Innovation Pharmaceuticals Inc. - Quarter Report: 2013 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2013

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________to _____________

Cellceutix Corporation

Commission File Number: 000-52321

(Exact name of registrant as specified in its charter)

Nevada	30-0565645
(State or other jurisdiction of	(I.R.S. Empl. Ident. No.)
incorporation or organization)

100 Cumming Center, Suite 151-B

Beverly, MA 01915

(Address of principal executive offices, Zip Code)

(978)-236-8717

(Registrant’s telephone number, including area code)

_________________________________________________________

(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 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 [X] No [ ]

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

Large Accelerated Filer [ ]

Non-Accelerated Filer [ ]

Accelerated Filer [ X ]

Smaller reporting company [ ]

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

Yes [ ] No [X]

The number of shares outstanding of each of the issuer’s classes of common equity, as of November 4, 2013 is as follows:

Class of Securities	Shares Outstanding

Common Stock Class A, $0.001 par value	104,914,045

CELLCEUTIX CORPORATION

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and June 30, 2013 (audited)	5
	Condensed Consolidated Statements of Operations (unaudited) for the three months ended September 30, 2013 and 2012 and for the cumulative period from June 20, 2007 (Date of Inception) to September 30, 2013	7
	Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the cumulative period from June 20, 2007 (Date of Inception) to September 30, 2013	9
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended September 30, 2013 and 2012 and for the cumulative period from June 20, 2007 (Date of Inception) to September 30, 2013	15
	Notes to Condensed Consolidated Financial Statements (unaudited)	18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	38
Item 1A	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	55

SIGNATURES		56

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.”

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CELLCEUTIX CORPORATION
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30,		June 30,
		2013		2013
		(Unaudited)		(Audited)
ASSETS
Current Assets:
Cash	$	4,631,150	$	2,955,317
Prepaid expenses		17,288		4,796
Total Current Assets		4,648 ,438		2,960,113

Other Assets:
Patent costs - net		4,702,388		10,400

Total Assets	$	9,350,826	$	2,970,513

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
Accounts payable - (including related party payables of $1,713,666 and $1,703,916, respectively)	$	1,829,890	$	1,849,077
Accrued expenses - (including related party accruals of $390,528 and $353,797, respectively)		720,777		553 ,797
Accrued salaries and payroll taxes -(including related party accrued salaries of $3,422,308 and $3,427,294, respectively)		3,441,654		3,431,018
Accrued settlement costs		-		284 519
Note payable - related party		2,022,264		2,022,264
Redeemable Common Stock		1,400,000		-
Total Current Liabilities		9,414,585		8,140,675

Commitments and contingencies

Stockholders' Deficiency
Preferred stock, $0.001 par value, 500,000 designated shares, no shares issued and outstanding		-		-
Common Stock - Class A, $.0001 par value, 300,000,000 shares authorized, 103,598,985 issued and 103,598,985 outstanding as of September 30, 2013 and 100,456,068 issued and 99,073,984 outstanding as of June 30, 2013		10,360		10,046
Common Stock - Class B, (10 votes per share); $.0001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2013 and June 30, 2013, respectively		-		-
Additional paid-in capital		20,676,109		14,868,223
Deficit accumulated during the development stage		(20,750,228)		(19,773,202)
Treasury stock - 0 and 1,382,084 shares at cost - as of September 30, 2013 and June 30, 2013, respectively		-		(275,229)
Total Stockholders' Deficiency		(63,759)		(5,170,162)

Total Liabilities and Stockholders' Deficiency	$	9,350,826	$	2,970,513

The accompanying notes are an integral part of these condensed unaudited financial statements

CELLCEUTIX CORPORATION
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
					For the
					cumulative
					period from
					June 20, 2007
					(Date of
	For the Three Months Ended				Inception)
	September 30,				through September 30,
	2013		2012		2013

Revenues	$	-	$	-	$	-

Operating expenses:
Research and development, gross		572,206		184,953		7,179,099
Grants		-		-		(733,438)
Research and development, net of grants		572,206		184,953		6,445,661
General and administrative expenses		104,459		24,020		1,009,091
Officers' payroll and payroll tax expense		118,685		113,974		8,171,247
Professional fees		123,309		77,315		3,317,189
Patent expense		-		8,650		197,724

Total operating expenses		918,659		408,912		19,140,912

Loss from operations		(918,659)		(408,912)		(19,140,912)

Interest income		171		-		171
Interest expense		(58,538)		(60,080)		(883,028)
Loss on financial instruments		-		-		(439,892)
Total other expenses		(58,367)		(60,080)		(1,322,749)

Net loss before provision for income taxes		(977,026)		(468,992)		(20,463,661)
Provision for income taxes		-		-		-

Net loss	$	(977,026)	$	(468,992)	$	(20,463,661)

Deemed dividends		-		(211,802)		(277,488)
Net loss attributable to common stockholders	$	(977,026)	$	(680,794)	$	(20,741,149)

Basic and diluted loss per share attributable to
common stockholders	$	(0.01)	$	(0.01)


Weighted average number of common shares		100,678,604		92,496,542

The accompanying notes are an integral part of these unaudited condensed financial statements.

CELLCEUTIX CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the cumulative
Period June 20, 2007 (Date of Inception)
through September 30, 2013


									Deficit
									Accumulated
	Preferred Stock			Common Stock			Additional		During the		Treasury Stock
		Par Value				Par Value	Paid-in		Development
	Shares	$	0.001	Shares	$	0.0001	Capital		Stage		Shares		Amount		Total

Shares issued June 20, 2007
(Inception)	-	$	-	1,000,000	$	100	$	-	$	-	-	$	-	$	100

Net loss	-		-	-		-		-		(530)	-		-		(530)
Balance, June 30, 2007 - audited	-		-	1,000,000		100		-		(530)	-		-		(430)

Share exchange with
Cellceutix Pharma, Inc.
December 6, 2007	-		-	(1,000,000)		(100)		-		100	-		-		-

Share exchange in reverse
merger with Cellceutix
Pharma, Inc.
December 6,2007	-		-	82,000,000		8,200		-		(8,200)	-		-		-

Shares exchanged in a reverse
acquisition of Cellceutix
Pharma, December 6, 2007	-		-	9,791,000		979		-		(979)	-		-		-

Issuance of stock options	-		-	-		-		43,533		-	-		-		43,533

Forgiveness of debt from a
stockholder	-		-	-		-		50		-	-		-		50

Capital contribution from a
stockholder	-		-	-		-		50		-	-		-		50

Shares issued for services,
April 28, 2008 at $1.05	-		-	100,000		10		104,990		-	-		-		105,000

Net loss	-		-	-		-		-		(510,193)	-		-		(510,193)
Balance June 30, 2008 - audited	-		-	91,891,000		9,189		148,623		(519,802)	-		-		(361,990)

Cancellation of shares issued
for services, December 31, 2008	-		-	(100,000)		(10)		(104,990)		-	-		-		(105,000)

Issuance of stock options	-		-	-		-		142,162		-	-		-		142,162

Shares issued for services,
June 11, 2009 at $0.38	-		-	20,000		2		7,598		-	-		-		7,600

Shares issued for services,
June 30, 2009 at $0.38	-		-	25,000		3		9,497		-	-		-		9,500

Net loss	-		-	-		-		-		(1,485,331)	-		-		(1,485,331)
Balance, June 30, 2009 - audited	-		-	91,836,000		9,184		202,890		(2,005,133)	-		-		(1,793,059)

Shares issued for services,
July 6, 2009 at $0.43	-		-	25,000		2		10,748		-	-		-		10,750

Shares issued for services,
February 5, 2010 at $0.30	-		-	3,500		-		1,050		-	-		-		1,050

Issuance of stock options	-		-	-		-		383,291		-	-		-		383,291

Shares issued for services
June 1, 2010 at $0.45	-		-	75,000		8		33,742		-	-		-		33,750

Net loss	-		-	-		-		-		(3,433,400)	-		-		(3,433,400)
Balance, June 30, 2010 - audited	-		-	91,939,500		9,194		631,721		(5,438,533)	-		-		(4,797,618)

Shares issued for services,
July 6, 2010 at $0.55	-		-	50,000		5		27,495		-	-		-		27,500

Cancellation of shares issued	-		-	(75,000)		(8)		(33 742)		-	-		-		(33,750)

