UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______________________________
FORM 10 – Q
_______________________________
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
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: 000-52321
Cellceutix Corporation
(Exact name of registrant as specified in its charter)
| Nevada | 13-4303398 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification Number) |
100 Cumming Center, Suite 151-B
Beverly, MA 01915
(Address of principal executive offices and zip code)
(978)-633-3623
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Accelerated filer ¨ | |
Non-accelerated filer ¨ | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Transitional Small Business Disclosure Format (check one): Yes ¨ No x
The number of shares outstanding of the Registrant's Common Stock as of April 20, 2009 was 91,791,000 shares.
CELLCEUTIX CORPORATION
FORM 10-Q
INDEX
| PART I FINANCIAL INFORMATION | ||||
| I 1. Item 1. Financial Statements | ||||
| BBalance Sheets- March 31, 2009 (Unaudited) and June 30, 2008 (Audited) | 2 | |||
| StStatements of Operations (Unaudited) - For the Three and Nine Months Ended March 31, 2009 and 2008, and for the cumulative period from June 20, 2007 (Date of Inception) through March 31, 2009 | 3 | |||
| Statements of Changes in Stockholders Deficit (Unaudited)- For the cumulative period from June 20, 2007 (Date of Inception) to March 31, 2009 | 4 | |||
| StStatements of Cash Flows (Unaudited) - For the Nine Months Ended March 31, 2009 and 2008, and for the cumulative period from June 20, 2007 (Date of Inception) to March 31, 2009 | 5 | |||
| N Notes to Financial Statements (Unaudited) | 6 | |||
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 9 | |||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 9 | |||
| It Item 4. Controls and Procedures | 10 | |||
| PART II OTHER INFORMATION | 11 | |||
| I Item 1. Legal Proceedings | 11 | |||
| Item 1A. Risk Factors | 11 | |||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 11 | |||
| Item 3. Defaults Upon Senior Securities | 11 | |||
| Item 4. Submission of Matters to a Vote of Security Holders | 11 | |||
| Item 5. Other Information | 11 | |||
| Item 6. Exhibits | 12 | |||
Si Signatures | 12 | |||
1
Part 1. Financial Information
Item 1. Financial Statements
Cellceutix Corporation
(A Development Stage Enterprise)
Balance Sheets
| March 31, 2009 | June 30, 2008 | |||||||
| (unaudited) | (audited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 160,690 | $ | 351,860 | ||||
| Prepaid expenses | 7,702 | 97,917 | ||||||
| Total current assets | 168,392 | 449,777 | ||||||
| Total assets | $ | 168,392 | $ | 449,777 | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable, including related party payables of $312,505 and $0, respectively | $ | 317,935 | $ | 13,730 | ||||
| Accrued expenses | 47,400 | 20,349 | ||||||
| Accrued salaries and payroll taxes | 870,172 | 345,378 | ||||||
| Convertible debentures | 400,000 | - | ||||||
| Due to officer | 32,310 | 32,310 | ||||||
| Total current liabilities | 1,667,817 | 411,767 | ||||||
| Long term liabilities: | ||||||||
| Convertible debentures | - | 400,000 | ||||||
Total liabilities | 1,667,817 | 811,767 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' deficit: | ||||||||
| Preferred stock; $.0001 par value; 10,000,000 shares | ||||||||
| authorized; 0 shares issued and outstanding | - | - | ||||||
| Common stock; $.0001 par value; 300,000,000 shares | ||||||||
| authorized; 91,791,000 and 91,891,000 shares issued and outstanding, respectively | 9,179 | 9,189 | ||||||
| Additional paid in capital | 178,758 | 148,623 | ||||||
| Deficit accumulated during development stage | (1,687,362 | ) | (519,802 | ) | ||||
| Total stockholders' deficit | (1,499,425 | ) | (361,990 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 168,392 | $ | 449,777 | ||||
The accompanying notes are an integral part of these financial statements.
