10-K 1 ctix_10k.htm FORM 10-K ctix_10k.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
 x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
 
FOR THE FISCAL YEAR ENDED JUNE 30, 2014
 
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
 
Commission File Number: 000-52321
 
Cellceutix Corporation
(Exact name of registrant as specified in its charter)
 
Nevada
 
30-0565645
(State or other jurisdiction of incorporation)
 
(IRS Employer Identification No.)
 
100 Cummings Center, Suite 151-B 
Beverly, MA 01915
(Address of principal executive offices and zip code)
 
(978)-633-3623
(Registrant’s telephone number, including area code)
 
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
 
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: COMMON STOCK, CLASS A, PAR VALUE $0.0001 PER SHARE

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer x
Non-accelerated filer o Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

Issuer's revenues for its most recent fiscal year were $0.00

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates on December 31, 2013 was $132,592,800 (63,441,531 shares), based on the closing price of the registrant’s common stock of $2.09.

There were 111,687,129 and -0- shares, respectively, of the registrant’s $ 0.0001 par value Class A and Class B common stock outstanding as of September 5, 2014.
 


 
 

 
CELLCEUTIX CORPORATION 
FORM 10-K
For the Fiscal Year Ended June 30, 2014
 
TABLE OF CONTENTS
 
     
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  
 
 
2

 

FORWARD-LOOKING STATEMENTS
 
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and Section 27A of the Securities Act of 1933. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “ intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include our; research and development activities, distributor channel; compliance with regulatory impositions; and our capital needs. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
 
Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.
 
For further information about these and other risks, uncertainties and factors, please review the disclosure included in this report under “Part I, Item 1A, Description of Business - Risk Factors.”
 
 
3

 

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW ABOUT OUR BUSINESS

Cellceutix Corporation (the “Company” or Cellceutix or the “Registrant”) is a clinical stage biotechnology company focused on discovering small molecule drugs for hard to treat diseases, including drug-resistant cancers, psoriasis, autism and inflammatory disease.

On September 4, 2013, we purchased substantially all of the assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. from the Chapter 7 trustee for the bankrupt estate of these entities. The aggregate purchase price for the sale and transfer of these Purchased Assets was $2.1 million in cash, plus 1.4 million shares of our Class A common stock.

Our lead antibiotic compound, Brilacidin, has completed enrollment of 215 patients in a Phase 2b clinical trial for ABSSSI (Acute Bacterial Skin and Skin Structure Infections). Top line study results are expected in October 2014.

Our lead cancer compound, Kevetrin, is presently in its 9th cohort in a Phase 1 clinical trial at Harvard Cancer Center's Dana-Farber Cancer Institute and partner Beth Israel Deaconess Medical Center, testing Kevetrin against advanced solid tumors.

In June 2014, we completed a Phase 1 trial for the treatment of psoriasis with our compound, Prurisol. We are awaiting the final study report which will then be forwarded to the FDA. Upon FDA approval, we plan to begin the Phase 2/3 study in the fourth quarter of calendar 2014.

We have just announced the submission of the IND (Investigational New Drug application) to the Food and Drug Administration for the treatment of Oral Mucositis with Brilacidin.

We are further developing Brilacidin for the treatment of diabetic foot ulcer infections and other indications such as, ophthalmic and otitic infections. Also in development are novel compounds for Gram negative and fungal infections.

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

The Company’s stock symbol is “CTIX” and trades on the Over the Counter Bulletin Board.

OUR BUSINESS STRATEGY

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

HISTORY AND CORPORATE STRUCTURE

Cellceutix Corporation, 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 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.
 
 
4

 

Polymedix Asset Acquisition

On September 4, 2013, the Company purchased substantially all of the assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. from the U.S. Bankruptcy Court. PolyMedix Inc. was founded in 2002 based on technology licensed from the University of Pennsylvania (Penn). The aggregate purchase price for the sale and transfer of the Purchased Assets was $2.1 million in cash, plus 1.4 million shares of the Company’s Class A common stock, total aggregate purchase price of approximately $4.8 million.

At any time through September 4, 2014, the Court Trustee (“Seller”), or any holder of these shares could have made demand upon Cellceutix to repurchase the shares at $1 per share. No demands were made for repurchases and the agreement has expired.

The Asset Purchase Agreement with the U.S. Bankruptcy Court was included in a Form 8-K filed with the US Securities and Exchange Commission on September 4, 2013. Included in the purchase are rights to intellectual property (IP), compounds, clinical studies and equipment; the most significant value being the clinical studies and IP.

The purchased bankruptcy estate included two license agreements from University of Pennsylvania, an exclusive patent license agreement and a nonexclusive software license agreement, that were acquired by Cellceutix.

INTELLECTUAL PROPERTY, PATENTS AND LICENSES ACQUIRED

CATAGORIES
 
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
 
 
5

 
 
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.
 

 
6

 
 
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.
 
 
 
7

 
 
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
   
 
 
8

 
 
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
 
 
 
9

 
 
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.
 
In addition, we have trademark protection for the marks PolyMedix,® PolyCide®, and PolyDentix®.

 
10

 
 
Penn Patent License Agreement
 
·  
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

Penn Software License Agreement
 
·  
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

We rely on a combination of patents and trade secrets, as well as confidentiality and non-use agreements to protect our intellectual property. Our patent strategy is designed to facilitate commercialization of our current and future product candidates, and create barriers to entry.
 
The Company has been assigned all right title and interest to the following eight pharmaceutical compounds: Kevetrin, KM 277, KM 278, Prurisol, KM 362, KM 3174, KM 732, and KM-391. The Company agreed to pay the assignors 5% of net sales of the compounds in countries where composition of matter patents have been issued and 3% of net sales in other countries. Kevetrin, KM 277, KM 278 and KM 362 were acquired by the Company from Dr. Krishna Menon, the Company’s Director, President, and principal shareholder. With regard only to Kevetrin, the allocation of the 5% of net sales would be as follows: 2% to Dr. Menon (President), 2% to an unaffiliated third party, and 1% to Leo Ehrlich, our CEO. With respect to KM 732, the Company has agreed to pay an individual a fixed payment if the compound is approved for sale in the U.S.
 
 
11

 
 
KEY DEVELOPMENTS DURING THE FISCAL YEAR ENDED JUNE 30, 2014 AND SUBSEQUENT EVENTS

On September 4, 2013, the Company purchased substantially all of the assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. (“Seller”) from the U.S. Bankruptcy Court (see above). The Bankruptcy Cases were pending before the Bankruptcy Court for the District of Delaware and were being jointly administered under Case No. 13-10690 (BLS).

In August 2014, our lead antibiotic compound, Brilacidin, acquired in the above transaction, completed enrollment in a Phase 2b clinical trial for ABSSSI infections in 215 patients. Data collection including other end of study procedures and work on the clinical study report will proceed through the end of the year.

We are in the 9th cohort of a Phase 1 clinical study with our anti-cancer drug Kevetrin. Patient dosing is now set at 350mg/m2 , 35-times the amount of Kevetrin received by the first patients in the trial. Dosing may continue to increase for each cohort until such time as dose limiting toxicity is realized.

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 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. Our Prurisol manufacturer is Dr. Reddy’s Laboratories Ltd. In June 2014, we completed a comparative bioavailability study and are now preparing the submission request to the FDA to begin a Phase 2/3 clinical trial.

In August 2014, we completed our toxicology studies of Brilacidin for use in Oral Mucositis for our planned study 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”. Our IND (Investigative New Drug application) was submitted in September 2014.

We have entered into a research collaboration with Fox Chase Chemical Diversity Center (FCCDC) which has led to an award in June 2014 of a Phase 2b Small Business Innovation Research (SBIR) grant from the National Institute of Allergy and Infectious Disease (NIAID). This $1.5 million dollar grant (over 2 years) will be directed into developing this technology platform on host defense protein (HDP) mimics for treatment of disseminated fungal infections, particularly those caused by Candida species.

 
12

 
 
GLOSSARY OF TERMS

Definitions of certain technical terms used in this report that are commonly used in the pharmaceutical and biotechnology industries

Adenocarcinoma: A cancer that originates in glandular tissue 
 
AKT: Also known as AKT1 or protein kinase B (PKB) is an important molecule in mammalian cellular signaling. 
 
Angiogenesis: is a physiological process involving the growth of new blood vessels from pre-existing vessels. 
 
Cytotoxicity: is the quality of being toxic to cells.
 
Folate: A B-complex vitamin that is being studied as a cancer prevention agent. 
 
In-vitro: refers to the technique of performing a given experiment in a test tube, or, generally, in a controlled environment outside a living organism. 
 
In-vivo: refers that which takes place inside an organism. In science, in vivo refers to experimentation done in or on the living tissue of a whole, living organism as opposed to a partial or dead one. Animal testing and clinical trials are forms of in-vivo research. 

Defensin mimetics: small compounds that mimic the structure and function of host defense proteins.
 
P53, also known as protein 53: A tumor suppressor gene that is mutated in many human cancers and results in the loss of a cell’s ability to check for DNA damage. 
 
Small Molecule Drug: A medicinal drug compound having a molecular weight of less than 1,000 Daltons, and typically between 300 and 700 Daltons. 
 
Xenograft: The cells of one species transplanted to another species. 

DESCRIPTION OF INTELLECTUAL PROPERTY, CURRENT STATUS OF OUR COMPOUNDS

Time Schedules, Milestones and Development Costs
 
In the event that sufficient funding can be obtained, we shall endeavor to achieve completion of the following events within the next twelve months:
 
 
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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.
 
 
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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.

The Company intends to commit resources towards the manufacturing of compounds needed for clinical trials and research. We have budgeted $3,000,000 in costs to be incurred over the next 12 months. 

In addition the Company intends to commit resources towards pre-clinical studies and development of our other compounds not listed separately above. We have budgeted $2,500,000 in costs to be incurred over the next 12 months.
 
The Company has limited experience with pharmaceutical drug development. As such, these budget estimates 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. Such changes may also have an adverse impact on our projected timeline of drug development.
 
The Company believes it can contract the manufacturing of all its compounds at sites certified by the FDA to produce experimental materials that can be sent to outside scientists for pharmaco-kinetic, pharmaco-dynamic and toxicology studies. These three sets of studies must be completed prior to the Company filing an IND with the FDA to begin the human safety and efficacy trials of its other compounds (Phase I, II and III).
 
 
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The work-plan we have developed for the next twelve (12) months is expected to support our clinical trials for Kevetrin, Prurisol, Brilacidin and Brilacidin-OM. If we find that we have underestimated the time duration of our studies, or we have to undertake additional studies, due to various reasons within or outside of our control, this may significantly impact our development timelines and/or our financing needs.

Compound: Kevetrin 
 
Disease: Cancer
 
The Company acquired exclusive rights to Kevetrin in August 2007 from Dr. Krishna Menon, a Company founder. (See Item 13. Certain Relationships and Related Transactions) 
 
There is a potential for use of Kevetrin in multiple tumor types. The Company has conducted pre-clinical studies in lung cancer, head and neck cancer, colon cancer, breast cancer, prostate cancer, pancreatic cancer and in leukemia models. Several of these studies have involved cell lines that are resistant to standard drugs. Information about these cancers is available at http://www.cancer.gov 
 
Kevetrin is being developed as an intravenous (IV) infusion therapy (the giving of the drug directly into the vein). 

The Phase 1 trials for Kevetrin, Cellceutix's novel anti-cancer compound, are being conducted at Harvard Cancer Center's Dana-Farber Cancer Institute and partner Beth Israel Deaconess Medical Center. The clinical trial presently in its 9th cohort, will test Kevetrin against a variety of different solid tumor cancer types in patients with advanced-stage cancers. Primary endpoints for the study will be safety, tolerable dosing levels and establishing the dose for a future Phase II clinical trial. Presently, we are at the mid-latter stage of the trial. The Company has received no notice of events outside of the parameters of the protocol and the trial is progressing. The trial is registered on www.clinicaltrials.gov. http://clinicaltrials.gov/ct2/show/NCT01664000?term=Kevetrin&rank=1
 
Kevetrin has demonstrated the potential for a major breakthrough in cancer research by exhibiting an activation of p53 in both wild and mutant types of p53. p53, often referred to as the “Guardian Angel Gene” or the “Guardian Angel of the Human Genome” due its crucial role in controlling cell mutations, is a tumor suppressor protein that is encoded by the TP53 gene in humans and has been widely regarded as possibly holding a key to the future of cancer therapies. Additional studies have shown that Kevetrin has potent anticancer activity in a wide range of tumor types by targeting histonedeacetylase (HDAC).
 
In March 2012, we entered into an agreement with Beth Israel Deaconess Medical Center (BIDMC), a teaching hospital of Harvard Medical School, on an innovative research project with Kevetrin. The Medical Center wishes to exploit the nuclear and/or mitochondrial pro-apoptotic function of p53 in melanoma and renal cell carcinoma, two types of cancer that are particularly resistant to therapy. BIDMC initiated combination studies with multikinase inhibitors which activate pro-apoptotic activity by translocation of p53 in mitochondria thereby inducing apoptosis. Apoptosis is enhanced by MDM2 inhibitors by stabilizing p53. As presented at the American Association for Cancer Research (AACR) meeting in April, Kevetrin phosphorylates MDM2 which activates and stabilizes p53 by monoubiquitination inducing apoptosis. Prior data from the BIDMC laboratory showed that agents of this class can augment the pro-apoptotic and antitumor effects of MDM2 antagonists and is expected to have a synergistic effect with Kevetrin. BIDMC tested the effects of Kevetrin alone and in combination with FDA-approved VEGFR antagonists in the renal cell carcinoma and melanoma studies. In vitro study endpoints include apoptosis by measuring caspase activation and PARP cleavage. In vivo endpoints include efficacy in a xenograft model, tumor vascularity, p53 levels, p21 expression and apoptosis. This study provided vital insight to exploit the nuclear and/or mitochondrial pro-apoptotic function by Kevetrin in combination with other multikinase inhibitors in treatment of these difficult to treat malignancies. The results received from BIDMC in April 2013, showed apoptosis induction (TUNEL) in renal cancer (786). Results of these preclinical tests provided to date to the Company are encouraging and BIDMC and Cellceutix wish to move the study further. Cellceutix has provided the requested information from BIDMC that will be used to investigate a Specialized Programs of Research Excellence (SPORE) grant for a phase 2 clinical study of renal cancer upon completion of the successful phase 1 clinical study presently in progress.
 
The University of Bologna in Italy (the “University”) and The Italian Cooperative Study Group on Chronic Myeloid Leukemia (ICSG on CML) and Acute Leukemia (GIMEMA Group) plan on testing Kevetrin against Acute Myelogenous Leukemia (AML). We have been advised that the study, a phase 1b trial, will be titled “A Multi-Center, Open-Label, Phase 1B Study of Escalating Doses of Kevetrin (Thioureidobutyronitrile) Administered Intravenously, with Cytarabine Administered A) Subcutaneously, or B) Intravenously, in Patients with Acute Myelogenous Leukemia (AML).” The trial’s principal investigator wants this phase 1b trial to begin once a higher patient dosing is achieved at the Dana Farber trial. The University will source the funding for this trial. We anticipate the trial to begin in the fourth quarter of calendar 2014.

 
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MDAnderson Cancer Center

In June 2013, we signed a Material Transfer Agreement with the University of Texas, MDAnderson Cancer Center. MDAnderson intends to utilize in vivo and in vitro methods to research specific pathways, gene expression, mechanism of action and apoptotic activity of our cancer drugs in a range of concentrations and time points in both mutant and wild-type p53 Myeloma and Lymphoma cell lines. They also wish to study our cancer compounds against a broad array of Multiple Myeloma cell lines that are resistant to today’s FDA-approved chemotherapies. MDAnderson is covering the expenses of the research, with Cellceutix only supplying the drugs. Limited work has been done under this agreement. We believe this agreement will be more beneficial once we are further advanced in our Kevetrin clinical trial.

Kevetrin mechanism involves p53 and p21
 
In laboratory mechanism of action studies, it showed that Kevetrin strongly induced apoptosis in a human lung adenocarcinoma cell line (A549). Treatment of A549 cells with Kevetrin for 48 hours resulted in apoptosis induction that was characterized by activation of caspase 3 and cleavage of PARP.
 
