Citius Pharmaceuticals, Inc. - Annual Report: 2015 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission File Number 333-170781

63 Great Road, Maynard, MA 01754

(Address of principal executive offices) (Zip Code)

(978) 938-0338

(Registrant's telephone number, including area code)

__________________________________________

(Former name and address, if changed since last report)

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, par value $0.001 per share

(Title or Class)

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

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

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 of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. x Yes o No

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

The aggregate market value of the voting and non-voting common equity held by non-affiliates* computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter (March 31, 2015) was $6,640,797.

* Affiliates for the purpose of this item refers to the issuer's officers and directors and/or any persons or firms (excluding those brokerage firms and/or clearing houses and/or depository companies holding issuer's securities as record holders only for their respective clienteles' beneficial interest) owning 10% or more of the issuer's Common Stock, both of record and beneficially.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

34,701,220 shares as of December 1, 2015, all of one class of common stock, $0.001 par value.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Citius Pharmaceuticals, Inc.

FORM 10-K

September 30, 2015

TABLE OF CONTENTS

 EXPLANATORY NOTE

In this annual report on Form 10-K, and unless the context otherwise requires the "Company," "we," "us" and "our" refer to Citius Pharmaceuticals, Inc. and its wholly owned subsidiary, Citius Pharmaceuticals, LLC, taken as a whole.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains "forward-looking statements." Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors discussed from time to time in this report, including the risks described under Item 1A - "Risk Factors," and Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to:

Any forward-looking statements speak only as of the date on which they are made, and except as may be required under applicable securities laws; we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the filing date of this report. 

PART I

ITEM 1. BUSINESS

Overview

The Company was formed in the state of Nevada on September 9, 2010 as Trail One, Inc. On September 12, 2014, we entered into a Share Exchange and Reorganization Agreement (the "Exchange Agreement"), among Trail One, Inc., Citius Pharmaceuticals, LLC, a Massachusetts limited liability company ("Citius"), and the beneficial holders of the membership interests of Citius (the "Citius Stockholders"). On September 12, 2014, Trail One, Inc. had no assets, no liabilities, and 5,000,000 shares of issued and outstanding common stock.

Pursuant to the Exchange Agreement, (i) Trail One, Inc. issued 21,625,219 shares of common stock to the Citius Stockholders, which represented approximately 72.0% of the outstanding shares of common stock following the closing of the Exchange Agreement (the "Reverse Acquisition") and the first closing of the Private Offering described below. The Trail One, Inc. existing shareholders before the Reverse Acquisition and the first closing of the Private Offering owned 5,000,000 shares of common stock or 16.7% of the outstanding shares of common stock following the closing of the Exchange Agreement.

In connection with the Exchange Agreement, on September 12, 2014, we sold 3,400,067 Units for a purchase price of $0.60 per Unit, each Unit consisting of one share of common stock and one five-year warrant (the "Investor Warrants") to purchase one share of common stock at an exercise price of $0.60, (the "September 2014 Private Offering"). As of September 12, 2014, we raised gross proceeds of $2,040,040. Between March 19, 2015 and September 30, 2015, we issued an aggregate of 2,837,037 Units for a purchase price of $0.54 per Unit and an aggregate of 200,000 Units for a purchase price of $0.60 per Unit. The exercise price of the Investor Warrants is subject to adjustment, for up to one year from the issuance date, in the event that we sell common stock at a price lower than the exercise price, subject to certain exceptions. The Investor Warrants are redeemable by us at a price of $0.001 per Investor Warrant at any time subject to the conditions that (i) our Common Stock has traded for twenty (20) consecutive trading days with a closing price of at least $1.50 per share with an average trading volume of 50,000 shares per day and (ii) we provide twenty (20) trading days prior notice of the redemption and the closing price of our Common Stock is not less than $1.17 for more than any three (3) days during such notice period and (iii) the underlying shares of Common Stock are registered for resale.

Prior to the Reverse Acquisition, our business plan was to manufacture TOCNC Tags, which were personalized/customized license plates for customers who want one of a kind luxury car jewelry to uniquely define them and to offer a sense of identification privacy at public events such as car shows, photo shoots, auto clubs, and other public venues. We are no longer pursuing this line of business.

On September 12, 2014, Citius became a wholly-owned subsidiary of the Company. The acquisition of Citius is treated as a "reverse merger" and the business of Citius, as described below, became our business. Citius is deemed to be the accounting acquirer. In connection with the Reverse Acquisition, we adopted the fiscal year end of Trail One, Inc. thereby changing our fiscal year end from December 31 to September 30. In addition on September 12, 2014, Trail One, Inc. changed its name to Citius Pharmaceuticals, Inc.

References to "we," "us," "our" and similar words refer to the Company and its wholly owned subsidiary Citius, taken as a whole. References to "Trail One" refer to the Company and its business prior to the Reverse Acquisition.

Summary of Citius Pharmaceuticals' Business

Citius Pharmaceuticals, LLC, founded on January 23, 2007 as a Massachusetts limited liability company is a specialty pharmaceutical company dedicated to the development and commercialization of therapeutic products for large and growing markets using innovative, patented or proprietary formulations and modified drug delivery technology. We seek new and expanded indications for previously approved pharmaceutical products as a means to achieving differentiated market positions or market exclusivity. Our goal is to build a successful pharmaceutical company through the development and commercialization of low-risk, innovative, efficacious and cost-effective products that address compelling market opportunities.

We seek to achieve our business objectives by utilizing the U.S. Food and Drug Administration's, or FDA's, 505(b)(2) pathway for our new drug approvals. We believe this pathway is faster, has lower risk and is less expensive than the FDA's traditional new drug approval pathway. Although this pathway is less risky and less expensive compared to developing newly discovered drugs, we believe that development, clinical trials and FDA filing fees for our hydrocortisone and lidocaine combination product will require $20 million of additional capital. Following the Company's year-end and the release of its financial statements, the Company's Chief Executive Officer and President, Leonard Mazur, anticipates meeting with investment banking firms and certain other investors to raise additional capital to fund the Company's research and development efforts; however, there can be no assurance that the Company will be able to obtain financing or anticipate the terms of such financing. In addition to focusing on new drug approvals, we focus on obtaining intellectual property protection with the objective of listing relevant patents in the FDA Orange Book in order to limit generic competition.

By using previously approved drugs with substantial safety and efficacy data already available, we seek to reduce the risks associated with pharmaceutical product development. We have already successfully employed this strategy to obtain FDA approval for Suprenza, our approved and marketed product for the treatment of obesity. We also plan to utilize this strategy to seek approval for other new drug product candidates for obesity. We also have a development candidate completing Phase 2 trials for the treatment of hemorrhoids. In addition, we are developing a topical cream product containing both hydrocortisone and lidocaine for the treatment of mild to moderate hemorrhoids. We have recently completed dosing 200 patients with the topical cream product in a Phase 2a study and are waiting for results from that study. If our Phase 2a study is positive, we will conduct a Phase 2b study followed by Phase 3 studies. We will conduct additional non-clinical and human safety studies to support our New Drug Application ("NDA"). If all of our studies are positive, we anticipate filing the NDA three to four years from the date of this Annual Report. Although both hydrocortisone and lidocaine are FDA approved drugs, we will not be permitted to market our product candidates in the United States until we receive approval from the FDA of our NDA. We believe the markets for obesity and hemorrhoid treatments are both large and underserved by innovative, efficacious and cost-effective new products. The U.S. Centers for Disease Control, or CDC, estimates that more than 35% of U.S. adult men and women, or approximately 78 million U.S. adults, were obese in 2009-2010. In addition, it is estimated that hemorrhoids affect nearly 5% of the U.S. population, with approximately 10 million persons annually reporting to be suffering from the symptoms of hemorrhoidal disease.

Since inception, we have focused on product development, have not generated any revenues and incurred losses in each period of our operations, and we expect to continue to incur losses for the foreseeable future. As of September 30, 2015, our accumulated deficit was $9,040,549 and our capital working deficit was $640,614. These losses are likely to continue to adversely affect our working capital, total assets and shareholders' deficit, and are attributable to the process of developing our products which requires significant clinical, development and laboratory testing and clinical trials. In addition, commercialization of our product candidates will require that we obtain necessary regulatory approvals and establish sales, marketing and manufacturing capabilities, either through internal hiring or through contractual relationships with third parties. Due to our financial condition, our independent registered accountants have indicated, in their report for the year ended September 30, 2015, that there is substantial doubt about our ability to continue as a going concern. All the aforementioned factors may have a material, adverse effect on our ability to raise additional capital.

In November 2011, the Company entered into an agreement with Prenzamax LLC ("Prenzamax") pursuant to which the Company granted Prenzamax an exclusive, royalty-bearing, transferable license to use and sell Suprenza in the United States and to manufacture or have Suprenza manufactured by third parties for subsequent sale in the United States (the "Exclusive License Agreement"). Prenzamax is a specialty pharmaceutical company focused on providing innovative and advanced ethical prescription medications which have differential and therapeutically meaningful advantages to health care professionals and their patients. Prenzamax is an affiliate of Akrimax LLC ("Akrimax"), a privately-held pharmaceutical company which acquires and develops and markets advanced ethical prescription medications. Prenzamax was formed for the purpose of managing the license granted pursuant to the Exclusive License Agreement. Pursuant to the terms of the Exclusive License Agreement, Prenzamax purchases Suprenza from our manufacturer, Alpex Pharma S.A., and is responsible for arranging import and custom requirements. Once Suprenza is in the U.S., it is delivered to Prenzamax's third party logistics provider for warehousing, order processing and shipping to the end customers. Prenzamax is responsible for all costs related to manufacturing, warehousing and distribution. In addition, Prenzamax is also solely responsible for the sales and marketing costs associated with Suprenza. These costs include, but are not limited to, preparation of marketing materials such as brochures and electronic media as well as other advertising and promotional costs including providing samples of Suprenza to physicians and patients. A major cost component for Prenzamax is sales force salaries, training and travel expenses. Akrimax has agreed to act as a guarantor of Prenzamax's obligations owed to the Company pursuant to the Exclusive License Agreement. Specifically, the Exclusive License Agreement provides that Akrimax unconditionally guarantees the full and prompt performance of all obligations of Prenzamax pursuant to the terms and conditions of the Exclusive License Agreement, including the payment of all amounts that become due and payable by Prenzamax. In addition, Akrimax prepares estimates of time and costs with respect to selling Suprenza and allocates those costs to calculate the Product EBITDA. Product EBITDA is defined as Sales less the Cost of Goods sold, Marketing Expenses and regulatory expenses. All terms which are not defined herein are defined in the Exclusive License Agreement by and between Citius and Prenzamax dated November 15, 2011 which has been filed with the SEC.

Since the launch of Suprenza in 2012, Prenzamax has been unable to generate revenues sufficient to cover its costs and generate profits. Costs include, but are not limited to, the cost of goods from Alpex, FDA facility and product fees, the cost of marketing materials including samples provided to physicians and patients and product literature and the cost of its sales force including travel and out of pocket expenses. These costs are significantly higher than revenue derived from the sale of Suprenza and therefore, Prenzamax has thus far been unable to generate profits from such sales. Based upon the revenue to cost ratio, we do not believe that we will receive any Profit Share Payments from Prenzamax in the foreseeable future. We anticipate that we will receive Profit Share Payments from Prenzamax at such time as the revenues generated from the sale of Suprenza exceed Prenzamax's costs associated with the sale of the product.

In addition, we have entered into an agreement with Alpex pursuant to which Alpex may use clinical data generated by the Company to file for regulatory approval in markets where we are not licensed to sell the product. If Alpex sells the product directly to such markets, we shall receive thirteen percent (13%) of the net sales as royalty; provided, however, if Alpex does not market the product in such markets and licenses the product to third parties for resale, we shall receive twenty five percent (25%) of the net sales as royalty. Pursuant to the Exclusive License Agreement with Prenzamax, we are required to pay Prenzamax thirty five percent (35%) of the royalty payments which we receive from Alpex. To date, we have not received any payments from Alpex pursuant to the agreement because Alpex has not filed for regulatory approval in any countries, and we do not anticipate that Alpex will file for such approval in the near future.

After we received approval and launched Suprenza in 2012, we planned to make improvements to our Suprenza formulation. In addition, we planned to use profits generated from the sale of Suprenza for the development and clinical testing program. However, sales of Suprenza have so far been minimal and we have been unable to obtain sufficient funding and therefore, currently, we suspended our plans for the next generation of Suprenza. Currently, we are only developing our hemorrhoid treatment product.

As a condition to obtaining approval for Suprenza, the FDA required us to conduct a post-marketing study on the pharmacokinectic, or PK, parameters of Suprenza ODT in subjects with renal impairment. Drug exposure increases can be expected in patients with renal impairment who are treated with phentermine. However, Suprenza ODT's pharmacokinetics has not been assessed in renal impaired patients. Since obesity can lead to renal failure, there exists a possibility that patients with mild or moderate renal failure may be prescribed Suprenza ODT. Therefore, it is important to assess the changes in the PK parameters of Suprenza ODT in patients with renal impairment. The primary endpoint of this study is the pharmacokinetic assessment of Suprenza ODT in renal impaired patients, and the results of this study would provide important new information to prescribing physicians regarding phentermine dosing and dose adjustments for these at-risk patients.

A clinical research organization has indicated that it will cost approximately $400,000 and 18 months to conduct the renal impairment study. Due to the limited current sales of Suprenza, we requested the FDA waive the renal PK study. In the FDA's letter dated August 28, 2015, the FDA notified us that our request to waive the study was denied because financial hardship was an inadequate reason to justify a waiver of the study. In addition, the FDA restated the FDA's concern that there is a signal of serious risk of increased drug exposure in patients with decreased renal function. If we fail to conduct the post-marketing renal PK study, the FDA may ask us to discontinue selling the product or impose other penalties which they deem suitable.

In general the FDA allows companies to continue selling their product while post-marketing studies are being conducted. Based upon limited sales and usage of our product, we intend to reapply for a waiver of the post-marketing study. However, there can be no assurance that the FDA will release us from such requirement. If our next request to waive the post-marketing studying is denied and we do not have sufficient funding to conduct the study, we will likely discontinue the sale of Suprenza. If we receive sufficient funding and determine to proceed with the renal impairment study, and the results of such study demonstrate safety concerns, we may have to add additional disclosures to our label or alternatively, discontinue the sale of the product.

The co-founder and vice Chairman of Akrimax is Leonard Mazur who is our President, Chief Executive Officer and Chief Operating Officer. Pursuant to the terms of the license agreement, Prenzamax will be solely responsible for the pricing of Suprenza and will have the option to participate in the future development program of Suprenza which may result in a conflict of interest. Although Mr. Mazur does not have any direct management role in Akrimax or Prenzamax, there can be no assurance that Prenzamax will conduct its business affairs in a manner which is beneficial to our company.