2
Cellceutix Corporation
(A Development Stage Enterprise)
Statements of Operations
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| March 31, 2009 | March 31, 2008 | March 31, 2009 | March 31, 2008 | June 20, 2007 (Date of Inception) Through March 31, 2009 | ||||||||||||||||
| Revenues | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Operating Expenses | ||||||||||||||||||||
| General and administrative | 10,156 | 7,318 | 30,569 | 16,298 | 56,198 | |||||||||||||||
| Research and development | 381,587 | — | 381,587 | — | 381,587 | |||||||||||||||
| Payroll expenses | 228,757 | 137,500 | 524,794 | 183,334 | 870,172 | |||||||||||||||
| Professional fees | 9,533 | 31,391 | 69,991 | 50,674 | 160,174 | |||||||||||||||
| Stock based compensation expense | 11,843 | — | 135,125 | 43,533 | 178,658 | |||||||||||||||
| Total operating expenses | 641,876 | 176,209 | 1,142,066 | 293,839 | 1,646,789 | |||||||||||||||
| Loss from operations | (641,876 | ) | (176,209 | ) | (1,142,066 | ) | (293,839 | ) | (1,646,789 | ) | ||||||||||
| Interest expense-net | (8,696 | ) | — | (25,494 | ) | — | (31,494 | ) | ||||||||||||
| Net loss before provision for income taxes | (650,572 | ) | (176,209 | ) | (1,167,560 | ) | (293,839 | ) | (1,678,283 | ) | ||||||||||
| Provision for income taxes | — | — | — | — | — | |||||||||||||||
| Net loss | $ | (650,572 | ) | $ | (176,209 | ) | $ | (1,167,560 | ) | $ | (293,839 | ) | $ | (1,678,283 | ) | |||||
| Basic and Diluted Loss | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||
| Weighted average number of common shares used in basic and diluted per share calculations | 91,791,000 | 91,791,000 | 91,858,153 | 39,297,295 | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
3
Cellceutix Corporation
(A Development Stage Enterprise)
Statement of Changes in Stockholders' Deficit
For the Cumulative
Period June 20, 2007 (Date of Inception)
through March 31, 2009
(Unaudited)
| Common Stock | Additional Paid | Deficit Accumulated During Development | ||||||||||||||||||
| Shares | Par Value $0.0001 | In Capital | Stage | Total | ||||||||||||||||
| Shares issued June 20, 2007 (Inception) | 1,000,000 | $ | 100 | $ | - | $ | - | $ | 100 | |||||||||||
| Net loss | - | - | - | (530 | ) | (530 | ) | |||||||||||||
| Balance, June 30, 2007 | 1,000,000 | 100 | - | (530 | ) | (430 | ) | |||||||||||||
| Share exchange with Cellceutix Pharma, Inc. December 6, 2007 | (1,000,000 | ) | (100 | ) | - | 100 | - | |||||||||||||
| SharS Share exchange in reverse merger with Cellceutix Pharma, Inc. December 6, 2007 | 82,000,000 | 8,200 | - | (8,200 | ) | - | ||||||||||||||
Shares exchanged in a reverse acquisition of Cellceutix Pharma, December 6, 2007 | 9,791,000 | 979 | - | (979 | ) | - | ||||||||||||||
| Issuance of stock options | - | - | 43,533 | - | 43,533 | |||||||||||||||
Forgiveness of debt from a stockholder | - | - | 50 | - | 50 | |||||||||||||||
| Capital contribution from a stockholder | - | - | 50 | - | 50 | |||||||||||||||
| Shares issued for services, April 28, 2008 at $1.05 | 100,000 | 10 | 104,990 | - | 105,000 | |||||||||||||||
| Net loss | - | - | - | (510,193 | ) | (510,193 | ) | |||||||||||||
| Balance, June 30, 2008 | 91,891,000 | 9,189 | 148,623 | (519,802 | ) | (361,990 | ) | |||||||||||||
| Cancellation of shares issued for services, December 31, 2008 | (100,000) | (10) | (104,990) | - | (105,000) | |||||||||||||||
| Issuance of stock options | - | - | 135,125 | - | 135,125 | |||||||||||||||
Net loss for the nine months ended March 31, 2009 | - | - | - | (1,167,560 | ) | (1,167,560 | ) | |||||||||||||
| Balance, March 31, 2009 (unaudited) | 91,791,000 | $ | 9,179 | $ | 178,758 | $ | (1,687,362 | ) | $ | (1,499,425 | ) | |||||||||
The accompanying notes are an integral part of these financial statements.
