The accompanying notes are an integral part of these condensed financial statements
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
1. Basis of Presentation and Nature of Operations
Unaudited Interim Financial Information
The accompanying unaudited condensed financial statements of Cellceutix Corporation have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements and should be read in conjunction with our audited financial statements for the year ended June 30, 2016, included in our Annual Report on Form 10-K for the year ended June 30, 2016.
In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three month period have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes, the terms "Company", "we", "us" or "our" mean Cellceutix Corporation.
Basis of Presentation
Cellceutix Corporation (“Cellceutix” or the “Company”) was incorporated as Econoshare, Inc. on August 1, 2005, in the State of Nevada. On December 6, 2007, the Company acquired Cellceutix Pharma, Inc., a privately owned corporation formed under the laws of the State of Delaware on June 20, 2007. Following the acquisition, the Company changed its name to Cellceutix Corporation. Cellceutix Corporation has no subsidiaries since Cellceutix Pharma, Inc. was dissolved in 2014. The Company is a clinical stage biopharmaceutical company and has no customers, products or revenues to date.
The Company’s Common Stock is quoted on OTCQB, symbol “CTIX”.
Nature of Operations -Overview
We are in the business of developing innovative small molecule therapies to treat diseases with significant medical need, particularly in the areas of cancer, antibiotics and inflammatory disease. Our strategy is to use our business and scientific expertise to maximize the value of our pipeline. We will do this by focusing initially on our lead compounds, Brilacidin, Kevetrin and Prurisol and advancing them as quickly as possible along the regulatory pathway. We will develop the highest quality data and broadest intellectual property to support our compounds.
We currently own all development and marketing rights to our products. In order to successfully develop and market our products, we may have to partner with other companies. Prospective partners may require that we grant them significant development and/or commercialization rights in return for agreeing to share the risk of development and/or commercialization.
2. Liquidity
At September 30, 2016, we had $5.6 million in cash. We have expended substantial funds on the research and development of our product candidates. Our net losses incurred for the three months ended September 30, 2016 and 2015, amounted to $3.0 million and $2.6 million, respectively, and a working capital (deficit) of approximately $(2.6) million and $(1.9) million, respectively at September 30, 2016 and June 30, 2016.
On March 30, 2015, the Company entered into a common stock purchase agreement with Aspire Capital Fund, LLC, an Illinois limited liability company ("Aspire Capital") which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company's common stock over the 36-month term of the Purchase Agreement. As of September 30, 2016, the available balance is approximately $20 million.
The Company plans to incur expenses of approximately $19 million over the next twelve months, including approximately $15 million for clinical trials. The Company has limited experience with pharmaceutical drug development. As such, the budget estimate may not be accurate. In addition, the actual work to be performed is not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget and on our projected timeline of drug development.
Management believes that the amounts available from Aspire and under the Company’s effective shelf registration statement will be sufficient to fund the Company’s operations for the next 12 months.
If we are unable to generate enough working capital from our current financing agreement with Aspire Capital when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping certain research and development programs, including more costly Phase 2 and Phase 3 clinical trials on our wholly-owned development programs as these programs progress into later stage development. Insufficient liquidity may also require us to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to us and our stockholders than we would otherwise choose in order to obtain up-front license fees needed to fund operations. These events could prevent us from successfully executing our operating plan.
3. Significant Accounting Policies and Recent Accounting Pronouncements
Reclassifications
Certain prior year amounts have been reclassified to conform to current period presentation. Such reclassifications were limited to the Condensed Balance Sheets and did not impact the Condensed Statement of Operations and Condensed Statement of Cash Flows.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include contract research accruals, recoverability of long-lived assets, measurement of stock-based compensation, and the periods of performance under collaborative research and development agreements. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Basic Earnings (Loss) per Share
Basic and diluted earnings (loss) per share are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, warrants and convertible notes payable. Common share equivalents of 45,036,175 and 44,436,980 were excluded from the computation of diluted earnings (loss) per share for the three months ended September 30, 2016 and 2015, respectively, because their effect is anti-dilutive.
Accounting for Stock Based Compensation
The stock-based compensation expense incurred by Cellceutix for employees and directors in connection with its stock option plan is based on the employee model of ASC 718, and the fair market value of the options is measured at the grant date. Under ASC 718 employee is defined as “An individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. tax regulations”. Our consultants do not meet the employer-employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50.