Our Strategy

Our goal is to build a successful pharmaceutical company through the development and commercialization of low-risk, innovative, efficacious and cost-effective products that address compelling market opportunities. We will seek to achieve this goal by:

The FDA's 505(b)(2) New Drug Application Approval Pathway

The FDA's 505(b)(2) New Drug Application, or NDA, approval pathway can be utilized for a wide range of products, especially for those that represent a limited change from a previously approved drug. Further, there are compelling commercial benefits, such as the availability of three years of market exclusivity, to employing a 505(b)(2) regulatory strategy. Depending on the extent of the changes to the previously approved drug and the type of clinical data included in the NDA, the FDA may also grant pediatric exclusivity and orphan drug status. The 505(b)(2) approval pathway was designed by the FDA to encourage innovation while eliminating costly and time-consuming duplicative clinical studies.

The following are examples of changes to approved drugs which would be appropriate to submit as 505(b)(2) applications:

For some products, FDA's Reference Listed Drug, or RLD, can be relied upon for most of the safety and efficacy information; however, products that were approved with no or limited clinical trials and efficacy studies, and more importantly, those non FDA-approved prescription products that rely on the FDA's Drug Efficacy Study Implementation, or DESI, route to market are subject to various additional pre-clinical, clinical and safety studies.

Our Marketed Product and New Product Candidates

We recently completed dosing patients in a double blind placebo controlled Phase 2 study where we tested six different formulations containing hydrocortisone and lidocaine in various strengths against placebo. There is no assurance that the results of this study will be positive. However, in the event that we obtain positive results, our next step will be to conduct a Phase 2b study to demonstrate efficacy contribution of the two active drugs. This study may require approximately 400 patients, could cost approximately $4.0 million and will require one year to complete. Assuming that the results of this study are positive, we would begin a Phase 3 efficacy study in approximately 600 to 800 patients. The Phase 3 study is the most time consuming study, and we anticipate that it will take approximately 18 months to complete and could cost approximately $8.0 million. Assuming that the Phase 3 study is positive, we intend to conduct several other supporting studies which could cost approximately $3 to $4 million. Since both hydrocortisone and lidocaine are FDA approved drugs, the FDA has permitted us to conduct some of the supporting studies concurrently with the Phase 3 study. In addition to the supporting studies conducted concurrently with the Phase 3 study, other supporting studies may require six months to complete after the completion of the Phase 3 study. If all data results are positive, we anticipate being able to file a New Drug Application in three to four years.

Licensing agreement with Prenzamax LLC

In November 2011, we granted an exclusive license for sales and marketing of Suprenza to Prenzamax LLC, a specialty pharmaceutical company focused on providing innovative and advanced ethical prescription medications which have differential and therapeutically meaningful advantages to health care professionals and their patients. Prenzamax is an affiliate of Akrimax and was formed for the specific purpose of managing the Citius and Suprenza agreement.

Akrimax, founded in 2008, is a privately-held pharmaceutical company, which acquires, develops and markets advanced ethical prescription medications. The management team at Akrimax has extensive industry experience in identifying and developing innovative therapies to help health care professionals improve the lives of their patients. Akrimax has experienced rapid growth in sales due to its attractive product line, highly experienced management team, dedicated sales force and innovative marketing techniques. Akrimax has launched several successful branded generic products which are marketed to physicians by a trained team of sales representatives. In order to bring the best treatments to patients, Akrimax continuously evaluates opportunities to partner with other organizations that strive to improve patient care. With a proven track record of brand growth and success at Akrimax, it seeks and evaluates opportunities to in-license and/or acquire products in a variety of therapeutic areas including:

Akrimax and Prenzamax are majority owned by common investors and are therefore considered affiliates. Both Prenzamax and Akrimax have jointly agreed to the terms of performance on the agreement. Any reference to Prenzamax in this discussion also refers to Akrimax and vice versa.

Terms of the license

In November 2011, Citius granted Prenzamax an exclusive, royalty-bearing, transferable license to use and sell Suprenza in the United States and to manufacture or have Suprenza manufactured by third parties for subsequent sale in the United States (the "License"). Prenzamax and its affiliates have the right to sublicense any of the rights granted in this agreement to contract manufacturers, distributors, co-promotion partners, contract sales organizations and other service providers assisting Prenzamax in the commercialization of Suprenza. If Prenzamax or its affiliates grants any such sublicense to a co-promotion partner, it will remain an active participant in the promotion and marketing of the products, and will ensure that the economic return to Citius under this Agreement is the same as if Prenzamax was promoting the product without such co-promotion partner.

All terms which are not defined herein are defined in the Exclusive License Agreement by and between Citius and Prenzamax dated November 15, 2011 which is on file with the SEC.

Pursuant to the terms of the license agreement, Prenzamax shall pay to Citius fifty percent (50%) of the Product EBITDA generated during each Fiscal Quarter during the Term (the "Profit Share Payments"). Each Profit Share Payment shall be accompanied by the Profit Share Statement. Profit Share Payments shall be subject to certain offsets, shall be made on a quarterly basis and shall be paid no later than 45 days following the end of each Fiscal Quarter.

"Product EBITDA" means Product Net Sales, less the following amounts incurred by Licensee or its Affiliates (in each case as calculated by Licensee and its Affiliates in accordance with GAAP, as consistently applied):

(i) Cost of Goods of such Product;

(ii) Selling Expenses;

(iii) Marketing Expenses;

(iv) fees paid to third party distributors, third party logistics providers and shippers (such as shipping to and from wholesalers) and other distribution costs, in each case to the extent related to Product and actually paid by Licensee or its Affiliates;

(v) the amount of FDA fees paid by Licensee as well as any other costs (including, but not limited to, governmental fees and attorney and consultant costs) incurred in connection with obtaining and maintaining any Regulatory Filings and Approvals;

(vi) Development Costs;

(vii) any costs incurred in connection with the prosecution, maintenance, defense or enforcement of any of the Licensed Intellectual Property;

(viii) that portion of any Alpex Royalty paid by Licensee, and any other royalty payments that may be paid by Licensee or its Affiliates in connection with the Product; and

(ix) any costs incurred in connection with the qualification of an alternate manufacturing facility (i.e., other than Alpex) for the Product (including, but not limited to, any fees charged by the Alternate Manufacturing Facility or Licensee's other third party vendors in connection with the qualification of an alternate manufacturing facility).

In addition, the License provides for Development Cost Reimbursement which Prenzamax shall pay to Citius in equal quarterly installments of $115,152 over the course of twelve Fiscal Quarters, starting with the first Fiscal Quarter after the Profitability Date. "Profitability Date" means the date on which four Profit Share Payments have been made to Citius for any four Fiscal Quarters (whether or not such Fiscal Quarters are consecutive). Each installment shall be paid no later than 45 days following the end of each such Fiscal Quarter.

Royalty Payments to Alpex.

Pursuant to the terms of the license agreement, Prenzamax purchases Suprenza from our manufacturer, Alpex S.A. and is responsible for arranging import and custom requirements. Once the product is in the U.S. it is delivered to Prenzamax's third party logistics provider for warehousing, order processing and shipping to the end customers. Prenzamax is responsible for all costs associated with manufacturing, warehousing and distribution. In addition, Prenzamax is also solely responsible for sales and marketing costs associated with Suprenza. These costs include, but are not limited to, preparation of marketing material such as brochures and electronic media as well as advertising and promotional costs including providing samples of products to physicians and patients. A major cost component for Prenzamax is sales force salaries, training and travel expenses. Prenzamax sales professionals call on cardiologists, endocrinologists, primary care physicians and bariatric or weight loss management physicians. None of the sales people are exclusive to any product or physician specialty but are cross trained to sell all of Akrimax's products. Akrimax prepares estimates of time and costs incurred in selling Suprenza and allocates those costs to calculate the Product EBITDA. Product EBITDA is defined as Sales less the Cost of Goods sold, Marketing Expenses and regulatory expenses.

The Company and Akrimax shall each pay fifty percent (50%) of the cost of goods per Suprenza tablet that Alpex or a third party manufactures. In the event tablets are manufactured by a third party, Alpex shall not be entitled to receive any payments for the cost of goods; provided, however, Alpex shall receive a royalty payment in the amount of eight percent (8%) of net sales. In addition, Prenzamax and the Company shall each be responsible for fifty percent (50%) of the royalty due to Alpex.

The Company has the right to market Suprenza in the Territory and Alpex has the right to market Suprenza outside the Territory (defined hereafter) and use clinical data generated by the Company to file for regulatory approvals in markets where the Company is not licensed to sell the Product. Territory means the United States (including all of its states, territories and possessions), Canada and Mexico. We have been granted an exclusive license by Alpex to the Alpex intellectual property defined in our agreement as Alpex patents and Alpex know-how as it applies to our product (the "Alpex IP").We pay royalties to Alpex for the use of the Alpex IP. Upon expiration of the patent and discontinued use of the Alpex IP, including when such Alpex IP comes into the public domain and becomes freely available to us and the public, we will stop paying royalties to Alpex. The Agreement by and between the Company and Alpex shall terminate upon the earlier of (i) July 23, 2018, the date upon which the patent expires and (ii) the discontinued use of the Alpex IP, including when such Alpex IP comes into the public domain.

In addition, we have entered into an agreement with Alpex pursuant to which Alpex may use clinical data generated by the Company to file for regulatory approval in markets where we are not licensed to sell the product. If Alpex sells the product directly to such markets, we shall receive from Alpex thirteen percent (13%) of the net sales as a royalty; provided, however, if Alpex does not market the product in such markets and instead licenses the product to third parties for resale, we shall receive twenty five percent (25%) of the net sales as a royalty.

In the event that Alpex licenses the product to third parties (the "Sublicensee"), we shall first receive our out of pocket cost related to the development, clinical studies, regulatory filings and incidental expenses related to obtaining the regulatory approvals for the Products. Out of pocket costs shall not include salaries and General and Administrative costs incidental to operating the Company. After such costs are recovered, all payments received by Alpex from the Sublicensee after Alpex receives payment for the completion of milestones shall be apportioned as follows: seventy-five percent (75%) of payments shall be paid to Alpex and twenty-five percent (25%) of payments shall be paid to the Company. A milestone is generally understood as a completion of a specific defined task towards the completion of a project or performance of a contract. For example, pursuant to our agreement with Alpex, we are required to pay Alpex for the completion of certain tasks including, but not limited to, the development of the analytical methods, formulations and filings of the NDA.

Pursuant to the Exclusive License Agreement with Prenzamax, we are required to pay Prenzamax thirty five percent (35%) of the royalty payments which we receive from Alpex. To date, we have not received any payments from Alpex pursuant to the agreement because Alpex has not filed for regulatory approval in any countries, and we do not anticipate that Alpex will file for such approval in the near future. Akrimax has the right to determine the sale price of Suprenza in its sole and absolute discretion. Neither the Company nor Alpex have any discretion with respect to the sale price of Suprenza.

Improvements and follow-on products

We intend to improve on the Suprenza formulation and conduct additional studies to develop a superior formulation to the one currently employed by Suprenza. In our agreement with Prenzamax, we have outlined a pathway to achieve this. Specifically, we will provide an opportunity to Prenzamax to participate in the costs and share in the profits of the new formulation. Following is a brief description of the process we expect to undertake.

If Citius, alone or with or through any of its affiliates or a third party, desires to develop, market or sell any improved form of product containing phentermine we will present the proposal to Prenzamax. Prenzamax will then have a period of thirty (30) days from receipt of the proposal to notify us as to whether it is interested in participating in the performance and funding of the development work in exchange for access to commercialization rights. This is what is commonly known as a right of first refusal ("ROFR"). If Prenzamax is not interested in participating, or if it fails to timely notify Citius of its interest, then we will be permitted to proceed with such development and commercialization with commercial launch to be no earlier than four (4) years after the date that the proposal is submitted and Prenzamax shall have no right to participate in the development or commercialization of any new product and Prenzamax will have no right of access to or use of any data or materials generated in connection with such development work except for the right to submit such data to the Regulatory Authorities.

If Prenzamax timely notifies us of its interest in participating in the development work then we will negotiate our respective roles in such development work, including our respective commitment to provide funding for the performance of the work and our respective rights to commercialize any product. Unless otherwise agreed to by the Parties in writing we will each bear fifty percent (50%) of the development costs for the product and the product will be licensed on an exclusive basis to Prenzamax on the same terms and conditions (including sharing of EBITA on a 50-50 basis) as are set forth in this Licensing Agreement.

In the event that Prenzamax is not interested in the participation or we are unable to reach agreement on the terms of such participation, then we alone will be permitted to launch a follow-on product on or after the fourth (4^th) anniversary of the date of the proposal and Prenzamax shall have the right, to be exercised by written notice to Citius within three (3) months prior to such fourth (4^th) anniversary date, to terminate this Agreement, and to receive from Citius a payment equal to two (2) times the Product EBITDA for the most recent period of twelve (12) full calendar months ending prior to such fourth anniversary date.

We have been unable to obtain sufficient funding to conduct additional development activities on Suprenza. Because of our limited resources we have decided to focus on the development of the hemorrhoid product first. If we are unable to obtain additional funding in the near future we may not initiate any additional development activity on Suprenza.

Prevalence of Obesity

Obesity is a serious chronic disease condition that afflicts millions of people worldwide and often requires long-term or invasive treatment to promote and sustain weight loss. In the U.S., nationally representative survey data show that the prevalence of obesity has steadily increased over the past 30 years. In 1980, approximately 15% of the adult population in the U.S. was obese, defined as having a Body Mass Index, or BMI, greater than 30, based on data from the National Health and Nutrition Examination Survey, or NHANES. In the most recent NHANES, conducted for the period 2009 to 2010, over 78 million U.S. adult men and women, or over 35% of all U.S. adults, were classified as obese. In a separate study, the obesity prevalence trends from the NHANES data collected between the 1970s and 2004 were analyzed, and according to a report published in July 2008, it was estimated that by 2030, over 50% of the U.S. adult population will be obese.

The growing prevalence of obesity has increasingly been recognized as a significant public health problem. Comorbidities, which are life threatening conditions, associated with obesity which include heart disease, diabetes, cancer, breathing problems, arthritis and reproductive complications. According to the U.S. Department of Health and Human Services, or HHS, obese individuals have a 50% to 100% increased risk of premature death from all causes, as compared to individuals with healthy weights, and an estimated 300,000 deaths per year in the U.S. may be associated with obesity-related comorbidities. We believe there is a growing recognition within the medical community that obesity significantly exacerbates many other comorbidities and that obesity and its comorbidities cause significant added cost to the health care system. We further believe that more effective treatment of obesity may become an important cornerstone in managing its comorbidities.

