Innovation Pharmaceuticals Inc. - Quarter Report: 2014 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, 2014

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

For the transition period from ____________to _____________

Commission File Number: 000-52321

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.

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 October 27, 2014 is as follows:

CELLCEUTIX CORPORATION

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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 II, Item 1A, Description of Business - Risk Factors”.

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CELLCEUTIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Rounded to nearest thousand except for per share data)

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

CELLCEUTIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(Rounded to nearest thousand except for per share data)

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

CELLCEUTIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(Rounded to nearest thousand)

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

CELLCEUTIX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(Unaudited)

1. Basis of Presentation and Nature of Operations

Unaudited Interim Financial Information

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, 2014, included in our Annual Report on Form 10-K for the year ended June 30, 2014.

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’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 initially on our lead compounds, Kevetrin and Prurisol and advancing them as quickly as possible along the regulatory pathway. We will develop the highest quality data and broadest intellectual property to support our compounds.

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

2. Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. At September 30, 2014, we had $7,093,000 in cash and cash equivalents. We have expended substantial funds on the research and development of our product candidates. Our net losses incurred for the three months ended September 30, 2014 and 2013, amounted to $4,395,000 and $977,000, respectively, and a working capital deficit of approximately $749,000 and $4,090,000, respectively at September 30, 2014 and June 30, 2014. 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. On October 25, 2013, we terminated a previous agreement with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”), and entered into a new stock purchase agreement (the “Purchase Agreement”) with Aspire Capital.

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

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include contract research accruals, recoverability of long-lived assets, measurement of stock-based compensation, and the periods of performance under collaborative research and development agreements. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Basic Earnings (Loss) per Share

Basic and diluted earnings (loss) per share are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, warrants and convertible notes payable. Common share equivalents of 45,775,332 and 49,761,768 were excluded from the computation of diluted earnings (loss) per share for the three months ended September 30, 2014 and 2013, 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:

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 in the Company’s Statement of Operations for the three months ended September 30, 2014 and 2013 are as follows (rounded to nearest thousand):

Recent Accounting Pronouncements

Recently Adopted Standards

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation." This ASU removes the definition of a development stage entity from the ASC, thereby removing the financial reporting distinction between development stage entities and other reporting entities from GAAP. In addition, the ASU eliminates the requirements for development stage entities to (1) present inception-to-date information in the statements of operations, cash flows, and stockholders’ equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This ASU is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Company has elected to early adopt this ASU effective with this Annual Report on Form 10-K and its adoption resulted in the removal of previously required development stage disclosures.

ASU 2014-15 – “Presentation of Financial Statements—Going Concern—Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).” In August 2014, the FASB issued ASU 2014-15 requiring management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. ASU 2014-15 is effective for annual periods, and interim periods within those annual periods, starting December 15, 2016; the Company’s first quarter of fiscal 2018. The Company has elected to early adopt this ASU effective with this Quarterly Report on this Form 10-Q.

Standards Issued Not Yet Adopted

In June 2014, the FASB issued guidance that clarifies the accounting for share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. In this case, the performance target would be required to be treated as a performance condition, and should not be reflected in estimating the grant-date fair value of the award. The guidance also addresses when to recognize the related compensation cost. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Management is currently reviewing this guidance to determine the impact it may have, if any, on our financial statements.

In May 2014, the FASB issued guidance on the accounting for revenue from contracts with customers that will supersede most existing revenue recognition guidance, including industry-specific guidance. The core principle requires an entity to recognize revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the guidance requires enhanced disclosures regarding the nature, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance is effective for interim and annual reporting periods beginning on or after December 15, 2016. Entities can choose to apply the guidance using either the full retrospective approach or a modified retrospective approach. Management believes that the adoption of this guidance will not have a material impact on our financial statements.

In April 2014, the FASB issued guidance for the reporting of discontinued operations, which also contains new disclosure requirements for both discontinued operations and other disposals that do not meet the definition of a discontinued operation. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Management believes that the adoption of this guidance will not have a material impact on our 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”), for a 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. This obligation was recorded as a current liability of $1.4 million of Redeemable Common Stock liability in the accompanying balance sheet as of June 30, 2014 and this Redeemable Common Stock Liability was charged back to additional paid-in capital in September 2014 after the obligation was expired in September 2014.

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:

These acquired tangible assets of $96,000 were expensed to research and development costs in September 2013.

5. Patents, net

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

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, 2014 and 2013, was approximately $97,000 and $22,000, respectively.

At September 30, 2014, the amortization period for all patents was approximately 11 to 16.45 years. Future estimated annual amortization expenses are approximately $291,000 for year ending June 30, 2015, approximately $387,000 for each year from 2016 to 2025, $345,000 for the year 2026, $335,000 for the year 2027, $98,000 for the year 2028 and $44,000 for Years 2029 and 2031.

6. Property, plant and equipment, net

Property, plant and equipment, net consisted of the following (rounded to nearest thousand):

Depreciation expense for the three months ended September 30, 2014 and 2013, was approximately $2,000, and $0, respectively.

7. Accrued Expenses

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

8. Accrued Salaries and Payroll Taxes – Related Parties And Other

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

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 of $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. On January 1, 2014 the Board approved the extension of the employment agreements for a one year period with a 10% increase in salary from the calendar year 2013 annual salary of $423,500, to an annual salary of $465,850.

During the three months ended September 30, 2014 and 2013, the total payroll paid to two executive officers was $233,000 and $212,000, respectively. Out of these, the Company has included approximately $105,000 and $95,000, representing 90 % of payroll expense paid to Mr. Krishna Menon in research and development expense, respectively. The remaining balance of $128,000 and $117,000 was included in officers’ payroll and payroll tax expenses during the three months ended September 30, 2014 and 2013.

9. Commitments and Contingencies

Legal Contingencies

Formatech is a former vendor of ours which had received 184,375 shares of Cellceutix Class A Common Stock (“Cellceutix Stock”) for services that were not completed. Formatech had gone bankrupt while still in possession of the Cellceutix Stock. In July 2012, the US Bankruptcy Court allowed the trustee of the Formatech estate to sell the Cellceutix Stock. 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. On August 27, 2014 an offer has been made by the court trustee in the case of our litigation with the Estate of Formatech, offering Cellceutix $10,000 and the Board of Directors approved the acceptance of this offer to be collected by our counsel, Joe Evans. The Company received approximately $10,000, net of legal cost in September, 2014 and recorded under other income.

Lease Commitments

Operating Leases

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

As of September 30, 2014, future minimum lease payments required under the non-cancelable operating lease are as follows (rounded to nearest thousand):

Rental expense, net of lease income, under this operating lease agreement was approximately $50,000 and $10,000 for the three months ended September 30, 2014 and 2013, respectively. Before September, 2013, the Company paid rent to KARD for share of office space and details are shown at Note 10. Related Party Transactions.

Contractual Commitments

Clinical Trial Agreements between the Company and Contract Research Organizations- Phase 1 Trial

In December 2013, the Company entered into a Clinical Trial Agreement with a Contract Research Organization (“CRO”) to conduct a Phase 1 Pharmacokinetic and Bioequivalence study for the Company. The Company has agreed to pay the CRO approximately $250,000 for this study.

Starting from December 2013 to September 30, 2014, the Company expensed approximately $200,000 related to this CRO, and recorded the expenses under research and development costs in the statements of operations.

Clinical Trial Agreements between the Company and Contract Research Organizations- Oral Mucositis Trial

On September 8, 2014, the Company entered into a Clinical Trial Project Work Agreement with a Contract Research Organization (“CRO”). Terms include the Company making an upfront study advance retainer of $142,500 to the CRO from which all CRO Services and Pass-Through Costs will be deducted. For the duration of the Study, each time the amount remaining in the retainer falls below $50,000, Cellceutix will pay to the CRO $50,000 within 15 days of such notice (invoice), increasing the available retainer to approximately $100,000.

