UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

FOR THE FISCAL YEAR ENDED JUNE 30, 2016

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM _________ TO __________

 

Commission File Number: 001-37357

 

Cellceutix Corporation

(Exact name of registrant as specified in its charter)

 

Nevada

 

30-0565645

(State or other jurisdiction of incorporation)

 

(IRS Employer Identification No.)

 

100 Cummings Center, Suite 151-B

Beverly, MA 01915

(Address of principal executive offices and zip code)

 

(978) 921-4125

(Registrant’s telephone number, including area code)

 

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE

 

SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: COMMON STOCK, CLASS A, PAR VALUE $0.0001 PER SHARE

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

 

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 Website, 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 x No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

¨

Accelerated filer

x

Non-accelerated filer

¨

Smaller reporting company

¨

 

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

 

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates on December 31, 2015 was $123,251,018 (92,669,938 shares), based on the closing price of the registrant’s common stock of $1.33.

 

There were 124,608,756 and -0- shares, respectively, of the registrant’s $ 0.0001 par value Class A and Class B common stock outstanding as of August 31, 2016.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the proxy statement for the registrant’s 2016 Annual Meeting of Stockholders are incorporated herein by reference into Part III of this Annual Report on Form 10-K.

 

 
 
 

 

CELLCEUTIX CORPORATION

FORM 10-K

For the Fiscal Year Ended June 30, 2016

TABLE OF CONTENTS

 

 

PAGE NO

PART I

 

ITEM 1

BUSINESS

 

4

ITEM 1A

RISK FACTORS

 

18

ITEM 1B

UNRESOLVED STAFF COMMENTS

 

37

ITEM 2

PROPERTIES

 

37

ITEM 3

LEGAL PROCEEDINGS

 

37

ITEM 4

MINE SAFETY DISCLOSURES

 

37

 

PART II

 

ITEM 5

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

38

ITEM 6

SELECTED FINANCIAL DATA

 

39

ITEM 7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

39

ITEM 7A

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

48

ITEM 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

48

ITEM 9

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

48

ITEM 9A

CONTROLS AND PROCEDURES

 

48

ITEM 9B

OTHER INFORMATION

 

49

 

PART III

 

ITEM 10

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

50

ITEM 11

EXECUTIVE COMPENSATION

 

50

ITEM 12

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

50

ITEM 13

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

50

ITEM 14

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

50

 

PART IV

 

ITEM 15

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

51

 

SIGNATURES

 

52

 

Index to Consolidated financial statements - Cellceutix Corporation

 

F-1

 

 

2

 

PART I

 

References in this report to “Cellceutix,” “we,” “us,” and “our” refer to Cellceutix Corporation together with its subsidiaries, unless the context requires otherwise. References herein to our common stock refer to our Class A common stock, par value $0.0001 per share, unless the context requires otherwise.

 

Our fiscal year ends on June 30. When we refer to a fiscal year or quarter, we are referring to the year in which the fiscal year ends and the quarters during that fiscal year. Therefore, fiscal 2016 refers to the fiscal year ended June 30, 2016.

 

FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “ intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning our future drug development plans and projected timelines for the initiation and completion of preclinical and clinical trials; the potential for the results of ongoing preclinical or clinical trials; other statements regarding our future product development and regulatory strategies, including with respect to specific indications; any statements regarding our future financial performance, results of operations or sufficiency of capital resources to fund our operating requirements; and any other statements which are other than statements of historical fact. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include, but are not limited to, our ability to continue to fund and successfully progress internal research and development efforts and to create effective, commercially-viable drugs; our ability to effectively and timely conduct clinical trials; our ability to ultimately distribute our drug candidates; compliance with regulatory requirements; and our capital needs, as well as other factors described elsewhere in this report and our other reports filed with the Securities and Exchange Commission (the “SEC”). Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

 

Forward-looking statements speak only as of the date on which they are made. Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business. Readers are cautioned not to put undue reliance on forward-looking statements.

 

For further information about these and other risks, uncertainties and factors, please review the disclosure included in this report under “Part I, Item 1A, Risk Factors.”

 

 
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ITEM 1. BUSINESS

 

OVERVIEW OF OUR BUSINESS

 

Cellceutix is a clinical stage biopharmaceutical company developing innovative therapies with oncology, dermatology and antimicrobial applications. Cellceutix owns the rights to numerous drug compounds, including Kevetrin (thioureidobutyronitrile), our lead anti-cancer compound; Prurisol (KM-133), which is in development for psoriasis; and Brilacidin, our lead drug in a new class of compounds called defensin-mimetics.

 

The Company devotes most of its efforts and resources advancing its compounds already in clinical trials. We anticipate using our expertise to manage and perform what we believe are the most critical aspects of the product development process which include: (i) design and oversight of clinical trials; (ii) development and execution of strategies for the protection and maintenance of intellectual property rights; and (iii) interactions with regulatory authorities domestically and internationally. We expect to concentrate on product development and engage in a limited way in product discovery, avoiding the significant investment of time and financial resources that is generally required for a promising compound to be identified and brought into clinical trials.

 

At this time the Company is focusing its research and development efforts on its compounds Kevetrin, Prurisol, and Brilacidin, and to a lesser extent on our other anti-bacterial and anti-fungal compounds:

 

· Kevetrin . Kevetrin, our lead anti-cancer compound, is a small molecule compound that induces activation of p53, a protein involved in controlling cell mutations. In nearly all cancers, regardless of origin, the p53 pathway is muted from performing its anti-tumor functions. Pre-clinical research has demonstrated Kevetrin’s unique mechanism of action to induce apoptosis, slow tumor progression and reduce tumor volume in many types of cancers, including lung, breast, colon, prostate, squamous cell carcinoma and a leukemia tumor model. The United States Food and Drug Administration (FDA) has awarded Orphan Drug and Rare Pediatric Disease designations for Kevetrin for retinoblastoma and Orphan Drug designation for pancreatic cancer.

 

 

· Prurisol . Prurisol, our lead anti-psoriasis drug candidate, is a small molecule compound acting on the principles of immune modulation and PRINS ( P soriasis susceptibility-related R NA Gene In duced by S tress) reduction that has been found to be effective against psoriasis in animal models, both in induced psoriasis as well as a xenograft model with human psoriatic tissue.

 

 

· Brilacidin . Brilacidin is our lead drug in a new class of compounds called defensin-mimetics (also called host defense protein (HDP)-mimetics), which are a completely new class of antibacterial and anti-fungal small molecule compounds modeled after host defense proteins. Because defensin-mimetics can kill pathogens swiftly and thoroughly in the same manner as the human immune system, they can significantly reduce the risk of drug resistance developing. In addition, Brilacidin-OM, an oral rinse formulation, has shown antibacterial, anti-biofilm and anti-inflammatory properties, which we believe can address a significant unmet medical need and pharmacoeconomic rationale to treat cancer patients with oral mucositis. Oral mucositis, a common and often debilitating inflammation and ulceration that occurs in the mouth as a side-effect of certain cancer treatments, afflicts approximately 450,000 patients each year in the U.S., increasing treatment costs and affecting the course and outcome of cancer therapy. The FDA awarded a Fast Track designation to Brilacdin-OM for oral mucositis in November 2015.

 

 

· Other compounds . Independently, and through collaborative relationships with leading universities and institutions supported by funding through government grants, Cellceutix is developing defensin-mimetics for a wide range of indications, including otic infections, diabetic foot infections, hidradenitis suppurativa and some of the most difficult to treat multi-drug resistant fungal infections and bacterium where there is a significant and growing medical need for new therapies.

 

We are a clinical stage company. We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory agencies to begin marketing a pharmaceutical product. Developing pharmaceutical products, however, is a lengthy and very expensive process. Assuming we do not encounter any unforeseen safety or efficacy issues during the course of developing our product candidates, we do not expect to complete the development of a product candidate for several years, if ever.

 

The Company’s stock symbol is “CTIX” and is quoted on the OTCQB.

 

 
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Our Business Strategy

 

We are in the business of developing and/or acquiring innovative small molecule therapies to treat diseases with significant medical need. Our strategy is to use our business and scientific expertise to maximize the value of our diverse pipeline. We expect to develop the highest quality data and broadest intellectual property to support our compounds.

 

We currently own all development and marketing rights to our investigational products. In order to successfully develop and market our products, we may have to partner with other companies. Prospective partners may require that we grant them significant development and/or commercialization rights in return for agreeing to share the risk of development and/or commercialization.

 

The work plan we have developed for the next twelve (12) months is expected to support our clinical trials. If we find that we have underestimated the time duration or cost of our studies or if we have to undertake additional studies, due to various reasons within or outside of our control, our development timelines and/or our financing needs may be significantly impacted.

 

We are an early stage developmental pharmaceutical company. The Company has no customers, commercial products or revenues to date, and may never achieve revenues or profitable operations.

 

Pipeline Summary

 

Compound: Kevetrin

Disease: Cancer

 

Kevetrin

 

Kevetrin, our anti-cancer drug candidate, has completed a Phase 1 study at Dana-Farber Cancer Institute and Beth Israel Deaconess Medical Center (“BIDMC”). The clinical trial evaluated the safety and potential efficacy of Kevetrin in patients with advanced-stage solid tumors of various types. The primary endpoints for the study were safety, determining the maximum tolerated dose, and establishing the dose for future Phase 2 clinical trials.

 

Exposure to Kevetrin as measured by plasma concentrations have been achieved which are greater than concentrations shown to induce apoptosis in non-clinical studies. While the trial is primarily to evaluate safety of repeated cycles of Kevetrin, it is encouraging that some patients have had stabilization of tumor status during treatment. Further, Kevetrin appears to be having the expected effects on p53 in a number of the patients treated, as measured by increases in the levels of the downstream protein p21 biomarker.

 

The Phase 1 trial of Kevetrin trial yielded data validating the safety of Kevetrin and suggestive evidence of the potential clinical benefit of Kevetrin in patients who had relapsed after other cancer treatments. Because of the relatively short half-life of Kevetrin in plasma, it is the Company’s belief that administering Kevetrin multiple times per week may have an even greater clinical benefit in the planned Phase 2 trial in patients with ovarian cancer.

 

Pharmacokinetic profiles found that Kevetrin has a relatively short biological half-life (less than 2 hours) in plasma. Plasma half-life (T 1/2 ) clearance (CL) and volume of distribution (Vd) suggest that drug elimination predominantly involves hepatic mechanisms and Kevetrin undergoes rapid extensive distribution from systemic circulation into tissues. Pharmacokinetic (PK) data, as measured by area under the curve (AUC) and maximum serum concentration (Cmax) levels, further revealed that Kevetrin exhibited a dose-dependent response, has as stated a relatively short half-life (approximately 2 hours) and clears the body within one day - on average between 8 and 10 hours - though the drug can remain in the body up to approximately 24 hours, depending upon individual patient variations.

 

 
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When the duration of the treatment of a disease is shorter than the therapeutic activity of drug, single doses are given. After a single dose IV infusion administration, plasma drug concentration levels rise above and then fall below the minimum effective concentration (MEC - the minimum plasma drug concentration required to produce a desired pharmacological effect in most patients) resulting in decline in therapeutic effect. To treat cancer, multiple IV infusion regimens are required to maintain the plasma drug levels above the MEC, but below the minimum toxic concentration to achieve optimal clinical effectiveness.

 

Ideally, a dosage regimen is established for each drug to provide the correct plasma level without excessive fluctuation and drug accumulation outside the therapeutic window. Kevetrin has less than a two-hour half-life. PK results indicate that, with the current dose regimen, Kevetrin is almost completely out of plasma within 24 hours. Therefore, little drug remains for any substantial period of time afterwards.

 

Based on these findings, we believe the impact of Kevetrin when administered to patients with repeated dosing (3 times per week), as planned in the upcoming ovarian cancer trial, will achieve fairly steady levels of Kevetrin above the MEC. The sustained activation/modulation of p53 will modulate multiple signaling pathways and should substantially increase its therapeutic efficacy. As noted above, Kevetrin is administered as an intravenous therapy (IV). The Company is now researching other formulations (e.g., oral).

 

In February 2016, Cellceutix met with FDA Division of Oncology Products 1 to discuss Kevetrin’s Phase 1 study data, as well as a proposed design for a planned Phase 2 trial in patients with ovarian cancer resistant to platinum-based therapy. The FDA was agreeable to Cellceutix’s plan to initiate such a trial, and based upon the data from the Phase 1 trial, that the administration of Kevetrin doses at three times per week would be acceptable.

 

Kevetrin was granted FDA Orphan Drug Designation for the treatment of ovarian cancer and pancreatic cancer.

 

Kevetrin was granted FDA Rare Disease Designation for Kevetrin for the treatment of pediatric retinoblastoma.

 

In 2012, we entered into an agreement with BIDMC, a teaching hospital of Harvard Medical School, on an innovative research project with Kevetrin. BIDMC wishes to exploit the nuclear and/or mitochondrial pro-apoptotic function of p53 in melanoma and renal cell carcinoma, two types of cancer that are particularly resistant to therapy. We anticipate engaging in advanced discussions with the hospital when we have more resources as to the logistics and costs, net of grants, to move this project forward into Phase 2 studies of renal cell carcinomas.

 

After testing Kevetrin in preclinical studies, the University of Bologna in Italy (the "University") and The Italian Cooperative Study Group on Chronic Myeloid Leukemia (ICSG on CML) and Acute Leukemia (GIMEMA Group) approached us to test Kevetrin in a clinical trial against Acute Myelogenous Leukemia (AML). The study proposed is a Phase 2 trial evaluating Kevetrin as a single agent or in combination with cytarabine in patients with AML. The protocol was submitted in May 2015 by the Principal Investigator to the institutional review committee. In October 2015, we were advised by the Principal Investigator that there are difficulties with the funding in Italy and he asked whether we would be interested in contributing financially to the study. We have requested budgets and timelines to help us with the decision making process as we are interested in engaging in clinical trials for the use of Kevetrin in leukemias. We intend to address this potential project once we are engaged in the ovarian cancer study and have available to us additional capital and resources.

 

Compound: Prurisol (KM-133)

Disease: Psoriasis

 

Prurisol is our anti-psoriasis drug candidate. It is a small molecule compound with a molecular weight of less than 500 MW. It is synthesized through a multi-step process using commercially available starting materials. Prurisol acts through immune modulation and PRINS reduction.

 

Prurisol was studied in mice that were irradiated then engrafted with human psoriatic tissue. Groups of ten mice were treated orally for 14 days with either 10 mg/kg KM-133 once/day, 10 mg/kg KM-133 twice/day, 7.5 mg/kg methotrexate once/day or acted as controls. The mice were followed for 180 days. Endpoints were skin appearance, histological observations, and blood levels of PRINS and IL-20. For these parameters, Prurisol treatment was compared to controls and methotrexate. CD4+ and CD8+ lymphocyte counts were also measured and compared to efalizumab. It significantly reduced all psoriatic endpoints measured relative to controls (p<0.01). The higher dose of Prurisol reduced psoriatic endpoints more than methotrexate (p<0.01). In addition, there was no recurrence of psoriasis in animals treated with Prurisol, whereas psoriasis recurred after an average of 61 days in animals treated with methotrexate. Immunosuppression in animals treated with Prurisol was less severe than in those treated with efalizumab.

 

 
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In August 2015, we commenced a Phase 2 trial of Prurisol, an orally administered small molecule for the treatment of plaque psoriasis. We are developing Prurisol under FDA guidance that a 505(b)(2) drug approval pathway is an acceptable pathway for its development. This offers the benefits of a faster development process. Prurisol is eligible because it is metabolized to abacavir, which is the active moiety in the marketed drug Ziagen (abacavir sulfate). Given that psoriasis is a chronic condition with limited effective therapies that the National Psoriasis Foundation lists as affecting 125 million people worldwide, we see a tremendous market opportunity for an effective new oral treatment.

 

On May 24, 2016, the Company released top line data on its Phase 2a FDA trial for orally-administered Prurisol in the treatment of mild to moderate chronic plaque psoriasis. The trial enrolled 115 patients with mild to moderate plaque psoriasis, graded at a score of 2 (“mild”) or 3 (“moderate”) on the 5-point Investigator’s Global Assessment (IGA) scale. The IGA scale ranges from a score of 0 (“clear”) to a score of 4 (“severe”). The 12-week trial was structured with four arms, three receiving different dosing regimens of oral Prurisol (50mg, 100mg, 200mg) and one placebo arm. The primary endpoint was a 2-point reduction in the IGA score at Day 84.

 

The trial achieved its primary endpoint in patients treated with 200mg of oral Prurisol. Among the most severe psoriasis patients participating in the study, those having a baseline IGA score of 3 (“moderate”), the primary endpoint was met in 46.2% of patients who received Prurisol 200mg. These data were derived from analyses of all patients randomized across all 9 participating study sites. Additional preliminary data analyses of secondary endpoints showed patients who received any dose of Prurisol, regardless of the treatment arm, had a 1-point improvement (using the IGA scoring system) at a higher rate than that of patients in the placebo arm. This was another indication of the drug’s efficacy. Increases in Prurisol’s therapeutic response, upon evaluating patients at Day 56 (Week 8) and Day 84 (Week 12) of treatment, also were apparent in the Prurisol 200mg arm, suggesting an improving response over time. In light of Prurisol’s greater efficacy in treating moderate psoriasis cases, the Company expects the next clinical trial of Prurisol will target patients with moderate to severe psoriasis, with an optimal dosing regimen continuing to be assessed. The study’s anticipated daily dosing will be treatments of 300mg and 400mg.

 

Compound: Brilacidin

Brilacidin is in a new class of drugs called defensin-mimetics. Defensin-mimetics are non-peptide small molecule compounds modeled after host defense proteins, which represent the front-line of defense in the human immune system. It has anti-bacterial, anti-inflammatory and immunomodulatory properties. Because Brilacidin destroys bacteria in the same manner as the body naturally does, it can significantly reduce the risk of bacterial resistance.

 

Compound: Brilacidin

Disease: Acute Bacterial Skin and Skin Structure Infection (ABSSSI)

 

The intravenous formulation of our lead antibiotic candidate, Brilacidin, has the potential to treat a variety of infections, including ABSSSI, caused by drug-sensitive or drug-resistant strains of Staphylococcus aureus, including Methicillin-Resistant Staphylococcus aureus (MRSA), and by other Gram-positive bacteria.

 

The Phase 2b trial entitled "A Randomized, Double-Blind Study Comparing Three Dosing Regimens of Brilacidin to Daptomycin in the Treatment of Acute Bacterial Skin and Skin Structure Infections (ABSSSI)" completed enrollment in August 2014. On October 23, 2014, we announced positive top-line efficacy data from this Phase 2b ABSSSI trial, and on January 5, 2015, we reported the corresponding 95% confidence intervals.

 

In July 2015, at an End-of-Phase 2 Meeting, Cellceutix and FDA discussed data supporting advancement of Brilacidin into Phase 3, as well as the basic elements of a Phase 3 program in ABSSSI. This is the first Host Defense Protein (HDP) mimic to advance through Phase 2. Because HDP mimics, such as Brilacidin, represent an entirely new class of antibiotics, there is no potential cross-resistance with currently marketed antibiotics, and due to its unique mechanism of action, resistance to Brilacidin is unlikely to develop. For this and other reasons, such as its high activity against methicillin-resistant Staphylococcus aureus (a leading cause of ABSSSI), Brilacidin received designation as a Qualified Infectious Disease Product (QIDP) in November 2014. The QIDP designation was established as part of the Generating Antibiotic Incentives Now (GAIN) Act, passed by the U.S. Congress in July 2012, for the purpose of encouraging pharmaceutical companies to develop new antimicrobial drugs to treat serious and life-threatening infections. Receiving QIDP designation means that Brilacidin is now eligible for additional FDA incentives in the approval and marketing path, including Fast Track designation and Priority Review for development and a five-year extension of market exclusivity.

 

The Phase 3 ABSSSI program would include two Phase 3 ABSSSI studies, as required by FDA Guidance (October 2013), of approximately 700 subjects in each study. The two studies may enroll subjects simultaneously. In addition, the first study would include an interim analysis after a portion of the patients has been enrolled. This would provide an early assessment of both safety and efficacy.

 

 
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We had submitted our Phase 3 protocol under a Special Protocol Assessment (“SPA”) request to the FDA. A SPA is a written agreement between the U.S. Food and Drug Administration (FDA) and a drug sponsor detailing the clinical trial design, endpoints and other clinical trial facets that can be used to support regulatory approval, thereby potentially reducing the risk of bringing a drug to market. Obtaining SPA designation from the FDA is an important step as it reinforces the potential of a promising drug in clinical development. The SPA agreement delineates key statistical and clinical endpoint requirements, streamlining the process toward a product gaining FDA approval should the agreed upon criteria and outcomes be met. The SPA process itself can be iterative in nature. In fact, according to industry data, 78 percent of SPAs require multiple review cycles and an average of three months to finalize the SPA.

 

The Phase 3 protocol SPA request included specific questions from Cellceutix to facilitate a meaningful dialogue with the FDA on the proposed study design. We have received from the FDA comments and considerations for incorporation into our study design. We are now preparing our response. Additional rounds of review may occur, which can extend the review period and be beneficial in reaching agreement with the FDA on design elements. Based on the FDA’s feedback, we may reach final agreement with FDA or may decide to incorporate the advice into the design of the Phase 3 clinical study without undergoing additional rounds of review. FDA’s assessment of the SPA request, and all related feedback, are valuable in the development of Brilacidin for ABSSSI. Contingent upon the outcome of the forgoing SPA request, a U.S. and international study [may] be initiated.

 

Compound: Brilacidin

Disease: Oral Mucositis (OM)

 

In animal models of oral mucositis induced by chemoradiation, topically applied Brilacidin was shown to significantly reduce the occurrence of severe ulcerative oral mucositis by more than 90% compared to placebo. Brilacidin and related compounds have shown antibacterial, anti-biofilm and anti-inflammatory properties in various pre-clinical studies. We believe that the combination of these attributes contributed to the efficacy of Brilacidin in these animal studies.

 

The Company is engaged in a clinical trial titled a "Phase 2, Multi-center, Randomized, Double-blind, Placebo-controlled Study to Evaluate the Efficacy and Safety of Brilacidin Oral Rinse Administered Daily for 7 Weeks in Attenuating Oral Mucositis in Patients with Head and Neck Cancer Receiving Concurrent Chemotherapy and Radiotherapy". Trial recruitment is slower then what was projected by the hospitals we engaged. We believe this is happening because there are numerous competing trials for a limited patient population of head and neck cancer patients who meet the strict trial inclusion and exclusion requirements. To help hasten the completion of the study we have replaced our previous contract research organization (CRO) with another that has a proven track record in clinical trials for this indication. In addition, we brought on Dr. Steven Sonis, an expert in the treatment of OM, as an advisor, and are engaged in the opening of additional sites, to hasten completion of this trial.

 

OM represents a great area of unmet medical need and is potentially a very important and valuable asset in the Brilacidin development program.

 

Compound: Brilacidin

Disease: Inflammatory bowel disease ( IBD ), Ulcerative Proctitis / Colitis

 

Given its unique immunomodulatory properties, we have also identified inflammatory bowel disease ( IBD ), and inflammatory gastrointestinal (GI) diseases as an indication for treatment with Brilacidin. We are now engaged in an open-label Phase 2 Proof-of-Concept (P-o-C) trial of Brilacidin for the treatment of mild to moderate ulcerative proctitis (UP) / ulcerative proctosigmoiditis (UPS) in Europe.

 

The primary objective of the P-o-C trial is to assess the frequency of clinical and endoscopic remission with Brilacidin administered per rectum in subjects with active UP or UPS after 6 weeks of treatment. Secondary objectives include evaluation of safety and tolerability of Brilacidin when administered per rectum, evaluation of clinical remission at Week 2 and Week 4, assessment of systemic exposure and/or pharmacokinetics of Brilacidin when administered per rectum, assessment of the efficiency of Brilacidin by biomarker evaluation of biopsy samples for interleukin (IL)-6 and IL-1beta, and estimation of statistical power for subsequent trial(s) in UP and UPS.

 

The P-o-C trial will include 18 patients divided evenly into three cohorts. Cohort A is receiving 50 milligrams (mg) of Brilacidin once daily for 42 days. Dosing will be increased to 100mg and 200mg once daily for 42 days for Cohort B and Cohort C, respectively. Endoscopic evaluation of the rectum and mucosa up to 40 cm from the anal verge will be performed at screening and at the end of treatment/Day 42 (± 3 days). Per protocol, a safety committee will review safety and retention data (clinical laboratory findings, vital signs and adverse events) after 21 days of therapy for all six patients in each cohort before proceeding with initiating enrollment in the subsequent cohort.

 

The trial is using Brilacidin in a water base administered by enema. However, a commercial product will need a different formulation (i.e. Brilacidin in foam). Additional formulation development is needed for each indication.

 

 
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Compound: Brilacidin or Other HDP Mimics

Disease: Hidradenitis Suppurativa

 

Again, due to the unique immunomodulatory properties of the HDP mimics, along with inherent antimicrobial activity, the Company has plans to conduct a Phase 2 clinical trial of topical HDP mimic for the treatment of hidradenitis suppurativa (HS). Also known as acne inversa, HS is a chronic and debilitating inflammatory skin disease characterized by recurrent abscesses and formation of sinus tracts, typically where skin rubs together, such as the armpits, groin, between the buttocks and under the breasts. First described 176 years ago, there still is no cure and only limited effective treatment options. Reports of prevalence range widely from approximately one-half a percent up to approximately four percent of the general population. HS presents in many forms, and though considered an inflammatory condition, bacteria may play a role. In fact, studies have shown a number of hard-to-treat bacterial species are commonly isolated from HS lesions--bacteria our novel compounds are active against. Cellceutix completed a pre-IND meeting with the FDA for initiating an HS clinical trial. The Company plans to advance this program upon review of results in our clinical oral mucositis trial and UP trial.

 

Compound: Brilacidin or Other HDP Mimics

Topical Applications, Otic Infections and Related Formulation Work

 

The Company has made a significant breakthrough in the formulation of Brilacidin. Previously, Brilacidin could only be stored in a refrigerated state. The Company has now developed a formulation of Brilacidin to be stable at room temperature. However, further formulation work is still needed for each indication. Upon developing optimal formulations, the Company plans to advance these drugs into the clinic.

 

Cellceutix is conducting preclinical experiments on topical Brilacidin for use in ear-related infections, such as otitis externa or draining otitis media. Studies are now ongoing at a major U.S. university with significant expertise in ototoxic studies. Should these studies be successful, the Company will plan for clinical trials. We believe there is a significant financial opportunity in pursuing this market as there is an unmet medical need for an otic drug to treat MRSA infections. We are less likely to be effected by generic competition due to Brilacidin’s MRSA and anti-inflammatory properties.

 

Other Compounds Owned by Cellceutix

 

Set forth below are other compounds owned by the Company and the associated diseases that may be studied in connection with the compounds. Please note that development of these compounds is on hold while the Company focuses its resources on its lead compounds and current clinical trials.

 

· KM 391 , autism;

  

 

· KM 277 , arthritis;

 

 

· KM 278 , arthritis/asthma;

 

 

· KM 362 , MS/ALS/Parkinsons;

 

 

· KM-3174 , cancer; and

 

 

· KM-732 ,hypertensive emergency.

 

Advancing the Platform and Developing Compounds with Activity Against Gram-Negative Bacteria and Fungi

 

Also in our antibiotic/antifungal portfolio, we are actively testing several of our compounds both in house and through research grants at major universities. In the Gram-negative program, our lead compounds are active in laboratory testing against some of the most problematic pathogens, such as Pseudomonas, Klebsiella, E. coli and Acinetobacter . We have compounds active against drug-susceptible strains as well as multi-drug resistant strains that produce Klebsiella pneumoniae carbapenamase (KPC). These are also called carbapenem-resistant Enterobacteriaceae (CRE). CRE has been identified by the Centers for Disease Control (CDC) as an “urgent threat” to public health. Importantly, several of our compounds have been shown to be active against CRE in the laboratory. These results were reported in an oral presentation at the European Society of Clinical Microbiology and Infectious Diseases (ECCMID) in Copenhagen in May 2015.

 

 
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In our anti-fungal program, we have identified a series of HDP mimics that are highly active against Candida species and exhibit very low cytotoxicity against mammalian cell types. Additional studies of our HDP mimics suggest possible new treatments for other fungal pathogens, including Aspergillus strains.