Treatments for Obesity

Treatments for obesity consist of behavioral modification, pharmaceutical therapies and surgical interventions. Behavior modifications to diet and exercise are the preferred initial treatment in obesity according to the National Institutes of Health, or NIH; however, obese patients frequently drop out of behavioral modification programs, which typically results in weight regain. If pharmaceutical therapies are recommended, such recommendations are generally made after behavioral modification alone has failed. Bariatric surgery, including gastric bypass and gastric banding procedures, is employed in more extreme cases, typically for obese individuals with a BMI over 40. Surgery can be associated with significant side effects, potential complications including mortality, and substantial costs and recovery time.

Several pharmaceutical products have been approved for treating obesity in the U.S. Approved obesity drugs are generally prescribed for short-term use, with only a select few having been approved for longer-term maintenance therapy. Several older drugs, indicated for short-term administration, include phentermine, phendimetrazine, benzphetamine and diethylpropion. Of all the drugs used to treat obesity, phentermine is the most widely used. It was approved by the FDA in 1959 based on published clinical studies, not the rigorous double blinded clinical trials that are customary in modern day approvals. Despite a lack of clinical data, limited safety information included in the label, and a short-term therapy limitation, the use of phentermine has increased significantly in the past several years. This suggests that physicians are relying on the extensive safety and efficacy experience they have when prescribing the drug.

Our first product, Suprenza, is based on the generic molecule phentermine hydrochloride, a commonly used therapeutic drug for weight loss programs. Phentermine was first introduced in the United States to counter the widespread use of amphetamines which were commonly prescribed for weight loss, especially post pregnancy. Phentermine was found to be far less addictive than amphetamines, safe and equally efficacious and therefore was readily accepted as a standard treatment for obesity. It is currently approved in tablet (37.5 mg) and capsule (15 and 30 mg) dosage forms as a short-term adjunct (6-8 weeks) in a weight loss regimen. Phentermine is prescribed as an adjunct in weight reduction based on exercise, behavioral modification and caloric restriction in the management of exogenous obesity. In several cases, its good safety record and demonstrated effectiveness has led to longer use (10-12 weeks) in physician-directed weight loss programs. Although not approved for the general pediatric population, phentermine is also being used in adolescents. We conducted limited clinical testing of our formulation of Suprenza comparing it to the presently marketed generic formulations and we have demonstrated that Suprenza can be taken with or without water and with or without food. We believe these attributes, which are not offered by the generic formulations are important distinguishing factors making Suprenza an attractive choice.

Currently approved anti-obesity drugs include Xenical (orlistat), marketed by Roche, the over-the-counter version, Alli, marketed by GlaxoSmithKline, phentermine, in several dosage forms and strengths which are available from several generic manufacturers, Qsymia (a combination of topiramate and phentermine HCL) marketed by VIVUS, Inc. and BELVIQ (lorcaserin HCL) marketed by Eisai Inc. Xenical works by inhibiting lipase, thus preventing digestion and absorption of dietary fat in the gastrointestinal tract. MeridiaÒ (sibutramine) was previously marketed by Abbott Laboratories; however, in October 2010, Abbott Laboratories withdrew Meridia in the U.S. at the FDA's request. The FDA requested the withdrawal because they believed Meridia's risks were not justified compared with the modest weight loss that patients achieved on the drug. There are several drugs in development for obesity including an investigational drug candidate, Victoza, in Phase 3 clinical trials being developed by Novo Nordisk A/S and several other investigational drug candidates in Phase 2 clinical trials. Amylin Pharmaceuticals, Inc. announced that they have discontinued clinical activities in an ongoing Phase 2 study examining the safety and effectiveness of the investigational combination therapy pramlintide/metreleptin for the treatment of obesity.

Orexigen Therapeutics, Inc. submitted an NDA to the FDA for their investigational obesity drug candidate, Contrave (naltrexone sustained release/bupropion sustained release), which was approved by the FDA in early September 2014. In June 2012, the FDA approved Arena Pharmaceuticals Inc.'s drug, BELVIQ, for chronic weight management in adults who are obese or are overweight with at least one weight related comorbidity condition. BELVIQ may, in the future, be marketed outside of the United States. In July 2012, VIVUS, Inc.'s weight loss drug Qsymia was approved by the FDA, as an adjunct to a reduced-calorie diet and increased physical activity for chronic weight management in adult patients with an initial BMI of 30 or greater (obese), or 27 or greater (overweight) in the presence of at least one weight-related comorbidity, such as hypertension, type 2 diabetes mellitus or high cholesterol. Qsymia incorporates low doses of active ingredients from two previously approved drugs, phentermine and topiramate. Due to certain adverse events observed during the clinical trials, the FDA has imposed marketing restrictions on Qsymia.

Many of these drugs are, or if approved, will be marketed by pharmaceutical companies with substantially greater resources than us.

There are also surgical approaches to treat severe obesity that are becoming increasingly accepted and could become competing alternatives. Two of the most well established surgical procedures are gastric bypass surgery and adjustable gastric banding, or lap bands. In February 2011, the FDA approved the use of a lap band in patients with a BMI of 30 (reduced from 35) with co-morbidities. The lowering of the BMI requirement is likely to make more obese patients eligible for lap band surgery. A lap band is indicated for use in adult patients who have failed more conservative weight reduction alternatives, such as supervised diet, exercise and behavior modification programs. Patients who elect to have this surgery must make the commitment to accept significant changes in their eating habits for the rest of their lives. The potential impact on Suprenza and/or other weight loss pharmacotherapy is unknown. In addition, other potential approaches that utilize various implantable devices or surgical tools are in development. Some of these approaches are in late stage development and may be approved for marketing. If approved, the companies that market these drugs may have substantially greater resources than we have.

Background on Phentermine

Phentermine is approved by the FDA as an appetite suppressant to help reduce weight in obese patients when used short-term (a few weeks) and combined with exercise, diet, and behavioral modification. Based on its extensive clinical usage and relatively low cost, phentermine is considered by many clinicians in the field as the first line drug therapy for obesity. It is typically prescribed for individuals who are at increased medical risk because of their weight, and it works by helping to release certain chemicals in the brain that control appetite. It was approved by the FDA based on the published medical literature available prior to 1962, not on the basis of rigorous clinical safety and efficacy trials that are now generally required. Nevertheless, the safety and efficacy of phentermine has been confirmed in at least nine clinical trials with 2026 adult patients. In addition, its safety and efficacy in children has also been established, reported initially with a 91-patient trial in 1965 and confirmed in an 84-patient trial by another investigator in 1966. In 2004, FDA's Agency for Healthcare Research and Quality, or AHRQ, published an Evidence Report titled "Pharmacological and Surgical Treatment of Obesity." The AHRQ Study consisted of a pooled analysis of the above mentioned clinical trials and it determined that subjects treated with phentermine lost an average of 3.6 additional kilograms of weight compared to placebo (95% CI, 0.6 to 6.0). In assessing the effect on maintenance of weight loss, the authors reported that patients treated with phentermine maintained a "fairly large" weight loss compared to placebo (2.43 kg) after discontinuation of the drug. The authors also concluded that phentermine use, in addition to lifestyle interventions, resulted in a statistically significant, but modest, increase in weight loss. In this review, no side-effect or adverse-event data were reported. For all these reasons, we identified phentermine as the preferred anorectic drug to develop for our new orally disintegrating tablets and for additional formulations to follow.

Phentermine – Market Opportunity

Phentermine is predominantly prescribed by bariatric physicians, meaning physicians whose practice is centered on the causes, prevention, and treatment of obesity. The American Society of Bariatric Physicians, or ASBP, includes approximately 1,600 health care professionals as members, the majority of whom are family medicine, internal medicine or obstetrics and gynecology practitioners. According to IMS, a pharmaceutical industry pricing data collection company, for the twelve month period commencing September 1, 2013 and ending on August 31, 2014 there were 221.8 million tablets and capsules of phentermine of all strengths dispensed in the U.S. This compares to the 235.1 million total dosages dispensed during the twelve months ended August 31, 2015. Phentermine remains a popular choice of physicians, and we believe that a branded phentermine product with important competitive features is a product ideally suited for commercialization by a small specialty sales force.

Suprenza Brand Phentermine – Orally Disintegrating Tablets for Obesity

Suprenza, our first FDA-approved product, is an orally disintegrating tablet, or ODT, formulation of phentermine with several unique, patient-friendly features. Through clinical trials, we have demonstrated that Suprenza can be taken with or without water, with or without food and can be orally disintegrated or swallowed and still produce the same level of drug in the blood and therefore produce efficacy. These features make our Suprenza formulation patient friendly. We believe Suprenza has significant market potential due to these special features and due to the fact that phentermine is the most frequently prescribed drug for the treatment of obesity. We received FDA approval for two dosage strengths of Suprenza (15 and 30 mg) on June 13, 2011, and a third strength (37.5 mg) on March 27, 2012. In addition, U.S. Patent #6,149,938 for Suprenza's ODT formulation is listed in the FDA Orange Book, and one additional U.S. patent for our formulation is pending. There is no generic equivalent for Suprenza and, as a result, drug substitution is limited. We granted a license for the U.S. commercial sales of Suprenza to Prenzamax LLC in November 2011 and Prenzamax launched the 15 and 30 mg tablets nationally in April 2012 and launched the 37.5mg tablets in early 2013. Suprenza ODT was formulated and is manufactured for us by Alpex Pharma SA of Mezzovico, Switzerland.

Suprenza ODT Post-Marketing Studies

In connection with our NDA, we committed to conduct the following two post-marketing studies of Suprenza ODT:

Renal Pharmacokinetics Study

The FDA required that we study the pharmacokinetic, or PK, parameters of Suprenza ODT in subjects with renal impairement. Drug exposure increases can be expected in patients with renal impairment who are treated with phentermine. However, Suprenza ODT's pharmacokinetics has not been assessed in renal impaired patients. Since obesity can lead to renal failure, there exists a possibility that patients with mild or moderate renal failure may be prescribed Suprenza ODT. Therefore, it is important to assess the changes in the PK parameters of Suprenza ODT in patients with renal impairment. The primary endpoint of this study is the pharmacokinetic assessment of Suprenza ODT in renal impaired patients and results of this study will provide important new information to prescribing physicians regarding phentermine dosing and dose adjustments for these at-risk patients. We believe that this is the first such study of phentermine in renal compromised patients and may provide us with label claims and marketing advantages over competing phentermine products.

A clinical research organization has indicated that it will cost approximately $400,000 and 18 months to conduct the renal impairment study. Due to the limited current sales of Suprenza, we requested the FDA waive the renal PK study requirement. In the FDA's letter dated August 28, 2015, the FDA notified us that our request to waive the study was denied because financial hardship was an inadequate reason to justify a waiver of the study. In addition, the FDA restated the FDA's concern that there is a signal of serious risk of increased drug exposure in patients with decreased renal function. If we fail to conduct the post-marketing renal PK study, the FDA may ask us to discontinue selling the product or impose other penalties which they deem suitable.

In general the FDA allows companies to continue selling their product while post-marketing studies are being conducted. Based upon limited sales and usage of our product, we intend to reapply for a waiver of the post-marketing study. However, there can be no assurance that the FDA will release us from such requirement. If our next request to waive the post-marketing studying is denied and we do not have sufficient funding to conduct the study,we will likely discontinue the sale of Suprenza. If we receive sufficient funding and determine to proceed with the renal impairment study, and the results of such study demonstrate safety concerns, we may have to add additional disclosures to our label or alternatively, discontinue the sale of the product.

Drug Utilization Study

Phentermine is classified by the Drug Enforcement Administration, or DEA, as a Category IV controlled substance, the lowest category for addiction and abuse, as a result of its properties as a mild stimulant. Based on this classification, the FDA expressed concern regarding phentermine abuse and addiction. As part of our New Drug Approval, we committed to conducting a study of the annual use of Suprenza ODT for three years after product launch. However, upon further internal analysis, the FDA concluded that such a study is not necessary and informed us that we need not conduct this study.

Treatments for Hemorrhoids

Our next product is intended for the treatment of grade I and grade II hemorrhoids. We believe that there are no FDA-approved drug products for the treatment of grade I and grade II hemorrhoids. There are several OTC medications used to treat hemorrhoids including Preparation H cream, hydrocortisone creams in various strengths up to 1%, and Anusol suppositories and medicated wipes and pads. In addition, several companies manufacture and market higher, prescription strengths of hydrocortisone creams, gels, ointments and suppositories, lidocaine creams and gels, and combination creams containing hydrocortisone and lidocaine. AlavenÒ Pharmaceuticals LLC, now part of Meda Pharmaceuticals, Inc. manufactures and sells a combination product containing hydrocortisone and pramoxine which patients and physicians are utilizing for the treatment of hemorrhoids. This product has also not been approved by the FDA for the indication and claims contained in the product label.

To our knowledge, there are currently no FDA-approved drug products for the treatment of hemorrhoids. Some physicians are known to prescribe topical steroids, such as Anusol-HC, for the treatment of hemorrhoids. In addition, there are various strengths of topical combination prescription products containing hydrocortisone along with lidocaine or pramoxine, each a topical anesthetic, that are prescribed by physicians for the treatment of hemorrhoids. However, none of these single-agent or combination prescription products have been clinically evaluated for safety and efficacy and approved by the FDA for the treatment of hemorrhoids. Further, many hemorrhoid patients use OTC products as their first line therapy. OTC products, such as Preparation H, contain any one of several active ingredients including glycerin, phenylephrine, pramoxine, white petrolatum, shark liver oil and/or witch hazel, for symptomatic relief. No data are available regarding the clinical efficacy of these OTC symptomatic treatments for hemorrhoids.

There has been very limited research conducted on treatment of hemorrhoids and therefore there is very limited historical clinical trial protocols or outcomes information available to us to design our programs. The clinical end points in our studies will be subjective responses from patients as they perceive improvements or lack thereof in their symptoms. Such outcome trials have high variability and are also subject to site-to-site variability, making them more risky.

Development of Hemorrhoids Drugs

Hemorrhoids are a common gastrointestinal disorder, characterized by anal itching, pain, swelling, tenderness, bleeding and difficulty defecating. In the U.S., hemorrhoids affect nearly 5% of the population, with approximately 10 million persons annually admitting to having symptoms of hemorrhoidal disease. Of these persons, approximately one third visit a physician for evaluation and treatment of their hemorrhoids. The data also indicate that for both sexes a peak of prevalence occurs from age 45 to 65 years with a subsequent decrease after age 65 years. Caucasian populations are affected significantly more frequently than African Americans, and increased prevalence rates are associated with higher socioeconomic status in men but not women. Development of hemorrhoids before age 20 is unusual. In addition, between 50% and 90% of the general U.S., Canadian and European population will experience hemorrhoidal disease at least once in life. Although hemorrhoids and other anorectal diseases are not life-threatening, individual patients can suffer from agonizing symptoms which can limit social activities and have a negative impact on the quality of life.