Clinical Costs. The clinical costs (Site Fees) will be invoiced separately based on monthly grant management reporting which is payable within 15 days upon invoice receipt. The costs will be determined by the number of patients needed for completion of the study which is unknown at this time. The agreement includes budgets for a wide range of the number of patients which may be needed in the study. The approximate budget range is from $1.5 million to $3 million.

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

During the quarter ended September 30, 2014, the Company expensed approximately $122,000 related to this CRO, and recorded the expenses under research and development costs in the statements of operations.

10. 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 and since September 1, 2013, the Company no longer leases space from Kard. For the three months ended September 30, 2014 and 2013, the Company has included approximately $0 and $2,000 of rent expense paid to KARD in general and administrative 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 approximately $17,000. Cellceutix had taken over the space occupied by KARD. In addition, Innovative Medical Research Inc., (“Innovative Medical”) a company owned by Leo Ehrlich and Dr. Krishna Menon, officers of Cellecutix has co-signed the lease and 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 total rent of $3,000 and $1,000 to Cellceutix for the three months ended September 30, 2014 and 2013, respectively, and the rental payment was offset with the accrued rent owed to KARD.

At September 30, 2014 and June 30, 2014, rent payables to KARD of approximately $50,000 and $53,000, respectively, were included in accrued expenses.

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. At September 30, 2014 and June 30, 2014, the accrued research and development expenses to KARD of approximately $1,686,000 was included in accounts payable.

11.  Note Payable – Related Party

During the year ended June 30, 2010, Mr. Ehrlich loaned the Company a total of approximately $973,000. A condition for this note was that the Ehrlich Promissory Note A and Ehrlich Promissory Note B be replaced with a new note, Ehrlich Promissory Note C. The Ehrlich Promissory Note C is an unsecured demand note that bears 9% simple interest per annum and is convertible into the Company’s common stock at $0.50 per share. The note requires that the interest rate on the amounts due on Ehrlich Promissory Notes A and B be changed retroactively, beginning October 1, 2009, to 9%. On April 1, 2011, the Company amended the Ehrlich Promissory Note C and agreed to retroactively convert accrued interest of approximately $97,000 through December 31, 2010 into additional principal. During the year ended June 30, 2011, Mr. Ehrlich loaned the Company an additional approximately $997,000 which brought the total balance of the demand note to approximately $2,002,000. During the year ended June 30, 2012, Mr. Ehrlich loaned the Company an additional $20,000 which brought the balance of the demand note to approximately $2,022,000.

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

At September 30, 2014 and June 30, 2014, approximately $273,000 and $237,000 was accrued as interest expense on this note.

At September 30, 2014 and June 30, 2014, principal balances of the demand note was approximately $2,022,000.

12. Stock Options and Warrants

Consulting Agreement

On April 1, 2009, the Company entered into an agreement, subsequently amended, with a Consultant to assist the Company’s Chief Scientific Officer to organize, manage and display data from animal studies as well as information relating to Active Pharmaceutical Ingredients and formulations of the Company’s products through November 2010. The Consultant was compensated at the rate of $4,000 per month payable on the last day of each month. In addition, at the end of each month of services provided, the Consultant is granted options to purchase 10,000 shares of Company’s common stock. Effective September 1, 2010, the Company has extended the current agreement and beginning in August 2010, the monthly fee was increased to $5,000. The monthly fee was increased to $6,000 beginning in November 2012. The remainder of the agreement remains unchanged. Through June 30, 2013, the Consultant had been awarded a total of 480,000 options to purchase common stock valued at inception approximately $284,000 to be vested over one year from date of issuance. Effective April 1, 2013, the consulting agreement was terminated and the consultant was employed as an employee. For the three months ended September 30, 2014 and 2013, the Company has expensed $0 and $26,000, respectively, to professional fees expense, related to these options and remeasurement.

Stock Options

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”).

On April 1, 2014 the Board of Directors approved a stock option grant, for services rendered from January 7, 2014 to July 6, 2014, to a consultant to purchase 40,000 shares of common stock exercisable at $1.64 per share. The option was vested on April 1, 2014,the option life is 5 years and will expire on March 31, 2019. In addition, the Company will pay the consultant $20,000 per month during the six month period from January 7, 2014 to July 6, 2014. The total value of this 40,000 shares of stock option was $55,396 and charged to additional paid-in capital on April 1, 2014.

There was no new option granted during the three months ended September 30, 2014 and 2013, the assumptions we used in the Black Scholes option-pricing model for other quarters were disclosed at the corresponding filings.

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

The exercise of 25,000 Common Stock options at $0.20 per share at $5,000 on March 18, 2014 was disclosed at Note 13 Equity Transactions.

The Company recognized approximately $0 and $26,000 of stock based compensation costs related to stock and stock options awards for the three months ended September 30, 2014 and 2013, respectively.

Stock Warrants

For the fiscal year ended June 30, 2014

From July 19, 2013 to June 30, 2014, the Company issued 2,300,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1 per share. The Company received an aggregate of $2,300,000. The issuance was exempt from registration under Section 4(2) of the Securities Act. In addition, on January 3, 2014, the Company issued 200,000 Class A common shares par value $.0001 to same warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1 per share and received an aggregate of $200,000 (See Note 13 Equity Transactions).

On December 31, 2013, the Company issued 848,084 Class A common shares par value $.0001 to two warrant holders upon exercise of Common Stock Purchase Warrants exercisable at the range from $0.39 to $0.53 per share, with total of $400,000. The Company received $400,000 as a Subscription Receivable on April 1, 2014. The issuance was exempt from registration under Section 4(2) of the Securities Act.

Extension of the expiration date of an aggregate of 2,223,000 Series B, Series C, and Series D common share purchase warrants

On December 1, 2013, 2,223,000 Series B, Series C, and Series D common share purchase warrants issued by the Company were modified to extend their maturity date to December 31, 2015. As the Company is in an accumulated deficit position, the deemed dividend was charged against additional paid-in-capital for common shares, there being no retained earnings from which to declare a dividend. The net income (loss) attributable to common shareholders reflects both the net income (loss) and the deemed dividend.

The deemed dividend of $1,980,000 was computed as the incremental value of the modified warrants over the unmodified warrants on the modification date using a per share price of the range from $0.50 to $1.50 per share which were the contemporaneous private placement offering price. Assumptions used in the Black Scholes option-pricing model for these warrants were as follows:

On January 23, 2014, the Company issued 25,000 shares of restricted common stock and 25,000 common share purchase warrants exercisable at $1.79 a share to one consultant. The shares vested on March 31, 2014, valued at approximately $45,000 and the valuation of the warrants was approximately $29,000 using the Black Scholes valuation model and the expected term of the warrant to be 3 years.

For the three months ended September 30, 2014

From July 1, 2014 to September 30, 2014, 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 per share. The Company received an aggregate of $200,000. The issuance was exempt from registration under Section 4(2) of the Securities Act.

The following table summarizes stock warrants:

13. Equity Transactions

For the fiscal year ended June 30, 2014

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 at $1.93 and recorded at $1,302,000, net of $1,400,000 of Redeemable Common Stock Liability under Current Liability as of June 30, 2014. The Redeemable Common Stock Liability was charged back to additional paid-in capital in September 2014 after the obligation was expired in September 2014.

$20 million Class A Common Stock Purchase Agreement with Aspire Capital Fund, LLC – - (“New Agreement’ or “October 2013 Agreement”)

On October 25, 2013, we terminated a previous agreement with Aspire Capital Fund, LLC, an Illinois limited liability company (Aspire Capital), and entered into a new Class A Common Stock Purchase Agreement (the “Purchase Agreement”) with Aspire Capital, which provides that upon meeting the terms of the agreement, Aspire Capital is committed to purchase up to an aggregate of $20,000,000 of our shares of Class A Common Stock over the approximately 36-month term of the Purchase Agreement. In consideration for entering into the Purchase Agreement, the Company issued to Aspire Capital 210,523 shares of our Class A Common Stock as a commitment fee. The commitment fee of $373,000 will be amortized as the funding is received. The amortized amount of $194,000 was debited to additional paid-in capital for the three months ended September 30, 2014. The unamortized portion is carried on the balance sheet as deferred offering costs and was $179,000 at September 30, 2014.