Reactivation of p53 in tumor cells has been recognized as a promising strategy for cancer treatment. The p53 tumor suppressor is a well characterized transcription factor controlling cell growth and apoptosis during times of cellular stress. Kevetrin activates both transcription-dependent and transcription-independent pathways to promote apoptosis through p53 activation in tumor cells.
 
Western blotting revealed a concentration dependent increase in phosphorylation of p53 at serine15 (Ser15). The phosphorylation of p53 at Ser15 leads to a reduced interaction between p53 and its negative regulator, the oncoprotein MDM2, an ubiquitin ligase for p53 that plays a central role in p53 stability. Also, phosphorylation of p53 induced apoptosis by inducing the expression of p53 upregulated modulator of apoptosis (PUMA). In addition, Kevetrin increased expression of p53 target genes such as p21 (Waf1). The tumor suppressor protein p21 (Waf1) acts as an inhibitor of cell cycle progression.
 
Kevetrin activates both transcription-dependent and transcription-independent pathways to promote apoptosis. Kevetrin showed potent efficacy in various mutant and wild type tumor xenograft models, thus Kevetrin demonstrated effectiveness in a wide range of tumor types. Kevetrin enhanced the phosphorylation of MDM2 in a dose dependent manner. Phosphorylation of MDM2 alters the E3 ligase processivity. Stable monoubiquitinated form of p53 was induced by Kevetrin. MDM2 mediated monoubiquitination of p53 greatly promotes its mitochondrial translocation and thus its mitochondrial apoptosis. The induction of transcription-independent p53 induced apoptosis by Kevetrin has far reaching significance with tumor with mutant p53.
 
Inactivation of p53 by mutation occurs in ~50% of human cancers. Transcription mediated response of activated mutant p53 does not necessarily lead to apoptosis. Mutant p53 can act in the cytosol and mitochondria to promote apoptosis through a transcription-independent mechanism. Kevetrin can stabilize the transactivation-deficient mutant p53 and induce apoptosis.
 
Stable monoubiquitinated mutant p53 was induced by Kevetrin. This stable form of p53 accumulates in the cytoplasm and mitochondria and retains the ability to interact with BAK or BAX proteins in mitochondria to induce apoptosis.
 
Since Kevetrin activates both transcription-dependent and transcription-independent pathways to promote p53 activation, Kevetrin can function as a major inducer of apoptosis in many types of tumors independent of p53 mutation status. Activation of both modes of apoptosis by Kevetrin may not be mutually exclusive. Most likely, both modes of apoptosis induction cooperate and complement each other.
 
Genotoxicity

Most currently available chemotherapeutic drugs are genotoxic in nature and damage DNA. A DNA damaging drug results in rapid phosphorylation of H2A.X at Ser 139 by PI3K-like kinases. Kevetrin did not induce this phosphorylation at a concentration that caused cell cycle arrest and apoptosis; whereas, Doxorubicin did induce the phosphorylation of H2A.X, as shown by Western blot assay. These results suggest that Kevetrin, in a non-genotoxic way, induces p53 activation.
 
 
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Biomarker

We identified the increased expression of p21 as a potential biomarker in our clinical trial for Kevetrin. Preliminary data on the p21 biomarker suggests that Kevetrin slightly affected p21 in some low-dose patients, but these tests require being redone and reanalyzed at higher doses to confirm that Kevetrin is indeed activating p21.
 
Compound: Prurisol (KM-133) 
 
Disease: Psoriasis

Prurisol is our anti-psoriasis drug candidate. It is a small molecule with a molecular weight of less than 500 MW. It is synthesized through a multi-step process using commercially available starting materials. Prurisol acts through immune modulation and PRINS reduction.
 
KM-133, is a small molecule compound, acting on the principles of folate mechanism. After a series of chemical optimization exercises, the Company had completed an animal study in a xenograft model of psoriasis. The results of the study are described below:
 
KM-133 was studied in mice that were irradiated then engrafted with human psoriatic tissue. Groups of ten mice were treated orally for 14 days with either 10 mg/kg KM-133 once/day, 10 mg/kg KM-133 twice/day, 7.5 mg/kg methotrexate once/day or acted as controls. The mice were followed for 180 days. Endpoints were skin appearance, histological observations, and blood levels of PRINS and IL-20. For these parameters, KM-133 was compared to controls and methotrexate. CD4+ and CD8+ lymphocyte counts were also measured and compared to efalizumab.
 
KM-133 significantly reduced all psoriatic endpoints measured relative to controls (p<0.01). The higher dose of KM-133 reduced psoriatic endpoints more than methotrexate (p<0.01). In addition, there was no recurrence of psoriasis in animals treated with KM-133, whereas psoriasis recurred after an average of 61 days in animals treated with methotrexate. Immunosuppression in animals treated with KM-133 was less severe than in those treated with efalizumab. 
 
Regulatory
 
In June 2012 Cellceutix participated in a pre IND meeting with the U.S. Food and Drug Administration ("FDA") pertaining to Prurisol™. The Company had requested the meeting for guidance on its initiatives to seek a section 505(b)(2) designation for Prurisol™, which would allow the Company 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 September 2012, Cellceutix selected Dr. Reddy's Laboratories as its vendor to manufacture and formulate Prurisol for planned clinical trials. In June 2014, Cellceutix completed a Phase 1 study and is now preparing the submission request to the FDA to begin a Phase II/III clinical trial.

Compound: KM 391
 
Disease: Autism 
 
KM-391 is a small molecule being developed for autism. The Company acquired the rights to KM-391 in December 2009. The Company has completed three animal studies with KM -391.
 
Study #1
 
Neonatal serotonin depletion and reduced plasticity of the brain are salient features observed in Autism. To experimentally induce these changes, 5,7-dihydroxytyptamine (5,7-DHT) was injected into the forebrain bundle on the day of birth of Wistar rat pups. Litter mates were injected with saline with progeny matched mice serving as controls.
 
 
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5,7-DHT treated control rats significantly reduced their exploration in response to spatial rearrangement and object novelty, suggesting increased anxiety in response to change. A decrease in brain plasticity was observed, as well as a significant decrease in serotonergic (5-HT) innervation in the cortex and hippocampus; however, not in the subcortical forebrain. These changes and abnormalities are similar to our understanding of brain disorders presenting with cortical morphogenetic abnormalities and altered serotonin neurotransmission, as in Autism.
 
For the study, 100 µl of 5,7-DHT were injected 4 hours after birth. The animals were observed hourly for a few days until survival was established. Pair matching was done taking into consideration litter mating. Each group consisted of 10 male and 10 female rats with pair matching. KM-391 was given orally at 2.5 or 5 mg/kg; for comparison, fluoxetine was given at 5 mg/kg; and the 4th group served as 5,7-DHT-treated controls. The compounds were administered orally up to 90 days. The animals were scored for behavioral patterns, plasticity and serotonin levels. Behavioral scoring was done by standard behavioral test scoring, plasticity was calculated by surgical scoring, and serotonin levels were obtained by immunohistochemistry. 

Conclusions

Treatment with KM-391 for 90 days resulted in:
Correction of abnormal behavior (p<0.05 vs. controls and fluoxetine)
Increased plasticity of brain ~ 85% by Day 100
Increase in brain serotonin levels to normal levels of paired twins (p<0.05 vs. controls and fluoxetine)

Study #2
 
Neonatal serotonin depletion and reduced plasticity of the brain are salient features observed in Autism. It has been shown that injection of 5,7-dihydroxytyptamine (5,7-DHT) into the forebrain bundle of Wistar rat pups on the day of birth will induce these changes. It has also been shown that oxytocin / vasopressin has a beneficial impact on repetitive behavior symptoms of autism, such as, touching, self-injury ( Hollander 2003 Neuropharm 28:193), social behavior (Andari 2010 PNAS 107:4389), and emotion recognition (Guastella 2010 Biol Psychiatry 67:692). In this experiment, 5,7-DHT was injected into test animals, that induces certain conditions of autistic behavior, and an oxytocin antagonist was given to exacerbate these behavioral changes often observed in patients.
 
For the study, 5,7-DHT were injected 4 hours after birth. The animals were observed hourly for a few days until survival was established. Pair matching was done taking into consideration litter mating. Each group consisted of 5 male and 5 female rats with pair matching. To exacerbate behavioral changes, atosiban, an oxytocin antagonist, was administered to the pups by slow intravenous push. Then, KM-391 was given orally at 10 mg/kg. Two groups were given placebo in place of atosiban. Behavior was monitored for up to 8 hours after dosing. Standard behavioral test scoring was performed for: repetitive behavior, self-induced injury, sensitivity to touch, positioning correction, group dynamics, and curiosity. This procedure was repeated with the same animals on days 5 and 10.
 
Conclusions

The administration of an oxytocin antagonist alone consistently and significantly enhanced the autism-related behaviors. When KM-391 was given along with the oxytocin antagonist, there was a significant reduction in all 6 autism-related behaviors: repetitive behavior, self-induced injury, sensitivity to touch, positioning correction, group dynamics, and curiosity, within 1 to 2 hours. These results support the testing of KM-391 as a possible therapeutic agent in the treatment of autistic behavior in patients.

Study #3
 
Neonatal serotonin depletion in the brain is an established observation observed in Autism. It has been shown that injection of 5,7-dihydroxytyptamine (5,7-DHT) into the forebrain bundle of Wistar rat pups on the day of birth will induce this depletion. In this experiment, serotonin levels were measured in three different regions of the brain in rats: cerebral cortex, hippocampus, or caudate nucleus, following either 5,7-DHT injection alone (induced autism), 5,7-DHT injection followed by 10 mg/kg KM-391 BID, or placebo treated controls.
 
For the study, two groups of rats were injected with 5,7-DHT 4 hours after birth. The animals were observed hourly for a few days until survival was established. Pair matching was done taking into consideration litter mating. Each group consisted of 5 male and 5 female rats with pair matching. A third group consisted of pups without 5,7-DHT injection. In one group KM-391 was given orally at 10 mg/kg BID for 40 days after 5,7-DHT injection. Two other groups were given placebo in place of KM-391. 48 days later, rats were sacrificed and brains were removed. Brains were sectioned, homogenized, and assayed for serotonin by ELISA.
 
Conclusions: The administration of KM-391 significantly (p<0.01) increased serotonin levels in all 3 regions of the brain: cerebral cortex, hippocampus, and caudate nucleus, from very low levels as observed with 5,7-DHT-induced autism to normal levels as observed in placebo treated control without the 5,7-DHT. These results further support the testing of KM-391 as a possible therapeutic agent in the treatment of autism in patients.
 
 
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Further experiments are planned but are presently delayed due to our focus on other compounds.
 
Compound: KM 277 

Disease: Arthritis 
 
In-vivo studies on over 1,000 animal subjects have been conducted to check for potential efficacy of KM 277 in rheumatoid arthritis. These studies, as well as related in vitro assays, have led the Company’s management to believe that the compound has developmental potential for the treatment of the disease. 
 
Further experiments are planned but are presently delayed due to our focus on other compounds.

Compound: KM 278 
 
Disease: Arthritis/Asthma 
 
KM 278 showed potential efficacy in both Osteoarthritis animal models and Asthma animal models. KM 278 was tested against standard treatment for asthma and Osteoarthritis. These studies have led the Company’s management to believe that the compound has developmental potential for the treatment of asthma and Osteoarthritis. 
 
Further experiments are planned but are presently delayed due to our focus on other compounds.

Compound: KM-362
 
Disease: MS/ALS/Parkinsons 
 
Amyelination (absence of the myelin sheath on a nerve), is a characteristic in most neurological diseases such as Lou Gherig Disease, Parkinson’s Disease and Multiple Sclerosis. Initial studies suggest that this compound aids in demyelination (the loss of nerve fiber "insulation" due to trauma or disease, which reduces the ability of nerves to conduct impulses) along with strengthening the functions of the nerves, spinal chord and the brain tissue. These studies led the Company’s management to believe that the compound has developmental potential for the treatment of these diseases. 
 
Further experiments are planned but are presently delayed due to our focus on other compounds.

Compound: KM-3174 
 
Disease: Cancer 
 
This is a very early stage developmental compound in the treatment of cancer. After additional in vitro and in vivo studies the Company will determine whether to advance this compound for further development. 
 
Further experiments are planned but are presently delayed due to our focus on other compounds.

Compound: KM-732
 
Disease: Hypertensive Emergency
 
This is a very early-stage developmental compound with potential for the treatment of hypertensive emergency. After additional in vitro and in vivo studies, the Company will determine whether to advance this compound for further development.
 
Further experiments are planned but are presently delayed due to our focus on other compounds.

 
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Brilacidin™ for ABSSSI

The intravenous formulation of our lead antibiotic candidate, Brilacidin, has the potential to treat a variety of indications, including ACUTE BACTERIAL SKIN AND SKIN STRUCTURE INFECTIONS (“ABSSSI”) caused by either drug-sensitive or drug-resistant strains of Staphylococcus aureus bacteria.

The Phase 2b trial entitled “A Randomized, Double-Blind Study Comparing Three Dosing Regimens of Brilacidin to Daptomycin in the Treatment of Acute Bacterial Skin and Skin Structure Infections (ABSSSI)” completed enrollment of 215 patients in August 2014. Results of the study are expected in the fourth quarter calendar 2014.

Previously in April 2012, Polymedix completed and announced positive results from a Phase 2 clinical trial with Brilacidin. This randomized, blinded, active-controlled, multinational Phase 2 clinical trial was conducted at multiple sites in Canada, Russia and Ukraine. The study objectives were to evaluate the safety and efficacy of Brilacidin as treatment for ABSSSI caused by Staphylococcus aureus, including methicillin-resistant Staphylococcus aureus (MRSA). The study objectives were met, with all evaluated doses of Brilacidin demonstrating similar clinical response rates to those of the active control, daptomycin. The study was conducted in accordance with FDA’s most recent ABSSSI guidelines and is intended to support regulatory approval in the United States. As expected, and consistent with previous clinical studies, patients receiving Brilacidin commonly reported sensations of numbness and tingling that were generally characterized as mild and resolved following treatment. No patient stopped treatment as a result of these sensations. Other treatment-related adverse events included hypertension, injection site pain, nausea, vomiting, vertigo, and pyrexia. There was one treatment-related serious adverse event that was at least possibly drug-related reported in each Brilacidin study arm. Treatment-related serious adverse events included an instance of hypertension in the medium and high dose regimens, which discontinued therapy, and an instance of increased platelets in the low dose regimen. In the recently completed Phase 2b study,there was a significant decrease in adverse events, most likely due to the lower Brilacidin dosing.

Brilacidin for Oral Mucositis

In animal models of oral mucositis, an oral rinse containing Brilacidin was shown to reduce the occurrence of severe ulcerative oral mucositis by more than 90% compared to placebo. Brilacidin and related compounds have shown antibacterial, anti-biofilm and anti-inflammatory properties in various pre-clinical studies. We believe that the combination of these attributes contribute to the efficacy of Brilacidin in these animal models. In December 2013, the Company filed an application with the U.S. Food and Drug Administration requesting Orphan Drug designation for Brilacidin as a drug candidate for the prevention oral mucositis in head and neck cancer. FDA has advised the company that the data would indicate the Brilacidin-OM could treat not only patients that have radiation induced OM but potentially treat as well patients with chemotherapy-induced OM. Therefore the target population would exceed the number of patients that would qualify for orphan drug designation.

Based on a successful meeting between PolyMedix, Inc. and the Food and Drug Administration in 2012 discussing a Phase 2 trial for Oral Mucositis, in September 2014 Cellceutix filed an IND (Investigative New Drug application) for its planned trial 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”.

Brilacidin for Diabetic Foot Ulcer, Ophthalmic, and Otitic Infections

Cellceutix is formulating and conducting preclinical experiments on Brilacidin for diabetic foot ulcer infections, ophthalmic (eye) infections, including keratitis and conjunctivitis; and for ear-related infections, such as otitis media. On July 14, 2014, the Company announced that a significant breakthrough had been made in the formulation of Brilacidin. Previously, Brilacidin was stored in a refrigerated state. The Company has now developed the formulation of Brilacidin to be stable at room temperature.

Further formulation work is needed for each indication. Upon a successful formulation the Company plans to advance these drugs into the clinic. The Company believes this work is challenging and will not be completed in calendar 2014.

 
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Delparantag™

Delparantag (formerly PMX-60056) is a synthetic, small-molecule intended to reverse the effects of the commonly used anticoagulants unfractionated heparin (UFH), and its derivatives, low molecular weight heparins (LMWH), to help manage the balance of antithrombosis and anticoagulation and reduce the incidence of bleeding in certain interventional cardiology procedures, such as Percutaneous Coronary Intervention (PCI) and Coronary Arterial Bypass Grafting (CABG), and other situations where UFH and LMWH are used and bleeding may occur.

