Innovation Pharmaceuticals Inc. - Quarter Report: 2008 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
_______________________________
FORM
10 – QSB
_______________________________
x QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2008
OR
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
1934
Commission File Number: 000-52321
Cellceutix
Corporation
(Exact
name of registrant as specified in its charter)
|
Nevada
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13-4303398
|
|
|
(State
or Other Jurisdiction of
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(I.R.S.
Employer
|
|
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Incorporation
or Organization)
|
Identification
Number)
|
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187
Ballardvale St, Suite A225, Wilmington, MA
01887
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(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 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 May 9,
2008 was 91,791,000 shares.
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CELLCEUTIX
CORPORATION
FORM
10-QSB
INDEX
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PART
I FINANCIAL INFORMATION
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||
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Item
1.Financial Statements
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||
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Balance
Sheet – March 31, 2008 (Unaudited)
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2
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Statements
of Operations (Unaudited) - For the Three Months and Nine Month Ended
March 31, 2008, and for cumulative period from June 20, 2007 (Date
of Inception) to March 31, 2008
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3
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|
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Statement
of Changes in Stockholders’ Deficit (Unaudited) - For the cumulative
period from June 20, 2007 (Date of Inception) to March 31,
2008
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4
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|
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Statements
of Cash Flows (Unaudited) - For the Nine Months Ended March 31,
2008 and for the cumulative period from June
20, 2007 (Date of Inception) to March 31, 2008
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5
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|
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Notes
to Financial Statements (Unaudited)
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6
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|
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Item
2. Management's Discussion and Analysis of
Financial Condition and Result of Operations
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9
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|
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Item
3. Controls and Procedures
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11
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PART
II OTHER INFORMATION
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||
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Item
1. Legal Proceedings
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11
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|
|
Item
2. Unregistered Sales of Equity Securities and Use
of Proceeds
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11
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|
|
Item
3. Defaults Upon Senior
Securities
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11
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|
|
Item
4. Submission of Matters to a Vote of
Security Holders
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11
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|
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Item
5. Other Information
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11
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|
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Item
6. Exhibits and Reports on Form
8-K
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11
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Si
Signatures
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12
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1
Part
1. Financial Information
Item 1. Financial
Statements
Cellceutix
Corporation
(A
Development Stage Enterprise)
Balance
Sheet
March 31,
2008
(Unaudited)
|
Assets
|
||||
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Current
assets:
|
||||
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Cash
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$
|
469
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||
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Prepaid
Expenses
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15,000
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|||
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Total
current assets
|
|
15,469
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||
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Total
assets
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$
|
15,469
|
||
|
Liabilities
and Stockholders' Deficit
|
||||
|
Current
liabilities:
|
||||
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Accounts payable
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$
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29,112
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||
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Accrued expenses
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20,949
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|||
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Accrued salaries
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183,334
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|||
| Due to Related Party | 32,310 | |||
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Total
current liabilities
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265,705
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|||
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Total
liabilities
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265,705
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|||
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Commitments
and contingencies
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-
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|||
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Stockholders'
deficit:
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||||
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Preferred
stock; $.0001 par value; 10,000,000 shares
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||||
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authorized;
0 shares issued and outstanding
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-
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|||
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Common
stock; $.0001 par value; 300,000,000 shares
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||||
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authorized;
91,791,000 shares issued and outstanding
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9,179
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|||
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Additional
paid in capital
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44,033
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|||
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Deficit
accumulated during development stage
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(303,448
|
)
|
||
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Total
stockholders' deficit
|
(250,236
|
)
|
||
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Total
liabilities and stockholders' deficit
|
$
|
15,469
|
||
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 March 31, 2008
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Nine
Months Ended March 31, 2008
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For
the cumulative period from June 20, 2007 (Date of Inception) through March
31, 2008
|
||||||||||
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Revenues
|
$ | - | $ | - | $ | - | ||||||
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Operating
expenses:
|
||||||||||||
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General
and administrative
expenses
|
7,318 | 16,298 | 16,298 | |||||||||
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Payroll
expense
|
137,500 | 183,334 | 183,334 | |||||||||
|
Professional
fees
|
31,391 | 50,674 | 50,674 | |||||||||
|
Stock
compensation expense
|
- | 43,533 | 43,533 | |||||||||
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Start-up
expenses
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- | - | 530 | |||||||||
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Total
operating expenses
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176,209 | 293,839 | 294,369 | |||||||||
|
Loss
before provision for income taxes
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(176,209 | ) | (293,839 | ) | (294,369 | ) | ||||||
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Provision
for income taxes
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- | - | - | |||||||||
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Net
loss
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$ | (176,209 | ) | $ | (293,839 | ) | $ | (294,369 | ) | |||
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Basic
and diluted loss per share
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$ | (0.00 | ) | $ | (0.01 | ) | ||||||
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Weighted
average number of common shares used in basic and fully diluted per share
calculations
|