ASC 505-50-30-11 (previously EITF 96-18) further provides that an issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date:
|
i.
|
The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); and
|
|
ii.
|
The date at which the counterparty’s performance is complete.
|
We have elected to use the Black-Scholes-Merton pricing model to determine the fair value of stock options on the dates of grant. Restricted stock is measured based on the fair market values of the underlying stock on the dates of grant. We recognize stock-based compensation using the straight-line vesting method over the requisite service period of the equity awards.
The components of stock based compensation related to stock options in the Company’s Statement of Operations for the three months ended September 30, 2016 and 2015 are as follows (rounded to nearest thousand):
|
|
Three months ended
September 30
|
|
|
|
2016
|
|
|
2015
|
|
Research and development expenses
|
|
|
|
|
|
|
Professional fees
|
|
$
|
42,000
|
|
|
$
|
78,000
|
|
Employees’ bonus
|
|
|
13,000
|
|
|
|
-
|
|
Officers’ bonus
|
|
|
289,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
344,000
|
|
|
$
|
98,000
|
|
Recent Accounting Pronouncements
Standards Issued Not Yet Adopted
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements—Going Concern—Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. ASU 2014-15 is effective for annual periods, and interim periods within those annual periods, starting after December 15, 2016; the Company’s first quarter of fiscal 2018. Management is currently evaluating the impact of this standard on our consolidated financial statements.
In May 2014, the FASB issued authoritative guidance that defines how companies should report revenues from contracts with customers. The standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It provides companies with a single comprehensive five-step principles based model to use in accounting for revenue and supersedes current revenue recognition requirements, including most industry-specific and transaction-specific revenue guidance. In August 2015, the FASB deferred the effective date of the new revenue standard by one year. As a result, the new standard would not be effective for the Company until 2019. In addition, the FASB is allowing companies to early adopt this guidance for non-public entities beginning in fiscal year 2017. The guidance permits an entity to apply the standard retrospectively to all prior periods presented, with certain practical expedients, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company will apply this new guidance when it becomes effective and has not yet selected a transition method. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For finance leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; interest on the lease liability will be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income; and repayments of the principal portion of the lease liability will be classified within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; a single lease cost will be recognized, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and all cash payments will be classified within operating activities in the statement of cash flows. Under Topic 842 the accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments in Topic 842 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management believes that the adoption of this guidance will not have a material impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (“ASU 2016-09”). Under ASU 2016-09, entities will be required to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance on employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is also changing. For public business entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted, but all of the guidance must be adopted in the same period. The Company is currently evaluating the impact the adoption of ASU 2016-09 will have on its financial statements and disclosures.
Standards Issued and Adopted
In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation. The amendments in this ASU apply to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. This ASU is the final version of Proposed ASU EITF-13D--Compensation--Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which has been deleted. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and early adoption is permitted. Management has adopted this guidance and it did not have a material impact on our condensed financial statements.
4. Other Receivables
Other receivables represent amounts to be reimbursed by vendors.
5. Patents, net
Patents, net consisted of the following (rounded to nearest thousand):
|
|
Useful life
(years)
|
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Patent Rights – Brilacidin, and related compounds
|
|
14
|
|
|
$
|
4,082,000
|
|
|
$
|
4,082,000
|
|
Purchased Patent Rights – Anti-microbial – surfactants and related compounds
|
|
12
|
|
|
|
144,000
|
|
|
|
144,000
|
|
Patents – Kevetrin and related compounds
|
|
17
|
|
|
|
1,061,000
|
|
|
|
1,035,000
|
|
|
|
|
|
|
|
5,287,000
|
|
|
|
5,261,000
|
|
Less: Accumulated amortization for Brilacidin, Anti-microbial- surfactants and related compounds
|
|
|
|
|
|
(931,000
|
)
|
|
|
(855,000
|
)
|
Accumulated amortization for Patents –Kevetrin and related compounds
|
|
|
|
|
|
(110,000
|
)
|
|
|
(95,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,246,000
|
|
|
$
|
4,311,000
|
|
The patents are amortized on a straight-line basis over the estimated remaining useful lives of the assets, determined 12-17 years from the date of acquisition.
Amortization expense for the three months ended September 30, 2016 and 2015 was approximately $91,000 and $97,000, respectively.