 

Other

 

In addition to their antimicrobial activity, we are evaluating the use of current and future host defense protein (HDP) mimics for disorders of barrier function, where the innate immune system plays a vital role. For these disorders, the goal is to exploit the anti-inflammatory and anti-biofilm properties to restore and maintain healthy skin and mucous membranes, and to treat refractory biofilm-related infections on natural and artificial surfaces. This would include inflammatory or trauma-related conditions of the skin, eyes, GI tract, and respiratory mucosa; exacerbations of chronic bronchitis and cystic fibrosis; and infections of catheters, valves, and prosthetic joints

 

Recent Developments

 

On June 27, 2016, Arthur P. Bertolino, MD, PhD, MBA, joined Cellceutix as President and Chief Medical Officer. Dr. Bertolino is a leading pharmaceutical executive with over fifteen years of domestic and international drug development and management experience. Dr. Bertolino’s responsibilities include, but are not limited to, day-to-day operations for all aspects of the Company, including pipeline development, cohesion of clinical and business strategies, team building and exploration of partnering opportunities.

 

GLOSSARY OF TERMS

 

Set forth below are definitions of certain technical terms used in this report that are commonly used in the pharmaceutical and biotechnology industries.

 

ABSSSI : Acute Bacterial Skin and Skin Structure Infections.

 

Cytotoxicity : The quality of being toxic to cells.

 

Defensin mimetics : Small compounds that mimic the structure and function of host defense proteins.

 

In-vitro : Refers to the technique of performing a given experiment in a test tube, or, generally, in a controlled environment outside a living organism.

 

In-vivo : Refers that which takes place inside an organism. In science, in vivo refers to experimentation done in or on the living tissue of a whole, living organism as opposed to a partial or dead one. Animal testing and clinical trials are forms of in-vivo research.

 

P21 (also known as protein 21): The expression of this gene is tightly controlled by the tumor suppressor protein p53, through which this protein mediates the p53-dependent cell cycle G1 phase arrest in response to a variety of stress stimuli. Used as a biomarker to detect change in p53.

 

P53 ( also known as protein 53 ): A tumor suppressor gene that is mutated in many human cancers and results in the loss of a cell’s ability to check for DNA damage.

 

Small Molecule Drug : A medicinal drug compound having a molecular weight of less than 1,000 Daltons, and typically between 300 and 700 Daltons.

 

Xenograft : The cells of one species transplanted to another species.

 

 
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INTELLECTUAL PROPERTY

 

Patents

 

Set forth below is a description of our patents, including the current status and jurisdictions in which a patent has been issued or a patent application has been filed.

 

Categories:

 

 

1. Brilacidin, and related compounds

 

 

 

 

2. Arylamide and Salicylamide compounds

 

 

 

 

3. Anti-microbial compounds (including anti-Gram negative compounds)

 

 

 

 

4. Kevetrin and related compounds

 

 

 

 

5. Prurisol and related compounds

 

Patent Title

Status

Description

Polycationic Compounds And Uses Thereof

 

 

United States: issued 07/31/12 and 08/13/13

 

Patents Expire: 2025

 

 

Category 2

 

Arylamide compounds, compositions, methods of inhibiting angiogenesis, and methods of antagonizing heparin; Salicylamide compounds, compositions, methods of antagonizing heparin, and methods of inhibiting anti-Factor Xa

 

 

 

 

 

Ophthalmic And Otic Compositions Of Facially Amphiphilic Polymers And Oligomers And Uses Thereof

 

 

United States: issued 11/24/15;

Europe: issued 03/04/15;

Japan: issued 04/04/14, and 05/15/15;

Australia: issued 11/28/13;

China: issued 12/07/11 and 10/01/14;

 

Pending: Canada and India

 

Patents Expire: 2027

 

Category 1

 

Brilacidin compound, compositions, and methods of treating bacterial ophthalmic infections

 

 

 

 

 

 

Synthetic Mimetics Of Host Defense And Uses Thereof

 

 

United States: issued 10/02/12 and 03/10/15;

Taiwan: issued 04/01/15;

Australia: issued 11/28/13;

China: issued 01/08/14;

Mexico: issued 09/28/12;

Russia: issued 01/27/15;

Ukraine: issued 03/25/14

 

Pending: Brazil, India, Mexico

 

Patents Expire: 2029 and 2030

 

Category 1

 

Brilacidin enantiomer, compositions and formulations, and methods of preparation of enantiomer;

 

Methods of preparation of Brilacidin

 


 
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Compounds For Use In Treatment Of Mucositis

 

 

United States: issued 08/12/14 and 10/13/15; allowed 05/19/16;

Japan: issued 11/06/15;

Taiwan: issued 2/11/16;

China: issued 04/20/16;

South Africa: issued 04/29/15

 

Pending: United States, Europe, Australia, Brazil, Canada, Israel, Mexico, Russia, South Korea, and Ukraine

 

Patents Expire: 2032

 

Category 1

 

Methods of treating mucositis with Brilacidin and related compounds, and compositions of Brilacidin and palifermin

 

 

 

 

 

 

Compounds And Methods For Treating Candidiasis And Aspergillus Infections 1

 

 

United States: issued 11/25/14

 

Pending: United States

 

 

Category 3

 

Methods of killing or inhibiting the growth of a Candida or Aspergillus species or preventing or treating a mammal having oral or disseminated candidiasis or an aspergillus infection

 

 

 

 

 

Cyclic Compounds And Methods Of Making And Using The Same 2

 

 

United States: allowed

 

 

Category 3

 

Cyclic compounds, compositions, methods of inhibiting the growth of a bacteria, and method of treating a mammal having a bacterial infection

 

 

 

 

 

Methods Of Preparing Carbocyclic Nucleosides

 

 

United States: provisional pending

 

 

Category 5

 

Methods of preparing Prurisol

 

 

 

 

 

Facially Amphiphilic Polymers As Anti-infective Agents 3

 

 

United States: issued 02/06/07; 11/18/14

Australia: issued 04/05/07; 04/12/07

Canada: issued 07/16/13

China: issued 07/01/09; 07/02/14

Europe: issued 09/17/08; 05/25/11

Japan: issued 08/15/08

 

South Korea: issued 06/03/09; 06/16/09

 

Patents Expire: 2022

 

Category 1 & 3 - Brilacidin and related compounds; anti-microbial surfactants and related compounds

 

 

 

 

 

 

Facially Amphiphilic Polyaryl And Polyarylalkynyl Polymers And Oligomers And Uses Thereof 3

 

 

United States: issued 07/17/12; 05/06/14 

Australia: issued 03/08/12

Japan: issued 05/02/13

Taiwan: issued 03/11/13

 

Pending: Canada, Europe (2)

 

Patents Expire: foreign (2025);

United States (2028)

 

Category 1 & 3

 

 

 

 

 

 

Facially Amphiphilic Polymers And Oligomers And Uses Thereof 3

 

 

United States: issued 08/07/12; 06/04/13

Australia: issued 04/07/11; 03/27/14

Canada: issued 05/20/14

South Korea: issued 03/04/13

Taiwan: issued 05/21/15

 

Pending: Australia, China, India, Japan, Taiwan

 

Patents Expire: foreign (2024);

United States (2027)

 

Category 1 & 2

 

 
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Nitrile Derivatives and their Pharmaceutical Use and Compositions

 

United States patent issued 12/25/2012

 

Patent Cooperation Treaty (PCT) - filed

National Phase entered

 

Other patents allowed or issued: Canada, China,

Indonesia, Japan,

Korea (2 divisional applications), Mexico, New Zealand, South Africa, Ukraine

 

Other Applications filed arising from PCT: Australia, Brazil, Chile, Europe, Eurasian Patent Convention, India, Israel, South Korea, Malaysia, Mexico

(divisional), Singapore,

Thailand, United Arab Emirates

 

Other applications filed independent of PCT: Argentina, Bangladesh, Hong Kong, Pakistan, Taiwan, Venezuela

 

Patents expire: 2030

Category 4 - Kevetrin and related compounds

 

 

 

 

 

 

Carbocyclic Nucleosides And Their Pharmaceutical Use And Compositions

 

United States - filed

Patent Cooperation Treaty - filed

National Phase entered

 

Other Patent Applications filed arising from PCT: Australia (Granted), Brazil, Canada (Allowed), China, Europe, Eurasian Patent Convention, India, Israel, Japan (Granted), South Korea, Malaysia, Mexico, South Africa (Granted), Singapore, Thailand,

 

Other Patent Applications filed independent of PCT: Argentina, Bangladesh, Hong Kong, Pakistan, Taiwan (Granted)

Patents expire: 2032

Category 5 - Prurisol and related compounds

 

We rely on a combination of patents and trade secrets, as well as confidentiality and non-use agreements to protect our intellectual property. Our patent strategy is designed to facilitate commercialization of our current and future product candidates, and create barriers to entry.

 

Impairment of Patents

 

In the latter part of April 2016, the Company wrote off its patent rights to Delparantag. Delparantag was acquired by Cellceutix in the purchase of assets from the Polymedix Estate. The Company believes the compound which had clinical activity but also safety concerns in a prior clinical trial by Polymedix, is now a low priority compound for further development among the compounds in the Company’s portfolio. The decision by management was made after factoring in today’s regulatory and litigious climate. The Company recorded impairment loss on the patent costs of Delparantag and for various patents totaling approximately of $648,000 (i.e. the cost of $782,000 less $134,000 of accumulated amortization) in the fourth quarter of its fiscal year end June 30, 2016.

 

Payments Related to Assignment of Compounds

 

The Company has been assigned all rights, title, and interest to the following eight pharmaceutical compounds: Kevetrin, KM 277, KM 278, Prurisol, KM 362, KM 3174, KM 732, and KM-391. The Company agreed to pay the assignors 5% of net sales of the compounds in countries where composition of matter patents have been issued and 3% of net sales in other countries. Kevetrin, KM 277, KM 278 and KM 362 were acquired by the Company from Dr. Krishna Menon, the Company’s Director, CSO, and principal shareholder. With regard only to Kevetrin, the allocation of the 5% of net sales would be as follows: 2% to Dr. Menon (President), 2% to an unaffiliated third party, and 1% to Leo Ehrlich, our CEO. With respect to KM 732, the Company has agreed to pay an individual a fixed payment if the compound is approved for sale in the U.S.

 

 
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MANUFACTURING

 

The Company does not intend to establish manufacturing capabilities or facilities to produce its drug product candidates (compounds) in the near or mid-term. The Company believes it can contract with third parties for the manufacturing of its investigational compounds at sites registered with the FDA and contract with third-party scientists for pharmaco-kinetic, pharmaco-dynamic and toxicology studies. Such studies generally must be completed prior to filing an IND with the FDA, and an IND is necessary to begin the human safety and efficacy trials of its compounds (Phase 1, 2 and 3).

 

GOVERNMENT REGULATION

 

Our operations and activities are subject to extensive regulation by numerous government authorities in the United States and other countries. In the United States, drugs are subject to rigorous regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (FDCA) and other federal and state statutes and regulations, govern the testing, development, manufacture, quality control, distribution, safety, effectiveness, labeling, storage, record keeping, reporting, approval, advertising and promotion, and import and export of our investigational products. Failure to comply with FDA requirements may result in enforcement action, including warning letters, fines, civil or criminal penalties, suspension or delays in clinical development, recall or seizure of products, partial or total suspension of production or withdrawal of a product from the market. Although the discussion below focuses on regulation in the United States, which is our primary initial focus, we anticipate seeking approval to market our products in other countries. Generally, our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the U.S., although there can be important differences.

 

Development and Approval

 

Product development and the product approval process are very expensive and time consuming, and we cannot be certain that the FDA will grant approval for any of our drug product candidates on a timely basis, if at all. Under the FDCA, the FDA must approve any new drug before it can be sold in the United States. The general process for obtaining FDA approval of a drug is as follows:

 

Preclinical Testing

 

Before we can test a drug candidate in humans, we must develop extensive preclinical data, generally derived from laboratory evaluations of product chemistry and formulation, as well as toxicological and pharmacological studies in animals, to generate data to support the drug’s quality and potential safety and benefits. Certain animal studies must be performed in compliance with the FDA’s Good Laboratory Practice, or GLP, regulations and the U.S. Department of Agriculture’s Animal Welfare Act. Presently we have a number of compounds that are in preclinical testing.

 

We submit this preclinical data and other information to the FDA in an IND. Human clinical trials cannot commence until an IND application is submitted and becomes effective. Based on the data and information contained in the IND, the FDA must determine whether there is an adequate basis for testing the drug candidate in initial clinical studies in human volunteers. Unless the FDA raises concerns, the IND becomes effective 30 days following its receipt by the FDA.

 

Clinical Trials

 

Once the IND goes into effect, we study an investigational drug in human clinical trials to determine if the drug is safe and effective for a particular use. Clinical trials involve the administration of the drug to healthy human volunteers or to patients under the supervision of a qualified investigator. The conduct of clinical trials is subject to extensive regulation, including compliance with the FDA’s bioresearch monitoring regulations and Good Clinical Practice, or GCP, requirements, which establish standards for conducting, recording data from, and reporting the results of clinical trials, and are intended to assure that the data and reported results are credible and accurate, and that the rights, safety, and well-being of study participants are protected. Clinical trials must be conducted under protocols that detail the study objectives, parameters for monitoring safety, and the efficacy criteria, if any, to be evaluated. FDA reviews each protocol that is submitted to the IND. In addition, each clinical trial must be reviewed and approved by, and conducted under the auspices of, an Institutional Review Board, or IRB, for each institution conducting the clinical trial. Companies sponsoring the clinical trials, investigators, and IRBs also must comply with regulations and guidelines for obtaining informed consent from the study subjects, complying with the protocol and investigational plan, adequately monitoring the clinical trial, and timely reporting adverse events. Foreign studies conducted under an IND must meet the same requirements that apply to studies being conducted in the U.S. Data from a foreign study not conducted under an IND may be submitted in support of an NDA if the study was conducted in accordance with GCP and, if necessary, the FDA is able to validate the data through an on-site inspection, if the agency deems such inspection necessary.

 

In general, clinical trials involve three separate phases that often overlap, can take many years to complete, and are very expensive. These three phases are as follows:

 

 
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Phase 1. The investigational drug is given to a small number of human subjects to test for safety, dose tolerance, pharmacokinetics, metabolism, distribution and excretion. In most disease states Phase 1 studies are performed in healthy volunteers. In cancer, Phase 1 studies generally are performed in cancer patients.

 

Phase 2. The investigational drug is given to a limited patient population to determine the initial effect of the drug in treating the disease, the best dose of the drug, and the possible side effects and safety risks of the drug. Phase 2 trials typically are controlled studies.

 

Phase 3. If Phase 2 clinical trials of a compound yield promising data regarding safety and effectiveness, the compound may be advanced to Phase 3 clinical trials to confirm those results. Phase 3 clinical trials typically are long-term, involve a significantly larger population of patients, are conducted at numerous sites in different geographic regions, and are carefully designed to provide reliable and conclusive data regarding the safety and benefits of a drug and to form the basis for labeling. It is not uncommon for a drug that appears promising in Phase 2 clinical trials to fail in the more rigorous and reliable Phase 3 clinical trials.

 

At any point in this process, the development of a drug could be stopped for a number of reasons, including safety concerns and lack of treatment benefit. We cannot be certain that any clinical trials that we are currently conducting, or any that we conduct in the future, will be completed successfully or within any specified time period. We may choose, or the FDA or an IRB may require us, to delay or suspend our clinical trials at any time if, for example, it appears that the patients are being exposed to an unacceptable health risk or if the drug candidate does not appear to have sufficient treatment benefit. Success in early-stage clinical trials does not assure success in later-stage clinical trials, and data obtained from clinical activities are not always conclusive and may be subject to alternative interpretations that could delay, limit or prevent further development and regulatory approval.

 

FDA Approval Process

 

If we believe that the data from the Phase 3 clinical trials show an adequate level of safety and effectiveness, we will file a new drug application (NDA) with the FDA seeking approval to sell the drug for a particular use. When an NDA is submitted, the FDA conducts a preliminary review to determine whether the application is sufficiently complete to be accepted for filing. If it is not, the FDA may refuse to file the application and request additional information, in which case the application must be resubmitted with the supplemental information, and review of the application is delayed.

 

Upon accepting the NDA for filing, the FDA will review the NDA and may hold a public hearing where an independent advisory committee of expert advisors considers key questions regarding the drug. This advisory committee makes a recommendation to the FDA, which is not binding on the FDA, but is generally followed.

 

Under the Pediatric Research Equity Act, certain applications for approval must include an assessment, generally based on clinical study data, of the safety and effectiveness of the subject drug in relevant pediatric populations. The FDA may waive or defer the requirement for a pediatric assessment, either at the company’s request or by the agency’s initiative. The FDA may determine that a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to ensure that the benefits of a new product outweigh its risks. A REMS may include various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or dispense the drug, depending on what the FDA considers necessary for the safe use of the drug.

 

Before approving an NDA, the FDA will inspect the facilities at which the product will be manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities for the drug, including those of companies who manufacture our drugs for us and including foreign establishments that may manufacture the product for sale in the U.S., comply with cGMP requirements (described below) and are adequate to assure consistent production of the product within required specifications.

 

If the FDA concludes that an NDA does not meet the regulatory standards for approval, the FDA typically issues a Complete Response letter communicating the agency’s decision not to approve the application and outlining the deficiencies in the submission. The Complete Response letter also may request further information, including additional preclinical or clinical data or improvements to manufacturing processes, procedures, or facilities. Even if such additional information and data are submitted, the FDA may decide that the NDA still does not meet the standards for approval.

 

The FDA may reject an application because, among other reasons, it believes that the drug is not safe enough, or effective enough, or because it does not believe that the data submitted are reliable or conclusive. FDA may interpret data differently than the sponsor. Obtaining regulatory approval often takes a number of years, involves the expenditure of substantial resources, and depends on a number of factors, including the nature of the disease or condition the drug is intended to address, the availability of alternative treatments, and the risks and benefits demonstrated in clinical trials.

 

 
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If the FDA agrees that the compound has met the required level of safety and effectiveness for a particular use, it will approve the NDA, allowing the Company to sell the drug in the United States for that use. As a condition of approval, the FDA may impose restrictions that could affect the commercial success of a drug. For example, the FDA could require post-approval commitments, including completion within a specified time period of additional clinical studies, which often are referred to as “Phase 4” or “post-marketing” studies. The FDA also may limit the scope of the approved uses of the drug. Certain post-approval modifications to the drug product, such as changes in indications, labeling, or manufacturing processes or facilities, may require a sponsor to develop additional data or conduct additional preclinical or clinical trials, to be submitted in a new or supplemental NDA, which would require FDA approval.

 

Should our products be approved for marketing, we would also be subject to various other State and Federal laws concerning the marketing and cost reimbursement of our products.

 

Major jurisdictions outside the United States, such as the European Union, Japan and Canada, have similarly rigorous regulatory processes. They may also require studies not required by the FDA, which can add to the cost and risk of development. Products approved by the FDA might not be approved in these other countries. After review by the health authorities, pricing and cost reimbursement are also subject to separate approvals in many of these countries.

 

Post-Approval Regulation

 

Even if regulatory approval is granted, a marketed drug product is subject to continuing comprehensive requirements under federal, state and foreign laws and regulations, including requirements and restrictions regarding adverse event reporting, recordkeeping, marketing, and compliance with current good manufacturing practices (cGMP). Adverse events reported after approval of a drug can result in additional restrictions on the use of a drug or requirements for additional post-marketing studies or clinical trials. The FDA or similar agencies in other countries may also require labeling changes to products at any time based on new safety information. If ongoing regulatory requirements are not met or if safety problems occur after the product reaches the market, the FDA or similar agencies in other countries may at any time withdraw product approval or take actions that would suspend marketing or approval.

 

Good Manufacturing Practices. Companies engaged in manufacturing drug products or their components must comply with applicable cGMP requirements and product-specific regulations enforced by the FDA and other regulatory agencies. If, after approval, a company makes a material change in manufacturing equipment, location, or process (all of which are, to some degree, incorporated in the NDA), additional regulatory review and approval may be required. The FDA also conducts regular, periodic visits to re-inspect equipment, facilities, and processes following the initial approval of a product. Failure to comply with applicable cGMP requirements and conditions of product approval may lead the FDA to seek sanctions, including fines, civil penalties, injunctions, suspension of manufacturing operations, operating restrictions, withdrawal of FDA approval, seizure or recall of products, and criminal prosecution.

 

Advertising and Promotion. The FDA and other federal regulatory agencies closely regulate the marketing and promotion of drugs through, among other things, standards and regulations for advertising, promotion to physicians and patients, communications regarding unapproved uses, and industry-sponsored scientific and educational activities. Failure to comply with applicable FDA requirements and other restrictions in this area may subject a company to adverse publicity and enforcement action by the FDA, the Department of Justice, the Office of the Inspector General of the Department of Health and Human Services, and state authorities, as well as civil and criminal fines and agreements that may materially restrict the manner in which a company promotes or distributes drug products.

 

Other Requirements. In addition, companies that manufacture or distribute drug products or that hold approved NDAs must comply with other regulatory requirements, including submitting annual reports, reporting information about adverse drug experiences, submitting establishment registrations and drug listings, and maintaining certain records.

 

Hatch-Waxman Act

 

Drugs that are approved for commercial marketing in the U.S. under an NDA are subject to the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, known as the “Hatch-Waxman Act.” The Hatch-Waxman Act established two abbreviated approval pathways, including the 505(b)(2) pathway, for drug products that are in some way follow-on versions of already approved NDA products. We are utilizing advantages in this 505(b)(2) pathway for the development of Prurisol. In addition, the Hatch-Waxman Act provides companies with marketing exclusivity for new chemical entities, allows companies to apply to extend for up to five additional years of patent term lost during product development and FDA review of an NDA, and provides for a period of marketing exclusivity for products that are not new chemical entities if the NDA (or supplemental NDA) contains data from new clinical investigations that were necessary for approval. It also provides a means for approving generic versions of a drug product once the marketing exclusivity period has ended and all relevant patents have expired or have been successfully challenged and defeated. The laws of other key markets likewise create both opportunities for exclusivity periods and patent protections and the possibility of generic competition once such periods or protections have either expired or have been successfully challenged by generic entrants.

 

 
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Orphan Drug Exclusivity

 

The Orphan Drug Act established incentives for the development of drugs intended to treat rare diseases or conditions, which generally are diseases or conditions affecting less than 200,000 individuals in the U.S. at the time of the request for orphan designation. If a sponsor demonstrates that a drug is intended to treat a rare disease or condition and meets other applicable requirements, the FDA grants orphan drug designation to the product for that use. In November 2014, the FDA granted orphan drug designation to Kevetrin for use in the treatment of ovarian cancer. The benefits of orphan drug designation include tax credits for clinical testing expenses and exemption from user fees. A drug candidate that is approved for the orphan drug designated use typically is granted seven years of orphan drug exclusivity. During that period, the FDA generally may not approve any other application for the same product for the same indication, although there are exceptions, most notably when the later product is shown to be clinically superior to the product with exclusivity.

 

Pediatric Exclusivity

 

Section 505A of the FDCA provides for six months of additional exclusivity if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be safe and effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or Orange Book listed patent protection that cover the drug are extended by six months.

 

Qualified Infectious Disease Product Exclusivity

 

The Generating Antibiotic Incentives Now (GAIN) Act amended the FDCA to encourage pharmaceutical companies to develop new antimicrobial drugs to treat serious and life-threatening infections. Among other measures, GAIN grants an additional five years of marketing exclusivity for new antibacterial or antifungal human drugs designated under the law as a “qualified infectious disease product” (QIDP). This five-year period of exclusivity is in addition to any existing regulatory exclusivity, including Hatch-Waxman, orphan drug, or pediatric exclusivity. In addition, QIDPs are eligible for fast-track designation and priority review to facilitate expedited development and review processes with the FDA. Our investigational drug Brilacidin has been granted QIDP designation as a potential new treatment for ABSSSI.

 

Fast Track Designation and Priority Review

 

Certain of our product candidates, such as Brilacidin, may qualify for Fast Track designation. The Fast Track program is intended to expedite or facilitate the process for reviewing new drugs that demonstrate the potential to address unmet medical needs involving serious or life-threatening diseases or conditions. If a drug receives Fast Track designation, the FDA may consider reviewing sections of the NDA on a rolling basis, rather than requiring the entire application to be submitted to begin the review. Products with Fast Track designation also may be eligible for more frequent meetings and correspondence with the FDA about the product’s development.

 

Certain of our product candidates, such as Brilacidin, also may qualify for priority review. Priority review is available to a drug that treats a serious condition and that, if approved, would provide a significant improvement in safety or effectiveness. Priority review designation provides for a six-month review goal for an NDA, rather than the standard 10-month review timeframe.

 

Other FDA programs intended to expedite development and review include accelerated approval, which allows the FDA to approve a drug on the basis of a surrogate endpoint that is reasonably likely to predict clinical benefit, and breakthrough therapy designation, which is intended to expedite the development and review of drugs for serious or life-threatening conditions and where preliminary clinical evidence shows that the drug may have substantial improvement on at least one clinically significant endpoint over available therapy.

 

Even if a product qualifies for Fast Track designation or Breakthrough Therapy designation, the FDA may later decide that the product no longer meets the conditions for qualification and may rescind the designation. Moreover, none of these programs assures ultimate approval of an investigational product. FDA may determine that the product does not meet the standards for approval.

 

 
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COMPETITION

 

Competition in the pharmaceutical and biotechnology industries is intense. The drugs that we are developing will have to compete with existing therapies. In addition, a large number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. Many pharmaceutical or biotechnology companies have products on the market and are actively engaged in the research and development of products that are competitive with our potential products. Many of these companies and institutions, either alone or together with their collaborative partners, have substantially greater financial, manufacturing, sales, distribution and technical resources and more experience in research and development, clinical trials and regulatory matters, than we do. In addition, our competitors may succeed in developing technologies and drugs that are more effective, better tolerated or less costly than any which are being developed by us or which would render our technology or potential drugs obsolete or noncompetitive.

 

With respect to Kevetrin, our lead compound for cancer, there are many drugs approved to treat various cancers and many more in the publicly disclosed development pipeline. The same is true for our other compounds in clinical trials, Prurisol and Brilacidin. There are many drugs approved to treat various forms of psoriasis and ABSSSI and many more in the publicly disclosed development pipeline. Our success depends on our ability to identify types of these respective diseases where our drugs have an advantage over existing therapies and those in the publicly disclosed development pipeline.

 
EMPLOYEES

 

As of June 30, 2016, the Company had 15 employees. Dr. Arthur P. Bertolino (President and CMO), entered into an employment agreement with the Company on June 27, 2016 as reported on form 8-K, filed on July 1, 2016. The Company also conducts its operations using contractors and consultants.

 

CORPORATE INFORMATION

 

The Company’s corporate headquarters are located at 100 Cummings Center, Suite 151-B, Beverly, MA, 01915. The Company’s telephone number is (978) 921-4125. The Company maintains an internet website at http://cellceutix.com . The Company makes available, free of charge, through the Investors section of its website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information on the Company’s website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC.

 

ITEM 1A. RISK FACTORS

 

Investing in the Company’s common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together with all of the other information included or referred to in our Annual Report on Form 10-K, before purchasing shares of the Company’s common stock. There are numerous and varied risks, known and unknown, that may prevent the Company from achieving its goals. The risks described below are not the only ones the Company will face. If any of these risks actually occur, the Company’s business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of the Company’s common stock could decline and investors in the Company’s common stock could lose all or part of their investment.

 

Risks Related to Our Business

 

We need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms, which could prevent us from fully implementing our business, operating and development plans.

 

We currently have an approximate $6 million cash balance in the bank but that is insufficient to complete the development and commercialization of any of our proposed products. We expect to incur costs of approximately $19 million in the upcoming twelve (12) months to operate our business in accordance with our business plans and budgets.

 

 
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If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, which are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, it may be necessary to significantly reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including costly Phase 2 and Phase 3 clinical trials, and our business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable to continue our operations.

 

We may be unable to secure this amount of financing on terms and conditions acceptable to the Company. In the event that we cannot obtain acceptable financing, we would be unable to complete preclinical development projects, and clinical trials for Kevetrin, Prurisol, and Brilacidin. This will delay:

 

· research and development programs;

 

 

· preclinical studies and clinical trials;

 

 

· material characterization studies, regulatory processes;

 

 

· establishment of our own laboratory or a search for third party marketing partners to market our products for us.

