Innovation Pharmaceuticals Inc. - Annual Report: 2014 (Form 10-K)

---

---

 

 

 

Cellceutix Corporation

(Exact name of registrant as specified in its charter)

 

Nevada		30-0565645
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

---

---

 

			PAGE NO
PART I
ITEM 1	BUSINESS			4
ITEM 1A	RISK FACTORS			24
ITEM 1B	UNRESOLVED STAFF COMMENTS			39
ITEM 2	DESCRIPTION OF PROPERTIES			39
ITEM 3	LEGAL PROCEEDINGS			39
ITEM 4	MINE SAFETY DISCLOSURES			39
PART II
ITEM 5	MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS			40
ITEM 6	SELECTED FINANCIAL DATA			41
ITEM 7	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			41
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			49
ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			49
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			49
ITEM 9A	CONTROLS AND PROCEDURES			49
ITEM 9B	OTHER INFORMATION			50
PART III
ITEM 10	DIRECTORS , EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			51
ITEM 11	EXECUTIVE COMPENSATION			52
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			53
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			54
ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES			55
PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			56
SIGNATURES				59
Consolidated Financial Statements – Cellceutix Corporation				60

On December 6, 2007, the Company acquired Cellceutix Pharma, Inc., a privately owned Delaware corporation. Cellceutix Pharma, Inc. was incorporated under the laws of the State of Delaware on June 20, 2007.

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

1.	Brilacidin, and related compounds
2.	Delparantag and related compounds

3.	Anti-microbial- surfactants and related compounds
4.	Kevetrin and related compounds
5.	Prurisol and related compounds

 

Patent	Status	Description
COMPOSITION AND USE PATENTS
Design, preparation and properties of antibacterial beta-peptides. (1)	United States - Issued 01/13/04 Category: 1 Patent expires: 2020	This patent claims composition of matter for particular beta-peptides that have antibacterial properties. It also claims pharmaceutical preparations containing particular antibacterial beta-peptides and methods for creating sanitizing surfaces by treatment with an antibacterial beta-peptide.
Amphiphilic Polymers as Anti-Infective Agents: 1 (1)	United States – filed Patent Cooperation Treaty – filed National Phase entered United States - issued 02/06/2007 European Patent - issued 09/17/2008 Other issued patents include Australia, China, Japan, South Korea Category: 1 & 3 Patents expire: 2022	These patents and application family claims composition of matter for facially amphiphilic polymers that are polyamides, polyesters, polyurea, polyurethane, polycarbonate, or polyphenylene, compounds. Also claimed are material articles made from the amphiphilic polymers that have antimicrobial properties.
Amphiphilic Polymers as Anti-Infective Agents: 2 (Phenylalkynes) (1)	United States – filed Patent Cooperation Treaty – filed National Phase entered European Patent - issued 05/25/2011 Other issued patents: Australia, South Korea European Divisional filed Other divisional filings: Japan, China Category: 1 & 3 Patents expire: 2022	These patents are similar to “Amphiphilic Polymers as Anti-Infective Agents: 1” above, but further claims facially amphiphilic polymers that are polyphenylene and heteroarylene compounds.
Facially amphiphilic polymers and oligomers and uses thereof: 1 (1)	United States – filed Patent Cooperation Treaty - filed National Phase entered Other issued patents: Australia United Stated Divisional – issued 08/07/2012 European Divisionals – four filed Other Divisional filings: Australia, China, Japan Category: 1 & 2 Patents expire: 2024	This application claims pharmaceutical compositions and uses for facially amphiphilic polymers, oligomers and small molecules that are polyamides, polyesters, polyurea, polyurethane, polycarbonate, or polyphenylene, compounds. Uses include method of treatment (systemic and topical) as antimicrobial agents against bacteria, fungi and viruses and as an antidote to heparin and LMWH. Also, composition of matter claims are expanded.
Facially amphiphilic polymers and oligomers and uses thereof: 1 (1)	United States – filed Patent Cooperation Treaty - filed National Phase entered Other issued patents: Australia United Stated Divisional – issued 08/07/2012 European Divisionals – four filed Other Divisional filings: Australia, China, Japan Category: 1 & 2	This application claims pharmaceutical compositions and uses for facially amphiphilic polymers, oligomers and small molecules that are polyamides, polyesters, polyurea, polyurethane, polycarbonate, or polyphenylene, compounds. Uses include method of treatment (systemic and topical) as antimicrobial agents against bacteria, fungi and viruses and as an antidote to heparin and LMWH. Also, composition of matter claims are expanded.

