K E N 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
April 11, 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 third set of comments to
our initial filing on Form SB-2 on March 16, 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 March 16, 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. We note the company's supplemental response to our previous
comment 19. It appears that the spin-off of the shares of Cancer
Therapeutics to the shareholders of Immune Complex Corporation in June
2000 is not consistent with the Division's views, set forth in Staff
Legal Bulletin No. 4 (CF), regarding section 5 of the Securities Act
of 1933 as applied to spin-offs. It appears that Cancer Therapeutics,
therefore, was required to register the spin-off under the Securities
Act of 1933. Please revise your prospectus disclosure to describe the
impact of a possible Section 5 violation. For example, please reflect
the amount subject to possible rescission on your financial
statements, describe the matter in a note to the financial statements,
add risk factor disclosure and provide MD&A disclosure.
RESPONSE: Please see additional disclosures on pages3, 10 and in the
notes to the company's financial statements on page F/S-14.
Prospectus Cover Page
2. COMMENT. Limit the outside cover to one EDGAR page in accordance with
Item 501(a) of Regulation S-B.
RESPONSE: We have limited the outside cover to one EDGAR page in
accordance with Item 501(a) of Regulation S-B. .
Prospectus Summary - Going Concern
3. COMMENT. Refer to prior comment 7. The interim period discussed should
reconcile to the most recent financial statements presented - i.e.,
November 30, 2004. This comment also applies to the narrative
discussion provided under "Summary of Financial Data", "MD&A -
Liquidity and Capital Resources" and elsewhere throughout the filing.
Please make all appropriate revisions.
RESPONSE: Please see additional disclosures on page 2 and throughout
the filing.
Summary of Financial Data
4. COMMENT. Please reconcile the amounts recorded under the column
labeled "For the year ended May 31, 2004" to the audited financial
statements for the same period. In this connection, remove the minus
sign from the amounts recorded for total assets and total number of
issued shares of common stock in the column labeled "For the six
months ended November 30, 2004."
RESPONSE: Please see additional disclosures on page 2.
Risk Factors
5. COMMENT. Your risk factor subheadings are not visually distinctive
from the general text. Please use italics or bold-faced type in
addition to italics so that your subheadings will be readily
distinguishable.
RESPONSE: We have used bold-faced type for the risk factor subheadings
as seen on pages 3-5.
Dilution - Net Tangible Book Value
6. COMMENT. Refer to prior comment 12. Although you have factored in the
effect of the offering expenses (68,559), the financial information
should be updated to the most recent period reported - i.e., November
30, 2004. Please revise.
RESPONSE: Please see additional disclosures on page 7.
Management's Discussion and Analysis
Results of Operations, pages 9 and 10 and Statements of Operations, page F/S-5
7. COMMENT. Refer to prior comment 16. We note that the bad debt expense
account has been eliminated and its amounts for employee and related
party loans have been reclassified to "General and Administrative
Expenses." Please expand discussion under this section to describe
this adjustment and disclose the amount of contract labor recorded
during the fiscal year ended May 31, 2004. In this connection,
supplementally explain what expenses aside from reclassified bad debt
expense were added to general and administrative expense for that
period. Also, considering management's efforts in keeping costs to a
minimum in fiscal 2004, discuss the reason(s) for the substantial
increase in G&A expenses for the six months ended November 30, 2004
compared to 2003 for the same period.
RESPONSE: Please see additional disclosures on pages 9-11.
Business
8. COMMENT. Please disclose the impact of the clinical hold of IND 8725.
Also, it has come to our attention that INDs 6533 and 2792 show no
active enrollment. Please address the impact of the lack of active
enrollment on INDs 6533 and 2792. It has also come to our attention
that you have received a warning letter from the Food and Drug
Administration in November 2003 for false and misleading internet
promotion and for representing an investigational new drug as safe and
effective for the purposes for which it is under review. If true,
please add disclosure addressing the substance of the warning letter
and how it has impacted your operations. Finally, to the extent your
disclosure gives the impression that your treatments are effective,
revise your disclosure to discuss how you determined efficacy if your
treatments are still under investigation by the FDA.
RESPONSE: Please see additional disclosures on page 19.
Certain Relationships and Related Transactions
9. COMMENT. Refer to prior comment 29. We note the recalculation made on
the statement of stockholders' equity for the 1.3 million shares
issued to your corporate counsel (page 26) on May 10, 2004 (from $0.05
per share to $0.10 per share). However, without a reliable, verifiable
and objectively determinable measure of fair value, a valuation
similar to that for shares sold for cash on May 28, 2004 (i.e., $0.375
per share) should be applied to these shares. Any amount exceeding the
value of the services rendered (either $65,000 or$130,000) should be
applied to reduce additional paid-in-capital. In this connection,
reconcile the value of services rendered on page 7 with the amount
recorded on the statement of stockholders' equity. Please make all
appropriate revisions.
RESPONSE: Please see additional disclosures on pages 23, F/S-7 and
F/S-12.
10. COMMENT. Refer to prior comment 30. Although the per share valuation
of shares to the chief financial officer was increased from $0.05 per
share to $0.10 per share, any excess amount should be applied to
reduce additional paid-in-capital (rather than being recorded as an
additional expense). Also, the per share valuation for issuances on
September 20, 2004 to principal shareholders (200,000 shares to
Healthcare Enterprise Group and 150,000 shares to Industrial
Management and Equity Limited) should be the same. Any amounts
exceeding the outstanding obligation ($75,000) or value of services
provided (37,500), respectively, should be applied to reduce
additional paid-in-capital. Please revise.
