Innovation Pharmaceuticals Inc. - Annual Report: 2012 (Form 10-K)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

xANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 

ACT OF 1934 

FOR THE FISCAL YEAR ENDED JUNE 30, 2012

OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _____ TO __________

Cellceutix Corporation

(Exact name of registrant as specified in its charter)

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¨No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. 

Yes¨Nox

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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes ¨ No x.

Indicate by check mark if disclosure of delinquent filers in response 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 |.

Yes¨ Nox.  

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "accelerated filer and large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES ¨NOx.

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

The aggregate market value of voting stock held by non-affiliates of the Registrant at September 30, 2012 was $49,828,581 computed by reference to the last traded sale price as reported on the Over the Counter market on such date.

CELLCEUTIX CORPORATION 

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ITEM 1. DESCRIPTION OF BUSINESS

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.”

GENERAL 

Cellceutix Corporation, formerly known as EconoShare, Inc., (the “Company” or the “Registrant”) was incorporated on August 1, 2005 in the State of Nevada and was organized for the purpose of developing a B2B (Business to Business) website for an Asset Sharing market place and transaction system.

On December 6, 2007, the Company acquired CellceutixPharma, Inc., a privately owned Delaware corporation pursuant to an Agreement and Plan of Share Exchange (the “Exchange”). CellceutixPharma, Inc. was incorporated under the laws of the State of Delaware on June 20, 2007. Its assets consisted of rights assigned to it for six early stage pharmaceutical compounds by three different scientists.

Pursuant to the terms of the Exchange, the Company acquired CellceutixPharma, Inc. in exchange for an aggregate of 82,000,000 newly issued shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”). As a result of the Exchange, CellceutixPharma, Inc. became a wholly-owned subsidiary of the Company. The Company’s shares were issued to the CellceutixPharma, Inc. shareholders on a pro rata basis, on the basis of 82 shares of Common Stock for each share of CellceutixPharma, Inc. common stock held by such CellceutixPharma, Inc. shareholder at the time of the Exchange. This resulted in the former holders of CellceutixPharma, Inc. Common Stock, upon Exchange, owning approximately 89% of the outstanding shares of the Company’s Common Stock. Accordingly, the Exchange represented a change in control. For financial accounting purposes, the acquisition was a reverse acquisition of the Company by CellceutixPharma, Inc., under the purchase method of accounting, and was treated as a recapitalization with CellceutixPharma, Inc. as the legal acquirer. Upon consummation of the Exchange, the Company adopted the business plan of CellceutixPharma, Inc. We are an early stage developmental biopharmaceutical company. The Company has no customers, products or revenues to date, and may never achieve revenues or profitable operations.

On January 14, 2008, a majority of the shareholders of the Company approved an amendment to the Registrant’s articles of incorporation to change the name of the Registrant to Cellceutix Corporation. Upon the filing of a Definitive Information Statement and effectiveness of the name change on February 1, 2008, the Company applied to the National Association of Security Dealers (NASD) to change its stock symbol on the Over the Counter Bulletin Board which resulted in the Company’s stock symbol being changed to CTIX.

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On December 29, 2010 shareholders holding 51% of the Company’s outstanding common stock adopted and approved the 2010 Equity Incentive Plan and authorized an amendment to the Company’s Articles of Incorporation to authorize Class B common stock convertible into Class A common stock on a 1:1 basis, however the Class B Common Stock shall entitle ten votes for each share of Class B Common Stock. On February 8, 2011, the Company filed a Form 14C Information Statement with the Securities and Exchange Commission. This action became effective on May 10, 2011, approximately twenty (20) days from the date of mailing of the Definitive Information Statement. The Definitive Information Statement was mailed on April 20, 2011 to the shareholders of record as of February 9, 2011. All shares issued as of balance sheet dates are Class A common stock.

In November 2011, Dr. Paul Marks joined the Cellceutix Scientific Advisory Board. Dr. Marks served as President and Chief Executive Officer of Memorial Sloan-Kettering Cancer Center ("MSKCC") from 1980 to 1999 where he helped to establish the high standards for research and patient care that MSKCC is world renowned for. He remains a vital part of MSKCC as President Emeritus and Member of the Sloan-Kettering Institute.

In January 2012, Cellceutix filed a patent application for Prurisol™,  also known as  KM-133, a compound to treat psoriasis. 

In March 2012, Cellceutix entered into an agreement with Beth Israel Deaconess Medical Center (BIDMC), a teaching hospital of Harvard Medical School, on an innovative research project with our anti cancer compound, 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 hopes to improve therapy for melanoma and renal cell carcinoma, cancers 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, KevetrinphosphorylatesMDM2 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 will test 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 will provide 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.  

On May 7, 2012,  Cellceutix announced that Syracuse University’s basketball coach Jim Boeheim joined Cellceutix as an advisor to the Company.

On May 8, 2012, the Company entered into a subscription agreement for Series A Convertible Preferred shares with an accredited investor for an aggregate of $1,000,000.  Initial funding was One Hundred Thousand USD ($100,000) for the purchase of 10,000 Series A Convertible Preferred Shares.  Subscription Agreement provides for installment Funding Amounts, at Cellceutix’s discretion, to take place every thirty days after initial closing date  for an amount of the lesser of  (i) $75,000 or  (ii) twenty five  (25% ) per cent of the dollar value of the total volume traded during the preceding 22 trading days.   The Series A Preferred Shares are convertible into common stock at the lesser of 85% of the closing bid price on the date of prior to each closing, or 85% of the lowest bid price for the fifteen (15) days prior to conversion.  At no time may a holder of shares of Series A Preferred Stock convert shares of the Series A Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning more than 9.99% of all of the Common Stock outstanding.   Additionally, for each common share issued upon conversion of Series A preferred share, a five year common stock purchase warrant is issued to the Subscriber.  The warrant is exercisable at the conversion price of the common shares issued.  The fair value of the common stock into which the Series A Preferred Stock is convertible will exceed the price at which the common stock will be issued on the date of issuance of the preferred stock.  The amount by which the fair value of the common stock exceeds the issue price of the common stock is a beneficial conversion feature.  The Company will recognize the beneficial conversion feature as a one-time, non-cash deemed dividend to the holders of the Series A Preferred Stock on the date of

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issuance, which is the date the preferred stock first became convertible.   The Series A Convertible Preferred shares do not pay dividends.   The Common shares underlying the Series A Preferred Shares and the common stock purchase warrants are subject to piggy back registration rights.