4
Cellceutix Corporation
(A Development Stage Enterprise)
Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended March 31, 2009 | For the Nine Months Ended March 31, 2008 | For the Cumulative Period June 20, 2007 (Date of Inception) through March 31, 2009 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | (1,167,560 | ) | $ | (293,839 | ) | $ | (1,678,283 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Stock based compensation | 135,125 | 43,533 | 178,658 | |||||||||
| Cancellation of stock issued for services | (17,500 | ) | - | (17,500 | ) | |||||||
| Forgiveness of accounts payable | - | 500 | - | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Prepaid expenses | 2,715 | (15,000) | 9,798 | |||||||||
| Accounts payable including related party payables of $312,505 and $0, respectively | 304,205 | 28,682 | 317,985 | |||||||||
| Accrued expenses | 27,051 | 20,949 | 47,400 | |||||||||
| Accrued salaries and payroll taxes | 524,794 | 183,334 | 870,172 | |||||||||
| Net cash used in operating activities | (191,170 | ) | (31,841) | (271,770 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Capital contribution from a stockholder | - | - | 50 | |||||||||
| Loan from officer | - | 32,310 | 32,310 | |||||||||
| Sale of common stock | - | - | 100 | |||||||||
| Proceeds from convertible debentures | - | - | 400,000 | |||||||||
| Net cash provided by financing activities | - | 32,310 | 432,460 | |||||||||
| �� | ||||||||||||
| NET (DECREASE) INCREASE IN CASH | (191,170 | ) | 469 | 160,690 | ||||||||
| CASH, BEGINNING OF PERIOD | 351,860 | - | - | |||||||||
| CASH, END OF PERIOD | $ | 160,690 | $ | 469 | $ | 160,690 | ||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW FINANCING ACTIVITIES:
| Stock issued for acquisition | $ | - | $ | 9,079 | $ | 9,079 | ||||||
| Forgiveness of debt | $ | - | $ | - | $ | 50 |
The accompanying notes are an integral part of these financial statements.
5
Cellceutix Corporation
(A Development Stage Enterprise)
Notes to Financial Statements
March 31, 2009
(Unaudited)
1. Background Information
EconoShare, Inc. was incorporated on August 1, 2005 in the State of Nevada and was organized for the purpose of developing a B2B (Business to Business) website for an Asset Sharing market place and transaction system.
On December 6, 2007, EconoShare, Inc. acquired Cellceutix Pharma, Inc., a privately owned Delaware corporation (“Cellceutix Pharma”), pursuant to an Agreement and Plan of Share Exchange (the “Exchange”), with Cellceutix Pharma becoming a wholly-owned subsidiary of EconoShare, Inc. Cellceutix Pharma, Inc. was incorporated under the laws of the State of Delaware on June 20, 2007. Its assets consisted of rights assigned to it for six early stage pharmaceutical compounds by three different scientists. Upon consummation of the Exchange, EconoShare, Inc. adopted the business plan of Cellceutix Pharma, Inc.
Pursuant to the terms of the Exchange, EconoShare, Inc. acquired Cellceutix Pharma, Inc. in exchange for an aggregate of 82,000,000 newly issued shares of Econoshare Inc.’s common stock, par value $0.0001 per share (the “Common Stock”), resulting in an aggregate of 91,791,000 shares (the “Exchange of Shares”) of EconoShare, Inc. Common Stock issued and outstanding. As a result of the Exchange, Cellceutix Pharma, Inc. became a wholly-owned subsidiary of EconoShare, Inc. The Exchange Shares were issued to the Cellceutix Pharma, Inc. shareholders on a pro rata basis, on the basis of 82 shares of Common Stock for each share of Cellceutix Pharma, Inc. common stock held by such Cellceutix Pharma, Inc. shareholder at the time of the Exchange.