Issuance of stock options	-		-	-		-		3,060,691		-	-		-		3,060,691

Modification of stock options	-		-	-		-		237 098		-	-		-		237 098

Forgiveness of liability in
connection with settlement
with stockholder	-		-	-		-		932,966		-	-		-		932,966

Repurchase of common stock
in connection with settlement	-		-	-		-		-		-	4,602,313		(859,388)		(859,388)

Shares issued for services,
March 1, 2011 at $0.32	-		-	184,375		18		58,982		-	-		-		59,000

Shares issued for services,
February 8, 2011 at $0.20	-		-	70,000		7		13,993		-	-		-		14,000

Cancellation of treasury stock	-		-	(460,229)		(45)		(99,955)		-	(460,229)		100,000		-

Shares issued for services,
May 26, 2011 at $0.81	-		-	12,000		1		9,719		-	-		-		9,720

Net loss	-		-	-		-		-		(5,938,297)	-		-		(5,938,297)
Balance, June 30, 2011 - audited	-		-	91,720,646		9,172		4,838,968		(11,376,830)	4,142,084		(759,388)		(7,288,078)

Issuance of stock options	-		-	-		-		2,114,386		-	-		-		2,114,386

Convertible debentures converted to common stock	-		-	707,277		71		353,564		-	-		-		353,635

Shares issued for services, August 29, 2011 at $0.38	-		-	100,000		10		37,990		-	-		-		38,000

Shares issued for services, November 8, 2011 at $0.41	-		-	125,000		13		51,236		-	-		-		51,249

Shares issued for services, January 11, 2012 at $0.45	-		-	200,000		20		89,980		-	-		-		90,000

Shares issued for charitable contributions, March 7
2012 at $0.52	-		-	265,228		26		137,894		-	-		-		137,920

Shares issued for services, April 26, 2012 at $0.46	-		-	300,000		30		137,970		-	-		-		138,000

Shares issued for services, May 3, 2012 at $0.49	-		-	100,000		10		48,990		-	-		-		49,000

Shares issued for services, May 29, 2012 at $0.53	-		-	25,000		2		13,248		-	-		-		13,250

Shares issued for services, June 29, 2012 at $0.62	-		-	50,000		5		31,145		-	-		-		31,150

Issuance of capital stock	-		-	2,500,000		250		582,143		-	-		-		582,393

Reclassification of warrants into equity	-		-	-		-		857,500		-	-		-		857,500

Cancellation of treasury stock	-		-	(1,380,000)		(138)		(231,517)		-	(1,380,000)		231,655		-

Issuance of preferred stock	10 000		10	-		-		99,990		-	-		-		100,000

Deemed dividend's	-		-	-		-		65,686		(65,686)	-		-		-

Conversion of preferred stock to common stock	(10,000)		(10)	255,754		26		(16)		-	-		-		-

Net loss	-		-	-		-		-		(4,894,402)	-		-		(4,894,402)
Balance, June 30, 2012 - audited	-	$	-	94,968,905	$	9,497	$	9,229,157	$	(16,336,918)	2,762,084	$	(527,733)	$	(7,625,997)

Issuance of stock options	-		-	-		-		217,047		-	-		-		217,047

Shares issued for services, July 25, 2012 at $0.59	-		-	25,000		3		14,747		-	-		-		14,750

Shares issued for services, August 26, 2012 at $0.60	-		-	50,000		5		29,995		-	-		-		30,000

Shares issued for services, October 24, 2012 at $0.87	-		-	50,000		5		43,495		-	-		-		43,500

Shares issued as commitment fee, December 6, 2012 at $0.89	-		-	336,625		34		299 ,967		-	-		-		300,001

Offering cost	-		-	-		-		(168,528)		-	-		-		(168 528)

Shares sold, December 6, 2012 at $0.89, net of offering costs of $3,000	-		-	112,208		11		96,989		-	-		-		97,000

Shares sold in March 2013 at $1.45-$1.54, net of offering costs of $45,490	-		-	1,000,000		100		1,470,730		-	-		-		1,470,830

Shares sold in May and June 2013 at $1.58-$1.97, net of offering costs of $82,983	-		-	1,600,000		160		2,682,957		-	-		-		2,683,117

Shares issued for charity donation, May 31, 2013 at $2.2	-		-	100,000		10		219,990		-	-		-		220,000

Exercise of stock options	-		-	2,255,000		225		278,225		-	-		-		278,450

Exercise of warrants	-		-	741,000		74		185,176		-	-		-		185,250

Issuance of preferred stock	30,000		30	-		-		299,970		-	-		-		300,000

Cancellation of treasury stock	-		-	(1,380,000)		(138)		(252,366)		-	(1,380,000)		252,504		-

Deemed dividends	-		-	-		-		211,802		(211,802)	-		-		-

Conversion of preferred stock to common stock	(30,000)		(30)	592,330		59		(29)		-	-		-		-

Shares issued for services, June 30, 2013 at $1.78	-		-	5,000		1		8,899		-	-		-		8,900

Net loss	-		-	-		-		-		(3,224,482)	-		-		(3,224,482)
Balance, June 30, 2013 - audited	-	$	-	100,456,068	$	10,046	$	14,868,223	$	(19,773,202)	1,382,084	$	(275,229)	$	(5,170,162)

Issuance of stock options	-		-	-		-		26 089		-	-		-		26,089

Exercise of warrants	-		-	1,025,000		102		1,024,898							1,025,000

Cancellation of treasury stock	-		-	(1,382,083)		(138)		(275,091)		-	(1,382,084)		275,229		-

Shares sold in July, 2013 to Sep, 2013 at $1.66-$1.94	-		-	2,100,000		210		3,730,130		-	-		-		3,730,340

Shares issued for assets of Polymedix at $1.93	-		-	1,400,000		140		1,301,860		-	-		-		1,302,000

Net loss - three months ended September 30, 2013	-		-	-		-		-		(977,026)	-		-		(977,026)
Balance, September 30, 2013 - unaudited	-	$	-	103,598,985	$	10,360	$	20,676,109	$	(20,750,228)	-	$	-	$	(63,759)

The accompanying notes are an integral part of these unaudited condensed financial statements.

CELLCEUTIX CORPORATION
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
							For the
							cumulative
							period from
							June 20, 2007
							(Date of
		For the Three Months Ended					Inception)
		September 30,					through September
			2013		2012		30, 2013

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(977,026)	$	(468,992)	$	(20,463,661)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on disposal of fixed assets			72,400		-		72,400
Common stock and stock options issued as payment for
services compensation, services rendered, and			-				-
charitable contributions			26,089		76,347		7,249,404
Cancellation of stock issued for services			-		-		(28,750)
Amortization of accrued settlement costs			-		9,108		125,131
Amortization of patent costs			22,286		-		22,902
Loss on financial instruments			-		-		439,892
Changes in operating assets and liabilities:
	Prepaid expenses		(12,492)		(15,646)		(8,803)
	Accounts payable		(19,187)		(99,803)		1,829,939
	Accrued expenses		166,980		38,922		938,188
	Accrued officers' salaries and payroll taxes		10,636		207,226		4,374,619

Net cash used in operating activities			(710,314)		(252,838)		(5,448,739)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of fixed assets			23,600		-		23,600
Patent Costs			(2,108,274)		-		(2,119,290)

Net cash used in investing activities			(2,084,674)		-		(2,095,690)

CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from stockholder			-		-		50
Sale of common stock and preferred stock			3,730,340		300,000		8,512,860
Payment of settlement liabilities			(284,519)		-		(984,519)
Loan from officer			-		-		1,925,587
Proceeds from convertible debentures			-		-		(167,099)
Redemption of convertible debentures			-		-		400,000
Proceeds from subscription			-		-		1,000,000
Exercise of stock options and warrants			1,025,000		50,000		1,488,700
Net cash provided by financing activities			4,470,821		350,000		12,175,579

NET INCREASE IN CASH AND CASH
EQUIVALENTS			1,675,833		97,162		4,631,150

CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD			2,955,317		27,703		-

CASH AND CASH EQUIVALENTS,
END OF PERIOD		$	4,631,150	$	124,865	$	4,631,150


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest		$	22,707	$	-	$	328,736

SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW
FINANCING ACTIVITIES
Common stock issued for acquisition		$	-	$	-	$	9,079
Forgiveness of debt		$	-	$	-	$	50
Reclassification of accrued interest to note payable
and convertible debentures		$	-	$	-	$	197,964
Cancellation of common stock for services		$	-	$	-	$	(138,750)
Settlement of accrued payroll and payroll taxes		$	-	$	-	$	932,966
Cancellation of common stock as a result of settlement		$	-	$	-	$	859,388
Debt converted to common stock		$	-	$	-	$	353,635
Cancellation of treasury stock		$	(275,229)	$	-	$	(759,388)
Reclassification of warrants to equity		$	-	$	-	$	857,500
Deemed dividend from beneficial conversion
feature on preferred stock		$	-	$	53,032	$	35,386
Deemed dividend - warrants		$	-	$	158,770	$	206,810
Conversion of preferred stock into common stock		$	-	$	(30)	$	(46)
Shares issued as deferred offering costs		$	-	$	-	$	300,001
Shares issued for acquistion of patent and equipment		$	2,702,000	$	-	$	2,702,000
Redeemable Common Stock liability		$	1,400,000	$	-	$	1,400,000

The accompanying notes are an integral part of these unaudited condensed financial statements.