In May 2012, Polymedix announced that they had stopped enrollment in two clinical trials for delparantag: a Phase 2 clinical trial for reversing the anticoagulant activity of UFH in patients undergoing PCI procedures, and a Phase 1B/2 clinical trial for reversing the anticoagulant activity of the LMWH enoxaparin in healthy volunteers. While delparantag showed activity in neutralizing both UFH and the LMWH enoxaparin in these clinical trials, Polymedix decided to stop enrollment in both trials due to observations of reductions in blood pressure in some patients.

The Company is presently evaluating this drug for other diseases including Chronic Obstructive Pulmonary Disease (COPD).

Gram Negative Klebsiella

We are evaluating several novel antibiotic compounds against specific strains of multi-drug resistant Klebsiella pneumoniae. The research, which is government funded through existing grants to research institutions, is being conducted at a major university in Texas. We expect to advance a lead compound toward an IND filing in 2015.

Anti-Fungals

We have entered into a research collaboration with Fox Chase Chemical Diversity Center (FCCDC) which has led to an award of a Phase 2b Small Business Innovation Research (SBIR) grant from the National Institute of Allergy and Infectious Disease (NIAID). This $1.5 million dollar grant (over 2 years) will be directed into developing this technology platform on host defense protein (HDP) mimics for treatment of disseminated fungal infections, particularly those caused by Candida species. We expect to advance a lead compound toward an IND filing in 2015.

Other

Other product candidates, include; compounds active against other Gram-negative bacterias, malaria, tuberculosis, biowarfare pathogens, and PolyCide® antimicrobial biomaterials.
 
MANUFACTURING
 
The Company does not intend to establish manufacturing capabilities or facilities to produce its product candidates (compounds) in the near or mid-term. The Company intends on using outside sources for its manufacturing needs.

GOVERNMENT REGULATION 
 
Our operations and activities are subject to extensive regulation by numerous government authorities in the United States and other countries. In the United States, drugs are subject to rigorous regulation by the United States Food and Drug Administration (“FDA”). The Federal Food, Drug and Cosmetic Act, and other federal and state statutes and regulations, govern the testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our products. As a result of these regulations, product development and the product approval process is a very expensive and time consuming process. The FDA must approve a drug before it can be sold in the United States. The general process for FDA approval of a drug is as follows:
 
Preclinical Testing
 
Before we can test a drug candidate in humans, we must study the drug in laboratory experiments and in animals to generate data to support the drug's potential safety and benefits. We submit this data to the FDA in an investigational new drug application (IND) seeking their approval to test the compound in humans. Presently we have a number of compounds that would be classified in the category of preclinical testing.

 
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Clinical Trials
 
If the FDA accepts the IND, we study the drug in human clinical trials to determine if the drug is safe and effective. These clinical trials involve three separate phases that often overlap, can take many years to compile, and are very expensive. These three phases, which are themselves subject to considerable regulation, are as follows:
 
Phase 1. The drug is given to a small number of human subjects (patients) to test for safety, dose tolerance, pharmacokinetics, metabolism, distribution and excretion. In most disease states phase 1 studies are performed in healthy volunteers. In cancer, Phase 1 studies are performed in cancer patients.

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. 
 
Phase 3. If a compound appears to be effective and safe in Phase 2 clinical trials, Phase 3 clinical trials are commenced to confirm those results. Phase 3 clinical trials are long-term, involve a significantly larger population of patients, are conducted at numerous sites in different geographic regions, and are carefully designed to provide reliable and conclusive data regarding the safety and benefits of a drug. It is not uncommon for a drug that appears promising in Phase 2 clinical trials to fail in the more rigorous and reliable Phase 3 clinical trials. 
 
FDA Approval Process
 
If we believe that the data from the Phase 3 clinical trials show an adequate level of safety and effectiveness, we will file a new drug application (NDA) with the FDA seeking approval to sell the drug for a particular use. The FDA will review the NDA and often will hold a public hearing where an independent advisory committee of expert advisors asks additional questions regarding the drug. This committee makes a recommendation to the FDA, which is not binding on the FDA, but is generally followed. If the FDA agrees that the compound has met the required level of safety and effectiveness for a particular use, it will allow the Company to sell the drug in the United States for that use. It is not unusual, however, for the FDA to reject an application because it believes that the drug is not safe enough, or effective enough, or because it does not believe that the data submitted is reliable or conclusive. 
 
At any point in this process, the development of a drug could be stopped for a number of reasons including safety concerns and lack of treatment benefit. We cannot be certain that any clinical trials that we are currently conducting or any that we conduct in the future, will be completed successfully or within any specified time period. We may choose, or the FDA may require us, to delay or suspend our clinical trials at any time if it appears that the patients are being exposed to an unacceptable health risk or if the drug candidate does not appear to have sufficient treatment benefit.

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. 
 
In addition to obtaining FDA approval for each drug, we must obtain FDA approval of the manufacturing facilities for any drug we sell, including those of companies who manufacture our drugs for us. The FDA must also approve foreign establishments that manufacture products to be sold in the United States and these facilities are subject to periodic regulatory inspection. 
 
Should our products be approved for marketing, we would also be subject to various other State and Federal laws concerning the marketing and cost reimbursement of our products. 
 
Other major countries or groups of countries, such as the European Union, Japan and Canada, have similarly rigorous regulatory processes. They may also require studies not required by the FDA, which can add to the cost and risk of development. Products approved by the FDA might not be approved by these countries. After review by the health authorities, pricing and cost reimbursement are also subject to separate approvals in many of these countries.
 
 
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COMPETITION
 
Competition in the pharmaceutical and biotechnology industries is intense. The drugs that we are developing will have to compete with existing therapies. In addition, a large number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. Many pharmaceutical or biotechnology companies have products on the market and are actively engaged in the research and development of products that are competitive with our potential products. Many of these companies and institutions, either alone or together with their collaborative partners, have substantially greater financial, manufacturing, sales, distribution and technical resources and more experience in research and development, clinical trials and regulatory matters, than we do. In addition, our competitors may succeed in developing technologies and drugs that are more effective, better tolerated or less costly than any which are being developed by us or which would render our technology or potential drugs obsolete or noncompetitive.
 
With respect to Kevetrin, our lead compound for cancer, there are many drugs approved to treat various cancers and many more in the publicly disclosed development pipeline. The same is true for our other compounds in clinical trials, Prurisol and Brilacidin. There are many drugs approved to treat various forms of psoriasis and ABSSSI and many more in the publicly disclosed development pipeline. Our success depends on our ability to identify types of these respective diseases where our drugs have an advantage over existing therapies and those in the publicly disclosed development pipeline.
 
 EMPLOYEES
 
As of June 30, 2014, the Company had nine employees. Its officers, Krishna Menon and Leo Ehrlich have employment agreements with the Company expiring on December 31, 2014. The Company also conducts its operations using contractors and consultants.

CORPORATE INFORMATION
 
The Company's corporate headquarters are located at 100 Cummings Center, Suite 151-B, Beverly, MA, 01915. The Company's telephone number is (978) 236-8717.
 
ITEM 1A. RISK FACTORS
 
Investing in the Company's common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together with all of the other information included or referred to in our Annual Report on Form 10-K, before purchasing shares of the Company's common stock. There are numerous and varied risks, known and unknown, that may prevent the Company from achieving its goals. The risks described below are not the only ones the Company will face. If any of these risks actually occur, the Company's business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of the Company's common stock could decline and investors in the Company's common stock could lose all or part of their investment.
 
Risks Specific to Us
 
We need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms, which could prevent us from fully implementing our business, operating and development plans.
 
We currently have an approximate $5.0 million cash balance in the bank but that is insufficient to complete the development and commercialization of any of our proposed products. We expect to incur costs of approximately $16.8 million in the upcoming twelve (12) months to operate our business in accordance with our business plans and budgets.

 
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On October 25, 2013 we entered into a Purchase Agreement with Aspire Capital which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20 million of our shares of Class A Common Stock over the approximately 36-month term of the Purchase Agreement. The extent to which we utilize the Purchase Agreement as a source of funding will depend on a number of factors, including the prevailing market price of our Class A Common Stock, the volume of trading in our Class A Common Stock and the extent to which we are able to secure funds from other sources. The number of shares that we may sell to Aspire Capital under the Purchase Agreement on any given day and during the term of the Purchase Agreement is limited. See the Section entitled “Selling Stockholders - The Aspire Transaction” of this prospectus for additional information. Additionally, we and Aspire Capital may not affect any sales of shares of our Class A Common Stock under the Purchase Agreement during the continuance of an event of default or on any trading day that the closing price of our stock falls below $0.25 per share. Even if we are able to access the full $20,000,000 under the Purchase Agreement, we will still need additional capital to fully implement our business, operating and development plans.

Previously on December 6, 2012, we entered into a Common Stock Purchase Agreement with Aspire Capital pursuant to which Aspire Capital committed to purchase up to an aggregate of $10 million of our shares of Class A Common Stock over three years. On October 23, 2013, Aspire Capital completed its purchase of the full $10 million available under that agreement. However, there is no guarantee that we will be able to access the full $20 million available under the new Purchase Agreement in the same manner given the limitations and conditions described above.
 
If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, which are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable to continue our operations.
 
We may be unable to secure this amount of financing on terms and conditions acceptable to the Company. In the event that we cannot obtain acceptable financing, we would be unable to complete preclinical development projects, and clinical trials for Kevetrin, Prurisol, and Brilacidin. This will delay:
 
 
research and development programs;
 
 
preclinical studies and clinical trials; material characterization studies, regulatory processes;
 
 
establishment of our own laboratory or a search for third party marketing partners to market our products for us.
 
The amount of capital we may require will depend on many factors, including the:
 
 
progress, timing and scope of our research and development programs;
 
 
progress, timing and scope of our preclinical studies and clinical trials;
 
 
time and cost necessary to obtain regulatory approvals;
 
 
time and cost necessary to establish our own marketing capabilities or to seek marketing partners;
 
 
time and cost necessary to respond to technological and market developments;
 
 
changes made or new developments in our existing collaborative, licensing and
 
 
other commercial relationships; and
 
 
new collaborative, licensing and other commercial relationships that we may establish.
 
 
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Our fixed expenses, such as rent and other contractual commitments, may increase in the future, as we may:
 
 
enter into leases for new facilities and capital equipment;
 
 
enter into additional licenses and collaborative agreements; and
 
 
incur additional expenses associated with being a public company.

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. 
 
As of June 30, 2014, we had approximately $5.0 million of cash available to support operations or our business plan. Our operating cash needs, cash consumption, and doubt as to whether we will ever become profitable, are factors which raise substantial doubt as to our ability to continue as a going concern. Consequently, our independent registered public accounting firm has included a going concern paragraph in its audit report which is included in our Annual Report on Form 10-K for our fiscal year ended June 30, 2014. It is uncertain at this time how the going concern language by our independent registered public accounting firm will affect our ability to raise capital. If we are unable to achieve revenues or obtain financing on terms and conditions acceptable to the Company, then we may not be able to commence revenue-generating operations or continue as an on-going concern. 
 
The sale of our Class A Common Stock to Aspire Capital may cause substantial dilution to our existing stockholders and the sale of the shares of Class A Common Stock acquired by Aspire Capital could cause the price of our Class A Common Stock to decline, which could have a materially adverse effect on our business.
 
We have registered for sale the Commitment Shares that we have issued to Aspire Capital, and an additional 13,789,477 shares of Class A Common stock that we may sell to Aspire Capital under the Purchase Agreement. It is anticipated that shares registered in this offering will be sold over a period of up to approximately 36 months from October 25, 2013, the date of the signing of the Purchase Agreement. The number of shares ultimately offered for sale by Aspire Capital under this prospectus is dependent upon the number of shares we elect to sell to Aspire Capital under the Purchase Agreement. Depending upon market liquidity at the time, sales of shares of our Class A Common Stock under the Purchase Agreement may cause the trading price of our Class A Common Stock to decline.

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.
 
Aspire Capital may ultimately purchase all, some or none of the Class A Common Stock that, together with the Commitment Shares, is the subject of this prospectus. Aspire Capital may sell all, some or none of our shares that it holds or comes to hold under the Purchase Agreement. Sales by Aspire Capital of shares acquired pursuant to the Purchase Agreement under the registration statement, of which this prospectus is a part, may result in dilution to the interests of other holders of our Class A Common Stock. The sale of a substantial number of shares of our Class A Common Stock by Aspire Capital in this offering, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. However, we have the right to control the timing and amount of sales of our shares to Aspire Capital, and the Purchase Agreement may be terminated by us at any time at our discretion without any penalty or cost to us.
 
All of our Polymedix drug product candidates are licensed from or based upon licenses from the University of Pennsylvania. Upon our purchase of the Polymedix Assets we assumed all contractual rights and obligations of the licenses. If any of these license agreements are terminated, our ability to advance our Polymedix product candidates or develop new product candidates will be materially adversely affected which could have a materially adverse effect on our business.
 
 
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We now depend, and will continue to depend, on our Polymedix licenses and potentially on other licensing arrangements and/or strategic relationships with third parties for the research, development, manufacturing and commercialization of our Polymedix product candidates. If any of our licenses or relationships are terminated or breached, we may:
 
 
lose our rights to develop and market our Polymedix product candidates;

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

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

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

 
incur liability for damages.
 
If we experience any of the foregoing, it could have a materially adverse effect on our business and could force us to cease operations which could cause you to lose all of your investment.
 
We are a development stage company and have no products approved for commercial sale, have never generated any revenues, and may never achieve revenues or profitability.
 
We are a development stage biopharmaceutical company. Currently, we have no products approved for commercial sale and, to date, we have not generated any revenues. Our ability to generate revenue depends heavily on:
 
 
successful demonstration in clinical trials that our drug candidates, Kevetrin, Prurisol, and Brilacidin are safe and effective;

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

 
the successful commercialization of our product candidates; and

 
market acceptance of our products.
 
If we do not successfully develop and commercialize at least one of our compounds, we will not achieve revenues or profitability in the foreseeable future, if at all. If we are unable to generate revenues or achieve profitability, we may be unable to continue our operations. 
 
We are a development stage company with a limited operating history, making it difficult for you to evaluate our business and your investment, and we may never generate any revenue which could cause us to cease operations.
 
 
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We are in the development stage and our operations and the development of our proposed products are subject to all of the risks inherent in the establishment of a new business enterprise, including but not limited to: 
 
 
the absence of an operating history; 
 
 
the lack of commercialized products; 
 
 
insufficient capital;
 
 
expected substantial and continual losses for the foreseeable future; 
 
 
limited experience in dealing with regulatory issues; 
 
 
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. 
 
Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our Company. Our ability to become profitable depends primarily on the following factors:
 
 
our ability to develop drugs, obtain approval for such drugs, and if approved, to successfully commercialize our drugs;
 
 
our R&D efforts, including the timing and cost of clinical trials; and
 
 
our ability to enter into favorable alliances with third-parties who can provide substantial capabilities in clinical development, regulatory affairs, sales, marketing and distribution. 

Even if we successfully develop and market our drug candidates, we may not generate sufficient or sustainable revenue to achieve or sustain profitability, which could cause us to cease operations.
 
We have limited experience in drug development and may not be able to successfully develop any drugs. 
 
We have limited experience in drug development and may not be able to successfully develop any drugs. Our ability to achieve revenues and profitability in our business will depend, among other things, on our ability to:
 
 
develop products internally or obtain rights to them from others on favorable terms; 
 
 
complete laboratory testing and human 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. 
 
 
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If we are unable to achieve revenues and profitability, then we will be forced to cease operations which could cause you to lose all of your investment.
 
Development of pharmaceutical products is a time-consuming process, subject to a number of factors, many of which are outside of our control. Consequently, we can provide no assurance of the successful and timely development of new drugs, and the failure to do so could cause us to cease operations.
 