The former holders of Cellceutix Pharma Common Stock now beneficially own approximately 89% of the outstanding shares of our Common Stock. Accordingly, the Exchange represented a change in control. As of the date of this report, there are 91,791,000 shares of Common Stock issued and outstanding. For financial accounting purposes, the acquisition was a reverse acquisition of EconoShare, Inc. by Cellceutix Pharma, Inc., under the purchase method of accounting, and was accounted for as a recapitalization as of June 20, 2007 with Cellceutix Pharma, Inc. as the accounting acquirer.
On January 14, 2008, a majority of the shareholders of EconoShare, Inc. approved an amendment to the Registrant’s articles of incorporation to change the name of the Registrant to Cellceutix Corporation (“the Company”). Upon the filing of a Definitive Information Statement and effectiveness of the name change the Company applied to the National Association of Security Dealers to change its stock symbol on the Over the Counter Bulletin Board, resulting in the Company’s new stock symbol of “CTIX”. The Company is considered a development stage company at this time.
2. Financial Statements
In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three and nine month periods ended March 31, 2009 and 2008, (b) the financial position at March 31, 2009 and (c) cash flows for the nine month periods ended March 31, 2009 and 2008 have been made.
The unaudited financial statements and notes are presented as permitted by Form 10-Q. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying financial statements and notes should be read in conjunction with the Company’s Form 10KSB for the fiscal year ended June 30, 2008. The results of operations for the three and nine month periods ended March 31, 2009 are not necessarily indicative of those to be expected for the entire year.
3. Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. For the period since June 20, 2007 (date of inception) through March 31, 2009, the Company has had a net loss of $1,678,283, no sales and a working capital deficit of $1,499,425 at March 31, 2009. As of March 31, 2009, the Company has not emerged from the development stage. In view of these matters, the ability of the Company to continue as a going concern is dependent upon the Company’s ability to generate additional financing. Since inception, the Company has financed its activities principally from the use of equity securities and debt issuance to pay for its operations. The Company intends on financing its future development activities and its working capital needs largely from the issuance of debt and the sale of equity securities, until such time that funds provided by operations are sufficient to fund working capital requirements. There can be no assurance that the Company will be successful at achieving its financing goals at reasonably commercial terms, if at all.
The recent economic downturn and market instability has made the business climate more volatile and more costly. If the current equity and credit markets deteriorate further, or do not improve, it may make necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material
6
3. Going Concern (continued)
adverse effect on the Company’s growth strategy, financial performance and stock price and could require the delay of new product development and clinical trial plans. Currently, the Company has not made any arrangements for equity or any other type of financing.
These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern.
4. Commitments and Contingencies
Consulting Agreements
On April 15, 2008 the Company signed a service agreement with a consultant to provide public relations and strategic communications advice and services to the Company for one year beginning April 28, 2008. In October, the Company was notified of the death of the consultant and the agreement was terminated in accordance with its terms. The 100,000 shares of the Company’s common stock previously issued to the consultant were returned to the Company and cancelled.
On March 2, 2009, the Company entered into an agreement with a patent attorney to prepare patent applications for Cellceutix products. The Company expects to file multiple patent applications during the term of this agreement. The agreement provides that the Company will grant 40,000 options to purchase shares of the Company’s common stock as compensation for each application filed in lieu of cash compensation. The options will be granted on the day that the work on the application begins. As of March 31, 2009, the attorney had been issued 80,000 options for the preparation of two patents, valued at $11,843 and recorded in the accompanying Statements of Operations as stock compensation expense. The average exercise price of the options is $0.14 per share.