Patent	Status	Description
Facially amphiphilic polymers and oligomers and uses thereof: 2 (Phenylalkynes) (1)	United States – filed Patent Cooperation Treaty - filed National Phase entered   United States patent issued 07/17/2012   Other issued patents: Australia   United States Divisional – filed   European Divisional - filed   Other Divisional filings: China, South Korea   Category: 1 & 3 Patents expire: 2024	These patents are similar to “Amphiphilic Polymers as Anti-Infective Agents: 1” above, except that the small molecules to which it claims use are polyphenylene and heteroarylene compounds.
Polycationic Compounds and Uses thereof	United States – filed Patent Cooperation Treaty – filed National Phase entered United States patent issued 06/30/2009 European Patent issued 08/07/13   Australia Patent issued 05/17/12   China Patent Issued 08/22/12   South Korea Patent issued 08/03/12   United States Continuations – five filed: four issued 06/29/10; 03/06/12; 07/31/12; 08/13/13; one pending   Other Divisional filings: Japan, China   South Korea Divisional issued 06/26/12   Category: 2 Patents expire: 2025	This application claims method of use for modulating angiogenesis with polycationic compounds, compositions of anti-heparin compounds and methods of inhibiting heparin activity.
Composition and Use of Polymethacrylate Co-Polymers (1)	United States – filed Patent Cooperation Treaty - filed National Phase entered Australian Patent issued European Divisionals - three filed   Category: 3 Patents expire: 2025	This application claims amphiphilic co-polymers that exhibit antimicrobial activity and uses in a number of pharmaceutical and material applications.
Composition and Use of Polymethacrylate Co-Polymers (1)	United States – filed Patent Cooperation Treaty - filed National Phase entered Australian Patent issued European Divisionals - three filed   Category: 3	This application claims amphiphilic co-polymers that exhibit antimicrobial activity and uses in a number of pharmaceutical and material applications.

 

 

Patent	Status	Description
Ophthalmic and Otic Compositions of Facially Amphiphilic Polymers and Oligomers and Use Thereof	United States – filed Patent Cooperation Treaty - filed National Phase entered   Other patents issued: China   Other divisional filings: China   Category: 1 Patents expire: 2027	This application relates to antimicrobial compositions of facially amphiphilic antimicrobial polymers and oligomers useful for the treatment or prevention of ophthalmic and otic infections. The application also relates to methods of using the compositions for treating and/or preventing ophthalmic and otic infections.
Combination of Synthetic Antimicrobial Polymers and Sesquiterpenoid Compounds	United States – filed   Category: 3 Patents expire: 2028	This application relates to the combination of facially amphiphilic antimicrobial polymers and oligomers with sesquiterpenoids to enhance antimicrobial activities.
Anti-Malarial Compounds	United States – filed Patent Cooperation Treaty - filed National Phase entered   Category: 1 Patents expire: 2029	This application relates in to arylamide and other classes of compounds and their use in treating malaria.
Synthetic Mimetics of Host Defense and Uses Thereof	United States – issued 10/02/12 United States Continuation filed Patent Cooperation Treaty - filed National Phase entered   Category: 1 Patents expire: 2029	This application relates to arylamide compounds, their antimicrobial uses and methods of synthesis.
Antimicrobial Molecules for Treating Multi-Drug Resistant and Extensively-Drug Resistant Strains of Mycobacterium	United States - filed Patent Cooperation Treaty - filed National Phase entered   Category: 1 Patents expire: 2029	This application relates to treating multi-drug resistant and extremely drug resistant strains of mycobacterium with antimicrobial compounds and compositions.
Processes for Preparing a Polymeric Compound	United States – issued 01/15/13 United States Continuation filed Mexican Patent issued 06/06/13 Patent Cooperation Treaty – filed   Category: 2 Patents expire: 2030	This application relates to preferred methods for synthesizing and preparing pharmaceutical compositions of representative compounds in the salicylamide class of compounds
Anti-Heparin Compounds	United States – filed Patent Cooperation Treaty – filed National Phase entered   Category: 2 Patents expire: 2031	This application relates to methods of antagonizing anticoagulant agents, such as unfractionated heparin, low molecular weight heparin, and/or a derivatives and compositions of the antagonists.
Methods of Immune Modulation	United States - filed Patent Cooperation Treaty – filed National Phase entered   Category: 1 Patents expire: 2031	The present invention is directed, in part, to methods of modulating an immune response in an animal with facially amphiphilic compounds.
Methods of Immune Modulation