At September 30, 2016, the future amortization period for all patents was approximately 9 years to 16 years. Future estimated annual amortization expenses are approximately $270,000 for 2017, $363,000 for each year from 2018 to 2025, $353,000 for the year ending June 30, 2026, $351,000 for the year ending June 30, 2027, $113,000 for the year ending June 30, 2028, $59,000 for the years ending June 30, 2029 to 2032, and $22,000 for year ending June 30, 2033.
6. Accrued Expenses
Accrued expenses consisted of the following (rounded to nearest thousand):
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
Accrued research and development consulting fees
|
|
$
|
64,000
|
|
|
$
|
25,000
|
|
Accrued rent (Note 9) – related party
|
|
|
29,000
|
|
|
|
32,000
|
|
Accrued interest – (Note 10) related parties
|
|
|
77,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
170,000
|
|
|
$
|
97,000
|
|
7. Accrued Salaries and Payroll Taxes – Related Parties And Other
Accrued salaries and payroll taxes consisted of the following (rounded to nearest thousand):
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
Accrued salaries – related parties
|
|
$
|
2,647,000
|
|
|
$
|
2,647,000
|
|
Accrued payroll taxes – related parties
|
|
|
130,000
|
|
|
|
130,000
|
|
Withholding tax
|
|
|
86,000
|
|
|
|
57,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,863,000
|
|
|
$
|
2,834,000
|
|
8. Commitments and Contingencies
Lease Commitments
Operating Leases
The Company signed a lease extension agreement with Cummings Properties which began on October 1, 2013. The lease is for a term of five years ending on September 30, 2018, and requires monthly payments of approximately $18,000. Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of the Company, have co-signed the lease and will sublease 200 square feet of space previously used by the Company and pay the Company $900 per month.
As of September 30, 2016, future minimum lease payments to Cummings Properties required under the non-cancelable operating lease are as follows (rounded to nearest thousand):
Year ending June 30,
|
|
|
|
2017
|
|
|
161,000
|
|
2018
|
|
|
214,000
|
|
2019
|
|
|
55,000
|
|
|
|
|
|
|
Total minimum payments
|
|
$
|
430,000
|
|
Rent expense, net of lease income, under this operating lease agreement was approximately $50,000 for both of three months ended September 30, 2016 and 2015. Before September, 2013, the Company paid rent to KARD for its share of office space and details are shown at Note 9. Related Party Transactions.
Contractual Commitments
The Company has no contractual minimum commitments to Contract Research Organizations as of September 30, 2016. Services are billed to Cellceutix when performed by the vendors.
9. Related Party Transactions
Office Lease
Dr. Menon, a significant shareholder of the Company and its President of Research and a Director, also serves as the Chief Operating Officer and Director of Kard Scientific (“KARD”). On December 7, 2007, the Company began renting office space from KARD, on a month to month basis for $900 per month. This continued through August 2013 and since September 1, 2013, the Company no longer leases space from KARD or pays rent to KARD.
In September 2013, the Company signed a lease extension agreement with Cummings Properties for the Company’s offices and laboratories at 100 Cummings Center, Suite 151-B Beverly, MA 01915. The lease is for a term of five years from October 1, 2013 to September 30, 2018 and requires monthly payments of approximately $18,000. Cellceutix had taken over the space occupied by KARD. In addition, Innovative Medical Research Inc., (“Innovative Medical”) a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of Cellecutix, has co-signed the lease and rents approximately 200 square feet of office space, the space previously used by Cellceutix and pays Cellceutix $900 per month, the same amount Cellceutix previously paid KARD. Innovative Medical paid total rent of approximately $3,000, to Cellceutix for both of the three months ended September 30, 2016 and 2015 and the rental payment was offset with the accrued rent owed to KARD.
At September 30, 2016 and June 30, 2016, rent payable to KARD of approximately $29,000 and $32,000, respectively, were included in accrued rent – related party.
Clinical Studies
The Company previously engaged KARD to conduct specified pre-clinical studies. The Company did not have an exclusive arrangement with KARD. The Company no longer uses KARD. At September 30, 2016 and June 30, 2016, the accrued research and development expenses to KARD was approximately $1,486,000 and this amount was included in accounts payable.
10. Note Payable – Related Party
During the year ended June 30, 2010, Mr. Ehrlich loaned the Company a total of approximately $973,000. A condition for this note was that the Ehrlich Promissory Note A and Ehrlich Promissory Note B be replaced with a new note, Ehrlich Promissory Note C
.