In June 2012,  Cellceutix participated in a pre IND meeting with the U.S. Food and Drug Administration ("FDA") pertaining to Prurisol™, our drug for treating psoriasis. 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 trials 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.

On June 21, 2012, the U.S. Food and Drug Administration ("FDA") approved the Investigational New Drug (IND) application for Kevetrin™, Cellceutix's novel anti-cancer compound. The Phase 1 trials are being conducted at Harvard Cancer Center's Dana-Farber Cancer Institute and partner Beth Israel Deaconess Medical Center.  The clinical trial 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. The trial is registered on www.clinical trials.gov . http://clinicaltrials.gov/ct2/show/NCT01664000?term=Kevetrin&rank=1

Subsequent Events

On September 10, 2012 Cellceutix announced that it is in discussions with a major European university wishing to conduct clinical trials on Kevetrin.  The university wishes to test Kevetrin as a combination therapy for leukemia with drugs proprietary to one of the world’s largest pharmaceutical companies. Pursuant to a confidentiality agreement, Cellceutix cannot identify the university or the pharmaceutical company at this time.

On September 13, 2012,  the company filed a Certificate of Correction with the State of Nevada to correct the par value of the preferred shares from the amended articles of incorporation filed June 24, 2011 from $.0001 per share to $.001 per share. 

The Company’s Common Stock is quoted on the Over the Counter Bulletin Board (OTCBB),  symbol “CTIX”.

OVERVIEW 

We have acquired exclusive rights to eight (8) different pharmaceutical compound candidates that are designed for treatment of diseases which exist, or may exist in the future.  The Company will spend most of its efforts and resources on its Phase 1 trial at Dana Farber Cancer Center and Beth Israel Deaconess Hospital for its anti-cancer compound, Kevetrin™.  The Company will also be spending time and resources advancing Prurisol, for the treatment of psoriasis, towards an FDA application for a phase 2/3 clinical trial.  

We anticipate using our expertise to manage and perform what we believe are the most critical aspects of the product development process which includes: (i) the design and oversight of non-clinical and clinical trials; (ii) the development and execution of strategies for the protection and maintenance of intellectual property rights; and (ii) the interaction with regulatory authorities worldwide. 

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 new compound is identified and brought into clinical trials. In addition, we are currently engaged in pre-clinical testing of two of our product candidates and intend to out-source clinical trials, pre-clinical testing and the manufacture of clinical materials to third parties.   

The Company has incurred significant operating losses since its inception resulting in an accumulated deficit of $16,336,918 at June 30, 2012.  For the year ended June 30, 2012, the Company had a net loss of $4,942,442.  Such losses are expected to continue for the foreseeable future and until such time, if ever, as the Company is able to attain sales levels sufficient to support its operations.  These factors raise substantial doubt about the Company's ability to continue as a going concern.

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The accompanying financial statements of this Form 10-K have been prepared assuming that the Company will continue as a going concern which assumes the Company will be able to continue to realize assets and satisfy liabilities in the normal course of business. Accordingly, they do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the company be unable to continue as a going concern. 

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. 

LTB4: Leukotriene B4 (LTB4) is a notable participant in inflammation and chemotaxis. 

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. 

Western Blot Analysis: A technique used to identify and locate proteins based on their ability to bind to specific antibodies. 

Xenograft: The cells of one species transplanted to another species. 

The Company’s Pipeline Consists of the Following Compounds:

Compound: Kevetrin 

Disease: Cancer  

Our lead product candidate, Kevetrin, was discovered by Dr. Krishna Menon, a Company founder. The Company acquired exclusive rights to Kevetrin in August 2007.     (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). 

Kevetrin mechanism involves p53 and p21

Mechanism of action studies 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.

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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.

Biomarker

In addition, we identified the increased expression of p21 as a potential biomarker in our upcoming clinical trial for Kevetrin. Based on the mechanism studies, levels of p21 were measured by qPCR in peripheral blood lymphocytes from mice treated with Kevetrin. Kevetrin significantly enhanced p21 levels compared to control which correlated with anti-tumor activity of Kevetrin.

Study at Beth Israel Deaconess Medical Center

In March 2012, Cellceutix entered into an agreement with Beth Israel Deaconess Medical Center(BIDMC), a teaching hospital of Harvard Medical School, on an innovative research project with our anti cancer compound, 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 hopes to improve therapy for melanoma and renal cell carcinoma, cancers 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, KevetrinphosphorylatesMDM2 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 will test 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 will provide 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. 

Phase 1 ClinicalTrial at Dana-Farber Cancer Institute and Beth Israel Deaconess Medical Center

On June 21, 2012, the U.S. Food and Drug Administration ("FDA") approved the Investigational New Drug (IND) application for Kevetrin™, Cellceutix's novel anti-cancer compound. The Phase 1 trials are being conducted at Harvard Cancer Center's Dana-Farber Cancer Institute and partner Beth Israel Deaconess Medical Center.  The clinical trial 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. The trial is registered on www.clinicaltrials.gov (http://clinicaltrials.gov/ct2/show/NCT01664000?term=Kevetrin&rank=1 )

Compound: KM-133 

Disease: Psoriasis 

KM-133, a small molecule compound, acting on the principles of folate mechanism, is in development for Psoriasis.  After a series of chemical optimization exercises, the Company has

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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, IL-20 and 12-R lipoxygenase. 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. 

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 trials 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.

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.

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. 

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Conclusions

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.

Further experiments are planned but are presently delayed due to our focus on Kevetrin and Prurisol.

Compound: KM 277 

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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 Kevetrin and Prurisol.

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 Kevetrin and Prurisol.

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 Kevetrin and Prurisol.

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 Kevetrin and Prurisol.

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 Kevetrin and Prurisol.