CELLCEUTIX CORPORATION

(A Development Stage Enterprise)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

(Unaudited)

1. Basis of Presentation and Nature of Operations

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Cellceutix Corporation have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with our audited financial statements for the year ended June 30, 2013, included in our Annual Report on Form 10-K for the year ended June 30, 2013.

In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three month periods have been made. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes, the terms "Company", "we", "us" or "our" mean Cellceutix Corporation.

Cellceutix Corporation, formerly known as EconoShare, Inc., (“Cellceutix” or the “Company”) was incorporated on August 1, 2005. On December 6, 2007, the Company acquired Cellceutix Pharma, Inc. which was incorporated in the State of Delaware on June 20, 2007, in exchange for newly issued shares of the Company’s common stock. As a result of the exchange, Cellceutix Pharma, Inc. became a wholly-owned subsidiary of the Company. The Company is a clinical stage biopharmaceutical company and has no customers, products or revenues to date. The Company also follows the accounting guidelines for accounting for and reporting in Development Stage Enterprises in preparing its financial statements.

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

All amounts, where it is designated in these notes to the financial statements as an approximate amount, are rounded to the nearest thousand dollars.

Nature of Operations

Overview

We are in the business of developing innovative small molecule therapies to treat diseases with significant medical need, particularly in the areas of cancer 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 on our lead compounds, Kevetrin, Prurisol and Brilacidin, and advancing them as quickly as possible along the regulatory pathway. We will develop the highest quality data and broadest intellectual property to support our compounds.

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

2. Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. For the period since June 20, 2007 (date of inception) through September 30, 2013, the Company had a deficit accumulated during the development stage of approximately $20.8 million and working capital deficit of approximately $(4.77) million at September 30, 2013. As of September 30, 2013, the Company has not emerged from the development stage. In view of these matters, the ability of the Company to continue as a going concern is dependent upon the Company’s ability to generate additional financing. Since inception, the Company has financed its activities principally from the use of equity securities, debt issuance and loans from an officer to pay for its operations. The Company intends on financing its future development activities and its working capital needs largely from the issuance of debt and the sale of equity securities, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company has entered into a financing agreement with Aspire Capital Fund for $10,000,000 (See Note 12). As of September 30, 2013, the Company had completed sales to Aspire totaling 4,812,208 shares of common stock generating gross proceeds of approximately $8,113,000.

As of September 30, 2013, approximately $1,887,000 is available under the financing arrangement with Aspire on the sale of the Company’s common stock. See Note 13 for subsequent common stock sales to Aspire made after September 30, 2013 and a new financing agreement as of October 25, 2013, made with Aspire Capital Fund for $20,000,000.

Failure to secure the necessary financing in a timely manner and on favorable terms could have a material adverse effect on the Company’s growth strategy, financial performance and stock price and could require the delay of new product development and clinical trial plans.

These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

3. Significant Accounting Policies and Recent Accounting Pronouncements

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short-term highly liquid investments purchased with original maturities of three months or less. There were no cash equivalents at September 30, 2013 and June 30, 2013.

Intangible Assets – Patents

Costs incurred to file patent applications and acquired intangibles are capitalized when the Company believes that there is a high likelihood that the patent will issue and there will be future economic benefit associated with the patent. These costs will be amortized on a straight-line basis over a 12 - 17 years life from the date of patent filing. All costs associated with abandoned patent applications are expensed. In addition, the Company will review the carrying value of patents for indicators of impairment on a periodic basis and if it determines that the carrying value is impaired, it values the patent at fair value. Costs incurred to file patent applications and acquire intangibles are expensed when the patents have failed to develop products which have gained market acceptance. For the three months ended September 30, 2013 and 2012 and from inception to September 30, 2013, the Company has charged to operations $0, $9,000, and $197,000, respectively for these patent application costs.

In accordance with the provisions of the applicable authoritative guidance, the Company’s long-lived assets and amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The Company assesses the recoverability of such assets by determining whether their carrying value can be recovered through undiscounted future operating cash flows, including its estimates of revenue driven by assumed market segment share and estimated costs. If impairment is indicated, the Company measures the amount of such impairment by comparing the fair value to the carrying value. During the three months ended September 30, 2013 and 2012, no impairment was recorded.

Financial Instruments

The Company’s financial instruments include cash, accounts payable and accrued liabilities. The carrying amounts of these financial instruments approximate their fair value, due to the short-term nature of these items.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant Estimates

These accompanying consolidated financial statements include some amounts that are based on management’s best estimates and judgments. The most significant estimates relate to valuation of stock grants and stock options, valuation of purchased intangibles and the valuation allowance on deferred tax assets. It is reasonably possible that these above-mentioned estimates and others may be adjusted as more current information becomes available, and any adjustment could be significant in future reporting periods.

Certain Risks and Uncertainties

Product Development

We devote significant resources to research and development programs in an effort to discover and develop potential future product candidates. The product candidates in our pipeline are at various stages of preclinical and clinical development. The path to regulatory approval includes three phases of clinical trials in which we collect data to support an application to regulatory authorities to allow us to market a product for treatment of a specified disease. There are many difficulties and uncertainties inherent in research and development of new products, resulting in a high rate of failure. To bring a drug from the discovery phase to regulatory approval, and ultimately to market, takes many years and significant cost. Failure can occur at any point in the process, including after the product is approved, based on post-market factors. New product candidates that appear promising in development may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns, inability to obtain necessary regulatory approvals, limited scope of approved uses, reimbursement challenges, difficulty or excessive costs of manufacture, alternative therapies or infringement of the patents or intellectual property rights of others. Uncertainties in the FDA approval process and the approval processes in other countries can result in delays in product launches and lost market opportunities. Consequently, it is very difficult to predict which products will ultimately be submitted for approval, which have the highest likelihood of obtaining approval and which will be commercially viable and generate profits. Successful results in preclinical or clinical studies may not be an accurate predictor of the ultimate safety or effectiveness of a drug or product candidate.

Expenditures for research, development, and engineering of products are expensed as incurred. In November 2010, the Company was awarded three separate U.S. government grants under the Qualifying Therapeutic Discovery Project (QTDP) program. For the period from inception to September 30, 2013, the Company has reflected $733,438 of grants as a one time reduction of research and development expenses. For the three months ended September 30, 2013 and 2012, and the period from inception to September 30, 2013, the Company incurred approximately $572,000, $185,000, and $6,446,000 of research and development costs, net of grants respectively.

Concentrations of Credit Risk

All cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk.

Income Taxes

Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company has generated net losses since inception and accordingly has not recorded a provision for income taxes. The deferred tax assets were primarily comprised of federal and state tax net operating loss, or NOL, carryforwards. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset the deferred tax assets. Additionally, the future utilization of the NOL carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any carryforwards that expire prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

The Company follows the provisions of FASB ASC 740-10 "Uncertainty in Income Taxes" (ASC 740-10). The Company has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit since the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

The Company has identified its U.S. Federal income tax return and its State return in Massachusetts as its major tax jurisdictions. The fiscal 2011 and forward years are still open for examination.