Pharmaceutical Compounds
On August 2, 2007, the Company was assigned all right, title, and interest to three pharmaceutical compounds; Kevetrin, KM 277 and KM 278, by their inventors. On October 17, 2007, the Company was assigned all right, title, and interest to an additional three pharmaceutical compounds; KM 133 KM 362 and KM 3174. In exchange for these compounds, the Company agreed to pay the inventors 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 from our President and director, Dr. Krishna Menon. The Company intends to file patent applications for each of these six compounds as funds become available.
The Company is continuing the research and development of these Compounds and has therefore, assigned no value to these Compounds.
Employment Agreements
On December 7, 2007, the Company entered into employment agreements with its two executive officers, George Evans, Chief Executive Officer, and Krishna Menon, Chief Scientific Officer. Both agreements provide for a three year term with minimum annual base salaries of $200,000 in the first year, $300,000 in the second year and $400,000 in the third year. In addition, the agreements provide for bonuses according to the following schedule:
Upon receiving New Drug Application (“IND”): $250,000 if received within 10 months
$150,000 if received within 12 months
$100,000 if received within 16 months
Completion of Phase 1with clinical results that would have Kevitrin proceed to Phase 2/3:
$450,000 if received within 18 months
$350,000 if received within 24 months
$150,000 if received within 28 months
Start Phase 2/3:
$500,000 if within 36 months
$350,000 if within 42 months
$150,000 if within 48 months
The bonus obligations do not commence until the Company receives a financing commitment in an amount of at least $4,000,000.
The agreement with Mr. Evans also provides a grant of options to purchase 918,910 and 917,910 shares of the Company's stock with exercise prices of $0.20 and $0.15 per share and fair values of $123,282 and $43,533, for the nine months ended March 31, 2009 and 2008, respectively. The agreement calls for the issuance options to purchase up to 1% of the common shares outstanding at each subsequent anniversary year.
7
5. 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. At March 31, 2009 and June 30, 2008, payables of $14,400 and $6,300 to KARD were included in accrued expenses.
Clinical Studies
As of September 28, 2007 the Company engaged KARD to conduct specified pre-clinical studies necessary for the Company to prepare an Investigational New Drug Application (“IND”) submission to the US Food and Drug Administration (“FDA”). The Company does not have an exclusive arrangement with KARD. All work performed by KARD must have prior approval by the executive officers of the Company, and the Company retains all intellectual property resulting from the services by KARD. To date the Company has incurred $381,587 of research and development expenses by KARD, of which $312,505 is included in accounts payable.
6. Due To Officer
As of March 31, 2009, Leo Ehrlich, CFO loaned the Company $32,310 for working capital. The loan is not interest bearing and is not collateralized. The Company expects to repay this loan during the 2009 fiscal year.
7. Stock Options and Warrants:
Stock Options
The Company granted 918,910 and 80,000 options to an employee and a patent attorney during the nine month period ended March 31, 2009. The fair value of the options was estimated on the date of grant using the Black Scholes model that uses assumptions noted in the following table. Expected volatility is based on the monthly trading of a similar Company’s underlying common stock (as the Company does not have an adequate trading history for an accurate calculation) and other factors.
| Expected term (in years) | 3 | |||
| Expected stock price volatility | 111.2% - 114.9 | % | ||
| Risk-free interest rate | 1.27% - 1.28 | % | ||
| Expected dividend yield | 0 | % | ||
| Estimated fair value per option granted | $ | 0.13 - $0.15 | ||
The following table summarizes all stock option activity for options granted during the periods ended March 31, 2009:
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||||||
| Outstanding at June 30, 2008 | 917,910 | $ | 0.15 | 2.44 | $ | 385,522 | |||||||||
| Granted | 998,910 | $ | 0.20 | 2.71 | $ | 4,800 | |||||||||
| Outstanding at March 31, 2009 | 1,916,820 | $ | 0.17 | 2.22 | $ | 50,696 | |||||||||
| Exercisable at March 31, 2009 | 1,916,820 | $ | 0.17 | ||||||||||||
8
The Company had previously recognized $43,533 and $135,125 of stock based compensation cost related to option awards granted for the year ended June 30, 2008 and the nine months ended March 31, 2009, there is no unamortized compensation cost at March 31, 2009.