Hemorrhoids are defined as internal or external according to their position relative to the dentate line. Classification is important for selecting the optimal treatment for an individual patient. Accordingly, physicians use the following grading system:

Topical Combination Prescription Hemorrhoid Products – Recent U.S. Prescription Data and Market Opportunity

The current market for topical DESI formulations of hydrocortisone and lidocaine is highly fragmented. Several topical combination prescription products for the treatment of hemorrhoids are available containing hydrocortisone in strengths ranging from 0.5% to 3.0%, combined with lidocaine in strengths ranging from 1.0% to 3.0%. The various topical formulations include creams, ointments, gels, lotions, enemas, pads, and suppositories. The most commonly prescribed topical combination gel, AnaMantleÒ, is sold as a branded generic product and contains 2.5% hydrocortisone and 3.0% lidocaine. According to IMS, over 25 million units of topical combination prescription products for hemorrhoids were sold in the U.S. during the twelve-month period ended June 2012 comprising an estimated $80 million annual market in the United States.

We believe that the development of an FDA-approved, topical combination prescription product for the treatment of grade I and II hemorrhoids represents an attractive, low-risk product opportunity with meaningful upside potential.

Hydrocortisone-Lidocaine Topical Combination Prescription Cream for Hemorrhoids

As discussed above, we believe there are no FDA-approved prescription therapies for grade I and II hemorrhoids. Although there are numerous prescription and OTC products commonly used to treat hemorrhoids, none possess proven safety and efficacy data generated from rigorously conducted clinical trials. We believe that a novel topical formulation of hydrocortisone and lidocaine designed to provide anti-inflammatory and anesthetic relief and which has an FDA-approved label specifically claiming the treatment of grade I and II hemorrhoids will become an important treatment option for physicians who want to provide their patients with a therapy that has demonstrated safety and efficacy in treating this uncomfortable and often recurring disease.

Development Activities to Date

Market Exclusivity

We believe that if we are the first company to conduct rigorous clinical trials and receive FDA approval of a topical hydrocortisone-lidocaine combination cream for the treatment of hemorrhoids, we will qualify for 3 years of market exclusivity for our dosage strength and formulation. In addition, we will also be the only product on the market specifically proven to be safe and effective for the treatment of hemorrhoids. Generally, if a company conducts clinical trials and receives FDA approval of a product for which there are similar, but non FDA-approved, prescription products on the market, the manufacturers of the unapproved but marketed products are required to withdraw them from the market. However, the FDA has significant latitude in determining how to enforce its regulatory powers in these circumstances. We have not had any communication with the FDA regarding this matter and cannot predict what action, if any, the FDA will take with respect to the unapproved products.

We believe that should our product receive an FDA approval and demonstrate, proven safety and efficacy data, and if our products obtain 3 years of market exclusivity based on our dosage strength and formulation, Citius is likely to have a meaningful advantage in its pursuit of achieving a significant position in the market for topical combination prescription products for the treatment of hemorrhoids.

Manufacturing

We do not currently have and we do not intend to set up our own manufacturing facilities. We expect to use approved contract manufacturers for manufacturing our products in all stages of development after we file for FDA approval. Each of our domestic and foreign contract manufacturing establishments, including any contract manufacturers we may decide to use, must be listed in the New Drug Application "NDA" and must be registered with the FDA. Also, the FDA imposes substantial annual fees on manufacturers of branded products. At present we and our partner, Prenzamax, have agreed to pay these costs equally.

Alpex Supply Agreement

In June of 2008, we entered into a development and supply agreement with Alpex Pharma SA ("Alpex"), of Mezzovico, Switzerland. Under the agreement, Alpex developed the formulations of Suprenza and is manufacturing and supplying the product to our marketing partner, Prenzamax LLC. In November 2011, the agreement was amended such that we now have the right to have Alpex transfer the technology to a third party for manufacture and supply of the product. Also, if Alpex fails to supply the product, we may use an alternate manufacturer for our supply of such products until Alpex is able to resume production.

The Alpex facility has been inspected by several regulatory agencies including the FDA for compliance with cGMP. Currently, Alpex is the primary manufacturer for Suprenza and has supplied sufficient quantities to meet the demand for our products to date.

IGI Laboratories Supply Agreement

IGI Laboratories, Inc. of Buena, New Jersey ("IGI"), a developer and manufacturer of prescription topical drugs for the development of hydrocortisone and lidocaine cream formulations, has expertise in developing topical products in a wide range of dosage forms, including topical solutions, creams, ointments and gels.

We received a quote from IGI to formulate various prototypes of our product for us to conduct Phase 2 studies. We accepted the terms and conditions defined in the quotation and IGI manufactured and developed prototypes of our product for Phase 2 studies. We have not entered into any other agreements with IGI. For our future needs, we may continue our relationship with IGI or we may seek a different manufacturer.

Sources and Availability of Raw Materials and Clinical Supplies

In general, our suppliers purchase raw materials and supplies on the open market. Substantially all such materials are obtainable from a number of sources so that the loss of any one source of supply would not have a material adverse effect on us. We have entered into a supply agreement with Alpex pursuant to which Alpex supplies us with the active pharmaceutical ingredient, or API, for phentermine hydrochloride. Alpex currently has one source of supply for API, Siegfried (USA), Inc., a U.S. based manufacturer ("Siegfried"). There are several other sources of phentermine hydrochloride API, and if Alpex is unable to obtain the API from Siegfried, it will have to qualify another source. Qualification of alternate source is costly and a time consuming process. Alpex generally maintains enough API on hand to meet our projected forecast for several months and we do not expect supply disruptions.

Compliance with Environmental Regulations

If we elect to conduct product development and manufacturing, we will be subject to regulation under various federal and state laws, including the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Controlled Substances Act and other present and potential future federal, state or local regulations.

Sales and Marketing

We are primarily focused on identifying medical needs and proposing product solutions that we believe offer superior benefits and additional safety and clinical information. Once we identify such needs and product concepts through market research, we sub-contract the drug formulation development work to companies specializing in drug development. We manage the regulatory process through product approval. As of now, we do not market our products ourselves. We have identified several specialty pharmaceutical companies with large sales forces, experienced sales and marketing management teams, significantly larger resources than ours, and non-competing product portfolios that we believe would make excellent sales and marketing partners for us and our existing and expected products. We intend to license our products to such companies for sales and marketing.

In November 2011, we entered into an exclusive license agreement with Prenzamax LLC ("Prenzamax"), pursuant to which we granted to Prenzamax a license for sales of Suprenza in the U.S. Prenzamax's performance of this agreement is guaranteed by Akrimax LLC ("Akrimax"), a specialty pharmaceuticals sales and marketing company. Akrimax has several branded and branded-generic products that are being sold to cardiologists, endocrinologists and general practitioners. Suprenza is sold by the Akrimax sales force which consists of approximately 40 sales and marketing professionals. The exclusive license agreement provides that all of the sales and marketing expenses will be incurred and borne by Prenzamax. Both we and Prenzamax will equally share the expenses related to FDA establishment fees, product fees and post-marketing studies and the resulting earnings will be shared equally by us and Prenzamax. The co-founder and Vice Chairman of Akrimax is Leonard Mazur, our Chief Executive Officer, President and Chief Operating Officer. See "Related Party Transactions".

Our agreement with Prenzamax also provides that we will offer them the opportunity to share costs of new product development. If Prenzamax offers to share in our development costs, we will negotiate the terms on which such investment from Prenzamax will be accepted by us. We have not made any decision regarding the terms we would offer Prenzamax in our future development program for Suprenza. There is no assurance that Prenzamax will participate in the cost of our development program. Also, we do not have any limitations or conditions on our second product candidate, hydrocortisone/lidocaine and we are not required to offer this product to either Prenzamax or any other third party for sales and marketing. We have not decided whether we will market our future products or elect to license their sales and marketing. We have very limited resources and management capabilities in managing pharmaceutical sales, and we cannot offer any assurance that our decision will necessarily result in the best possible financial return for our products.

Patents and Proprietary Rights

Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our current product candidates and any future product candidates both in the U.S. and abroad. However, patent protection may not provide us with complete protection against competitors who seek to circumvent our patents. To help protect our proprietary know-how, which is not patentable, and for inventions for which patents may be difficult to enforce, we currently rely and will in the future rely on trade secret protection and confidentiality agreements to protect our interests.

Our success depends in large part on our ability to protect our proprietary technologies, compounds and information, and to operate without infringing the proprietary rights of third parties. We rely on a combination of patent, trade secret, copyright, and trademark laws, as well as confidentiality, licensing and other agreements, to establish and protect our proprietary rights. There is no assurance that any of our patent applications will be granted, or that any of the patents will be enforceable or will cover a drug or other commercially significant product or method.

Because the time period from filing a patent application to the issuance, if ever, of the patent is often more than three years and because any regulatory approval and marketing for a drug often occurs several years after the related patent application is filed, the resulting market exclusivity afforded by any patent on our drug candidates and technologies will likely be substantially less than 20 years. In the United States, the European Union and some other jurisdictions, patent term extensions are available for certain delays in either patent office proceedings or marketing and regulatory approval processes. However, due to the specific requirements for obtaining these extensions, there is no assurance that our patents will be granted extensions even if we encounter significant delays in patent office proceedings or marketing and regulatory approval.

In addition to patent protection, we rely on trade secrets, proprietary know-how, and continuing technological advances to develop and maintain our competitive position. To maintain the confidentiality of our trade secrets and proprietary information, all of our employees are required to enter into and adhere to an employee confidentiality and invention assignment agreement, laboratory notebook policy, and invention disclosure procedures as a condition of employment. Additionally, our employee confidentiality and invention assignment agreements require that our employees not bring to us, or use without proper authorization, any third-party proprietary technology. We also require our consultants and collaborators that have access to proprietary property and information to execute confidentiality and invention rights agreements in our favor before beginning their relationship with us. While such arrangements are intended to enable us to better control the use and disclosure of our proprietary information and provide for our ownership of proprietary technology developed on our behalf, they may not provide us with meaningful protection for such property and technology in the event of unauthorized use or disclosure.

Suprenza Intellectual Property

Suprenza is based on the know-how, technology and intellectual property, including patents, owned by Alpex Pharma S.A. All of the intellectual property used for Suprenza is owned by Alpex and licensed to us pursuant to a licensing agreement. We do not generate any data or encounter discoveries that could be patented and have not filed and do not expect to file any patents with respect to Suprenza which will be owned by the Company. We are dependent on the ability and competence of Alpex and other third parties for the continued development of Suprenza. Suprenza is covered by the following issued and pending patents. We have listed the issued patent, U.S. #6,149,938, titled "Process for the preparation of a granulate suitable to the preparation of rapidly disintegrable mouth-soluble tablets and compositions obtained thereby" in the FDA's publication called "Approved Drug Products with Therapeutic Equivalence Evaluations" otherwise known as the "Orange Book". We also have a pending patent titled "Solid Dosage formulations containing weight-loss drugs" which, if granted, will be listed in the Orange Book. There is no assurance that additional patents will be granted, or if granted, that they will be enforceable.

Competition

We operate in a highly competitive and regulated industry which is subject to rapid and frequent changes. We face significant competition from organizations that are pursuing drugs that would compete with the drug candidates that we are developing and the same or similar products that target the same conditions we intend to treat. Due to our limited resources, we may not be able to compete successfully against these organizations, which include many large, well-financed and experienced pharmaceutical and biotechnology companies, as well as academic and research institutions and government agencies.

Government Regulation

Our activities are subject to the laws and regulations of multiple governmental authorities in the United States as well as in other countries in which our products may be tested or marketed. In the United States, prescription drug products are subject to extensive pre- and post-market regulation by the FDA, including regulations that govern the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising and promotion under the Federal Food, Drug, and Cosmetic Act, or FFDCA, and by comparable agencies and laws in foreign countries. We are also subject to other federal, state and local environmental and safety laws and regulations, including regulation of the use and care of laboratory animals. Failure to comply with applicable FDA or other requirements may result in civil or criminal penalties, recall or seizure of products, partial or total suspension of production or withdrawal of the product from the market.

Product Approval Process

The process required by the FDA before our drug candidates may be marketed in the United States generally involves the following:

Preclinical Testing

Preclinical tests include laboratory studies to evaluate toxicity in animals. The results of preclinical tests, together with manufacturing information and analytical data, are submitted as part of an Investigational New Drug application, or IND, to the FDA. Clinical testing also must satisfy extensive Good Clinical Practice, or GCP, regulations.

Clinical Trials

Clinical trials are typically conducted in the following sequential phases, which may overlap:

In addition some of our product candidates are combination prescription drugs. To test these products we will need to comply with the FDA's regulation that we show contribution of each active drug in the formulation and that the combination provides superior efficacy compared to individual drugs taken alone. This means that our clinical trials for our product candidates will need to evaluate the combination as compared to each component separately and to placebo.

New Drug Application

The results of product development, preclinical studies, manufacturing process and clinical trials are submitted to the FDA as part of an NDA. The cost of preparing and submitting an NDA is substantial. The Prescription Drug User Fee Act, requires the payment of user fees with the submission of NDAs, including 505(b)(2) NDAs. These application fees are substantial ($1,841,500 in the FDA's Fiscal Year 2012) and will likely increase in future years. Manufacturers and sponsors of approved drugs are subject to annual product and establishment fees of $520,100 per manufacturing establishment and $98,970 per product.

Upon completion of its review of the NDA, FDA issues an approval letter. If the FDA is not satisfied with the information provided in the application it issues a Complete Response Letter, or CRL. A complete response letter outlines the deficiencies in the submission and may require additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in 2 or 6 months depending on the type of information included.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require post-approval testing and surveillance to monitor the drug's safety or efficacy and may impose other conditions, including labeling restrictions which can materially affect the potential market and profitability of the drug. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Section 505(b)(2) New Drug Applications

As an alternate path to FDA approval for modifications to products previously approved by the FDA, an applicant may file an NDA under Section 505(b)(2) of the FFDCA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Act. This statutory provision permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The Hatch-Waxman Act permits the applicant to rely upon the FDA's findings of safety and effectiveness for previously approved products. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication for which the Section 505(b)(2) applicant has its own data.