Basic Earnings (Loss) per Share

Basic and diluted earnings per share are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, warrants and convertible notes payable. Common share equivalents of 49,761,768 and 52,014,317 were excluded from the computation of diluted earnings per share for the three months ended September 30, 2013 and 2012, respectively, because their effect is anti-dilutive.

Accounting for Stock Based Compensation

The stock-based compensation expense incurred by Cellceutix for employees and directors in connection with its stock option plan is based on the employee model of ASC 718, and the fair market value of the options is measured at the grant date. Under ASC 718 employee is defined as “An individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. “tax regulations”. Our consultants do not meet the employer-employee relationship as defined by the IRS and therefore are accounted for under ASC 505-50.

ASC 505-50-30-11 (previously EITF 96-18) further provides that an issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date:

i. The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); and

ii. The date at which the counterparty’s performance is complete.

We have elected to use the Black-Scholes-Merton pricing model to determine the fair value of stock options on the dates of grant. Restricted stock units are measured based on the fair market values of the underlying stock on the dates of grant. We recognize stock-based compensation using the straight-line method.

The components of stock based compensation related to stock options recognized in the Company’s Statement of Operations for the three months ended September 30, 2013 and 2012 and since inception are as follows(rounded to nearest thousand):

		September 30, 2013		September 30, 2012		For the cumulative period from June 20,2007 (Date of Inception) through September 30, 2013

Officers’ stock compensation	$	-	$	-	$	4,850,000
Consulting		26,000		76,000		1,493,000
Patent expense		-		-		19,000
Total	$	26,000	$	76,000	$	6,362,000

Recent Accounting Pronouncements

The Company has reviewed all recent accounting pronouncements issued by FASB (including EITF), the AICPA and the SEC and did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

4. Polymedix Inc. Asset Acquisition –Patent Rights and Equipment

On September 4, 2013, the Company purchased substantially all of the assets (“Purchased Assets”) of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. (“Seller”) from the U.S. Bankruptcy Court. The aggregate purchase price for the sale and transfer of the Purchased Assets was $2.1 million in cash, plus 1.4 million shares of the Company’s Class A common stock (the “Registrable Securities”), total aggregate purchase price of approximately $4.8 million. These common shares were valued at $1.93 per share, based on the September 4, 2013 opening stock price as quoted on the OTB Bulletin Board, resulting in approximately $2.7 million of stock issued to acquire the Purchased Assets. The Purchased Assets Agreement also provides the Seller with the right to require the Company to redeem the Common Stock held by such Seller (the “Put Option”) at any time between one day after the closing and three hundred and sixty-five days after the closing, the seller or any holder of the registrable securities may make written demand upon the purchase for the purchase to repurchase the registrable securities for $1 per share.

Because the Company is required to repurchase these issued common shares if the Seller exercises the above Put Option, this redemption feature meets the definition under the ASC 480-10-25-8, “Obligations to Repurchase Issuer’s Equity Shares by Transferring Assets”. Per ASC 480-10-25-8, the obligation to repurchase an issuer’s own shares by transferring assets should be recognized as a liability at inception date. Therefore, the number of potential shares needed to repurchase the Common Stock under this Put Option was 1,400,000 shares as of September 30, 2013. This obligation was recorded as a current liability of $1,400,000 of Redeemable Common Stock liability in the accompanying balance sheet.

ASC 805, Business Combinations, provides guidance on determining whether an acquired set of assets meets the definition of a business for accounting purposes. Under the framework, the acquired set of activities and assets have to be capable of being operated as a business, from the viewpoint of a market participant as defined in ASC 820, Fair Value Measurements. Two essential elements required for an integrated set of activities are inputs and outputs. The Company evaluated the Asset Purchase Agreement and in accordance with the guidance, determined it did not meet the definition of a business acquisition as the acquisition consisted solely of the two primary compounds, Brilacidin and related compounds, and Delparantag and related compounds, and certain other tangible assets. The Company did not acquire the right to any employees previously involved with the technology, or research processes previously in place at Seller. The Company has therefore accounted for the transaction as an asset acquisition.

The purchase price was allocated to the identified tangible and intangible assets acquired based on their relative fair values, which were derived from their individual estimated fair values of $96,000 and $4,706,000, respectively.

The following table summarizes the purchase price allocation for the assets acquired:

Intangible assets – patents rights – Brilacidin, Delparantag and other related compounds	$ 4,706,000

Tangible assets - Laboratory equipment and computer systems	$ 96,000

The value of these tangible assets acquired of $96,000 were expensed to research and development costs for the three months ended September 30, 2013.

5. Patents, net

Patents, net consisted of the following (rounded to nearest thousand):

	Useful life		September 30, 2013		June 30, 2013

Purchased Patent Rights– Brilacidin, and related compounds (note 4)	14	$	4,081,700	$	-
Purchased Patent Rights–Delparantag and related compounds (note 4)	12		480,200		-
Purchased Patent Rights–Anti-microbial- surfactants and related compounds (note 4)	12		144,100		-
Patents – Kevetrin and related compounds	17		19,000		11,000

		$	4,725,000	$	11,000
Accumulated amortization			23,000		1,000
		$	4,702,000	$	10,000

The patents are amortized on a straight-line basis over the estimated remaining useful lives of the assets, determined 12-17 years from the date of acquisition.

Amortization expense for the three months ended September 30, 2013 and 2012 and from inception to September 30, 2013 was approximately $22,000, $0, and $23,000, respectively. At September 30, 2013, the amortization period for all patents was approximately 11.75 to 16.75 years. Estimated annual amortization expense of $345,000 for years up to Year 2025, and $300,000 for Years 2026-28, and $55,000 for Years 2028-29.

6. Accrued Expenses

Accrued expenses consisted of the following (rounded to nearest thousand):

		September 30, 2013		June 30, 2013

Accrued research and development consulting fees	$	320,000	$	200,000
Accrued rent – related parties		61,000		60,000
Accrued interest – related parties		329,000		294,000
Others		11,000		-
Total	$	721,000	$	554,000

7. Accrued Salaries and Payroll Taxes

Accrued salaries and payroll taxes consisted of the following (rounded to nearest thousand):

		September 30, 2013		June 30, 2013

Accrued salaries – related parties	$	3,244,000	$	3,244,000
Accrued payroll taxes – related parties		152,000		152,000
Withholding tax – related parties		26,000		31,000
Withholding tax – employees		20,000		4,000
Total	$	3,442,000	$	3,431,000

On December 29, 2010, the Company entered into employment agreements with its two executive officers, Leo Ehrlich, the Company’s Chief Executive 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. The Board, at its discretion, may increase the base salary based upon relevant circumstances. Beginning in April, 2013, the Company started making current cash payments to the two executive officers for salaries.

8. Commitments and Contingencies

Settlement Agreement

On February 14, 2011, the Company announced it reached a settlement agreement on all outstanding claims and issues between the Company and our former CEO, Mr. Evans. Each party dropped their respective claims and as a result all of Mr. Evans accrued salaries and options were cancelled. The terms of the agreement provide that the Company purchase 4,602,312 common shares held by Mr. Evans and/or Mr. Evans’ sons over a period of three years for a total sum of one million dollars. Payment by the Company in the amount of $100,000 was made upon signing of the agreement, which resulted in reducing the liability owed to Mr. Evans; cancelling 460,229 shares of common stock. On February 4, 2012 and January 29, 2013, the Company made the second and third payment of $300,000 each to Mr. Evans and cancelled 1,380,000 shares of its common stock in each of the two years.

Amendment to Evans Settlement Agreement

On September 3, 2013, the parties amended the Settlement Agreement and Release dated January 26, 2011. The amended agreement provides for total payment of $892,500, to be paid in three separate installments as follows: (i) two payments of $300,000 each to Mr. Evans payable on the first and second anniversary of the execution of this agreement; and (ii) a full and final installment payment of $292,500 on or before September 15, 2013.

On August 23, 2013, the Company made the final payment of $292,500 to Mr. Evans and the Company cancelled 1,382,083 shares of its common stock on September 17, 2013. As of September 30, 2013, there was no balance of Treasury Stock recorded on the Company’s Balance Sheet.

Legal

Formatech is a former vendor of ours which had had received 184,375 shares of Cellceutix Class A Common Stock (“Cellceutix Stock”) for services that were not completed. Formatech had gone bankrupt while still in possession of the Cellceutix Stock. In July 2012, the US Bankruptcy Court allowed the trustee of the Formatech estate to sell the Cellceutix Stock. We have been advised that the stock has been sold in 2013 and the funds released to the secured creditors of Formatech. Cellceutix presently is in the unsecured creditors class and does not expect to receive any proceeds.