Concurrently with entering into the Purchase Agreement, the Company agreed to file one or more registration statements as permissible and necessary under the Securities Act of 1933, as amended, or the Securities Act, for the sale of shares of our Class A Common Stock that have been and may be issued to Aspire Capital under the Purchase Agreement. On November 4, 2013, the Company filed a Form S-3 registration statement and the registration statement was declared effective by the SEC on November 15, 2013.

Under the Purchase Agreement, on any trading day selected by Cellceutix which the closing sale price of our Class A Common Stock exceeds $0.25 per share, we may direct Aspire Capital to purchase up to 200,000 shares of our Class A Common Stock per trading day. The Purchase Price of such shares is equal to the lesser of a) the lowest sale price of our Class A Common Stock on the purchase date; or b) the arithmetic average of the three lowest closing sale prices for our Class A Common Stock during the twelve consecutive trading days ending on the trading day immediately preceding the purchase date.

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

The purchase price will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the trading day(s) used to compute the purchase price. We may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.

Under the Purchase Agreement, we and Aspire Capital may not affect any sales of shares of our Class A Common Stock under the Purchase Agreement on any trading day that the closing sale price of our Class A Common Stock is less than $0.25 per share.

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

During the period from October 25, 2013 to September 30, 2014, the Company had completed sales to Aspire totaling 5,900,000 shares of common stock generating gross proceeds of approximately $10.40 million. As of September 30, 2014, a balance of $9.60 million remains and is available under the financing arrangement. From October 1, 2014 to October 27, 2014, the Company has generated additional proceeds of approximately $1,914,000 under the Common Stock Purchase Agreement with Aspire from the sale 800,000 shares of its common stock.

Issuance of Common Stock by Exercise of Common Stock Purchase Warrants

During the year ended June 30, 2014, the Company issued 2,300,000 Class A common shares par value $.0001 to a warrant holder upon exercise of Common Stock Purchase Warrants exercisable at $1 per share. The Company received an aggregate of $2,300,000 from the exercise of these warrants. The issuance was exempt from registration under Section 4(2) of the Securities Act.

On December 31, 2013, the Company issued 848,084 Class A common shares par value $.0001 to two warrant holders upon exercise of Common Stock Purchase Warrants exercisable at the range from $0.39 to $0.53 per share, with a total exercise price of $400,000. The issuance was exempt from registration under Section 4(2) of the Securities Act.

Issuance of Common Stock by Exercise of Common Stock Options

On March 18, 2014, the Company issued 25,000 Class A common shares par value $.0001 upon exercise of 25,000 Common Stock options at $0.20 per share, for total proceeds of $5,000.

Issuance of Common Stock to Consultants and Employees

On December 17, 2013, the Company issued 5,000 shares of restricted Class A common shares par value $.0001 to one consultant valued at approximately $9,000 for prior services.

On December 31, 2013, the Company issued 50,000 shares of restricted Class A common shares par value $.0001 to two consultants valued at approximately $105,000 for prior services.

On December 31, 2013, the Company issued 60,000 shares of restricted Class A common shares par value $.0001 to six employees as a year-end bonus valued at approximately $96,000.

On October 17, 2013, the Board of Directors approved the stock grant of 35,000 shares of restricted Class A common stock to be issued and vested on January 6, 2014 to a consultant valued at $70,000.

On January 23, 2014, the Company issued 25,000 shares of restricted Class A common stock and 25,000 stock options exercisable at $1.79 per share to a consultant. The shares were granted on January 23, 2014 and vested on March 31, 2014 were valued at $44,750. The option life is three years and valued at approximately $29,000.

On January 23, 2014, the Company further issued 25,000 shares of restricted Class A common shares par value $.0001 at $1.79 per share to a consultant. The shares were granted on January 23, 2014, vested on March 31, 2014, and were valued at approximately $45,000.

On March 31, 2014, the Company issued 25,000 shares of restricted Class A common shares, par value $.0001, to a consultant for prior services rendered. The shares were granted and vested on March 31, 2014. The shares were valued at $41,000.

14. Subsequent Events

Equity Transactions

From October 1, 2014 to October 27, 2014, the Company has generated additional proceeds of approximately $1,914,000 under the Common Stock Purchase Agreement with Aspire from the sale 800,000 shares of its common stock.

Appointment of Dr. William James Alexander as the Chief Operations Officer

On October 20, 2014 the Board of Directors approved the appointment of Dr. William James Alexander as the Chief Operations Officer of Cellceutix Corporation for the term of one year effective October 27, 2014 (“the Effective Date”). Dr. Alexander had been serving Cellceutix as a medical consultant since 2012. From June 2006 to June 2008 he served as Vice President, Clinical Development at BioCryst Pharmaceuticals. From July 2008 to present he operated as a sole proprietorship under the name of Alexander Pharma Consulting, LLC. Dr. Alexander previously held clinical development and/or pharmacovigilance positions with SmithKline Beecham, Glaxo, Glaxo Wellcome, and BioCryst. He has contributed to clinical development programs supporting the approval of drugs for the treatment of bacterial and viral infections (HIV, herpes viruses, and influenza), asthma, COPD, and migraine. Dr. Alexander received his M.D. from the University of Mississippi and his M.P.H. from the University of Alabama at Birmingham. He is board certified in internal medicine and infectious diseases.

Commencing on the Effective Date and ending on the six month anniversary of the Effective Date (the "Six Month Anniversary"), the Company shall pay Dr. Alexander at the per annum rate of $350,000. Commencing on the Six Month Anniversary and ending on the one year anniversary of the Effective Date (the "One Year Anniversary"), the Company shall pay the Executive at the per annum rate of $400,000.

Pursuant to his employment agreement, Dr. Alexander received immediately 50,000 shares of the Company's common stock, par value $0.0001per share ("Common Stock") as a sign on bonus and 50,000 stock options vesting during the next 12 months. The Company shall award Dr. Alexander an annual bonus at the sole discretion of the Board of Directors of the Company. The Company is not aware of any transaction requiring disclosure under Item 404(a) of Regulation S-K.

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

Overview

Research and Development Activities

We acquire exclusive rights to pharmaceutical compound candidates that are designed for treatment of diseases which may be either existing or diseases identified in the future. The Company spends most of its efforts and resources on its on its compounds already in clinical trials. Our drug Kevetrin for the treatment of cancers, Prurisol for the treatment of psoriasis, and Brilacidin for the treatments of skin infections and oral mucositis We anticipate using our expertise to manage and perform what we believe are the most critical aspects of the product development process which include: (i) the design and oversight of clinical trials; (ii) the development and execution of strategies for the protection and maintenance of intellectual property rights; and (iii) the interaction with regulatory authorities internationally. We expect to concentrate on product development and engage in a limited way in product discovery, avoiding the significant investment of time and financial resources that is generally required before a compound is identified and brought into clinical trials. At this time the Company is focusing its research and development efforts on Kevetrin, Prurisol, Brilacidin, and to a lesser amount on our other anti-infectives and anti-fungal compounds.

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

Polymedix Asset Acquisition

On September 4, 2013, the Company purchased substantially all of the assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc. from the U.S. Bankruptcy Court. PolyMedix Inc. was founded in 2002 based on technology licensed from the University of Pennsylvania (Penn). The purchased bankruptcy estate included two license agreements from Penn, an exclusive patent license agreement and a nonexclusive software license agreement. List of material intellectual property, patents, licenses acquired and their expiration dates was disclosed at “Part I, Item 1. Intellectual Property, Patents and Licenses Acquired” of our Annual Report for the year ended June 30, 2014.