91,791,000 | 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, 2008
(Unaudited)
|
Common
Stock
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Additional
Paid
|
Deficit
Accumulated
During
Development
|
||||||||||||
|
Shares
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Par
Value $.0001
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In
Capital
|
Stage
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Total
|
||||||||||
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Shares
issued June 20, 2007 (Inception)
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1,000,000
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$
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100
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$
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-
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$
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-
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$
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100
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|||||
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Net
loss
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-
|
-
|
-
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(530)
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(530)
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|||||||||
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Balance,
June 30, 2007
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1,000,000
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100
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-
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(530)
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(430)
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|||||||||
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Share
exchange with Cellceutix Pharma, Inc. December 6, 2007
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(1,000,000)
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(100)
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-
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100
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-
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|||||||||
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Share
exchange in reverse merger with Cellceutix Pharma, Inc. December 6,
2007
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82,000,000
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8,200
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-
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(8,200)
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-
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|||||||||
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Shares
exchanged in a reverse acquisition
of
Cellceutix Pharma, December 6, 2007
|
9,791,000
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979
|
-
|
(979)
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-
|
|||||||||
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Issuance
of options
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-
|
-
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43,533
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-
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43,533
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|||||||||
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Forgiveness
of accounts payable from a
shareholder
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-
|
-
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500
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-
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500
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|||||||||
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Net
loss
|
-
|
-
|
-
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(293,839)
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(293,839)
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|||||||||
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Balance,
March 31, 2008
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91,791,000
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$
|
9,179
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$
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44,033
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$
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(303,448)
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$
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(250,236)
|
|||||
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, 2008
|
For
the Cumulative Period June 20, 2007 (Date of Inception)
through
March
31, 2008
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|||||||
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CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
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Net
loss
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$ | (293,839 | ) | $ | (294,369 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
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Options
granted to employees as compensation
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43,533 | 43,533 | ||||||
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Forgiveness
of accounts payable
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500 | 500 | ||||||
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Changes
in current assets and liabilities:
|
||||||||
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Prepaid
expenses
|
(15,000 | ) | (15,000 | ) | ||||
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Accounts
payable
|
28,682 | 29,112 | ||||||
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Accrued
expenses
|
20,949 | 20,949 | ||||||
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Accrued
salaries
|
183,334 | 183,334 | ||||||
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Net
cash used in operating activities
|
(31,841 | ) | (31,941 | ) | ||||
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CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
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Proceeds
from related party
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32,310 | 32,310 | ||||||
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Issuance
of common stock
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— | 100 | ||||||
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Net
cash provided by financing activities
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32,310 | 32,410 | ||||||
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NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
469 | 469 | ||||||
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CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
— | — | ||||||
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CASH
AND CASH EQUIVALENTS, END OF PERIOD
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$ | 469 | $ | 469 | ||||
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SUPPLEMENTAL
DISCLOSURES OF
|
||||||||
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NON
CASH FLOW FINANCING ACTIVITIES
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||||||||
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Common
stock issued for Acquisition
|
$ | 9,079 | $ | 9,079 | ||||
The
accompanying notes are an integral part of these financial
statements.
5
Cellceutix
Corporation
(A
Development Stage Enterprise)
Notes to
Financial Statements
March
31, 2008
(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. (the “Company”) 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 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 the Company’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 common stock held by such Cellceutix Pharma 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. 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. 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, 2008, the Company has had a net loss of $294,369,
no sales and negative working capital of $250,236 at March 31,
2008. As of March 31, 2008, 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 to pay for services. The Company
intends on financing its future development activities and its working capital
needs largely from 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.
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.
6
3. Significant
Accounting Policies
The significant accounting policies followed are:
Concentrations
of Credit Risk
All cash
is maintained with a major financial institution in the United
States. Deposits with this bank may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed
upon demand and, therefore, bear minimal risk.
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 and
due to the use of market rates of interest.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Research
and Development
Expenditures
for research, development, and engineering of products are expensed as
incurred. For the three and nine month periods ended March 31, 2008,
and since inception, the Company did not incur any research and development
costs.
Long-Lived
Assets
The
Company follows SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 addresses the financial accounting and
reporting for the impairment of long-lived assets, excluding goodwill and
intangible assets, not subject to amortization, to be held and used or disposed
of. In accordance with SFAS No. 144, the carrying values of
long-lived assets are periodically reviewed by the Company and impairments would
be recognized if the expected future operating non-discounted cash flows derived
from an asset were less than its carrying value and if the carrying value is
more than the fair value of the asset. At March 31, 2008, the Company did not
assign a value to its intangible assets, as they will continue to require
additional development and it has yet to be determined the underlying value of
the assets.