9. Related Party Transactions

Office Lease

Dr. Menon, the Company’s principal shareholder, President, and Director, also serves as the Chief Operating Officer and Director of Kard Scientific (“KARD”). On December 7, 2007, the Company began renting office space from KARD, on a month to month basis for $900 per month. This continued through August 2013. During the three months ended September 30, 2013, the Company paid 2 months’ rent to KARD. As of September 1, 2013, the Company no longer leases space from Kard. For the three months ended September 30, 2013 and 2012 and the period June 20, 2007 (date of inception) through September 30, 2013, the Company has included $2,000, $3,000 and $62,100 of rent expense in general and administrative expenses, respectively. At September 30, 2013 and 2012, payables of approximately $61,000 and $60,000 to KARD were included in accrued expenses, respectively.

In September, 2013, Cellceutix Corporation signed a lease extension agreement with Cummings Properties for the company’s offices and laboratories at 100 Cummings Center, Suite 151-B Beverly, MA 01915. The lease is for a term of five years from October 1, 2013 to September 30, 2018 and requires monthly payments of $15,538. Cellceutix had taken over the space occupied by KARD. In addition, Innovative Medical Research Inc., (“Innovative Medical”) a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of Cellecutix has co-signed the lease and will rent approximately 200 square feet of office space, the space previously used by Cellceutix and will pay Cellceutix $900 per month, the same amount Cellceutix previously paid KARD. Innovative Medical paid a monthly rent of $900 to Cellceutix since September 1, 2013 and it was offset with the accrued rent owed to KARD.

Clinical Studies

As of September 28, 2007 the Company engaged KARD to conduct specified pre-clinical studies. The Company did not have an exclusive arrangement with KARD. All work performed by KARD needed prior approval by the executive officers of the Company, and the Company retained all intellectual property resulting from the services by KARD. The Company has now developed its own research study capabilities and no longer uses KARD. For the three months ended September 30, 2013 and 2012 and the period June 20, 2007 (date of inception) through September 30, 2013, the Company incurred $0, $0, and $2,601,000 of research and development expenses conducted by KARD, respectively.

At September 30, 2013 and June 30, 2013, the Company has incurred a total of approximately $1,686,000 in accounts payable to KARD.

10. Note Payable – Related Party

During the year ended June 30, 2010, Mr. Ehrlich, loaned the Company a total of $972,907. A condition for this note was that the Ehrlich Promissory Note A and Ehrlich Promissory Note B be replaced with a new note, Ehrlich Promissory Note C. The Ehrlich Promissory Note C is an unsecured demand note that bears 9% simple interest per annum and is convertible into the Company’s common stock at $0.50 per share. The note requires that the interest rate on the amounts due on Ehrlich Promissory Notes A and B be changed retroactively, beginning October 1, 2009, to 9%. On April 1, 2011, the Company amended the Ehrlich Promissory Note C and agreed to retroactively convert accrued interest of $96,677 through December 31, 2010 into additional principal. During the year ended June 30, 2011, Mr. Ehrlich loaned the Company an additional $997,047 which brought the balance of the demand note to $2,002,264.

On May 8, 2012, the Company did not have the ability to repay the Ehrlich Promissory Note C loan and agreed to change the interest rate on the outstanding balance of principle and interest of $2,248,037, as of March 31, 2012, from 9% simple interest to 10% simple interest, and the Company issued 2,000,000 Equity Incentive Options exercisable at $0.51 per share equal to 110% of the closing bid price of $0.46 per share on May 7, 2012. Options are valid for ten (10) years from the date of issuance.

At September 30, 2013 and June 30, 2013, accrued interest on this note was approximately $329,000 and $294,000, respectively, and the Company repaid accrued interest totaling approximately $15,000 for the three months ended September 30, 2013.

11. Stock Options and Warrants

Stock Options

The fair value of each option for the three months ended September 30, 2012 was estimated on the date of grant using the Black Scholes model that uses assumptions noted in the following table.

	Three Months Ended September 30, 2012
Expected term (in years)	5-10
Expected stock price volatility	136.05% - 137.33%
Risk-free interest rate	1.53% – 1.72%
Expected dividend yield	0

On April 5, 2009 the Board of Directors of the Registrant adopted the 2009 Stock Option Plan (“the Plan”). The Plan permits the grant of 2,000,000 shares of both Incentive Stock Options (“ISOs”), intended to qualify under section 422 of the Code, and Non-Qualified Stock Options.

Under the 2010 Equity Incentive Plan the total number of shares of Common Stock reserved and available for issuance under the Plan shall be 45,000,000 shares. Shares of Common Stock under the Plan (“Shares”) may consist, in whole or in part, of authorized and unissued shares or treasury shares. The term of each Stock Option shall be fixed by the Committee; provided, however, that an Incentive Stock Option may be granted only within the ten-year period commencing from the Effective Date and may only be exercised within ten years of the date of grant (or five years in the case of an Incentive Stock Option granted to an optionee who, at the time of grant, owns Common Stock possessing more than 10% of the total combined voting power of all classes of voting stock of the Company (“10% Shareholder”).

The following table summarizes all stock option activity under the plans:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2013	39,142,500	$	0.14	$	7.47	$	64,170,000
Granted	-		-		-
Exercised	-		-		-
Forfeited/expired	-		-		-
Outstanding at September 30, 2013	39,142,500	$	0.14	$	7.22	$	65,734,950
Exercisable at September 30, 2013	39,112,500	$	0.14	$	7.22	$	65,725,817

The Company recognized approximately $26,000 and $76,000 of stock based compensation costs related to stock and stock options awards for the three months ended September 30, 2013 and 2012; and approximately $6,362,000 for the period from inception to September 30, 2013, and there is approximately $28,000 of unamortized compensation cost expected to be recognized through June 30, 2014.

Stock Warrants

During the three months ended September 30, 2013, the Company issued 1,025,000 Class A common shares par value $.0001 to each of two warrant holders upon exercise of Common Stock Purchase Warrants exercisable at $1 per share. The Company received an aggregate of $1,025,000. The issuance was exempt from registration under Section 4(2) of the Securities Act.

As of September 30, 2013 and June 30, 2013, there were 4,546,084 and 5,571,084 warrants issued and outstanding with a weighted average exercise price of $0.74 and $0.92, respectively. As of September 30, 2013 and June 30, 2013, the average remaining contractual life of the outstanding warrants was 1.21 years and 1.43 years, respectively and the aggregate intrinsic value was $ 4,176,000 and $4,794,000, respectively.

12. Equity Transactions

On July 19, 2013, the Company issued 100,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1.00 per share. The Company received an aggregate of $100,000. The shares have been registered in the S-3 registration statement rendered effective February 14, 2013 by the SEC.

On July 30, 2013, the Company issued 200,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1.00 per share. The Company received an aggregate of $200,000. The shares have been registered in the S-3 registration statement rendered effective February 14, 2013 by the SEC.

On August 5, 2013, the Company issued 200,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1.00 per share. The Company received an aggregate of $200,000. The shares have been registered in the S-3 registration statement rendered effective February 14, 2013 by the SEC.

On August 20, 2013, the Company issued 125,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1.00 per share. The Company received an aggregate of $125,000. The shares have been registered in the S-3 registration statement rendered effective February 14, 2013 by the SEC.

On September 10, 2013, the Company issued 200,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1.00 per share. The Company received an aggregate of $200,000. The shares have been registered in the S-3 registration statement rendered effective February 14, 2013 by the SEC.

On September 17, 2013, the Company issued 200,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1.00 per share. The Company received an aggregate of $200,000. The shares have been registered in the S-3 registration statement rendered effective February 14, 2013 by the SEC.

Polymedix Trustee

On September 4, 2013, the Company purchased substantially all of the assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. from the U.S. Bankruptcy Court. The purchase price included the issuance of 1,400,000 shares of the Company’s Class A common stock.