 

 

Patent	Status	Description
Facially Amphiphilic Compounds, Compositions, and Uses Thereof in Treating Cancer	United States - filed Patent Cooperation Treaty – filed This entire family was abandoned   Category: 1 Patents expire: 2031	The present invention relates to compositions of facially amphiphilic compounds and their use in methods for treating cancers in animals, such as humans.
Compounds For Use in Treatment of Mucositis	United States – filed Patent Cooperation Treaty – filed National Phase due 11/13   Category: 1 Patents expire: 2032	The application relates to methods of treating and/or preventing mucositis.
Hybrid Compounds and Methods of Making and Using the Same	United States provisional filed   Category: 1	The application relates to compositions and use of anti-microbial compounds.
Polycyclic Compounds and Methods of Making and Using the Same	United States provisional filed   Category: 1	The application relates to compositions and use of anti-microbial compounds.
Antagonizing Heparin with Salicylamide Compounds and Histamine Blocking Agents	United States provisional filed   Category: 2	The application relates to use of anti-heparin salicylamide compounds with histamine blocking agents to treat cardiovascular disorders.
Compounds and Methods for Treating Candidiasis and Aspergillus Infections	United States – filed Patent Cooperation Treaty – filed National Phase due 07/14   Category: 1 Patents expire: 2033	The application relates to compositions and use of anti-fungal compounds.
Compounds and Methods for Treating Malaria	Patent Cooperation Treaty – filed National Phase due 08/14   Category: 1 Patents expire: 2033	The application relates to compositions and use of anti-malarial compounds.
Compositions of Arylamide Compounds and Antimicrobial Agents	United States provisional filed   Category: 1	The application relates to compositions and use of arylamide compounds and anti-microbial agents.
Nitrile Derivatives and their Pharmaceutical Use and Compositions	United States – filed Patent Cooperation Treaty (PCT) - filed National Phase entered   United States patent issued 12/25/2012   Other patents allowed or issued: Australia, Japan, New Zealand   United States Divisional – filed   European Application arising from PCT - filed   Other Applications filed arising from PCT: Brazil, Canada, Chile, China, Eurasian Patent Convention, India, Indonesia, Israel, South Korea, Malaysia, Mexico, South Africa, Singapore, Thailand, Ukraine, United Arab Emirates Other applications filed independent of PCT: Argentina, Bangladesh, Hong Kong, Pakistan, Taiwan
	Category: 4 Patents expire: 2030

 

 

Patent	Status	Description
Carbocyclic Nucleosides And Their Pharmaceutical Use And Compositions	United States – filed Patent Cooperation Treaty - filed National Phase entered United States -filed European - filed   Other Patent Applications filed arising from PCT: Australia, Brazil, Canada, China, Eurasian Patent Convention, India, Israel, Japan, South Korea, Malaysia, Mexico, Pakistan, South Africa, Singapore, Thailand,   Other Patent Applications filed independent of PCT: Argentina, Pakistan, Taiwan   Category: 5 Patents expire: 2032
COMPUTATIONAL PATENTS
Methods, systems and computer program products for computational analysis and design of amphiphilic polymers (1)	United States - issued 09/15/2009   Patents expire: 2022	This application is directed to the creation and use of novel force field packages for modeling the structure and behavior of complex Molecules in complex environments. Specific utilities are the prediction of oligomer structures in polar and apolar medias.

Computer simulation of biomembranes using a Coarse Grain Model (1)	United States – filed Patents expire: 2022	This application is directed to the creation and use of a novel coarse grain model for studying complex biological structures, such as membranes. Specifically a computational approach is described that accurately predicts the structural and dynamic properties of membranes that are far less demanding of CPU time than comparable methods.
Computational design of a water-soluble analog of a protein, such as phospholamban and potassium channel Kcsa (1)	United States – filed Patents expire: 2022	This application claims methods and computer programs for the computational design of water-soluble analogs of membrane proteins that retain biological function.

(1)	Patent rights obtained pursuant to a license agreement with the University of Pennsylvania.