Our drug candidates are in developmental and phase 1 and 2 clinical stages but have not yet reached the most important clinical phase 3 stage. Further development and extensive testing will be required to determine their technical feasibility and commercial viability. Our success will depend on our ability to achieve scientific and technological advances and to translate such advances into reliable, commercially competitive drugs on a timely basis. Drugs that we may develop are not likely to be commercially available for several years, if ever. The proposed development schedules for our drug candidates may be affected by a variety of factors, including technological difficulties, proprietary technology of others, and changes in government regulation, many of which will not be within our control. Any delay in the development, introduction or marketing of our drug candidates could result either in such drugs being marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their commercial lives. In light of the long-term nature of our projects, the unproven technology involved and the other factors described elsewhere in “Risk Factors”, we may not be able to complete successfully the development or marketing of any of our drug candidates. 
 
We may fail to successfully develop and commercialize our drug candidates because they:
 
 
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.

Drug development failure can occur at any stage of clinical trials and as a result of many factors and there can be no assurance that we will reach our anticipated clinical targets. Even if we complete our clinical trials, we do not know what the long-term effects of exposure to our drug candidates will be. Furthermore, our drug candidates may be used in combination with other treatments and there can be no assurance that such use will not lead to unique safety issues. Failure to complete clinical trials or to prove that our drug candidates are safe and effective would have a material adverse effect on our ability to generate revenue and could require us to reduce the scope of or discontinue our operations, which could cause you to lose all of your investment.
 
We must comply with significant and complex government regulations, compliance with which may delay or prevent the commercialization of our drug candidates which could have a materially adverse effect on our business.
 
The R&D, manufacture and marketing of drug candidates are subject to regulation, primarily by the FDA in the United States, and by comparable authorities in other countries. These national agencies and other federal, state, local and foreign entities regulate, among other things, R&D activities (including testing in animals and in humans) and the testing, manufacturing, handling, labeling, storage, record keeping, approval, advertising and promotion of the products that we are developing. Noncompliance with applicable requirements can result in various adverse consequences, including approval delays or refusals to approve drug licenses or other applications, suspension or termination of clinical investigations, revocation of approvals previously granted, fines, criminal prosecution, recalls or seizures of products, injunctions against shipping drugs and total or partial suspension of production and/or refusal to allow a company to enter into governmental supply contracts. 
 
 
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The process of obtaining FDA approval for a drug has historically been costly and time consuming. Current FDA requirements for a new human drug or biological product to be marketed in the United States include: (i) the successful conclusion of pre-clinical laboratory and animal tests, if appropriate, to gain preliminary information on the product's safety; (ii) filing with the FDA of an IND application to conduct human clinical trials for drugs or biologics; (iii) the successful completion of adequate and well-controlled human clinical investigations to establish the safety and efficacy of the product for its recommended use; and (iv) filing by a company and acceptance and approval by the FDA of a New Drug Application (“NDA”), for a drug product or a biological license application (“BLA”), for a biological product to allow commercial distribution of the drug or biologic. A delay in one or more of the procedural steps outlined above could be harmful to the Company in terms of getting our drug candidates through clinical testing and to market. 
 
The FDA reviews the results of the clinical trials and may order the temporary or permanent discontinuation of clinical trials at any time if it believes the drug candidate exposes clinical subjects to an unacceptable health risk. Investigational drugs used in clinical studies must be produced in compliance with current good manufacturing practice (“cGMP”) rules pursuant to FDA regulations. 
 
Sales outside the United States of products that we develop will also be subject to additional regulatory requirements governing human clinical trials and marketing for drugs and biological products and devices. The requirements vary widely from country to country, but typically the registration and approval process takes several years and requires significant resources.
 
We also are subject to the following risks and obligations, related to the approval of our products:
 
·
The FDA or foreign regulators may interpret data from pre-clinical testing and clinical trials in different ways than we interpret them. 
·
If regulatory approval of a product is granted, the approval may be limited to specific indications or limited with respect to its distribution. In addition, many foreign countries control pricing and coverage under their respective national social security systems. 
·
The FDA or foreign regulators may not approve our manufacturing processes or manufacturing facilities.
·
The FDA or foreign regulators may change their approval policies or adopt new regulations. 
·
Even if regulatory approval for any of our product is obtained, the corresponding marketing license will be subject to continual review, and newly discovered or developed safety or effectiveness data may result in suspension or revocation of the marketing license.
·
If regulatory approval of the product candidate is granted, the marketing of that product would be subject to adverse event reporting requirements and a general prohibition against promoting products for unapproved uses. 
·
In some foreign countries, we may be subject to official release requirements that require each batch of the product we produce to be officially released by regulatory authorities prior to its distribution by us. 
·
We will be subject to continual regulatory review and periodic inspection and approval of manufacturing modifications, including compliance with cGMP regulations. 

If we do not have the requisite resources to comply with all applicable regulations, then we could be forced to cease operations which could cause you to lose all of your investment.
 
Even if we were to successfully develop approvable drugs, we will not be able to sell these drugs if we or our third party manufacturers fail to comply with manufacturing regulations
 
If we were to successfully develop approvable drugs, before we can begin selling these drugs, we must obtain regulatory approval of our cGMP manufacturing facility and process or the cGMP manufacturing facility and process of the third party or parties with whom we may outsource our manufacturing activities. The cGMP regulations govern quality control and documentation policies and procedures. Our manufacturing facilities, if any in the future, and the manufacturing facilities of our third party manufacturers will be continually subject to inspection by the FDA and other state, local and foreign regulatory authorities, before and after product approval. We cannot guarantee that we, or any potential third party manufacturer of our products, will be able to comply with the cGMP regulations or other applicable manufacturing regulations, and any failure to comply could have a materially adverse effect on our business.
 
 
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We can provide no assurance that our drug candidates will obtain regulatory approval or that the results of clinical studies will be favorable, and if we fail to obtain such approval or if clinical studies are not favorable, we could be forced to cease operations.
 
Presently, we are in a Phase 1 clinical trial for Kevetrin, our anti-cancer drug; preparing for a Phase 2 study for Prurisol (anti-psoriasis); and a Phase 2b for Brilacidin (ABSSSI). The work-plan we have developed for the next twelve (12) months should enable us to advance Kevetrin’s clinical trial to Phase 2; commence Phase 2 clinical trials for Prurisol; commence Phase 3 clinical trials for Brilacidin (ABSSSI); and commence Phase 2 for Brilacidin-OM (oral mucositis).
 
The testing, marketing and manufacturing of any product for use in the United States will require approval from the FDA. We cannot predict with any certainty the amount of time necessary to obtain such FDA approval and whether any such approval will ultimately be granted. Preclinical and clinical trials may reveal that one or more products are ineffective or unsafe, in which event further development of such products could be seriously delayed or terminated. Moreover, obtaining approval for certain products may require testing on human subjects of substances whose effects on humans are not fully understood or documented. Delays in obtaining FDA or any other necessary regulatory approvals of any proposed drugs, and failure to receive such approvals, would have an adverse effect on the drug's potential commercial success and on our business, prospects, financial condition and results of operations. In addition, it is possible that a proposed drug may be found to be ineffective or unsafe due to conditions or facts that arise after development has been completed and regulatory approvals have been obtained. In this event, we may be required to withdraw such proposed drug from the market. To the extent that our success will depend on any regulatory approvals from government authorities outside of the United States that perform roles similar to that of the FDA, uncertainties similar to those stated above will also exist.

Even if our product candidate Prurisol 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.
 
Even if we receive regulatory approval for our psoriasis product candidate Prurisol, we expect an approval to include a boxed warning regarding possible severe health risks and side effects. Products with boxed warnings are subject to more restrictive regulations than products without such warnings. Boxed restrictions would make it more difficult to market Prurisol, and the added regulation could require us to expend resources that we may not have which could delay or prevent commercialization of that product which could have a materially adverse effect on our business.
 
Even if we obtain regulatory approvals, our marketed drug candidates will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and foreign regulations, we could lose our approvals to market these drugs and our business would be seriously harmed.
 
Following any initial regulatory approval of any drugs we may develop, we will also be subject to continuing regulatory review, including the review of adverse experiences and clinical results that are reported after our drug candidates are made commercially available. This would include results from any post-marketing tests or vigilance required as a condition of approval. The manufacturer and manufacturing facilities we contract with to make any of our drug candidates will also be subject to periodic review and inspection by the FDA. The discovery of any previously unknown problems with the drug, manufacturer or facility may result in restrictions on the drug or manufacturer or facility, including withdrawal of the drug from the market. We do not have, and currently do not intend to develop, the ability to manufacture material for our clinical trials or on a commercial scale. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured drugs ourselves, including reliance on the third-party manufacturer for regulatory compliance. Our drug promotion and advertising is also subject to regulatory requirements and continuing FDA review. If we are required to withdraw all or more of our drugs from the market as a result of actions or inactions on the part of the Company or a third party, we may be unable to continue revenue generating operations which could cause you to lose all of your investment.

We have limited experience in conducting or supervising clinical trials and must outsource all clinical trials which expose us to risks which could have a materially adverse effect on our business.
 
We have acquired limited experience in conducting and supervising clinical trials that must be performed to obtain data to submit in concert with applications for approval by the FDA. The regulatory process to obtain approval for drugs for commercial sale involves numerous steps. Drugs are subjected to clinical trials that allow development of case studies to examine safety, efficacy, and other issues to ensure that sale of drugs meets the requirements set forth by various governmental agencies, including the FDA. In the event that our protocols do not meet standards set forth by the FDA, or that our data is not sufficient to allow such trials to validate our drugs in the face of such examination, we might not be able to meet the requirements that allow our drugs to be approved for sale, which could have a materially adverse effect on our business.
 
 
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Because we have limited experience in conducting or supervising clinical trials, we outsource a significant amount of the work relating to our clinical trials to third parties. We have no control over their compliance with procedures and protocols used to complete clinical trials in accordance with standards required by the agencies that approve drugs for sale. If these subcontractors fail to meet these standards, the validation of our drugs would be adversely affected, causing a delay in our ability to engage in revenue-generating operations which could have a materially adverse effect on our business.
 
We are subject to risks inherent in conducting clinical trials. The risk of non compliance with FDA-approved good clinical practices by clinical investigators, clinical sites, or data management services could delay or prevent us from developing or ever commercializing our drug candidates, which could cause us to cease operations.
 
Agreements with clinical investigators and medical institutions for clinical testing and with other third parties for data management services place substantial responsibilities on these parties, which could result in delays in, or termination of, our clinical trials if these parties fail to perform as expected. For example, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at those sites. If these clinical investigators, medical institutions or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for or successfully commercialize our drug candidates. 
 
We or regulators may suspend or terminate our clinical trials for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the patients enrolled in our clinical trials. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the patients enrolled in our clinical trials. In addition, clinical trials may have independent monitoring boards composed of experts in the field. These boards may also have the authority to suspend or terminate clinical trials. 

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

The Company is exposed to product liability, clinical and preclinical liability risks which could place a substantial financial burden upon the Company should it be sued. 
 
The Company could be exposed to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical products. In addition, the use in the Company's clinical trials of pharmaceutical products that it may develop and the subsequent sale of these products by the Company or its potential collaborators may cause the Company to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against the Company could have a material adverse effect on its business, financial condition and results of operations.
 
The Company has $5,000,000 in liability insurance for our clinical trials. The Company cannot assure that such insurance will provide adequate coverage against the Company's potential liabilities. Claims or losses in excess of any product liability insurance coverage that may be obtained by the Company could have a material adverse effect on our business, financial condition and results of operations.
 
 
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Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. Disclosure of our trade secrets or proprietary information could compromise any competitive advantage that we have, which could have a materially adverse effect on our business.
 
We depend upon confidentiality agreements with our officers, employees, consultants, and subcontractors to maintain the proprietary nature of the technology. These measures may not afford us sufficient or complete protection, and may not afford an adequate remedy in the event of an unauthorized disclosure of confidential information. In addition, others may independently develop technology similar to ours, otherwise avoiding the confidentiality agreements, or produce patents that would materially and adversely affect our business, prospects, financial condition, and results of operations.
 
We may be unable to obtain or protect intellectual property rights relating to our products, and we may be liable for infringing upon the intellectual property rights of others, which could have a materially adverse effect on our business.
 
Our ability to compete effectively will depend on our ability to maintain the proprietary nature of our compounds and the proprietary compounds of others with which we have entered into licensing agreements. We have filed two patent applications and expect to file a number of additional patent applications in the coming years. There can be no assurance that any of these patent applications will ultimately result in the issuance of a patent with respect to the proprietary compounds owned by us or licensed to us. The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the United States Patent and Trademark Office use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others. Further, we rely on a combination of trade secrets, know-how, technology and nondisclosure, and other contractual agreements and technical measures to protect our rights in the proprietary compounds. If any trade secret, know-how or other proprietary information and/or compounds not protected by a patent were to be disclosed to or independently developed by a competitor, our business and financial condition could be materially adversely affected.

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

Moreover, the cost to us of any litigation or other proceeding relating to our patents and other intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert our management's efforts. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue our operations.
 
Our potential collaborative relationships with third parties could cause us to expend significant resources and incur substantial business risk with no assurance of financial return, which could have a materially adverse effect on our business. 
 
We may have to rely substantially upon strategic collaborations for marketing and the commercialization of our drug candidates, and we may rely even more on strategic collaborations for R&D of our other drug candidates. Our business will depend on our ability to sell drugs to both government agencies and to the general pharmaceutical market. We may have to sell our drugs through strategic partnerships with pharmaceutical companies. If we are unable to establish or manage such strategic collaborations on terms favorable to us in the future, our revenue and drug development may be limited. To date, we have not entered into any strategic collaboration with third parties capable of providing these services. In addition, we have not yet marketed or sold any of our drug candidates or entered into successful collaborations for these services in order to ultimately commercialize our drug candidates. 
 
 
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If we determine to enter into R&D collaborations during the early phases of drug development, our success will in part depend on the performance of our research collaborators. We will not directly control the amount or timing of resources devoted by our research collaborators to activities related to our drug candidates. Our research collaborators may not commit sufficient resources to our programs. If any research collaborator fails to commit sufficient resources, our preclinical or clinical development programs related to this collaboration could be delayed or terminated. Also, our collaborators may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. Finally, if we fail to make required milestone or royalty payments to our collaborators, or to observe other obligations in our agreements with them, our collaborators may have the right to terminate those agreements. 
 
Management of our relationships with our collaborators will require:
 
 
significant time and effort from our management team; 
 
 
coordination of our marketing and R&D programs with the marketing and R&D priorities of our collaborators; and 
 
 
effective allocation of our resources to multiple projects. 
 
Establishing strategic collaborations is difficult and time-consuming. Our discussion with potential collaborators may not lead to the establishment of collaborations on favorable terms, if at all. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. Even if we successfully establish new collaborations, these relationships may never result in the successful development or commercialization of our drug candidates or the generation of sales revenue. To the extent that we enter into collaborative arrangements, our drug revenues are likely to be lower than if we directly marketed and sold any drugs that we may develop. 
 
We may not be able to attract and retain highly skilled personnel or consultants, which could have a materially adverse effect on our business. 
 
Our ability to attract and retain highly skilled personnel or consultants is critical to our operations and expansion. We face competition for these types of personnel from other pharmaceutical companies and more established organizations, many of which have significantly larger operations and greater financial, technical, human and other resources than us. We may not be successful in attracting and retaining qualified personnel or consultants on a timely basis, on competitive terms, or at all. If we are not successful in attracting and retaining these personnel or consultants, our business, prospects, financial condition and results of operations will be materially adversely affected.
 
We depend upon our senior management and their loss or unavailability could put us at a competitive disadvantage. 
 
We currently depend upon the efforts and abilities of our management team. On December 29, 2010, the Company entered into employment agreements with its two executive officers, Leo Ehrlich, the Company’s Chief Executive and Financial Officer, and Krishna Menon, Chief Scientific Officer for a period of three years ending on December 31, 2013. On January 1, 2014, the Board of Directors of the Company approved an extension of the Employment Agreements with Leo Ehrlich and Krishna Menon for a one year period with a 10% increase in salary from the previous annual salary of $423,500 each, to an annual salary of $465,850.
 
There are conflicts of interest among our officers, directors and stockholders. 
 
Certain of our executive officers and directors and their affiliates are engaged in other activities and have interests in other entities on their own behalf or on behalf of other persons. Neither we nor any of our stockholders will have any rights in these ventures or their income or profits. In particular:
 
 
Our executive officers or directors or their affiliates may have an economic interest in, or other business relationship with, partner companies that invest in us or are engaged in competing drug development; and
 
 
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. 
 
 
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While the Company is not aware of any conflict that has arisen to date, the Company does not have any policy in place to deal with such should such a conflict arise.