Aspire Agreement

On December 6, 2012, the Company entered into a Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC, which provides that upon meeting the terms of the agreement, Aspire Capital is committed to purchase up to an aggregate of $10,000,000 of our shares of Class A Common Stock over the approximately 36-month term of the Purchase Agreement. In consideration for entering into the Purchase Agreement, the Company issued to Aspire Capital 336,625 shares of our Class A Common Stock as a commitment fee and sold to Aspire Capital 112,208 shares of Class A Common Stock for $100,000.The deferred offering costs were fully amortized during the year ended June 30, 2013 as a significant amount of funding was received and the remaining funding is reasonably assured.

Concurrently with entering into the Purchase Agreement, the Company agreed to file one or more registration statements as permissible and necessary under the Securities Act of 1933, as amended, or the Securities Act, for the sale of shares of our Class A Common Stock that have been and may be issued to Aspire Capital under the Purchase Agreement. On January 22, 2012, the Company filed a Form S-3 registration statement and the registration statement was declared effective by the SEC on February 14, 2013. Thereafter, on every and any business day selected by the Company, the Company shall have the right to direct Aspire Capital Fund to purchase (each such purchase, a “Regular Purchase”), up to 100,000 shares on each and any business day chosen by the Company; however, in any event, the amount of a Regular Purchase will not exceed $500,000 per business day. The purchase price for Regular Purchases (the “Regular Purchase Price”), shall be equal to the lesser of: (i) the lowest sale price of the shares on the purchase date, or (ii) the average of the three (3) lowest closing sale prices of the shares during the twelve (12) business days prior to the purchase date. The Regular Purchase Price will be known at the time of notice and before any shares are sold to Aspire Capital Fund.

In addition to the Regular Purchases, with one day’s prior written notice, the Company shall also have the right to require the ACF Investor to purchase up to an additional 20% of the trading volume of the shares for the next business day at a purchase price (the “VWAP Purchase Price”), equal to the lesser of: (i) the closing sale price of the shares on the purchase date, or (ii) ninety-five percent (95%) of the next business day’s volume weighted average price (each such purchase, a “VWAP Purchase”). The Company shall have the right, in its sole discretion, to determine a maximum number of shares and set a minimum market price threshold for each VWAP Purchase. The Company can only require a VWAP Purchase if (a) the closing sale price for the Company Class A common shares on the notice day for the VWAP Purchase is higher than $0.50, and (b) the Company has also submitted a Regular Purchase on the notice date for the VWAP Purchase. There are no limits on the number of VWAP Purchases that the Company may require.

Aspire Capital Fund has no right to require any sales by the Company, but is obligated to make purchases from the Company as the Company directs it in accordance with the Purchase Agreement. The Company can also accelerate the amount of Class A Common Stock to be purchased under certain circumstances. There are no limitations on use of proceeds, financial or business covenants, restrictions on future funding, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement.

The Company is never under any obligation to sell shares to Aspire Capital Fund. Aspire Capital Fund has no rights to require the Company to sell shares.

During the fiscal year ended June 30, 2013, the Company had completed sales to Aspire totaling 2,712,208 shares of common stock generating gross proceeds of approximately $4,383,000. During the quarter ended September 30, 2013, the Company had completed sales to Aspire totaling 2,100,000 shares of common stock generating gross proceeds of approximately $3,730,000. As of September 30, 2013, the Company had completed sales to Aspire totaling 4,812,208 shares of common stock generating gross proceeds of approximately $8,113,000. As of September 30, 2013, approximately $1,887,000 is available under the financing arrangement with Aspire on the sale of the Company’s common stock. See Note 13 for subsequent common stock sales to Aspire made after September 30, 2013.

13. Subsequent Events

Equity Transactions

From October 1, 2013 to October 24, 2013, the Company has generated additional proceeds of approximately $1.89 million under the Common Stock Purchase Agreement with Aspire on the sale 1,104,537 shares of its common stock. As of October 24, 2013, Aspire Capital completed its commitment of purchase up to an aggregate of $10,000,000 of our shares of Class A Common Stock under the Common Stock Purchase Agreement dated December 6, 2012.

On October 25, 2013, we terminated the previous agreement and entered into a new purchase agreement (the “Purchase Agreement”), with Aspire Capital Fund, LLC, an Illinois limited liability company (Aspire Capital), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of our shares of our Class A Common Stock over the approximately 36-month term of the Purchase Agreement. In consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, we issued to Aspire Capital 210,523 shares of our Class A Common Stock as a commitment fee. Concurrently with entering into the Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file one or more registration statements, including the registration statement of which this prospectus is a part, as permissible and necessary to register under the Securities Act, the sale of the shares of our Class A Common Stock that have been and may be issued to Aspire Capital under the Purchase Agreement. The registration statement was filed on November 4, 2013.

ITEM 2. MANAGEMENT'S DISCUSSION AND FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and plan of operations should be read in conjunction with the financial statements and the notes to those statements included in this Form 10-K. This discussion includes forward-looking statements that involve risk and uncertainties. As a result of many factors, such as those set forth under “Risk Factors,” actual results may differ materially from those anticipated in these forward-looking statements.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that in addition to the description of historical facts contained herein, this report contains certain forward-looking statements that involve risks and uncertainties as detailed herein and from time to time in the Company’s other filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those, described in the forward-looking statements. These factors include, among others: (a) the Company’s fluctuations in sales and operating results; (b) risks associated with international operations; (c) regulatory, competitive and contractual risks; (d) product development risks; (e) the ability to achieve strategic initiatives, including but not limited to the ability to achieve sales growth across the business segments through a combination of enhanced sales force, new products, and customer service; and (f) pending litigation.

Management’s Plan of Operation

Research and Development Activities

We acquire exclusive rights to pharmaceutical compound candidates that are designed for treatment of diseases which may be either existing or diseases identified in the future. The Company 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 studies 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. At this time the Company is focusing its research and development efforts exclusively on Kevetrin, Prurisol and Brilacidin.

The Company is presently in discussions with other institutions for collaborations in conducting clinical trials and acquiring a new drug. There are now two material transfer agreements pending with major hospitals.

We are a clinical stage company. We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical candidates. Developing pharmaceutical products, however, is a lengthy and very expensive process. Assuming we do not encounter any unforeseen safety issues during the course of developing our product candidates, we do not expect to complete the development of a product candidate for several years, if ever.

Polymedix Asset Acquisition

On September 4, 2013, the Company purchased substantially all of the assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. from the U.S. Bankruptcy Court. The aggregate purchase price for the sale and transfer of the Purchased Assets was $2.1 million in cash, plus 1.4 million shares of the Company’s Class A common stock, total aggregate purchase price of approximately $4.8 million. The Company is required to file a Registration with the Securities and Exchange Commission to register the common stock within 60 days. At any time between one day after the Closing and 365 days after the Closing, the Seller or any holder of the Registrable Securities may make written demand upon the Company for the Company to repurchase the Registrable Securities for $1 per share.

Brilacidin™

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

ACUTE BACTERIAL SKIN AND SKIN STRUCTURE INFECTIONS (“ABSSSI”)

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

Oral Mucositis -

In animal models of oral mucositis, an oral rinse containing brilacidin was shown to reduce the occurrence of severe ulcerative oral mucositis by more than 90% compared to placebo. Brilacidin and related compounds have shown antibacterial, anti-biofilm and anti-inflammatory properties in various pre-clinical studies. Polymedix believed that the combination of these attributes contribute to the efficacy of brilacidin in these animal models.

Delparantag™

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

In May 2012, Polymedix announced that they had stopped enrollment in two clinical trials for delparantag: a Phase 2 clinical trial for reversing the anticoagulant activity of UFH in patients undergoing PCI procedures, and a Phase 1B/2 clinical trial for reversing the anticoagulant activity of the LMWH enoxaparin in healthy volunteers. While delparantag showed activity in neutralizing both UFH and the LMWH enoxaparin in these clinical trials, Polymedix decided to stop enrollment in both trials due to observations of reductions in blood pressure in some patients. Presently we are looking into reformulating the compound which may be a solution to reducing adverse events.

See Part 1, Item 1 of our Annual Report on Form 10-K for the year ended June 30, 2013 for more information regarding this asset acquisition.