 

The amount of capital we may require will depend on many factors, including the:

 

· progress, timing and scope of our research and development programs;

 

 

· progress, timing and scope of our preclinical studies and clinical trials;

 

 

· time and cost necessary to obtain regulatory approvals;

 

 

· time and cost necessary to establish our own marketing capabilities or to seek marketing partners;

 

 

· time and cost necessary to respond to technological and market developments;

 

 

· changes made or new developments in our existing collaborative, licensing and other commercial relationships; and

 

 

· new collaborative, licensing and other commercial relationships that we may establish.

 

Our fixed expenses, such as rent and other contractual commitments, may increase in the future, as we may:

 

· enter into leases for new facilities and capital equipment;

 

 

· enter into additional licenses and collaborative agreements; and

 

 

· incur additional expenses associated with being a public company.

 

 
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We have no products approved for commercial sale, have never generated any revenues, and may never achieve revenues or profitability.

 

We currently have no products approved for commercial sale and, to date, we have not generated any revenues. Our ability to generate revenue depends heavily on:

 

· successful demonstration in clinical trials that our drug candidates, Kevetrin, Prurisol, and Brilacidin are safe and effective;

 

 

· our ability to seek and obtain regulatory approvals, including with respect to the indications we are seeking;

 

 

· the successful commercialization of our product candidates; and

 

 

· market acceptance of our products.

 

If we do not successfully develop and commercialize at least one of our compounds, we will not achieve revenues or profitability in the foreseeable future, if at all. If we are unable to generate revenues or achieve profitability, we may be unable to continue our operations.

 

We have limited operating history, making it difficult for you to evaluate our business and your investment, and we may never generate any revenue which could cause us to cease operations.

 

We have limited operating history and our operations and the development of our proposed products are subject to all of the risks inherent in the establishment of a new business enterprise, including but not limited to:

 

· the absence of an operating history;

 

 

· the lack of commercialized products;

 

 

· insufficient capital;

 

 

· expected substantial and continual losses for the foreseeable future;

 

 

· limited experience in dealing with regulatory issues;

 

 

· lack of manufacturing experience and limited marketing experience;

 

 

· possible reliance on third parties for the development and commercialization of our proposed products;

 

 

· a competitive environment characterized by numerous, well-established and well capitalized competitors; and

 

 

· reliance on key personnel.

 

 
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Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our Company. Our ability to become profitable depends primarily on the following factors:

 

· our ability to develop drugs, obtain approval for such drugs, and if approved, to successfully commercialize our drugs;

 

 

· our research and development (R&D) efforts, including the timing and cost of clinical trials; and

 

 

· our ability to enter into favorable alliances with third-parties who can provide substantial capabilities in clinical development, regulatory affairs, sales, marketing and distribution.

 

Even if we successfully develop and market our drug candidates, we may not generate sufficient or sustainable revenue to achieve or sustain profitability, which could cause us to cease operations.

 

We have limited experience in drug development and may not be able to successfully develop any drugs.

 

We have limited experience in drug development and may not be able to successfully develop any drugs. Our ability to achieve revenues and profitability in our business will depend, among other things, on our ability to:

 

· develop products internally or obtain rights to them from others on favorable terms;

 

 

· complete laboratory testing and human clinical studies;

 

 

· obtain and maintain necessary intellectual property rights to our products;

 

 

· successfully fulfill regulatory requirements to obtain requisite marketing approvals from governmental agencies;

 

 

· enter into arrangements with third parties to manufacture our products on our behalf; and

 

 

· enter into arrangements with third parties to provide sales and marketing functions.

 

We have limited experience conducting clinical trials and obtaining regulatory approvals, and we may not be successful in some or all of these activities. We have not previously conducted a Phase 3 or later stage clinical trial such as the Phase 3 clinical trials planned for our most advanced drug candidate. We expect to spend significant amounts to recruit and retain high quality personnel with clinical development experience. We have no experience as a company in the sales, marketing and distribution of pharmaceutical products and do not currently have a sales and marketing organization. To the extent we are unable to or determine not to develop these resources internally, we may be forced to rely on third parties for these capabilities, which could subject us to costs and to delays that are outside our control. If we are unable to establish adequate capabilities independently or with others, we may be unable to generate product revenues for certain candidates. If we are unable to achieve revenues and profitability, then we will be forced to cease operations, which could cause you to lose all of your investment.

 

Development of pharmaceutical products is a risky and time-consuming process subject to a number of factors, many of which are outside of our control. We are subject to regulatory authority permissions and approvals, most importantly the FDA. Many of our drug candidates are at early stages of development. Consequently, we can provide no assurance of the successful and timely development of new drugs, and the failure to do so could cause us to cease operations.

 

The drug discovery and development process is highly uncertain and we have not developed, and may never develop, a drug candidate that ultimately leads to a commercially viable drug. Our drug candidates are in early stages of development, and our most advanced drug candidate has completed Phase 2 testing. Further development and extensive testing will be required to determine their technical feasibility and commercial viability.

 

 
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Conducting clinical trials is a complex, time-consuming and expensive process that requires an appropriate number of trial sites and patients to support the product label claims being sought. The length of time, number of trial sites and number of patients required for clinical trials vary substantially according to their type, complexity, novelty and the drug candidate’s intended use, and we may spend several years completing certain trials. The time within which we can complete our clinical trials depends in large part on the ability to enroll eligible patients who meet the enrollment criteria and who are in proximity to the trial sites. We face competition with other clinical trials for eligible patients. As a result, there may be limited availability of eligible patients, which can result in increased development costs, delays in regulatory approvals and associated delays in drug candidates reaching the market. We are now experiencing these issues in our oral mucositis clinical trial.

 

At any time, we, the FDA or an IRB, may temporarily or permanently stop a clinical trial, for a variety of reasons. We may experience numerous unforeseen events during, or as a result of, the clinical development process that could delay or prevent our drug candidates from being approved, including:

 

· failure to achieve clinical trial results that indicate a candidate is effective in treating a specified condition or illness in humans;

 

 

· presence of harmful side effects;

 

 

· determination by the FDA that the submitted data do not satisfy the criteria for approval;

 

 

· lack of commercial viability of the drug;

 

 

· failure to acquire, on reasonable terms, intellectual property rights necessary for commercialization; and

 

 

 

 

·

existence of alternative therapeutics that are more effective.

 

As our product candidates advance to later stage clinical trials, it is customary that various aspects of the development program, such as manufacturing, formulation and other processes, and methods of administration, may be altered to optimize the candidates and processes for scale-up necessary for later stage clinical trials and potential approval and commercialization. These changes may not produce the intended optimization, including production of drug substance and drug product of a quality and in a quantity sufficient for Phase 3 clinical stage development or for commercialization, which may cause delays in the initiation or completion of clinical trials and greater costs. We may also need to conduct “bridging studies” to demonstrate comparability between newly manufactured drug substance and/or drug product for commercialization relative to previously manufactured drug substance and/or drug product for clinical trials. Demonstrating comparability may require us to incur additional costs or delay initiation or completion of clinical trials and, if unsuccessful, could require us to complete additional preclinical studies or clinical trials.

 

We are now engaged in the reformulation of Kevetrin based on PK data we learned during our now completed Phase 1 study. PK results indicated that with the current dose regimen, Kevetrin is almost completely out of plasma within 24 hours. Therefore, little drug remains for any substantial period of time afterwards. Having the patient receive multiple IV infusions per week is difficult for the patient. Therefore, other formulations for Kevetrin are being studied including oral and extended release. There is no assurance we will be successful in developing a new formulation.

 

We are using Brilacidin in a water base, administered by enema, in our ulcerative proctitis study. However, a commercial product will need a different formulation (i.e. Brilacidin in foam). Additional formulation development is needed. There is no assurance we will be successful in developing a new formulation for possible commercialization.

 

If we fail to adequately manage the increasing number, size and complexity of clinical trials, the clinical trials and corresponding regulatory approvals may be delayed or we or our partners may fail to gain approval for our drug candidates altogether. Even if we successfully conduct clinical trials, we may not obtain favorable clinical trial results and may not be able to obtain regulatory approval on this basis. If we are unable to market and sell our drug candidates or are unable to obtain approvals in the time frame needed to execute our product strategies, our business and results of operations would be materially adversely affected.

 

Our success will depend on our ability to achieve scientific and technological advances and to translate such advances into reliable, commercially competitive drugs on a timely basis. The length of time required to complete clinical studies, submit an application for marketing approval, and obtain approval can vary considerably from one product to another, and may be difficult to predict or control. Drugs that we may develop are not likely to be commercially available for several years, if ever. The proposed development schedules for our drug candidates may be affected by a variety of factors, including technological difficulties, proprietary technology of others, and changes in government regulation, many of which will not be within our control.

 

 
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Any delay in the development, introduction or marketing of our drug candidates could result either in such drugs being marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their commercial lives. In light of the long-term nature of our projects, the unproven technology involved and the other factors described elsewhere in “Risk Factors”, we may not be able to complete successfully the development or marketing of any of our drug candidates.

 

We may fail to successfully develop and commercialize our drug candidates for multiple reasons, including because they:

 

· are found to be unsafe or ineffective in clinical trials;

 

 

· do not receive necessary approval from the FDA or foreign regulatory agencies;

 

 

· have manufacturing costs, pricing or reimbursement issues, or other factors that make the product not economical;

 

 

· are hampered by the proprietary rights of others and their competing products and technologies;

 

 

· fail to conform to a changing standard of care for the diseases they seek to treat; or

 

 

· are less effective or more expensive than current or alternative treatment methods.

 

Drug development failure can occur at any stage of clinical trials and as a result of many factors and there can be no assurance that we will reach our anticipated clinical targets. Promising results in preclinical development or early clinical trials may not be predictive of results obtained in later clinical trials. Many pharmaceutical companies have experienced significant setbacks in advanced clinical trials, even after obtaining promising results in earlier preclinical studies and clinical trials. Clinical results are susceptible to varying interpretations that may delay, limit, or prevent regulatory approvals.

 

Even if we complete our clinical trials, we do not know what the long-term effects of exposure to our drug candidates will be. Furthermore, our drug candidates may be used in combination with other treatments and there can be no assurance that such use will not lead to unique safety issues. Failure to complete clinical trials or to prove that our drug candidates are safe and effective would have a material adverse effect on our ability to generate revenue and could require us to reduce the scope of or discontinue our operations, which could cause you to lose all of your investment.

 

At any time, we may decide to discontinue the development of, or to not commercialize, a drug candidate. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity to allocate those resources to potentially more productive uses.

 

We have limited experience in conducting or supervising clinical trials and must outsource all clinical trials, which exposes us to risks which could have a materially adverse effect on our business.

 

We have limited experience in conducting and supervising clinical trials that must be performed to obtain data to submit in applications for approval by the FDA. Because we have limited experience in conducting or supervising clinical trials, we outsource a significant amount of the work relating to our clinical trials to third parties. We therefore have less control over the conduct of our clinical trials, the timing and completion of the trials, the required reporting of adverse events, and the management of data developed through the trials than would be the case if we were relying entirely upon our own staff. We also have more limited control over compliance with procedures and protocols used to complete clinical trials. If these contractors fail to meet applicable regulatory standards, the testing of our drugs would be adversely affected, causing a delay in our ability to engage in revenue-generating operations that could have a materially adverse effect on our business.

 

Communicating with outside parties can also be challenging, potentially leading to mistakes, as well as difficulties in coordinating activities. Outside parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting their willingness or ability to conduct our trials. We may experience unexpected cost increases that are beyond our control. Problems with the timeliness or quality of the work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider. However, making this change may be costly and may delay our trials and contractual restrictions may make such a change difficult or impossible. Additionally, it may be impossible to find a replacement organization that can conduct our trials in an acceptable manner and at an acceptable cost.

  

We are subject to risks inherent in conducting clinical trials. Non-compliance with the FDA’s good clinical practices by clinical investigators, clinical sites, or data management services could delay or prevent us from developing or commercializing our drug candidates, which could cause us to cease operations.

 

Agreements with clinical investigators and medical institutions for clinical testing and with other third parties for data management services place substantial responsibilities on these parties, which could result in delays in, or termination of, our clinical trials if these parties fail to perform as expected. For example, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at those sites. If these clinical investigators, medical institutions or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for or successfully commercialize our drug candidates.

 

 
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We or regulators may suspend or terminate our clinical trials for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the patients enrolled in our clinical trials. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the patients enrolled in our clinical trials. In addition, clinical trials may have independent monitoring boards composed of experts in the field. These boards may also have the authority to suspend or terminate clinical trials.

 

Our clinical trial operations will be subject to regulatory inspections at any time. If regulatory inspectors conclude that we or our clinical trial sites are not in compliance with applicable regulatory requirements for conducting clinical trials, we may receive reports of observations or warning letters detailing deficiencies, and we will be required to implement corrective actions. If regulatory agencies deem our responses to be inadequate, or are dissatisfied with the corrective actions that we or our clinical trial sites have implemented, our clinical trials may be temporarily or permanently discontinued, we may be fined, we or our investigators may be precluded from conducting any ongoing or any future clinical trials, the government may refuse to approve our marketing applications or allow us to manufacture or market our drug candidates or we may be criminally prosecuted. If we are unable to complete clinical trials and have our products approved due to our failure to comply with regulatory requirements, we will be unable to commence revenue-generating operations, which could force us to cease operations.

 

We have engaged FDA with a Special Protocol Assessment (SPA) request for our planned Phase 3 clinical study of Brilacidin for treating ABSSSI. Failure to achieve an SPA agreement with FDA increases the risk of conducting a Phase 3 study and obtaining FDA approval for its commercialization, even if the study is successful by meeting the study endpoints at its conclusion.

 

We have completed an End-of-Phase 2 (“EOP2”) meeting with the FDA. We have submitted our Phase 3 protocol under an SPA request to the FDA. The request included specific questions to facilitate a meaningful dialogue with the FDA on the proposed study design. We have received from the FDA comments and considerations for incorporation into our study design and we are now preparing our response. Additional rounds of review may occur, which can extend the review period and be beneficial in reaching agreement with the FDA on design elements. Based on the FDA’s feedback, we may reach final agreement with the FDA or may decide to incorporate the advice into the design of the Phase 3 clinical study without undergoing additional rounds of review. The FDA’s assessment of the SPA request, and all related feedback, are valuable in the development of Brilacidin for ABSSSI. Contingent upon the outcome of the foregoing SPA, a U.S. and international study will be initiated. The Company can offer no assurance that an SPA agreement will be reached with the FDA, and if this were not to occur, which would substantially increase the risk of Brilacidin for ABSSSI drug development.

 

Delays in the commencement or completion of clinical testing could result in increased costs to us and delay or limit our ability to generate revenues.

 

Delays in the commencement or completion of clinical testing of our products or products could significantly affect our product development costs and our ability to generate revenue. We do not know whether the FDA will agree with the trial designs for ongoing and planned clinical trials or whether planned clinical trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to our ability to do the following:

 

· provide sufficient safety, efficacy or other data regarding a drug candidate to support the commencement of a Phase 3 or other clinical trial;

 

 

· reach agreement on acceptable terms with prospective contract manufacturers, contract research organizations (CROs) and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different third parties;

 

 

· select CROs, trial sites and, where necessary, contract manufacturers that do not encounter any regulatory compliance problems;

 

 

· manufacture sufficient quantities of a product candidate for use in clinical trials;

 

 

· obtain IRB approval to conduct a clinical trial at a prospective site;

 

 

· recruit and enroll patients to participate in clinical trials, which can be impacted by many factors outside our or our partners’ control, including competition from other clinical trial programs for the same or similar indications; and

 

 

· retain patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy or personal issues.

 

 
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Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us or our partner, the FDA, an IRB, a clinical trial site with respect to that site, or other regulatory authorities due to a number of factors, including:

 

· failure to conduct the clinical trial in accordance with regulatory requirements, including GCP, or our protocols;

 

 

· inspection of the clinical trial operations, trial sites or manufacturing facility by the FDA or other regulatory authorities resulting in findings of non-compliance and the imposition of a clinical hold;

 

 

· unforeseen safety issues or results that do not demonstrate efficacy; and

 

 

· lack of adequate funding to continue the clinical trial.

 

Additionally, we may need to amend clinical trial protocols for a variety of reasons, including changes in regulatory requirements and guidance. Such amendments may require us to, for example, resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our product candidates may be harmed and our ability to generate product revenues will be delayed and/or reduced. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate.

 

We must comply with significant and complex government regulations, compliance with which may delay or prevent the commercialization of our drug candidates, which could have a materially adverse effect on our business.

 

The R&D, manufacture and marketing of drug candidates are subject to regulation, primarily by the FDA in the United States, and by comparable authorities in other countries. These national agencies and other federal, state, local and foreign entities regulate, among other things, R&D activities (including testing in animals and in humans) and the testing, manufacturing, handling, labeling, storage, record keeping, approval, advertising and promotion of the products that we are developing. Noncompliance with applicable requirements can result in various adverse consequences, including approval delays or refusals to approve drug licenses or other applications, suspension or termination of clinical investigations, revocation of approvals previously granted, fines, criminal prosecution, recalls or seizures of products, injunctions against shipping drugs and total or partial suspension of production and/or refusal to allow a company to enter into governmental supply contracts.

 

The process of obtaining FDA approval for a drug has historically been costly and time consuming. Current FDA requirements for a new human drug or biological product to be marketed in the United States include: (i) the successful conclusion of pre-clinical laboratory and animal tests, if appropriate, to gain preliminary information on the product’s safety; (ii) filing with the FDA of an IND application to conduct human clinical trials for drugs or biologics; (iii) the successful completion of adequate and well-controlled human clinical investigations to establish the safety and efficacy of the product for its recommended use; and (iv) filing by a company and acceptance and approval by the FDA of a New Drug Application (“NDA”), for a drug product or a biological license application (“BLA”), for a biological product to allow commercial distribution of the drug or biologic. A delay in one or more of the procedural steps outlined above could be harmful to the Company in terms of getting our drug candidates through clinical testing and to market.

 

The FDA reviews the results of the clinical trials and may order the temporary or permanent discontinuation of clinical trials at any time if it believes the drug candidate exposes clinical subjects to an unacceptable health risk. Investigational drugs used in clinical studies must be produced in compliance with current good manufacturing practice (“cGMP”) rules pursuant to FDA regulations.

 

Sales outside the United States of products that we may develop will also be subject to additional regulatory requirements governing human clinical trials and marketing for drugs and biological products and devices. The requirements vary widely from country to country, but typically the registration and approval process takes several years and requires significant resources.

 

 
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We also are subject to the following risks and obligations, related to the approval of our products:

 

· The FDA or foreign regulators may interpret data from pre-clinical testing and clinical trials in different ways than we interpret them.

 

 

· If regulatory approval of a product is granted, the approval may be limited to specific indications or limited with respect to its distribution. In addition, many foreign countries control pricing and coverage under their respective national social security systems.

 

 

· The FDA or foreign regulators may not approve our manufacturing processes or manufacturing facilities.

 

 

· The FDA or foreign regulators may change their approval policies or adopt new regulations.

 

 

· Even if regulatory approval for any of our product is obtained, the corresponding marketing license will be subject to continual review, and newly discovered or developed safety or effectiveness data may result in suspension or revocation of the marketing license.

 

 

· If regulatory approval of the product candidate is granted, the marketing of that product would be subject to adverse event reporting requirements and a general prohibition against promoting products for unapproved uses.

 

 

· In some foreign countries, we may be subject to official release requirements that require each batch of the product we produce to be officially released by regulatory authorities prior to its distribution by us.

 

 

· We will be subject to continual regulatory review and periodic inspection and approval of manufacturing modifications, including compliance with cGMP regulations.

 

If we do not have the requisite resources to comply with all applicable regulations, then we could be forced to cease operations, which could cause you to lose all of your investment.

 

We or third-party manufacturers we rely on may encounter failures or difficulties in manufacturing or formulating clinical development and commercial supplies of drugs, which could delay the clinical development or regulatory approval of our drug candidates, or their ultimate commercial production if approved.

 

Currently, third parties manufacture our drug candidates on our behalf. Third-party manufacturers may lack capacity to meet our needs, go out of business or fail to perform. In addition, supplies of raw materials needed for manufacturing or formulation of clinical supplies may not be available or in short supply. Furthermore, should we obtain FDA approval for any of our drug candidates, we expect to rely, at least to some extent, on third-party manufacturers for commercial production. Our dependence on others for the manufacture of our drug candidates may adversely affect our ability to develop and deliver such drug candidates on a timely and competitive basis.

 

Any performance failure on the part of a third-party manufacturer could delay clinical development, regulatory approval or, ultimately, sales of our drug candidates. Our third-party manufacturers may encounter difficulties involving production yields, regulatory compliance, lot release, quality control and quality assurance, as well as shortages of qualified personnel. Approval of our drug candidates could be delayed, limited or denied if the FDA does not approve our or a third-party manufacturer’s processes or facilities. Moreover, the ability to adequately and timely manufacture and supply drug candidates is dependent on the uninterrupted and efficient operation of the manufacturing facilities, which is impacted by many manufacturing variables including:

 

· availability or contamination of raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier;

 

 

· capacity of our facilities or those of our contract manufacturers;

 

 

· facility contamination by microorganisms or viruses or cross contamination;

 

 

· compliance with regulatory requirements, including Form 483 notices and Warning Letters;

 

 

· changes in forecasts of future demand;

 

 

· timing and actual number of production runs;

 

 

· production success rates and bulk drug yields; and

 

 

· timing and outcome of product quality testing.

 

 
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In addition, our third-party manufacturers may encounter delays and problems in manufacturing our drug candidates or drugs for a variety of reasons, including accidents during operation, failure of equipment, delays in receiving materials, natural or other disasters, political or governmental changes, or other factors inherent in operating complex manufacturing facilities. Supply chain management is complex, and involves sourcing from a number of different companies and foreign countries. Commercially available starting materials, reagents and excipients may become scarce or more expensive to procure, and we may not be able to obtain favorable terms in agreements with contractors or subcontractors. Our third-party manufacturers may not be able to operate our respective manufacturing facilities in a cost-effective manner or in a time frame that is consistent with our expected future manufacturing needs. If we or our third-party manufacturers cease or interrupt production or if our third-party manufacturers and other service providers fail to supply materials, products or services to us for any reason, such interruption could delay progress on our programs, or interrupt the commercial supply, with the potential for additional costs and lost revenues. If this were to occur, we may also need to seek alternative means to fulfill our manufacturing needs.

 

We may not be able to enter into agreements for the manufacture of our drug candidates with manufacturers whose facilities and procedures comply with applicable law. Manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state and foreign authorities to ensure strict compliance with cGMP and other applicable government regulations and corresponding foreign standards. We do not have control over a third-party manufacturer’s compliance with these regulations and standards. If one of our manufacturers fails to maintain compliance, we or they could be subject to enforcement, the production of our drug candidates could be interrupted or suspended, and/or our product could be recalled or withdrawn, among other consequences. Any of these events could result in delays, additional costs and potentially lost revenues.

 

We can provide no assurance that our drug candidates will obtain regulatory approval or that the results of clinical studies will be favorable, and if we fail to obtain such approval or if clinical studies are not favorable, we could be forced to cease operations.

 

Our drug candidates Kevetrin, Prurisol and Brilacidin will require lengthy and costly studies in humans to obtain approval from the FDA before they can be marketed. We cannot predict with any certainty that the study results will be satisfactory to the FDA for approval to ultimately be granted. Preclinical and clinical trials may reveal that one or more products are ineffective or unsafe, in which event further development of such products could be seriously delayed or terminated.

 

Approval of a drug candidate as safe and effective for use in humans is never certain and regulatory agencies may delay or deny approval of drug candidates for commercialization. For example, even though our product candidate Brilacidin has received QIDP designation, such designation may not result in a faster development process, review, or approval than drugs considered for approval under conventional FDA procedures; nor does such designation assure ultimate approval by the FDA or related exclusivity benefits. Regulatory agencies also may delay or deny approval based on additional government regulation or administrative action, changes in regulatory policy during the period of clinical trials in humans and regulatory review, or the availability of alternative treatments.

 

Delays in obtaining, or failure to obtain, FDA or any other necessary regulatory approvals of any proposed drugs would have an adverse effect on the drug’s potential commercial success and on our business, prospects, financial condition and results of operations. In addition, it is possible that a proposed drug may be found to be ineffective or unsafe due to conditions or facts that arise after development has been completed and regulatory approvals have been obtained. In this event, we may be required to withdraw such drug from the market. To the extent that our success will depend on any regulatory approvals from government authorities outside of the United States that perform roles similar to that of the FDA, uncertainties similar to those stated above will also exist.

 

Even if our product candidate Prurisol were to receive regulatory approval, commercialization may be adversely affected by regulatory actions requiring a boxed warning, which could have a materially adverse effect on our business.

 

Even if we were to receive regulatory approval for our psoriasis product candidate Prurisol, we expect an approval to include a boxed warning requiring screening for the HLA-B*5701 allele, which is a readily available test, to reduce the risk in patients of potential abacavir hypersensitivity reactions. Products with boxed warnings are subject to more restrictive regulations than products without such warnings. Boxed restrictions would make it more difficult to market Prurisol, and the added regulation could require us to expend resources that we may not have, which could delay or prevent commercialization of that product and in turn, could have a materially adverse effect on our business.

 

 
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Even if we obtain regulatory approvals, our marketed drug candidates will be subject to ongoing regulation. If we fail to comply with U.S. and foreign regulations, we could be subject to adverse consequences, including loss of our approvals to market these drugs, and our business would be seriously harmed.

 

Following any initial regulatory approval of any of our drug candidates, we will also be subject to continuing regulation of the manufacture, labeling, storage, recordkeeping, reporting, distribution, advertising, promotion, marketing, sale, import, and export of those drugs. Such regulation includes review of adverse experiences and the results of any clinical trials completed after our drug candidates are made commercially available, including any post marketing requirements that were required as a condition of approval. The contract manufacturers that make any of our drug candidates will also be subject to periodic review and inspection by the FDA. If our products, if approved, or the manufacturing facilities for our products fail to comply with applicable regulatory requirements, a regulatory agency may suspend any ongoing clinical trials; issue warning letters or untitled letters; suspend or withdraw regulatory approval; refuse to approve pending applications or supplements to applications; suspend or impose restrictions on operations; seize or detain products, prohibit the export or import of products, or require us to initiate a product recall; or seek other monetary or injunctive remedies, or impose civil or criminal penalties. We do not have, and currently do not intend to develop, the ability to manufacture material for our clinical trials or on a commercial scale. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured drugs ourselves, including reliance on the third-party manufacturer for regulatory compliance.

  

Our drug promotion and advertising also would be subject to regulatory requirements and continuing FDA review. Our marketing of these drugs also may be heavily scrutinized by the Department of Justice, the Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress and the public. Our promotional activities will be regulated not only by the FDCA and FDA regulations, but also by federal and state laws pertaining to health care “fraud and abuse,” such as:

 

· the federal anti-kickback law prohibiting bribes, kickbacks or other remuneration for the order, purchase or recommendation of items or services reimbursed by federal health care programs;

 

 

· the federal False Claims Act, imposing criminal and civil penalties for knowingly presenting or causing to be presented claims to the federal government that are false or fraudulent; and

 

 

· the federal Physician Payment Sunshine Act, requiring pharmaceutical manufacturers to engage in extensive tracking of physician and teaching hospital payments, maintenance of a payments database and public reporting of the payment data.

 

Many states have similar laws applicable to items or services reimbursed by commercial insurers. Violations of fraud and abuse laws can result in costly litigation, fines and/or imprisonment, exclusion from participation in federal health care programs, and burdensome reporting and compliance obligations.

 

Compliance with ongoing regulation consumes substantial financial and management resources and may expose us to the potential for other adverse circumstances. For example, approval for a drug may be conditioned on costly post-marketing follow-up studies. Based on these studies, if a regulatory authority does not believe that the drug demonstrates an appropriate benefit-risk profile to patients, it could limit the indications for which a drug may be sold or revoke the drug’s marketing approval. In addition, identification of certain side effects after a drug is on the market may result in the subsequent withdrawal of approval, reformulation of a drug, additional preclinical and clinical trials, changes in labeling or distribution. Alternatively, we may be required by the FDA to develop and implement a REMS to ensure the safe use of our products. REMS may include costly risk management measures such as enhanced safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, pre-approval of promotional materials and restrictions on direct-to-consumer advertising. Any of these events could delay or prevent us from generating revenue, or limit the revenue, from the commercialization of these drugs and/or cause us to incur significant additional costs.

 

Any of these events could prevent us from achieving or maintaining market acceptance of a particular product candidate, if approved, and could significantly harm our business, results of operations and prospects. If we are required to withdraw all or more of our drugs from the market as a result of actions or inactions on our part or that of a third party, we may be unable to continue revenue-generating operations, which could cause you to lose all of your investment.