The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of competition. We may be unable to compete with enterprises equipped with more substantial resources than us, which could cause us to cease operations.
 
The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of competition based primarily on scientific and technological factors. These factors include the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability to obtain government approval for testing, manufacturing and marketing.
 
We compete with biopharmaceutical firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many biopharmaceutical companies have focused their development efforts in the human therapeutics area, including cancer. Many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies. These companies, as well as academic institutions, government agencies and private research organizations, also compete with us in recruiting and retaining highly qualified scientific personnel and consultants. Our ability to compete successfully with other companies in the pharmaceutical field will also depend to a considerable degree on the continuing availability of capital on terms and conditions acceptable to us. 
 
We are aware of numerous products under development or manufactured by competitors that are used for the prevention or treatment of certain diseases we have targeted for drug development. Various companies are developing biopharmaceutical products that potentially directly compete with our drug candidates even though their approach to such treatment is different.
 
For example, with respect to Kevetrin, our lead compound for cancer, there are many drugs approved to treat various cancers and many more in the publicly disclosed pipeline. Our success depends on our ability to identify tumor types where Kevetrin has an advantage over existing therapies and those in the publicly disclosed pipeline. The same is true for our compounds Prurisol and Brilacidin. Numerous drugs are already FDA approved for the treatment of psoriasis and ABSSSI.
 
Our competition will be determined in part by the potential indications for which drugs are developed and ultimately approved by regulatory authorities. Additionally, the timing of the market introduction of some of our potential drugs or of competitors' products may be an important competitive factor. Accordingly, the relative speed with which we can develop drugs, complete pre-clinical testing, clinical trials, approval processes and supply commercial quantities to market are important competitive factors. We expect that competition among drugs approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent protection. 
 
The successful development of biopharmaceuticals is highly uncertain. A variety of factors including, pre-clinical study results or regulatory approvals, could cause us to abandon development of our drug candidates, which could also cause us to cease operations and you may lose your entire investment.
 
 
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Successful development of biopharmaceuticals is highly uncertain and is dependent on numerous factors, many of which are beyond our control.
 
Products that appear promising in the early phases of development may fail to reach the market for several reasons including:
 
 
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. 
 
Success in pre-clinical and early clinical studies does not ensure that large-scale clinical studies will be successful. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. The length of time necessary to complete clinical studies and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly from one product to the next, and may be difficult to predict or control.
 
Risks Related to the Securities Markets and Investments in Our Class A Common Stock
 
Because our common stock is quoted on the OTC Bulletin Board your ability to sell your shares in the secondary trading market may be limited. 
 
Our Class A Common Stock is currently quoted on the OTC Bulletin Board. Consequently, the liquidity of our Class A Common Stock is impaired, not only in the number of shares that are bought and sold, but also through delays in the timing of transactions, and coverage by security analysts and the news media, if any, of our Company. As a result, prices for shares of our Class A Common Stock may be lower than might otherwise prevail if our Class A Common Stock was quoted and traded on NASDAQ or a national securities exchange. 
 
Because our Class A Common Stock is considered "penny stock" you may have difficulty selling them in the secondary trading market. 
 
Federal regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) regulate the trading of so-called "penny stocks," which are generally defined as any security not listed on a national securities exchange or NASDAQ, priced at less than $5.00 per share and offered by an issuer with limited net tangible assets and revenues. Since our Class A Common Stock currently is quoted on the OTC Bulletin Board at less than $5.00 per share, our shares are "penny stocks" and may not be traded unless a disclosure schedule explaining the penny stock market and the risks associated therewith is delivered to a potential purchaser prior to any trade. 

 
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In addition, because our Class A Common Stock is not listed on NASDAQ or any national securities exchange and currently is quoted at and trades at less than $5.00 per share, trading in our Class A Common Stock is subject to Rule 15g-9 under the Exchange Act. Under this rule, broker-dealers must take certain steps prior to selling a "penny stock," which steps include:
 
 
obtaining financial and investment information from the investor; 
 
 
obtaining a written suitability questionnaire and purchase agreement signed by the investor; and 
 
 
providing the investor a written identification of the shares being offered and the quantity of the shares. 
 
If these penny stock rules are not followed by the broker-dealer, the investor has no obligation to purchase the shares. The application of these comprehensive rules will make it more difficult for broker-dealers to sell our Class A Common Stock and our stockholders, therefore, may have difficulty in selling their shares in the secondary trading market. 
 
Our stock price may be volatile and your investment in our Class A Common Stock could suffer a decline in value.
 
As of June 30, 2014, the closing price of our Class A Common Stock, as quoted on the OTC Bulletin Board, was $1.67. The price may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include:
 
 
progress of our products through the regulatory process; 
 
 
results of preclinical studies and clinical trials;
 
 
announcements of technological innovations or new products by us or our competitors; 
 
 
government regulatory action affecting our products or our competitors' products in both the United States and foreign countries; 
 
 
developments or disputes concerning patent or proprietary rights; 
 
 
general market conditions for emerging growth and pharmaceutical companies; 
 
 
economic conditions in the United States or abroad; 
 
 
actual or anticipated fluctuations in our operating results; 
 
 
broad market fluctuations; and 
 
 
changes in financial estimates by securities analysts. 
 
Our directors and executive officers own or control a sufficient number of shares of our Class A Common Stock to control our Company, which could discourage or prevent a takeover, even if an acquisition would be beneficial to our stockholders.
 
At September 5, 2014, our directors and executive officers own or control approximately 29.54% of our outstanding voting power of Class A Common Stock. Accordingly, these stockholders, individually and as a group, may be able to influence the outcome of stockholder votes, involving votes concerning the election of directors, the adoption or amendment of provisions in our Articles of Incorporation and bylaws and the approval of certain mergers or other similar transactions, such as sales of substantially all of our assets. Such control by existing stockholders could have the effect of delaying, deferring or preventing a change in control of our Company.
 
 
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The dual class structure of our common stock can have the effect of concentrating voting control with Dr. Menon and/ or Mr. Ehrlich, which will limit or preclude your ability to influence corporate matters.
 
Our Class B common stock entitles holders to ten (10) votes per share on all matters submitted to a vote of our stockholders and our Class A Common Stock entitles holders to one (1) vote per share on all matters submitted to a vote of our stockholders. Dr. Menon and Mr. Ehrlich each have vested options that they can exercise and convert into 18,000,000 shares of Class B common stock. That alone could result in the equivalent of 360,000,000 votes of Class A Common Stock. As of June 30, 2014 we had 109,787,129 shares of Class A Common Stock outstanding and no shares of Class B common stock outstanding. Because of the ten-to-one voting ratio between our Class B common stock and Class A Common Stock, upon exercise and conversion of such options into shares of Class B common stock, the Class B common stock holders can collectively control a majority of the combined voting power of our common stock (i.e., approximately 55.8%) and therefore be able to control all matters submitted to our stockholders for approval. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future.

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

We have not paid any cash dividends on our Class A Common Stock and do not intend to pay cash dividends on our Class A Common Stock in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Any credit agreements, which we may enter into with institutional lenders, may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and any other factors that the board of directors decides is relevant. Therefore, any return on your investment in our Class A Common Stock must come from increases in the fair market value and trading price of the Class A Common Stock. 
 
We may issue additional equity shares to fund the Company's operational requirements which would dilute your share ownership. 
 
The Company's continued viability depends on its ability to raise capital. Changes in economic, regulatory or competitive conditions may lead to cost increases. Management may also determine that it is in the best interest of the Company to develop new services or products. In any such case additional financing is required for the Company to meet its operational requirements. There can be no assurances that the Company will be able to obtain such financing on terms acceptable to the Company and at times required by the Company, if at all. In such event, the Company may be required to materially alter its business plan or curtail all or a part of its operational plans.

Large amounts of our Class A Common Stock will be eligible for resale under Rule 144.
 
As of June 30, 2014, 47,100,162 of the 109,787,129 outstanding shares of our Class A Common Stock are restricted securities as defined under Rule 144 of the Securities Act and under certain circumstances may be resold without registration pursuant to Rule 144.
 
14,664,564 shares of our restricted shares of Class A Common Stock are held by non-affiliates who may avail themselves of the public information requirements and sell their shares in accordance with Rule 144. As a result, some or all of these shares may be sold in accordance with Rule 144 potentially causing the price of the Company's shares to decline.
 
In general, under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a six-month holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of Class A Common Stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate, as such term is defined in Rule 144(a)(1), of the Company and who has satisfied a one-year holding period. Any substantial sale of the Company's Class A Common Stock pursuant to Rule 144 may have an adverse effect on the market price of the Class A Common Stock.
 
 
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Item 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. DESCRIPTION OF PROPERTY
 
Our principal offices are located at 100 Cummings Center, Suite 151-B, Beverly, MA 01915. Dr. Menon, the Company’s principal shareholder, President and Director also serves as the COO and Director of Kard Scientific. From June 20, 2007 (inception) to September 30, 2013, Cellceutix was renting 200 square feet of office space from Kard Scientific on a month to month basis for $900 per month.

Cellceutix Corporation signed a lease extension agreement with Cummings Properties which began on October 1, 2013. The lease is for a term of five years ending on September 30, 2018, and requires monthly payments of $17,000. Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of Cellceutix, have co-signed the lease and will sublease 200 square feet of space previously used by Cellceutix and pay Cellceutix $900 per month.

Through August 2013, we had subcontracted laboratory research and development work to Kard Scientific. As of September 1, 2013 we are no longer using Kard Scientific and research is being performed by Cellceutix employees. We had previously incurred charges from Kard Scientific of approximately $2.6 million. 
 
Management believes that the property arrangement satisfies the Company’s current needs.
 
ITEM 3. LEGAL PROCEEDINGS

Formatech is a former vendor of ours which had received 184,375 shares of Cellceutix Class A Common Stock (“Cellceutix Stock”) for services that were not completed. Formatech had gone bankrupt while still in possession of the Cellceutix Stock. In July 2012, the US Bankruptcy Court allowed the trustee of the Formatech estate to sell the Cellceutix Stock. In August 2014, Cellceutix, as an unsecured creditor, received $10,000 as full settlement from the court trustee.
 
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is not currently aware of any other legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

ITEM 4. MINE SAFETY DISCLOSURES
 
None
 
 
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company’s Common Stock symbol is "CTIX". It was quoted on the OTC Markets Group, Inc.'s (OTCQB), through June 30, 2013. Thereafter and currently the Company's stock quotation coverage is on the FINRA operated OTC Bulletin Board (OTCBB).
 
The table below sets forth the high and low daily closing price for the Company’s Common Stock. Quotations reflect inter-dealer prices, without retail mark-up, mark-down commission, and may not represent actual transactions. Since the Company's common stock trades sporadically, there is not an established active public market for its common stock. No assurance can be given that an active market will exist for the Company's common stock and the Company does not expect to declare dividends in the foreseeable future since the Company intends to utilize its earnings, if any, to finance its future growth, including possible acquisitions.
 
   
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  
 
Number of Shareholders
 
As of September 5, 2014, a total of approximately 111.7 million shares of the Company’s common stock are outstanding and held by approximately 3,000 shareholders. Of this amount, approximately 62.7 million shares are unrestricted, approximately 14.7 million shares are restricted securities held by non-affiliates, and the remaining approximately 32.4 million shares are restricted securities held by affiliates. These shares may only be sold in accordance with Rule 144. As of September 5, 2014, there were 2.448,000 warrants and 43,485,670 stock options to purchase the Company’s Common Stock outstanding
 
Dividends
 
The Company has not paid any cash dividends since its inception. The Company currently intends to retain any earnings for use in its business, and therefore does not anticipate paying dividends in the foreseeable future. 
 
Long-Term Incentive Plan Awards In Last Fiscal Year
 
None
 
Recent Cancellation of Unregistered Securities

In February 2013, the Company cancelled 1,380,000 shares of common stock, that were previously included in Treasury Stock, related to Mr. Evans’ settlement agreement. On September 3, 2013, the parties amended the Settlement Agreement and Release dated January 26, 2011. The amended agreement provides for total payments of $892,500, to be paid in three separate installments as follows: (i) two payments of $300,000 each to Mr. Evans payable on the first and second anniversary of the execution of this agreement; and (ii) a full and final installment payment of $292,500 on or before September 15, 2013 (paid September 5, 2013). On September 16, 2013, the Company cancelled the remaining 1,380,000 shares of common stock resulting in all common shares previously held by Mr. Evans being cancelled by the Company and these shares are no longer outstanding.
 
 
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Recent Sales of Unregistered Securities

None

ITEM 6. SELECTED FINANCIAL DATA

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

   
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.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and plan of operations should read in conjunction with the financial statements and the notes to those statements included in this Form 10-K. This discussion includes forward-looking statements that involve risk and uncertainties. As a result of many factors, such as those set forth under “Risk Factors,” actual results may differ materially from those anticipated in these forward-looking statements.
 
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.
 
 
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Management’s Plan of Operation
 
Research and Development Activities
 
We acquire exclusive rights to pharmaceutical compound candidates that are designed for treatment of diseases which may be either existing or diseases identified in the future. The Company spends most of its efforts and resources on its on its compounds already in clinical trials. Our drug Kevetrin for the treatment of cancers, Prurisol for the treatment of psoriasis, and Brilacidin for the treatments of skin infections and oral mucositis We anticipate using our expertise to manage and perform what we believe are the most critical aspects of the product development process which include: (i) the design and oversight of clinical trials; (ii) the development and execution of strategies for the protection and maintenance of intellectual property rights; and (iii) the interaction with regulatory authorities internationally. We expect to concentrate on product development and engage in a limited way in product discovery, avoiding the significant investment of time and financial resources that is generally required before a compound is identified and brought into clinical trials. At this time the Company is focusing its research and development efforts on Kevetrin, Prurisol, Brilacidin, and to a lesser amount on our other anti-infectives and anti-fungal compounds.
 
We are a clinical stage company. We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical candidates. Developing pharmaceutical products, however, is a lengthy and very expensive process. Assuming we do not encounter any unforeseen safety issues during the course of developing our product candidates, we do not expect to complete the development of a product candidate for several years, if ever.
 
Polymedix Asset Acquisition

On September 4, 2013, the Company purchased substantially all of the assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. from the U.S. Bankruptcy Court. PolyMedix Inc. was founded in 2002 based on technology licensed from the University of Pennsylvania (Penn). The purchased bankruptcy estate included two license agreements from Penn, an exclusive patent license agreement and a nonexclusive software license agreement. (See Item 1. Intellectual Property, Patents and Licenses Acquired).

The aggregate purchase price for the sale and transfer of the Purchased Assets was $2.1 million in cash, plus 1.4 million shares of the Company’s Class A common stock, total aggregate purchase price of approximately $4.8 million.

Status of Active Programs in Clinical Trials and Development

Kevetrin

The Phase 1 trials for Kevetrin, Cellceutix's novel anti-cancer compound, are being conducted at Harvard Cancer Center's Dana-Farber Cancer Institute and partner Beth Israel Deaconess Medical Center. The clinical trial presently in its 9th cohort, will test Kevetrin against a variety of different solid tumor cancer types in patients with advanced-stage cancers. Primary endpoints for the study will be safety, tolerable dosing levels and establishing the dose for a future Phase II clinical trial. Presently, we are at the mid-latter stage of the trial. The Company has received no notice of events outside of the parameters of the protocol and the trial is progressing. The trial is registered on www.clinicaltrials.gov. http://clinicaltrials.gov/ct2/show/NCT01664000?term=Kevetrin&rank=1
 
Kevetrin has demonstrated the potential for a major breakthrough in cancer research by exhibiting an activation of p53 in both wild and mutant types of p53. p53, often referred to as the “Guardian Angel Gene” or the “Guardian Angel of the Human Genome” due its crucial role in controlling cell mutations, is a tumor suppressor protein that is encoded by the TP53 gene in humans and has been widely regarded as possibly holding a key to the future of cancer therapies. Additional studies have shown that Kevetrin has potent anticancer activity in a wide range of tumor types by targeting histonedeacetylase (HDAC).