As of March 31, 2009 and 2008, there were 2,964,000 warrants issued and outstanding with an exercise price of $0.81. The warrants expire in September 2010.
8. Convertible Debentures
On May 7, 2008, the Company issued Convertible Debentures, at 9% per annum, for a total amount of $400,000. The principle and related accrued interest are due December 2009, and are secured by the Company’s assets. The Debentures and any accrued and unpaid interest are convertible into the Company’s common stock, at the holder’s request, at a conversion price of $1.50.
9. Subsequent Events
On April 1, 2009, the Company entered into a three month agreement with a Consultant who will assist the Registrant'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 Registrant's products. The Consultant will be 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 will be granted options to purchase 10,000 shares of Registrant's common stock.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of the Company's financial condition and the results of operations should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this document.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that in addition to the description of historical facts contained herein, this report contains certain forward-looking statements that involve risks and uncertainties as detailed herein and from time to time in the Company's other filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those, described in the forward-looking statements. These factors include, among others: (a) the Company's fluctuations in sales and operating results; (b) risks associated with international operations; (c) regulatory, competitive and contractual risks; (d) product development risks; (e) the ability to achieve strategic initiatives, including but not limited to the ability to achieve sales growth across the business segments through a combination of enhanced sales force, new products, and customer service; and (f) pending litigation.
Management’s Plan of Operation
We are an early stage developmental biopharmaceutical 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 bodies to begin selling our pharmaceutical candidates. Developing pharmaceutical products, however, is a lengthy and very expensive process. Assuming we do not encounter any unforeseen safety 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.
In August and October 2007, we acquired exclusive rights to a total of six pharmaceutical compound candidates that are designed for treatment of diseases which may be either existing or diseases identified in the future. The Company will initially spend most of its efforts and resources on its anti-cancer compound, Kevetrin, for the treatment of head and neck cancers. This compound is furthest along in in-vivo studies in small animals. Based on the results, the Company has decided to advance it along the regulatory and clinical pathway. We anticipate using our expertise to manage and perform what we believe are the most critical aspects of the product development process which include the design and oversight of clinical trials, the development and execution of strategies for the protection and maintenance of intellectual property rights and the interaction with regulatory authorities internationally. We expect to concentrate on product development and engage in a very limited way in product discovery, avoiding the significant investment of time and financial resources that is generally required before a compound is identified and brought into clinical trials. In addition, we are currently engaged in pre-clinical testing of one of our product candidates and intend to out-source clinical trials, pre-clinical testing and the manufacture of clinical materials to third parties.
We are now engaged in organizational activities and sourcing compounds and materials and have incurred $381,587 in research and development expenses. We have not obtained any funding for our drug development business plan, nor have we generated any revenues, nor do we not expect to generate revenues in the near future. We may not be successful in developing our drugs and start selling our products when planned, or that we will become profitable in the future. We have incurred net losses in each fiscal period since inception of our operations.
Liquidity and Capital Resources
On May 7, 2008, the Company issued Convertible Debentures, at 9% per annum, for a total amount of $400,000. The principle and related accrued interest are due December 2009, and are secured by the Company’s assets. The Convertible Debentures and any accrued and unpaid interest are convertible into the Company’s common stock, at the holder’s request, at a conversion price of $1.50.
On March 2, 2009, the Registrant entered into an agreement with a patent attorney to prepare patent applications for Cellceutix products. The agreement provides that the Registrant will grant 40,000 options to purchase shares of the Registrant common stock as compensation for each application filed in lieu of cash compensation. The Options will be granted on the day that the work on the application begins. On March 3, 2009 the Registrant issued 80,000 options for preparations of two patents at the average exercise price of $0.14 per share.
As of March 31, 2009 the Company had a cash balance of $160,690. Although in May 2008, the Company received $400,000 from the issuance of convertible debentures, the Company will need to raise substantial funds in order to execute its product development plan. Based upon our expected rate of expenditures, we currently do not have sufficient cash reserves to meet all of our anticipated obligations through our fiscal year end of June 30, 2009. The Company will seek to raise capital through an offering of our common stock or other securities of the Company. However, there can be no assurance that we will be successful in securing the capital we require or that we may obtain financing on terms that are favorable to us.