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INTELLECTUAL PROPERTY 

The Company has been assigned all right title and interest to the following eight pharmaceutical compounds: Kevetrin, KM 277, KM 278, KM 133 KM 362, KM 3174, KM 732, and KM-391 by their inventors. The Company agreed to pay the inventors 5% of net sales of the compounds in countries where composition of matter patents have been issued and 3% of net sales in other countries. Kevetrin, KM 277, KM 278 and KM 362 were acquired by the Company from Dr. Krishna Menon, the Company’s Director, President, and principal shareholder.    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.

On May 20, 2009, the Company filed a U.S. patent application covering pharmaceutical formulations of Kevetrin and many novel compounds having similar structures to Kevetrin that may have potential as drug development candidates. The application also covers the use of Kevetrin and the other related compounds in various areas, including cancers.  In May, 2010 the Company filed foreign patent applications and a further United States application covering similar subject matter.  The foreign applications cover Patent Cooperation Treaty (PCT) countries as well as key non-PCT countries. 

In January 2012, Cellceutix filed a U.S. patent application covering the pharmaceutical formulation of Prurisol™, also known as  KM-133, a compound to treat psoriasis. 

The Company intends to file patent applications for the other compounds as funds become available. 

OUR STRATEGY 

We are in the business of developing innovative small molecule therapies to treat diseases with significant medical need, particularly in the areas of cancer and inflammatory disease.  Our strategy is to use our business and scientific expertise to maximize the value of our pipeline.  We will do this by focusing initially on our lead compounds, Kevetrin and Prurisol and advancing  them as quickly as possible along the regulatory pathway.  We will develop the highest quality data and broadest intellectual property to support our compounds.  

We currently own all development and marketing rights to our products.  In order to successfully develop and market our products, we may have to partner with other companies.  Prospective partners may require that we grant them significant development and/or commercialization rights in return for agreeing to share the risk of development and/or commercialization.   

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. The Company may continue to use the services of Kard, Inc. to manufacture small quantities of compounds for animal and in-vitro studies.   (See Item 13. Certain Relationships and Related Transactions; and Director Independence)   

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 psoriasis compound, Prurisol,  as there are many drugs approved to treat various forms of psoriasis and many more in the publicly disclosed development pipeline.   Our success depends on our ability to identify tumor or psoriasis  types where these drugs have an advantage over existing therapies and those in the publicly disclosed development pipeline. 

EMPLOYEES  

As of June 30, 2012, the Company had two (2) employees, Dr. Krishna Menon, and Mr. Leo Ehrlich.  Messrs. Krishna Menon and Leo Ehrlich executed employment agreements with the Company on December 29, 2010.  The Company expects to conduct its operations using contractors and consultants for the short term. The Company may hire additional full-time employees to be engaged in administration, research and development should the Company have adequate funds.   

CORPORATE INFORMATION  

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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 this 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  

Our company is a development stage company that has no products approved for commercial sale, has 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:   

Our leading product candidate Kevetrin is at an early stage of its clinical trial, while our other products are categorized as pre-clinical. If we do not successfully develop and commercialize these products, 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.   

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; 

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• 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. 

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, 2012 we had $27,703 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 elsewhere in this Form 10-K. 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. 

We will 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. 

We currently do not have resources to complete the development and commercialization of any of our proposed products. We expect to incur costs of approximately five million eight hundred and fifty thousand dollars ($5,850,000) in the upcoming twelve (12) months to operate our business in accordance with our business plans and budgets. We may not be able 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, a regulatory filing for Prurisol, and our Phase 1 trial for our anti-cancer drug Kevetrin. 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:  

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• 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. 

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. 

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. 

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. 

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Our drug candidates are in early developmental and clinical stages. 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 or our collaborators will reach our anticipated clinical targets. Even if we or our collaborators 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.   

We must comply with significant and complex government regulations, compliance with which may delay or prevent the commercialization of our drug candidates. 

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. 

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.   

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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.   

We can provide no assurance that our drug candidates will obtain regulatory approval or that the results of clinical studies will be favorable. 

Presently, we are at the early stage of  a Phase 1 clinical trial for Kevetrin, our anti-cancer drug . The work-plan we have developed for the next twelve (12) months should enable us to advance Kevetrin’s Phase 1 trial and  file an IND application with the FDA to begin Prurisol’s (anti-psoriasis) clinical trials. If approved, it would  allow us to commence Prurisol’s Phase 2 trial. 

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.

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.

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,

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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 use 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. If we are required to withdraw all or more of our drugs from the market, we may be unable to continue revenue generating operations. 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.

We have no experience in conducting or supervising clinical trials and must outsource all clinical trials.   

We have no experience in conducting or 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. 

Because we have no experience in conducting or supervising clinical trials, we must outsource 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.    

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. 

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

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have our products approved due to our failure to comply with regulatory requirements, we will be unable to commence revenue generating 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 does have a $5,000,000 liability insurance for the Kevetrin 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.  

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. 

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. 

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.   

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We have limited manufacturing experience  

The Company has never manufactured products in the highly regulated environment of pharmaceutical manufacturing. There are numerous regulations and requirements that must be maintained to obtain licensure and permitting required to commence manufacturing, as well as additional requirements to continue manufacturing pharmaceutical products. We do not own or lease facilities currently that could be used to manufacture any products that might be developed by the Company, nor do we have the resources at this time to acquire or lease suitable facilities. 

We have no sales and marketing personnel. 

We do not currently have any products available for sale, so have not secured a sales and marketing staff.  If we successfully receive regulatory approval  to market a drug, we cannot generate sales without sales or marketing staff and must rely on our officers to provide any sales or marketing services until such staff are secured, if ever. 

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. 

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. 

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 collaborations 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. 

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. 

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. 

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 

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• effective allocation of our resources to multiple projects.   

We may not be able to attract and retain highly skilled personnel or consultants. 

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. The loss or unavailability of the services of any of these individuals for any significant period of time could have a material adverse effect on our business, prospects, financial condition and results of operations. We have not obtained, do not own, nor are we the beneficiary of key-person life insurance. 

The Company believes the following persons are critical to the success of the Company.  The terms of their employment agreements between them and the Company are as follows: 

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.    The Board, at its discretion, may increase the base salary based upon relevant circumstances.

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. 