 

 
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All of our Polymedix drug product candidates are licensed from or based upon licenses from the University of Pennsylvania. Upon our purchase of the Polymedix Assets we assumed all contractual rights and obligations of the licenses. If any of these license agreements are terminated, our ability to advance our Polymedix product candidates or develop new product candidates will be materially adversely affected which could have a materially adverse effect on our business.

 

We now depend, and will continue to depend, on our Polymedix licenses and potentially on other licensing arrangements and/or strategic relationships with third parties for the research, development, manufacturing and commercialization of our Polymedix product candidates. If any of our licenses or relationships are terminated or breached, we may:

 

· lose our rights to develop and market our Polymedix product candidates;

 

 

· lose patent and/or trade secret protection for our Polymedix product candidates;

 

 

· experience significant delays in the development or commercialization of our Polymedix product candidates;

 

 

· not be able to obtain any other licenses on acceptable terms, if at all; and/or

 

 

· incur liability for damages.

 

If we experience any of the foregoing, it could have a materially adverse effect on our business and could force us to cease operations which could cause you to lose all of your investment.

 

We or our third party manufacturers may fail to comply with manufacturing regulations.

 

All facilities and manufacturing processes used in the production of active pharmaceutical ingredient, or API, and drug products for clinical use in the U.S. must be operated in conformity with cGMP as established by the FDA. Similar requirements in other countries exist for manufacture of drug products for clinical use. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Before we can commercialize a drug, we must obtain regulatory approval of our cGMP manufacturing facility and process, if any, or the cGMP manufacturing facility and process of the third party or parties with whom we may outsource our manufacturing activities.

 

In connection with any application for commercial approval, and if any drug candidate is approved by the FDA or other regulatory agencies for commercial sale, a significant scale-up in manufacturing may require additional validation studies. If we are unable to successfully increase the manufacturing capacity for a drug candidate, the regulatory approval or commercial launch of that drug candidate may be delayed, or there may be a shortage of supply, which could limit our ability to develop or commercialize the drug.

 

Our manufacturing facilities, if any in the future, and the manufacturing facilities of our third party manufacturers will be subject to inspection by the FDA and other state, local and foreign regulatory authorities, before and after product approval. We cannot guarantee that we, or any potential third party manufacturer of our products, will be able to comply with the cGMP regulations or other applicable manufacturing regulations.

 

Failure on our or our third party manufacturers’ part to comply with applicable regulations and specific requirements or specifications of other countries could result in the termination of ongoing research, disqualification of data for submission to regulatory authorities, delays or denials of new product approvals, warning letters, fines, consent decrees restricting or suspending manufacturing operations, injunctions, civil penalties, recall or seizure of products and criminal prosecution. Any of these consequences could have a materially adverse effect on our business.

 

 
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Controls we or our third-party service providers have in place to ensure compliance with laws may not be effective to ensure compliance with all applicable laws and regulations.

 

The development of our investigational products and our general operations are subject to extensive regulation in the U.S. and in foreign countries. Although we have developed and instituted controls to comply with applicable regulatory requirements, we cannot assure you that we, our employees, our consultants or our contractors will operate at all times in full compliance with all potentially applicable U.S. federal and state regulations and/or laws or all potentially applicable foreign law and/or regulations. Further, we have a limited ability to monitor and control the activities of third-party service providers, suppliers and manufacturers to ensure compliance by such parties with all applicable regulations and/or laws. We may be subject to direct liabilities or be required to indemnify such parties against certain liabilities arising out of any failure by them to comply with such regulations and/or laws. If we or our employees, consultants or contractors fail to comply with any of these regulations and/or laws a range of consequences could result, including, but not limited to, the termination of clinical trials, the failure to obtain approval of a product candidate, restrictions on our products or manufacturing processes, withdrawal of our products from the market, significant fines, exclusion from government healthcare programs or other sanctions or litigation that could adversely affect our results of operations.

 

The Company is exposed to product liability, clinical and preclinical liability risks which could place a substantial financial burden upon the Company should it be sued.

 

The Company could be exposed to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical products. In addition, the use in the Company’s clinical trials of its investigational products and the potential subsequent sale of these products by the Company or its potential collaborators may cause the Company to bear some or all of the associated product liability risks. A successful liability claim or series of claims brought against the Company could have a material adverse effect on its business, financial condition and results of operations.

 

The Company has $5,000,000 in liability insurance for our clinical trials. The Company cannot assure that such insurance will provide adequate coverage against the Company’s potential liabilities. Claims or losses in excess of any product liability insurance coverage obtained by the Company could have a material adverse effect on our business, financial condition and results of operations.

 

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. Disclosure of our trade secrets or proprietary information could compromise any competitive advantage that we have, which could have a materially adverse effect on our business.

 

We depend upon confidentiality agreements with our officers, employees, consultants, and subcontractors to maintain the proprietary nature of the technology. These measures may not afford us sufficient or complete protection, and may not afford an adequate remedy in the event of an unauthorized disclosure of confidential information. In addition, others may independently develop technology similar to ours, otherwise avoiding the confidentiality agreements, or produce patents that would materially and adversely affect our business, prospects, financial condition, and results of operations.

 

We may be unable to obtain or protect intellectual property rights relating to our products, and we may be liable for infringing upon the intellectual property rights of others, which could have a materially adverse effect on our business.

 

Our ability to compete effectively will depend on our ability to maintain the proprietary nature of our compounds and the proprietary compounds of others with which we have entered into licensing agreements. We have filed two patent applications and expect to file a number of additional patent applications in the coming years. There can be no assurance that any of these patent applications will ultimately result in the issuance of a patent with respect to the proprietary compounds owned by us or licensed to us. The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the United States Patent and Trademark Office use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others. Further, we rely on a combination of trade secrets, know-how, technology and nondisclosure, and other contractual agreements and technical measures to protect our rights in the proprietary compounds. If any trade secret, know-how or other proprietary information and/or compounds not protected by a patent were to be disclosed to or independently developed by a competitor, our business and financial condition could be materially adversely affected.

 

 
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We do not believe that any of the drug candidates we are currently developing infringe upon the rights of any third parties nor are they infringed upon by third parties; however, there can be no assurance that our proprietary compounds will not be found in the future to infringe upon the rights of others or be infringed upon by others. In such a case, others may assert infringement claims against us, and should we be found to infringe upon their patents, or otherwise impermissibly utilize their intellectual property, we might be forced to pay damages, potentially including treble damages, if we are found to have willfully infringed on such parties’ patent rights. In addition to any damages we might have to pay, we may be required to obtain licenses from the holders of this intellectual property, enter into royalty agreements, or redesign our drug candidates so as not to utilize this intellectual property, each of which may prove to be uneconomical or otherwise impossible. Conversely, we may not always be able to successfully pursue our claims against others that infringe upon our proprietary compounds. Thus, the proprietary nature of our technology or technology licensed by us may not provide adequate protection against competitors.

 

Moreover, the cost to us of any litigation or other proceeding relating to our patents and other intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert our management’s efforts. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue our operations.

 

Our potential collaborative relationships with third parties could cause us to expend significant resources and incur substantial business risk with no assurance of financial return, which could have a materially adverse effect on our business.

 

We may have to rely substantially upon strategic collaborations for marketing and the commercialization of our drug candidates, and we may rely even more on strategic collaborations for R&D of our other drug candidates. Our business will depend on our ability to sell drugs to both government agencies and to the general pharmaceutical market. We may have to sell our drugs through strategic partnerships with other pharmaceutical companies. If we are unable to establish or manage such strategic collaborations on terms favorable to us in the future, our revenue and drug development may be limited. To date, we have not entered into any strategic collaboration with third parties capable of providing these services. In addition, we have not yet marketed or sold any of our drug candidates or entered into successful collaborations for these services in order to ultimately commercialize our drug candidates.

 

If we determine to enter into R&D collaborations during the early phases of drug development, our success will in part depend on the performance of our research collaborators. We will not directly control the amount or timing of resources devoted by our research collaborators to activities related to our drug candidates. Our research collaborators may not commit sufficient resources to our programs. If any research collaborator fails to commit sufficient resources, our preclinical or clinical development programs related to this collaboration could be delayed or terminated. Also, our collaborators may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. Finally, if we fail to make required milestone or royalty payments to our collaborators, or to observe other obligations in our agreements with them, our collaborators may have the right to terminate those agreements.

 

Management of our relationships with our collaborators will require:

 

· significant time and effort from our management team;

 

 

· coordination of our marketing and R&D programs with the marketing and R&D priorities of our collaborators; and

 

 

· effective allocation of our resources to multiple projects.

 

Establishing strategic collaborations is difficult and time-consuming. Our discussion with potential collaborators may not lead to the establishment of collaborations on favorable terms, if at all. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. Even if we successfully establish new collaborations, these relationships may never result in the successful development or commercialization of our drug candidates or the generation of sales revenue. To the extent that we enter into collaborative arrangements, our drug revenues are likely to be lower than if we directly marketed and sold any drugs that we may develop.

 

 
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We may not be able to attract and retain highly skilled personnel or consultants, which could have a materially adverse effect on our business.

 

Our ability to attract and retain highly skilled personnel or consultants is critical to our operations and expansion. We face competition for these types of personnel from other pharmaceutical companies and more established organizations, many of which have significantly larger operations and greater financial, technical, human and other resources than us. We may not be successful in attracting and retaining qualified personnel or consultants on a timely basis, on competitive terms, or at all. If we are not successful in attracting and retaining these personnel or consultants, our business, prospects, financial condition and results of operations will be materially adversely affected.

 

We depend upon our senior management and their loss or unavailability could put us at a competitive disadvantage.

 

We depend upon the efforts and abilities of our management team. Leo Ehrlich, the Company’s Chief Executive and Financial Officer, and Dr. Krishna Menon, Chief Scientific Officer, presently have no employment agreement with the Company and their annual salary is $465,850. Until new employment agreements are entered into, we will continue paying salaries at this rate per annum.

 

There are conflicts of interest among our officers, directors and stockholders.

 

Certain of our executive officers and directors and their affiliates are engaged in other activities and have interests in other entities on their own behalf or on behalf of other persons. Neither we nor any of our stockholders will have any rights in these ventures or their income or profits. In particular:

 

· Our executive officers or directors or their affiliates may have an economic interest in, or other business relationship with, partner companies that invest in us or are engaged in competing drug development; and

 

 

· Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, leases space from the Company and is engaged in research.

 

In either of these cases:

 

· Our executive officers or directors may have a conflict between our current interests and their personal financial and other interests in another business venture; and

 

 

· Our executive officers or directors may have conflicting fiduciary duties to us and the other entity.

 

While the Company is not aware of any conflict that has arisen to date, the Company does not have any policy in place to deal with such should such a conflict arise.

 

The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of competition. We may be unable to compete with enterprises equipped with more substantial resources than us, which could cause us to cease operations.

 

The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of competition based primarily on scientific and technological factors. These factors include the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability to obtain government approval for testing, manufacturing and marketing.

 

We compete with biopharmaceutical firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many biopharmaceutical companies have focused their development efforts in the human therapeutics area, including cancer. Many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies. These companies, as well as academic institutions, government agencies and private research organizations, also compete with us in recruiting and retaining highly qualified scientific personnel and consultants. Our ability to compete successfully with other companies in the pharmaceutical field will also depend to a considerable degree on the continuing availability of capital on terms and conditions acceptable to us.

 

 
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We are aware of numerous products under development or manufactured by competitors that are used for the prevention or treatment of certain diseases we have targeted for drug development. Various companies are developing biopharmaceutical products that potentially directly compete with our drug candidates even though their approach to such treatment is different.

 

For example, with respect to Kevetrin, our lead compound for cancer, there are many drugs approved to treat various cancers and many more in the publicly disclosed pipeline. Our success depends on our ability to identify tumor types where Kevetrin has an advantage over existing therapies and those in the publicly disclosed pipeline. The same is true for our compounds Prurisol and Brilacidin. Numerous drugs are already FDA approved for the treatment of psoriasis and ABSSSI. Although there is presently no drug approved for the prevention and treatment of oral mucositis for head and neck cancers, there are numerous clinical trials in progress and Kepivance is approved for limited use patients with hematologic malignancies

 

Our competition will be determined in part by the potential indications for which our investigational drugs are developed and ultimately approved by regulatory authorities. Additionally, the timing of the market introduction of some of our potential drugs or of competitors’ products may be an important competitive factor. Accordingly, the relative speed with which we can develop drugs; complete pre-clinical testing, clinical trials, and approval processes; and supply commercial quantities to market are likely to be important competitive factors. We expect that competition among drugs approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent protection.

 

The successful development of biopharmaceuticals is highly uncertain. A variety of factors, including, but not limited to, unfavorable pre-clinical study results or failure to obtain regulatory approvals, could cause us to abandon development of our drug candidates, which could also cause us to cease operations and you may lose your entire investment.

 

We face certain litigation risks that could harm our business.

 

A complaint entitled O’Connell v. Cellceutix Corp. et al. (No. 1:15-cv-07194) was filed in the United States District Court for the Southern District of New York in September 2015 against the Company and its officers alleging that the defendants made materially false and misleading statements, and omitted materially adverse facts, about the Company's business, operations and prospects. On June 9, 2016, the U.S. District Court for the Southern District of New York granted the Company’s motion to dismiss the lawsuit. The ruling dismissed all claims against Cellceutix, denied the plaintiff's request to file an amended complaint, and ordered that the case be closed. The action was subject to a potential appeal which was withdrawn on September 2, 2016.

 

An unfavorable outcome or settlement of any similar stockholder lawsuits that may be filed against us could have a material adverse effect on our financial position, liquidity or results of operations. Even if this lawsuit is not resolved against us, the uncertainty and expense associated with an unresolved lawsuit could adversely impact our business, financial condition and reputation. Litigation is costly, time-consuming and disruptive to normal business operations. The continued costs of defending this lawsuit could be significant. While we maintain directors’ and officers’ liability insurance that we believe to be applicable to this claim, certain costs, such as those below a retention amount, are not covered by our insurance policies. In addition, our insurance carriers could refuse to cover some or all of these claims in whole or in part. The continued defense of this lawsuit may also result in continued diversion of our management’s time and attention away from business operations, which could harm our business.

  

 
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Risks Related to the Securities Markets and Investments in Our Class A Common Stock

 

We have applied to uplist our common stock to the Nasdaq Capital Market. The Nasdaq Capital Market may not list our securities for quotation which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

 

We have applied for our common stock to be listed on the Nasdaq Capital Market, a national securities exchange. In order to list on the Nasdaq Capital Market, we must meet certain requirements relating to stockholders’ equity, market capitalization, aggregate market value of publicly held shares, price per share, and distribution requirements. At the present time we do not meet the requirement of minimum price per share. We cannot assure you that we will be able to meet the listing requirements. If the Nasdaq Capital Market does not list our common stock for trading on its exchange, we could face significant material adverse consequences, including:

 

· a limited availability of market quotations for our securities;

 

 

· reduced liquidity with respect to our common stock;

 

 

· a determination that our shares of common stock are “penny stock,” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;

 

 

· a limited amount of news and analyst coverage for our Company; and

 

 

· a decreased ability to issue additional securities or obtain additional financing in the future.

 

Because our common stock is quoted on the OTC your ability to sell your shares in the secondary trading market may be limited.

 

Our Class A Common Stock is currently quoted on the OTC. Consequently, the liquidity of our Class A Common Stock is impaired, not only in the number of shares that are bought and sold, but also through delays in the timing of transactions, and coverage by security analysts and the news media, if any, of our Company. As a result, prices for shares of our Class A Common Stock may be lower than might otherwise prevail if our Class A Common Stock was quoted and traded on NASDAQ or a national securities exchange.

 

Because our Class A Common Stock is considered “penny stock” you may have difficulty selling them in the secondary trading market.

 

Federal regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) regulate the trading of so-called “penny stocks,” which are generally defined as any security not listed on a national securities exchange or NASDAQ, priced at less than $5.00 per share and offered by an issuer with limited net tangible assets and revenues. Since our Class A Common Stock currently is quoted on the OTC at less than $5.00 per share, our shares are “penny stocks” and may not be traded unless a disclosure schedule explaining the penny stock market and the risks associated therewith is delivered to a potential purchaser prior to any trade.

 

In addition, because our Class A Common Stock is not listed on NASDAQ or any national securities exchange and currently is quoted at and trades at less than $5.00 per share, trading in our Class A Common Stock is subject to Rule 15g-9 under the Exchange Act. Under this rule, broker-dealers must take certain steps prior to selling a “penny stock,” which steps include:

 

· obtaining financial and investment information from the investor;

 

 

· obtaining a written suitability questionnaire and purchase agreement signed by the investor; and

 

 

· providing the investor a written identification of the shares being offered and the quantity of the shares.

 

If these penny stock rules are not followed by the broker-dealer, the investor has no obligation to purchase the shares. The application of these comprehensive rules will make it more difficult for broker-dealers to sell our Class A Common Stock and our stockholders, therefore, may have difficulty in selling their shares in the secondary trading market.

 

 
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Our stock price may be volatile and your investment in our Class A Common Stock could suffer a decline in value.

 

As of June 30, 2016, the closing price of our Class A Common Stock, as quoted on the OTC, was $1.39. The price may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include:

 

· progress of our products through the regulatory process;

 

 

· results of preclinical studies and clinical trials;

 

 

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

 

 

· government regulatory action affecting our products or our competitors’ products in both the United States and foreign countries;

 

 

· developments or disputes concerning patent or proprietary rights;

 

 

· general market conditions for emerging growth and pharmaceutical companies;

 

 

· economic conditions in the United States or abroad;

 

 

· actual or anticipated fluctuations in our operating results;

 

 

· broad market fluctuations; and

 

 

· changes in financial estimates by securities analysts.

 

Our share price could decline as a result of short sales.

 

When an investor sells stock that he does not own, it is known as a short sale. The seller, anticipating that the price of the stock will go down, intends to buy stock to cover his sale at a later date. If the price of the stock goes down, the seller will profit to the extent of the difference between the price at which he originally sold it less his later purchase price. Short sales enable the seller to profit in a down market. Short sales could place significant downward pressure on the price of our common stock. Penny stocks which do not trade on an exchange, such as our common stock, are particularly susceptible to short sales.

 

 
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Our directors and executive officers own or control a sufficient number of shares of our Class A Common Stock to control our Company, which could discourage or prevent a takeover, even if an acquisition would be beneficial to our stockholders.

 

At June 30, 2016, our directors and executive officers own or control approximately 21% of our outstanding voting power of Class A Common Stock. Accordingly, these stockholders, individually and as a group, may be able to influence the outcome of stockholder votes, involving votes concerning the election of directors, the adoption or amendment of provisions in our Articles of Incorporation and bylaws and the approval of certain mergers or other similar transactions, such as sales of substantially all of our assets. Such control by existing stockholders could have the effect of delaying, deferring or preventing a change in control of our Company.

  

The dual class structure of our common stock can have the effect of concentrating voting control with Dr. Menon and/ or Mr. Ehrlich, which will limit or preclude your ability to influence corporate matters.

 

Our Class B common stock entitles holders to ten (10) votes per share on all matters submitted to a vote of our stockholders and our Class A Common Stock entitles holders to one (1) vote per share on all matters submitted to a vote of our stockholders. Dr. Menon and Mr. Ehrlich each have vested options that they can exercise and convert into 18,000,000 shares of Class B common stock. That alone could result in the equivalent of 360,000,000 votes of Class A Common Stock. As of June 30, 2016 we had 123,589,536 shares of Class A Common Stock outstanding and no shares of Class B common stock outstanding. Because of the ten-to-one voting ratio between our Class B common stock and Class A Common Stock, upon exercise and conversion of such options into shares of Class B common stock, the Class B common stock holders can collectively control a majority of the combined voting power of our common stock (i.e., approximately 47%) and therefore be able to control all matters submitted to our stockholders for approval. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future.

 

We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on your investment in our Class A Common Stock must come from increases in the fair market value and trading price of the Class A Common Stock.

 

We have not paid any cash dividends on our Class A Common Stock and do not intend to pay cash dividends on our Class A Common Stock in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Any credit agreements, which we may enter into with institutional lenders, may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and any other factors that the board of directors decides is relevant. Therefore, any return on your investment in our Class A Common Stock must come from increases in the fair market value and trading price of the Class A Common Stock.

 

We may issue additional equity shares to fund the Company’s operational requirements which would dilute your share ownership.

 

The Company’s continued viability depends on its ability to raise capital. Changes in economic, regulatory or competitive conditions may lead to cost increases. Management may also determine that it is in the best interest of the Company to develop new services or products. In any such case additional financing is required for the Company to meet its operational requirements. There can be no assurances that the Company will be able to obtain such financing on terms acceptable to the Company and at times required by the Company, if at all. In such event, the Company may be required to materially alter its business plan or curtail all or a part of its operational plans.

 

The sale of our Class A Common Stock to Aspire Capital may cause substantial dilution to our existing stockholders and the sale of the shares of Class A Common Stock acquired by Aspire Capital could cause the price of our Class A Common Stock to decline, which could have a materially adverse effect on our business.

 

On March 30, 2015, the Company entered into a common stock purchase agreement (the “Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company’s common stock over the 36-month term of the Purchase Agreement. The Company also issued 160,000 shares of its Class A Common Stock to Aspire Capital as a commitment fee. The Company has filed a registration statement to register the resale of any shares that Aspire Capital may purchase under the Purchase Agreement. To the extent Aspire Capital purchases shares under the Purchase Agreement and subsequently sells those shares, the other holders of our Class A Common Stock may experience dilution, which may be substantial. In addition, the sale of a substantial number of shares of our Class A Common Stock by Aspire Capital, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

 

 
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Large amounts of our Class A Common Stock will be eligible for resale under Rule 144.

 

As of June 30, 2016, 37,900,346 shares of the 123,589,536 outstanding shares of our Class A Common Stock are restricted securities as defined under Rule 144 of the Securities Act and under certain circumstances may be resold without registration pursuant to Rule 144.

 

Approximately 11.5 million shares of our restricted shares of Class A Common Stock are held by non-affiliates who may avail themselves of the public information requirements and sell their shares in accordance with Rule 144. As a result, some or all of these shares may be sold in accordance with Rule 144 potentially causing the price of the Company’s shares to decline.

  

In general, under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a six-month holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of Class A Common Stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate, as such term is defined in Rule 144(a)(1), of the Company and who has satisfied a one-year holding period. Any substantial sale of the Company’s Class A Common Stock pursuant to Rule 144 may have an adverse effect on the market price of the Class A Common Stock.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None

 

ITEM 2. PROPERTIES

 

Our principal offices are located at 100 Cummings Center, Suite 151-B, Beverly, MA 01915. Cellceutix Corporation signed a lease extension agreement with Cummings Properties which began on October 1, 2013. The lease is for a term of five years ending on September 30, 2018, and requires monthly payments of approximately $18,000. Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of Cellceutix, have co-signed the lease and will sublease 200 square feet of space previously used by Cellceutix and pay Cellceutix $900 per month.

 

Management believes that the property arrangement satisfies the Company’s current needs.

 

ITEM 3. LEGAL PROCEEDINGS

 

The information called for by this item is incorporated herein by reference to the information set forth in Note 9 “Commitment and contingencies” of the Notes to Consolidated Financial Statements included in Item 8 of this Report.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None

 

 
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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s Class A Common Stock symbol is “CTIX” and is quoted on the OTCQB.

 

The table below sets forth the daily high and low prices for the Company’s Class A Common Stock. Quotations reflect inter-dealer prices, without retail mark-up, mark-down commission, and may not represent actual transactions. Since the Company’s common stock trades sporadically, there is not an established active public market for its common stock. No assurance can be given that an active market will exist for the Company’s common stock.

 

 

 

Fiscal 2016

 

 

Fiscal 2015

 

 

 

High

 

 

Low

 

 

High

 

 

Low

 

First Quarter

 

 

3.65

 

 

 

1.32

 

 

 

3.03

 

 

 

1.60

 

Second Quarter

 

 

1.96

 

 

 

0.94

 

 

 

4.93

 

 

 

2.70

 

Third Quarter

 

 

1.92

 

 

 

0.95

 

 

 

4.74

 

 

 

2.79

 

Fourth Quarter

 

 

1.87

 

 

 

1.30

 

 

 

3.38

 

 

 

2.27

 

 

Number of Shareholders

 

As of August 2, 2016, a total of approximately 124 million shares of the Company’s common stock are outstanding and held by approximately 67 shareholders of record, including Cede & Co., the nominee for the Depository Trust & Clearing Corporation and consequently that number does not include beneficial owners of our common stock who hold their stock in “street name” through their brokers.

 

Dividends

 

The Company has not paid any cash dividends since its inception. The Company currently intends to retain any earnings for use in its business, and therefore does not anticipate paying dividends in the foreseeable future.

 

 
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ITEM 6. SELECTED FINANCIAL DATA

 

(Rounded to nearest thousand, except shares and for per share data):

 

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FIVE YEARS ENDED JUNE 30

 

 

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

Net loss

 

 

$ (12,852,000 )

 

$ (13,145,000 )

 

$ (8,247,000 )

 

$ (3,224,000 )

 

$ (4,894,000 )

Net loss attributable to common stockholders (a)

 

 

$ (12,852,000 )

 

$ (13,145,000 )

 

$ (10,227,000 )

 

$ (3,436,000 )

 

$ (4,960,000 )

Basic and diluted loss per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-Basic

 

 

$ (0.11 )

 

$ (0.11 )

 

$ (0.10 )

 

$ (0.04 )

 

$ (0.06 )

 

-Diluted

 

 

$ (0.11 )

 

$ (0.11 )

 

$ (0.10 )

 

$ (0.04 )

 

$ (0.06 )

Weighted average common shares outstanding

 

 

 

119,908,145

 

 

 

115,087,368

 

 

 

105,044,985

 

 

 

94,980,552

 

 

 

90,159,045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEET DATA

 

 

 

 

AS OF JUNE 30,

 

 

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

$ 11,445,000

 

 

$ 14,319,000

 

 

$ 10,852,000

 

 

$ 2,970,000

 

 

$ 28,000

 

Total debt

 

 

$ 8,481,000

 

 

$ 7,295,000

 

 

$ 9,646,000

 

 

$ 8,140,000

 

 

$ 7,654,000

 

Total equity

 

 

$ 2,964,000

 

 

$ 7,024,000

 

 

$ 1,206,000

 

 

$ (5,170,000 )

 

$ (7,626,000 )


(a) Net loss attributable to common stockholders represents our net loss plus deemed dividends. Other than deemed dividends of $1,980,000, $212,000 and $66,000 in fiscal year 2014, 2013 and 2012, respectively, the net loss attributable to common stockholders was equal to our net loss.

  

ITEM 7. MANAGEMENT’S DISCUSSION AND FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about our expectations related to the progress, continuation, timing and success of drug discovery and development activities conducted by Cellceutix, our ability to obtain additional capital to fund our operations, changes in our research and development spending, realizing new revenue streams and obtaining future out-licensing or collaboration agreements that include up-front, milestone and/or royalty payments, our ability to realize up-front milestone and royalty payments under future agreements, future research and development spending and projections relating to the level of cash we expect to use in operations, our working capital requirements and our future headcount requirements. In some cases, forward-looking statements can be identified by the use of terms such as "may," "will," "expects," "intends," "plans," "anticipates," "estimates," "potential," or "continue," or the negative thereof or other comparable terms. These statements are based on current expectations, projections and assumptions made by management and are not guarantees of future performance. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition, as well as any forward-looking statements are subject to significant risks and uncertainties including, but not limited to the factors set forth under the heading "Item 1A. Risk Factors" under Part I of this Annual Report on Form 10-K, and in other reports we file with the SEC. All forward-looking statements are made as of the date of this report and, unless required by law, we undertake no obligation to update any forward-looking statements.

 

 
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The following discussion of our financial condition and results of operations should be read in conjunction with our accompanying audited consolidated financial statements and related notes to those statements included elsewhere in this Annual Report on Form 10-K.

 

Our fiscal year ends on June 30. When we refer to a fiscal year, we are referring to the year in which the fiscal year ends. Therefore, fiscal 2016 refers to the fiscal year ended June 30, 2016.