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Requirement for Additional Capital
The recent economic downturn and market instability has made the business climate more volatile and more costly. If the current equity and credit markets deteriorate further, or do not improve, it may make necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on the Company’s growth strategy, financial performance and stock price and could require the delay of new product development and clinical trial plans.
Research and Development Costs. The Company has incurred $381,587 in research and development activities for the nine months ended March 31, 2009. We currently do not have funds to meet our planned drug development for the next twelve months and we may not be able to obtain the necessary financing. Assuming that we are successful in raising additional financing, we plan to incur the following expenses over the next twelve months:
1 Research and Development of $3,000,000: Includes planned costs for Kevetrin of $1,500,000 for additional in-vivo and in-vitro studies which should result with the data required to file an investigational new drug application (“IND”) with the FDA; and $1,500,000 in preclinical development costs for our other compounds.
2 Clinical trials -Assuming we are successful with our “IND” filing for Kevetrin, and are granted the ability to begin human clinical trials, we have budgeted $3,000,000 for our Phase 1 trials.
3 Corporate overhead of $750,000: This amount includes budgeted office salaries, legal, accounting and other costs expected to be incurred.
4 Capital costs of $450,000: This is the estimated cost for equipment and laboratory improvements. The Company plans to incur these costs if the planned trials in the calendar year of 2009 show improvement over present treatments.
5 Staffing costs of $500,000: The Company expects to incur these costs for the filing of an investigational new drug application with the FDA. This is the estimated cost of hiring additional scientific staff and consulting firms to assist with FDA compliance, material characterization, pharmaco-kinetic, pharmaco-dynamic and toxicology studies.
The Company will be unable to proceed with its planned drug development, meet its administrative expense requirements, capital costs, or staffing costs without obtaining additional financing of approximately $7,700,000 to meet its budget. The Company does not have any arrangements at this time for equity or other financings other than the financing completed on May 7, 2008. If we are unable to obtain additional financing, our business plan will be significantly delayed.
Subsequent Events
On April 1, 2009, the Company entered into a three month agreement with a Consultant who will assist the Registrant'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 Registrant's products. The Consultant will be 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 will be granted options to purchase 10,000 shares of Registrant's common stock.
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.
Off-Balance Sheet Arrangements.
The Company does not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
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Item 4T. Controls and Procedures
The Company’s Chief Financial Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2009 covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This conclusion by the Company’s Chief Executive Officer and Chief Financial Officer does not relate to reporting periods after March 31, 2009.
Changes in Internal Control over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the quarter ended March 31, 2009, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As a small reporting company, the Company is not required to provide the information required by this Item 1A of Part II.
Item 2. Unregistered Sales of Equity Securities
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
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Item 6. Exhibits
(a) Exhibit index
| Exhibit | ||
| 10.1 | SECURITY AGREEMENT, dated as of May 7, 2008, between Cellceutix Corp. and Putnam Partners, White Star LLC, and Dahlia Nordlicht. | |
| 10.2 | CONVERTIBLE PROMISSORY NOTE dated as of May 7, 2008, between Cellceutix Corp. and Putnam Partners, White Star LLC, and Dahlia Nordlicht. | |
| 10.3 | GUARANTY dated as of May 7, 2008, between Cellceutix Corp. and Putnam Partners, White Star LLC, and Dahlia Nordlicht. . | |
| 31.1 | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. | |
| 31.2 | Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. | |
| 32.1 | Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
(b) Reports on Form 8-K
None
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 | ||
| /s/ George W. Evans | ||
| George W. Evans | ||
| Title: | Chairman, Chief Executive Officer | |
| (principal executive officer) | ||
| /s/ Leo Ehrlich | ||
| Leo Ehrlich | ||
| Title: | Chief Financial Officer | |
| (principal financial officer) | ||
| Date: | May 8, 2009 | |
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