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

Status of Active Programs in Clinical Trials and Development

Kevetrin

The Phase 1 trials for Kevetrin, Cellceutix's novel anti-cancer compound, are being conducted at Harvard Cancer Center's Dana-Farber Cancer Institute and partner Beth Israel Deaconess Medical Center. The clinical trial, presently in its 9th cohort, tests Kevetrin against a variety of different solid tumor cancer types in patients with advanced-stage cancers. Primary endpoints for the study are safety, determining the maximum tolerated dose and establishing the dose for a future Phase II clinical trial. Presently, we believe we are at the latter stage of the trial as one patient in this cohort experienced a dose limiting toxicity (DLT). After experiencing the DLT, the patient requested to continue on the study and after review by physicians was allowed to, but given a lower dose of Kevetrin in the patient's weekly treatment. The trial protocol requires that we now complete six patients at the current dosing. The Company has received no notice of other events outside of the parameters of the protocol and the trial is progressing.

The trial is registered on www.clinicaltrials.gov., its http://clinicaltrials.gov/ct2/show/NCT01664000?term=Kevetrin&rank=1

Kevetrin has demonstrated the potential for a major breakthrough in cancer research by exhibiting an activation of wild type p53 and degradation of mutant p53. p53, often referred to as the “Guardian Angel Gene” or the “Guardian Angel of the Human Genome” due its crucial role in controlling cell mutations, is a tumor suppressor protein that is encoded by the TP53 gene in humans and has been widely regarded as possibly holding a key to the future of cancer therapies. Additional studies have shown that Kevetrin has potent anticancer activity in a wide range of tumor types by targeting histonedeacetylase (HDAC).

The expression of p21 is tightly controlled by p53. In the laboratory, Kevetrin increased the expression of p21 which inhibits cell proliferation; therefore, expression of p21 in peripheral blood lymphocytes was included as biomarker in the Phase I. In the recent cohorts, results showed significant enhancement of p21 expression in 50% patients and to a greater extent compared to earlier cohorts. This represents a positive signal for the development of Kevetrin.

University of Bologna

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

MDAnderson Cancer Center

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

Prurisol

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

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

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

The Phase 2b trial entitled “A Randomized, Double-Blind Study Comparing Three Dosing Regimens of Brilacidin to Daptomycin in the Treatment of Acute Bacterial Skin and Skin Structure Infections (ABSSSI)” completed enrollment of 215 patients in August 2014. On October 23, 2014 we announced positive top-line data from this Phase 2b ABSSSI trial. The trial, which began in February 2014, enrolled 215 total subjects in four treatment arms, with approximately 25% in each treatment arm. The primary endpoint was clinical success in the intent-to-treat population, defined as reduction of at least 20% in area of ABSSSI lesion, relative to baseline, when observed 48-72 hours after the first dose of study drug, and no rescue antibiotics administered. This is consistent with the 2013 Food and Drug Administration (FDA) guidance for ABSSSI studies and is the same endpoint used in recent approvals for ABSSSI drugs. All three Brilacidin treatment arms (two single-dose regimens and one three-day dose regimen) reached the primary endpoint, with the clinical success rate for each dosing regimen statistically comparable to the clinical success rate of the FDA-approved seven-day dosing regimen of daptomycin. All Brilacidin treatment regimens were well tolerated. There were six severe adverse events (SAE) reported across the study, none of which were considered related to Brilacidin by the principal investigator. Biostatistics are still being reviewed and will soon be published. The Company believes that the trial met the Company’s clinical goals and that Brilacidin shows the potential to be a first in class drug.

We are meeting with the FDA in December 2014 to present our end of Phase 2 briefing book and discuss our planned Phase 3 protocol. Upon FDA acceptance of our protocol, we will start the Phase 3 study.

Brilacidin for Oral Mucositis

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

In September 2014 Cellceutix filed an IND (Investigative New Drug application) for a planned trial titled “Phase 2, Multi-center, Randomized, Double-blind, Placebo-controlled Study to Evaluate the Efficacy and Safety of Brilacidin Oral Rinse Administered Daily for 7 Weeks in Attenuating Oral Mucositis in Patients with Head and Neck Cancer Receiving Concurrent Chemotherapy and Radiotherapy”. On October 13, 2014 Cellceutix announced the acceptance of its IND (Investigational New Drug Application) by the Food and Drug Administration for the treatment of Oral Mucositis with Brilacidin. Presently sites are being set up, supplied, and trained. We expect our first patient to be enrolled in December 2014.

Brilacidin for Diabetic Foot Ulcer, Ophthalmic, and Otitic Infections

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

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

Delparantag

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

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

The Company is presently evaluating this drug for other diseases.

Gram Negative Klebsiella

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

Anti-Fungals

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

Other

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

Results of Operations

Revenue

We generated no revenue and incurred operating expenses of $4.35 million and $0.92 million for the three months ended September 30, 2014 and 2013, respectively.

Research and Development

The following table presents the research and development expenses for the three months presented, (Rounded to nearest thousands):

Research and development expenses consist mostly of compensation and related costs for consultants responsible for the research and development of our fuel. The increase of $3.28 million in 2014 was primarily due to an increase in clinical trial payments paid for ABSSSI Trial and a Phase 1 Pharmacokinetic and Bioequivalence study.

Research and development expenses will increase in future periods because we expect to continue to invest an additional $16.8 million in the Research and development expenses. See Requirement for Additional Working Capital.

General and Administrative Expenses

The following table presents the components of general and administrative expenses for the three months presented, (Rounded to nearest thousands):

The general and administrative expenses increase of $0.13 million was mostly related to the increase in rent expenses of $0.04 million and an increase in other operating expenses of $0.06 million.

Officers' payroll and payroll tax expenses

The following table presents the components of officers' payroll and payroll tax expenses for the three months presented, (Rounded to nearest thousands):

The increase was due to 10% increase in salary from the calendar year 2013 annual salary of $423,500, to an annual salary of $465,850. During the three months ended September 30, 2014 and 2013, the total payroll paid to two executive officers was $233,000 and $212,000, respectively. Out of these, the Company has included approximately $105,000 and $95,000, representing 90 % of payroll expense paid to Mr. Krishna Menon in research and development expense, respectively. The remaining balance of $128,000 and $117,000 was included in officers’ payroll and payroll tax expenses during the three months ended September 30, 2014 and 2013, respectively.

Other Income/Other Expenses

The following table other income/other expenses for the three months ended September 30 2014 and 2013, respectively (rounded to nearest thousand):

Net Losses

We incurred net losses of $4.40 million and $0.98 million for the three months ended September 30, 2014 and 2013 because of above factors.

Liquidity and Capital Resources

Cash Flows

The following table provides information regarding our cash position, cash flows and capital expenditures for the three months ended September 30 2014 and 2013, respectively (rounded to nearest thousand):

The increase in net cash used in operating activities of $3.42 million versus the prior-year three-month period was mainly due to an increase in our losses from operations of $2.96 million.

Our operating activities used cash of $4.13 million, and $0.71 million for the three months ended September 30 2014 and 2013, respectively. The use of cash in these periods principally resulted from our losses from operations, as adjusted for non-cash charges for stock-based compensation and depreciation, and changes in our working capital accounts.

Investing activities

The decrease in net cash used in investing activities of $1.87 million versus the prior-year three-month period was due to a decrease in acquiring patents of $1.91 million.

During the three months ended September 30, 2014, our investing activities used cash of $0.21 million, including the purchases of property and equipment of $ 0.01 million and patents of $0.2 million. During the three months ended September 30, 2013, our investing activities used cash of $2.09 million, including the purchases of patents of $2.11 million, offset by the proceed of disposals from fixed assets of $0.02 million.

Financing activities

The increase in net cash provided by financing activities of $1.98 million versus the prior-year three-month period was due to an increase in sales of our common stock to Aspire.

During the three months ended September 30, 2014, we raised approximately $6.45 million in net cash proceeds, including $6.25 million in net proceeds from the sale of 3.40 million shares of our common stock to Aspire and $0.20 million from the exercise of warrants.