Income
Taxes
Deferred
income tax assets and liabilities arise from temporary differences associated
with differences between the 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 generated net losses since inception and accordingly did not record 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 our ability to continue to
generate future taxable income to realize these tax assets, a full valuation
allowance has been established to offset our deferred tax
assets. Additionally, the future utilization of our NOL carryforwards to offset
future taxable income may be subject to an annual limitation as a result of
ownership changes that may have occurred previously or that could occur in the
future. We have not yet determined whether such an ownership change has
occurred. 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.
Basic
Earnings (Loss) per Share
Basic
Earnings (Loss) per Share is calculated in accordance with SFAS No. 128,
“Earnings per Share,” by dividing income or loss attributable to common
stockholders by weighted average common stock outstanding. Diluted
earnings per share is calculated in accordance with SFAS No. 128 by adjusting
weighted average common shares outstanding by assuming conversion of all
potentially dilutive shares. In periods where a net loss is recorded,
no effect is given to potentially dilutive securities, since the effect would be
antidilutive. Total stock options not included in the calculation of
common shares outstanding (including both exercisable and nonexercisable) for
the three and nine months ended March 31, 2008 was 917,910 for each of the
respective periods.
Common
stock equivalents for the all periods presented were anti-dilutive due to the
net losses sustained by the Company during these periods.
Accounting
for Stock Based Compensation
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment
(“SFAS 123R”), which replaces SFAS No. 123; Accounting for Stock-Based
Compensation, (“SFAS 123”) and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, (“APB 25”). SFAS 123R requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values. Under SFAS
123R, 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 pro forma disclosures previously permitted under SFAS 123 are no
longer an alternative to financial statement recognition. The Company adopted
SFAS 123R on June 20, 2007 using the modified prospective method, which did not
require the recognition of any non-cash charges, as there were no unvested stock
options on that date.
The fair
value concepts were not changed significantly in FAS 123R; however, in adopting
FAS 123R, companies must choose among alternative valuation models and
amortization assumptions. After assessing alternative valuation models and
amortization assumptions, the Company will continue using 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 fair
value of each option 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
|
86.4%
|
|
Risk-free
interest rate
|
3.15%
|
|
Expected
dividend yield
|
0%
|
|
Estimated
fair value per option granted
|
0.05
|
7
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. This statement does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. SFAS No.
157 is effective for fiscal years beginning after November 15, 2007, and all
interim periods within those fiscal years. In February 2008, the FASB released
FASB Staff Position (FSP FAS 157-2 – Effective Date of FASB Statement No. 157)
which delays the effective date of SFAS No. 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually), to
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. The Company is planning to adopt SFAS No. 157 effective July 1,
2008 but does not expect it to have an impact on the financial position and
results of operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair
value. Unrealized gains and losses on items for which the fair value
option has been elected are required to be reported in earnings at each
reporting date. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007, the provisions of which are required to be applied
prospectively. The Company is planning to adopt SFAS No. 159
effective July 1, 2008 but does not expect it to have an impact on the financial
position and results of operations.
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007),
Business Combinations, which replaces SFAS No 141. The statement retains the
purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.
In
December 2007, the FASB issued SFAS No. 160. “Noncontrolling
Interests in Consolidated Financial Statements-and Amendment of ARB No.
51.” SFAS 160 establishes accounting and reporting standards
pertaining to ownership interests in subsidiaries held by parties other than the
parent, the amount of net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of any retained noncontrolling equity investment when a subsidiary is
deconsolidated. This statement also establishes disclosure
requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. SFAS 160 is
effective for fiscal years beginning on or after December 15,
2008. The adoption of SFAS 160 is not currently expected to have a
material effect on the Company’s financial position, results of operations, or
cash flows.
In March
2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No.
161, Disclosures about Derivative Instruments and Hedging Activities. The new
standard is intended to improve financial reporting about derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The company is currently evaluating the impact of
adopting SFAS. No. 161 on its financial statements.
Other
recent accounting pronouncements issued by the FASB (including its EITF), the
AICPA, and the SEC did not or are not believed by management to have a material
impact on the Company’s present or future financial statements.
4. Commitments
and Contingencies
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 must continue 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 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 917,910
shares of the Company's stock with an exercise price of $0.15 per share and fair
value of $43,533. The agreement calls for the issuance of 1% of the
common shares outstanding at each subsequent anniversary year.
8
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, EconoShare, Inc. began renting office space from KARD, on a
month to month basis for $900 per month.