 

Management’s Plan of Operation

 

The Company devotes most of its efforts and resources on its compounds already in clinical trials. These trials are evaluating our drug candidates: Kevetrin for the treatment of cancers, Prurisol for the treatment of psoriasis, and Brilacidin for treatments of skin infections, prevention of oral mucositis complicating chemoradiation treatment for cancer, and ulcerative proctitis. We anticipate using our expertise to manage and perform what we believe are the most critical aspects of the product development process which include: (i) design and oversight of clinical trials; (ii) development and execution of strategies for the protection and maintenance of intellectual property rights; and (iii) interactions with regulatory authorities domestically and internationally. We expect to concentrate on product development and engage in a limited way in product discovery, avoiding the significant investment of time and financial resources that is generally required for a promising compound to be identified and brought into clinical trials.

 

At this time the Company is focusing its research and development efforts on Kevetrin, Prurisol, Brilacidin, and to a lesser extent on our other anti-bacterial and anti-fungal compounds. Set forth below is an overview our research and development efforts on Kevetrin, Prurisol and Brilacidin during fiscal 2016 and through the date of this Annual Report on Form 10-K:

 

· Kevetrin . During fiscal 2016, the first-in-human clinical trial evaluating the safety and pharmacokinetics of Kevetrin was completed at Dana-Farber Cancer Institute and Beth Israel Deaconess Medical Center. The study enrolled a total of 48 patients, who had failed previous therapies, with various types of advanced solid tumors, including 11 patients with advanced ovarian cancer. A dose-escalation design was used with patients enrolled in 11 cohorts with the maximum dose administered at 750 mg/m2. Kevetrin appeared to be safe and well-tolerated, with no dose-limiting toxicities occurring among patients who received even the highest dose of Kevetrin. Cellceutix is currently preparing for a Phase 2a trial of Kevetrin in treating late-stage ovarian cancer, which is anticipated to start in the fourth quarter of calendar 2016. The main objective of this trial focuses on confirming the modulation by Kevetrin of p53 in tumors, as well as monitoring response of tumors to the treatment. During fiscal 2016, Cellceutix’s expenditures on Kevetrin were approximately $0.6 million.

 

 

· Prurisol . The Company completed an initial Phase 2 trial of oral Prurisol for mild to moderate plaque psoriasis. After a detailed analysis, the data showed that the most robust response to Prurisol was in patients with moderate psoriasis in the trial’s highest dosing arm (200mg), with no serious adverse events reported. Benefits were apparent by two weeks and showed further improvement by the end of the study at 12 weeks. Cellceutix has begun preparing for a Phase 2b trial of Prurisol for patients with moderate to severe plaque psoriasis in order to better define appropriate dosing to achieve greatest clinical responses. The Company expects to initiate the Phase 2b trial in the third or fourth quarter of calendar 2016 with interim analysis top-line results expected in the second quarter of 2017. During fiscal 2016, Cellceutix’s expenditures on Prurisol were approximately $1.8 million. We expect our expenditures on Prurisol to increase for the fiscal year ended June 30, 2017.

 

 

· Brilacidin . In February 2016, Cellceutix submitted a Special Protocol Assessment (SPA) request, along with a final protocol, to the FDA, for a Phase 3 clinical trial of Brilacidin for the treatment of Acute Bacterial Skin and Skin Structure Infection (ABSSSI) caused by Gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). We have received from the FDA comments and considerations for incorporation into our study design, and we are now preparing our response. In addition, multiple other trials of Brilacidin remain ongoing, including a double-blind Phase 2 clinical trial of Brilacidin-OM for the treatment of oral mucositis (OM), and an open-label Phase 2 Proof-of-Concept (P-o-C) trial of Brilacidin for the treatment of ulcerative proctitis (UP) or ulcerative proctosigmoiditis (UPS). During fiscal 2016, Cellceutix’s expenditures on Brilacidin were approximately $3.4 million.

 

 
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Critical Accounting Policies and Estimates

 

Management's discussion and analysis of financial condition and results of operations are based upon our accompanying consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, and which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Note 3 to the consolidated financial statements, Significant Accounting Policies and Recent Accounting Pronouncements, in the accompanying Notes to consolidated financial statements describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These estimates are the basis for our judgments about the carrying values of assets and liabilities, which in turn may impact our reported revenue and expenses. Our actual results could differ significantly from these estimates under different assumptions or conditions.

 

Accrued Outsourcing Costs

 

Substantial portions of our preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors, or collectively "CROs". These CROs generally bill monthly or quarterly for services performed, or bill based upon milestone achievement. For preclinical studies, we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. We monitor patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to us by the CROs, correspondence with the CROs and clinical site visits. Our estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. We periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive.

 

Valuation of Equity Grants

 

The Company accounts for all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their fair values. The Company is required to measure the cost of employee services received in exchange for stock options and similar awards based on the grant-date fair value of the award and recognize this cost in the income statement over the period during which an employee is required to provide service in exchange for the award. The Company uses the Black-Scholes valuation model and has elected to use the ratable method to amortize compensation expense over the vesting period of the grant. The Company accounts for equity instruments issued to nonemployees by valuing them using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest.

 

Income Tax Valuation

 

Deferred income tax assets and liabilities arise from temporary differences associated with differences between the consolidated financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company has generated net losses since inception and accordingly has not recorded a provision for income taxes. The deferred tax assets were primarily comprised of federal and state tax net operating loss, or NOL, carryforwards. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset the deferred tax assets. Additionally, the future utilization of the NOL carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any carryforwards that expire prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

 

The Company adopted the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10), on January 1, 2007. The Company has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit since the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

 

 
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Recently Issued Accounting Pronouncements

 

See Note 3 to the consolidated financial statements, Significant Accounting Policies and Recent Accounting Pronouncements, in the accompanying Notes to consolidated financial statements for a discussion of recent accounting pronouncements and their effect, if any, on our consolidated financial statements.

 

Results of Operations

 

We expect to incur losses from operations for the next few years. We expect to incur increasing research and development expenses, including expenses related to additional clinical trials for our Proprietary Programs. We expect that our general and administrative expenses will also increase in the future as we expand our business development, by adding employees, consultants, additional infrastructure and incurring other additional costs. Based upon our expected rate of expenditures over the next 12 months, we currently expect to have sufficient cash reserves and financing available to us to meet all of our anticipated obligations through our fiscal year end of June 30, 2017.

 

Revenue

 

We generated no revenue and incurred operating expenses of $12.7 million, $13.0 million and 8.0 million for the years ended June 30, 2016, 2015 and 2014, respectively.

 

Research and Development Expenses for Proprietary Programs

 

Below is a summary of our research and development expenses for our proprietary programs by categories of costs for the fiscal years presented (rounded to nearest thousand):

 

 

 

For the Years Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

Change

 

 

 

2016

 

 

2015

 

 

2014

 

 

2016 vs. 2015

 

 

2015 vs. 2014

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

%

 

 

$

 

 

%

 

Clinical studies and development research

 

 

6,671,000

 

 

 

7,897,000

 

 

 

4,815,000

 

 

 

(1,226,000 )

 

 

(16 )%

 

 

3,082,000

 

 

 

64 %

Stock-based compensation - consultants

 

 

188,000

 

 

 

55,000

 

 

 

389,000

 

 

 

133,000

 

 

 

242 %

 

 

(334,000 )

 

(86%)

 

Officers' payroll and payroll tax expenses related to R&D department

 

 

433,000

 

 

 

876,000

 

 

 

413,000

 

 

 

(443,000 )

 

 

(51 )%

 

 

463,000

 

 

 

112 %

Employees payroll and payroll tax expenses related to R&D department

 

 

1,208,000

 

 

 

969,000

 

 

 

438,000

 

 

 

239,000

 

 

 

25 %

 

 

531,000

 

 

 

121 %

Stock-based compensation-COO

 

 

33,000

 

 

 

230,000

 

 

 

-

 

 

 

(197,000 )

 

 

(86 )%

 

 

230,000

 

 

 

0 %

Stock-based compensation- Employee

 

 

-

 

 

 

103,000

 

 

 

-

 

 

 

(103,000 )

 

 

(100 )%

 

 

103,000

 

 

 

0 %

Depreciation and amortization Expenses

 

 

419,000

 

 

 

401,000

 

 

 

289,000

 

 

 

18,000

 

 

 

4 %

 

 

112,000

 

 

 

39 %

Total

 

 

8,952,000

 

 

 

10,531,000

 

 

 

6,344,000

 

 

 

(1,579,000 )

 

 

(15 )%

 

 

4,187,000

 

 

 

66 %

 

Fiscal 2016 compared to Fiscal 2015 - Research and development expenses for proprietary programs decreased during the year ended June 30, 2016 primarily due to lower spending on our ABSSSI program, which trial was completed in early 2015.

 

The Stock-based compensation- consultants increased during the year ended June 30, 2016 primarily related to the increase in stock-based compensation to consultants to incentivize our consultants with stock awards rather than monetary compensation.

 

 
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The Officers' payroll and payroll tax expenses related to R&D department decreased during the year ended June 30, 2016 primarily related to the decrease in payroll paid to our Chief Operations Officer of approximately $211,000 who joined in 2014 and resigned on August 8, 2015 and a decrease in year-end bonus of $225,000 paid to our executive officers in 2015.

 

The Employees payroll and payroll tax expenses increased primarily related to the increases in the number of employees in our research and development department.

 

The Stock-based compensation - COO decreased during the year ended June 30, 2016 primarily related to the decrease in stock-based compensation to our executive officers in 2016.

 

The Stock-based compensation- Employee decreased during the year ended June 30, 2016 primarily related to the decrease in year-end bonus paid to employee.

 

Our research and development expenses include costs related to preclinical and clinical trials, outsourced services and consulting, officers' payroll and related payroll tax expenses, other wages and related payroll tax expenses, stock-based compensation, depreciation and amortization expenses. We manage our proprietary programs based on scientific data and achievement of research plan goals. Our scientists record their time to specific projects when possible; however, many activities occurring simultaneously benefit multiple projects and cannot be readily attributed to a specific project. Accordingly, the accurate assignment of time and costs to a specific project is difficult and may not give a true indication of the actual costs of a particular project. As a result, we do not report costs on an individual program basis.

 

Fiscal 2015 compared to Fiscal 2014 - Research and development expenses for proprietary programs increased during fiscal 2015 primarily due to higher spending on our ABSSSI Trial, Brilacidin Trial and Oral Mucositis Trial programs. In addition, the increase in officers’ payroll was primarily due to an increase in payroll paid to our newly hired Chief Operations Officer (“COO”) and year-end bonus. The increase in employees payroll was primarily due to an increase in the number of employees for our research and development department and year-end bonus.

 

See Note 3 of the Notes to our consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K for additional information about our research and development expenses.

 

General and Administrative Expenses

 

General and administrative expenses consist mainly of compensation and associated fringe benefits not included in cost of research and development expenses for proprietary programs and include other management, business development, accounting, information technology and administration costs, including patent filing and prosecution, recruiting, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses. Below is a summary of our general and administrative expenses (rounded to nearest thousand):

 

 

 

For the Years Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

Change

 

 

 

2016

 

 

2015

 

 

2014

 

 

2016 vs. 2015

 

 

2015 vs. 2014

 

 

 

 

 

 

 

 

 

 

 

$

 

 

%

 

 

$

 

 

%

 

Insurance Expense

 

$ 499,000

 

 

$ 249,000

 

 

$ 107,000

 

 

 

250,000

 

 

 

100 %

 

 

142,000

 

 

 

133 %

Patent expenses

 

 

37,000

 

 

 

102,000

 

 

 

154,000

 

 

 

(65,000 )

 

 

(64 )%

 

 

(52,000 )

 

 

-34%

 

Impairment loss - patents

 

 

648,000

 

 

 

-

 

 

 

-

 

 

 

648,000

 

 

 

-

 

 

 

-

 

 

 

-

 

Rent and Utility Expense

 

 

262,000

 

 

 

273,000

 

 

 

198,000

 

 

 

(11,000 )

 

 

(4 )%

 

 

75,000

 

 

 

38 %

Other G&A

 

 

500,000

 

 

 

553,000

 

 

 

413,000

 

 

 

(53,000 )

 

 

(10 )%

 

 

140,000

 

 

 

34 %

Total

 

$ 1,946,000

 

 

$ 1,177,000

 

 

$ 872,000

 

 

 

769,000

 

 

 

65 %

 

 

305,000

 

 

 

35 %

 

Fiscal 2016 compared to Fiscal 2015 - General and administrative expenses increased during fiscal 2016 primarily related to increase in impairment loss on the patent costs of Delparantag and various patents, D&O insurance and employee health insurance expenses and travel expenses for meetings for our clinical trials and to the FDA, to further develop our compounds.

 

Fiscal 2015 compared to Fiscal 2014 - General and administrative expenses increased during fiscal 2015 primarily related to increase in insurance expenses, rental expenses and travel, FDA and clinics expenses.

 

 
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Officers' payroll and payroll tax expenses

  

Below is a summary of our Officers' payroll and payroll tax expenses (rounded to nearest thousand):

 

 

 

For the Years Ended

 

 

 

 

 

 

 

 

 

June 30,

Change

Change

 

 

 

2016

 

 

2015

 

 

2014

 

 

2016 vs. 2015

 

 

2015 vs. 2014

 

 

 

 

 

 

 

 

 

 

 

$

 

 

%

 

 

$

 

 

%

 

Officers' payroll and payroll tax expenses

 

$ 528,000

 

 

$ 801,000

 

 

$ 505,000

 

 

 

(273,000 )

 

 

(34 )%

 

 

296,000

 

 

 

59 %

 

Fiscal 2016 compared to Fiscal 2015 - Officers' payroll and payroll tax expenses decreased during fiscal 2016 primarily related to a decrease in bonus paid. The officers’ payroll and payroll tax expenses represented one officer’s annual payroll and payroll tax expenses and 10% of payroll and payroll tax expenses paid for Mr. Menon. The Company recorded 90% of annual payroll paid to Mr. Menon and his payroll tax expenses under Research and Development Expense.

 

Fiscal 2015 compared to Fiscal 2014 - Officers' payroll and payroll tax expenses increased during fiscal 2015 primarily related to the bonus of $250,000 paid to an officer as of the end of calendar year 2014 and a new hire of Dr. Alexander, our the Chief Operations Officer on October 20, 2014. However, on August 3, 2015, Dr. Alexander resigned from his position as Chief Operating Officer of the Company. The Company agreed that Dr. Alexander will transition to a part-time consultancy with the Company.

 

Professional fees

 

Below is a summary of our Professional fees (rounded to nearest thousand):

 

 

 

For the Years Ended

 

 

 

 

 

 

 

 

 

June 30,

Change

Change

 

 

 

2016

 

 

2015

 

 

2014

 

 

2016 vs. 2015

 

 

2015 vs. 2014

 

 

 

 

 

 

 

 

 

 

$

 

 

%

 

 

$

 

 

%

 

Audit Fee, legal and professional fees

 

$ 1,228,000

 

 

$ 447,000

 

 

$ 317,000

 

 

 

781,000

 

 

 

175 %

 

 

130,000

 

 

 

41 %

 

Fiscal 2016 compared to Fiscal 2015 - Professional fees increased during fiscal 2016 primarily related to increase in legal fees and the one million stock options issued to a law firm for services, valued at approximately $432,000 on November 5, 2015.

 

Fiscal 2015 compared to Fiscal 2014 - Professional fees increased during fiscal 2015 primarily related to increase in legal fees and other consulting services related to S-3 filings, tax and SOX services.

 

 
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Other Income (Expense)

 

Below is a summary of our other income (expense) (rounded to nearest thousand):

 

 

 

For the Years Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Change

 

 

Change

 

 

 

2016

 

 

2015

 

 

2014

 

 

2016 vs. 2015

 

 

2015 vs. 2014

 

 

 

 

 

 

 

 

 

 

 

$

 

 

%

 

 

$

 

 

%

 

Interest Income

 

$ 4,000

 

 

$ 4,000

 

 

$ 1,000

 

 

 

-

 

 

 

0 %

 

 

3,000

 

 

 

300 %

Sundry Income

 

 

-

 

 

 

9,000

 

 

 

-

 

 

 

(9,000 )

 

 

(100 )%

 

 

9,000

 

 

 

0 %

Interest Expenses

 

 

(202,000 )

 

 

(202,000 )

 

 

(210,000 )

 

 

-

 

 

 

0 %

 

 

8,000

 

 

 

-4

%

Total

 

$ (198,000 )

 

$ (189,000 )

 

$ (209,000 )

 

 

(9,000 )

 

 

5 %

 

 

20,000

 

 

 

10 %

 

Fiscal 2016 compared to Fiscal 2015 - Other expense, net increased slightly during fiscal 2016 primarily related to the decrease in sundry income of $9,000. There was no change in interest expenses paid to the note payable - related party (see note 11).

 

Fiscal 2015 compared to Fiscal 2014 - Other expense, net decreased slightly during fiscal 2015 primarily related to the interest on settlement costs of $8,000 was paid in 2014. There was no change in interest expenses paid to the note payable - related party (see note 11).

 

Net Losses

 

We incurred net losses of $12.9 million, $13.2 million and $8.2 million for the years ended June 30, 2016, 2015 and 2014, respectively because of the above factors.

 

Net Losses Attributable to Common Stockholders

 

We have net losses attributable to common stockholders of $12.9 million, $13.2 million and $10.2 million for the years ended June 30, 2016, 2015 and 2014, respectively.

 

Liquidity and Capital Resources

 

Projected Future Working Capital Requirements - Next 12 Months

 

As of June 30, 2016, we had approximately $6.3 million in cash and cash equivalents and $22 million remaining available for stock sales under the terms of the purchase agreement with Aspire Capital, compared to $8.4 million of cash and cash equivalents as of June 30, 2015. We anticipate that future cash expenditures will be approximately $17 million over the next 12 months, including approximately $13 million for clinical trials.

 

Management believes that our cash, cash equivalents and present financing arrangement with Aspire Capital as of June 30, 2016 will enable us to continue to fund operations in the normal course of business for at least the next 12 months. This assessment is based on current estimates and assumptions regarding our clinical development program and business needs. Actual results could differ materially from this projection. Also, we may plan to raise additional funds through the sales of debt and/or equity securities as needed.

 

Our ability to successfully raise sufficient funds through the sale of equity securities, when needed, is subject to many risks and uncertainties and even if we are successful, future equity issuances would result in dilution to our existing stockholders. Our risk factors are described under the heading "Risk Factors" in Part I Item 1A and elsewhere in this Annual Report on Form 10-K and in other reports we file with the SEC.

 

If we are unable to generate enough working capital from our current financing agreement with Aspire Capital when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending through further reductions in staff and delaying, scaling back or stopping certain research and development programs, including more costly Phase 2 and Phase 3 clinical trials on our wholly-owned development programs as these programs progress into later stage development. Insufficient liquidity may also require us to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to us and our stockholders than we would otherwise choose in order to obtain up-front license fees needed to fund operations. These events could prevent us from successfully executing our operating plan.

 

 
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Aspire Capital Agreement and Other Equity Issuances

 

$20 million Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC - For the period from October 25, 2013 to March 31, 2015

 

On October 25, 2013, we terminated a previous agreement with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”), and entered into a new Class A Common Stock Purchase Agreement (the “October 2013 Agreement”) with Aspire Capital, which provides that upon meeting the terms of the agreement, Aspire Capital was committed to purchase up to an aggregate of $20,000,000 of our shares of Class A Common Stock over the approximately 36-month term of the October 2013 Agreement. In consideration for entering into the October 2013 Agreement, the Company issued to Aspire Capital 210,523 shares of our Class A Common Stock as a commitment fee. The commitment fee of $373,000 for these 210,523 shares was fully amortized as the aggregate of $20,000,000 of our shares of Class A Common Stock was completed in March 2015. The amortized amount of $295,000 and $77,000 were debited to additional paid-in capital during the year ended June 30, 2015 and 2014, respectively.

 

During the period from October 25, 2013 to March 5, 2015, the Company had completed sales to Aspire totaling 8,890,379 shares of common stock generating gross proceeds of approximately $20 million.

 

$ 3 0 million Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC - For the period from March 30, 2015 to Present

 

On March 30, 2015, the Company entered into a new common stock purchase agreement (the “March 2015 Agreement”) with Aspire Capital which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company's common stock over the 36-month term of the March 2015 Agreement. In consideration for entering into the March 2015 Agreement, the Company issued to Aspire Capital 160,000 shares of its Class A Common Stock as a commitment fee. The commitment fee of approximately $499,000 will be amortized as the funding is received. The amortized amount of $136,000 and $5,000 were debited to additional paid-in capital during the year ended June 30, 2016 and 2015. The unamortized portion is carried on the balance sheet as deferred offering costs and was $358,000 and $494,000 at June 30, 2016 and 2015, respectively.

 

During the period from March 30, 2015 to June 30, 2015, the Company had completed sales to Aspire totaling 100,000 shares of common stock generating gross proceeds of approximately $0.3 million relating to this $30 million purchase agreement.

 

During the year ended June 30, 2016, the Company had completed sales to Aspire totaling 5,700,000 shares of common stock generating gross proceeds of approximately $8.2 million relating to this $30 million purchase agreement. We have $22 million remaining available for stock sales under the terms of the purchase agreement with Aspire Capital. Other Equity Issuances were disclosed at Note 14.

 

$75 Million Shelf Registration Statement

 

The Company has an effective shelf registration statement on Form S-3, registering the sale of up to $75 million of the Company’s securities. The Company filed with the Securities and Exchange Commission a prospectus supplement, dated March 31, 2015, registering up to $30 million of our common stock that have been or may be offered and sold to Aspire Capital from time to time, leaving $45 million available under the Company’s effective shelf registration statement.

 

Cash Flows

 

The following table provides information regarding our cash position, cash flows and capital expenditures for the years ended June 30, 2016, 2015 and 2014 (rounded to nearest thousand):

 

 

 

Years Ended June 30,

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$ (9,887,000 )

 

$ (13,071,000 )

 

$ (7,510,000 )

Net cash used in investing activities

 

$ (414,000 )

 

$ (459,000 )

 

$ (2,650,000 )

Net cash provided by financing activities

 

$ 8,201,000

 

 

$ 16,952,000

 

 

$ 12,193,000

 

Net (decrease)increase in cash and cash equivalents

 

$ (2,100,000 )

 

$ 3,422,000

 

 

$ 2,033,000

 

 

 
46
Table of Contents

 

Our operating activities used cash of $9.88 million, $13.07 million and $7.51 million in 2016, 2015 and 2014, respectively. The use of cash in these periods principally resulted from our losses from operations, as adjusted for non-cash charges for stock-based compensation and depreciation, and changes in our working capital accounts.

 

In 2016, our investing activities used cash of $0.41 million, including the purchases of patents of $0.35 million. In 2015, our investing activities used cash of $0.46 million, including the purchases of property and equipment of $ 0.01 million and patents of $0.45 million. In 2014, our investing activities used cash of $2.65 million, including the purchases of property and equipment of $ 0.05 million and patents of $2.60 million.

 

Our financing activities provided cash of $8.20 million, $16.95 million and $12.19 million in 2016, 2015 and 2014, respectively.

 

In 2016, we raised approximately $8.20 million in net cash proceeds, including $8.17 million in net proceeds from the sale of 5.7 million shares of our common stock and $0.03 million from the exercise of stock options and warrants.

 

In 2015, we raised approximately $16.95 million in net cash proceeds, including $16.10 million in net proceeds from the sale of 6.49 million shares of our common stock and $0.85 million from the exercise of stock options and warrants.

 

In 2014, we raised approximately $12.19 million in net cash proceeds, including $9.77 million in net proceeds from the sale of 5.70 million shares of our common stock to Aspire and $2.70 million from the exercise of warrants, offset by payment of settlement liabilities of $0.28 million.

 

Requirement for Additional Working Capital

 

The Company plans to incur expenses of approximately $19 million over the next twelve months, including approximately $15 million for clinical trials. The Company has limited experience with pharmaceutical drug development. As such, the budget estimate may not be accurate. In addition, the actual work to be performed is not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget and on our projected timeline of drug development.

 

The Company will be unable to proceed with its full planned drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without accessing approximately $11 million (as per current management’s budgets) of our remaining financing available with Aspire Capital of approximately $20 million as of the date of this filing. Management believes that the amounts available from Aspire and under the Company’s effective shelf registration statement will be sufficient to fund the Company’s operations for the next 12 months.

 

Contractual Obligations

 

Below is a table that presents our contractual obligations and commercial commitments as of June 30, 2016 (rounded to the nearest thousand):

 

 

 

Payments Due by Period

 

 

 

Total

 

 

Less than
One Year

 

 

2
Year

 

 

3-5
Years

 

 

More than
5 Years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease obligations(1)

 

$ 483,000

 

 

$ 214,000

 

 

$ 214,000

 

 

$ 55,000

 

 

$ -

 

Total

 

$ 483,000

 

 

$ 214,000

 

 

$ 214,000

 

 

$ 55,000

 

 

$ -

 

 

(1) The Company signed a lease extension agreement with Cummings Properties which began on October 1, 2013. The lease is for a term of five years ending on September 30, 2018, and requires monthly payments of approximately $18,000. The Company will receive $900 per month from the sublease of 200 square feet of space to Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of our Company, which is not included in the table above.

 

 

(2) The Company has no contractual minimum commitments to Contract Research Organizations as of June 30, 2016. Services are billed to Cellceutix, when performed by the vendors.

 

 
47
Table of Contents

 

Equity Transactions

 

From July 1, 2016 to September 12, 2016, the Company has generated additional proceeds of approximately $1,506,000 under the common stock purchase agreement with Aspire Capital from the sale 1,200,000 shares of its common stock.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements, as defined in Item 304(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company maintains an investment portfolio in accordance with our investment policy. The primary objectives of our investment policy is to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. The Company holds investments that are subject to credit risk, but not interest rate risks. The Company does not own derivative financial instruments in our investment portfolio. Accordingly, the Company does not believe there is any material market risk exposure that would require disclosure under this item.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See Index to consolidated financial statements and supplemental data immediately following the signature page hereto.

 

IT EM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

There have been no changes in or disagreements with the Company’s accountants on accounting and financial disclosure.

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

As of June 30, 2016, management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on such evaluation, as of June 30, 2016, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures are effective.

 

 
48
Table of Contents

 

Management’s Report on Internal Control Over Financial Reporting

 

Under Section 404 of the Sarbanes-Oxley Act of 2002, management is required to assess the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year and report, based on that assessment, whether the Company’s internal control over financial reporting is effective.

  

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company’s financial reporting and the preparation of external consolidated financial statements in accordance with generally accepted accounting principles.

 

Internal controls over financial reporting, no matter how well designed, have inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

The Company’s management has assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2016. In making this assessment, the Company used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “ Internal Control-Integrated Framework (2013) .” These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring. The Company’s assessment included extensive documenting, evaluating and testing the design and operating effectiveness of its internal control over financial reporting.

 

Based on the Company’s processes and assessment, as described above, management has concluded that, as of June 30, 2016, the Company’s internal control over financial reporting was effective.

 

The effectiveness of the Company’s internal control over financial reporting as of June 30, 2016 has been audited by Baker Tilly Virchow Krause, LLP, an independent registered public accounting firm, as stated in their report, which appears herein.

 

Changes in Internal Controls

 

There have been no changes in our internal control over financial reporting during the fourth quarter of the fiscal year ended June 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION.

 

None

 

 
49
Table of Contents

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

 

The information required by this item is incorporated by reference from our definitive proxy statement for the 2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended June 30, 2016.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The information required by this item is incorporated by reference from our definitive proxy statement for the 2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended June 30, 2016.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required by this item is incorporated by reference from our definitive proxy statement for the 2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended June 30, 2016.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

The information required by this item is incorporated by reference from our definitive proxy statement for the 2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended June 30, 2016.

 

ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES

 

The information required by this item is incorporated by reference from our definitive proxy statement for the 2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended June 30, 2016.

 

 
50
Table of Contents

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

 

(a)

Consolidated financial statements

 

 

 

 

See Index to Consolidated financial statements and Supplemental Data immediately following the signature page hereto.

 

 

 

 

(b) Exhibits

 

 

 

 

The exhibits, listed on the accompanying exhibit index that is set forth after the consolidated financial statements, are filed or furnished herewith or incorporated herein by reference to the location indicated.