RESPONSE: Please see additional disclosures on pages 24, F/S-22, 23
and F/S-29.
11. COMMENT. Refer to prior comment 31. Supplementally confirm whether or
not the accounting services performed by Mr. Gardner preceded the
commencement of his employment as the Company's chief financial
officer. In this connection, provide specific detail of the type of
accounting services provided. We may have further comment after
reviewing your response.
RESPONSE: Mr. Gardner provided accounting services prior to his
employment as the Company's Chief Financial Officer. These services
consisted of preparation and compilation of historical financial
information and financial statements. In this regard, Mr. Gardner
spent considerable time reviewing files and documentation in order to
perform these services.
Financial statements
General
12. COMMENT. Refer to prior comment 38. There is no indication that the
consent provided in this filing has been updated. A currently dated
consent of the independent accountants should be included in any
amendment to the registration statement.
RESPONSE: Please see the updated consents on page F/S-4.
Note 2 - Significant Accounting Policies
d. Revenue Recognition Policy, pages F/S-8 and F/S-9
13. COMMENT. Refer to prior comment 39. We note that your contracts are
single element arrangements. Supplementally confirm that revenue is
not recognized until all of the services required by each individual
contract have been completed. Your response is not clear regarding
"monthly services" provided and whether or not revenue is recognized
at that time instead of upon completion of the contract. Based on your
response to comment 40, it appears that revenues are recognized prior
to completion of the contract; and therefore have been overstated. Any
amounts recorded as revenue on uncompleted contracts should be
adjusted to deferred revenue until such contracts have been completed.
In this connection, disclose the terms of the individual contracts in
this note and include a form contract as an exhibit to the filing.
Please revise.
RESPONSE: Refer to response to prior comment 40. As noted in the notes
to the amended financial statements, our contracts are typically for a
stated term at a stated monthly fee. These fees are recorded as
revenue on a monthly basis when they become due. See specimen contract
as an exhibit to this filing.
14. COMMENT. Refer to comment 40. We note that your response only makes
reference to unrecorded receivables of $3,000 as of May 31, 2004.
Supplementally confirm that these circumstances (i.e., immateriality)
also apply to the period ended November 30, 2004. If not, please
explain the absence of accounts receivable at the end of such period
or revise to record the amount outstanding. We may have further
comment after reviewing your response.
RESPONSE: As the operations of the company for the six months ended
November 30, 2004 were not significantly different than those of the
year ended May 31, 2004, we deem the $3,000 of revenue recorded
subsequent to May 31, 2004 as immaterial to that period as well. All
revenues were received during the period ended November 30, 2004 and
therefore there were no material accounts receivable at that date.
Financial Statements for the fiscal years ended May 31, 2004 and 2003
15. COMMENT. Since as a result of the elimination of bad debt expense the
amounts recorded on the financial statements for fiscal years May 31,
2004 and 2003 have changed significantly from those previously filed
with the commission, disclosure should be provided to report on the
restatement of these financial statements in an explanatory note.
Refer to paragraph 37 of APB 20. In this connection, the financial
statements should be labeled as "restated" for both fiscal years. In
addition, the auditors' report should be revised to make reference to
the disclosures regarding restatement. Please revise.
RESPONSE: The financial statements have been labeled as "restated" for
both fiscal years and include an explanatory note (Note 13). The
auditor's report has been revised referencing this restatement.
Financial statements for the periods ended November 30, 2004 and 2003
Statements of Operations, page F/S-17
16. COMMENT. Net loss per share should be disclosed on the face of the
statement of operations. Refer to the guidance of SFAS 128. Please
revise.
RESPONSE: Please see additional disclosures on page F/S-21.
Statements of Cash Flows, page F/S-19
17. COMMENT. Common stock issued for services should be repositioned
beneath "Adjustments to reconcile net loss to net cash by operating
activities" instead of "Change in operating assets and liabilities".
In this connection, based on the comments issued above under "Certain
Relationships and Related Transactions" for common stock issuances,
please make all appropriate revisions here and on the statement of
stockholders' deficit.
RESPONSE: Please see additional disclosures on page F/S-24.
Note 5 - Equity Transactions, page F/S-23
18. COMMENT. The disclosure in this note should be expanded to include
common stock issuances made during the period ended November 30, 2004
as described on pages 24 and 26. Please revise.
RESPONSE: Please see additional disclosures on page F/S-29.
Note 7 - Notes Payable - Related Parties, page F/S-23
19. COMMENT. The column labeled "August 31, 2003" and the amounts
presented beneath this caption in the table provided should be
replaced with information from the fiscal year ended May 31, 2004.
Please revise.
RESPONSE: Please see additional disclosures on page F/S-30.
Part II - Information Not Required in Prospectus
Exhibits
20. COMMENT. Many of the provisions of the form of subscription agreement,
filed as exhibit 10.6, do not appear to apply to a registered public
offering; specifically, see section 6, 8 (c) and section 16. These
should be removed.
RESPONSE: Please see the revised subscription agreement in accordance
with this comment.
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
cc: Robert Oldham, M.D.
Michael Low
Chene Gardner