The Ehrlich Promissory Note C is an unsecured demand note that bears 9% simple interest per annum and is convertible into the Company’s common stock at $0.50 per share. The note requires that the interest rate on the amounts due on Ehrlich Promissory Notes A and B be changed retroactively, beginning October 1, 2009, to 9%. On April 1, 2011, the Company amended the Ehrlich Promissory Note C and agreed to retroactively convert accrued interest of approximately $97,000 through December 31, 2010 into additional principal. During the year ended June 30, 2011, Mr. Ehrlich loaned the Company an additional approximate $997,000 which brought the total balance of the demand note to approximately $2,002,000. During the year ended June 30, 2012, Mr. Ehrlich loaned the Company an additional $20,000 which brought the balance of the demand note to approximately $2,022,000.
On May 8, 2012, the Company did not have the ability to repay the Ehrlich Promissory Note C loan and agreed to change the interest rate on the outstanding balance of principal and interest of approximately $2,248,000, as of March 31, 2012, from 9% simple interest to 10% simple interest, and the Company issued 2,000,000 Equity Incentive Options exercisable at $0.51 per share equal to 110% of the closing bid price of $0.46 per share on May 7, 2012. Options are valid for ten years from the date of issuance.
At September 30, 2016 and June 30, 2016, approximately $77,000 and $40,000, respectively, was accrued as interest expense on this note.
At September 30, 2016 and June 30, 2016, principal balances of the demand note was approximately $2,022,000.
11. Equity Incentive Plans, Stock-Based Compensation and Warrants
Equity Incentive Plans
2009 Stock Option Plan
On April 5, 2009 the Board of Directors of the Registrant adopted the 2009 Stock Option Plan (“the 2009 Plan”). The 2009 Plan permits the grant of 2,000,000 shares of both Incentive Stock Options (“ISOs”), intended to qualify under section 422 of the Code, and Non-Qualified Stock Options.
2010 Equity Incentive Plan
Under the 2010 Equity Incentive Plan (the "2010 Plan") the total number of shares of common stock reserved and available for issuance under the 2010 Plan is 45,000,000 shares. Shares of common stock under the 2010 Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. The term of each stock option shall be fixed as provided, however, an Incentive Stock Option may be granted only within the ten-year period commencing from the effective date of the 2010 Plan and may only be exercised within ten years of the date of grant (or five years in the case of an Incentive Stock Option granted to an optionee who, at the time of grant, owns common stock possessing more than 10% of the total combined voting power of all classes of voting stock of the Company).
2016 Equity Incentive Plan
On June 30, 2016, the Board adopted the Cellceutix Corporation 2016 Equity Incentive Plan (the "2016 Plan"). The 2016 Plan became effective upon adoption by the Board on June 30, 2016.
Up to 20,000,000 shares of the Company's common stock may be issued under the 2016 Plan (subject to adjustment as described in the 2016 Plan); provided that, no Outside Director (as defined in the 2016 Plan) may be granted awards covering more than 250,000 shares of common stock in any year and no participant shall be granted, during any one year period, options to purchase common stock and stock appreciation rights with respect to more than 4,000,000 shares of common stock in the aggregate or any other awards with respect to more than 2,500,000 shares of common stock in the aggregate. The 2016 Plan permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards and performance compensation awards to employees, directors, and consultants of the Company and its affiliates.
In connection with adoption of the 2016 Plan, the Board of Directors also approved forms of Incentive Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Employees, Non-qualified Stock Option Agreement for Non-Employee Directors, Restricted Stock Award Agreement for Employees and Restricted Stock Award Agreement for Non-Employee Directors that will be utilized by the Company to grant options and restricted shares under the 2016 Plan.