 

·	Effective date is January 3, 2003

·	License and world-wide right to use and practice under the Penn Patent Rights to make, use and sell Penn Licensed Products

·	Exclusive license for Penn Patent Rights that include all US and foreign patents issued or issuing from a family of intellectual property that covers composition of matter of polymers, oligomers and small molecules and their uses as antimicrobial or anti-heparin agents.

·	Nonexclusive license for Penn Patent Rights that include all US and foreign patents issued or issuing from a family of intellectual property that covers Penn Software useful for the design and study of Penn Licensed Products.

·	Penn agrees not to license any such Penn Patent Rights to any other party

·	All patent extensions including continuations, divisionals, renewals, reissues, substitutions or additions are included

·	Penn Licensed Products are products that infringe at least one valid claim of the Penn Patent Rights

·	Qualified right to sublicense in the US and throughout the world

·	Penn retains right to use and practice under the Penn Patent Rights for educational and non-commercial research purposes

·	License is subject to all applicable US government rights pursuant to Public Laws 96-517, 97-256 and 98-620, codified as 35 U.S.C. 200-212.

·

In partial consideration of the license, Licensee shall pay to Penn a royalty of 1) 3.0% on gross sales of a pharmaceutical product, 2) 1.5% of gross-sales of a medical devise or other products approved by a 510(k) regulatory filing or 3) 0.5% on all other gross sales for Penn Licensed Products sold by Licensee, its Affiliates and/or its Sublicensees.

·	Term of the agreement is until the expiration of the last to expire of any issued Penn Patent Rights

 

·	Effective date is May 30, 2003

·	Nonexclusive License to use, copy, distribute, modify and prepare derivative works based on Penn Software

·	Penn agrees not to grant any additional licenses to the Penn Software

·	Penn Software is useful in the design and study of antimicrobial, anti-heparin and other products

·	Qualified right to sublicense in the US and throughout the world

·	Penn retains right to use and practice Penn Software for educational and non-commercial research purposes

·	License is subject to all applicable US government rights pursuant to Public Laws 96-517, 97-256 and 98-620, codified as 35 U.S.C. 200-212.

·	In consideration of the license, a one-time payment was made. There are no royalty or other monetary obligations

·	Term of the agreement is until termination of the Patent License Agreement

 

Adenocarcinoma: A cancer that originates in glandular tissue 

 

 

Project		Drug Development of Brilacidin™ for ABSSSI
Current status		Enrollment of the Phase 2 trial was completed in August with the last patient last visit to be 30 days following their enrollment date. Data collection including other end of study procedures and work on the clinical study report will proceed through the end of calendar 2014. Information on the status of the Brilacidin study is available at https://clinicaltrials.gov/ct2/show/NCT02052388?term=cellceutix&rank=3 The phase 2 study is titled, “ A Randomized, Double-Blind Study Comparing Three Dosing Regimens of Brilacidin to Daptomycin in the Treatment of Acute Bacterial Skin and Skin Structure Infections (ABSSSI)” The Company is preparing for the Phase 3 study.
Nature, timing and estimated costs		The Company has budgeted $4,000,000 for the Phase 3 clinical study to be incurred over the next 12 months.
Risks and uncertainties associated with completing development on schedule, and the consequences to operations, financial position and liquidity if not completed timely		The outcome of clinical testing cannot be known at this time, and this poses substantial risk and uncertainty as to whether or when, if ever, Brilacidin will become marketable.

Project		Drug Development of Kevetrin™ for Cancer
Current status		The Phase 1 study entitled, “A Safety, Pharmacokinetic and Pharmacodynamic Study of Kevetrin in Patients With Advanced Solid Tumors,” is ongoing. Information on the status of the Kevetrin study at Harvard Cancer Centers is available at http://clinicaltrials.gov/ct2/show/nct01664000?term=kevetrin+rank=1
Nature, timing and estimated costs		The Company has budgeted $500,000 for the Phase 1 clinical study to be incurred over the next 12 months.
Risks and uncertainties associated with completing development on schedule, and the consequences to operations, financial position and liquidity if not completed timely		The outcome of clinical testing cannot be known at this time, and this poses substantial risk and uncertainty as to whether or when if ever, Kevetrin will become marketable.