During the three months ended September 30, 2013, we raised approximately $4.47 million in net cash proceeds, including $3.73 million in net proceeds from the sale of 2.10 million shares of our common stock to Aspire and $1.03 million from the exercise of warrants, offset by payment of settlement liabilities of $0.28 million.

Liquidity

As of September 30, 2014 the Company had a cash balance of approximately $7.09 million.

Aspire Capital Agreement

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

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

Under the Purchase Agreement, on any trading day selected by Cellceutix which the closing sale price of our Class A Common Stock exceeds $0.25 per share, we may direct Aspire Capital to purchase up to 200,000 shares of our Class A Common Stock per trading day.

The Purchase Price of such shares is equal to the lesser of (a) the lowest sale price of our Class A Common Stock on the purchase date; or (b) the arithmetic average of the three lowest closing sale prices for our Class A Common Stock during the twelve consecutive trading days ending on the trading day immediately preceding the purchase date.

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

The purchase price will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the trading day(s) used to compute the purchase price. We may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.

Under the Purchase Agreement, we and Aspire Capital may not affect any sales of shares of our Class A Common Stock under the Purchase Agreement on any trading day that the closing sale price of our Class A Common Stock is less than $0.25 per share.

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

During the period from October 25, 2013 to September 30, 2014, the Company had completed sales to Aspire totaling 5,900,000 shares of common stock generating gross proceeds of approximately $10.40 million. As of September 30, 2014, a balance of $9.60 million remains and is available under the financing arrangement. From October 1, 2014 to October 27, 2014, the Company has generated additional proceeds of approximately $1,914,000 under the Common Stock Purchase Agreement with Aspire from the sale 800,000 shares of its common stock.

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

Requirement for Additional Working Capital

Research and Development Costs. We intend to use the net proceeds from the above Aspire transaction to fund our product development programs and for general corporate purposes, and therefore anticipate having sufficient funds to meet our planned drug development for the next twelve months. We plan to incur the following expenses of approximately $16.8 million over the next twelve months:

1. Research and Development- $1.5 million in preclinical development costs including testing Kevetrin on additional tumors, and advancement of our anti- infective and anti-fungal compounds towards clinical trials.

2. Clinical trials - $11.0 million. We have budgeted $1.0 million for our Phase 1 Kevetrin trials; $2.5 million for the Prurisol phase 2/3 trials; $4.5 million for the Brilicidin ABSSSI start of Phase 3 trials; and $3.0 million for the planned Brilicidin Oral Mucositis Phase 2 trials.

3. Corporate overhead of $3.5 million: Budgeted office salaries, legal, accounting and other costs expected to be incurred.

4. Capital costs of $0.8 million: Estimated cost for equipment and laboratory improvements.

The Company will be unable to proceed with its full planned drug development programs, meet its administrative expense requirements, capital costs, or staffing costs without accessing approximately $16.8 million (as per current management’s budgets) of our remaining financing available with Aspire Capital. This does not include any budgeted amounts for further development of the Polymedix assets.

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

Contractual Obligations

As disclosed in Note 9 of the Notes to our Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report Form on 10-Q.

Subsequent Events

Equity Transactions

From October 1, 2014 to October 27, 2014, the Company has generated additional proceeds of approximately $1,914,000 under the Common Stock Purchase Agreement with Aspire from the sale 800,000 shares of its common stock.

Appointment of Dr. William James Alexander as the Chief Operations Officer

On October 20, 2014 the Board of Directors approved the appointment of Dr. William James Alexander as the Chief Operations Officer of Cellceutix Corporation for the term of one year effective October 27, 2014 (“the Effective Date”). Dr. Alexander had been serving Cellceutix as a medical consultant since 2012. From June 2006 to June 2008 he served as Vice President, Clinical Development at BioCryst Pharmaceuticals. From July 2008 to present he operated as a sole proprietorship under the name of Alexander Pharma Consulting, LLC. Dr. Alexander previously held clinical development and/or pharmacovigilance positions with SmithKline Beecham, Glaxo, Glaxo Wellcome, and BioCryst. He has contributed to clinical development programs supporting the approval of drugs for the treatment of bacterial and viral infections (HIV, herpes viruses, and influenza), asthma, COPD, and migraine. Dr. Alexander received his M.D. from the University of Mississippi and his M.P.H. from the University of Alabama at Birmingham. He is board certified in internal medicine and infectious diseases.

Commencing on the Effective Date and ending on the six month anniversary of the Effective Date (the "Six Month Anniversary"), the Company shall pay Dr. Alexander at the per annum rate of $350,000. Commencing on the Six Month Anniversary and ending on the one year anniversary of the Effective Date (the "One Year Anniversary"), the Company shall pay the Executive at the per annum rate of $400,000.

Pursuant to his employment agreement, Dr. Alexander received immediately 50,000 shares of the Company's common stock, par value $0.0001per share ("Common Stock") as a sign on bonus and 50,000 stock options vesting during the next 12 months. The Company shall award Dr. Alexander an annual bonus at the sole discretion of the Board of Directors of the Company. The Company is not aware of any transaction requiring disclosure under Item 404(a) of Regulation S-K.

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.

Critical Accounting Policies and Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include contract research accruals, recoverability of long-lived assets, measurement of stock-based compensation, and the periods of performance under collaborative research and development agreements. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Basic Earnings (Loss) per Share

Basic and diluted earnings (loss) per share are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Common share equivalents consist of stock options, warrants and convertible notes payable. Common share equivalents of 45,775,332 and 49,761,768 were excluded from the computation of diluted earnings (loss) per share for the three months ended September 30, 2014 and 2013, 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:

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 in the Company’s Statement of Operations for the three months ended September 30, 2014 and 2013 are as follows (rounded to nearest thousand):

Recent Accounting Pronouncements

As disclosed in Note 3 of the Notes to our Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report Form on 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have no material changes to the disclosures on this matter made in our Annual Report on Form 10-K for the year ended June 30, 2014.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of September 30, 2014 due to the material weakness in our internal control over financial reporting for the period as disclosed below.

Management identified a material weakness in its internal control over financial reporting as it related to the timing of expensing certain research and development expenses incurred during the three months ended September 30, 2014. In order to remediate the material weakness described above, Management implemented the following steps.

We will continue to evaluate the effectiveness of our internal controls and procedures on an ongoing basis and will take further action as appropriate.

Due to the weakness noted, management has concluded that we did not maintain effective internal control over financial reporting as of September 30, 2014.

Our management does not believe that the material weakness in our internal control over financial reporting had a material effect on our financial condition or results of operations or caused our financial statements for the quarter ended September 30, 2014 to contain a material misstatement.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2014, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information regarding reportable legal proceedings is contained in Part I, "Item 3. Legal Proceedings" in our Annual Report on Form 10-K for the year ended June 30, 2014.

ITEM 1A. RISK FACTORS

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

Risks Specific to Us

We need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms, which could prevent us from fully implementing our business, operating and development plans.

We currently have an approximate $7.09 million cash balance in the bank but that is insufficient to complete the development and commercialization of any of our proposed products. We expect to incur costs of approximately $16.8 million in the upcoming twelve months to operate our business in accordance with our business plans and budgets.

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

Previously on December 6, 2012, we entered into a Common Stock Purchase Agreement with Aspire Capital pursuant to which Aspire Capital committed to purchase up to an aggregate of $10 million of our shares of Class A Common Stock over three years. On October 23, 2013, Aspire Capital completed its purchase of the full $10 million available under that agreement. However, there is no guarantee that we will be able to access the full $20 million available under the new Purchase Agreement in the same manner given the limitations and conditions described above.

If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, which are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable to continue our operations.