The following table summarizes all stock option activity under the above equity incentive plans:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted Average
Remaining Contractual Life (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at June 30, 2016
|
|
|
40,444,728
|
|
|
$
|
0.22
|
|
|
|
4.58
|
|
|
$
|
48,185,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
368,779
|
|
|
|
1.31
|
|
|
|
9.80
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2016
|
|
|
40,813,507
|
|
|
$
|
0.23
|
|
|
|
4.38
|
|
|
$
|
44,341,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2016
|
|
|
39,769,611
|
|
|
$
|
0.20
|
|
|
|
4.25
|
|
|
$
|
44,333,975
|
|
The fair value of options granted for the three months ended September 30, 2016 and 2015 was estimated on the date of grant using the Black Scholes model that uses assumptions noted in the following table.
|
|
Three months ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Expected term (in years)
|
|
3-10
|
|
|
|
3
|
|
Expected stock price volatility
|
|
57.63%-111.62%
|
|
|
|
65.76%
|
|
Risk-free interest rate
|
|
0.71%-1.73%
|
|
|
|
1.04%
|
|
Expected dividend yield
|
|
-
|
|
|
|
-
|
|
Stock-Based Compensation
The Company recognized approximately $344,000 and $77,000 of total stock-based compensation costs related to stock options awards for the three months ended September 30, 2016 and 2015, respectively. The $344,000 of stock based compensation expense for the three months ended September 30, 2016 included approximately $127,000 of stock options expenses and $217,000 of stock awards (see Note 12).
For the three months ended September 30, 2016
On February 16, 2016, the Company issued 119,424 stock options to purchase shares of the Company’s common stock, par value $0.0001 per share to two consultants for services, valued at approximately $55,000, based on the closing bid price as quoted on the OTC on February 16, 2016 at $1.15 per share. These options were issued with an exercise price of $1.105. One third vested immediately, one third vested in six months (August 11, 2016), and the balance will be vested on February 11, 2017, and will be valid for a period of three years. These options have piggyback registration rights. The Company recorded approximately $9,000 of stock option expenses during the three months ended September 30, 2016.
On April 6, 2016, the Company issued 25,000 shares and 25,000 stock options to purchase shares of the Company’s common stock, par value $0.0001 per share to a consultant for service. The stock options valued at approximately $14,000, based on the closing bid price as quoted on the OTC on April 6, 2016 at $1.61 per share. These options were issued with an exercise price of $1.77 and shall vest on April 30, 2017, with a three year option term. These options have piggyback registration rights. The Company recorded approximately $3,000 of stock option expenses for the three months ended September 30, 2016.
On June 27, 2016, the Company and Dr. Bertolino entered into an executive employment agreement as our President and Chief Medical Officer, effective on June 27, 2016. Commencing on June 27, 2016, the Company agreed to pay Dr. Bertolino an annual salary of $440,000. In addition, the Company agreed to grant to Dr. Bertolino under the Cellceutix Corporation 2016 Equity Incentive Plan (i) 1,066,667 shares of restricted stock and (ii) a ten-year option to purchase 617,839 shares of the Company's Class A common stock at an exercise price of $1.39 per share. Both shares and options shall vest upon the earliest to occur of the following: (1) 50% upon the first anniversary of the effective date, and the remaining 50% upon the second anniversary of the effective date (2) completion of both a Phase 2b psoriasis study and a Phase 2 oral mucositis study; (3) the Company’s common stock closes above $3.00 per share (as may be adjusted for any stock splits or similar actions); (4) the commencement of trading of the Company’s common stock on a national securities exchange (e.g. Nasdaq or the NYSE); or (5) upon a Change in Control (as defined in the employment agreement) of the Company. The Company could not conclude that it was probable that these awards will fully vest until the second anniversary of the effective date, because such events listed above are outside the Company’s control. The Company will evaluate the probability of these events occurring for each reporting period. The 1,066,667 shares were valued at approximately $1.5 million, which will be amortized over two years to June 27, 2018. The 617,839 stock options were valued at approximately $800,000 and will be exercisable for 10 years at an exercise price of $1.39 per share. They will be amortized over 2 years to June 27, 2018 or sooner if the Company determines that it is probable that one of the events listed above will occur. During the three months ended September 30, 2016, the Company recorded approximately $289,000 of total stock-based compensation, including approximately $188,000 of stock based compensation expense and approximately $101,000 of stock option expense. The Company may award Dr. Arthur P. Bertolino an annual bonus at the sole discretion of the Board of Directors of the Company. The Company may accelerate the amortization of the $1.5 million stock-based compensation expense if there are conditions which will accelerate the vesting, as mentioned above.
On July 18, 2016, the Company issued 7,500 stock options to purchase shares of the Company’s common stock to a consultant for service rendered, exercisable for 3 years at $1.38 per share of common stock. The value of these 7,500 options was approximately $4,000.