Our Other Compounds

Kevetrin

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. Presently, we are at the mid stage of the Phase 1 trial. The trial is registered on www.clinicaltrials.gov. http://clinicaltrials.gov/ct2/show/NCT01664000?term=Kevetrin&rank=1

In March 2012, we entered into an agreement with Beth Israel Deaconess Medical Center (BIDMC), a teaching hospital of Harvard Medical School, on an innovative research project with Kevetrin. The Medical Center wishes to exploit the nuclear and/or mitochondrial pro-apoptotic function of p53 in melanoma and renal cell carcinoma, two types of cancer that are particularly resistant to therapy. BIDMC initiated combination studies with multikinase inhibitors which activate pro-apoptotic activity by translocation of p53 in mitochondria thereby inducing apoptosis. Apoptosis is enhanced by MDM2 inhibitors by stabilizing p53. As presented at the American Association for Cancer Research (AACR) meeting in April, Kevetrin phosphorylates MDM2 which activates and stabilizes p53 by monoubiquitination inducing apoptosis. Prior data from the BIDMC laboratory showed that agents of this class can augment the pro-apoptotic and antitumor effects of MDM2 antagonists and is expected to have a synergistic effect with Kevetrin. BIDMC tested the effects of Kevetrin alone and in combination with FDA-approved VEGFR antagonists in the renal cell carcinoma and melanoma studies. In vitro study endpoints include apoptosis by measuring caspase activation and PARP cleavage. In vivo endpoints include efficacy in a xenograft model, tumor vascularity, p53 levels, p21 expression and apoptosis. This study provided vital insight to exploit the nuclear and/or mitochondrial pro-apoptotic function by Kevetrin in combination with other multikinase inhibitors in treatment of these difficult to treat malignancies. The results received from BIDMC in April 2013, showed apoptosis induction (TUNEL) in renal cancer (786). Results of these preclinical tests provided to date to the Company are encouraging and BIDMC and Cellceutix wish to move the study further. Cellceutix has provided the requested information from BIDMC that will be used to investigate a Specialized Programs of Research Excellence (SPORE) grant for a phase 2 clinical study of renal cancer upon completion of the successful phase 1 clinical study presently in progress.

The University of Bologna in Italy (the “University”) and The Italian Cooperative Study Group on Chronic Myeloid Leukemia (ICSG on CML) and Acute Leukemia (GIMEMA Group) plan on testing Kevetrin against Acute Myelogenous Leukemia (AML). We have been advised that the study, a phase 1b trial, will be titled “A Multi-Center, Open-Label, Phase 1B Study of Escalating Doses of Kevetrin (Thioureidobutyronitrile) Administered Intravenously, with Cytarabine Adminstered A) Subcutaneously, or B) Intravenously, in Patients with Acute Myelogenous Leukemia (AML).” The trial’s principal investigator wants this phase 1b trial to begin once a higher patient dosing is achieved at the Dana Farber trial. The University will source the funding for this trial.

On December 25, 2012 the United States Patent and Trademark Office (USPTO) awarded the Company U.S. Patent No. 8,338,454 B2, titled "Nitrile Derivatives and their Pharmaceutical Use and Compositions." The patent covers pharmaceutical compositions comprising Kevetrin, and related compounds and compositions.

Prurisol

Prurisol is our anti-psoriasis drug candidate. It is a small molecule with a molecular weight of less than 500 MW. It is synthesized through a multi-step process using commercially available starting materials. Prurisol acts through immune modulation and PRINS reduction.

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. The Company plans on filing a 505(b)(2) application in 2013.

Liquidity and Capital Resources

As of September 30, 2013 the Company had a cash balance of approximately $4.6 million. The Company has entered into a financing agreement with Aspire Capital Fund (Aspire Capital) for $10,000,000 which allows the Company to sell Cellceutix common stock shares to Aspire Capital. As of September 30, 2013, the Company had completed sales to Aspire totaling 4,812,208 shares of common stock generating gross proceeds of approximately $8 million. From October 1, 2013 to October 24, 2013, the Company has generated additional proceeds of approximately $1.89 million under the Common Stock Purchase Agreement with Aspire on the sale of 1,104,537 shares of its common stock to them. As of October 24, 2013, Aspire Capital completed its commitment of purchase up to an aggregate of $10,000,000 of our shares of Class A Common Stock under the Common Stock Purchase Agreement dated December 6, 2012.

On October 25, 2013, we terminated the previous agreement and entered into a new stock purchase agreement (the “Purchase Agreement”), with Aspire Capital Fund, LLC, an Illinois limited liability company (Aspire Capital), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of our shares of our Class A Common Stock over the approximately 36-month term of the Purchase Agreement.

The Company expects to incur losses from its operations for the near future. We expect to incur increasing research and development expenses, including expenses related to additional clinical trials. We expect that our general and administrative expenses will increase in the future as we expand our business development, add employees, consultants, infrastructure and incur additional costs related to being a public company, including incremental audit fees for compliance with the provisions of the Sarbanes-Oxley Act, investor relations programs and increased professional services. Based upon our expected rate of expenditures, we currently do not have sufficient cash reserves to meet all of our anticipated obligations through our fiscal year end of June 30, 2014.

Requirement for Additional Working Capital

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

1. Research and Development- $1,400,000 in preclinical development costs including testing Kevetrin on additional tumors, and costs to manufacture Prurisol.

2. Clinical trials - $9,850,000. We have budgeted $1,350,000 for our Phase 1 Kevetrin trials; $2,500,000 for the planned Prurisol phase 2/3 trials; $3,000,000 for the planned Brilicidin™ ABSSSI Phase 2b trials; and $3,000,000 for the planned Brilicidin™ Oral Mucositis Phase 2 trials.

3. Corporate overhead of $2,250,000: Budgeted office salaries, legal, accounting and other costs expected to be incurred.

4. Capital costs of $100,000: Estimated cost for equipment and laboratory improvements.

The Company will be unable to proceed with its full planned drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without obtaining additional financing of approximately $ 9.0 million (as per current management’s budgets). This does not include any budgeted amounts for further development of the Polymedix assets.

Management intends to use capital and debt financing, as required, to fund the Company's operations. There can be no assurance that the Company will be able to obtain the additional capital resources on terms and conditions acceptable to the Company to fund its anticipated obligations for the next twelve (12) months.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements, as defined in Item 304(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We did not have any market risk sensitive instruments outstanding during this period.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2013 covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This conclusion by the Company’s Chief Executive Officer and Chief Financial Officer does not relate to reporting periods after September 30, 2013.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that material weaknesses exist due to:

• The Company lacks the necessary corporate accounting resources to maintain adequate segregation of duties. Reliance on these limited resources impairs Company’s ability to provide for proper segregation of duties and the ability to ensure consistently complete and accurate financial reporting, as well as disclosure controls and procedures.

• Lack of sufficient accounting expertise to appropriately apply GAAP for complex or non-recurring equity transactions.

The Company believes that the two deficiencies set forth above did not have an effect on the financial statements.

Management’s Remediation Initiatives

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to initiate the following series of measures when we have the financial resources to do so:

We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function.

Management believes that the appointment of one or more outside Directors, who shall be appointed to a fully functioning audit committee, would remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

Changes in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2013, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is not currently aware of any other legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

ITEM 1A. RISK FACTORS

Investing in the Company's common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together with all of the other information included or referred to in our Annual Report on Form 10-K, before purchasing shares of the Company's common stock. There are numerous and varied risks, known and unknown, that may prevent the Company from achieving its goals. The risks described below are not the only ones the Company will face. If any of these risks actually occur, the Company's business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of the Company's common stock could decline and investors in the Company's common stock could lose all or part of their investment.

Risks Specific to Us

We 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 $14.0 million in the upcoming twelve (12) months to operate our business in accordance with our business plans and budgets. This budget may change significantly due to the recent acquisition of Polymedix assets and we have not determined a budget for certain of these assets, particularly the drug Delparantag. 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 projects for Kevetrin, Prurisol and Brilacidin including:

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research and development programs;

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

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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;

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

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time and cost necessary to obtain regulatory approvals;

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time and cost necessary to establish our own marketing capabilities or to seek marketing partners;

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time and cost necessary to respond to technological and market developments;

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changes made or new developments in our existing collaborative, licensing and

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other commercial relationships; and

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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:

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enter into leases for new facilities and capital equipment;

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enter into additional licenses and collaborative agreements; and

•

incur additional expenses associated with being a public company.

The value of our common stock is partially related to the value of the Polymedix, Inc. assets acquired and we can not be certain of the value of these assets.