 

 
51
Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Cellceutix Corporation

(Registrant)

 

 

 

 

Date: September 12, 2016

By:

/s/ Leo Ehrlich

 

(Leo Ehrlich,

 

Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, and Secretary)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

/s/ Leo Ehrlich

 

Chief Executive Officer, Chief Financial Officer,

 

September 12, 2016

Leo Ehrlich

Principal Accounting Officer, Secretary and Director

 

/s/ Krishna Menon

 

President and Director

 

September 12, 2016

Krishna Menon

 

/s/ Barry Schechter

 

Director

 

September 12, 2016

Barry Schechter

 

/s/ Zorik Spektor

 

Director

 

September 12, 2016

Zorik Spektor

 

/s/ Mark R. Tobin

 

Director

 

September 12, 2016

Mark R. Tobin

 

 

 

 

 

 
52
Table of Contents

 

CELLCEUTIX CORPORATION

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

 

 

 

Page

 

Report of Independent Registered Public Accounting Firm

 

 

F-2

 

Consolidated financial statements of Cellceutix Corporation

 

 

 

 

Consolidated Balance Sheets as of June 30, 2016 and June 30, 2015

 

 

F-3

 

Consolidated Statements of Operations for each of the three years ended June 30, 2016

 

 

F-4

 

Consolidated Statements of Stockholders’ Equity (Deficit) for each of the three years ended June 30, 2016

 

 

F-5

 

Consolidated Statements of Cash Flows for each of the three years ended June 30, 2016

 

 

F-7

 

Notes to Consolidated financial statements

 

 

F-8

 

Quarterly Financial Summary (unaudited)

 

 

 

 

All schedules are omitted for the reason that they are not applicable or the required information is included in the consolidated financial statements or notes.

 

 

 F-1

  

 

 

Baker Tilly Virchow Krause, LLP
One Penn Plaza, Ste 3000
New York, NY 10119
United States of America
T: +1 212 697 6900
F: +1 212 626 6941
bakertilly.com

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors

Cellceutix Corporation

Beverly, Massachusetts

 

We have audited the accompanying consolidated balance sheets of Cellceutix Corporation (the "Company") as of June 30, 2016 and 2015, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the years in the three-year period ended June 30, 2016.  We also have audited Cellceutix Corporation's internal control over financial reporting as of June 30, 2016, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements include examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

 

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the consolidated financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cellceutix Corporation as of June 30, 2016 and 2015 and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2016, in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, Cellceutix Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2016, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework).

 

/s/ Baker Tilly Virchow Krause, LLP

 

New York, New York

September 12, 2016

 

 
F-2
Table of Contents

 

CELLCEUTIX CORPORATION

CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2016 AND JUNE 30, 2015

(Rounded to nearest thousand except for per share data)

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

ASSETS

 

Current Assets:

 

 

 

 

 

 

Cash

 

$ 6,310,000

 

 

$ 8,410,000

 

Prepaid expenses and security deposits

 

 

350,000

 

 

 

347,000

 

Subscription receivable

 

 

26,000

 

 

 

12,000

 

Total Current Assets

 

 

6,686,000

 

 

 

8,769,000

 

 

 

 

 

 

 

 

 

 

Other Assets:

 

 

 

 

 

 

 

 

Patent costs - net

 

 

4,311,000

 

 

 

5,018,000

 

Property, plant and equipment -net

 

 

90,000

 

 

 

38,000

 

Deferred offering costs

 

 

358,000

 

 

 

494,000

 

Total Other Assets

 

 

4,759,000

 

 

 

5,550,000

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 11,445,000

 

 

$ 14,319,000

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable - (including related party payables of approx. $1,502,000 and $1,686,000, respectively)

 

$ 3,528,000

 

 

$ 1,838,000

 

Accrued expenses - (including related party accruals of approx. $72,000 and $115,000, respectively)

 

 

97,000

 

 

 

593,000

 

Accrued salaries and payroll taxes - (including related party accrued salaries of approx. $2,777,000 and $2,777,000, respectively)

 

 

2,834,000

 

 

 

2,842,000

 

Note payable - related party

 

 

2,022,000

 

 

 

2,022,000

 

Total Current Liabilities

 

 

8,481,000

 

 

 

7,295,000

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

8,481,000

 

 

 

7,295,000

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 500,000 designated shares, no shares issued and outstanding

 

 

-

 

 

 

-

 

Common Stock - Class A, $.0001 par value, 300,000,000 shares authorized, 123,589,536 and 117,763,508 issued and outstanding as of June 30, 2016 and 2015, respectively

 

 

12,000

 

 

 

12,000

 

Common Stock - Class B, (10 votes per share); $.0001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2016 and 2015, respectively

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

56,969,000

 

 

 

48,177,000

 

Accumulated deficit

 

 

(54,017,000 )

 

 

(41,165,000 )

Total Stockholders' Equity

 

 

2,964,000

 

 

 

7,024,000

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$ 11,445,000

 

 

$ 14,319,000

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 
F-3
Table of Contents

 

CELLCEUTIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR EACH OF THE THREE YEARS ENDED JUNE 30, 2016

(Rounded to nearest thousand except for shares and per share data)

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$ -

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

8,952,000

 

 

 

10,531,000

 

 

 

6,344,000

 

General and administrative expenses

 

 

1,946,000

 

 

 

1,177,000

 

 

 

872,000

 

Officers' payroll and payroll tax expenses

 

 

528,000

 

 

 

801,000

 

 

 

505,000

 

Professional fees

 

 

1,228,000

 

 

 

447,000

 

 

 

317,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

12,654,000

 

 

 

12,956,000

 

 

 

8,038,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(12,654,000 )

 

 

(12,956,000 )

 

 

(8,038,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

4,000

 

 

 

4,000

 

 

 

1,000

 

Sundry income

 

 

-

 

 

 

9,000

 

 

 

-

 

Interest expense

 

 

(202,000 )

 

 

(202,000 )

 

 

(210,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expenses, net

 

 

(198,000 )

 

 

(189,000 )

 

 

(209,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes

 

 

(12,852,000 )

 

 

(13,145,000 )

 

 

(8,247,000 )

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (12,852,000 )

 

$ (13,145,000 )

 

$ (8,247,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed dividends

 

 

-

 

 

 

-

 

 

 

(1,980,000 )

Net loss attributable to common stockholders

 

$ (12,852,000 )

 

$ (13,145,000 )

 

$ (10,227,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share attributable to common stockholders

 

$ (0.11 )

 

$ (0.11 )

 

$ (0.10 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares

 

 

119,908,145

 

 

 

115,087,368

 

 

 

105,044,985

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
F-4
Table of Contents

 

CELLCEUTIX CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR EACH OF THE THREE YEARS ENDED JUNE 30, 2016

(Rounded to nearest thousand, except for shares and per share data):

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

Par Value

 

 

 

 

 

Par Value

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Shares

 

 

$0.001

 

 

Shares

 

 

$0.0001

 

 

Capital

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Total

 

Balance at June 30, 2013

 

 

 

-

 

 

$

-

 

 

 

100,456,068

 

 

$ 10,046

 

 

$ 14,868,000

 

 

$ (19,773,000 )

 

 

1,382,084

 

 

$ (275,000 )

 

$ (5,171,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Shares issued for assets of Polymedix at $1.93, net of $1.4 million Redeemable Common Stock liability

 

 

 

-

 

 

 

-

 

 

 

1,400,000

 

 

 

140

 

 

 

1,302,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,302,000

 

Issuance of stock options

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

109,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

109,000

 

Exercise of warrants

 

 

 

-

 

 

 

-

 

 

 

3,148,084

 

 

 

315

 

 

 

2,700,000

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

2,700,000

 

Shares sold to Aspire under December 2012 Agreement at $1.66-$1.94

 

 

 

-

 

 

 

-

 

 

 

3,204,537

 

 

 

320

 

 

 

5,617,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,618,000

 

Shares issued to employees for year ended bonus at $1.85 for 5,000 shares and $1.6 for 60,000 shares

 

 

 

 

 

 

 

 

 

 

 

65,000

 

 

 

7

 

 

 

105,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

105,000

 

Shares sold to Aspire under October 2013 Agreement at $1.64-1.82

 

 

 

-

 

 

 

-

 

 

 

2,500,000

 

 

 

250

 

 

 

4,154,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,155,000

 

Shares issued for offering cost at $1.77

 

 

 

 

 

 

 

 

 

 

 

210,523

 

 

 

21

 

 

 

373,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

373,000

 

Offering cost

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(77,000 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(77,000 )

Shares issued to consultants at $1.64-$2.09

 

 

 

 

 

 

 

 

 

 

 

160,000

 

 

 

16

 

 

 

305,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

305,000

 

Exercise of options

 

 

 

-

 

 

 

-

 

 

 

25,000

 

 

 

2

 

 

 

5,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,000

 

Issuance of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,000

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

29,000

 

Cancellation of treasury stock

 

 

 

-

 

 

 

-

 

 

 

(1,382,083 )

 

 

(138 )

 

 

(275,000 )

 

 

-

 

 

 

(1,382,084 )

 

 

275,000

 

 

 

-

 

Deemed dividends of $1,979,706

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,247,000 )

 

 

-

 

 

 

-

 

 

 

(8,247,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2014

 

 

 

-

 

 

$

-

 

 

 

109,787,129

 

 

$ 10,979

 

 

$ 29,215,000

 

 

$ (28,020,000 )

 

 

-

 

 

$

-

 

 

$ 1,206,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold to Aspire under Oct 2014 Agreement at $1.62-4.21

 

 

 

-

 

 

 

-

 

 

 

6,390,379

 

 

 

639

 

 

 

15,845,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,846,000

 

Shares sold to Aspire under March 2015 Agreement at $2.95, net of financing cost $44,000

 

 

 

-

 

 

 

-

 

 

 

100,000

 

 

 

10

 

 

 

251,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

251,000

 

Offering cost

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 (299,000

)

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 (299,000

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
F-5
Table of Contents

 

CELLCEUTIX CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR EACH OF THE THREE YEARS ENDED JUNE 30, 2016

(Rounded to nearest thousand, except for shares and per share data):

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

Par Value

 

 

 

 

Par Value

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

$0.001

 

 

Shares

 

 

$0.0001

 

 

Capital

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Total

 

Expiration from Redeemable Common Stock liability

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,400,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,400,000

 

Exercise of warrants

 

 

 

-

 

 

 

-

 

 

 

941,000

 

 

 

94

 

 

 

756,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

756,000

 

Exercise of options

 

 

 

-

 

 

 

-

 

 

 

320,000

 

 

 

32

 

 

 

111,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

111,000

 

Shares issued to officer for bonus at $2.93

 

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

5

 

 

 

146,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

146,000

 

Stock options issued to employees for bonus at $2.93-$4.71

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

198,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

198,000

 

Shares issued to consultant for services at $2.56

 

 

 

-

 

 

 

-

 

 

 

15,000

 

 

 

2

 

 

 

38,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,000

 

Stock options issued to consultant for services

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

17,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

17,000

 

Shares issued as commitment fee, 3/30/2015 at $3.12

 

 

 

-

 

 

 

-

 

 

 

160,000

 

 

 

16

 

 

 

499,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

499,000

 

Net loss

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,145,000 )

 

 

-

 

 

 

-

 

 

 

(13,145,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Balance at June 30, 2015

 

 

 

-

 

 

$

-

 

 

 

117,763,508

 

 

$ 11,777

 

 

$ 48,177,000

 

 

$ (41,165,000 )

 

 

-

 

 

$

-

 

 

$ 7,024,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold to Aspire under April 2015 Agreement at $1.01 - $2.53 range

 

 

 

-

 

 

 

-

 

 

 

5,700,000

 

 

 

440

 

 

 

8,174,000

 

 

 

-

 

 

 

 

 

-

 

 

 

8,174,000

 

Offering cost

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(135,000 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(135,000 )

Exercise of options

 

 

 

-

 

 

 

-

 

 

 

74,000

 

 

 

7

 

 

 

40,000

 

 

 

-

 

 

 

 

 

-

 

 

 

40,000

 

Shares issued to consultant for services at $1.12-$2.49

 

 

 

-

 

 

 

-

 

 

 

52,028

 

 

 

4

 

 

 

86,000

 

 

 

-

 

 

 

 

 

-

 

 

 

86,000

 

Shares issued to officer as equity awards at $1.40

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,000

 

 

 

-

 

 

 

 

 

-

 

 

 

8,000

 

Stock options issued to consultant for services

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

555,000

 

 

 

-

 

 

 

 

 

-

 

 

 

555,000

 

Stock options issued to directors as compensation at $1.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60,000

 

 

 

-

 

 

 

 

 

-

 

 

 

60,000

 

Stock options issued to officer as equity awards at $1.39

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,000

 

 

 

-

 

 

 

 

 

-

 

 

 

4,000

 

Net loss

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,852,000 )

 

 

 

 

-

 

 

 

(12,852,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2016

 

 

 

-

 

 

$

-

 

 

 

123,589,536

 

 

$ 12,228

 

 

$ 56,969,000

 

 

$ (54,017,000 )

 

 

-

 

 

$

-

 

 

$ 2,964,000

 

 

The accompanying notes are an integral part of these consoldiated financial statements.

 

 
F-6
Table of Contents

 

CELLCEUTIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

FOR EACH OF THE THREE YEARS ENDED JUNE 30, 2016

(Rounded to nearest thousand)

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(12,852,000

)

 

$ (13,145,000 )

 

$ (8,247,000 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

Loss on disposal of fixed assets

 

 

-

 

 

 

-

 

 

 

73,000

 

Common stock and stock options issued as payment for services compensation, services rendered and financing costs

 

 

713,000

 

 

 

400,000

 

 

 

548,000

 

Amortization of patent costs

 

 

404,000

 

 

 

394,000

 

 

 

285,000

 

Impairment of patent costs

 

 

648,000

 

 

 

-

 

 

 

-

 

Depreciation of equipment

 

 

16,000

 

 

 

10,000

 

 

 

4,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and security deposits

 

 

(3,000 )

 

 

221,000

 

 

 

(563,000 )

Accounts payable

 

 

1,690,000

 

 

 

(826,000 )

 

 

815,000

 

Accrued expenses

 

 

(495,000 )

 

 

257,000

 

 

 

(218,000 )

Accrued officers' salaries and payroll taxes

 

 

(9,000 )

 

 

(382,000 )

 

 

(207,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

(9,887,000)

 

 

 

(13,071,000 )

 

 

(7,510,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from disposal of fixed assets

 

 

-

 

 

 

-

 

 

 

24,000

 

Additions to property, plant and equipment

 

 

(68,000 )

 

 

(9,000 )

 

 

(43,000 )

Patent costs

 

 

(346,000 )

 

 

(450,000 )

 

 

(2,631,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(414,000 )

 

 

(459,000 )

 

 

(2,650,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock, net of offering costs

 

 

8,173,000

 

 

 

16,097,000

 

 

 

9,772,000

 

Payment of settlement liabilities

 

 

-

 

 

 

-

 

 

 

(284,000 )

Exercise of stock options and warrants

 

 

28,000

 

 

 

855,000

 

 

 

2,705,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

8,201,000

 

 

 

16,952,000

 

 

 

12,193,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH

 

$ (2,100,000 )

 

$ 3,422,000

 

 

$ 2,033,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH - BEGINNING OF YEAR

 

 

8,410,000

 

 

 

4,988,000

 

 

 

2,955,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH - END OF YEAR

 

$ 6,310,000

 

 

$ 8,410,000

 

 

$ 4,988,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ 235,000

 

 

$ 366,000

 

 

$ 259,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of treasury stock

 

$ -

 

 

$ -

 

 

$ (275,000 )

Deemed dividend - warrants

 

$ -

 

 

$ -

 

 

$ 1,980,000

 

Shares issued as deferred offering costs

 

$ -

 

 

$ 499,000

 

 

$ 373,000

 

Shares issued for acquisition of patent and equipment

 

$ -

 

 

$ -

 

 

$ 2,702,000

 

Redeemable common stock

 

$ -

 

 

$ (1,400,000 )

 

$ 1,400,000

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
F-7
Table of Contents

 

CELLCEUTIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR EACH OF THE THREE YEARS ENDED JUNE 30, 2016

 

1. Basis of Presentation and Nature of Operations

 

Basis of Presentation

 

Cellceutix Corporation (“Cellceutix” or the “Company”) was incorporated as Econoshare, Inc. on August 1, 2005, in the State of Nevada. On December 6, 2007, the Company acquired Cellceutix Pharma, Inc., a privately owned corporation formed under the laws of the State of Delaware on June 20, 2007. Following the acquisition, the Company changed its name to Cellceutix Corporation. Cellceutix Corporation has no subsidiary since Cellceutix Pharma, Inc. was dissolved in 2014. The Company is a clinical stage biopharmaceutical company and has no customers, products or revenues to date.

 

The Company’s Common Stock is quoted on OTCQB, symbol “CTIX”.

 

Nature of Operations -Overview

 

We are in the business of developing innovative small molecule therapies to treat diseases with significant medical need, particularly in the areas of cancer, antibiotics and inflammatory disease. Our strategy is to use our business and scientific expertise to maximize the value of our pipeline. We will do this by focusing initially on our lead compounds, Brilacidin, Kevetrin and Prurisol and advancing them as quickly as possible along the regulatory pathway. We will develop the highest quality data and broadest intellectual property to support our compounds.

 

We currently own all development and marketing rights to our products. In order to successfully develop and market our products, we may have to partner with other companies. Prospective partners may require that we grant them significant development and/or commercialization rights in return for agreeing to share the risk of development and/or commercialization.

 

2. Liquidity

 

At June 30, 2016, we had approximately $6.3 million in cash and cash equivalents. We have expended substantial funds on the research and development of our product candidates. Our net losses incurred during the three fiscal years ended June 30, 2016, 2015 and 2014, amounted to approximately $12.9 million, $13.2 million and $8.2 million, respectively, and a working capital (deficit) of approximately $(1.8) million and working capital of $1.5 million, respectively at June 30, 2016 and June 30, 2015.

 

On March 30, 2015, the Company entered into a common stock purchase agreement with Aspire Capital Fund, LLC, an Illinois limited liability company ("Aspire Capital") which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company's common stock over the 36-month term of the Purchase Agreement. As of June 30, 2016, the available balance is approximately $22 million.

 

The Company plans to incur expenses of approximately $19 million over the next twelve months, including approximately $15 million for clinical trials. The Company has limited experience with pharmaceutical drug development. As such, the budget estimate may not be accurate. In addition, the actual work to be performed is not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget and on our projected timeline of drug development.

 

Management believes that the amounts available from Aspire and under the Company’s effective shelf registration statement will be sufficient to fund the Company’s operations for the next 12 months.

 

If we are unable to generate enough working capital from our current financing agreement with Aspire Capital when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including more costly Phase 2 and Phase 3 clinical trials on our wholly-owned development programs as these programs progress into later stage development. Insufficient liquidity may also require us to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to us and our stockholders than we would otherwise choose in order to obtain up-front license fees needed to fund operations. These events could prevent us from successfully executing our operating plan.

 

 
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3. Significant Accounting Policies and Recent Accounting Pronouncements

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include contract research accruals, recoverability of long-lived assets, measurement of stock-based compensation, and the periods of performance under collaborative research and development agreements. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash and short-term highly liquid investments purchased with original maturities of three months or less. There were no cash equivalents at June 30, 2016 and 2015.

 

Property, Plant and Equipment

 

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures that extend the life, increase the capacity, or improve the efficiency of property and equipment are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Depreciation is recognized using the straight-line method over the following approximate useful lives:

 

Machinery and equipment

 5 Years

 

Intangible Assets - Patents

 

Costs incurred to file patent applications and acquired intangibles are capitalized when the Company believes that there is a high likelihood that the patent will be issued and there will be future economic benefit associated with the patent. These costs will be amortized on a straight-line basis over a 12 - 17 years life from the date of patent filing. All costs associated with abandoned patent applications are expensed. In addition, the Company will review the carrying value of patents for indicators of impairment on a periodic basis and if it determines that the carrying value is impaired, it values the patent at fair value. As of June 30, 2016 and 2015, carrying value of patent was approximately $4,311,000 and $5,018,000, respectively. Amortization expense for the fiscal years ended June 30, 2016, 2015 and 2014, was approximately $404,000, $394,000 and $285,000, respectively.

 

As of June 30, 2016, the Company expensed the costs associated with obtaining patents that have not yet developed products nor which have gained market acceptance and the Company has or will let these patents go abandoned. For the fiscal years ended June 30, 2016, 2015 and 2014, the Company has charged to operations approximately $37,000, $102,000, and $136,000, respectively as patent expenses included in general and administrative expenses.

 

In accordance with the provisions of the applicable authoritative guidance, the Company’s long-lived assets and amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The Company assesses the recoverability of such assets by determining whether their carrying value can be recovered through undiscounted future operating cash flows, including its estimates of revenue driven by assumed market segment share and estimated costs. If impairment is indicated, the Company measures the amount of such impairment by comparing the fair value to the carrying value. During the fiscal years ended June 30, 2016, 2015 and 2014, the Company has recorded impairment on patent costs of Delparantag and various patents approximately $648,000, $0, and $0, respectively and included in general and administrative expenses.

 

 
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Financial Instruments

 

The Company’s financial instruments include cash, accounts payable and accrued liabilities. The carrying amounts of these financial instruments approximate their fair value, due to the short-term nature of these items. The fair value hierarchy has the following three levels:

 

Level 1-quoted prices in active markets for identical assets and liabilities.

 

Level 2-observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

 

Level 3-unobservable inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability.

 

Certain Risks and Uncertainties

 

Product Development

 

We devote significant resources to research and development programs in an effort to discover and develop potential future product candidates. The product candidates in our pipeline are at various stages of preclinical and clinical development. The path to regulatory approval includes three phases of clinical trials in which we collect data to support an application to regulatory authorities to allow us to market a product for treatment of a specified disease. There are many difficulties and uncertainties inherent in research and development of new products, resulting in a high rate of failure. To bring a drug from the discovery phase to regulatory approval, and ultimately to market, takes many years and significant cost. Failure can occur at any point in the process, including after the product is approved, based on post-market factors. New product candidates that appear promising in development may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns, inability to obtain necessary regulatory approvals, limited scope of approved uses, reimbursement challenges, difficulty or excessive costs of manufacture, alternative therapies or infringement of the patents or intellectual property rights of others. Uncertainties in the FDA approval process and the approval processes in other countries can result in delays in product launches and lost market opportunities. Consequently, it is very difficult to predict which products will ultimately be submitted for approval, which have the highest likelihood of obtaining approval and which will be commercially viable and generate profits. Successful results in preclinical or clinical studies may not be an accurate predictor of the ultimate safety or effectiveness of a drug or product candidate.

 

Expenditures for research, development, and engineering of products are expensed as incurred. For the fiscal years ended June 30, 2016, 2015 and 2014, the Company incurred approximately $8,952,000, $10,531,000 and $6,344,000 of research and development costs, respectively.

 

Concentrations of Credit Risk

 

The Company maintains its cash in bank deposit and checking accounts that at times exceed federally insured limits. Approximately $6 million is subject to credit risk at June 30, 2016. However, these cash balances are maintained at creditworthy financial institutions. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.

 

 
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Accrued Outsourcing Costs

 

Substantial portions of our preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors, or collectively "CROs". These CROs generally bill monthly or quarterly for services performed, or bill based upon milestone achievement. For preclinical studies, we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. We monitor patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to us by the CROs, correspondence with the CROs and clinical site visits. Our estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. We periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive.

 

Valuation of Equity Grants

 

The Company accounts for all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their fair values. The Company is required to measure the cost of employee services received in exchange for stock options and similar awards based on the grant-date fair value of the award and recognize this cost in the income statement over the period during which an employee is required to provide service in exchange for the award. The Company uses the Black-Scholes valuation model and has elected to use the ratable method to amortize compensation expense over the vesting period of the grant. The Company accounts for equity instruments issued to nonemployees by valuing them using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest.

 

Income Taxes

 

Deferred income tax assets and liabilities arise from temporary differences associated with differences between the consolidated financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company has generated net losses since inception and accordingly has not recorded a provision for income taxes. The deferred tax assets were primarily comprised of federal and state tax net operating loss, or NOL, carryforwards. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset the deferred tax assets. Additionally, the future utilization of the NOL carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any carryforwards that expire prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

 

The Company follows the provisions of FASB ASC 740-10 “ Uncertainty in Income Taxes ” (ASC 740-10). The Company has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit since the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

 

The Company has identified its U.S. Federal income tax return and its State return in Massachusetts as its major tax jurisdictions. The fiscal 2013 and forward years are still open for examination.

 

Basic Earnings (Loss) per Share

 

Basic and diluted earnings per share are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, warrants and convertible notes payable. Common share equivalents were excluded from the computation of diluted earnings per share for the years ended June 30, 2016, 2015 and 2014, because their effect is anti-dilutive (See note 12 Weighted Average Shares Outstanding).

 

Accounting for Stock Based Compensation

 

The stock-based compensation expense incurred by Cellceutix for employees and directors in connection with its stock option plan is based on the employee model of ASC 718, and the fair market value of the options is measured at the grant date. Under ASC 718 employee is defined as “An individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. “tax regulations”. Our consultants do not meet the employer-employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50.

 

 
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ASC 505-50-30-11 (previously EITF 96-18) further provides that an issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date:

 

 

i.

The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); and

 

 

 

 

ii.

The date at which the counterparty’s performance is complete.

 

We have elected to use the Black-Scholes-Merton pricing model to determine the fair value of stock options on the dates of grant. Restricted stock units are measured based on the fair market values of the underlying stock on the dates of grant. We recognize stock-based compensation using the straight-line method.

 

The components of stock based compensation related to stock options in the Company’s Statement of Operations for the fiscal years ended June 30, 2016, 2015 and 2014 are as follows (rounded to nearest thousand):

 

 

 

June 30,

2016

 

 

June 30,

2015

 

 

June 30,

2014

 

Research and development expenses

 

 

 

 

 

 

 

 

 

Consulting fees

 

$ 188,000

 

 

$ 55,000

 

 

$ 389,000

 

Employees’ bonus

 

 

-

 

 

 

103,000

 

 

 

-

 

Officers’ bonus

 

 

33,000

 

 

 

230,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Professional expenses

 

 

432,000

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

Directors’ fees

 

 

60,000

 

 

 

-

 

 

 

-

 

Employees’ bonus

 

 

-

 

 

 

12,000

 

 

 

105,000

 

Consulting fees

 

 

-

 

 

 

-

 

 

 

54,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total share-based compensation expense

 

$ 713,000

 

 

$ 400,000

 

 

$ 548,000

 

 

Recent Accounting Pronouncements

 

Standards Issued Not Yet Adopted

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern-Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). The ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. ASU 2014-15 is effective for annual periods, and interim periods within those annual periods, starting after December 15, 2016; the Company’s first quarter of fiscal 2018. Management is currently evaluating the impact of this standard on our consolidated financial statements.

 

In May 2014, the FASB issued authoritative guidance that defines how companies should report revenues from contracts with customers. The standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It provides companies with a single comprehensive five-step principles based model to use in accounting for revenue and supersedes current revenue recognition requirements, including most industry-specific and transaction-specific revenue guidance. In August 2015, the FASB deferred the effective date of the new revenue standard by one year. As a result, the new standard would not be effective for the Company until 2019. In addition, the FASB is allowing companies to early adopt this guidance for non-public entities beginning in fiscal year 2017. The guidance permits an entity to apply the standard retrospectively to all prior periods presented, with certain practical expedients, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company will apply this new guidance when it becomes effective and has not yet selected a transition method. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

 

 
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In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation. The amendments in this ASU apply to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. This ASU is the final version of Proposed ASU EITF-13D--Compensation--Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which has been deleted. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and early adoption is permitted. Management believes that the adoption of this guidance will not have a material impact on our consolidated financial statements.

 

In June 2015, FASB issued ASU No. 2015-10, Technical Corrections and Updates. ASU No. 2015-10 is intended to correct differences between original guidance and the Codification, clarify the guidance, correct references and make minor improvements affecting a variety of topics. ASU No. 2015-10 covers a wide range of topics in the Codification and is generally categorized as follows: Amendments Related to Differences between Original Guidance and the Codification; Guidance Clarification and Reference Corrections; Simplification; and Minor Improvements. The amendments are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. Management believes that the adoption of this guidance will not have a material impact on our consolidated financial statements.

 

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For finance leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; interest on the lease liability will be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income; and repayments of the principal portion of the lease liability will be classified within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; a single lease cost will be recognized, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and all cash payments will be classified within operating activities in the statement of cash flows. Under Topic 842 the accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments in Topic 842 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management believes that the adoption of this guidance will not have a material impact on our consolidated financial statements.

 

4. Polymedix Inc. Asset Acquisition -Patent Rights and Equipment

 

On September 4, 2013, the Company purchased substantially all of the assets (“Purchased Assets”) of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. (“Seller”) from the U.S. Bankruptcy Court.