We may be unable to secure this amount of financing on terms and conditions acceptable to the Company. In the event that we cannot obtain acceptable financing, we would be unable to complete preclinical development projects, and clinical trials for Kevetrin, Prurisol, and Brilacidin. This will delay:

The amount of capital we may require will depend on many factors, including the:

Our fixed expenses, such as rent and other contractual commitments, may increase in the future, as we may:

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, 2014, we had approximately $7.09 million of cash available to support operations or our business plan. Our operating cash needs, cash consumption, and doubt as to whether we will ever become profitable, are factors which raise substantial doubt as to our ability to continue as a going concern. Consequently, our independent registered public accounting firm has included a going concern paragraph in its audit report which is included in our Annual Report on Form 10-K for our fiscal year ended June 30, 2014. It is uncertain at this time how the going concern language by our independent registered public accounting firm will affect our ability to raise capital. If we are unable to achieve revenues or obtain financing on terms and conditions acceptable to the Company, then we may not be able to commence revenue-generating operations or continue as an on-going concern.

The sale of our Class A Common Stock to Aspire Capital may cause substantial dilution to our existing stockholders and the sale of the shares of Class A Common Stock acquired by Aspire Capital could cause the price of our Class A Common Stock to decline, which could have a materially adverse effect on our business.

We have registered for sale the Commitment Shares that we have issued to Aspire Capital, and an additional 13,789,477 shares of Class A Common stock that we may sell to Aspire Capital under the Purchase Agreement. It is anticipated that shares registered in this offering will be sold over a period of up to approximately 36 months from October 25, 2013, the date of the signing of the Purchase Agreement. The number of shares ultimately offered for sale by Aspire Capital under this prospectus is dependent upon the number of shares we elect to sell to Aspire Capital under the Purchase Agreement. Depending upon market liquidity at the time, sales of shares of our Class A Common Stock under the Purchase Agreement may cause the trading price of our Class A Common Stock to decline.

During the period from October 25, 2013 to September 30, 2014, the Company had completed sales to Aspire totaling 5,900,000 shares of common stock generating gross proceeds of approximately $10.40 million. As of September 30, 2014, a balance of $9.60 million remains and is available under the financing arrangement. From October 1, 2014 to October 27, 2014, the Company has generated additional proceeds of approximately $1,914,000 under the Common Stock Purchase Agreement with Aspire from the sale 800,000 shares of its common stock.

Aspire Capital may ultimately purchase all, some or none of the Class A Common Stock that, together with the Commitment Shares, is the subject of this prospectus. Aspire Capital may sell all, some or none of our shares that it holds or comes to hold under the Purchase Agreement. Sales by Aspire Capital of shares acquired pursuant to the Purchase Agreement under the registration statement, of which this prospectus is a part, may result in dilution to the interests of other holders of our Class A Common Stock. The sale of a substantial number of shares of our Class A Common Stock by Aspire Capital in this offering, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. However, we have the right to control the timing and amount of sales of our shares to Aspire Capital, and the Purchase Agreement may be terminated by us at any time at our discretion without any penalty or cost to us.

All of our Polymedix drug product candidates are licensed from or based upon licenses from the University of Pennsylvania. Upon our purchase of the Polymedix Assets we assumed all contractual rights and obligations of the licenses. If any of these license agreements are terminated, our ability to advance our Polymedix product candidates or develop new product candidates will be materially adversely affected which could have a materially adverse effect on our business.

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

If we experience any of the foregoing, it could have a materially adverse effect on our business and could force us to cease operations which could cause you to lose all of your investment.

We are a development stage company and have no products approved for commercial sale, have never generated any revenues, and may never achieve revenues or profitability.

We are a development stage biopharmaceutical company. Currently, we have no products approved for commercial sale and, to date, we have not generated any revenues. Our ability to generate revenue depends heavily on:

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

We are a development stage company with a limited operating history, making it difficult for you to evaluate our business and your investment, and we may never generate any revenue which could cause us to cease operations.

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:

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:

Even if we successfully develop and market our drug candidates, we may not generate sufficient or sustainable revenue to achieve or sustain profitability, which could cause us to cease operations.

We have limited experience in drug development and may not be able to successfully develop any drugs. 

We have limited experience in drug development and may not be able to successfully develop any drugs. Our ability to achieve revenues and profitability in our business will depend, among other things, on our ability to:

If we are unable to achieve revenues and profitability, then we will be forced to cease operations which could cause you to lose all of your investment.

Development of pharmaceutical products is a time-consuming process, subject to a number of factors, many of which are outside of our control. Consequently, we can provide no assurance of the successful and timely development of new drugs, and the failure to do so could cause us to cease operations.

Our drug candidates are in developmental and phase 1 and 2 clinical stages but have not yet reached the most important clinical phase 3 stage. Further development and extensive testing will be required to determine their technical feasibility and commercial viability. Our success will depend on our ability to achieve scientific and technological advances and to translate such advances into reliable, commercially competitive drugs on a timely basis. Drugs that we may develop are not likely to be commercially available for several years, if ever. The proposed development schedules for our drug candidates may be affected by a variety of factors, including technological difficulties, proprietary technology of others, and changes in government regulation, many of which will not be within our control. Any delay in the development, introduction or marketing of our drug candidates could result either in such drugs being marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their commercial lives. In light of the long-term nature of our projects, the unproven technology involved and the other factors described elsewhere in “Risk Factors”, we may not be able to complete successfully the development or marketing of any of our drug candidates. 

We may fail to successfully develop and commercialize our drug candidates because they:

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

We must comply with significant and complex government regulations, compliance with which may delay or prevent the commercialization of our drug candidates which could have a materially adverse effect on our business.

The R&D, manufacture and marketing of drug candidates are subject to regulation, primarily by the FDA in the United States, and by comparable authorities in other countries. These national agencies and other federal, state, local and foreign entities regulate, among other things, R&D activities (including testing in animals and in humans) and the testing, manufacturing, handling, labeling, storage, record keeping, approval, advertising and promotion of the products that we are developing. Noncompliance with applicable requirements can result in various adverse consequences, including approval delays or refusals to approve drug licenses or other applications, suspension or termination of clinical investigations, revocation of approvals previously granted, fines, criminal prosecution, recalls or seizures of products, injunctions against shipping drugs and total or partial suspension of production and/or refusal to allow a company to enter into governmental supply contracts.

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:

If we do not have the requisite resources to comply with all applicable regulations, then we could be forced to cease operations which could cause you to lose all of your investment.

Even if we were to successfully develop approvable drugs, we will not be able to sell these drugs if we or our third party manufacturers fail to comply with manufacturing regulations. 

If we were to successfully develop approvable drugs, before we can begin selling these drugs, we must obtain regulatory approval of our cGMP manufacturing facility and process or the cGMP manufacturing facility and process of the third party or parties with whom we may outsource our manufacturing activities. The cGMP regulations govern quality control and documentation policies and procedures. Our manufacturing facilities, if any in the future, and the manufacturing facilities of our third party manufacturers will be continually subject to inspection by the FDA and other state, local and foreign regulatory authorities, before and after product approval. We cannot guarantee that we, or any potential third party manufacturer of our products, will be able to comply with the cGMP regulations or other applicable manufacturing regulations, and any failure to comply could have a materially adverse effect on our business.

We can provide no assurance that our drug candidates will obtain regulatory approval or that the results of clinical studies will be favorable, and if we fail to obtain such approval or if clinical studies are not favorable, we could be forced to cease operations.

Presently, we are in a Phase 1 clinical trial for Kevetrin, our anti-cancer drug; preparing for a Phase 2 study for Prurisol (anti-psoriasis); and a Phase 2b for Brilacidin (ABSSSI). The work-plan we have developed for the next twelve months should enable us to advance Kevetrin’s clinical trial to Phase 2; commence Phase 2 clinical trials for Prurisol; commence Phase 3 clinical trials for Brilacidin (ABSSSI); and commence Phase 2 for Brilacidin-OM (oral mucositis).