 

Project		Drug Development of Prurisol™ for Psoriasis
Current status		In June 2014, we completed a Phase 1 study titled “Bioequivalence and Pharmacokinetic Study of Prurisol™ and Abacavir Sulfate in Healthy Volunteers” and we are now preparing the submission request to the FDA to begin a Phase 2/3 clinical trial. Information on the status of the Prurisol study is available at https://clinicaltrials.gov/ct2/show/NCT02101216?term=cellceutix&rank=1
Nature, timing and estimated costs		The Company has budgeted $2,000,000 for the clinical studies to be incurred over the next 12 months.
Risks and uncertainties associated with completing development on schedule, and the consequences to operations, financial position and liquidity if not completed timely		The outcome of our application or clinical testing cannot be known at this time, and this poses substantial risk and uncertainty as to whether or when if ever, Prurisol will become marketable.

 

Project		Drug Development of Brilacidin-OM™ for Oral Mucositis
Current status		We have submitted the IND (Investigational New Drug application) to the FDA. Protocol is titled: “Phase 2, Multi-center, Randomized, Double-blind, Placebo-controlled Study to Evaluate the Efficacy and Safety of Brilacidin Oral Rinse Administered Daily for 7 Weeks in Attenuating Oral Mucositis in Patients with Head and Neck Cancer Receiving Concurrent Chemotherapy and Radiotherapy”
Nature, timing and estimated costs		The Company has budgeted $2,000,000 for the clinical studies to be incurred over the next 12 months.
Risks and uncertainties associated with completing development on schedule, and the consequences to operations, financial position and liquidity if not completed timely		The outcome of our application or clinical testing cannot be known at this time, and this poses substantial risk and uncertainty as to whether or when if ever, Brilacidin-OM will become marketable.

 

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

The FDA may also require us to: (i) complete additional testing; (ii) provide additional data or information; (iii), improve our manufacturing processes, procedures or facilities; and (iv) require extensive post-marketing testing and surveillance to monitor the safety or benefits of our product candidates if it determines that our new drug application does not contain adequate evidence of the safety and benefits of the drug. In addition, even if the FDA approves a drug, it could limit the uses of the drug. The FDA can withdraw approvals if it does not believe that a company is complying with regulatory standards or if problems are uncovered or occur after approval. 

 
 EMPLOYEES

•

preclinical studies and clinical trials; material characterization studies, regulatory processes;

 

•

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

•

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

 

•

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

 

•

time and cost necessary to obtain regulatory approvals;

 

The report of our independent registered public accounting firm includes a going concern opinion, and we may not be profitable in the future, if ever. 

●

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

●

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

●

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

●

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

●

incur liability for damages.

 

●

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

●

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

●

the successful commercialization of our product candidates; and

●

market acceptance of our products.

●

the absence of an operating history;

●

the lack of commercialized products;

●

insufficient capital;

●

expected substantial and continual losses for the foreseeable future;

●

limited experience in dealing with regulatory issues;

●

the lack of manufacturing experience and limited marketing experience;

●

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

●

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

●

reliance on key personnel.

●

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

●

our R&D efforts, including the timing and cost of clinical trials; and

●

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

●

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

●

complete laboratory testing and human studies;

●

obtain and maintain necessary intellectual property rights to our products;

●

successfully complete regulatory review to obtain requisite governmental agency approvals

●

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

●

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

●

are found to be unsafe or ineffective in clinical trials;

●

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

●

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

●

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

 

 

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

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

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

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

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

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

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

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

 

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

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

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

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

•

significant time and effort from our management team;

•

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

•

effective allocation of our resources to multiple projects.

•

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

	•	Previously, Kard Scientific, a company controlled by Dr. Krishna Menon, President and Director, provided preclinical and manufacturing services to the Company and leased space to the Company.
	•	Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, leases space from the Company and is engaged in research.

In either of these cases:

•

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

•

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

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

•

pre-clinical study results that may show the product to be less effective than desired (e.g., the study failed to meet its primary objectives) or to have harmful or problematic side effects;

•

failure to receive the necessary regulatory approvals or a delay in receiving such approvals. Among other things, such delays may be caused by slow enrollment in clinical studies, length of time to achieve study endpoints, additional time requirements for data analysis or a IND and later NDA, preparation, discussions with the FDA, an FDA request for additional pre-clinical or clinical data or unexpected safety or manufacturing issues;

•

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

•

the proprietary rights of others and their competing products and technologies that may prevent the product from being commercialized.