The value of our common stock may relate directly and/or indirectly to the value of the Polymedix Inc. These assets were acquired on September 4, 2013 through the U.S. Bankruptcy Court. We can not be certain of the value of these assets acquired. This acquisition may have a material adverse effect on the value of any investment in our common stock.

All of our Polymedix drug product candidates are licensed from or based upon licenses from the University of Pennsylvania. Upon our purchase of these assets at the bankruptcy court we assumed all contractual rights and obligations of the license. If any of these license agreements are properly terminated, our ability to advance our Polymedix product candidates or develop new product candidates will be materially adversely affected.

We now depend, and will continue to depend, on these arrangements, and potentially on other licensing arrangements and/or strategic relationships with third parties for the research, development, manufacturing and commercialization of our Polymedix product candidates. If any of our licenses or relationships are terminated or breached, we may:

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

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

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

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

*incur liability for damages.

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:

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

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

•	the successful commercialization of our product candidates; and

•	market acceptance of our products.

If we do not successfully develop and commercialize at least one of our compounds, we will not achieve revenues or profitability in the foreseeable future, if at all. If we are unable to generate revenues or achieve profitability, we may be unable to continue our operations.

We are a development stage company with a limited operating history, making it difficult for you to evaluate our business and your investment .

We are in the development stage and our operations and the development of our proposed products are subject to all of the risks inherent in the establishment of a new business enterprise, including but not limited to:

the absence of an operating history;

the lack of commercialized products;

insufficient capital;

expected substantial and continual losses for the foreseeable future;

limited experience in dealing with regulatory issues;

the lack of manufacturing experience and limited marketing experience;

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

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

reliance on key personnel.

Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our company.

Our ability to become profitable depends primarily on the following factors:

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

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

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

Even if we successfully develop and market our drug candidates, we may not generate sufficient or sustainable revenue to achieve or sustain profitability.

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 September 30, 2013 we had approximately $4.6 million of cash available to support operations or our business plan. Our operating cash needs, cash consumption, and doubt as to whether we will ever become profitable, are factors which raise substantial doubt as to our ability to continue as a going concern. Consequently, our independent registered public accounting firm has included a going concern paragraph in its audit report which is included elsewhere in our 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 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:

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

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complete laboratory testing and human studies;

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obtain and maintain necessary intellectual property rights to our products;

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successfully complete regulatory review to obtain requisite governmental agency approvals

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

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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.

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:

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are found to be unsafe or ineffective in clinical trials;

•

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

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

•

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

Drug development failure can occur at any stage of clinical trials and as a result of many factors and there can be no assurance that we will reach our anticipated clinical targets. Even if we complete our clinical trials, we do not know what the long-term effects of exposure to our drug candidates will be. Furthermore, our drug candidates may be used in combination with other treatments and there can be no assurance that such use will not lead to unique safety issues. Failure to complete clinical trials or to prove that our drug candidates are safe and effective would have a material adverse effect on our ability to generate revenue and could require us to reduce the scope of or discontinue our operations.

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.

We also are subject to the following risks and obligations, related to the approval of our products:

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

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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.

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

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

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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.

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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.

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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.

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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 in 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 commence Phase 2 clinical trials for Prurisol’s (anti-psoriasis), Brilacidin (ABSSSI), and Brilacidin (oral mucositis).

The testing, marketing and manufacturing of any product for use in the United States will require approval from the FDA. We cannot predict with any certainty the amount of time necessary to obtain such FDA approval and whether any such approval will ultimately be granted. Preclinical and clinical trials may reveal that one or more products are ineffective or unsafe, in which event further development of such products could be seriously delayed or terminated. Moreover, obtaining approval for certain products may require testing on human subjects of substances whose effects on humans are not fully understood or documented. Delays in obtaining FDA or any other necessary regulatory approvals of any proposed drugs, and failure to receive such approvals, would have an adverse effect on the drug's potential commercial success and on our business, prospects, financial condition and results of operations. In addition, it is possible that a proposed drug may be found to be ineffective or unsafe due to conditions or facts that arise after development has been completed and regulatory approvals have been obtained. In this event, we may be required to withdraw such proposed drug from the market. To the extent that our success will depend on any regulatory approvals from government authorities outside of the United States that perform roles similar to that of the FDA, uncertainties similar to those stated above will also exist.

Even if our product candidate Prurisol receives regulatory approval, commercialization may be adversely affected by regulatory actions requiring a boxed warning.

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, 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.

Agreements with clinical investigators and medical institutions for clinical testing and with other third parties for data management services place substantial responsibilities on these parties, which could result in delays in, or termination of, our clinical trials if these parties fail to perform as expected. For example, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at those sites. If these clinical investigators, medical institutions or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for or successfully commercialize our drug candidates.

We or regulators may suspend or terminate our clinical trials for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the patients enrolled in our clinical trials. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the patients enrolled in our clinical trials. In addition, clinical trials may have independent monitoring boards composed of experts in the field. These boards may also have the authority to suspend or terminate clinical trials.

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

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.

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:

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significant time and effort from our management team;

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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:

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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.

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Previously, Kard Scientific, a company controlled by Dr. Krishna Menon, President and Director, provided preclinical and manufacturing services to the Company and leased space to the Company.

In any of these cases:

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

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

While the Company is not aware of any conflict that has arisen to date, the Company does not have any policy in place to deal with such should such a conflict arise.

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

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:

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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;

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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

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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:

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obtaining financial and investment information from the investor;

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

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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 September 30, 2013, the last trade price of our common stock, as quoted on the OTC Markets Group, Inc.'s OTCBB, was $1.82. The price may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include:

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progress of our products through the regulatory process;

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results of preclinical studies and clinical trials;

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

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

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developments or disputes concerning patent or proprietary rights;

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general market conditions for emerging growth and pharmaceutical companies;

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economic conditions in the United States or abroad;

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actual or anticipated fluctuations in our operating results;

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broad market fluctuations; and

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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 September 30, 2013, shareholders of the Company owned approximately 48.9 million shares of restricted stock, or 47.2% 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 stockholders .

At September 30, 2013, our directors and executive officers own or control approximately 41.0% 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, 2013 we had 103,598,985 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.

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.

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 September 30, 2013, approximately 48.9 million of the approximate 103.6 million issued 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 6.5 million 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.

We have identified material weaknesses in our internal control over financial reporting. If we fail to remediate these material weaknesses and maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business and investors’ and customers’ views of us.

As previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2013, filed with the SEC on September 30, 2013, we identified a material weakness in our internal control over financial reporting. In connection with our fiscal 2013 audit, we concluded that we did not have sufficient personnel in place for an adequate amount of time or effective operating internal control procedures to ensure timely and accurate reviews necessary to provide reasonable assurance that financial statements and related disclosures could be prepared in accordance with generally accepted accounting principles. In connection with our fiscal 2013 audit, we concluded that we had not fully remediated the weakness previously identified. For a discussion of the material weakness and our remediation efforts during 2013 as well as ongoing remediation efforts, see Item 9A, Controls and Procedures, of this Annual Report on Form 10-K. We cannot assure you that our efforts to fully remediate these internal control weaknesses will be successful or that similar material weaknesses will not recur.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

On October 25, 2013 we issued 210,523 shares of the Company’s Class A common stock to Aspire Capital for entering into a stock purchase agreement.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a) Exhibit index

Exhibit
31.1			Certification of Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.

31.2			Certification of Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

(b) Reports on Form 8-K. During the fiscal quarter ended September 30, 2013, the Company filed the following Current Reports on Form 8-K:

1. The Company filed a Form 8-K on September 9, 2013 related to Item 2.01 Completion of Acquisition or Disposition of Assets relating to Polymedix asset acquisition.

2. The Company filed a Form 8-K on October 28, 2013 related to Item 1.01 Entry into a Material Definitive Agreement; Item 1.02 Termination of a Material Definitive Agreement Item; and Item 3.02 Unregistered Sales of Equity Securities, relating to the termination of a previous agreement and entering into a new Common Stock Purchase Agreement with Aspire Capital Fund, LLC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CELLCEUTIX CORPORATION

/s/ Leo Ehrlich

Leo Ehrlich, Chief Executive Officer and Chief Financial Officer and Chairman of the Board of Directors

(Principal Executive, Accounting and Financial Officer)

/s/ Krishna Menon

Krishna Menon,

President and Director

Dated: November 8, 2013