 

The aggregate purchase price for the sale and transfer of the Purchased Assets was $2.1 million in cash, plus 1.4 million shares of the Company’s Class A common stock (the “Registrable Securities”), for a total aggregate purchase price of approximately $4.8 million. These common shares were valued at $1.93 per share, based on the September 4, 2013 opening stock price as quoted on the OTB Bulletin Board, resulting in approximately $2.7 million of stock issued to acquire the Purchased Assets.

 

ASC 805, Business Combinations, provides guidance on determining whether an acquired set of assets meets the definition of a business for accounting purposes. Under the framework, the acquired set of activities and assets have to be capable of being operated as a business, from the viewpoint of a market participant as defined in ASC 820, Fair Value Measurements. Two essential elements required for an integrated set of activities are inputs and outputs. The Company evaluated the Asset Purchase Agreement and in accordance with the guidance, determined it did not meet the definition of a business acquisition as the acquisition consisted solely of the two primary compounds, Brilacidin and related compounds, and Delparantag and related compounds, and certain other tangible assets. The Company did not acquire the right to any employees previously involved with the technology, or research processes previously in place at Seller. The Company has therefore accounted for the transaction as an asset acquisition.

 

 
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The purchase price was allocated to the identified tangible and intangible assets acquired based on their relative fair values, which were derived from their individual estimated fair values of $96,000 and $4,706,000, respectively.

 

The following table summarizes the purchase price allocation for the assets acquired:

 

Intangible assets - patents rights - Brilacidin, Delparantag and other related compounds

 

$ 4,706,000

 

Tangible assets - Laboratory equipment and computer systems

 

$ 96,000

 

 

These acquired tangible assets of $96,000 were expensed to research and development costs in September 2013. During the year ended June 30, 2016, the Company wrote off $377,000 of the carrying value of Purchased Patents Rights - Delparantag and related compound (see Note 5).

 

5. Patents, net

 

Patents, net consisted of the following (rounded to nearest thousand):

 

 

 

Useful life

 

 

June 30,

2016

 

 

June 30,

2015

 

 

 

 

 

 

 

 

 

 

 

Purchased Patent Rights- Brilacidin, and related compounds (note 4)

 

14

 

 

$ 4,082,000

 

 

$ 4,082,000

 

Purchased Patent Rights-Delparantag and related compounds (note 4)

 

12

 

 

 

-

 

 

 

480,000

 

Purchased Patent Rights-Anti-microbial- surfactants and related compounds (note 4)

 

12

 

 

 

144,000

 

 

 

144,000

 

Patents - Kevetrin and related compounds

 

17

 

 

 

1,035,000

 

 

 

992,000

 

 

 

 

 

 

 

5,261,000

 

 

 

5,698,000

 

Less:Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds

 

 

 

 

 

(855,000 )

 

 

(551,000 )

Accumulated amortization for Purchased Patent Rights-Delparantag

 

 

 

 

 

-

 

 

 

(73,000 )

Accumulated amortization for Patents-Kevetrin and related compounds

 

 

 

 

 

(95,000 )

 

 

(56,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 4,311,000

 

 

$ 5,018,000

 

 

The patents are amortized on a straight-line basis over the estimated remaining useful lives of the assets, determined 12-17 years from the date of acquisition.

 

Amortization expense for the fiscal years ended June 30, 2016, 2015 and 2014, was approximately $404,000, $394,000 and $285,000, respectively. In 2016, $134,000 of accumulated amortization on patents was written off related to the impairment of patents recorded during the year.

 

Based on managements’ assessment of certain business factors, it was determined that certain particular patents held by the Company would not be used in the future and were therefore impaired. The Company recorded a full impairment of its patent rights to Delparantag and other patents in the latter part of April 2016. Delparantag was acquired by Cellceutix in the purchase of the patent assets from the Polymedix Estate. The Company believes that the Delparantag compound, which had clinical activity but also safety concerns in a prior clinical trial by Polymedix, is now a low priority compound for further development, among the compounds held in the Company’s patent portfolio and will not be placed into future clinical trials. The decision by management was also made after factoring in today’s potential regulatory and litigious climate in commercializing these compounds. During the fourth quarter of its fiscal year ended June 30, 2016, the Company recorded an impairment on the patent costs for Delparantag of approximately $377,000 (the patent cost of $480,000 less $103,000 of accumulated amortization) and recorded an impairment on the patent costs of various patents held (included in the above table under the heading Patents - Kevetrin and related compounds) of approximately $271,000 (the patent cost of $302,000 less $31,000 of accumulated amortization). As a result, a total impairment of $648,000 was recorded on the statement of operations for the year ended June 30, 2016.

 

 
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At June 30, 2016, the future amortization period for all patents was approximately 9.18 years to 16.40 years. Future estimated annual amortization expenses are approximately $361,000 for each year from 2017 to 2025, $351,000 for the year ending June 30, 2026, $349,000 for the year ending June 30, 2027, $111,000 for the year ending June 30, 2028, $57,000 for the year ending June 30, 2029 to year 2032 and $22,000 for year ending June 30, 2033.

 

6. Property, plant and equipment, net

 

Property, plant and equipment, net consisted of the following (rounded to nearest thousand):

 

 

 

June 30,

2016

 

 

June 30,

2015

 

 

 

 

 

 

 

 

Testing equipment

 

$ 120,000

 

 

$ 52,000

 

Less: Accumulated depreciation

 

 

(30,000 )

 

 

(14,000 )

 

 

$ 90,000

 

 

$ 38,000

 

 

Depreciation expense for the fiscal years ended June 30, 2016, 2015 and 2014 was approximately $16,000, $10,000 and $4,000, respectively.

 

7. Accrued Expenses

 

Accrued expenses consisted of the following (rounded to nearest thousand):

 

 

 

June 30,

2016

 

 

June 30,

2015

 

 

 

 

 

 

 

 

Accrued research and development consulting fees

 

$ 25,000

 

 

$ 478,000

 

Accrued rent (Note 10) - related parties

 

 

32,000

 

 

 

42,000

 

Accrued interest - related parties

 

 

40,000

 

 

 

73,000

 

 

 

 

 

 

 

 

 

 

Total

 

$ 97,000

 

 

$ 593,000

 

 

8. Accrued Salaries and Payroll Taxes - Related Parties And Other

 

Accrued salaries and payroll taxes consisted of the following (rounded to nearest thousand):

 

 

 

June 30,

2016

 

 

June 30,

2015

 

 

 

 

 

 

 

 

Accrued salaries - related parties

 

$ 2,647,000

 

 

$ 2,647,000

 

Accrued payroll taxes - related parties

 

 

130,000

 

 

 

130,000

 

Withholding tax

 

 

57,000

 

 

 

65,000

 

 

 

 

 

 

 

 

 

 

Total

 

$ 2,834,000

 

 

$ 2,842,000

 

 

 
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On December 29, 2010, the Company entered into employment agreements with its two executive officers, Leo Ehrlich, the Company’s Chief Executive Officer, and Krishna Menon, Chief Scientific Officer. Both agreements provide for a three year term with each executive receiving an annual base salary of $350,000 per year commencing January 1, 2011, with an annual increase of 10% for each year commencing January 2012. The Board, at its discretion, may increase the base salary based upon relevant circumstances. On January 1, 2014 the Board approved the extension of the employment agreements for a one year period with a 10% increase in salary from the calendar year 2013 annual salary of $423,500, to an annual salary of $465,850. Until new employment agreements are entered into, we will continue paying the officer’s salaries at this rate per annum.

 

9. Commitments and Contingencies

 

Lease Commitments

 

Operating Leases

 

The Company signed a lease extension agreement with Cummings Properties which began on October 1, 2013. The lease is for a term of five years ending on September 30, 2018, and requires monthly payments of $18,000. Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of the Company, have co-signed the lease and will sublease 200 square feet of space previously used by the Company and pay the Company $900 per month.

 

As of June 30, 2016, future minimum lease payments to Cummings Properties required under the non-cancelable operating lease are as follows (rounded to nearest thousand):

 

Year ending June 30,

 

 

 

 

 

 

 

2017

 

$ 214,000

 

2018

 

 

214,000

 

2019

 

 

55,000

 

 

 

 

 

 

Total minimum payments

 

$ 483,000

 

 

Rent expense, net of lease income, under this operating lease agreement was approximately $203,000, $207,000 and $162,000 for the years ended June 30, 2016, 2015 and 2014, respectively. Before September, 2013, the Company paid rent to KARD for share of office space and details are shown at Note 10. Related Party Transactions.

 

Contractual Commitments

 

The Company has no contractual minimum commitments to Contract Research Organizations as of June 30, 2016. Services are billed to Cellceutix, when performed by the vendors.

 

Employment Agreement

 

On June 27, 2016, the Company and Dr. Bertolino entered into an executive employment agreement as the Chief Medical Officer of Cellceutix Corporation, effective on June 27, 2016 (See Note 13).

 

Litigation

 

A complaint entitled O’Connell v. Cellceutix Corp. et al. (No. 1:15-cv-07194) was filed in the United States District Court for the Southern District of New York in September 2015 against the Company and its officers alleging that the defendants made materially false and misleading statements, and omitted materially adverse facts, about the Company's business, operations and prospects. On June 9, 2016, the U.S. District Court for the Southern District of New York granted the Company’s motion to dismiss the lawsuit. The ruling dismissed all claims against Cellceutix, denied the plaintiff's request to file an amended complaint, and ordered that the case be closed. The action was subject to a potential appeal which was withdrawn on September 2, 2016. The Company has filed a request with the U.S. District Court for a finding that the plaintiff and the Rosen Law Firm failed to comply with their Rule 11(b) obligations and engaged in “abusive litigation,” thus entitling the defendants to sanctions pursuant to the Private Securities Litigation Reform Act of 1995.

 

 
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10. Related Party Transactions

 

Office Lease

 

Dr. Menon, the Company’s principal shareholder, President, and Director, also serves as the Chief Operating Officer and Director of Kard Scientific (“KARD”). On December 7, 2007, the Company began renting office space from KARD, on a month to month basis for $900 per month. This continued through August 2013 and since September 1, 2013, the Company no longer leases space from Kard. For the years ended June 30, 2016, 2015 and 2014, the Company has included approximately $0, $0 and $1,800 of rent expense paid to KARD in general and administrative expenses, respectively. At June 30, 2016 and June 30, 2015, rent payables to KARD of approximately $32,000 and $42,000, respectively, were included in accrued expenses.

 

In September 2013, the Company signed a lease extension agreement with Cummings Properties for the company’s offices and laboratories at 100 Cummings Center, Suite 151-B Beverly, MA 01915. The lease is for a term of five years from October 1, 2013 to September 30, 2018 and requires monthly payments of approximately $18,000. Cellceutix had taken over the space occupied by KARD. In addition, Innovative Medical Research Inc., (“Innovative Medical”) a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of Cellecutix has co-signed the lease and will rent approximately 200 square feet of office space, the space previously used by Cellceutix and will pay Cellceutix $900 per month , the same amount Cellceutix previously paid KARD. Innovative Medical paid total rent of $31,000 to Cellceutix from September 1, 2013 to June 30, 2016 and the rental payment was offset with the accrued rent owed to KARD.

 

Clinical Studies

 

The Company previously engaged KARD to conduct specified pre-clinical studies. The Company did not have an exclusive arrangement with KARD. All work performed by KARD needed prior approval by the executive officers of the Company, and the Company retained all intellectual property resulting from the services by KARD. The Company now has its own research study capabilities and no longer uses KARD. At June 30, 2016 and June 30, 2015, the accrued research and development expenses to KARD was approximately $1,486,000 and $1,686,000, respectively and this amount was included in accounts payable.

 

11. Note Payable - Related Party

 

During the year ended June 30, 2010, Mr. Ehrlich loaned the Company a total of approximately $973,000. A condition for this note was that the Ehrlich Promissory Note A and Ehrlich Promissory Note B be replaced with a new note, Ehrlich Promissory Note C The Ehrlich Promissory Note C is an unsecured demand note that bears 9% simple interest per annum and is convertible into the Company’s common stock at $0.50 per share. The note requires that the interest rate on the amounts due on Ehrlich Promissory Notes A and B be changed retroactively, beginning October 1, 2009, to 9%. On April 1, 2011, the Company amended the Ehrlich Promissory Note C and agreed to retroactively convert accrued interest of approximately $97,000 through December 31, 2010 into additional principal. During the year ended June 30, 2011, Mr. Ehrlich loaned the Company an additional (approximate) $997,000 which brought the total balance of the demand note to approximately $2,002,000. During the year ended June 30, 2012, Mr. Ehrlich loaned the Company an additional $20,000 which brought the balance of the demand note to approximately $2,022,000.

 

On May 8, 2012, the Company did not have the ability to repay the Ehrlich Promissory Note C loan and agreed to change the interest rate on the outstanding balance of principal and interest of approximately $2,248,000, as of March 31, 2012, from 9% simple interest to 10% simple interest, and the Company issued 2,000,000 Equity Incentive Options exercisable at $0.51 per share equal to 110% of the closing bid price of $0.46 per share on May 7, 2012. Options are valid for ten (10) years from the date of issuance.

 

At June 30, 2016 and June 30, 2015, approximately $40,000 and $73,000, respectively, was accrued as interest expense on this note.

 

At June 30, 2016 and June 30, 2015, principal balances of the demand note was approximately $2,022,000.

 

 
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12. Weighted Average Shares Outstanding

 

Weighted average shares of common stock outstanding used in the calculation of basic and diluted earnings per share were as follows:

 

 

 

Years Ended June 30,

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding-basic

 

 

119,908,145

 

 

 

115,087,368

 

 

 

105,044,985

 

Dilutive options and restricted stock

 

 

-

 

 

 

-

 

 

 

-

 

Weighted average shares outstanding-diluted

 

 

119,908,145

 

 

 

115,087,368

 

 

 

105,044,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Antidilutive securities not included:

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

 

44,570,736

 

 

 

42,953,318

 

 

 

43,485,670

 

Warrants

 

 

25,000

 

 

 

1,507,000

 

 

 

2,448,000

 

 

 

 

44,595,736

 

 

 

44,460,318

 

 

 

45,933,670

 

 

13. Stock Options and Warrants

 

Consulting Agreement

 

On April 1, 2009, the Company entered into an agreement, subsequently amended, with a Consultant to assist the Company’s Chief Scientific Officer to organize, manage and display data from animal studies as well as information relating to Active Pharmaceutical Ingredients and formulations of the Company’s products through November 2010. The Consultant was compensated at the rate of $4,000 per month payable on the last day of each month. In addition, at the end of each month of services provided, the Consultant is granted options to purchase 10,000 shares of Company’s common stock. Effective September 1, 2010, the Company has extended the current agreement and beginning in August 2010, the monthly fee was increased to $5,000. The monthly fee was increased to $6,000 beginning in November 2012. The remainder of the agreement remains unchanged. Through June 30, 2013, the Consultant had been awarded a total of 480,000 options to purchase common stock valued at inception approximately $284,000 to be vested over one year from date of issuance. Effective April 1, 2013, the consulting agreement was terminated and the consultant was employed as an employee. For the fiscal years ended June 30, 2016, June 30, 2015 and 2014, the Company has expensed $0, $0, $54,000, respectively, to professional fees expense, related to these options and remeasurement.

 

Stock Options

 

The fair value of options granted for the years ended June 30, 2016, 2015 and 2014 was estimated on the date of grant using the Black Scholes model that uses assumptions noted in the following table.

 

 

Year Ended June 30

 

2016

 

2015

 

2014

Expected term (in years)

3 - 10

 

3

 

3-5

Expected stock price volatility

56.52% to 112.71%

 

62.79% to 65.84%

 

91.25%-124.94%

Risk-free interest rate

0.88% to 1.74%

 

0.76% to 1.19%

 

0.9% - 1.98%

Expected dividend yield

0

 

0

 

0

 

On April 5, 2009 the Board of Directors of the Registrant adopted the 2009 Stock Option Plan (“the Plan”). The Plan permits the grant of 2,000,000 shares of both Incentive Stock Options (“ISOs”), intended to qualify under section 422 of the Code, and Non-Qualified Stock Options.

 

2010 Equity Incentive Plan

 

Under the 2010 Equity Incentive Plan the total number of shares of Common Stock reserved and available for issuance under the Plan shall be 45,000,000 shares. Shares of Common Stock under the Plan (“Shares”) may consist, in whole or in part, of authorized and unissued shares or treasury shares. The term of each Stock Option shall be fixed by the Committee; provided, however, that an Incentive Stock Option may be granted only within the ten-year period commencing from the Effective Date and may only be exercised within ten years of the date of grant (or five years in the case of an Incentive Stock Option granted to an optionee who, at the time of grant, owns Common Stock possessing more than 10% of the total combined voting power of all classes of voting stock of the Company (“10% Shareholder”).

 

 
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2016 Equity Incentive Plan

 

On June 30, 2016, the Board adopted the Cellceutix Corporation 2016 Equity Incentive Plan (the "Plan"). The Plan became effective upon adoption by the Board on June 30, 2016.

 

Up to 20,000,000 shares of the Company's common stock may be issued under the Plan (subject to adjustment as described in the Plan); provided that, no Outside Director (as defined in the Plan) may be granted awards covering more than 250,000 shares of common stock in any year and no participant shall be granted, during any one year period, options to purchase common stock and stock appreciation rights with respect to more than 4,000,000 shares of common stock in the aggregate or any other awards with respect to more than 2,500,000 shares of common stock in the aggregate. The Plan permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards and performance compensation awards to employees, directors, and consultants of the Company and its affiliates.

 

In connection with adoption of the Plan, the Board of Directors also approved the forms of Incentive Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Non-Employee Directors, Restricted Stock Award Agreement for Employees and Restricted Stock Award Agreement for Non-Employee Directors that will be utilized by the Company to grant options and restricted shares under the Plan.

 

For the fiscal year ended June 30, 2016

 

On July 10, 2015, the Company issued 7,028 shares and 50,000 stock options to purchase shares of the Company’s common stock, par value $0.0001 per share to a consultant for his service rendered. The stock options valued at approximately $60,000, based on the closing bid price as quoted on the OTC on July 10, 2015 at $2.64 per share. These options were issued with an exercise price of $2.49 and vested immediately, with a three year option term. These options have piggyback registration rights. The Company recorded approximately $60,000 of stock option expenses during the year ended June 30, 2016.

 

On September 30, 2015, the Company recorded approximately $20,000 of stock option expenses regarding the 50,000 stock options to purchase shares of the Company’s common stock, par value $0.0001 per share, at $2.93 per share to Dr. William James Alexander.

 

On November 5, 2015, the Company issued one million stock options to purchase shares of the Company’s common stock, par value $0.0001 per share to a law firm for services, valued at approximately $432,000, based on the closing bid price as quoted on the OTC on November 5, 2015 at $1.36 per share. These options were issued with an exercise price of $1.70 and vested immediately, with a three year option term. These options have piggyback registration rights. The Company recorded approximately $432,000 of stock option expenses during the year ended June 30, 2016.

 

On February 16, 2016, the Company issued 119,424 stock options to purchase shares of the Company’s common stock, par value $0.0001 per share to two consultants for services, valued at approximately $55,000, based on the closing bid price as quoted on the OTC on February 16, 2016 at $1.15 per share. These options were issued with an exercise price of $1.105. One third vested immediately, one third will be vested in six months (August 11, 2016), and the balance will be vested on February 11, 2017, and will be valid for a period of three years. These options have piggyback registration rights. The Company recorded approximately $39,000 of stock option expenses during the year ended June 30, 2016.

 

On April 6, 2016, the Company issued 25,000 shares and 25,000 stock options to purchase shares of the Company’s common stock, par value $0.0001 per share to a consultant for service. The stock options valued at approximately $14,000, based on the closing bid price as quoted on the OTC on April 6, 2016 at $1.61 per share. These options were issued with an exercise price of $1.77 and shall vest on April 30, 2017, with a three year option term. These options have piggyback registration rights. The Company recorded approximately $3,000 of stock option expenses during the year ended June 30, 2016.

 

 
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On June 10, 2016, the Company issued 19,655 stock options to purchase shares of the Company’s common stock, par value $0.0001 per share each to three directors for service, valued at approximately $60,000, based on the closing bid price as quoted on the OTC on June 10, 2016 at $1.58 per share. These stock options were issued with an exercise price of $1.58 and vested immediately, with a five year option term. These options have piggyback registration rights. The Company recorded approximately $60,000 of stock option expenses during the year ended June 30, 2016.

 

On June 27, 2016, the Company and Dr. Bertolino entered into an executive employment agreement as our Chief Medical Officer of Cellceutix Corporation, effective on June 27, 2016. Commencing on June 27, 2016, the Company agreed to pay Dr. Bertolino an annual salary of $440,000. In addition, the Company agreed to grant to Dr. Bertolino under the Cellceutix Corporation 2016 Equity Incentive Plan (i) 1,066,667 shares of restricted stock and (ii) a ten-year option to purchase 617,839 shares of the Company's Class A common stock at an exercise price of $1.39 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) 50% upon the first anniversary of the Effective Date, and the remaining 50% upon the second anniversary of the Effective Date (2) completion of both a Phase 2b psoriasis study and a Phase 2 oral mucositis study; (3) the Company’s common stock closes above $3.00 per share (as may be adjusted for any stock splits or similar actions); (4) the commencement of trading of the Company’s common stock on a national securities exchange (e.g. Nasdaq or the NYSE); or (5) upon a Change in Control of the Company.

 

The 1,066,667 shares were valued at approximately $1.5 million, which will be amortized over two years to June 27, 2018 (see Note 14). The 617,839 stock options valued at approximately $800,000 and will be exercisable for 10 years at an exercise price of $1.5 per share. It will be amortized over 2 years to June 27, 2018 and the Company recorded approximately $5,000 of stock option expenses for the year ended June 30, 2016.

 

The Company recognized approximately $713,000, $400,000 and $548,000 of total stock based compensation costs for the years ended June 30, 2016, 2015 and 2014, respectively. The $713,000 of stock based compensation expense for the year ended June 30, 2016 included approximately $619,000 of stock options expenses and $94,000 of stock awards (see Note 14).

 

For the fiscal years ended June 30, 2015 and 2014

 

On April 1, 2014 the Board of Directors approved a stock option grant, for services rendered from January 7, 2014 to July 6, 2014, to a consultant to purchase 40,000 shares of common stock exercisable at $1.64 per share. The option was vested on April 1, 2014, the option life is 5 years and will expire on March 31, 2019. In addition, the Company will pay the consultant $20,000 per month during the six month period from January 7, 2014 to July 6, 2014. The total value of this 40,000 shares of stock option was $55,396 and charged to additional paid-in capital on April 1, 2014. The assumptions we used in the Black Scholes option-pricing model were disclosed as above.

 

On October 20, 2014 the Board of Directors approved the appointment of Dr. William James Alexander as the Chief Operations Officer of Cellceutix Corporation for the term of one year effective October 27, 2014 (“the Effective Date”). Pursuant to his employment agreement, Dr. Alexander received immediately 50,000 shares of the Company's common stock, par value $0.0001 per share ("Common Stock") as a sign on bonus and 50,000 stock options to purchase shares of the Company’s common stock, par value $0.0001 per share, at $2.93 per share. Such options vest in equal installments on July 27, 2015 and October 27, 2015 and the option life is 3 years and expires on July 27, 2018 and October 27, 2018, respectively.

 

On December 26, 2014 the Board of Directors approved the cash and option bonus payments to officers and employees, including cash of $250,000 each to Mr. Leo Ehrlich, our CEO and Dr. Krishna Menon, our President, and 25,000 options exercisable for 3 years at $4.71 per share of common stock to Dr. William James Alexander, our COO and 65,000 options exercisable for 3 years at $4.29 per share of common stock, to our employees.

 

On May 12, 2015, the Company issued 15,000 options to a consultant for his one year contract and exercisable for 3 years at $2.56 per share of common stock. The total value of these 15,000 shares of stock option was approximately $17,000 and we recognized approximately $17,000 of stock based compensation costs and charged to additional paid-in capital as of June 30, 2015. The assumptions we used in the Black Scholes option-pricing model were disclosed as above.

 

 
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Table of Contents

 

The following table summarizes all stock option activity under the plans:

 

 

 

  Number of
Options

 

 

 Weighted Average
Exercise Price

 

 

 Weighted Average
Remaining Contractual Life (Years)

 

 

 Aggregate

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2013

 

 

39,142,500

 

 

$ 0.14

 

 

 

7.47

 

 

$ 64,169,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

40,000

 

 

 

1.64

 

 

 

 

 

 

 

 

 

Exercised

 

 

(25,000 )

 

 

0.20

 

 

 

 

 

 

 

 

 

Forfeited/expired

 

 

(150,000 )

 

 

0.23

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2014

 

 

39,007,500

 

 

$ 0.14

 

 

 

6.50

 

 

$ 59,613,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

155,000

 

 

 

3.75

 

 

 

 

 

 

 

 

 

Exercised

 

 

(320,000 )

 

 

0.35

 

 

 

 

 

 

 

 

 

Forfeited/expired

 

 

(80,000 )

 

 

0.38

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2015

 

 

38,762,500

 

 

$ 0.15

 

 

 

5.54

 

 

$ 94,217,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

1,871,228

 

 

 

1.58

 

 

 

 

 

 

 

 

 

Exercised

 

 

(74,000 )

 

0.55

 

 

 

 

 

 

 

 

 

Forfeited/expired

 

 

(115,000 )

 

 

0.61

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2016

 

 

40,444,728

 

 

 

0.22

 

 

 

4.58

 

 

$ 48,185,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2016

 

 

39,722,303

 

 

$ 0.20

 

 

 

4.50

 

 

$ 48,163,220

 

 

Exercise of options

 

During the year ended June 30, 2016, the Company received an aggregate of $28,000 in total, including the $12,400 of subscription receivable of 2015 and the $15,470 for the exercise of 14,000 Common Stock options at $1.105 per share. In addition, the Company recorded subscription receivable of $25,400 for the exercise of 60,000 options at a price from $0.17 to $0.64 per share (See Note 14).

 

During the year ended June 30, 2015, the Company received an aggregate of $99,600 in total and recorded subscription receivable of $12,400 for the exercise of 320,000 options at a price from $0.20 to $0.47 per (See Note 14).

 

During the year ended June 30, 2014, the Company received an aggregate of $5,000 in total of the exercise of 25,000 Common Stock options at $0.20 per share (See Note 14).

 

Stock Warrants

 

For the fiscal year ended June 30, 2016

 

During the year ended June 30, 2016, there were no warrants issued and there were 1,482,000 warrants expired.

 

For the fiscal year ended June 30, 2015

 

On July 11, 2014, the Company issued 200,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1 per share. The Company received an aggregate of $200,000 in total for the exercise of 200,000 warrants. The issuance was exempt from registration under Section 4(2) of the Securities Act.

 

On November 24, 2014, the Company issued 370,500 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1 per share and 370,500 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $0.50 per share. The Company received an aggregate of $556,000 in total for the exercise of 741,000 warrants. The issuance was exempt from registration under Section 4(2) of the Securities Act.

  

 
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For the fiscal year ended June 30, 2014

 

From July 19, 2013 to June 30, 2014, the Company issued 2,300,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1 per share. The Company received an aggregate of $2,300,000. The issuance was exempt from registration under Section 4(2) of the Securities Act. In addition, on January 3, 2014, the Company issued 200,000 Class A common shares par value $.0001 to same warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1 per share and received an aggregate of $200,000 (See Note 14 Equity Transactions).

 

On December 31, 2013, the Company issued 848,084 Class A common shares par value $.0001 to two warrant holders upon exercise of Common Stock Purchase Warrants exercisable at the range from $0.39 to $0.53 per share, with total of $400,000. The Company received $400,000 as a Subscription Receivable on April 1, 2014. The issuance was exempt from registration under Section 4(2) of the Securities Act.

 

Extension of the expiration date of an aggregate of 2,223,000 Series B, Series C, and Series D common share purchase warrants

 

On December 1, 2013, 2,223,000 Series B, Series C, and Series D common share purchase warrants issued by the Company were modified to extend their maturity date to December 31, 2015. As the Company is in an accumulated deficit position, the deemed dividend was charged against additional paid-in-capital for common shares, there being no retained earnings from which to declare a dividend. The net income (loss) attributable to common shareholders reflects both the net income (loss) and the deemed dividend.