On September 1, 2016, the Company and Jane Harness entered into an executive employment agreement as the Company’s VP, Clinical Sciences and Project Management, effective on September 1, 2016. Commencing on September 1, 2016, the Company agreed to pay Ms. Harness an annual salary of $250,000. In addition, the Company agreed to grant to Ms. Harness under the Cellceutix Corporation 2016 Equity Incentive Plan (i) 58,394 shares of restricted stock, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, one third (33 1/3 %) upon the second anniversary of the effective date, and the remaining one third (33 1/3 %) upon the third anniversary of the effective date; or (2) upon a Change in Control (as defined in the employment agreement) of the Company. Ten-year options to purchase 172,987 shares of the Company’s common stock were also granted at an exercise price of $1.37 per share, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, and the remaining balance vesting monthly in equal portions over the following 24 months; and (2) upon a Change in Control (as defined in the employment agreement) of the Company. The 58,394 shares were valued at approximately $80,000, which will be amortized over three years to September 1, 2019. The 172,987 stock options were valued at approximately $220,000 and will be exercisable for 10 years at an exercise price of $1.26 per share. They will be amortized over 3 years to September 1, 2019. During the three months ended September 30, 2016, the Company recorded approximately $8,000 of total stock-based compensation, including approximately $2,000 of stock based compensation expense and approximately $6,000 of stock option expense.
On September 15, 2016, the Company and LaVonne Lang entered into an executive employment agreement as the Company’s VP, Regulatory Affairs, effective on September 15, 2016. Commencing on September 15, 2016, the Company agreed to pay Dr. Lang an annual salary of $250,000. In addition, the Company agreed to grant to Dr. Lang under the Cellceutix Corporation 2016 Equity Incentive Plan (i) 63,492 shares of restricted stock, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, one third (33 1/3 %) upon the second anniversary of the effective date, and the remaining one third (33 1/3 %) upon the third anniversary of the effective date; or (2) upon a Change in Control (as defined in the employment agreement) of the Company. Ten-year options to purchase 188,262 shares of the Company’s common stock were also granted at an exercise price of $1.26 per share, which shall vest upon the earliest to occur of the following: (1) one third (33 1/3 %) upon the first anniversary of the effective date, and the remaining balance vesting monthly in equal portions over the following 24 months; and (2) upon a Change in Control (as defined in the employment agreement) of the Company. The 63,492 shares were valued at approximately $80,000, which will be amortized over three years to September 15, 2019. The 188,263 stock options were valued at approximately $220,000 and will be exercisable for 10 years at an exercise price of $1.26 per share. They will be amortized over 3 years to September 15, 2019. During the three months ended September 30, 2016, the Company recorded approximately $4,000 of total stock-based compensation, including approximately $1,000 of stock based compensation expense and approximately $3,000 of stock option expense.
For the three months ended September 30, 2015
On July 10, 2015, the Company issued 7,028 shares and 50,000 options to a consultant for his one year contract, which options are exercisable for 3 years at $2.49 per share of common stock. The total value of these 50,000 options was approximately $60,000 and we recognized approximately $60,000 of stock based compensation costs that was charged to additional paid-in capital as of September 30, 2015. The assumptions we used in the Black Scholes option-pricing model were disclosed as above.
Stock Warrants
For the three months ended September 30, 2016
During the three months ended September 30, 2016, there were no warrants issued or exercised.
The following table summarizes stock warrants:
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2016
|
|
|
25,000
|
|
|
$
|
1.79
|
|
|
|
0.56
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding at September 30, 2016
|
|
|
25,000
|
|
|
$
|
1.79
|
|
|
|
0.31
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2016
|
|
|
25,000
|
|
|
$
|
1.79
|
|
|
|
0.31
|
|
|
$
|
-
|
|
12.
Equity Transactions
Issuance of Common Stock for Cash
$30 million Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC
On March 30, 2015, the Company entered into a common stock purchase agreement (the "Purchase Agreement") with Aspire Capital Fund, LLC, an Illinois limited liability company ("Aspire Capital") which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of the Company's common stock over the 36-month term of the Purchase Agreement. In consideration for entering into the Purchase Agreement, the Company issued to Aspire Capital 160,000 shares of its Class A common stock as a commitment fee. The commitment fee of approximately $499,000 will be amortized as the funding is received. The amortized amount of $32,000 and $25,000 were debited to additional paid-in capital during the three months ended September 30, 2016 and 2015. The unamortized portion is carried on the balance sheet as deferred offering costs and was $326,000 and $358,000 at September 30, 2016 and June 30, 2016, respectively. During the period from March 30, 2015 to September 30, 2016, the Company had completed sales to Aspire totaling 7,300,000 shares of common stock generating gross proceeds of approximately $10 million.