• Our executive officers or directors or their affiliates have interests in entities that provide products or services to us. Presently, Kard Scientific, a company controlled by Dr. Krishna Menon, President and Director, provides preclinical and manufacturing services to the Company and leases space to the Company. 

In any 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. 

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

• The terms of transactions with the other entity may not be subject to arm's length negotiations and therefore may be on terms less favorable to us than those that could be procured through arm's length negotiations. 

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While the Company is not aware of any conflict that has arisen to date, Dr. Menon may have conflicting fiduciary duties between the Company and Kard Scientific. Currently, the Company does not have any policy in place to deal with such should such a conflict arise. 

 Risks Related to the Biotechnology/Biopharmaceutical Industry  

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. 

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. 

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. 

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; 

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• 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. 

Risks Related to the Securities Markets and Investments in Our Common Stock  

Because our common stock is quoted on the OTC Bulletin Board“OTCBB”," your ability to sell your shares in the secondary trading market may be limited. 

Our common stock is currently quoted on the over-the-counter “OTCBB” market. Consequently, the liquidity of our 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 common stock may be lower than might otherwise prevail if our common stock was quoted and traded on NASDAQ or a national securities exchange. 

Because our shares are "penny stocks," you may have difficulty selling them in the secondary trading market. 

Federal regulations under the Securities Exchange Act of 1934 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 common stock currently is quoted on the “OTCBB” 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. 

In addition, because our 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 common stock is subject to Rule 15g-9 under the Securities 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 common stock and our shareholders, therefore, may have difficulty in selling their shares in the secondary trading market. 

Our stock price may be volatile and your investment in our common stock could suffer a decline in value.   

As of June 30, 2012, the last trade price of our common stock, as quoted on the OTC Markets Group, Inc.'s OTCBB, was $0.64.  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; 

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• 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. 

A registration of a significant amount of our outstanding restricted stock may have a negative effect on the trading price of our stock. 

At June 30, 2012, shareholders of the Company owned approximately 49,133,642 shares of restricted stock, or 51.7% of the outstanding common stock. If we were to file a registration statement including all of these shares, and the registration is allowed by the SEC, these shares would be freely tradable upon the effectiveness of the planned registration statement. If investors holding a significant number of freely tradable shares decide to sell them in a short period of time following the effectiveness of a registration statement, such sales could contribute to significant downward pressure on the price of our stock. 

Our directors and executive officers own or control a sufficient number of shares of our common stock to control our company, which could discourage or prevent a takeover, even if an acquisition would be beneficial to our shareholders.   

At June 30, 2012, our directors and executive officers own or control approximately 45.5% % of our outstanding voting power. Accordingly, these shareholders, individually and as a group, may be able to influence the outcome of shareholder 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 shareholders could have the effect of delaying, deferring or preventing a change in control of our company.

The dual class structure of our common stock can have the effect of concentrating voting control with Menon and/ or Ehrlich, which will limit or preclude your ability to influence corporate matters.

Our Class B common stock has ten votes per share on all matters submitted to a vote of our stockholders and our Class A common stock has one vote per share on all matters submitted to a vote of our stockholders. Menon and Ehrlich each have vested options that they can exercise and  convert to 18,000,000 shares of Class B common stock.  That alone could result in the equivalent of 360,000,000 votes of Class A shares.  As of September 30, 2012 we had  93,124,151 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 and Class A common stock, upon issuances of Class B common stock, the Class B holders can collectively control a majority of the combined voting power of our common stock 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 capital stock must come from increases in the fair market value and trading price of the capital stock. 

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We have not paid any cash dividends on our common stock and do not intend to pay cash dividends on our 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 capital stock must come from increases in the fair market value and trading price of the capital 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 as detailed further in Management's Discussion and Analysis in this Form 10-K.

On May 8, 2012, the Company entered into a subscription agreement for Series A Convertible Preferred shares with an accredited investor for an aggregate of $1,000,000.  Initial funding was One Hundred Thousand USD ($100,000) for the purchase of 10,000 Series A Convertible Preferred Shares.  Subscription Agreement provides for installment Funding Amounts, at Cellceutix’s discretion, to take place every thirty days after initial closing date  for an amount of the lesser of  (i) $75,000 or  (ii) twenty five  (25% ) per cent of the dollar value of the total volume traded during the preceding 22 trading days.   The Series A Preferred Shares are convertible into common stock at the lesser of 85% of the closing bid price on the date of prior to each closing, or 85% of the lowest bid price for the fifteen (15) days prior to conversion.  At no time may a holder of shares of Series A Preferred Stock convert shares of the Series A Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning more than 9.99% of all of the Common Stock outstanding.   Additionally, for each common share issued upon conversion of Series A preferred share, a five year common stock purchase warrant is issued to the Subscriber.  The warrant is exercisable at the conversion price of the common shares issued.  The fair value of the common stock into which the Series A Preferred Stock is convertible will exceed the price at which the common stock will be issued on the date of issuance of the preferred stock.  The amount by which the fair value of the common stock exceeds the issue price of the common stock is a beneficial conversion feature.  The Company will recognize the beneficial conversion feature as a one-time, non-cash deemed dividend to the holders of the Series A Preferred Stock on the date of issuance, which is the date the preferred stock first became convertible.   The Series A Convertible Preferred shares do not pay dividends.   The Common shares underlying the Series A Preferred Shares and the common stock purchase warrants are subject to piggy back registration rights.

On  July 3, 2012a second Tranche funding  was made to purchase Series A Convertible Preferred shares in the amount of seventy five thousand dollars ($75,000) for the purchase 7,500 Series A Convertible Preferred Shares. 

On June 25, 2012 the subscriber converted 10,000  Preferred Shares equal to $100,000 face value at $0.39  per share based on 85% of the closing bid price on May 7,  2012 of $0.46.   The company issued to the subscriber 255,754  shares of Cellceutix common stock.  In connection thereto the Company issued 255,754  warrants to purchase common shares of Cellceutix Corporation at $0.39 per share  valid for five years.

On July 30,2012,  a third Tranche funding was made to purchase Series A Convertible Preferred shares  in the amount of seventy five thousand dollars ($75,000)  for the purchase 7,500 Series A Convertible Preferred Shares.