Applications filed pursuant to Section 505(b)(2) are assessed by the FDA on a case by case basis. The application process commences upon a company submitting a Pre IND letter to the FDA outlining its program, objectives and the course of action to be taken. The FDA responds by scheduling a meeting and requesting an expanded briefing package which further summarizes our proposal. After receiving the package, the FDA schedules a meeting to discuss steps necessary to file the New Drug Application. This process takes up to six months and costs between $100,000 and $500,000. Although each product is unique and is assessed on a case by case basis, the following steps are typically required to achieve FDA approval:

The FDA requires companies to perform additional studies or measurements to support the change from the approved product. We submitted our initial NDA for Suprenza under Section 505(b)(2), based on bioequivalence studies which we conducted and safety information that has been collected for the approved drug product that is incorporated in this product candidate. To the extent that a Section 505(b)(2) application relies on the FDA's finding of safety and effectiveness of a previously-approved drug, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book. Specifically, the applicant must certify when the application is submitted that: (1) there is no patent information listed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid or will not be infringed by the manufacture, use or sale of the product. A certification that the new product will not infringe the already approved product's Orange Book listed patents or that such patents are invalid is called a paragraph IV certification. If the applicant has provided a paragraph IV certification to the FDA, the applicant must also send notice of the paragraph IV certification to the patent holder and the original NDA holder. In the event that the patent holder or NDA holder files a patent infringement lawsuit against the applicant within 45 days of its receipt of our paragraph IV notification, such lawsuit would automatically prevent the FDA from approving the applicant's Section 505(b)(2) NDA until the earliest of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the applicant. Any such patent infringement lawsuits could be costly, take a substantial amount of time to resolve and divert management resources.

Product approvals based on new clinical investigation are granted three years of Hatch-Waxman marketing exclusivity. Under this form of exclusivity, the FDA is precluded from approving a competing generic drug application or, in some cases, a competing 505(b)(2) application. However the FDA can accept and commence review of such applications during the three year exclusivity period and grant the approval concurrent with the expiration of the exclusivity period. Further, if another company obtains approval for either product candidate for the same indication we are studying before we do, our approval could be blocked until the other company's Hatch-Waxman marketing exclusivity expires.

Pediatric Information

Under the Pediatric Research Equity Act of 2003, or PREA, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. The Best Pharmaceuticals For Children Act, or BPCA, provides sponsors with an additional six (6) month period of market exclusivity on all forms of the drug containing the active ingredient, if the sponsor submits results of pediatric studies specifically requested by the FDA under BPCA. In order to receive the BPCA exclusivity, the drug must have other existing patent or exclusivity protection in effect.

Post-Approval Requirements

Once an NDA is approved, a product will be subject to certain post-approval requirements. We and our contract manufacturers are required to comply with applicable FDA manufacturing requirements contained in the FDA's cGMP regulations. cGMP regulations require, among other things, quality control, and quality assurance.

Risk Evaluation and Mitigation Strategy Programs

The FDA can require a drug-specific Risk Evaluation and Mitigation Strategy, or REMS to ensure the benefits of the drug outweighs the risks. In determining whether a REMS is necessary, the FDA considers the size of the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential adverse events and whether the drug is a new molecular entity. If the FDA determines a REMS is necessary, a sponsor must submit a proposed REMS as part of its application, or if the request is made post-approval, not later than 120 days after the FDA notifies the drug sponsor. A REMS may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate health care providers of the drug's risks, limitations on how a drug may be prescribed or dispensed or other measures that the FDA deems necessary to assure the safe use of the drug. REMS programs must be evaluated on an ongoing basis and the FDA may require changes needed to address ongoing safety issues or corrective actions to address any noncompliance.

Additional Government Regulations

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include antikickback statutes and false claims statutes. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Violations of the anti-kickback statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.

We operate our business in the United States and do not conduct studies in other countries. In addition, we do not sell our product, directly or indirectly, in other countries. As such, we are not subject to foreign regulations.

Drug Enforcement Administration Regulation

The Drug Enforcement Administration, or DEA, regulates drugs that are controlled substances. Controlled substances are those drugs that appear on one of the five schedules promulgated and administered by the DEA under the Controlled Substances Act, or CSA. The CSA governs, among other things, the inventory, distribution, recordkeeping, handling, security and disposal of controlled substances. If our drug candidates are scheduled by the DEA as controlled substances, we will be subject to periodic and ongoing inspections by the DEA and similar state drug enforcement authorities to assess our ongoing compliance with DEA's regulations. Any failure to comply with these regulations could lead to a variety of sanctions, including the revocation, or a denial of renewal of any DEA registration, injunctions, or civil or criminal penalties.

Other U.S. Regulatory Requirements

In addition to the FDA regulations, the Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human Services, the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments also have jurisdiction over us and our activities. For example, sales, marketing, and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, the privacy provision of the Health Insurance Portability and Accountability Act, and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection, unfair competition, and other laws. Moreover, we are now, and in the future may become subject to, additional federal, state, and local laws, regulations, and policies relating to safe working conditions, laboratory practices, the experimental use of animals, and/or the use, storage, handling, transportation, and disposal of human tissue, waste, and hazardous substances, including radioactive and toxic materials and infectious disease agents used in conjunction with our research work.

Employees

As of the date of this Annual Report, we have one (1) employee in a senior management position and we employ one (1) part-time consultant for business development purposes. We also have two (2) part-time consultants in accounting and finance. None of our employees are covered by a collective bargaining agreement. We consider our relationship with our employee and consultants to be good. We believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel.

Other Information

While the Company was not previously subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), it filed certain reports with the Securities and Exchange Commission ("SEC") on a voluntarily basis. On October 22, 2015, the Company registered its Common Stock under the Exchange Act and the filing of the reports with the SEC became mandatory. You may read and copy these reports and other information at the SEC's Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or e-mail the SEC at publicinfo@sec.gov for more information on the operation of the public reference room. Our SEC filings are also available at the SEC's website at http://www.sec.gov. Our internet address is http://www.citiuspharma.com.

Item 1A. Risk Factors

Risks related to our Business and our Industry

Citius has a history of net losses and expects to incur losses for the foreseeable future. We may never generate revenues or, if we are able to generate revenues, achieve profitability.

Citius was formed as a limited liability company in 2007 and has only a limited operating history. Our ability to become profitable depends upon our ability to generate revenues from sales of our product candidates. Citius has been focused on product development and has not generated any revenues to date. Citius has incurred losses in each period of our operations, and we expect to continue to incur losses for the foreseeable future. These losses are likely to continue to adversely affect our working capital, total assets and shareholders' deficit. The process of developing our products requires significant clinical, development and laboratory testing and clinical trials. In addition, commercialization of our product candidates will require that we obtain necessary regulatory approvals and establish sales, marketing and manufacturing capabilities, either through internal hiring or through contractual relationships with others. We expect to incur substantial losses for the foreseeable future as a result of anticipated increases in our research and development costs, including costs associated with conducting preclinical testing and clinical trials, and regulatory compliance activities. Citius incurred net losses of $2,902,268 for the year ended September 30, 2015, $737,727 for the nine months ended September 30, 2014 and $1,288,003 for the year ended December 31, 2013, respectively. At September 30, 2015, Citius had a stockholders' deficit of $635,213 and an accumulated deficit of $9,040,549. Citius' net cash used for operating activities was $2,385,416 for the year ended September 30, 2015, $183,164 for the nine months ended September 30, 2014 and $1,095,266 for the year ended December 31, 2013, respectively.

Our ability to generate revenues and achieve profitability will depend on numerous factors, including success in:

Many of these factors will depend on circumstances beyond our control. We cannot assure you that we will ever have another product approved by the FDA, that we will successfully bring any product to market or, if so, that we will ever become profitable.

Our auditors have issued a "going concern" audit opinion.

Our independent registered accountants have indicated, in their report on our September 30, 2015 financial statements, that there is substantial doubt about our ability to continue as a going concern. A "going concern" opinion indicates that the financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if we do not continue as a going concern. Currently, we do not have sufficient capital to continue our operations for the next twelve months. You should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to shareholders, in the event of liquidation.

We may need to secure additional financing.

We anticipate that we will incur operating losses for the foreseeable future. We have received gross proceeds of approximately $3.6 million to date from our Private Placements, which we expect to continue. If we fail to raise additional funds, our development programs will be materially curtailed. In such event, we expect that we will only be able to conduct a very limited clinical evaluation of our hydrocortisone/lidocaine program. Since this study will involve only a small number of patients, we may not get meaningful and productive data or we may get misleading results.

The amount and timing of our future funding requirements will depend on many factors, including, but not limited to:

We will need to access the capital markets in the future for additional capital for research and development and for operations. Traditionally, pharmaceutical companies have funded their research and development expenditures through raising capital in the equity markets. Declines and uncertainties in these markets over the past several years have severely restricted raising new capital and have affected companies' ability to continue to expand or fund existing research and development efforts. If these economic conditions continue or become worse, our future cost of equity or debt capital and access to the capital markets could be adversely affected. If we are not successful in securing additional financing, we may be required to delay significantly, reduce the scope of or eliminate one or more of our research or development programs, downsize our general and administrative infrastructure, or seek alternative measures to avoid insolvency, including arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, product candidates or products.

We are an early-stage company with an unproven business strategy and may never achieve commercialization of our therapeutic products or profitability.

Our strategy of using collaborative partners to assist us in the development of our therapeutic products is unproven. Our success will depend upon our ability to enter into additional collaboration agreements on favorable terms and to select an appropriate commercialization strategy for each potential therapeutic product we and our collaborators choose to pursue. If we are not successful in implementing our strategy to commercialize our potential therapeutic products, we may never achieve, maintain or increase profitability. Our ability to successfully commercialize any of our products or product candidates will depend, among other things, on our ability to:

There are no guarantees that we will be successful in completing these tasks. If we are unable to successfully complete these tasks, we may not be able to commercialize any of our product candidates in a timely manner, or at all, in which case we may be unable to generate sufficient revenues to sustain and grow our business. Because of our limited resources, we have decided to focus on the development of our hemorrhoid product prior to developing the next generation of Suprenza products. If we are unable to obtain additional funding and/or manage our spending, we may not be able to initiate any additional development activity on Suprenza. If we experience unanticipated delays or problems, our development costs could substantially increase and our business, financial condition and results of operations will be adversely affected.

We face significant risks in our product candidate development efforts.

Our business depends on the successful development and commercialization of our product candidates. We are not permitted to market any of our product candidates in the United States until we receive approval of an NDA from the FDA, or in any foreign jurisdiction until we receive the requisite approvals from such jurisdiction. The process of developing new drugs and/or therapeutic products is inherently complex, unpredictable, time-consuming, expensive and uncertain. We must make long-term investments and commit significant resources before knowing whether our development programs will result in drugs that will receive regulatory approval and achieve market acceptance. Product candidates that appear to be promising at all stages of development may not reach the market for a number of reasons that may not be predictable based on results and data of the clinical program. Product candidates may be found ineffective or may cause harmful side effects during clinical trials, may take longer to progress through clinical trials than had been anticipated, may not be able to achieve the pre-defined clinical endpoints due to statistical anomalies even though clinical benefit may have been achieved, may fail to receive necessary regulatory approvals, may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality, or may fail to achieve market acceptance.

We have received FDA approval for our first product, Suprenza. However, we cannot predict whether or when we will obtain regulatory approval to commercialize our product candidates that are under development and will be further developed using the proceeds of our private placements and we cannot, therefore, predict the timing of any future revenues from these product candidates, if any. The FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example, the FDA:

Any failure to obtain regulatory approval of our product candidates would significantly limit our ability to generate revenues, and any failure to obtain such approval for all of the indications and labeling claims we deem desirable could reduce our potential revenues.

The results of pre-clinical studies and completed clinical trials are not necessarily predictive of future results, and our current product candidates may not have favorable results in later studies or trials.

Pre-clinical studies and Phase 1 and Phase 2 clinical trials are not primarily designed to test the efficacy of a product candidate in the general population, but rather to test initial safety, to study pharmacokinetics and pharmacodynamics, to study limited efficacy in a small number of study patients in a selected disease population, and to identify and attempt to understand the product candidate's side effects at various doses and dosing schedules. Success in pre-clinical studies or completed clinical trials does not ensure that later studies or trials, including continuing pre-clinical studies and large-scale clinical trials, will be successful nor does it necessarily predict future results. Favorable results in early studies or trials may not be repeated in later studies or trials, and product candidates in later stage trials may fail to show acceptable safety and efficacy despite having progressed through earlier trials. In addition, the placebo rate in larger studies may be higher than expected.

We may be required to demonstrate through large, long-term outcome trials that our product candidates are safe and effective for use in a broad population prior to obtaining regulatory approval.

There is typically a high rate of attrition from the failure of product candidates proceeding through clinical trials. In addition, certain subjects in our clinical trials may respond positively to placebo treatment – these subjects are commonly known as "placebo responders" – making it more difficult to demonstrate efficacy of the test drug compared to placebo. This effect is likely to be observed in the treatment of obesity and hemorrhoids. If any of our product candidates fail to demonstrate sufficient safety and efficacy in any clinical trial, we will experience potentially significant delays in, or may decide to abandon development of that product candidate. If we abandon or are delayed in our development efforts related to any of our product candidates, we may not be able to generate any revenues, continue our operations and clinical studies, or become profitable. Our reputation in the industry and in the investment community would likely be significantly damaged. It may not be possible for us to raise funds in the public or private markets, and our stock price would likely decrease significantly.

If we are unable to file for approval under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act or if we are required to generate additional data related to safety and efficacy in order to obtain approval under Section 505(b)(2), we may be unable to meet our anticipated development and commercialization timelines.

Our current plans for filing additional NDAs for our product candidates include efforts to minimize the data we will be required to generate in order to obtain marketing approval for our additional product candidates and therefore possibly obtain a shortened review period for the applications. The timeline for filing and review of our NDAs is based upon our plan to submit those NDAs under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, wherein we will rely in part on data in the public domain or elsewhere. Depending on the data that may be required by the FDA for approval, some of the data may be related to products already approved by the FDA. If the data relied upon is related to products already approved by the FDA and covered by third-party patents we would be required to certify that we do not infringe the listed patents or that such patents are invalid or unenforceable. As a result of the certification, the third party would have 45 days from notification of our certification to initiate an action against us. In the event that an action is brought in response to such a certification, the approval of our NDA could be subject to a stay of up to 30 months or more while we defend against such a suit. Approval of our product candidates under Section 505(b)(2) may therefore be delayed until patent exclusivity expires or until we successfully challenge the applicability of those patents to our product candidates. Alternatively, we may elect to generate sufficient additional clinical data so that we no longer rely on data which triggers a potential stay of the approval of our product candidates. Even if no exclusivity periods apply to our applications under Section 505(b)(2), the FDA has broad discretion to require us to generate additional data on the safety and efficacy of our product candidates to supplement third-party data on which we may be permitted to rely. In either event, we could be required, before obtaining marketing approval for any of our product candidates, to conduct substantial new research and development activities beyond those we currently plan to engage in order to obtain approval of our product candidates. Such additional new research and development activities would be costly and time consuming.

