming services are billed in
advance for services provided during that month but not paid, and
accounts receivable balance would be recorded despite the termination
of services. Supplementally explain the basis for determining that
such outstanding receivables are immaterial and therefore should not
be recorded. We may have further comment after reviewing your
response.
RESPONSE: The Company had only one revenue generating contract in place
as of May 31, 2004. The terms of the contract called for a set $3,000
payment each month billed in arrears. This contract provided for the
maintenance of the cryogenic storage facility and was for a term of six
months ending June 30, 2004. During the term of the contract, the
previous month's contract amount had been paid during the subsequent
month. Therefore, on May 31, 2004, there is a single amount of $3,000
that should be recorded as accounts receivable. The amount had not been
accrued as of the end of the fiscal year and was deemed to be
immaterial to the financial reporting process. The amount had been
recorded in the subsequent period; the resulting misstatement will
self-correct and will have no ongoing financial impact beyond the
subsequent period. As of May 31, 2004, the effect on the financial
statements due to this immaterial passed adjustment is
an understatement of accounts receivable and an understatement of
revenue (resulting in an overstatement of accumulated deficit).
Part II - Information Not Required in Prospectus
________________________________________________
Recent Sales of Unregistered Securities
_______________________________________
41. COMMENT. Information for three years is required. See Item 701 of
Regulation S-B.
RESPONSE: Please see the additional disclosures on page 34.
We hope that our responses to your comments have been both timely and
succinct. If you require any further information, please contact me at the
number above via telephone or fax, or by e-mail at kdenos@denoslaw.com.
KENNETH I. DENOS P.C.
/s/ Kenneth I. Denos
________________________
Kenneth I. Denos,
President
cc: Robert Oldham, M.D.
Michael Low
Chene Gardner