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On Augusst 23, 2012 the Series A Convertible Preferred subscriber converted 7,500 Preferred Shares equal to 75,000 face value at $0.485 per share on 85% of the closing bid price on August 14, 2012 of $0.571.  The Company issued to the subscriber 154,639 shares of Cellceutix common stock.  In connection thereto the company issued 154,639 warrants to purchase common shares of Cellceutix Corporation at $0.485 per share valid for five years.

On August 31, 2012 a fourth tranche funding was made to purchase Series A Convertible Preferred shares in the amount of $75,000 USD for the purchase of 7,500 Series A Convertible Preferred Shares. 

On September 19, 2012the Series A Convertible Preferred subscriber converted 7,500 Preferred Shares equal to $75,000 face value at $0.527 per share based on 85% of the closing bid price on August 31, 2012 at $0.62.   The company issued to the subscriber 142,315  shares of Cellceutix common stock.  In connection thereto the Company issued 142,315  warrants to purchase common shares of Cellceutix Corporation at $0.527 valid for five years.   The shares and the warrants are subject to piggy back registration rights.

On September 20, 2012 a fifth tranche funding was made to purchase Series A Convertible Preferred shares in the amount of $75,000 USD for the purchase of 7,500 Series A Convertible Preferred Shares.

 On September 24, 2012 the subscriber converted 7,500 Preferred Shares equal to $75,000 face value at $0.527 per share based on 85% of the closing bid price on August 31, 2012 of $0.62   The company issued to the subscriber 142,315 shares of Cellceutix common stock.  In connection thereto the Company issued 142,315  warrants to purchase common shares of Cellceutix Corporation at $0.527 valid for five years.   The shares and the warrants are subject to piggy back registration rights.

The shares and the warrants of the above fundings, and all subsequent fundings, are subject to piggy back registration rights.

The financing, sale or the proposed sale of substantial amounts of our common stock in the public markets may adversely affect the market price of our common stock and our stock price may decline substantially. In the event that the Company is unable to raise or borrow additional funds, the Company may be required to curtail significantly its operational plans as further detailed in Requirements for Additional Capital in the Management Discussion and Analysis of this Form 10-K.  

The Company is authorized to issue up to 300,000,000 total shares of Common Stock without additional approval by shareholders. As of June 30, 2012 we had  94,968,905 shares of common stock outstanding, and , loans, warrants and options convertible to 51,001,782 shares of common stock outstanding. 

Because our common stock is quoted only on the OTCBB, your ability to sell your shares in the secondary trading market may be limited. 

Our common stock is quoted only on the OTCBB. Consequently, the liquidity of our 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 common stock may be different than might otherwise prevail if our common stock was quoted or traded on a national securities exchange such as the New York Stock Exchange.   

Large amounts of our common stock will be eligible for resale under Rule 144.   

As of June 30, 2012, approximately  49,134, 000 of the  94,968,905  issued and outstanding shares of the Company's common stock are restricted securities as defined under Rule 144 of the Securities Act of 1933, as amended (the “Act”) and under certain circumstances may be resold without registration pursuant to Rule 144.   

Approximately 5,838,000 shares of our restricted shares of 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 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 common stock pursuant to Rule 144 may have an adverse effect on the market price of the Company's shares. This filing will satisfy certain public information requirements necessary for such shares to be sold under Rule 144.    

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The requirements of complying with the Sarbanes-Oxley act may strain our resources and distract management   

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002. The costs associated with these requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Historically, we have maintained a small accounting staff, but in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant additional resources and management oversight will be required.  This effort may divert management's attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, we may need to hire additional accounting and financial persons with appropriate public company experience and technical accounting knowledge, and we cannot assure you that we will be able to do so in a timely fashion.   

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. On December 7, 2007, Cellceutix Pharma began renting 200 square feet of office space from Kard Scientific, on a month to month basis for $900 per month.  The Company's telephone number is (978) 633-3623. 

We subcontract the laboratory research and development work to Kard Scientific which occupies 10,000 square foot in the same building.  In September of 2007, the Company engaged Kard Scientific to conduct specified pre-clinical studies necessary for the Company to prepare an IND submission to the FDA.  We do not have an exclusive arrangement with KARD.  All work performed by Kard must have prior approval of the executive officers of the Company; and we retain all intellectual property resulting from the services by KARD. To date we have incurred charges from KARD of $2,601,110. 

Management believes that the property arrangement satisfies the Company’s current needs and is sufficient for the Company to monitor the developmental progress at its subcontractors.

ITEM 3. LEGAL PROCEEDINGS

Toxikon Corporation, a vendor, has initiated litigation with claims that it is owed a balance of approximately $100,000 plus interest and legal fees. Cellceutix has retained a lawyer and is disputing these claims and believes there is no balance owed.  We have filed a motion seeking leave to file a countersuit seekingdamages for loses suffered due to Toxikon’s delays in completing the project in the amount of approximately $350,000.

Formatech is a former vendor of ours which had had received Cellceutix common stock and had also gone bankrupt. In July 2012, Cellceutix was advised  that a US Bankruptcy Court judge has allowed  Formatech’s bankruptcy trustee to sell 184,375 restricted shares of Cellceutix Class A Common Stock. The proceeds of the sale will be held in escrow pending the outcome of Cellceutix’s claims against Formatech. Cellceutix has engaged an attorney with the aim of recovering these funds.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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 October 2011.  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.