Concurrently with entering into the Purchase Agreement, the Company also entered into a registration rights agreement with Aspire Capital, in which the Company agreed to file one or more registration statements, as permissible and necessary to register, under the Securities Act of 1933, as amended, the sale of the shares of the Company's common stock that have been and may be issued to Aspire Capital under the Purchase Agreement. The Company has filed with the Securities and Exchange Commission a prospectus supplement, dated March 31, 2015, to the Company's prospectus filed as part of the Company's effective $75 million shelf registration statement on Form S-3, File No. 333-199725, registering all of the shares of common stock that have been or may be offered and sold to Aspire Capital from time to time.
During the three months ended September 30, 2016 and 2015, the Company had completed sales to Aspire totaling 1,500,000 shares and 700,000 shares of common stock generating gross proceeds of approximately $1.9 million and $1.5 million, respectively.
Issuance of Common Stock by Exercise of Common Stock Options
For the three months ended September 30, 2016
During the three months ended September 30, 2016, the Company has no issuance of common stock by exercise of common stock options.
For the three months ended September 30, 2015
During the three months ended September 30, 2015, the Company received cash of $15,000 in total and recorded subscription receivable of $25,400 for the exercise of 74,000 Common Stock options at a range of $0.42 to $1.11 per share.
Issuance of Common Stock to Consultants For Services
For the three months ended September 30, 2016
On July 18, 2016, the Company issued 7,500 shares to a consultant for service rendered. The value of these 7,500 shares at $1.38 per share was approximately $10,000.
On August 1, 2016, the Company issued 11,720 restricted shares to a consultant for service. The value of these 11,720 shares at $1.28 per share was approximately $15,000.
For the three months ended September 30, 2015
On July 10, 2015, the Company issued 7,028 shares of restricted Class A common shares to a consultant for services rendered. The shares were granted and vested on July 10, 2015. The shares were valued at $17,500.
Issuances of Common Stock and Stock Options – Pursuant to Employment Agreements
For the three months ended September 30, 2016
On September 1, 2016, the Company and Jane Harness entered into an executive employment agreement as the Company’s VP, Clinical Sciences and Project Management, effective on September 1, 2016. Pursuant to the employment agreement, the Company issued 58,394 shares of restricted stock and options to purchase 172,987 shares of common stock to Ms. Harness under the Cellceutix Corporation 2016 Equity Incentive Plan. See Note 11 for additional information concerning the restricted stock and stock options granted to Ms. Harness.
On September 15, 2016, the Company and LaVonne Lang entered into an executive employment agreement as the Company’s VP, Regulatory Affairs, effective on September 15, 2016. Pursuant to the employment agreement, the Company issued 63,492 shares of restricted stock and options to purchase 188,263 shares of common stock to Dr. Lang under the Cellceutix Corporation 2016 Equity Incentive Plan. See Note 11 for additional information concerning the restricted stock and stock options granted to Dr. Lang.
The following summarizes our restricted stock activity for the above restricted stock issuances:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
Number of
|
|
|
Date Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
|
|
|
|
|
|
Total awards outstanding at June 30, 2016
|
|
|
1,066,667
|
|
|
$
|
1.4
|
|
Total shares granted
|
|
|
121,886
|
|
|
|
1.3
|
|
Total shares outstanding at September 30, 2016
|
|
|
1,188,553
|
|
|
$
|
1.4
|
|
Scheduled vesting for outstanding restricted stock at September 30, 2016 is as follows:
|
|
Year Ending June 30,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Total
|
|
Scheduled vesting—restricted stock
|
|
|
533,333
|
|
|
|
573,963
|
|
|
|
40,629
|
|
|
|
40,628
|
|
|
|
1,188,533
|
|
As of September 30, 2016, there was $1.5 million of net unrecognized compensation cost related to unvested restricted stock-based compensation arrangements. This compensation is recognized on a straight line basis resulting in approximately $0.8 million of the compensation expected to be expensed in the next twelve months, and the total unrecognized compensation has a weighted average recognition period of 1.87 years.