•

obtaining financial and investment information from the investor;

•

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

•

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

 

•

progress of our products through the regulatory process;

•

results of preclinical studies and clinical trials;

•

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

•

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

•

developments or disputes concerning patent or proprietary rights;

•

general market conditions for emerging growth and pharmaceutical companies;

•

economic conditions in the United States or abroad;

•

actual or anticipated fluctuations in our operating results;

•

broad market fluctuations; and

•

changes in financial estimates by securities analysts.

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

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

 

		Fiscal 2014								Fiscal 2013
		High				Low				High				Low
First Quarter			2.32				1.63				1.15				0.58
Second Quarter			2.11				1.4				2.42				0.86
Third Quarter			2.09				1.55				2.15				1.51
Fourth Quarter			1.93				1.49				2.20				1.56

		CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FIVE YEARS ENDED JUNE 30
		2014				2013				2012				2011				2010
Revenues		$	-			$	-			$	-			$	-			$	-
Net loss		$	(8,247,000	)		$	(3,224,000	)		$	(4,894,000	)		$	(5,938,000	)		$	(3,433,000	)
Net loss attributable to common stockholders (a)		$	(10,227,000	)		$	(3,436,000	)		$	(4,960,000	)		$	(5,938,000	)		$	(3,433,000	)
Basic and diluted loss per common share
- Basic		$	(0.10	)		$	(0.04	)		$	(0.06	)		$	(0.06	)		$	(0.04	)
- Diluted		$	(0.10	)		$	(0.04	)		$	(0.06	)		$	(0.06	)		$	(0.04	)
Weighted average common shares outstanding		$	105,044,985			$	94,980,552			$	90,159,045			$	90,300,957			$	91,862,596
		CONSOLIDATED BALANCE SHEET DATE
		AS OF JUNE 30,
			2014				2013				2012				2011				2010
Total assets		$	10,852,000			$	2,970,000			$	28,000			$	313,000			$	102,000
Total debt		$	9,646,000			$	8,140,000			$	7,654,000			$	7,601,000			$	4,899,000
Total equity		$	1,206,000			$	(5,170,000	)		$	(7,626,000	)		$	(7,288,000	)		$	(4,797,000	)

(a)	Net loss attributable to common stockholders represents our net loss plus deemed dividends. Other than deemed dividends of $1,980,000, $212,000 and $66,000 in fiscal year 2014, 2013 and 2012, the net loss attributable to common stockholders was equal to our net loss in fiscal year 2011 and 2010.

 

In June 2012, we participated in a pre IND meeting with the U.S. Food and Drug Administration ("FDA") pertaining to Prurisol our compound targeting psoriasis. Cellceutix had requested the meeting for guidance on its initiatives to seek a section 505(b)(2) designation for Prurisol, which would allow the us to forgo early-stage studies and advance Prurisol into latter-stage clinical trials. Cellceutix was advised by the FDA that a 505(b)(2) application would be an acceptable approach for Prurisol. In June 2014, we completed a Phase 1 study and are now preparing the submission request to the FDA to begin a Phase 2/3 clinical trial.

Brilacidin™ for Acute Bacterial Skin and Skin Structure Infections (“ABSSSI”)

 

		Years Ended June 30,
		2014				2013				2012
Net cash used in operating activities		$	(7,510,000	)		$	(1,907,000	)		$	(694,000	)
Net cash used in investing activities		$	(2,650,000	)		$	(11,000	)		$	-
Net cash provided by financing activities		$	12,193,000			$	4,846,000			$	653,000
Net increase (decrease) in cash and cash equivalents		$	2,033,000			$	2,928,000			$	(41,000	)

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

From July 1, 2014 to September 10, 2014, the Company has generated additional proceeds of approximately $3,215,000 under the Common Stock Purchase Agreement with Aspire from the sale 1,900,000 shares of its common stock.

 

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Financial Statements and Supplemental Data on page 60.

 

Name		Age		Title
Leo Ehrlich		56		Chief Executive and Financial Officer; Chairman of the Board of Directors
Krishna Menon		67		President; Chief Scientific Officer, Director

AUDIT COMMITTEE. The Company intends to establish an audit committee, which will consist of independent directors. The audit committee's duties would be to recommend to the Company's board of directors the engagement of independent auditors to audit the Company's financial statements and to review its accounting and auditing principles. The audit committee would review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee would at all times be composed exclusively of directors who are, in the opinion of the Company's board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

In considering and determining executive and director compensation, our Board of Directors reviews compensation that is paid by other similar public companies to its officers and takes that into consideration in determining the compensation to be paid to the Company’s officers. The Board of Directors also determines and approves any non-cash compensation to any employee. The Company does not engage any compensation consultants to assist in determining or recommending the compensation to the Company’s officers or employees.