Quarter ended                                                                                                                                 Low price/High price

Series A Convertible Preferred Shares par value $.001

On May 8, 2012, the Company entered into a subscription agreement for Series A Convertible Preferred shares with an accredited investor for an aggregate of $1,000,000.  Initial funding was One Hundred Thousand USD ($100,000) for the purchase of 10,000 Series A Convertible Preferred Shares.  Subscription Agreement provides for installment Funding Amounts, at Cellceutix’s discretion, to take place every thirty days after initial closing date  for an amount of the lesser of  (i) $75,000 or  (ii) twenty five  (25% ) per cent of the dollar value of the total volume traded during the preceding 22 trading days.   The Series A Preferred Shares are convertible into common stock at the lesser of 85% of the closing bid price on the date of prior to each closing, or 85% of the lowest bid price for the fifteen (15) days prior to conversion.  At no time may a holder of shares of Series A Preferred Stock convert shares of the Series A Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning more than 9.99% of all of the Common Stock outstanding.   Additionally, for each common share issued upon conversion of Series A preferred share, a five year common stock purchase warrant is issued to the Subscriber.  The warrant is exercisable at the conversion price of the common shares issued.  The fair value of the common stock into which the Series A Preferred Stock is convertible will exceed the price at which the common stock will be issued on the date of issuance of the preferred stock.  The amount by which the fair value of the common stock exceeds the issue price of the common stock is a beneficial conversion feature.  The Company will recognize the beneficial conversion feature as a one-time, non-cash deemed dividend to the holders of the Series A Preferred Stock on the date of issuance, which is the date the preferred stock first became convertible.   The Series A Convertible Preferred shares do not pay dividends.   The Common shares underlying the Series A Preferred Shares and the common stock purchase warrants are subject to piggy back registration rights.

 Number of Shareholders

As of June 30, 2012, a total of 94,968,905 of the Company’s common stock (shares) are outstanding and held by approximately 1165 shareholders.   Of this amount, approximatly 49,134,000shares are unrestricted, approximatly 5,838,000 shares are restricted securities held by non-affiliates, and the remaining approximatly 43,296,000 shares are restricted securities held by affiliates. These shares may only be sold in accordance with Rule 144. As of June 30, 2012, there were 5,719,754 warrants and 41,277,500 stock options to purchase the Company’s Common Stock outstanding.

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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

On February 4, 2012, the Company cancelled 1,380,000  shares of common stock, that were previously included in Treasury Stock, related to Mr. Evans’ settlement agreement.  (  SEE ITEM 11 EXECUTIVE COMPENSATION,  (EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS.) 

Recent Sales of Unregistered Securities

On August 29, 2011, the Company issued 100,000 shares of Class A common stock to consultants for services rendered in the first quarter of fiscal year 2012.The 100,000 shares of common stock are valued at a total of $38,000.

On September 9, 2011, the company issued 471,518Class A  common shares of the company stock to White Star LLC upon conversion of $222,791 of the principal on our existing outstanding debentures and $12,965 for interest; and the company issued 235,759 common shares to Dahlia Nordlicht upon conversion of $111,397 of the principal on our existing outstanding debentures and $6,482 for interest. Each of the Notes was converted at the price of $.50 per share. The shares were issued pursuant to the exemption from registration provided for under Rule 506 of Regulation D, promulgated under the United States Securities Act of 1933, as amended.

On November 8, 2011, the Company issued a total of 125,000 shares of Class A common stock to two consultants and a member of its scientific advisory board valued at $51,249.

In connection with an offering by the Company of a maximum of up to 2,500,000 shares at $0.40 per share (the “Offering”), a “Subscriber” during the months of October, November and December 2011, subscribed for 2,500,000 shares of the Company’s Class A common stock upon payment of$1,000,000. Subscriber is also entitled to one Stock Purchase Warrant exercisable at $1.00 for each share of Common Stock subscribed.

On January 11, 2012, the Company issued a total of 200,000 shares of Class A common stock to a consultant valued at $90,000.

On March 7, 2012 ,the Company issued a total of 265,228 shares of Class A common stock as charitable contributions valued at $137,920. 

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On April 26, 2012, the Company issued 300,000 shares of Class A common stock to consultants for services. The 300,000 shares of common stock are valued at a total of $138,000 based on the closing bid price as quoted on the OTC Bulletin Board on April 25, 2012 of .46 per share.

On May 3, 2012, the Company issued a total of 100,000 shares of Class A common stock to two consultants for services. The 100,000 shares of common stock are valued at a total of $49,000 based on the closing bid price as quoted on the OTC Bulletin Board on May 2, 2012 of $0.49 per share. In addition a total of 50,000 three (3) year stock purchase options exercisable at $0.38 were issued. The options vest on June 30, 2012.

On May 8, 2012, the Company entered into a subscription agreement for Series A Convertible Preferred shares with an accredited investor for an aggregate of $1,000,000.  Initial funding was One Hundred Thousand USD ($100,000) for the purchase of 10,000 Series A Convertible Preferred Shares.  Subscription Agreement provides for installment Funding Amounts, at Cellceutix’s discretion, to take place every thirty days after initial closing date  for an amount of the lesser of  (i) $75,000 or  (ii) twenty five  (25% ) per cent of the dollar value of the total volume traded during the preceding 22 trading days.   The Series A Preferred Shares are convertible into common stock at the lesser of 85% of the closing bid price on the date of prior to each closing, or 85% of the lowest bid price for the fifteen (15) days prior to conversion.  At no time may a holder of shares of Series A Preferred Stock convert shares of the Series A Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning more than 9.99% of all of the Common Stock outstanding.   Additionally, for each common share issued upon conversion of Series A preferred share, a five year common stock purchase warrant is issued to the Subscriber.  The warrant is exercisable at the conversion price of the common shares issued.  The fair value of the common stock into which the Series A Preferred Stock is convertible will exceed the price at which the common stock will be issued on the date of issuance of the preferred stock.  The amount by which the fair value of the common stock exceeds the issue price of the common stock is a beneficial conversion feature.  The Company will recognize the beneficial conversion feature as a one-time, non-cash deemed dividend to the holders of the Series A Preferred Stock on the date of issuance, which is the date the preferred stock first became convertible.   The Series A Convertible Preferred shares do not pay dividends.   The Common shares underlying the Series A Preferred Shares and the common stock purchase warrants are subject to piggy back registration rights.                                                                                                                                                                                                                               

On May 12, 2012 the Company amended the subscription agreement to clarify that the installment funding to take place every thirty days after the initial closing date was at Cellceutix’s discretion.

On May 8, 2012, in connection with the renegotiation of an outstanding loan to Mr. Ehrlich, 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.

From  April 26, 2012 to May 3, 2012 the  Company issued an aggregate of 400,000 Class A common shares valued at $187,000 for services rendered by various consultants and an advisor.  Additionally, the Company issued two consultants a total of 50,000 three  (3) year stock purchase options exercisable at $0.54 were issued.  The options vest on June 30, 2012.