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

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

Even if we receive regulatory approval for our psoriasis product candidate Prurisol, we expect an approval to include a boxed warning regarding possible severe health risks and side effects. Products with boxed warnings are subject to more restrictive regulations than products without such warnings. Boxed restrictions would make it more difficult to market Prurisol, and the added regulation could require us to expend resources that we may not have which could delay or prevent commercialization of that product which could have a materially adverse effect on our business.

Even if we obtain regulatory approvals, our marketed drug candidates will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and foreign regulations, we could lose our approvals to market these drugs and our business would be seriously harmed.

Following any initial regulatory approval of any drugs we may develop, we will also be subject to continuing regulatory review, including the review of adverse experiences and clinical results that are reported after our drug candidates are made commercially available. This would include results from any post-marketing tests or vigilance required as a condition of approval. The manufacturer and manufacturing facilities we contract with to make any of our drug candidates will also be subject to periodic review and inspection by the FDA. The discovery of any previously unknown problems with the drug, manufacturer or facility may result in restrictions on the drug or manufacturer or facility, including withdrawal of the drug from the market. We do not have, and currently do not intend to develop, the ability to manufacture material for our clinical trials or on a commercial scale. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured drugs ourselves, including reliance on the third-party manufacturer for regulatory compliance. Our drug promotion and advertising is also subject to regulatory requirements and continuing FDA review. If we are required to withdraw all or more of our drugs from the market as a result of actions or inactions on the part of the Company or a third party, we may be unable to continue revenue generating operations which could cause you to lose all of your investment.

We have limited experience in conducting or supervising clinical trials and must outsource all clinical trials which expose us to risks which could have a materially adverse effect on our business.

We have acquired limited experience in conducting and supervising clinical trials that must be performed to obtain data to submit in concert with applications for approval by the FDA. The regulatory process to obtain approval for drugs for commercial sale involves numerous steps. Drugs are subjected to clinical trials that allow development of case studies to examine safety, efficacy, and other issues to ensure that sale of drugs meets the requirements set forth by various governmental agencies, including the FDA. In the event that our protocols do not meet standards set forth by the FDA, or that our data is not sufficient to allow such trials to validate our drugs in the face of such examination, we might not be able to meet the requirements that allow our drugs to be approved for sale, which could have a materially adverse effect on our business.

Because we have limited experience in conducting or supervising clinical trials, we outsource a significant amount of the work relating to our clinical trials to third parties. We have no control over their compliance with procedures and protocols used to complete clinical trials in accordance with standards required by the agencies that approve drugs for sale. If these subcontractors fail to meet these standards, the validation of our drugs would be adversely affected, causing a delay in our ability to engage in revenue-generating operations which could have a materially adverse effect on our business.

We are subject to risks inherent in conducting clinical trials. The risk of non compliance with FDA-approved good clinical practices by clinical investigators, clinical sites, or data management services could delay or prevent us from developing or ever commercializing our drug candidates, which could cause us to cease operations.

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

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

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

The Company is exposed to product liability, clinical and preclinical liability risks which could place a substantial financial burden upon the Company should it be sued.

The Company could be exposed to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical products. In addition, the use in the Company's clinical trials of pharmaceutical products that it may develop and the subsequent sale of these products by the Company or its potential collaborators may cause the Company to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against the Company could have a material adverse effect on its business, financial condition and results of operations.

The Company has $5,000,000 in liability insurance for our clinical trials. The Company cannot assure that such insurance will provide adequate coverage against the Company's potential liabilities. Claims or losses in excess of any product liability insurance coverage that may be obtained by the Company could have a material adverse effect on our business, financial condition and results of operations.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. Disclosure of our trade secrets or proprietary information could compromise any competitive advantage that we have, which could have a materially adverse effect on our business.

We depend upon confidentiality agreements with our officers, employees, consultants, and subcontractors to maintain the proprietary nature of the technology. These measures may not afford us sufficient or complete protection, and may not afford an adequate remedy in the event of an unauthorized disclosure of confidential information. In addition, others may independently develop technology similar to ours, otherwise avoiding the confidentiality agreements, or produce patents that would materially and adversely affect our business, prospects, financial condition, and results of operations.

We may be unable to obtain or protect intellectual property rights relating to our products, and we may be liable for infringing upon the intellectual property rights of others, which could have a materially adverse effect on our business.

Our ability to compete effectively will depend on our ability to maintain the proprietary nature of our compounds and the proprietary compounds of others with which we have entered into licensing agreements. We have filed two patent applications and expect to file a number of additional patent applications in the coming years. There can be no assurance that any of these patent applications will ultimately result in the issuance of a patent with respect to the proprietary compounds owned by us or licensed to us. The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the United States Patent and Trademark Office use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others. Further, we rely on a combination of trade secrets, know-how, technology and nondisclosure, and other contractual agreements and technical measures to protect our rights in the proprietary compounds. If any trade secret, know-how or other proprietary information and/or compounds not protected by a patent were to be disclosed to or independently developed by a competitor, our business and financial condition could be materially adversely affected.

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

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

Our potential collaborative relationships with third parties could cause us to expend significant resources and incur substantial business risk with no assurance of financial return, which could have a materially adverse effect on our business.

We may have to rely substantially upon strategic collaborations for marketing and the commercialization of our drug candidates, and we may rely even more on strategic collaborations for R&D of our other drug candidates. Our business will depend on our ability to sell drugs to both government agencies and to the general pharmaceutical market. We may have to sell our drugs through strategic partnerships with pharmaceutical companies. If we are unable to establish or manage such strategic collaborations on terms favorable to us in the future, our revenue and drug development may be limited. To date, we have not entered into any strategic collaboration with third parties capable of providing these services. In addition, we have not yet marketed or sold any of our drug candidates or entered into successful collaborations for these services in order to ultimately commercialize our drug candidates.

If we determine to enter into R&D collaborations during the early phases of drug development, our success will in part depend on the performance of our research collaborators. We will not directly control the amount or timing of resources devoted by our research collaborators to activities related to our drug candidates. Our research collaborators may not commit sufficient resources to our programs. If any research collaborator fails to commit sufficient resources, our preclinical or clinical development programs related to this collaboration could be delayed or terminated. Also, our collaborators may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. Finally, if we fail to make required milestone or royalty payments to our collaborators, or to observe other obligations in our agreements with them, our collaborators may have the right to terminate those agreements.

Management of our relationships with our collaborators will require:

Establishing strategic collaborations is difficult and time-consuming. Our discussion with potential collaborators may not lead to the establishment of collaborations on favorable terms, if at all. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. Even if we successfully establish new collaborations, these relationships may never result in the successful development or commercialization of our drug candidates or the generation of sales revenue. To the extent that we enter into collaborative arrangements, our drug revenues are likely to be lower than if we directly marketed and sold any drugs that we may develop. 

We may not be able to attract and retain highly skilled personnel or consultants, which could have a materially adverse effect on our business.

Our ability to attract and retain highly skilled personnel or consultants is critical to our operations and expansion. We face competition for these types of personnel from other pharmaceutical companies and more established organizations, many of which have significantly larger operations and greater financial, technical, human and other resources than us. We may not be successful in attracting and retaining qualified personnel or consultants on a timely basis, on competitive terms, or at all. If we are not successful in attracting and retaining these personnel or consultants, our business, prospects, financial condition and results of operations will be materially adversely affected.

We depend upon our senior management and their loss or unavailability could put us at a competitive disadvantage.

We currently depend upon the efforts and abilities of our management team. On December 29, 2010, the Company entered into employment agreements with its two executive officers, Leo Ehrlich, the Company’s Chief Executive and Financial Officer, and Krishna Menon, Chief Scientific Officer for a period of three years ending on December 31, 2013. On January 1, 2014, the Board of Directors of the Company approved an extension of the Employment Agreements with Leo Ehrlich and Krishna Menon for a one year period with a 10% increase in salary from the previous annual salary of $423,500 each, to an annual salary of $465,850.

In addition, on October 20, 2014 the Board of Directors approved the appointment of Dr. William James Alexander as the Chief Operations Officer of Cellceutix Corporation for the term of one year effective October 27, 2014 (“the Effective Date”).