 

Name and																Non-Equity
Principal												Option				Incentive Plan				All Other
Position		Year		Salary				Bonus				Awards				Compensation				Compensation				Total
Dr. Krishna Menon (1)		2014		$	444,675			$	-			$	-			$	-			$	-			$	444,675
President, Chief Scientific Officer, Director		2013		$	404,250			$	-			$	-			$	-			$	-			$	404,250
		2012		$	367,500			$	-			$	548,708			$	-			$	-			$	916,208
		2011		$	341,667			$	-			$	1,097,416			$	-			$	-			$	1,439,083
		2010		$	358,333			$	-			$	-			$	-			$	-			$	358,333
Leo Ehrlich, (2)		2014		$	444,675			$	-			$	-			$	-			$	-			$	444,675
Chief Executive and Financial Officer, Chairman of the Board		2013		$	404,250			$	-			$	-			$	-			$	-			$	404,250
		2012		$	367,500			$	-			$	1,446,708			$	-			$	-			$	1,814,208
		2011		$	300,000			$	-			$	1,097,416			$	-			$	-			$	1,397,416
		2010		$	250,000			$	-			$	-			$	-			$	-			$	250,000

(1)	Dr. Menon has served as President, Chief Scientific Officer and a Director of the Company from June 2007 until present.

(2)	From June 2007, Mr. Ehrlich served as Chief Financial Officer and a Director of the Company. On November 5, 2010, Leo Ehrlich, was appointed to serve as Chief Executive and Financial Officer, and Chairman of the Board of Directors.

Name and Address of  Beneficial Owner		Amount and Nature of  Beneficial Owner (1)				Percent of Class (2)
Dr. Krishna Menon C/O Cellceutix(3) 100 Cumming Ctr., Suite 151-B Beverley, MA 01915			39,048,286			30.56	%
Leo Ehrlich (4) C/O Cellceutix 100 Cumming Ctr., Suite 151-B Beverley, MA 01915			35,905,482			26.73	%
All Directors and Executive Officers as a Group (2 persons) (5)			74,953,768			49.21	%

 

1.

"Beneficial Owner" means having or sharing, directly or indirectly (i) voting power, which includes the power to vote or to direct the voting, or (ii) investment power, which includes the power to dispose or to direct the disposition, of shares of the common stock of an issuer. The definition of beneficial ownership includes shares, underlying options or warrants to purchase common stock, or other securities convertible into common stock, that currently are exercisable or convertible or that will become exercisable or convertible within 60 days. Unless otherwise indicated, the beneficial owner has sole voting and investment power.

 

2.

For each shareholder, the calculation of percentage of beneficial ownership is based upon 109,787,129 shares of Common Stock outstanding as of June 30, 2014, and shares of Common Stock subject to options, warrants and/or conversion rights, including the conversion right of $0.50 for one share on Mr. Ehrlich’s convertible debt, held by the shareholder that are currently exercisable or exercisable within 60 days, which are deemed to be outstanding and to be beneficially owned by the shareholder holding such options, warrants, or conversion rights. The percentage ownership of any shareholder is determined by assuming that the shareholder has exercised all options, warrants and conversion rights to obtain additional securities and that no other shareholder has exercised such rights.

3.	Krishna Menon, Chief Scientific Officer. Includes 18,000,000 vested options granted to him under the 2010 Equity Inventive Plan currently exercisable.

4.

Leo Ehrlich, CEO, Chief Financial Officer and Director. (i) Includes 8,635,002 shares of Cellceutix common stock held by Mr. Ehrlich, (ii) includes 2,752,310 shares of Cellceutix’s common stock held by the wife of Leo Ehrlich, (iii) includes 4,518,170 shares of common stock into which the convertible loan in the amount of $2,022,527 and accrued interest $236,558 would be convertible at $.50 per share deemed to be outstanding, (iv) includes 18,000,000 vested options granted to him under the 2010 Equity Incentive Plan currently exercisable and (v) includes 2,000,000 options issued to him on May 8, 2012.

5.	Includes 68,953,768 shares of Common Stock directly and indirectly owned by the Executive Officers and Directors as a group, family members (see 4.), convertible loans (see 4.), and vested options (see 3. and 4.).

 

Director Independence