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 we retain all intellectual property
resulting from the services by KARD. Key provisions of the agreement with KARD
include: Pharmacokinetic and pharmacodynamic studies of Kevetrin
using standard protocols and bioavailability of Kevetrin to the body and to
tumor tissue, at a cost of $400,000; Pre-IND meeting at no additional charge;
Toxicity studies as required for an IND filing, at a cost of $1.5
million.
The
agreed terms of payment are 50% of the (above) amounts at the outset of the
study or other service, and the balance at the completion of the study or other
service. To date we have not incurred any services or charges by
KARD.
6. Due
To Related Party
As of
March 31, 2008, Leo Ehrlich, CFO loaned the Company $32,310 for the purposes of
operational expenditures. The loan is not interest bearing and is not
collateralized. The Company expects to repay this loan during the 2008 fiscal
year.
7. Subsequent
Event
On April
15, 2008 the Company signed an agreement with a consultant to provide public
relations and strategic communications advice and services for one year
beginning April 28, 2008. The agreement provides for the payment of an annual
fee of $125,000, payable in equal quarterly installments of $31,250, and 100,000
shares of the client’s common stock. In addition the agreement grants the
consultant incentive compensation which could result in the issuance of up to
350,000 shares of the Company’s common stock. As of March 31, 2008,
the Company has paid $15,000 toward the first quarterly installment of
$31,250.
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
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.
Our
Corporate History
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. (the “Company”) 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. 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 adopted the
business plan of Cellceutix Pharma.
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 (the
“Exchange Shares”) of the Company’s common stock, par value $0.0001 per share
(the “Common Stock”), resulting in an aggregate of 91,791,000 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. common stock held by such
Cellceutix Pharma 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 treated as a recapitalization with
Cellceutix Pharma, Inc. as the accounting acquirer. Upon consummation of the
Exchange, EconoShare, Inc. adopted the business plan of Cellceutix Pharma,
Inc.
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. Upon the filing of a
Definitive Information Statement and effectiveness of the name change on
February 1, 2008, the Company applied to the National Association of Security
Dealers (NASD) to change its stock symbol on the Over the Counter Bulletin Board
which resulted in the Company’s stock symbol being changed to
CTIX.
9
Management’s
Plan of Operation
As a
result of the Exchange with Cellceutix Pharma, Inc., we are an early stage
developmental biopharmaceutical company.
In August
2007 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. 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 (see subsequent events). 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
As of
March 31, 2008 the Company had a cash balance of $469. Although in
May 2008, the Company received $400,000 from the issuance of convertible
debentures (see subsequent events), 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 have sufficient cash
reserves to meet all of our anticipated obligations through our fiscal year end
of June 30, 2008, however it is not enough to meet our planned expenditures for
the next twelve months. 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.
Requirement
for Additional Capital
Research
and Development Costs. 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 $3,500,000: Includes planned costs for Kevetrin of $3,000,000
for additional in-vivo and in-vitro studies which should result with
the data required to file an investigational new drug application with
the FDA; and $500,000 in preclinical development costs for our other
compounds.
2 Corporate
overhead of $750,000: This amount includes budgeted office salaries, legal,
accounting and other costs expected to be incurred.
3 Capital
costs of $250,000: 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 2008 show improvement over present treatments.
4 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 $5,000,000 to meet its budget.
The Company does not have any arrangements at this time for equity or other
financings other then the financing completed on May 7, 2008. (See Subsequent
events). If we are unable to obtain additional financing, our
business plan will be significantly delayed.
The
Company is considered to be a development stage company and will continue in the
development stage until generating revenues from the sales of its products or
services.
Subsequent
Events
On April
15, 2008 the Company signed an agreement with a consultant to provide public
relations and strategic communications advice and services for one year
beginning April 28, 2008. The agreement provides for the payment of an annual
fee of $125,000, payable in equal quarterly installments of $31,250, and 100,000
shares of the client’s common stock. In addition the agreement grants the
consultant incentive compensation which could result in the issuance of up to
350,000 shares of the Company’s common stock.
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.
10
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
3. 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, 2008
covered by this Quarterly Report on Form 10-QSB. 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, 2008.
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, 2008, 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
Item
2. Unregistered sales of equity securities
Subsequent
to March 31, 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.
Item
3. Defaults Upon Senior Securities
None
Item
4. Submission Of Matters To A Vote Of Security Holders
On
January 14, 2008, a majority of our holders of common stock, par value $0.0001
per share (the “Common Stock”) voted in favor of amending the Company’s Articles
of Incorporation to change the name of the Company to “Cellceutix Corporation”
and to increase the Company’s authorized capital stock to 310,000,000, shares of
which 300,000,000 shares will be Common Stock, $0.0001 par value, and 10,000,000
shares will be Preferred Stock, $0.0001 par value.
Item
5. Other Information
None
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
11
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.
Dated: May
15, 2008
|
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
15, 2008
|
|
12