We may not be able to obtain shortened review of our applications, and the FDA may not agree that our products qualify for marketing approval. If we are required to generate additional data to support approval, we may be unable to meet our anticipated development and commercialization timelines, may be unable to generate the additional data at a reasonable cost, or at all, and may be unable to obtain marketing approval of our product candidates. In addition, notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years, some pharmaceutical companies and others have objected to the FDA's interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), or if the FDA's interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) application that we submit.

Even if we receive regulatory approval to commercialize our product candidates, post-approval marketing and promotion of products is highly regulated by the FDA, and marketing campaigns which violate FDA standards may result in adverse consequences.

Post-approval marketing and promotion of drugs, standards and regulations for direct-to-consumer advertising, dissemination of off-label product information, industry-sponsored scientific and educational activities and promotional activities via the Internet are heavily scrutinized and regulated by the FDA. Drugs may only be marketed for approved indications and in accordance with provisions of the FDA approved labels. Failure to comply with such requirements may result in adverse publicity, warning letters issued by the FDA, and civil or criminal penalties. In 2014 we received a letter from the FDA notifying us that we were in breach of post-marketing regulations with respect to the promotion and advertisement of Suprenza. The FDA demanded that we immediately cease violating the Federal Food, Drug and Cosmetics Act, and we, along with our marketing partner Prenzamax, took actions necessary to remedy the violation.

The FDA notified us that in light of the actions which were taken to remedy the violation, we are no longer in violation of the Federal Food, Drug and Cosmetics Act and the matter has been closed. The FDA's determination was based upon representations we made and supporting documents which we provided to the FDA assuring the FDA that we have taken corrective action. We believe that we have presented all of the information and that our corrective actions are appropriate and adequate. In the event the FDA discovers repeat or new violations, we could face stiffer penalties in the future including the FDA's issuance of a cease and desist order, impounding of our products, and civil or criminal penalties.

We cannot be certain that we, or our marketing partner Prenzamax, will, in the future, be able to comply with post-marketing regulations or other FDA regulatory requirements. If we, Prenzamax or our future partners are not able to comply with such requirements, the FDA may issue a warning letter which may require us to stop our clinical trials and/or the sale of our drug, require us to recall our drug from distribution or result in withdrawing approval of the NDA for such drug. Any of the foregoing actions by the FDA may adversely affect our business, financial condition and results of operation.

Even if we receive regulatory approval to commercialize our product candidates, our ability to generate revenues from any resulting drugs will be subject to a variety of risks, many of which are out of our control.

Even if our product candidates obtain regulatory approval, those drugs may not gain market acceptance among physicians, patients, healthcare payers or the medical community. The indication may be limited to a subset of the population or we may implement a distribution system and patient access program that is limited. Coverage and reimbursement of our product candidates by third-party payers, including government payers, generally is also necessary for optimal commercial success. We believe that the degree of market acceptance and our ability to generate revenues from such drugs will depend on a number of factors, including:

If approved, our product candidates may fail to achieve market acceptance or generate significant revenue to achieve or sustain profitability. In addition, our efforts to educate the medical community and third-party payers on the benefits of our product candidates may require significant resources and may never be successful.

Even if approved for marketing by applicable regulatory bodies, we will not be able to create a market for any of our products if we fail to establish marketing, sales and distribution capabilities, or fail to enter into arrangements with third parties.

Our strategy with our product candidates is to outsource to third parties, all or most aspects of the product development process, as well as marketing, sales and distribution activities. Currently, we do not have any sales, marketing or distribution capabilities. In order to generate sales of any product candidates that receive regulatory approval, we must either acquire or develop an internal marketing and sales force with technical expertise and with supporting distribution capabilities or make arrangements with third parties to perform these services for us. The acquisition or development of a sales and distribution infrastructure would require substantial resources, which may divert the attention of our management and key personnel and defer our product development efforts. To the extent that we enter into marketing and sales arrangements with other companies, our revenues will depend on the efforts of others. These efforts may not be successful. If we fail to develop sales, marketing and distribution channels, or enter into arrangements with third parties, we will experience delays in product sales and incur increased costs.

Our agreement with Prenzamax may result in a conflict of interest.

In November 2011, we entered into an exclusive license agreement with Prenzamax LLC, pursuant to which we granted Prenzamax a license for sales of Suprenza in the U.S. Prenzamax's performance of this agreement is guaranteed by Akrimax LLC. The co-founder and vice Chairman of Akrimax is Leonard Mazur who is our President, Chief Executive Officer and Chief Operating Officer. In connection with the license agreement, Prenzamax will be solely responsible for the pricing of Suprenza and will have the option to participate in the future development program of Suprenza. There may be a conflict of interest in what may be beneficial to the Company and to Prenzamax. There can be no assurance that Prenzamax will choose the option that best suits the Company.

The markets in which we operate are highly competitive and we may be unable to compete successfully against new entrants or established companies.

Competition in the pharmaceutical and medical products industries is intense and is characterized by costly and extensive research efforts and rapid technological progress. We are aware of several pharmaceutical companies also actively engaged in the development of therapies for the same conditions we are targeting. Many of these companies have substantially greater research and development capabilities as well as substantially greater marketing, financial and human resources than we do. In addition, many of these companies have significantly greater experience than us in undertaking pre-clinical testing, human clinical trials and other regulatory approval procedures. Our competitors may develop technologies and products that are more effective than those we are currently marketing or researching and developing. Such developments could render our products, if approved, less competitive or possibly obsolete. We are also competing with respect to marketing capabilities and manufacturing efficiency, areas in which we have limited experience. Mergers, acquisitions, joint ventures and similar events may also significantly increase the competition. New developments, including the development of other drug technologies and methods of preventing the incidence of disease, occur in the pharmaceutical and medical technology industries at a rapid pace. These developments may render our products and product candidates obsolete or noncompetitive. Compared to us, many of our potential competitors have substantially greater:

As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we can or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs or surgical approaches that are more effective, more useful and less costly than ours and may also be more successful in manufacturing and marketing their products. In addition, our competitors may be more effective than us in commercializing their products and as a result, our business and prospects might be materially harmed.

Physicians and patients might not accept and use any of our products for which regulatory approval is obtained.

Even if the FDA approves one of our product candidates, other than Suprenza which is already approved, physicians and patients might not accept and use it. Acceptance and use of our products will depend upon a number of factors, including:

If our current product candidates are approved, we expect their sales to generate substantially all of our revenues for the foreseeable future, and as a result, the failure of these products to find market acceptance would harm our business and would require us to seek additional financing.

Our product candidate for the treatment of hemorrhoids is a combination product consisting of two drugs, hydrocortisone and lidocaine, that have each been separately approved by the FDA for other indications and which are commercially available and marketed by other companies. Our approval under 505(b)(2) does not preclude physicians, pharmacists and patients from obtaining individual drug products and titrating the dosage of these drug products as close to our approved dose as possible.

Hydrocortisone creams are available from strengths ranging from 0.5% to 2.5% and lidocaine creams are also available in strengths up to 5%. From our market analysis and discussions with a limited number of physicians, we know that patients sometimes obtain two separate cream products and co-administer them as prescribed, giving them a combination treatment which could be very similar to what we intend to study and seek approval for. As a branded, FDA-approved product with safety and efficacy data, we intend to price our product substantially higher than the generically available individual creams. We will then have to convince third-party payers and pharmacy benefit managers of the advantages of our product and justify our premium pricing. We may encounter resistance from these entities and will then be dependent on patients' willingness to pay the premium and not seek alternatives. In addition, pharmacists often suggest lower cost prescription treatment alternatives to both physicians and patients. Our 505(b)(2) approval and the market exclusivity we may receive will not guarantee that such alternatives will not exist, that substitution will not occur, or that there will be immediate acceptance to our pricing by payer formularies. We expect the same resistance with regard to our phentermine product where several cheaper generics are already commercially available and physicians have extensive experience in prescribing these products.

Our ability to generate product revenues will be diminished if our products sell for inadequate prices or patients are unable to obtain adequate levels of reimbursement.

Our ability to commercialize our products, alone or with collaborators, will depend in part on the extent to which reimbursement will be available from:

Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Healthcare payers, including Medicare, are challenging the prices charged for medical products and services. Government and other healthcare payers increasingly attempt to contain healthcare costs by limiting both coverage and the level of reimbursement for drugs. Even if our product candidates are approved by the FDA, insurance coverage might not be available, and reimbursement levels might be inadequate, to cover our products. If government and other healthcare payers do not provide adequate coverage and reimbursement levels for our products, once approved, market acceptance of such products could be reduced. Proposals to modify the current health care system in the U.S. to improve access to health care and control its costs are continually being considered by the federal and state governments. In March 2010, the U.S. Congress passed landmark healthcare legislation. We cannot predict what impact on federal reimbursement policies this legislation will have in general or on our business specifically. Members of the U.S. Congress and some state legislatures are seeking to overturn at least portions of the legislation and we expect they will continue to review and assess this legislation and possibly alternative health care reform proposals. We cannot predict whether new proposals will be made or adopted, when they may be adopted or what impact they may have on us if they are adopted.

Health administration authorities in countries other than the U.S. may not provide reimbursement for our products at rates sufficient for us to achieve profitability, or at all. Like the U.S., these countries have considered health care reform proposals and could materially alter their government-sponsored health care programs by reducing reimbursement rates. Any reduction in reimbursement rates under Medicare or foreign health care programs could negatively affect the pricing of our products. If we are not able to charge a sufficient amount for our products, then our margins and our profitability will be adversely affected.

We depend upon Alpex Pharma, S.A. ("Alpex") to supply us withthe active pharmaceutical ingredient, or API, for phentermine hydrochloride which makes us vulnerable to the extent we rely upon Alpex for API.

In general, our suppliers purchase raw materials and supplies on the open market. Substantially all such materials are obtainable from a number of sources so that the loss of any one source of supply would not have a material adverse effect on us. We have entered into a supply agreement with Alpex pursuant to which Alpex supplies us with the active pharmaceutical ingredient, or API, for phentermine hydrochloride. Alpex currently has one source of supply for API, Siegfried (USA), Inc., a U.S. based manufacturer ("Siegfried"). If Alpex can no longer obtain API from Siegfried or if Siegfried refuses to continue to supply to Alpex on commercially reasonable terms or at all, Alpex will have to qualify another supplier. Qualification of alternate sources is costly and a time consuming process. If Alpex cannot find a replacement supplier, our margins and our profitability may be adversely affected. Although management believes there are several other potential sources of API, there can be no assurance that Alpex can obtain API from such suppliers upon favorable terms, or at all.

We rely exclusively on third parties to formulate and manufacture our product candidates.

We do not have and do not intend to establish our own manufacturing facilities. Consequently, we lack the physical plant to formulate and manufacture our own product candidates, which are currently being manufactured entirely by a commercial third party. If any additional product candidate we might develop or acquire in the future receives FDA approval, we will rely on one or more third-party contractors to manufacture our products. If, for any reason, we become unable to rely on our current source or any future source to manufacture our product candidates, either for clinical trials or, for commercial quantities, then we would need to identify and contract with additional or replacement third-party manufacturers to manufacture compounds for preclinical, clinical and commercial purposes. We might not be successful in identifying additional or replacement third-party manufacturers, or in negotiating acceptable terms with any that we do identify. If we are unable to secure and maintain third-party manufacturing capacity, the development and sales of our products and our financial performance might be materially affected.

In addition, before any of our collaborators can begin to commercially manufacture our product candidates, each must obtain regulatory approval of the manufacturing facility and process. Manufacturing of drugs for clinical and commercial purposes must comply with the FDA's Current Good Manufacturing Practices, or cGMP, and applicable non-U.S. regulatory requirements. The cGMP requirements govern quality control and documentation policies and procedures. Complying with cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production, recordkeeping, and quality control to assure that the product meets applicable specifications and other requirements. Our contracted manufacturing facilities must also pass a pre-approval inspection prior to FDA approval. Failure to pass a pre- approval inspection might significantly delay FDA approval of our products. If any of our collaborators fails to comply with these requirements, we would be subject to possible regulatory action which could limit the jurisdictions in which we are permitted to sell our products. As a result, our business, financial condition, and results of operations might be materially harmed.

Our reliance on a limited number of third-party manufacturers exposes us to the following risks:

Each of these risks could delay our clinical trials or the approval, if any, of our product candidates by the FDA or the commercialization of our product candidates and could result in higher costs or deprive us of potential product revenues. As a result, our business, financial condition, and results of operations might be materially harmed.

We will be dependent on third-party contract research organizations to conduct all of our future human studies.

We will be dependent on third-party research organizations to conduct all of our human studies with respect to pharmaceutical products that we may develop in the future. If we are unable to obtain any necessary testing services on acceptable terms, we may not complete our product development efforts in a timely manner. If we rely on third parties for human studies, we may lose some control over these activities and become too dependent upon these parties. These third parties may not complete testing activities on schedule or when we so request. We may not be able to secure and maintain suitable research organizations to conduct our human studies. We are responsible for confirming that each of our clinical trials is conducted in accordance with our general plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our future product candidates.

Any termination or breach by or conflict with our strategic partners or licensees could harm our business.

If we or any of our collaborators or licensees fail to renew or terminate any of our collaboration or license agreements or if either party fails to satisfy its obligations under any of our collaboration or license agreements or complete them in a timely manner, we could lose significant sources of revenue, which could result in volatility in our future revenue. In addition, our agreements with our collaborators and licensees may have provisions that give rise to disputes regarding the rights and obligations of the parties. These and other possible disagreements could lead to termination of the agreement or delays in collaborative research, development, supply or commercialization of certain products, or could require or result in litigation or arbitration. Any such conflicts with our collaborators could reduce our ability to obtain future collaboration agreements and could have a negative impact on our relationship with existing collaborators, adversely affecting our business and revenues. Finally, any of our collaborations or license agreements may prove to be unsuccessful.

If we are unable to retain or hire additional qualified personnel, our ability to grow our business might be harmed.

As of the date of this annual report, we have one (1) employee and one (1) part-time consultant for business development purposes. We also have two (2) part-time consultants in accounting and finance. In addition, we utilize the services of a clinical management ream on part time basis to assist us in managing our current on-going phase 2 trial. While we believe this will provide us with sufficient staffing for our current development efforts, we will need to hire or contract with additional qualified personnel with expertise in preclinical testing, clinical research and testing, government regulation, formulation and manufacturing and sales and marketing in connection with the continued development, regulatory approval and commercialization of our product candidates. We compete for qualified individuals with numerous pharmaceutical and biopharmaceutical companies, universities and other research institutions. Competition for these individuals is intense, and we cannot be certain that our search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to our success.