Commencing on the Effective Date and ending on the six month anniversary of the Effective Date (the "Six Month Anniversary"), the Company shall pay Dr. Alexander at the per annum rate of $350,000. Commencing on the Six Month Anniversary and ending on the one year anniversary of the Effective Date (the "One Year Anniversary"), the Company shall pay the Executive at the per annum rate of $400,000.

Pursuant to his employment agreement, Dr. Alexander received immediately 50,000 shares of the Company's common stock, par value $0.0001per share ("Common Stock") as a sign on bonus and 50,000 stock options vesting during the next 12 months. The Company shall award Dr. Alexander an annual bonus at the sole discretion of the Board of Directors of the Company. The Company is not aware of any transaction requiring disclosure under Item 404(a) of Regulation S-K.

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:

In either of these cases:

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

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

The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of competition based primarily on scientific and technological factors. These factors include the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability to obtain government approval for testing, manufacturing and marketing.

We compete with biopharmaceutical firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many biopharmaceutical companies have focused their development efforts in the human therapeutics area, including cancer. Many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies. These companies, as well as academic institutions, government agencies and private research organizations, also compete with us in recruiting and retaining highly qualified scientific personnel and consultants. Our ability to compete successfully with other companies in the pharmaceutical field will also depend to a considerable degree on the continuing availability of capital on terms and conditions acceptable to us.

We are aware of numerous products under development or manufactured by competitors that are used for the prevention or treatment of certain diseases we have targeted for drug development. Various companies are developing biopharmaceutical products that potentially directly compete with our drug candidates even though their approach to such treatment is different.

For example, with respect to Kevetrin, our lead compound for cancer, there are many drugs approved to treat various cancers and many more in the publicly disclosed pipeline. Our success depends on our ability to identify tumor types where Kevetrin has an advantage over existing therapies and those in the publicly disclosed pipeline. The same is true for our compounds Prurisol and Brilacidin. Numerous drugs are already FDA approved for the treatment of psoriasis and ABSSSI.

Our competition will be determined in part by the potential indications for which drugs are developed and ultimately approved by regulatory authorities. Additionally, the timing of the market introduction of some of our potential drugs or of competitors' products may be an important competitive factor. Accordingly, the relative speed with which we can develop drugs, complete pre-clinical testing, clinical trials, approval processes and supply commercial quantities to market are important competitive factors. We expect that competition among drugs approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent protection.

The successful development of biopharmaceuticals is highly uncertain. A variety of factors including, pre-clinical study results or regulatory approvals, could cause us to abandon development of our drug candidates, which could also cause us to cease operations and you may lose your entire investment.

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:

Success in pre-clinical and early clinical studies does not ensure that large-scale clinical studies will be successful. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. The length of time necessary to complete clinical studies and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly from one product to the next, and may be difficult to predict or control.

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

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

Our Class A Common Stock is currently quoted on the OTC Bulletin Board. Consequently, the liquidity of our Class A Common Stock is impaired, not only in the number of shares that are bought and sold, but also through delays in the timing of transactions, and coverage by security analysts and the news media, if any, of our Company. As a result, prices for shares of our Class A Common Stock may be lower than might otherwise prevail if our Class A Common Stock was quoted and traded on NASDAQ or a national securities exchange.

Because our Class A Common Stock is considered "penny stock" you may have difficulty selling them in the secondary trading market.

Federal regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) regulate the trading of so-called "penny stocks," which are generally defined as any security not listed on a national securities exchange or NASDAQ, priced at less than $5.00 per share and offered by an issuer with limited net tangible assets and revenues. Since our Class A Common Stock currently is quoted on the OTC Bulletin Board at less than $5.00 per share, our shares are "penny stocks" and may not be traded unless a disclosure schedule explaining the penny stock market and the risks associated therewith is delivered to a potential purchaser prior to any trade. 

In addition, because our Class A Common Stock is not listed on NASDAQ or any national securities exchange and currently is quoted at and trades at less than $5.00 per share, trading in our Class A Common Stock is subject to Rule 15g-9 under the Exchange Act. Under this rule, broker-dealers must take certain steps prior to selling a "penny stock," which steps include:

If these penny stock rules are not followed by the broker-dealer, the investor has no obligation to purchase the shares. The application of these comprehensive rules will make it more difficult for broker-dealers to sell our Class A Common Stock and our stockholders, therefore, may have difficulty in selling their shares in the secondary trading market. 

Our stock price may be volatile and your investment in our Class A Common Stock could suffer a decline in value.

As of October 24, 2014, the closing price of our Class A Common Stock, as quoted on the OTC Bulletin Board, was $3.38. The price may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include:

Our directors and executive officers own or control a sufficient number of shares of our Class A Common Stock to control our Company, which could discourage or prevent a takeover, even if an acquisition would be beneficial to our stockholders.

At October 24, 2014, our directors and executive officers own or control approximately 28.39% of our outstanding voting power of Class A Common Stock. Accordingly, these stockholders, individually and as a group, may be able to influence the outcome of stockholder votes, involving votes concerning the election of directors, the adoption or amendment of provisions in our Articles of Incorporation and bylaws and the approval of certain mergers or other similar transactions, such as sales of substantially all of our assets. Such control by existing stockholders could have the effect of delaying, deferring or preventing a change in control of our Company.

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

Our Class B common stock entitles holders to ten votes per share on all matters submitted to a vote of our stockholders and our Class A Common Stock entitles holders to one vote per share on all matters submitted to a vote of our stockholders. Dr. Menon and Mr. Ehrlich each have vested options that they can exercise and convert into 18,000,000 shares of Class B common stock. That alone could result in the equivalent of 360,000,000 votes of Class A Common Stock. As of October 24, 2014 we had 114,237,129 shares of Class A Common Stock outstanding and no shares of Class B common stock outstanding. Because of the ten-to-one voting ratio between our Class B common stock and Class A Common Stock, upon exercise and conversion of such options into shares of Class B common stock, the Class B common stock holders can collectively control a majority of the combined voting power of our common stock (i.e., approximately 48.1%) and therefore be able to control all matters submitted to our stockholders for approval. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future.

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

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

We may issue additional equity shares to fund the Company's operational requirements which would dilute your share ownership.

The Company's continued viability depends on its ability to raise capital. Changes in economic, regulatory or competitive conditions may lead to cost increases. Management may also determine that it is in the best interest of the Company to develop new services or products. In any such case additional financing is required for the Company to meet its operational requirements. There can be no assurances that the Company will be able to obtain such financing on terms acceptable to the Company and at times required by the Company, if at all. In such event, the Company may be required to materially alter its business plan or curtail all or a part of its operational plans. See previous Risk titled, “The sale of our Class A Common Stock to Aspire Capital may cause substantial dilution to our existing stockholders and the sale of the shares of Class A Common Stock acquired by Aspire Capital could cause the price of our Class A Common Stock to decline, which could have a materially adverse effect on our business.”

Large amounts of our Class A Common Stock will be eligible for resale under Rule 144.

As of October 24, 2014, 38,995,162 of the 114,237,129 outstanding shares of our Class A Common Stock are restricted securities as defined under Rule 144 of the Securities Act and under certain circumstances may be resold without registration pursuant to Rule 144.

6,559,564 shares of our restricted shares of Class A Common Stock are held by non-affiliates who may avail themselves of the public information requirements and sell their shares in accordance with Rule 144. As a result, some or all of these shares may be sold in accordance with Rule 144 potentially causing the price of the Company's shares to decline.

In general, under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a six-month holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of Class A Common Stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate, as such term is defined in Rule 144(a)(1), of the Company and who has satisfied a one-year holding period. Any substantial sale of the Company's Class A Common Stock pursuant to Rule 144 may have an adverse effect on the market price of the Class A Common Stock.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a) Exhibit index

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

(b) Reports on Form 8-K

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.

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