 
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University of Bologna

The University of Bologna in Italy (the “University”) and The Italian Cooperative Study Group on Chronic Myeloid Leukemia (ICSG on CML) and Acute Leukemia (GIMEMA Group) plan on testing Kevetrin against Acute Myelogenous Leukemia (AML). We have been advised that the study, a Phase 1b trial, will be titled “A Multi-Center, Open-Label, Phase 1B Study of Escalating Doses of Kevetrin (Thioureidobutyronitrile) Administered Intravenously, with Cytarabine Administered A) Subcutaneously, or B) Intravenously, in Patients with Acute Myelogenous Leukemia (AML).” A clinical study protocol has been prepared and we anticipate the trial to begin in the fourth quarter of 2014.

MDAnderson Cancer Center

In June 2013, we signed a Material Transfer Agreement with the University of Texas, MDAnderson Cancer Center. MDAnderson intends to utilize in vivo and in vitro methods to research specific pathways, gene expression, mechanism of action and apoptotic activity of our cancer drugs in a range of concentrations and time points in both mutant and wild-type p53 Myeloma and Lymphoma cell lines. They also wish to study our cancer compounds against a broad array of Multiple Myeloma cell lines that are resistant to today’s FDA-approved chemotherapies. MDAnderson is covering the expenses of the research, with Cellceutix only supplying the drugs. Limited work has been done under this agreement. We believe this agreement will be more beneficial once we are further advanced in our Kevetrin clinical trial.
 
Prurisol

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”)

The intravenous formulation of our lead antibiotic candidate, Brilacidin, has the potential to treat a variety of indications, including Acute Bacterial Skin and Skin Structure Infections (“ABSSSI”) caused by either drug-sensitive or drug-resistant strains of Staphylococcus aureus bacteria.

The Phase 2b trial entitled “A Randomized, Double-Blind Study Comparing Three Dosing Regimens of Brilacidin to Daptomycin in the Treatment of Acute Bacterial Skin and Skin Structure Infections (ABSSSI)” completed enrollment of 215 patients in August 2014. The unblinding of the trial results is planned for the end of September 2014.

Previously, in April 2012, Polymedix completed and announced positive results from a Phase 2 clinical trial with Brilacidin. This randomized, blinded, active-controlled, multinational Phase 2 clinical trial was conducted at multiple sites in Canada, Russia and Ukraine. The study objectives were to evaluate the safety and efficacy of Brilacidin as treatment for ABSSSI caused by Staphylococcus aureus, including methicillin-resistant Staphylococcus aureus (MRSA). The study objectives were met, with all evaluated doses of Brilacidin demonstrating similar clinical response rates to those of the active control, daptomycin. The study was conducted in accordance with FDA’s most recent ABSSSI guidelines and is intended to support regulatory approval in the United States. As expected, and consistent with previous clinical studies, patients receiving Brilacidin commonly reported sensations of numbness and tingling that were generally characterized as mild and resolved following treatment. No patient stopped treatment as a result of these sensations. Other treatment-related adverse events included hypertension, injection site pain, nausea, vomiting, vertigo, and pyrexia. There was one treatment-related serious adverse event that was at least possibly drug-related reported in each Brilacidin study arm. Treatment-related serious adverse events included an instance of hypertension in the medium and high dose regimens, which discontinued therapy, and an instance of increased platelets in the low dose regimen. In the recently completed Phase 2b study,there was a significant decrease in adverse events, most likely due to the lower Brilacidin dosing.

Brilacidin for Oral Mucositis

In animal models of oral mucositis, an oral rinse containing Brilacidin was shown to reduce the occurrence of severe ulcerative oral mucositis by more than 90% compared to placebo. Brilacidin and related compounds have shown antibacterial, anti-biofilm and anti-inflammatory properties in various pre-clinical studies. We believe that the combination of these attributes contribute to the efficacy of Brilacidin in these animal models. In December 2013, the Company filed an application with the U.S. Food and Drug Administration requesting Orphan Drug designation for Brilacidin as a drug candidate for the prevention oral mucositis in head and neck cancer. FDA has advised the company that the data would indicate the Brilacidin-OM could treat not only patients that have radiation induced OM but potentially treat as well patients with chemotherapy-induced OM. Therefore the target population would exceed the number of patients that would qualify for orphan drug designation.

 
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Based on a successful meeting between PolyMedix, Inc. and the Food and Drug Administration in 2012 discussing a Phase 2 trial for Oral Mucositis, in September 2014 Cellceutix filed an IND (Investigative New Drug application) for its planned trial 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”.

Brilacidin for Diabetic Foot Ulcer, Ophthalmic, and Otitic Infections

Cellceutix is formulating and conducting preclinical experiments on Brilacidin for diabetic foot ulcer infections, ophthalmic (eye) infections, including keratitis and conjunctivitis; and for ear-related infections, such as otitis media. On July 14, 2014, the Company announced that a significant breakthrough had been made in the formulation of Brilacidin. Previously, Brilacidin was stored in a refrigerated state. The Company has now developed the formulation of Brilacidin to be stable at room temperature.

Further formulation work is needed for each indication. Upon a successful formulation the Company plans to advance these drugs into the clinic. The Company believes this work is challenging and and will be completed in the first quarter of 2015.

Delparantag

Delparantag (formerly PMX-60056) is a synthetic, small-molecule intended to reverse the effects of the commonly used anticoagulants unfractionated heparin (UFH), and its derivatives, low molecular weight heparins (LMWH), to help manage the balance of antithrombosis and anticoagulation and reduce the incidence of bleeding in certain interventional cardiology procedures, such as Percutaneous Coronary Intervention (PCI) and Coronary Arterial Bypass Grafting (CABG), and other situations where UFH and LMWH are used and bleeding may occur.

In May 2012, Polymedix announced that they had stopped enrollment in two clinical trials for delparantag: a Phase 2 clinical trial for reversing the anticoagulant activity of UFH in patients undergoing PCI procedures, and a Phase 1B/2 clinical trial for reversing the anticoagulant activity of the LMWH enoxaparin in healthy volunteers. While delparantag showed activity in neutralizing both UFH and the LMWH enoxaparin in these clinical trials, Polymedix decided to stop enrollment in both trials due to observations of reductions in blood pressure in some patients.

The Company is presently evaluating this drug for other diseases including Chronic Obstructive Pulmonary Disease (COPD).

Gram Negative Klebsiella

We are evaluating several novel antibiotic compounds against specific strains of multi-drug resistant Klebsiella pneumoniae. The research, which is government funded through existing grants to research institutions, is being conducted at a major university in Texas. We expect to advance a lead compound toward an IND filing in 2015.

Anti-Fungals

We have entered into a research collaboration with Fox Chase Chemical Diversity Center (FCCDC) which has led to an award of a Phase 2b Small Business Innovation Research (SBIR) grant from the National Institute of Allergy and Infectious Disease (NIAID). This $1.5 million dollar grant (over 2 years) will be directed into developing this technology platform on host defense protein (HDP) mimics for treatment of disseminated fungal infections, particularly those caused by Candida species. We expect to advance a lead compound toward an IND filing in 2015.

 
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Other

Other product candidates, include; compounds active against other Gram-negative bacterias, malaria, tuberculosis, biowarfare pathogens, and PolyCide® antimicrobial biomaterials.

Liquidity and Capital Resources
 
Cash Flows

The following table provides information regarding our cash position, cash flows and capital expenditures for the years ended June 30, 2014, 2013 and 2012 (rounded to nearest thousand):
 
   
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 )

Our operating activities used cash of $7.5 million, $1.90 million and $0.69 million in 2014, 2013 and 2012, respectively. The use of cash in these periods principally resulted from our losses from operations, as adjusted for non-cash charges for stock-based compensation and depreciation, and changes in our working capital accounts.

In 2014, our investing activities used cash of $2.7 million, including the purchases of property and equipment of $ 0.04 million and patents of $2.6 million. In 2013, our investing activities used cash of $0.01 million, including the purchases of patent of $0.01 million and no cash used in investing activities in 2012.

Our financing activities provided cash of $12.2 million, $4.9 million and $0.7 million in 2014, 2013 and 2012, respectively.

In 2014, we raised approximately $12.2 million in net cash proceeds, including $9.8 million in net proceeds from the sale of 5.7 million shares of our common stock to Aspire and $2.7 million from the exercise of warrants.

In 2013, we raised approximately $4.9 million in net cash proceeds, including $4.4 million in net proceeds from the sale of 2.7 million shares of our common stock to Aspire and $0.46 million from the exercise of common stock options, offset by payment of settlement liabilities of $0.3 million.

In 2012, we raised approximately $0.7 million in net cash proceeds, including $1.0 million in net proceeds from the sale of our common stock, offset by payment of settlement liabilities of $0.3 million and redemption of convertible debentures of $0.2 million.

Liquidity

As of June 30, 2014 the Company had a cash balance of approximately $5.0 million.

Aspire Capital Agreement

On October 25, 2013, we terminated a previous agreement with Aspire Capital Fund, LLC, an Illinois limited liability company (Aspire Capital), and entered into a new stock purchase agreement (the “Purchase Agreement”) with Aspire Capital.

 
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The new Purchase Agreement provides that upon meeting the terms of the agreement, Aspire Capital is committed to purchase up to an aggregate of $20,000,000 of our shares of Class A Common Stock over the approximately 36-month term of the Purchase Agreement. In consideration for entering into the Purchase Agreement, the Company issued to Aspire Capital 210,523 shares of our Class A Common Stock as a commitment fee. The commitment fee will be amortized as the funding is received. The unamortized portion is carried on the balance sheet as deferred offering costs. Concurrently with entering into the Purchase Agreement, the Company agreed to file one or more registration statements as permissible and necessary under the Securities Act of 1933, as amended, or the Securities Act, for the sale of shares of our Class A Common Stock that have been and may be issued to Aspire Capital under the Purchase Agreement. On November 4, 2013, the Company filed a Form S-3 registration statement and the registration statement was declared effective by the SEC on November 15, 2013.
 
Under the Purchase Agreement, on any trading day selected by Cellceutix which the closing sale price of our Class A Common Stock exceeds $0.25 per share, we may direct Aspire Capital to purchase up to 200,000 shares of our Class A Common Stock per trading day.

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

The purchase price will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the trading day(s) used to compute the purchase price. We may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.
 
Under the Purchase Agreement, we and Aspire Capital may not affect any sales of shares of our Class A Common Stock under the Purchase Agreement on any trading day that the closing sale price of our Class A Common Stock is less than $0.25 per share.

The Company is never under any obligation to sell shares to Aspire Capital Fund. Aspire Capital Fund has no rights to require the Company to sell shares.
 
During the period from October 25, 2013 to June 30, 2014, the Company had completed sales to Aspire totaling 2,500,000 shares of common stock generating gross proceeds of approximately $4.2 million. As of June 30, 2014, a balance of $15.8 million remains and is available under the financing arrangement. From July 1, 2014 to September 10, 2014, the Company has generated additional proceeds of approximately $3,215,000 under the Common Stock Purchase Agreement with Aspire from the sale 1,900,000 shares of its common stock.

The Company expects to incur losses from its operations for the next few years. We expect to incur increasing research and development expenses, including expenses related to additional clinical trials. We expect that our general and administrative expenses will increase in the future as we expand our business development, add employees, consultants, infrastructure and incur additional costs related to being a public company, including incremental audit fees for compliance with the provisions of the Sarbanes-Oxley Act, investor relations programs and increased professional services. Based upon our expected rate of expenditures, we currently do not have sufficient cash reserves to meet all of our anticipated obligations through our fiscal year end of June 30, 2015. 
 
Requirement for Additional Working Capital

Research and Development Costs. We intend to use the net proceeds from the above Aspire transaction to fund our product development programs and for general corporate purposes, and therefore anticipate having sufficient funds to meet our planned drug development for the next twelve (12) months. We plan to incur the following expenses of approximately $16,780,000 over the next twelve (12) months: 

 
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1. Research and Development- $1,500,000 in preclinical development costs including testing Kevetrin on additional tumors, and advancement of our anti- infective and anti-fungal compounds towards clinical trials.
 
2. Clinical trials - $11,700,000. We have budgeted $1,200,000 for our Phase 1 Kevetrin trials; $3,000,000 for the Prurisol phase 1 crossover study and phase 2/3 trials; $4,500,000 for the Brilicidin ABSSSI Phase 2b trials and the start of Phase 3 trials; and $3,000,000 for the planned Brilicidin Oral Mucositis Phase 2 trials.
 
3. Corporate overhead of $3,500,000: Budgeted office salaries, legal, accounting and other costs expected to be incurred.
 
4. Capital costs of $80,000: Estimated cost for equipment and laboratory improvements.
 
The Company will be unable to proceed with its full planned drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without accessing approximately $12 million (as per current management’s budgets) of our remaining financing available with Aspire Capital. This does not include any budgeted amounts for further development of the Polymedix assets.
 
Management intends to use capital and debt financing, as required, to fund the Company's operations. There can be no assurance that the Company will be able to obtain the additional capital resources on terms and conditions acceptable to the Company to fund its anticipated obligations for the next twelve (12) months. 

Subsequent Events

Equity Transactions

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.

On July 11, 2014, the Company received an exercise notice from a warrant holder for exercise of 200,000 warrants and the Company received the $200,000 on July 11, 2014.

Contractual Commitments
 
Clinical Trial Agreements between the Company and Contract Research Organizations- Oral Mucositis Trial
 
On September 8, 2014, the Company entered into a Clinical Trial Project Work Agreement with a Contract Research Organization (“CRO”). Terms include the Company making an upfront study advance retainer of $142,500 to the CRO from which all CRO Services and Pass-Through Costs will be deducted. For the duration of the Study, each time the amount remaining in the retainer falls below $50,000, Cellceutix will pay to the CRO $50,000 within 15 days of such notice (invoice), increasing the available retainer to approximately $100,000.
 
Clinical Costs. The clinical costs (Site Fees) will be invoiced separately based on monthly grant management reporting which is payable within 15 days upon invoice receipt. The costs will be determined by the number of patients needed for completion of the study which is unknown at this time. The agreement includes budgets for a wide range of the number of patients which may be needed in the study. The approximate budget range is from $1.5 million to $3 million.

End of study. Within 60 days of the project’s completion date, the CRO will deliver to Cellceutix a final accounting of the projects funding. Any unused funds will be returned to Cellceutix with 45 days of delivery of such final accounting.

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.
 
 
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The preparation of the 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 amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. 
 
We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management’s judgments and estimates. These significant accounting policies relate to research and development costs, valuation of inventory, valuation of long-lived assets and income taxes. These policies, and the related procedures, are described in detail below.
 
Research and Development
 
Expenditures for research, development, and engineering of products are expensed as incurred.

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 has generated net losses since inception and accordingly has not recorded a provision for income taxes. The deferred tax assets were primarily comprised of federal and state tax net operating loss, or NOL, carryforwards. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset the deferred tax assets. Additionally, the future utilization of the NOL carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any carryforwards that expire prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.
 
The Company adopted the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10), on January 1, 2007. The Company has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit since the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
 
Accounting for Stock Based Compensation
 
The Company accounts for all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company is required to measure the cost of employee services received in exchange for stock options and similar awards based on the grant-date fair value of the award and recognize this cost in the income statement over the period during which an employee is required to provide service in exchange for the award.
 
The Company will use the Black-Scholes valuation model and has elected to use the ratable method to amortize compensation expense over the vesting period of the grant.
 
The Company accounts for equity instruments issued to nonemployees by valuing them using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest.

Recently Issued Accounting Pronouncements
 
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.

 
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Our cash and cash equivalents are primarily invested in money market funds with one major commercial bank with the primary objective to preserve our principal balance. Our deposits held with this bank exceed the amount of government insurance limits provided on our deposits and, therefore, we are exposed to credit risk in the event of default by the major commercial bank holding our cash balances. However, these deposits may be redeemed upon demand and, therefore, bear minimal risk. In addition, while changes in U.S. interest rates would affect the interest earned on our cash balances at June 30, 2014, such changes would not have a material adverse effect on our financial position or results of operations based on historical movements in interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
See Index to Financial Statements and Supplemental Data on page 60.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
There have been no changes in or disagreements with the Company's accountants on accounting and financial disclosure.
 
ITEM 9A.CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure.
 
Based on their evaluation as of June 30, 2014, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.

 
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Management’s Report on Internal Control Over Financial Reporting

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

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company’s financial reporting and the preparation of external financial statements in accordance with generally accepted accounting principles.
 
Internal controls over financial reporting, no matter how well designed, have inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management has assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2014. In making this assessment, the Company used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework (1992).” These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring. The Company’s assessment included extensive documenting, evaluating and testing the design and operating effectiveness of its internal controls over financial reporting.
 