In addition, we may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers. Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual's independence from the corporation and level of experience in finance and accounting matters. The Company may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of our business and our ability to obtain or retain listing of the shares of Company Common Stock on any stock exchange or quotation platform other than OTC Markets or the OTCQB where the Company's shares are currently quoted (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.

We will need to increase the size of our organization, and we may experience difficulties in managing growth.

We will need to manage our anticipated growth and increased operational activity. Our personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy will require that we:

This future growth could place a strain on our administrative and operational infrastructure and may require our management to divert a disproportionate amount of its attention away from our day-to-day activities. We may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel, which may result in weaknesses in our infrastructure, and give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. We may not be able to make improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate or increase our revenues could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to effectively manage any future growth.

Risks Related to Our Regulatory and Legal Environment

We are subject to extensive and costly government regulation.

Product candidates and approved products such as ours are subject to extensive and rigorous domestic government regulation including regulation by the FDA, the Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human Services, the U.S. Department of Justice, state and local governments, and their respective foreign equivalents. The FDA regulates the research, development, preclinical and clinical testing, manufacture, safety, effectiveness, record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import, and export of pharmaceutical products. The FDA regulates small molecule chemical entities, whether administered orally, topically or by injection, as drugs, subject to an NDA, under the Federal Food, Drug, and Cosmetic Act. If product candidates and approved products such as ours are marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not they have obtained FDA approval. Such foreign regulation might be equally or more demanding than corresponding U.S. regulation. Government regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling our products. The regulatory review and approval process, which includes preclinical testing and clinical trials of each product candidate, is lengthy, expensive, and uncertain. Our collaborators or we must obtain and maintain regulatory authorization to conduct clinical trials and approval for each product we intend to market, and the manufacturing facilities used for the products must be inspected and meet legal requirements. Securing regulatory approval requires submitting extensive preclinical and clinical data and other supporting information for each proposed therapeutic indication in order to establish the product's safety and efficacy for each intended use. The development and approval process might take many years, requires substantial resources, and might never lead to the approval of a product. Even if we are able to obtain regulatory approval for a particular product, the approval might limit the indicated medical uses for the product, limit our ability to promote, sell, and distribute the product, require that we conduct costly post-marketing surveillance, and/or require that we conduct ongoing post-marketing studies. Material changes to an approved product, such as, for example, manufacturing changes or revised labeling, might require further regulatory review and approval. Once obtained, any approvals might be withdrawn, including, for example, if there is a later discovery of previously unknown problems with the product, such as a previously unknown safety issue.

If we, our collaborators, or our contract manufacturers fail to comply with applicable regulatory requirements at any stage during the regulatory process, such noncompliance could result in, among other things, delays in the approval of applications or supplements to approved applications; refusal of a regulatory authority, including the FDA, to review pending market approval applications or supplements to approved applications; warning letters; fines; import and export restrictions; product recalls or seizures; injunctions; total or partial suspension of production; civil penalties; withdrawals of previously approved marketing applications or licenses; recommendations by the FDA or other regulatory authorities against governmental contracts; and/or criminal prosecutions.

In connection with our NDA, we committed to conducting two post-marketing studies of Suprenza ODT. The FDA required us to conduct a drug utilization study because phentermine is classified by the Drug Enforcement Administration, or DEA, as a Category IV controlled substance, and the FDA expressed concern regarding the potential for phentermine abuse and addiction. We prepared and submitted protocols for this study to the FDA however, upon further internal analysis, the FDA concluded that such a study is not necessary and informed us that we need not conduct this study.

In addition, the FDA required that we study the pharmacokinetic, or PK, parameters of Suprenza ODT in subjects with renal impairment. Drug exposure increases can be expected in patients with renal impairment who are treated with phentermine. However, Suprenza ODT's pharmacokinetics has not been assessed in renal impaired patients. Since obesity can lead to renal failure, there exists a possibility that patients with mild or moderate renal failure may be prescribed Suprenza ODT. Therefore, it is important to assess the changes in the PK parameters of Suprenza ODT in patients with renal impairment. The primary endpoint of this study is the pharmacokinetic assessment of Suprenza ODT in renal impaired patients, and the results of this study will provide important new information to prescribing physicians regarding phentermine dosing and dose adjustments for these at-risk patients.

A clinical research organization has indicated that it will cost approximately $400,000 and take 18 months to conduct the renal impairment study. Due to the limited current sales of Suprenza, we requested the FDA waive the renal PK study requirement. however, our request was denied. In the FDA's letter dated August 28, 2015, the FDA notified us that our request to waive the study was denied because financial hardship was an inadequate reason to justify a waiver of the study. In addition, the FDA restated the FDA's concern that there is a signal of serious risk of increased drug exposure in patients with decreased renal function. If we fail to conduct the post-marketing renal PK study, the FDA may ask us to discontinue selling the product or impose other penalties which they deem suitable.

In general, the FDA allows companies to continue selling their product while post-marketing studies are being conducted. Based upon limited sales and usage of our product, we intend to reapply for a waiver of the post-marketing study. However, there can be no assurance that the FDA will release us from such requirement. If our next request to waive the post-marketing studying is denied and we do not have sufficient funding to conduct the study, we will likely discontinue the sale of Suprenza. If we receive sufficient funding and determine to proceed with the renal impairment study, and the results of such study demonstrate safety concerns, we may have to add additional disclosures to our label or alternatively, discontinue the sale of the product. Adding additional disclosures to our label will delay the timeline for when our product reaches the market. A delay in our product reaching the market or the discontinuance of the sale of Suprenza will result in a material adverse effect to our business, financial condition and results of operation.

We might not obtain the necessary U.S. regulatory approvals to commercialize any additional product candidates.

We have received FDA approval for the sale of our first product, Suprenza. We cannot assure you that we will receive the approvals necessary to commercialize for sale any additional product candidates, or any additional product candidate we acquire or develop in the future. We will need FDA approval to commercialize our additional product candidates in the U.S. In order to obtain FDA approval of any additional product candidate, we must submit to the FDA an NDA demonstrating that the product candidate is safe for humans and effective for its intended use. This demonstration requires significant research, pre-clinical studies, and clinical trials. Satisfaction of the FDA's regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing. We cannot predict whether our research and clinical approaches will result in additional drugs that the FDA considers safe for humans and effective for their indicated uses. The FDA has substantial discretion in the product approval process and might require us to conduct additional pre-clinical and clinical testing, perform post-marketing studies or otherwise limit or impose conditions on any additional approvals we obtain. The approval process might also be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory approvals might:

Even if we comply with all FDA requests, the FDA might ultimately reject one or more of our NDAs. We cannot be sure that we will ever obtain regulatory clearance for any additional product candidates. Failure to obtain FDA approval of our additional product candidates will severely undermine our business by leaving us without additional saleable products, and therefore without any potential additional sources of revenues, until another product candidate could be developed or obtained. There is no guarantee that we will ever be able to develop or acquire another product candidate.

Following regulatory approval of any additional product candidates, we will be subject to ongoing regulatory obligations and restrictions, which may result in significant expense and limit our ability to commercialize our additional potential drugs.

If one of our additional product candidates is approved by the FDA or by another regulatory authority for a territory outside of the U.S., we will be required to comply with extensive regulations for product manufacturing, labeling, packaging, adverse event reporting, storage, distribution, advertising, promotion and record keeping. Regulatory approvals may also be subject to significant limitations on the indicated uses or marketing of the product candidates or to whom and how we may distribute our products. Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a drug's indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. For example, the label ultimately approved for our products, if any, may include restrictions on use, including restrictions based on level of obesity and duration of treatment. If so, we may be subject to ongoing regulatory obligations and restrictions, which may result in significant expense and limit our ability to commercialize our products. The FDA could also require a registry to track the patients utilizing the drug or implement a Risk Evaluation and Mitigation Strategy, or REMS, that could restrict access to the drug, reduce our revenues and/or increase our costs. Potentially costly post-marketing clinical studies may be required as a condition of approval to further substantiate safety or efficacy, or to investigate specific issues of interest to the regulatory authority.

Manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing practices, or cGMP, regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further, regulatory agencies must approve these manufacturing facilities before they can be used to manufacture our future approved drugs, if any, and these facilities are subject to ongoing regulatory inspections. In addition, regulatory agencies subject a drug, its manufacturer and the manufacturer's facilities to continual review and inspections. The subsequent discovery of previously unknown problems with a drug, including adverse events of unanticipated severity or frequency, or problems with the facility where the drug is manufactured, may result in restrictions on the marketing of that drug, up to and including, withdrawal of the drug from the market. If the manufacturing facilities of our suppliers fail to comply with applicable regulatory requirements, it could result in regulatory action and additional costs to us. Failure to comply with applicable FDA and other regulatory requirements may, either before or after product approval, if any, subject our company to administrative or judicially imposed sanctions, including:

We have an agreement with Alpex Pharma S.A. ("Alpex") to supply our Suprenza tablets. The Alpex manufacturing sites have been inspected by the U.S. FDA and corresponding EU authorities. If Alpex is unable to maintain ongoing FDA or local or foreign regulatory compliance, or manufacture Suprenza tablets in sufficient quantities to meet projected demand, the approval, the commercial launch, and future sales of Suprenza will be adversely effected, which in turn could have a detrimental impact on our financial results.

In addition, the law or regulatory policies governing pharmaceuticals may change. New statutory requirements may be enacted or additional regulations may be enacted that could prevent or delay regulatory approval of our product candidates. Contract Manufacturing Organizations, or CMOs, and their vendors or suppliers may also face changes in regulatory requirements from governmental agencies in the U.S. and other countries. We cannot predict the likelihood, nature, extent or effects of government regulation that may arise from future legislation or administrative action, either in the U.S. or elsewhere. If we are not able to maintain regulatory compliance, we might not be permitted to market any future approved products and our business could suffer.

We could be forced to pay substantial damage awards if product liability claims that may be brought against us are successful.

The use of any of our product candidates in clinical trials, and the sale of any approved products, may expose us to liability claims and financial losses resulting from the use or sale of our products. We have obtained limited product liability insurance coverage for our clinical trials of $2 million per occurrence and in the aggregate, subject to a deductible of $50,000 per occurrence. There can be no assurance that our existing insurance coverage will extend to our other products in the future. Any product liability insurance coverage may not be sufficient to satisfy all liabilities resulting from product liability claims. A successful claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable terms, if at all. Even if a claim is not successful, defending such a claim would be time consuming and expensive, may damage our reputation in the marketplace, and would likely divert management's attention.

Risks Related to our Intellectual Property

Our Suprenza tablets could face generic competition before the patent protecting them expires on July 23, 2018.

On May 17, 2013, we received notification from Zydus that Zydus had submitted Abbreviated New Drug Application No. 204663 to the FDA seeking approval to engage in the commercial manufacture, use or sale of generic versions of the 15 mg and 30 mg dosages of our SuprenzaÒ tablets. The notification informed us that Zydus was seeking to manufacture and sell its generic product prior to the expiration of U.S. Patent No. 6,149,938 (the "938 patent") which is listed in the Orange Book and covers SuprenzaÒ, and that the Zydus ANDA contained a certification that its proposed generic product does not infringe the '938 patent ("Paragraph IV Certification"). On June 19, 2013, we received a separate notification from Zydus that it was also pursuing approval for the 37.5 mg dosage of SuprenzaÒ under the same-numbered ANDA, with a separate Paragraph IV Certification. In response, within 45 days of receiving the first notification from Zydus, we and our partners (Alpex Pharma, S.A. and Prenzamax, LLC), filed suit against Zydus and its parent Cadila Healthcare Limited (d/b/a Zydus Cadila) in Federal District Court in Delaware and New Jersey for infringement of the '938 patent pursuant, pursuant to the Hatch-Waxman statutory regime. We promptly notified the FDA of the initiation of this lawsuit and, pursuant to the statute, Zydus's ANDA for a generic version of SuprenzaÒ cannot be approved by the FDA for 30 months from our receipt of Zydus' Paragraph IV notice letters while this lawsuit proceeds.

Several months after initiation of the suit, we initiated discussions with Zydus to seek a resolution to this dispute. We diligently negotiated a settlement agreement and dismissal of the pending lawsuit to the mutual satisfaction of all parties. As a result of this mutual agreement, the district court officially terminated the suit on November 21, 2014. The terms of the settlement agreement remain confidential per mutual agreement of the parties. The resolution of this matter has been deemed a success by Akrimax and its partners Citius, Prenzamax, and Alpex.

On November 24, 2015, a petition for inter partes review (the "Petition") was filed by Mr. J. Kyle Bass and Mr. Erich Spengenberg with the Patent Trial and Appeal Board (the "PTAB") of the U.S. Patent and Trademark Office ("USPTO"), challenging claims of U.S. Patent No. 8,440,170 (the "170 Patent"), titled "Orally Disintegrating Tablets with Speckled Appearance," which patent is owned by Alpex Pharma and is licensed by the Company. The inter partes review procedure allows a party to challenge the patentability of a patent before the PTAB. A patentability trial will commence if the PTAB decides to institute the inter partes review proceedings after considering the Petition and Alpex's preliminary response to the Petition. Pursuant to our agreement with Alpex, it is Alpex' primary responsibility to defend the patents. Alpex is reviewing its options and will inform us of its decision accordingly. If Alpex elects to not defend this patent, then we have the right to do so. The 170 patent relates to the appearance of the Suprenza tablets and we believe that loss of this patent will not have any material impact on Suprenza sales. Since we have already settled with Zydus on the main patent and we fully expect to have competition to our Suprenza, we are unlikely to defend this patent.

Aside from risks in outcome, there are a number of aspects of any intellectual property litigation that may have an impact on the Company, including:

Our business depends on protecting our intellectual property.

If we and our strategic manufacturing partner, Alpex, do not obtain protection for our respective intellectual property rights, our competitors might be able to take advantage of our research and development efforts to develop competing drugs. Our success, competitive position and future revenues, if any, depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. To date, we exclusively license one patent from Alpex. We also have the exclusive right to one pending patent from Alpex. We anticipate filing additional patent applications both in the U.S. and in other countries, as appropriate. However, the patent process is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting our products by obtaining and defending patents. These risks and uncertainties include the following:

In addition, the U.S. Patent and Trademark Office and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors are able to obtain patents, the patents might be substantially narrower than anticipated.