 

The deemed dividend of $1,980,000 was computed as the incremental value of the modified warrants over the unmodified warrants on the modification date using a per share price of the range from $0.50 to $1.50 per share which were the contemporaneous private placement offering price. Assumptions used in the Black Scholes option-pricing model for these warrants were as follows:

 

 

 

 

 

Average risk-free interest rate

 

 

0.29 %

Average expected life- years

 

 

2

 

Expected volatility

 

 

55.22 %

Expected dividends

 

 

0

 

 

On January 23, 2014, the Company issued 25,000 shares of restricted common stock and 25,000 common share purchase warrants exercisable at $1.79 a share to one consultant. The shares will be vested on March 31, 2014, valued at approximately $45,000 and the option life is three years and valued at approximately $29,000.

 

The following table summarizes stock warrants:

 

 

 

Warrants

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Life (Years)

 

 

Aggregate

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2013

 

 

5,571,084

 

 

$ 0.92

 

 

 

1.43

 

 

$ 4,794,000

 

Extended

 

 

2,223,000

 

 

 

1.00

 

 

 

1.50

 

 

 

 

 

Granted

 

 

25,000

 

 

 

1.79

 

 

 

2.57

 

 

 

 

 

Exercised

 

 

(3,148,084 )

 

 

1.00

 

 

 

-

 

 

 

 

 

Expired

 

 

(2,223,000 )

 

 

1.00

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2014

 

 

2,448,000

 

 

$ 1.01

 

 

 

1.43

 

 

$ 1,623,000

 

Extended

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Exercised

 

 

(941,000 )

 

 

0.80

 

 

 

-

 

 

 

 

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2015

 

 

1,507,000

 

 

$ 1.14

 

 

 

0.52

 

 

$ 2,156,310

 

Extended

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Expired

 

 

(1,482,000 )

 

 

1.13

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2016

 

 

25,000

 

 

$ 1.79

 

 

 

0.56

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2016

 

 

25,000

 

 

$ 1.79

 

 

 

0.56

 

 

$ -

 

 

 
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Table of Contents

 

14. Stock Transactions

 

For the fiscal year ended June 30, 2016

 

Issuance of Common Stock for Cash

 

$30 million Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC

 

During the year ended June 30, 2016, the Company had completed sales to Aspire totaling 5,700,000 shares of common stock generating gross proceeds of approximately $8.2 million. The amortized amount of $136,000 and $5,000 were debited to additional paid-in capital during the year ended June 30, 2016 and 2015. The unamortized portion is carried on the balance sheet as deferred offering costs and was $358,000 and $494,000 at June 30, 2016 and 2015, respectively.

 

Issuance of Common Stock by Exercise of Common Stock Options

 

During the year ended June 30, 2016, the Company received cash of $15,000 in total and recorded subscription receivable of $25,400 for the exercise of 74,000 Common Stock options at a range of $0.42 to $1.11 per share.

 

Issuance of Common Stock to Consultants For Services

 

On July 10, 2015, the Company issued 7,028 shares of restricted Class A common shares, par value $.0001 and 50,000 stock options to purchase shares of the Company’s common stock to a consultant for services rendered. The shares were granted and vested on July 10, 2015. The shares were valued at $17,500.

 

On February 9, 2016, the Company issued 10,000 shares of Class A common shares, par value $.0001 to a consultant for services rendered. The shares were granted and vested on February 9, 2016. The shares were valued at $11,200.

 

On April 6, 2016, the Company issued 25,000 shares of Class A common shares, par value $.0001 and 25,000 stock options to purchase shares of the Company’s common stock, to a consultant for services rendered. The shares were granted and vested on April 6, 2016 and the options were exercisable for 3 years at $1.77 per share of common stock (see note 13). The shares were valued at $40,000.

 

On May 22, 2016, the Company issued 5,000 shares of Class A common shares, par value $.0001 each to two consultants for services rendered. The shares were granted and vested on May 22, 2016. The shares were valued at $16,400.

 

Issuance of Common Stock - Employment Agreement

 

On June 27, 2016, the Company and Dr. Bertolino entered into an executive employment agreement as our Chief Medical Officer of Cellceutix Corporation, effective on June 27, 2016. Commencing on June 27, 2016, the Company agreed to pay Dr. Bertolino an annual salary of $440,000. In addition, the Company agreed to grant to Dr. Bertolino under the Cellceutix Corporation 2016 Equity Incentive Plan (i) 1,066,667 shares of restricted stock and (ii) a ten-year option to purchase 617,839 shares of the Company's Class A common stock at an exercise price of $1.39 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) 50% upon the first anniversary of the Effective Date, and the remaining 50% upon the second anniversary of the Effective Date (2) completion of both a Phase 2b psoriasis study and a Phase 2 oral mucositis study; (3) the Company’s common stock closes above $3.00 per share (as may be adjusted for any stock splits or similar actions); (4) the commencement of trading of the Company’s common stock on a national securities exchange (e.g. Nasdaq or the NYSE); or (5) upon a Change in Control of the Company.

 

 
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Table of Contents

 

The 1,066,667 shares were valued at approximately $1.5 million and it will be amortized over 2 years to June 27, 2018. The Company recorded approximately $8,000 of stock-based compensation for the year ended June 30, 2016. The Company may award Dr. Arthur P. Bertolino an annual bonus at the sole discretion of the Board of Directors of the Company. The Company may accelerate the amortization of the $1.5 million stock-based compensation expense if there are conditions which will accelerate the vesting, as mentioned above.

 

The following summarizes our restricted stock unit activity for the above restricted stock issuance:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant

 

 

 

Number of

 

 

Date Fair

 

 

 

Units

 

 

Value

 

 

 

 

 

 

 

 

Total awards outstanding at June 30, 2015

 

 

-

 

 

$ -

 

Total units vested

 

 

-

 

 

 

 

 

Total units non-vested

 

 

1,066,667

 

 

$ 1.4

 

Total shares outstanding at June 30, 2016

 

 

1,066,667

 

 

$ 1.4

 

 

Scheduled vesting for outstanding restricted stock units at June 30, 2016 is as follows:

 

 

 

Year Ending June 30,

 

 

 

2017

 

 

2018

 

 

2019

 

 

Total

 

Scheduled vesting-restricted stock units

 

 

533,333

 

 

 

533,334

 

 

 

-

 

 

 

1,066,667

 

 

As of June 30, 2016, there was $1.49 million of net unrecognized compensation cost related to unvested restricted stock-based compensation arrangements. This compensation is recognized on a straight line basis resulting in approximately $0.75 million of the compensation expected to be expensed in the next twelve months, and the total unrecognized has a weighted average recognition period of 1.99 years.

 

For the fiscal year ended June 30, 2015

 

Issuance of Common Stock for Cash

 

$20 million Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC

 

During the period from October 25, 2013 to March 5, 2015, the Company had completed sales to Aspire totaling 8,890,379 shares of common stock generating gross proceeds of approximately $20 million. The amortized amount of the commitment fee of $295,000 and $77,000 were debited to additional paid-in capital during the year ended June 30, 2015 and 2014, respectively.

 

$ 3 0 million Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC

 

On March 30, 2015, the Company entered into a common stock purchase agreement (the “March 2015 Agreement”) with Aspire Capital Fund, LLC, an Illinois limited liability company, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company's common stock over the 36-month term of the March 2015 Agreement. In consideration for entering into the March 2015 Agreement, the Company issued to Aspire Capital 160,000 shares of its Class A Common Stock as a commitment fee. The commitment fee of approximately $499,000 will be amortized as the funding is received. The amortized amount of $5,000 was debited to additional paid-in capital during the year ended June 30, 2015. The unamortized portion is carried on the balance sheet as deferred offering costs and was $494,000 at June 30, 2015.

 

During the period from March 30, 2015 to June 30, 2015, the Company had completed sales to Aspire totaling 100,000 shares of common stock generating gross proceeds of approximately $0.3 million.

 

 
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Table of Contents

 

Concurrently with entering into the March 2015 Agreement, the Company also entered into a registration rights agreement with Aspire Capital, in which the Company agreed to file one or more registration statements, as permissible and necessary to register, under the Securities Act of 1933, as amended, the sale of the shares of the Company's common stock that have been and may be issued to Aspire Capital under the March 2015 Agreement. The Company has filed with the Securities and Exchange Commission a prospectus supplement, dated March 31, 2015, to the Company's prospectus filed as part of the Company's effective $75,000,000 million shelf registration statement on Form S-3, File No. 333-199725, registering all of the shares of common stock that have been or may be offered and sold to Aspire Capital from time to time.

 

Issuance of Common Stock by Exercise of Common Stock Purchase Warrants

 

On July 11, 2014, the Company issued 200,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1 per share. The Company received an aggregate of $200,000 in total for the exercise of 200,000 warrants. The issuance was exempt from registration under Section 4(2) of the Securities Act.

 

On November 24, 2014, the Company issued 370,500 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1 per share and 370,500 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $0.50 per share. The Company received an aggregate of $556,000 in total for the exercise of 741,000 warrants. The issuance was exempt from registration under Section 4(2) of the Securities Act.

 

Issuance of Common Stock by Exercise of Common Stock Options

 

The Board of Directors approved the exercise of 320,000 Common Stock options at a range of $0.20 - $0.45 per share for $112,000 during the year ended June 30, 2015.

 

Issuance of Common Stock to Consultants and Employees

 

On October 20, 2014 the Board of Directors approved the appointment of Dr. William James Alexander as the Chief Operations Officer of Cellceutix Corporation for the term of one year effective October 27, 2014. Commencing on October 20, 2014 and ending on the six month anniversary of the effective date, the Company shall pay Dr. Alexander at the per annum rate of $350,000. Commencing on the Six Month Anniversary and ending on the one year anniversary of the effective date (the "One Year Anniversary"), the Company shall pay Dr. Alexander at the per annum rate of $400,000. Pursuant to his employment agreement, Dr. Alexander received immediately 50,000 shares of the Company's common stock, par value $0.0001 per share as a sign on bonus and 50,000 stock options vesting during the next 12 months. The Company may award Dr. Alexander an annual bonus at the sole discretion of the Board of Directors of the Company.

 

On May 12, 2015, the Company issued 15,000 shares of restricted Class A common shares, par value $.0001 and 15,000 options, to a consultant for services rendered. The shares were granted on May 12, 2015 and vested on May 31, 2015. The shares were valued at $38,400 which were charged to additional paid-in capital as of June 30, 2015. The Company recognized approximately $55,000 of stock based compensation costs related to stock and the stock option issued to this consultant for the year ended June 30, 2015.

 

For the fiscal year ended June 30, 2014

 

Polymedix Trustee

 

On September 4, 2013, the Company purchased substantially all of the assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. from the U.S. Bankruptcy Court. The purchase price included the issuance of 1,400,000 shares of the Company’s Class A common stock at $1.93 and recorded at $1,302,000, net of $1,400,000 of Redeemable Common Stock Liability under Current Liability.

 

 
F-25
Table of Contents

 

Issuance of Common Stock for Cash

 

$20 million Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC - October 2013 Agreement

 

On October 25, 2013, we terminated a previous agreement with Aspire Capital Fund, LLC, an Illinois limited liability company (Aspire Capital), and entered into a new Class A Common Stock Purchase Agreement (the “Purchase Agreement”) with Aspire Capital, which provides that upon meeting the terms of the agreement, Aspire Capital is committed to purchase up to an aggregate of $20,000,000 of our shares of Class A Common Stock over the approximately 36-month term of the Purchase Agreement. In consideration for entering into the Purchase Agreement, the Company issued to Aspire Capital 210,523 shares of our Class A Common Stock as a commitment fee. The commitment fee of $373,000 will be amortized as the funding is received. The amortized amount of $77,000 was debited to additional paid-in capital in 2014. The unamortized portion is carried on the balance sheet as deferred offering costs and was $295,000 at June 30, 2014.

 

Concurrently with entering into the Purchase Agreement, the Company agreed to file one or more registration statements as permissible and necessary under the Securities Act of 1933, as amended, or the Securities Act, for the sale of shares of our Class A Common Stock that have been and may be issued to Aspire Capital under the Purchase Agreement. On November 4, 2013, the Company filed a Form S-3 registration statement and the registration statement was declared effective by the SEC on November 15, 2013.

 

Under the Purchase Agreement, on any trading day selected by Cellceutix which the closing sale price of our Class A Common Stock exceeds $0.25 per share, we may direct Aspire Capital to purchase up to 200,000 shares of our Class A Common Stock per trading day. The Purchase Price of such shares is equal to the lesser of a) the lowest sale price of our Class A Common Stock on the purchase date; or b) the arithmetic average of the three lowest closing sale prices for our Class A Common Stock during the twelve consecutive trading days ending on the trading day immediately preceding the purchase date.

 

In addition, on any date on which we submit a Purchase Notice to Aspire Capital for purchase of at least 100,000 Purchase Shares and the closing sale price of our stock is equal to or greater than $0.50 per share, we also have the right to direct Aspire Capital to purchase an amount of stock equal to up to 30% of the aggregate shares of the our Class A Common Stock traded on the OTC Bulletin Board on the next trading day, subject to the VWAP Purchase Share Volume Maximum and the VWAP Minimum Price Threshold, which is equal to the greater of (a) 90% of the closing price of our Class A Common Stock on the business day immediately preceding the VWAP Purchase Date or (b) such higher price as set forth by the Company in the VWAP Purchase Notice. The VWAP Purchase Price of such shares is the lower of (a) the Closing Sale Price on the VWAP Purchase Date; or 95% of the volume-weighted average price for our Class A Common Stock traded on the OTC Bulletin Board; and (b)on the VWAP Purchase Date, if the aggregate shares to be purchased on that date have not exceeded the VWAP Purchase Share Volume Maximum or during that portion of the VWAP Purchase Date until such time as the sooner to occur of (i) the time at which the aggregate shares traded on the OTC Bulletin Board exceed the VWAP Purchase Share Volume Maximum or (ii) the time at which the sale price of our Class A Common Stock falls below the VWAP Minimum Price Threshold.

 

The purchase price will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the trading day(s) used to compute the purchase price. We may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.

 

Under the Purchase Agreement, we and Aspire Capital may not affect any sales of shares of our Class A Common Stock under the Purchase Agreement on any trading day that the closing sale price of our Class A Common Stock is less than $0.25 per share.

 

The Company is never under any obligation to sell shares to Aspire Capital Fund. Aspire Capital Fund has no rights to require the Company to sell shares.

 

During the period from October 25, 2013 to June 30, 2014, the Company had completed sales to Aspire totaling 2,500,000 shares of common stock generating gross proceeds of approximately $4.2 million. As of June 30, 2014, a balance of $15.8 million remains and is available under the financing arrangement. From July 1, 2014 to September 10, 2014, the Company has generated additional proceeds of approximately $3,215,000 under the Common Stock Purchase Agreement with Aspire from the sale 1,900,000 shares of its common stock.

 

 
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Table of Contents

 

Issuance of Common Stock by Exercise of Common Stock Purchase Warrants

 

During the year ended June 30, 2014, the Company issued 2,300,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1 per share. The Company received an aggregate of $2,300,000 from the exercise of these warrants. The issuance was exempt from registration under Section 4(2) of the Securities Act.

 

On December 31, 2013, the Company issued 848,084 Class A common shares par value $.0001 to two warrant holders upon exercise of Common Stock Purchase Warrants exercisable at the range from $0.39 to $0.53 per share, with a total exercise price of $400,000. The issuance was exempt from registration under Section 4(2) of the Securities Act.

 

Issuance of Common Stock by Exercise of Common Stock Options

 

On March 18, 2014, the Company issued 25,000 Class A common shares par value $.0001 upon exercise of 25,000 Common Stock options at $0.20 per share, for total proceeds of $5,000.

 

Issuance of Common Stock to Consultants and Employees

 

On December 17, 2013, the Company issued 5,000 shares of restricted Class A common shares par value $.0001 to one consultant valued at approximately $9,000 for prior services.

 

On December 31, 2013, the Company issued 50,000 shares of restricted Class A common shares par value $.0001 to two consultants valued at approximately $105,000 for prior services.

 

On December 31, 2013, the Company issued 60,000 shares of restricted Class A common shares par value $.0001 to six employees as a year-end bonus valued at approximately $96,000.

 

On October 17, 2013, the Board of Directors approved the stock grant of 35,000 shares of restricted Class A common stock to be issued and vested on January 6, 2014 to a consultant valued at $70,000.

 

On January 23, 2014, the Company issued 25,000 shares of restricted Class A common stock and 25,000 stock options exercisable at $1.79 per share to a consultant. The shares were granted on January 23, 2014 and vested on March 31, 2014 were valued at $44,750. The option life is three years and valued at approximately $29,000.

 

On January 23, 2014, the Company further issued 25,000 shares of restricted Class A common shares par value $.0001 at $1.79 per share to a consultant. The shares were granted on January 23, 2014, vested on March 31, 2014, and were valued at approximately $45,000.

 

On March 31, 2014, the Company issued 25,000 shares of restricted Class A common shares, par value $.0001, to a consultant for prior services rendered. The shares were granted and vested on March 31, 2014. The shares were valued at $41,000.

 

15. Income Taxes

 

Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been reflected in the consolidated financial statements. Deferred tax assets and liabilities are determined based on the differences between the book values and the tax bases of particular assets and liabilities and the tax effects of net operating loss and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized as income or expense in the period that included the enactment date.

 

The Company has incurred operating losses since its inception and, therefore, no tax liabilities have been incurred for the periods presented. The amount of unused tax losses available to carry forward and apply against taxable income in future years totaled approximately $40,909,000 at June 30, 2016. The loss carryforwards expire beginning in 2028. Internal Revenue Code Sec. 382 places limitations on the utilization of net operating losses. Due to the potential limitation and the Company’s historical losses, the Company has placed a full valuation allowance. The valuation allowance increased by approximately $5,383,000 at June 30, 2016, $5,709,000 at June 30, 2015 and $3,619,000 at June 30, 2014.

 

 
F-27
Table of Contents

 

The income tax provision benefit differs from the amount of tax determined by applying the Federal statutory rate as follows:

 

 

 

June 30,

2016

 

 

June 30,

2015

 

 

June 30,

2014

 

Book income at federal statutory rate

 

 

34.00 %

 

 

34.00 %

 

 

34.00 %

State income tax, net of federal tax benefit

 

 

5.24 %

 

 

5.31 %

 

 

5.33 %

Change in valuation allowance

 

 

(41.88 )%

 

 

(43.43 )%

 

 

(43.87 )%

Research and development credit

 

 

6.97 %

 

 

8.01 %

 

 

7.69 %

Permanent difference

 

 

(3.16 )%

 

 

(2.72 )%

 

 

(2.62 )%

Others - net

 

 

(1.17 )%

 

 

(1.17 )%

 

 

(0.53 )%

Total

 

 

0.00 %

 

 

0.00 %

 

 

0.00 %

 

There was no current or deferred provision or benefit for income taxes for the years ended June 30, 2016 and 2015. The components of deferred tax assets as of June 30, 2016 and 2015 are as follows ( rounded to nearest thousand ) :

 

 

 

June 30,

2016

 

 

June 30,

2015

 

Deferred tax (liability) asset:

 

 

 

 

 

 

Net operating loss carry forwards

 

$ 16,272,000

 

 

$ 11,799,000

 

Accrued payroll

 

 

1,105,000

 

 

 

1,105,000

 

Stock compensation

 

 

1,653,000

 

 

 

1,633,000

 

Research and development credit

 

 

2,672,000

 

 

 

1,777,000

 

Other

 

 

162,000

 

 

 

166,000

 

 

 

$ 21,863,000

 

 

$ 16,480,000

 

Valuation allowance

 

 

(21,863,000 )

 

 

(16,480,000 )

Total deferred taxes

 

$ -

 

 

$ -

 

 

16. Subsequent Events

 

Equity Transactions

 

From July 1, 2016 to September 12, 2016, the Company has generated additional proceeds of approximately $1,506,000 under the Common Stock Purchase Agreement with Aspire from the sale 1,200,000 shares of its common stock.

 

On July 18, 2016, the Company issued 7,500 shares and 7,500 stock options to purchase shares of the Company’s common stock to a consultant for service rendered, exercisable for 3 years at $1.38 per share of common stock. The value of these 7,500 shares at $1.38 per share and 7,500 options was approximately $10,000 and $4,000, respectively, for a total expense of approximately $14,000.

 

On August 1, 2016, the Company issued 11,720 restricted shares to a consultant for service. The value of these 11,720 shares at $1.28 per share was approximately $15,000.

 

 
F-28
Table of Contents

 

17. Selected Quarterly Results of Operations (unaudited)

 

A summary of the Company’s quarterly results of operations for the years ended June 30, 2016 and 2015 is as follows ( rounded to nearest thousand, except for shares):

 

 

 

 

Years Ended June 30, 2016

 

 

 

 

Quarter 1

 

 

Quarter 2

 

 

Quarter 3

 

 

Quarter 4

 

 

Total

 

 

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

Gross profit

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

Net loss

 

 

$ (2,577,000 )

 

$ (3,323,000 )

 

$ (3,709,000 )

 

$ (3,243,000 )

 

$ (12,852,000 )

Net loss attributable to common stockholders

 

 

$ (2,577,000 )

 

$ (3,323,000 )

 

$ (3,709,000 )

 

$ (3,243,000 )

 

$ (12,852,000 )

Loss per share attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-Basic

 

 

$ (0.02 )

 

$ (0.03 )

 

$ (0.03 )

 

$ (0.03 )

 

$ (0.11 )

 

-Diluted

 

 

$ (0.02 )

 

$ (0.03 )

 

$ (0.03 )

 

$ (0.03 )

 

$ (0.11 )

Weighted average number of common shares

 

 

 

118,140,424

 

 

 

118,673,362

 

 

 

120,204,272

 

 

 

122,647,514

 

 

 

119,908,145

 

 

 

 

 

Years Ended June 30, 2015

 

 

 

 

Quarter 1

 

 

Quarter 2

 

 

Quarter 3

 

 

Quarter 4

 

 

Total

 

 

 

 

2015

 

 

2015

 

 

2015

 

 

2015

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

Gross profit

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

Net loss

 

 

$ (4,395,000 )

 

$ (2,754,000 )

 

$ (2,895,000 )

 

$ (3,101,000 )

 

$ (13,145,000 )

Net loss attributable to common stockholders

 

 

$ (4,395,000 )

 

$ (2,754,000 )

 

$ (2,895,000 )

 

$ (3,101,000 )

 

$ (13,145,000 )

Loss per share attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-Basic

 

 

$ (0.04 )

 

$ (0.02 )

 

$ (0.02 )

 

$ (0.02 )

 

$ (0.11 )

 

-Diluted

 

 

$ (0.04 )

 

$ (0.02 )

 

$ (0.02 )

 

$ (0.02 )

 

$ (0.11 )

Weighted average number of common shares

 

 

 

111,121,912

 

 

 

114,716,009

 

 

 

116,885,350

 

 

 

117,693,617

 

 

 

115,087,368

 

 

 
F-29
Table of Contents

  

EXHIBIT INDEX

  

Exhibit No.

 

Title

 

Method of Filing

2.1

 

Asset Purchase Agreement dated July 26, 2013 for the purchase of assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. from the U.S. Bankruptcy Court completed on September 4, 2013

 

Exhibit 2.1 to the Current Report on Form 8-K of the Company filed on September 9, 2013

 

2.2

 

First Amendment to Asset Purchase agreement dated August 30, 2013 and completed on September 4, 2013

 

Exhibit 2.1 to the Current Report on Form 8-K of the Company filed on September 9, 2013

3.1

 

Articles of Incorporation of Cellceutix Corporation

 

Filed herewith

3.2

 

Amended and Restated Bylaws of Cellceutix Corporation

 

Exhibit 3.1 to the Current Report on Form 8-K of the Company filed on November 3, 2015 

10.1

 

Patent License Agreement, dated January 3, 2003, between PolyMedix Pharmaceuticals, Inc. (formerly known as PolyMedix, Inc.) and the University of Pennsylvania, Assigned by U.S. Court to Cellceutix

 

Exhibit 10.20 to the Form 10-K for the year ended June 30, 2013 filed on September 30, 2013

 

10.2

 

Letter Agreement, dated December 23, 2003, amending the Patent License Agreement, dated January 3, 2003, between PolyMedix Pharmaceuticals, Inc. (formerly known as PolyMedix, Inc.) and the University of Pennsylvania, Assigned by U.S. Court to Cellceutix

 

Exhibit 10.21 to the Form 10-K for the year ended June 30, 2013 filed on September 30, 2013

 

10.3

 

Software License Agreement, dated May 30, 2003, between PolyMedix Pharmaceuticals, Inc. (formerly known as PolyMedix, Inc.) and the University of Pennsylvania, Assigned by U.S. Court to Cellceutix

 

Exhibit 10.22 to the Form 10-K for the year ended June 30, 2013 filed on September 30, 2013

 

10.4

 

Common Stock Purchase Agreement, dated as of March 30, 2015, by and between the Company and Aspire Capital Fund, LLC.

 

Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on March 31, 2015

 

10.5

 

Registration Rights Agreement, dated as of March 30, 2015 by and between the Company and Aspire Capital Fund, LLC.

 

Exhibit 10.2 to the Current Report on Form 8-K of the Company filed on March 31, 2015

10.6

 

Material Transfer Agreement With Beth Israel Deaconess

 

Exhibit10.38 to the Form 10-Q for the quarterly period ended March 31, 2014 filed on May 12, 2014 

10.7

 

Lease between Cellceutix Corporation and Cummings Properties

 

Exhibit10.39 to the Form 10-Q for the quarterly period ended March 31, 2014 filed on May 12, 2014

10.8

 

Agreement dated August 28, 2014 between Cellceutix Corporation and Aruda, Inc.

 

Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on September 2, 2014

10.9

 

Amendment among Cellceutix Corporation, Wayne Aruda and Aruda Inc.

 

Exhibit 10.2 to the Current Report on Form 8-K of the Company filed on September 2, 2014 

10.10

 

Demand Unsecured Note between Cellceutix Corporation and Leo Ehrlich dated August 25, 2010

 

Exhibit 10.27 to the Form 10-K for the year ended June 30, 2010 filed on March 8, 2011

10.11

 

Assignment Agreement between Cellceutix Corporation and Dr. Krishna Menon

 

Exhibit 10.3 to the Current Report on Form 8-K of the Company filed on September 2, 2014 

10.12

 

Employment Agreement between the Company and Dr. Arthur P. Bertolino.

 

Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on July 1, 2016

10.12

 

Cellceutix Corporation 2010 Equity Incentive Plan

 

Exhibit 99-3 to the Current Report on Form 8-K/A of the Company filed on February 22, 2011

10.13

 

Cellceutix Corporation 2016 Equity Incentive Plan

 

Exhibit 10.2 to the Current Report on Form 8-K of the Company filed on July 1, 2016

10.14

 

Form of Incentive Stock Option Agreement for Employees for the Cellceutix Corporation 2016 Equity Incentive Plan

 

Exhibit 10.3 to the Current Report on Form 8-K of the Company filed on July 1, 2016

10.15

 

Form of Non-qualified Stock Option Agreement for Employees for the Cellceutix Corporation 2016 Equity Incentive Plan

 

Exhibit 10.4 to the Current Report on Form 8-K of the Company filed on July 1, 2016

10.16

 

Form of Non-qualified Stock Option Agreement for Non-Employee Directors for the Cellceutix Corporation 2016 Equity Incentive Plan

 

Exhibit 10.5 to the Current Report on Form 8-K of the Company filed on July 1, 2016

10.17

 

Form of Restricted Stock Award Agreement for Employees for the Cellceutix Corporation 2016 Equity Incentive Plan

 

Exhibit 10.6 to the Current Report on Form 8-K of the Company filed on July 1, 2016

10.18

 

Form of Restricted Stock Award Agreement for Non-Employee Directors for the Cellceutix Corporation 2016 Equity Incentive Plan

 

Exhibit 10.7 to the Current Report on Form 8-K of the Company filed on July 1, 2016

23.1

 

Consent of Consent of Independent Registered Public Accounting Firm

 

Filed herewith

31.1

 

Chairman of the Board and President Certifications required under Section 302 of the Sarbanes Oxley Act of 2002

 

Filed herewith

 

31.2

 

Chief Executive Officer and Chief Financial Officer Certifications required under Section 302 of the Sarbanes Oxley Act of 2002

 

Filed herewith

 

32.1

 

Chairman of the Board and President Certifications required under Section 906 of the Sarbanes Oxley Act of 2002

 

Furnished herewith

 

32.2

 

Chief Executive Officer and Chief Financial Officer Certifications required under Section 906 of the Sarbanes Oxley Act of 2002

 

Furnished herewith

 

101

 

The following materials from the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) related notes

 

Filed herewith

____________

* Identifies a management contract or compensation plan or arrangement.  

 

 

53

 

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