Based on the Company’s processes and assessment, as described above, management has concluded that, as of June 30, 2014, the Company’s internal control over financial reporting was effective.

The effectiveness of the Company’s internal control over financial reporting as of June 30, 2014 has been audited by Baker Tilly Virchow Krause, LLP, an independent registered public accounting firm, as stated in their report, which appears herein.

Changes in Internal Controls

Certain remediation initiatives took place during the year ended June 30, 2014, including hiring a full time accountant to segregate duties consistent with control objectives and to properly apply US GAAP accounting.

There have been no other changes in our internal control over financial reporting during the fourth quarter of the fiscal year ended June 30, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None 
 
 
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PART III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
 
The following table sets forth information regarding the members of the Company’s board of directors and its executive officers. All of the Company’s executive officers and directors were appointed on December 6, 2007, the effective date of the Acquisition. All directors hold office until the first annual meeting of the stockholders of the Company and until the election and qualification of their successors or their earlier removal or retirement.
 
Officers are elected annually by the board of directors and serve at the discretion of the board.
 
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 

Leo Ehrlich, CPA, On November 5, 2010, Leo Ehrlich, was appointed to serve as Chief Executive and Financial Officer, and Chairman of the Board of Directors. Previously he served as Chief Financial Officer (CFO) of Cellceutix Pharma since inception in June 2007. Following the acquisition, he was appointed CFO and a director. From June 1, 2005 until May 2007, Mr. Ehrlich was CFO and a director of Nanoviricides, Inc. Mr. Ehrlich is a Certified Public Accountant and received his BBA from Bernard Baruch College of the City University of New York.
 
Krishna Menon RCM, PhD, VMD served as President of Cellceutix Pharma since inception in June 2007. Following the acquisition, he was appointed President and a director. Dr. Menon, simultaneously therewith, also serves as the Chief Operating Officer at Kard Scientific, Inc. Dr. Menon has more than 35 years in drug development for academia and industry. Originally trained as a veterinary surgeon, Menon began his career as Chief Government Veterinarian for a major Parish in Jamaica. He segued to a three-year stint as Director of Agriculture for the Cayman Islands, in the British Caribbean and, in 1982, moved to the Dana Farber Cancer Research Institute, where he worked under the direction of Chief Physician Dr. Emil Tom Frye. He earned his PhD in Pharmacology from Kerala University. Menon's PhD work focused on anti-folate therapy of various cancers. Menon was Research Scientist at Dana Farber from 1985 to 1990 and Senior Research Scientist, In Vivo Research (Cancer), at Bayer Pharmaceuticals (Miles Laboratories) from 1991 to 1993. After a year operating his own veterinary oncology and drug development consultancy practice, Menon was tapped to be Group Leader, Cancer In Vivo Research and Clinical Development, for Eli Lilly (1995-2001), where he played a key role in lead selection and pre-clinical development of the eventual blockbuster drugs Gemzar and Alimta. In 1999, Eli Lilly honored Menon with the “President's Recognition Award”. 

Dr. Barry Schechter M.D. On September 2, 2014 Cellceutix announced the appointment of Dr. Barry Schechter M.D. F.A.A.O. to the Cellceutix Board of Directors, effective October 1st, 2014. Dr. Schechter, a Principal and the Director of the Department of Cornea and External Disease at Florida Eye Microsurgical Institute, will bring years of experience to Cellceutix through his specialization in ocular pathology and diseases, including infections. The Company is engaged in preparing the contracts for this appointment and as of the date of this filing Dr Schechter is not yet a member of the Board.

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.
 
COMPENSATION COMMITTEE. Our board of directors does not have a standing compensation committee responsible for determining executive and director compensation. Instead, the entire board of directors fulfills this function, and each member of the Board participates in the determination. Given the small size of the Company and its Board and the Company's limited resources, locating, obtaining and retaining additional independent directors is extremely difficult. In the absence of independent directors, the Board does not believe that creating a separate compensation committee would result in any improvement in the compensation determination process. Accordingly, the board of directors has concluded that the Company and its stockholders would be best served by having the entire Board of Directors act in place of a compensation committee. When acting in this capacity, the Board does not have a charter.

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.
 
CODE OF ETHICS 
 
We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethic. Our code of ethics is referenced in the exhibit section of this Form 10-K.
 
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
 
Our executive officers and directors, and persons who own beneficially more than ten percent of our equity securities, are required under Section 16(a) of the Securities Exchange Act of 1934 to file reports of ownership and changes in their ownership of our securities with the Securities and Exchange Commission. They must also furnish copies of these reports to us. Based solely on a review of the copies of reports furnished to us and written representations that no other reports were required, we believe that for fiscal year 2014 our executive officers, directors and 10% beneficial owners complied with all applicable Section 16(a) filing requirements.
 
 
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ITEM 11. EXECUTIVE COMPENSATION 
 
Summary Compensation Table
 
The following table sets forth all of the compensation awarded to, earned by or paid to (i) each individual serving as our principal executive officer during our last completed fiscal year; and (ii) each other individual that served as an executive officer at the conclusion of the fiscal year ended June 30, 2014 and who received in excess of $100,000 in the form of salary and bonus during such fiscal year (collectively, the Named Executives).

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.

COMPENSATION POLICY
 
Our Company’s executive compensation plan is based on attracting and retaining qualified professionals who possess the skills and leadership necessary to enable our Company to achieve earnings and profitability growth to satisfy our stockholders. We must, therefore, create incentives for these executives to achieve both Company and individual performance objectives through the use of performance-based compensation programs. No single component is considered by itself, rather all components of the compensation package are considered in aggregate. Wherever possible, objective measurements will be utilized to quantify performance, however, many subjective factors still come into play when determining performance.
 
Compensation Components. As an early-stage development company, the main elements of our compensation package consist of base salary, stock options and bonus.
 
Base Salary. As we continue to grow and financial conditions improve, these base salaries, bonuses and incentive compensation will be reviewed for possible adjustments. Base salary adjustments will be based on both individual and Company performance and will include both objective and subjective criteria specific to each executive’s role and responsibility with the Company.
 
 
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COMPENSATION OF DIRECTORS
 
At this time, Directors receive no remuneration for their services as directors of the Company, nor does the Company reimburse its directors for expenses incurred in their service to the Board of Directors.
 
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS 
 
On December 29, 2010, the Company entered into employment agreements with its two executive officers, Leo Ehrlich, the Company’s Chief Executive and Financial Officer, and Krishna Menon, Chief Scientific Officer. Both agreements provide for a three year term with each executive receiving an annual base salary for $350,000 per year commencing January 1, 2011, with an annual increase of 10% for each year commencing January 2012. In addition, the Company’s Board awarded stock options exercisable at $0.11 per share pursuant to the Company’s 2010 Equity Incentive Plan to each executive officer as follows: Option Group A, a total of 18 million options with 6 million options vesting on December 29, 2010, 6 million options vesting on June 30, 2011 and 6 million options vesting on January 3, 2012. On January 1, 2014 the Board approved the extension of the employment agreements for a one year period with a 10% increase in salary from the calendar year 2013 annual salary of $423,500, to an annual salary of $465,850.

On November 5, 2010, George Evans, our former CEO resigned his position as a Director and Chief Executive Officer of Cellceutix Corporation. On February 14, 2011, the Company announced that it reached a settlement agreement on all outstanding claims between the Company and Mr. Evans. The terms of the agreement provided that the Company purchase 4,602,312 common shares held by Mr. Evans and/or Mr. Evans’ sons over a period of three years for a total sum of one million dollars. A payment by the Company in the amount of $100,000 was made upon the signing of the agreement which resulted in the cancellation of 460,229 common shares. On February 4, 2012 and January 29, 2013, the Company made the second and third payment of $300,000 each to Mr. Evans and cancelled 1,380,000 shares of its common stock in each of the two years. The Company signed an amendment to the settlement agreement for a final installment payment of $292,500 for the remaining common shares held by Mr. Evans. All options granted to Mr. Evans were cancelled. These purchased shares were retired by the Company in September 2013.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 
 
The following table summarizes certain information regarding the beneficial ownership (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of outstanding Celllceutix Common Stock as of September 5, 2014 (after giving effect to the Exchange) by (i) each person known by us to be the beneficial owner of more than 5% of the outstanding Cellceutix Common Stock, (ii) each of our directors, (iii) each of our named executive officers (as defined in Item 402(a)(3) of Regulation S-B under the Securities Act), and (iv) all executive officers and directors as a group. Except as indicated in the footnotes below, the security and stockholders listed below possess sole voting and investment power with respect to their shares. 
 
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.
 
 
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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.).
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 
 
Dr. Krishna Menon
 
On August 2, 2007 and October 17, 2007, Cellceutix Pharma entered into Compound Assignment Agreements, with Dr. Krishna Menon, our largest shareholder, covering Kevetrin, KM 277, KM 278 and KM 362. On June 23, 2009, the Company entered into a Compound Assignment Agreement with Dr. Menon covering KM-732. In each Agreement, the Company agreed to pay Dr. Menon 5% of net sales of the compounds in countries where a composition of matter patent is issued and 3% of net sales in other countries.
 
These transactions have identical terms to transactions we entered into with other inventors who are unrelated third parties.

Innovative Medical Research Inc.

In September 2013, Cellceutix Corporation signed a lease extension agreement with Cummings Properties whose term began on October 1, 2013. The lease is for five years ending on September 30, 2018, and requires monthly payments of $17,000. Innovative Medical Research Inc., a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of Cellceutix, needed to co-sign the lease. Innovative Medical Research is subleasing 200 square feet of space, space previously leased by Cellceutix from Kard (see below) and pays Cellceutix $900 per month. Innovative Medical Research Inc. is not engaged in work for Cellceutix.
 
KARD Scientific, Inc.

Dr. Menon, the Company’s principal shareholder, President and Director also serves as the COO and Director of Kard Scientific. From December 7, 2007 to September 2013, Cellceutix Pharma was renting 200 square feet of office space from Kard Scientific, on a month to month basis for $900 per month. Cellceutix previously engaged Kard Scientific to conduct specified pre-clinical studies for the Company. We retained all intellectual property resulting from the services by KARD. As of September 1, 2013 we are no longer using Kard Scientific and research is being conducted by Cellceutix employees. We had incurred charges from Kard Scientific of approximately $2.6 million. 
 
 
54

 
 
Mr. Leo Ehrlich
 
During 2010, Mr. Ehrlich, an officer of the Company, converted previous amounts provided in cash to the Company of $32,310 into a loan (the “ Ehrlich Promissory Note A ”). The Ehrlich Promissory Note A was an unsecured, 6% per annum simple interest bearing, demand note. During the same period, Mr. Ehrlich provided an additional $85,000 in cash in the form of a loan to the Company (the “Ehrlich Promissory Note B”). The Ehrlich Promissory Note B was an unsecured, 6% per annum simple interest bearing, demand note.
 
During the year ended June 30, 2010, Mr. Ehrlich, loaned the Company a total of $972,907. A condition for this loan 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%. During the year ended June 30, 2011, Mr. Ehrlich loaned the Company an additional $997,047 which brought the balance of the demand note to $2,002,264. On April 1, 2011, the Company amended the Ehrlich Promissory Note C and agreed to retroactively convert accrued interest of $96,677 through December 31, 2010 into additional principal.
 
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 principle and interest of $2,248,037, as of March 31, 2012, from 9% simple interest to 10% simple interest, and the Company issued 2,000,000 Equity Incentive Options exercisable at $0.51 per share equal to 110% of the closing bid price of $0.46 per share on May 7, 2012. Options are valid for ten (10) years from the date of issuance.

At June 30, 2014 and 2013, approximately $$237,000 and $294,000, respectively were accrued as interest expense on this note. As of June 30, 2014 and 2013, balance of the demand note was approximately $2,022,000. Currently, we have no independent directors on our Board of Directors, and therefore have no formal procedures in effect for reviewing and pre-approving any transactions between us, our directors, officers and other affiliates. We will use our best efforts to insure that all transactions are on terms at least as favorable to the Company as we would negotiate with unrelated third parties. 

Director Independence 
 
Our common stock trades on the OTC Bulletin Board, OTCBB. As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors be independent.
 
Since we are not currently subject to corporate governance standards relating to the independence of our directors, we choose to define an “independent” director in accordance with the NASDAQ Global Market's requirements for independent directors (NASDAQ Marketplace Rule 4200). We do not currently have an independent director under the above definition. We do not list that definition on our Internet website. 
 
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES

The following table sets forth the aggregate fees for professional audit services rendered by Holtz Rubenstein Reminick LLP for the audit of the Company’s annual financial statements for the fiscal years 2014, 2013 and 2012 respectively, and fees billed for other services provided by Holtz Rubenstein Reminick LLP for fiscal years 2013 and 2012. On June 1, 2013, Holtz Rubenstein Reminick LLP combined its practice (the "Merger") with Baker Tilly Virchow Krause, LLP. The engagement of Baker Tilly was approved by the Board of Directors on June 1, 2013. The Board of Directors has approved all of the following fees.
(Rounded to nearest thousand)
 
   
Fiscal Year Ended
 
   
2014
   
2013
   
2012
 
                   
Audit Fees
  $ 110,000     $ 101,000     $ 100,000 (1)
Audit related Fees
    -       -       -  
Tax Fees
    -       -       - (2)
Total Fees
  $ 110,000     $ 101,000     $ 100,000  

(1)
Includes fees for services related to the performance of the audit or review of the Company’s financial statements and costs associated with the S-3 registration statement

(2)
Includes fees for service related to tax compliance, tax advice, and tax planning
 
 
55

 
 
PART IV
 
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)
Exhibits, Financial Statements and Schedules
 
 
(1) 
See Index to Financial Statements and Supplemental Data on page 60.

 
(2) 
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.

Exhibit
No.
 
Title
 
Method of Filing
         
2.1  
Agreement and Plan of Share Exchange, by and among EconoShare, Inc., Cellceutix Pharma, Inc., and the Shareholders of Cellceutix Pharma, Inc. dated as of December 6, 2007
 
Exhibit 2.1 to the Current Report on Form 8-K of the Company filed December 12, 2007
3.1  
Articles of Incorporation of Cellceutix Pharma, Inc.
 
Exhibit 3.1 to the Current Report on Form 8-K of the Company filed December 12, 2007
3.2  
By-laws of Cellceutix Pharma, Inc.
 