On May 29, 2012 the Company issued 25,000 Class A common shares to a consultant for services rendered valued at $13,250 based on the closing bid price on May 25, 2012 of $0.53.

On June 25, 2012 the subscriber converted 10,000 Series A  Preferred Shares equal to $100,000 face value at $0.39  per share based on 85% of the closing bid price on May 7,  2012 of $0.46.   The company issued to the subscriber 255,754  shares of Cellceutix common stock.  In connection thereto, the Company issued 255,754  warrants to purchase common shares of Cellceutix Corporation at $0.39 per share  valid for five years.   The shares and the warrants are subject to piggy back registration rights.

On June 29, 2012,  the Company  issued  50,000  Class A common shares to a consultant for services rendered. Shares were valued at $31,150 based on the closing bid price of $0.62 on June 28, 2012. 

On  July 3, 2012a second Tranche funding  was made to purchase Series A Convertible Preferred shares in the amount of seventy five thousand dollars ($75,000) for the purchase 7,500 Series A Convertible Preferred Shares. 

On July 25, 2012 the Company  issued  25,000  Class A common shares to a consultant for advisory services rendered for the fiscal year ended June 30, 2012.  The common shares were valued at $14,750 based on the closing price of $0.59 on July  24, 2012.  

On July 30,2012,  a third Tranche funding was made to purchase Series A Convertible Preferred shares  in the amount of seventy five thousand dollars ($75,000)  for the purchase 7,500 Series A Convertible Preferred Shares.

On August 1, 2012 the Series A Convertible Preferred subscriber converted 7,500 Preferred Shares equal to $75,000 face value at $0.49 per share based on 85% of the closing bid price on July 26, 2012 of $0.58.   The company issued to the subscriber 153,061 shares of Cellceutix common stock.  In connection thereto the Company issued 153,061 warrants to purchase common shares of Cellceutix Corporation at $0.49 valid for five years.   The shares and the warrants are subject to piggy back registration rights.

On August 23,  2012 the Series A Convertible Preferred subscriber converted 7,500 Preferred Shares equal to $75,000 face value at $0.485 per share based on 85% of the closing bid price on August 14, 2012 of $0.571.   The company issued to the subscriber 154,639 shares of Cellceutix common stock.  In connection thereto the Company issued 154,639  warrants to purchase common shares of Cellceutix Corporation at $0.485 valid for five years.   The shares and the warrants are subject to piggy back registration rights.

On August 26,  2012 the Company  issued  50,000  Class A common shares to a consultant for services rendered.   The common shares were valued at $30,000  based on the closing price of $0.60 on August 24, 2012.  

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On August 31, 2012 a fourth tranche funding was made to purchase Series A Convertible Preferred shares in the amount of $75,000 USD for the purchase of 7,500 Series A Convertible Preferred Shares. 

On September 1, 2012 a consultant was granted the option to purchase 30,000 shares of Class A common sharesat $0.62 vested immediately, for a term of five years.

On September 7, 2012  a consultant exercised their option to purchase 250,000 shares of Class A common shares at $0.20, resulting in a payment to the Company of $50,000 and the issuance of 250,000 shares of Class A common stock.

On September 10, 2012 Cellceutix announced that it is in discussions with a major European university wishing to conduct clinical trials on Kevetrin.  The university wishes to test Kevetrin as a combination therapy for leukemia with drugs proprietary to one of the world’s largest pharmaceutical companies. Pursuant to a confidentiality agreement, Cellceutix cannot identify the university or the pharmaceutical company at this time.

On September 13, 2012,  the company filed a Certificate of Correction with the State of Nevada to correct the par value of the preferred shares from the amended articles of incorporation filed June 24, 2011 from $.0001 per share to $.001 per share. 

On September 19, 2012the Series A Convertible Preferred subscriber converted 7,500 Preferred Shares equal to $75,000 face value at $0.527 per share based on 85% of the closing bid price on August 31, 2012 at $0.62.   The company issued to the subscriber 142,315  shares of Cellceutix common stock.  In connection thereto the Company issued 142,315  warrants to purchase common shares of Cellceutix Corporation at $0.527 valid for five years.   The shares and the warrants are subject to piggy back registration rights.

On September 20, 2012 a fifth tranche funding was made to purchase Series A Convertible Preferred shares in the amount of $75,000 USD for the purchase of 7,500 Series A Convertible Preferred Shares.

 On September 24, 2012 the subscriber converted 7,500 Preferred Shares equal to $75,000 face value at $0.527 per share based on 85% of the closing bid price on August 31, 2012  of $0.62.  The company issued to the subscriber 142,315 shares of Cellceutix common stock.  In connection thereto the Company issued 142,315  warrants to purchase common shares of Cellceutix Corporation at $0.527 valid for five years.   The shares and the warrants are subject to piggy back registration rights.

Except as noted above, the sales of the securities identified above were made pursuant to privately negotiated transactions that did not involve a public offering of securities and, accordingly, we believe that these transactions were exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof and rules promulgated there under. Each of the above-referenced investors in our stock represented to us in connection with their investment that they were “accredited investors” (as defined by Rule 501 under the Securities Act) and were acquiring the shares for investment and not distribution, that they could bear the risks of the investment and could hold the securities for an indefinite period of time. The investors received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration or an available exemption from such registration. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act.

ITEM 6.    SELECTED FINANCIAL DATA

Not applicable for smaller reporting companies.

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.  

Acquisition and Reorganization  

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On December 6, 2007, the Acquisition of Cellceutix Pharma, Inc. was completed, and the business of Cellceutix Pharma, Inc. was adopted as our business. As such, the following Management Discussion is focused on the current and historical operations of Cellceutix Pharma, Inc. and excludes the prior operations of EconoShare, Inc.

Management’s Plan of Operation  

We are a biopharmaceutical company that has recently transitioned to a clinical stage company. In June 2012, Cellceutix participated in a pre IND meeting with the U.S. Food and Drug Administration ("FDA") pertaining to Prurisol™ our compound targeting psoriasis. 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 trials 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.