Exhibit 3.2 to the Current Report on Form 8-K of the Company filed December 12, 2007
3.4  
Certificate Of Designations, Rights And Preferences Of The Series A Convertible Preferred Stock, May 9, 2012
 
Exhibit 3.4 to the Current Report on Form 8-K of the Company filed May 9, 2012
10.1  
Employment Agreement between EconoShare, Inc. and George W. Evans dated December 7, 2007
 
Exhibit 10.1 to the Current Report on Form 8-K of the Company filed December 12, 2007
10.2  
Employment Agreement between EconoShare, Inc. and Krishna Menon dated December 7, 2007
 
Exhibit 10.2 to the Current Report on Form 8-K of the Company filed December 12, 2007
10.3  
Assignment Agreement between Cellceutix Pharma, Inc. and. Krishna Menon dated August 2, 2007
 
Exhibit 10.3 to the Current Report on Form 8-K of the Company filed December 12, 2007
10.4  
Assignment Agreement between Cellceutix Pharma, Inc. and Krishna Menon dated August 2, 2007
 
Exhibit 10.4 to the Current Report on Form 8-K of the Company filed December 12, 2007
10.5  
Assignment Agreement between Cellceutix Pharma, Inc. and Krishna Menon dated August 2, 2007
 
Exhibit 10.5 to the Current Report on Form 8-K of the Company filed December 12, 2007
10.6  
Assignment Agreement between Cellceutix Pharma, Inc. and Geetha Kamburath dated August 21, 2007
 
Exhibit 10.6 to the Current Report on Form 8-K of the Company filed on December 12, 2007
10.7  
Assignment Agreement between Cellceutix Pharma, Inc. and Krishna Menon dated October 17, 2007
 
Exhibit 10.7 to the Current Report on Form 8-K of the Company filed on December 12, 2007
10.8  
Assignment Agreement between Cellceutix Pharma, Inc. and Adam Harris dated October 17, 2007
 
Exhibit 10.8 to the Current Report on Form 8-K of the Company filed on December 12, 2007
10.9  
Confidential Disclosure Agreement between Kard Scientific, Inc. and Cellceutix Pharma, Inc. dated September 28, 2007
 
Exhibit 10.9 to the Current Report on Form 8-K of the Company filed on December 12, 2007
10.10  
Laboratory Services Agreement Kard Scientific, Inc. and Cellceutix Pharma, Inc. dated September 28, 2007
 
Exhibit 10.10 to the Current Report on Form 8-K of the Company filed on December 12, 2007
10.11  
Cellceutix Lease with Kard Scientific, Inc. dated December 7, 2007
 
Exhibit 10.11 to the Current Report on Form 8-K of the Company filed on December 12, 2007
10.1.1  
Security Agreement, dated as of May 7, 2008, between Cellceutix Corp. and Putnam Partners, White Star LLC, and Dahlia Nordlicht
 
Exhibit 10.1 to the Form 10-QSB/A of the Company for the quarter ended March 31, 2008 filed on May 15, 2008
10.2.2  
Convertible Promissory Note dated as of May 7, 2008, between Cellceutix Corp. and Putnam Partners, White Star LLC, and Dahlia Nordlicht
 
Exhibit 10.2 to the Form 10-QSB/A of the Company for the quarter ended March 31, 2008 filed on May 15, 2008
 
 
56

 
 
10.3.4  
Guaranty in favor of Putnam Partners, White Star LLC, and Dahlia Nordlicht dated as of May 7, 2008
 
Exhibit 10.3 to the Form 10-QSB/A of the Company for the quarter ended March 31, 2008 filed on May 15, 2008
10.13  
Agreement with Paul Ginsburg, Attorney
 
Exhibit 99-1 to the Current Report on Form 8-K on Form 8-K of the Company filed on April 6, 2009
10.14  
Consulting Agreement with Sylvia Holden, Consultant
 
Exhibit 99-2 to the Current Report on Form 8-K on Form 8-K of the Company filed on April 6, 2009
10.15  
Cellceutix Corporation 2009 Stock Option Plan
 
Exhibit 99-3 to the Current Report on Form 8-K on Form 8-K of the Company filed on April 6, 2009
10.16  
Consulting Agreement with James DeAngelis
 
Exhibit 99-1 to the Current Report on Form 8-K of the Company filed on May 21, 2009
10.17  
Agreement between Cellceutix Pharma, Inc. and Girindus America dated June 22, 2009
 
Exhibit 10.17 to the Form 10-K of the Company for the year ended June 30, 2009 filed on October 8, 2009
10.18  
Agreement between Cellceutix Corporation and Toxikon Corporation dated October 22, 2009
 
Exhibit 10.18 to the Form 10-Q of the Company for the quarter ended September 30, 2009 filed on November 16, 2009
10.19  
Asset Purchase Agreement dated July 26, 2013 for the purchase of assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. from the U.S. Bankruptcy Court completed on September 4, 2013
 
Exhibit 2.1 to the Current Report on Form 8-K on Form 8-K of the Company filed on September 9, 2013
10.20  
Patent License Agreement, dated January 3, 2003, between PolyMedix Pharmaceuticals, Inc. (formerly known as PolyMedix, Inc.) and the University of Pennsylvania, Assigned by US Court to Cellceutix
 
Exhibit 10 to the Form 10- K for the year ended June 30, 2013 filed on September 30, 2013
10.21  
Letter Agreement, dated December 23, 2003, amending the Patent License Agreement, dated January 3, 2003, between PolyMedix Pharmaceuticals, Inc. (formerly known as PolyMedix, Inc.) and the University of Pennsylvania, Assigned by US Court to Cellceutix
 
Exhibit 10 to the Form 10- K for the year ended June 30, 2013 filed on September 30, 2013
10.22  
Software License Agreement, dated May 30, 2003, between PolyMedix Pharmaceuticals, Inc. (formerly known as PolyMedix, Inc.) and the University of Pennsylvania , Assigned by US Court to Cellceutix
 
Exhibit 10 to the Form 10- K for the year ended June 30, 2013 filed on September 30, 2013
10.24  
Agreement between Cellceutix Corporation and Formatech Corporation dated March 22, 2010
 
Exhibit 10.24 to the Form 10- K for the year ended June 30, 2010 filed on March 8, 2011
10.25  
Demand Unsecured Note between Cellceutix Corporation and Leo Ehrlich dated November 03, 2009
 
Exhibit 10.25 to the Form 10- K for the year ended June 30, 2010 filed on March 8, 2011
10.26  
Demand Unsecured Note between Cellceutix Corporation and Leo Ehrlich dated May 07, 2009
 
Exhibit 10.26 to the Form 10- K for the year ended June 30, 2010 filed on March 8, 2011
10.27  
Demand Unsecured Note between Cellceutix Corporation and Leo Ehrlich dated August 25, 2010
 
Exhibit 10.27 to the Form 10- K for the year ended June 30, 2010 filed on March 8, 2011
10.28  
Putnam Partners, Amended and Security Agreement, Amended Convertible Promissory Note and Guaranty as of January 1, 2010
 
Exhibit 10.28 to the Form 10- K for the year ended June 30, 2010 filed on March 8, 2011
10.29  
White Star LLC Amended and Security Agreement, Amended Convertible Promissory Note and Guaranty as of January 1, 2010
 
Exhibit 10.29 to the Form 10- K for the year ended June 30, 2010 filed on March 8, 2011
10.30  
Dahlia Nordlicht Amended and Security Agreement, Amended Convertible Promissory Note and Guaranty as of January 1, 2010
 
Exhibit 10.30 to the Form 10- K for the year ended June 30, 2010 filed on March 8, 2011
10.31  
Employment Agreement between Cellceutix Corporation and Krishna Menon
 
Exhibit 99-2 to the Current Report on Form 8-K/A of the Company filed on February 22, 2011
10.32  
Employment Agreement between Cellceutix Corporation and Leo Ehrlich
 
Exhibit 99-1 to the Current Report on Form 8-K/A of the Company filed on February 22, 2011
10.33  
Cellceutix Corporation 2010 Equity Incentive Plan filed on Menon
 
Exhibit 99-3 to the Current Report on Form 8-K/A of the Company filed on February 22, 2011
10.34  
Settlement Agreement between Cellceutix Corporation and George W. Evans, dated February 14, 2011
 
Exhibit 10.31 to the Form 10-Q of the Company for the quarter ended December 31, 2010 filed on February 22, 2011
10.35  
Form of Subscription Agreement. Offering by the Company of a maximum of up to 2,500,000 shares at $0.40 per share of the Company's Class A common stock with one Stock Purchase Warrant exercisable at $1.00 for each share of Common Stock, dated October 11, 2011
 
Exhibit 10.35 to the Form 10- K for the year ended June 30, 2011 filed on October 13, 2011
 
 
57

 
 
10.36  
Subscription agreement for Series A Convertible Preferred shares with an accredited investor for an aggregate of $1,000,000, dated May 8, 2012
 
Exhibit 10.34 to the Current Report on Form 8-K of the Company filed May 9, 2012
10.37  
Registration Rights Agreement, dated as of December 06, 2012 by and between the Company and Aspire Capital Fund, LLC.
 
Exhibit 4.1 to the Current Report on Form 8-K of the Company filed on December 10, 2012
10.38  
Common Stock Purchase Agreement, dated as of December 06, 2012, by and between the Company and Aspire Capital Fund, LLC.
 
Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on December 10, 2012
10.39  
Mutual Termination Agreement for the sale of $1,000,000 Series A Convertible Preferred Shares
 
Exhibit 10.39 to the Current Report on Form 8-K of the Company filed on January 08, 2013
10.40  
First Amendment to Asset Purchase agreement dated August 30, 2013 and completed on September 4, 2013
 
Exhibit 2.1 to the Current Report on Form 8-K of the Company filed on September 9, 2013
10.41  
Registration Rights Agreement, dated as of October 25, 2013 by and between the Company and Aspire Capital Fund, LLC.
 
Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on October 28, 2013
10.42  
Common Stock Purchase Agreement, dated as of October 25, 2013, by and between the Company and Aspire Capital Fund, LLC.
 
Exhibit 10.2 to the Current Report on Form 8-K of the Company filed on October 28, 2013
10.43  
Intellectual Property Acquired From Polymedix
 
Exhibit10.37 to the Form 10-Q for the quarterly period ended March 31, 2014 filed on May 12, 2014
10.44  
Material Transfer Agreement With Beth Israel Deaconess
 
Exhibit10.38 to the Form 10-Q for the quarterly period ended March 31, 2014 filed on May 12, 2014
10.45  
Lease Between Cellceutix Corporation And Cummings Properties
 
Exhibit10.39 to the Form 10-Q for the quarterly period ended March 31, 2014 filed on May 12, 2014
10.46  
Cellceutix Aruda Agreement
 
Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on September 2, 2014
10.47  
Amendment To Menon-Cellceutix Agreement Without Changing The Total Royalties Payable Under The Terms Of The Prior Agreement,
 
Exhibit 10.2 to the Current Report on Form 8-K of the Company filed on September 2, 2014
10.48  
Assignment of Patent rights to Cellceutix by Menon
 
Exhibit 10.3 to the Current Report on Form 8-K of the Company filed on September 2, 2014
14.15  
Code of Ethics
 
Exhibit 10.15 to the Form 10-KSB of the Company for the year ended June 30, 2008 filed on September 24, 2008
23  
Consent of Independent Registered Public Accounting Firm - Baker Tilly Virchow Krause, LLP
 
Furnished herewith
31.1  
Chairman of the Board and President Certifications required under Section 302 of the Sarbanes Oxley Act of 2002
 
Furnished herewith
31.2  
Chief Executive Officer and Chief Financial Officer Certifications required under Section 302 of the Sarbanes Oxley Act of 2002
 
Furnished herewith
32.1  
Chairman of the Board and President Certifications required under Section 906 of the Sarbanes Oxley Act of 2002
 
Furnished herewith
32.2  
Chief Executive Officer and Chief Financial Officer Certifications required under Section 906 of the Sarbanes Oxley Act of 2002
 
Furnished herewith
101  
The following materials from the Company’s Annual Report on Form 10-K for the year ended June 30, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) related notes
 
Furnished herewith
 
(b)
Reports on Form 8-K
 
(1)
The Company filed a Form 8-K on August 28, 2014 related to Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers, related to the appointment to a new member to the Board of Directors effective October 1, 2014: and Item 8.01 Other Events, related to the above exhibits 10.46, 10.47 and 10.48

 
58

 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
  Cellceutix Corporation  
  (Registrant)  
       
Date: September 15, 2014
By:
/s/ Leo Ehrlich
 
   
(Leo Ehrlich,
 
   
Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, and Secretary)
 
 
  Cellceutix Corporation  
  (Registrant)  
       
Date: September 15, 2014
By:
/s/ Krishna Menon
 
   
(Krishna Menon,
 
   
President and Director)
 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
 
Signature
 
Title
 
Date
     
/s/ Leo Ehrlich
 
Chief Executive Officer, Chief Financial Officer,
 
September 15, 2014
(Leo Ehrlich)
 
Principal Accounting Officer, and Secretary
   
 
 
     
/s/ Krishna Menon
 
President and Director
 
September 15, 2014
(Krishna Menon)
 
     
 
 
59

 
 
CELLCEUTIX CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
 
   
Page
 
Report of Independent Registered Public Accounting Firm
    61  
Consolidated Financial Statements of Cellceutix Corporation
       
Consolidated Balance Sheets as of June 30, 2014 and June 30, 2013 
    62  
Consolidated Statements of Operations for each of the three years ended June 30, 2014
    63  
Consolidated Statements of Shareholders’ Equity (Deficit) for each of the three years ended June 30, 2014
    64  
Consolidated Statements of Cash Flows for each of the three years ended June 30, 2014
    66  
Notes to Consolidated Financial Statements
    67  
Quarterly Financial Summary (unaudited)
    86  

All schedules are omitted for the reason that they are not applicable or the required information is included in the financial statements or notes.
 
 
60

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Cellceutix Corporation
Beverly, Massachusetts
 
We have audited the accompanying consolidated balance sheets of Cellceutix Corporation as of June 30, 2014 and 2013, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years ended June 30, 2014, 2013 and 2012. We have also audited Cellceutix Corporation's internal control over financial reporting as of June 30, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
 
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the consolidated financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cellceutix Corporation as of June 30, 2014 and 2013 and the results of their operations and cash flows for the years ended June 30, 2014, 2013 and 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Cellceutix Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has no revenues and has a history of recurring losses from operations and a negative working capital. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ BAKER TILLY VIRCHOW KRAUSE, LLP
New York, New York
September 15, 2014

 
61

 
 
CELLCEUTIX CORPORATION
CONSOLIDATED BALANCE SHEETS AS AT JUNE 30, 2014 AND JUNE 30, 2013
(Rounded to nearest thousand except for per share data)
 
   
June 30,
   
June 30,
 
   
2014
   
2013
 
ASSETS
Current Assets:
           
Cash
  $ 4,988,000     $ 2,955,000  
Prepaid expenses and security deposits
    568,000       5,000  
Total Current Assets
    5,556,000       2,960,000  
                 
Other Assets:
               
Patent costs - net
    4,962,000       10,000  
Property, plant and equipment -net
    39,000       -  
Deferred offering costs
    295,000       -  
Total Other Assets
    5,296,000       10,000  
                 
Total Assets
  $ 10,852,000     $ 2,970,000  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
               
Accounts payable - (including related party payables of approx. $1,708,000 and $1,704,000, respectively)
  $ 2,664,000     $ 1,849,000  
Accrued expenses - (including related party accruals of approx. $290,000 and $354,000, respectively)
    336,000       554,000  
Accrued salaries and payroll taxes -(including related party accrued salaries of approx. $3,210,000 and $3,427,000, respectively)
    3,224,000       3,431,000  
Accrued settlement costs
    -       284,000  
Note payable - related party
    2,022,000       2,022,000  
Redeemable Common Stock
    1,400,000       -  
Total Current Liabilities
    9,646,000       8,140,000  
                 
Total Liabilities
    9,646,000       8,140,000  
                 
Commitments and contingencies (Note 9)
               
                 
Stockholders' Equity (Deficit)
               
Preferred stock, $0.001 par value, 500,000 designated shares, no shares issued and outstanding
    -       -  
Common Stock - Class A, $.0001 par value, 300,000,000 shares authorized, 109,787,129 issued and 109,787,129 outstanding as of June 30, 2014 and 100,456,068 issued and 99,073,984 outstanding as of June 30, 2013
    11,000       10,000  
Common Stock - Class B, (10 votes per share); $.0001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2014 & June 30, 2013, respectively
    -       -  
Additional paid-in capital
    29,215,000       14,868,000  
Accumulated deficit
    (28,020,000 )     (19,773,000 )
Treasury stock - 0 and 1,382,084 shares at cost - as of June 30, 2014 and June 30, 2013, respectively
    -       (275,000 )
Total Stockholders' Equity (Deficit)
    1,206,000       (5,170,000 )
                 
Total Liabilities and Stockholders' Equity (Deficit)
  $ 10,852,000     $ 2,970,000  
                 
The accompanying notes are an integral part of these consolidated financial statements
 
 
62

 

CELLCEUTIX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS ENDED JUNE 30, 2014
(Rounded to nearest thousand except for per share data)

   
2014
   
2013
   
2012
 
                   
Revenues
  $ -     $ -     $ -  
                         
Operating expenses:
                       
Research and development expenses
    6,344,000       1,510,000       633,000  
General and administrative expenses
    872,000       399,000       304,000  
Officers' payroll and payroll tax expenses
    505,000       459,000       2,413,000  
Professional fees
    317,000       615,000       847,000  
                         
Total operating expenses
    8,038,000       2,983,000       4,197,000  
                         
Loss from operations
    (8,038,000 )     (2,983,000 )     (4,197,000 )
                         
Other expenses
                       
Interest income
    1,000       -       -  
Interest expense
    (210,000 )     (241,000 )     (257,000 )
Loss on financial instruments
    -       -       (440,000 )
Total other expenses
    (209,000 )     (241,000 )     (697,000 )
                         
Loss before provision for income taxes
    (8,247,000 )     (3,224,000 )     (4,894,000 )
Provision for income taxes
    -       -       -  
                         
Net loss
  $ (8,247,000 )   $ (3,224,000 )   $ (4,894,000 )
                         
Deemed dividends
    (1,980,000 )     (212,000 )     (66,000 )
Net loss attributable to common stockholders
  $ (10,227,000 )   $ (3,436,000 )   $