On June 21, 2012, the U.S. Food and Drug Administration ("FDA") approved the Investigational New Drug (IND) application for Kevetrin™, Cellceutix's novel anti-cancer compound. The Phase 1 trials are being conducted at Harvard Cancer Center's Dana-Farber Cancer Institute and partner Beth Israel Deaconess Medical Center.  The clinical trial 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.The trial is registered on www.clinical trials.gov . http://clinicaltrials.gov/ct2/show/NCT01664000?term=Kevetrin&rank=1

Kevetrin, the Company’s flagship compound against cancers, 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, Cellceutix 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.BIDMChopes to improve therapy for melanoma and renal cell carcinoma, cancers that are particularly resistant to therapy.

BIDMC initiated combination studies with multikinaseinhibitors 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, KevetrinphosphorylatesMDM2 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 will test 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 will provide 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. At this time the study is in progress.

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.

We acquired exclusive rights to a total of eight (8) pharmaceutical compound candidates that are designed for treatment of diseases which may be either existing or diseases identified in the future. The Company has spent most of its efforts and resources on its anti-cancer compound, Kevetrin, for the treatment of certain cancers, and on Prurisol, for the treatment of psoriasis. Based on the experimental studies results to date, the Company has decided to advance these drugs along the regulatory and clinical pathway. We anticipate using our expertise to manage and perform what we believe are the most critical aspects of the product development process which include: (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.                                              

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Liquidity and Capital Resources

During October, November, and December 2011, in connection with an offering by the Company of a maximum of up to 2,500,000 shares at $0.40 per share (the “Offering”), a “Subscriber” subscribed for 2,500,000 shares of the Company’s Class A common stock upon payment of $1,000,000. Subscriber is also entitled to one Stock Purchase Warrant exercisable at $1.00 for each share of Common Stock subscribed. On January 12, 2012 we amended the terms of the 2,500,000 Warrants issued toSubscriber.   The amended terms eliminated the provision allowing for cashless exercise and provided for 'Piggy Back Registration Rights”.

On May 8, 2012, the Company agreed to change  the interest rate on  the outstanding balance of principle and interest $2,248,037, as of March 31, 2012, represented by the Ehrlich Promissory Note C issued to Leo Ehrlich for funds he loaned to the company. In connection therewith, the interest on the loan was changed 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.

The Company issued Convertible Debentures on May 7, 2008, with an interest rate at 9% per annum, for a total amount of $400,000. On September 9, 2011, the company issued 471,518 common shares of the company’s common stock to White Star LLC upon the conversion of the debenture’s principal and interest; and the company issued 235,759 common shares to Dahlia Nordlicht upon the conversion of the debenture’s principal and interest. Each of the Notes was converted at the price of $.50 per share. The shares were issued pursuant to the exemption from registration provided for under Rule 506 of Regulation D, promulgated under the United States Securities Act of 1933, as amended. The Company issued a check and paid off the remaining Convertible Debenture balance in the amount of $167,100 plus interest of $14,826 on January 3, 2012

On May 8, 2012, the Company entered into a subscription agreement for Series A Convertible Preferred shares with an accredited investor for an aggregate of $1,000,000.  Initial funding was One Hundred Thousand USD ($100,000) for the purchase of 10,000 Series A Convertible Preferred Shares.  Subscription Agreement provides for installment Funding Amounts, at Cellceutix’s discretion, to take place every thirty days after initial closing date  for an amount of the lesser of  (i) $75,000 or  (ii) twenty five  (25% ) per cent of the dollar value of the total volume traded during the preceding 22 trading days.   The Series A Preferred Shares are convertible into common stock at the lesser of 85% of the closing bid price on the date of prior to each closing, or 85% of the lowest bid price for the fifteen (15) days prior to conversion.  At no time may a holder of shares of Series A Preferred Stock convert shares of the Series A Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning more than 9.99% of all of the Common Stock outstanding.   Additionally, for each common share issued upon conversion of Series A preferred share, a five year common stock purchase warrant is issued to the Subscriber.  The warrant is exercisable at the conversion price of the common shares issued.  The fair value of the common stock into which the Series A Preferred Stock is convertible will exceed the price at which the common stock will be issued on the date of issuance of the preferred stock.  The amount by which the fair value of the common stock exceeds the issue price of the common stock is a beneficial conversion feature.  The Company will recognize the beneficial conversion feature as a one-time, non-cash deemed dividend to the holders of the Series A Preferred Stock on the date of issuance, which is the date the preferred stock first became convertible.   The Series A Convertible Preferred shares do not pay dividends.   The Common shares underlying the Series A Preferred Shares and the common stock purchase warrants are subject to piggy back registration rights.

Requirement for Additional Capital  

Research and Development Costs.  The Company has engaged in limited research and development activities. We currently do not have sufficient funds to meet our planned drug development for the next twelve (12) months and we may not be able to obtain the necessary financing on terms and conditions acceptable to the Company. Assuming that we are successful in raising additional financing, we plan to incur the following expenses over the next twelve (12) months: 

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The Company will be unable to proceed with its full planned drug development program (s), meet its administrative expense requirements, capital costs, or staffing costs without obtaining additional financing of approximately  $5,850,000 (as per current management’s budgets). The Company does not have any arrangements at this time for equity or other financings towards meeting this financing requirement. If we are unable to obtain additional financing on terms and conditions acceptable to the Company, our business plan will be significantly delayed. 

Time Schedules, Milestones and Development Costs  

In the event that sufficient funding can be obtained, we shall endeavor to achieve completion of the following event within the next twelve months:   

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Cellceutix Corporation

Beverly, Massachusetts

We have audited the accompanying consolidated balance sheets of Cellceutix Corporation (a development stage enterprise) (the "Company") as of June 30, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders' deficit, and cash flows for the two years then ended and the cumulative period from June 20, 2007 (date of inception) through June 30, 2012. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the  financial position of Cellceutix Corporation (a development stage enterprise) as of June 30, 2012 and 2011, and the results of its operations and its cash flows for the two years then ended and the cumulative period from June 20, 2007 (date of inception) through June 30, 2012, in conformity with accounting principles generally accepted in the United States of America.

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, has suffered significant operating losses, and is dependent upon its stockholders to provide sufficient working capital to meet its obligations and sustain its operations. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding those matters are also described in Note 2. The accompanying consolidated financial statements do not contain any adjustments that might result from the outcome of these uncertainties.

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