In addition to patents, we also rely on trade secrets and proprietary know-how. Although we take measures to protect this information by entering into confidentiality and inventions agreements with our employees, scientific advisors, consultants, and collaborators, we cannot provide any assurances that these agreements will not be breached, that we will be able to protect ourselves from the harmful effects of disclosure if they are breached, or that our trade secrets will not otherwise become known or be independently discovered by competitors. If any of these events occurs, or we otherwise lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced.

Patent and other intellectual property protection is crucial to the success of our business and prospects, and there is a substantial risk that such protections will prove inadequate. Our business and prospects will be harmed if these protections prove insufficient.

We rely on trade secret protections through confidentiality agreements with our employees, customers and other parties, and the breach of these agreements could adversely affect our business and prospects.

We rely on trade secrets, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, collaborators, supplies, and other parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach or that our trade secrets will not otherwise become known to or independently developed by our competitors. We might be involved from time to time in litigation to determine the enforceability, scope and validity of our proprietary rights. Any such litigation could result in substantial cost and divert management's attention from our operations.

If we infringe the rights of third parties we might have to forgo selling our future products, pay damages, or defend against litigation.

If our product candidates, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we might have to:

Any of these events could substantially harm our earnings, financial condition and operations.

Risks Related to Our Common Stock, Liquidity Risks and Reverse Acquisition

Our securities will be deemed to be "Penny Stock" and subject to specific rules governing their sale.

The SEC has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to Company, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person's account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for shareholders to dispose of the Company's Common Stock if and when such shares are eligible for sale and may cause a decline in the market value of its stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Compliance with the reporting requirements of federal securities laws can be expensive.

While the Company was not previously subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, it filed certain reports with the Securities and Exchange Commission ("SEC") on a voluntary basis. On October 22, 2015, the Company registered its Common Stock under the Exchange Act and the filing of the reports with the SEC became mandatory. The quotation of the Company's common stock on the OTCQB is contingent upon the Company staying current on such Exchange Act filings. The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to stockholders will cause our expenses to be higher than they would be if we remained privately-held. In addition, the Company will incur substantial expenses in connection with the preparation of its Registration Statement and related documents with respect to the registration of resale of the Common Stock sold in our Private Placements.

If the Company fails to maintain an effective system of internal controls, it may not be able to accurately report its financial results or detect fraud. Consequently, shareholders could lose confidence in the Company's financial reporting and this may decrease the trading price of its stock.

The Company must maintain effective internal controls to provide reliable financial reports and to be able to detect fraud. The Company has been assessing its internal controls to identify areas that need improvement. It is in the process of implementing changes to internal controls, but has not yet completed implementing these changes. Failure to implement these changes to the Company's internal controls or any others that it identifies as necessary to maintain an effective system of internal controls could harm its operating results and cause shareholders to lose confidence in the Company's reported financial information. Any such loss of confidence would have a negative effect on the trading price of the Company's stock.

The price of the Common Stock may become volatile, which could lead to losses by shareholders and costly securities litigation.

The trading price of the Common Stock is likely to be highly volatile and could fluctuate in response to factors such as:

The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been initiated against such a company. Litigation initiated against the Company, whether or not successful, could result in substantial costs and diversion of its management's attention and resources, which could harm the Company's business and financial condition.

You may experience dilution of your ownership interests because of the future issuance of additional shares of the Common Stock.

In the future, the Company may issue additional authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of its present stockholders. The Company is currently authorized to issue an aggregate of 90,000,000 shares of Common Stock and 10,000,000 shares of preferred stock. As of December 1, 2015, there are 34,701,220 shares of Common Stock outstanding, 7,020,438 shares underlying the Investor Warrants issued in the Private Placements, 680,013 shares issuable upon the exercise of the Placement Agent Unit Warrants, 680,013 shares issuable upon the exercise of the warrants underlying the Placement Agent Unit Warrants, 1,000,000 shares underlying the Placement Agent Share Warrants issued in connection with investment banking services, 3,300,000 shares underlying the options granted to our President and CEO, Leonard Mazur, 800,000 shares underlying options granted to directors, and 600,000 shares underlying options granted to consultants. The Company may also issue additional shares of its Common Stock or other securities that are convertible into or exercisable for Common Stock in connection with hiring or retaining employees, future acquisitions, future sales of its securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of Common Stock may create downward pressure on the trading price of the Common Stock. There can be no assurance that the Company will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of the Common Stock are currently quoted on the OTCQB, which is one of OTC Markets' three marketplaces for trading over-the-counter stocks.

The Common Stock is controlled by insiders.

As of December 1, 2015, the former managing members of Citius Pharmaceuticals, LLC beneficially own approximately 46% of our outstanding shares of Common Stock and the Company's current officer and directors beneficially own approximately 7% of our outstanding shares of Common Stock. Such concentrated control of the Company may adversely affect the price of the Common Stock. If you acquire Common Stock, you may have no effective voice in the management of the Company. Sales by insiders or affiliates of the Company, along with any other market transactions, could affect the market price of the Common Stock.

We do not intend to pay dividends for the foreseeable future.

We have paid no dividends on our Common Stock to date and it is not anticipated that any dividends will be paid to holders of our Common Stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of the business, it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our business plan. The lack of a dividend can further affect the market value of our stock, and could significantly affect the value of any investment in our Company.

Our Certificate of Incorporation allows for the board of directors to create new series of preferred stock without further approval by stockholders, which could adversely affect the rights of the holders of the Common Stock.

The Company's Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. The Company's Board of Directors has the authority to issue up to 10,000,000 shares of preferred stock without further stockholder approval. As a result, the Company's Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of Common Stock and the right to the redemption of the shares, together with a premium, prior to the redemption of the Common Stock. In addition, the Company's Board of Directors could authorize the issuance of a series of preferred stock that has greater voting power than the Common Stock or that is convertible into our Common Stock, which could decrease the relative voting power of the Common Stock or result in dilution to our existing stockholders.

If and when our Registration Statement No. 333-206903 becomes effective, there will be a significant number of shares of Common Stock eligible for sale, which could depress the market price of such shares.

Following the effective date of our Registration Statement No. 333-206903, a large number of shares of Common Stock will be available for sale in the public market, which could harm the market price of the stock. Further, shares may be offered from time to time in the open market pursuant to Rule 144, and these sales may have a depressive effect as well.

We have broad discretion on how we use the proceeds we received in our Private Placements.

Our management has broad discretion on how to use and spend any proceeds we receive from our Private Placements and may use the proceeds in ways that differ from the proposed uses discussed in this filing. Our stockholders may not agree with our decision on how to use such proceeds. If we fail to spend the proceeds effectively, our business and financial condition could be harmed and we may need to seek additional financing sooner than expected.

Risks Related to Our Common Stock

There is not an active liquid trading market for the Company's common stock.

The Company files reports under the Exchange Act and its common stock is eligible for quotation on the OTCQB. However, there is no regular active trading market in the Company's common stock, and we cannot give any assurance that an active trading market will develop. In October 2015, the Company's Common Stock traded on only four days for an aggregate volume of 5,900 shares. If an active market for the Company's common stock develops, there is a significant risk that the Company's stock price may fluctuate dramatically in the future in response to any of the following factors, some of which are beyond our control:

Because we became a public company by means of a reverse acquisition, we may not be able to attract the attention of brokerage firms.

Because we became public through a "reverse acquisition", securities analysts of brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.

Applicable regulatory requirements, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for the Company to retain or attract qualified officers and directors, which could adversely affect the management of its business and its ability to obtain or retain listing of its common stock.

The Company may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.

Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual's independence from the corporation and level of experience in finance and accounting matters. The Company may have difficulty attracting and retaining directors with the requisite qualifications. If the Company is unable to attract and retain qualified officers and directors, the management of its business and its ability to obtain or retain listing of our shares of common stock on any stock exchange (assuming the Company elects to seek and are successful in obtaining such listing) could be adversely affected.

As an issuer of "penny stock", the protection provided by the federal securities laws relating to forward looking statements does not apply to us.

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable

 
ITEM 2. PROPERTIES

We maintain our offices at 63 Great Road, Maynard, MA 01754. We do not intend to expand our operations for the foreseeable future and do not intend to lease additional space. Our arrangement is on month-to-month basis and we are not being charged for the use of the space.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business.

On May 17, 2013, we received notification from Zydus Pharmaceuticals (USA) Inc. ("Zydus") that Zydus had submitted Abbreviated New Drug Application No. 204663 to the FDA seeking approval to engage in the commercial manufacture, use or sale of generic versions of the 15 mg and 30 mg dosages of our SuprenzaÒ tablets. The notification informed us that Zydus was seeking to manufacture and sell its generic product prior to the expiration of U.S. Patent No. 6,149,938 (the "'938 patent") which is listed in the Orange Book and covers SuprenzaÒ, and that the Zydus ANDA contained a certification that its proposed generic product does not infringe the '938 patent ("Paragraph IV Certification"). On June 19, 2013, we received a separate notification from Zydus that it was also pursuing approval for the 37.5 mg dosage of SuprenzaÒ under the same-numbered ANDA, with a separate Paragraph IV Certification.

In response, within 45 days of receiving the first notification from Zydus, we and our partners (Alpex Pharma, S.A. and Prenzamax, LLC), filed suit against Zydus and its parent Cadila Healthcare Limited (d/b/a Zydus Cadila) in Federal District Court in Delaware and New Jersey for infringement of the '938 patent pursuant, pursuant to the Hatch-Waxman statutory regime.

Several months after initiation of the suit, the Company initiated discussions with Zydus to seek a resolution to this dispute. We diligently negotiated a settlement agreement and dismissal of the pending lawsuit to the mutual satisfaction of all parties. As a result of this mutual agreement, the district court officially terminated the suit on November 21, 2014. The terms of the settlement agreement remain confidential per mutual agreement of the parties. The resolution of this matter has been deemed a success by Akrimax and its partners Citius, Prenzamax, and Alpex.

On November 24, 2015, a petition for inter partes review (the "Petition") was filed by Mr. J. Kyle Bass and Mr. Erich Spengenberg with the Patent Trial and Appeal Board (the "PTAB") of the U.S. Patent and Trademark Office ("USPTO"), challenging claims of U.S. Patent No. 8,440,170 (the "170 Patent"), titled "Orally Disintegrating Tablets with Speckled Appearance," which patent is owned by Alpex Pharma and is licensed by the Company. The inter partes review procedure allows a party to challenge the patentability of a patent before the PTAB. A patentability trial will commence if the PTAB decides to institute the inter partes review proceedings after considering the Petition and Alpex's preliminary response to the Petition. Pursuant to our agreement with Alpex, it is Alpex' primary responsibility to defend the patents. Alpex is reviewing its options and will inform us of its decision accordingly. If Alpex elects to not defend this patent, then we have the right to do so. The 170 patent relates to the appearance of the Suprenza tablets and we believe that loss of this patent will not have any material impact on Suprenza sales. Since we have already settled with Zydus on the main patent and we fully expect to have competition to our Suprenza, we are unlikely to defend this patent.

 
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock was not traded during the nine months ended September 30, 2014 and the year ended December 31, 2013. We were quoted under the ticker symbol TRLO.QB through October 9, 2014. On October 10, 2014, our ticker symbol changed to CTXR.QB.

Our common stock traded on a limited basis during the year ended September 30, 2015. The following table sets forth the range of the high and low bid quotations of our common stock for the last four fiscal quarters, as reported by the OTCQB:

On December 1, 2015, the closing bid price of our common stock as reported by the OTCQB was $1.20 per share.

Holders of Common Stock

We are authorized to issue 90,000,000 shares of common stock, $0.001 par value per share. As of December 1, 2015, we have 34,701,220 shares of common stock issued and outstanding and there are approximately 81 shareholders of record of the Company's common stock.

Each share of common stock shall have one (1) vote per share for all purposes. The holders of a majority of the shares entitled to vote, present in person or represented by proxy shall constitute a quorum at all meetings of our shareholders. Our common stock does not provide preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our common stock holders are not entitled to cumulative voting for election of the board of directors.

Holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available therefore as well as any distributions to the security holder. We have never paid cash dividends on our common stock, and do not expect to pay such dividends in the foreseeable future.

In the event of a liquidation, dissolution or winding up of our company, holders of common stock are entitled to share ratably in all of our assets remaining after payment of liabilities. Holders of common stock have no preemptive or other subscription or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock.

Dividends

We have never paid dividends on our Common Stock. We intend to follow a policy of retaining earnings, if any, to finance the growth of our business and do not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of future dividends on the Common Stock will be at sole discretion of the Board of Directors and will depend on the our profitability and financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors deemed relevant.

Securities Authorized for Issuance under Equity Compensation Plans

On September 12, 2014, we adopted the 2014 Stock Incentive Plan (the "2014 Plan"). Under the 2014 Plan we are authorized to issue up to 13,000,000 shares of our common stock to employees, directors, consultants and advisors in exchange for consideration in the form of services (See Item 11 – "Executive Compensation"). As of September 30, 2015, we have issued 3,900,000 options pursuant to the 2014 Plan.

Recent Sales of Unregistered Securities

Between July 12, 2010 and March 25, 2013, Citius issued convertible promissory notes in the aggregate principal amount of $1,685,000, including $850,000 to Dr. Geoffrey Clark, Citius's former Chief Medical Officer, and $835,000 to Dr. Reinier Beeuwkes, Citius's former Chief Executive Officer. The convertible notes accrued interest at 3% per year, were payable on demand commencing 10 years after issuance, and were convertible into common stock following a reorganization or conversion into a corporation, at a conversion price equal to the greater of the fair market value or $0.25 ($0.60 if the common stock trade is traded on a national securities exchange). The outstanding convertible notes and accrued interest were converted into 3,061,355 Citius Membership Interests on July 31, 2014.

In April 2013, Citius issued a subordinated convertible promissory note in the principal amount of $350,000 to Lifestyle Healthcare LLC. The note accrued interest at 10% per year and was payable on demand any time after April 2014. The note and accrued interest was converted into 606,531 Citius Membership Interests on July 31, 2014.

On November 19, 2013, Citius issued two promissory notes, each in the principal amount of $300,000, to Dr. Geoffrey Clark and Dr. Reinier Beeuwkes, respectively. Each note bears interest at the rate of 5% per year. The principal amount of each note, together with accrued interest with respect to the amount of principal due, was payable in December 2014.

In May 2014, Citius sold 200,000 Membership Interests to Leonard Mazur for a purchase price of $50,000.

On September 12, 2014, in connection with the Reverse Acquisition, each Citius Membership Interest was exchanged for one share of our Common Stock.

On September 12, 2014, we sold 3,400,067 Units for a purchase price of $0.60 per Unit, each Unit consisting of one share of common stock and one five-year warrant (the "Investor Warrants") to purchase one share of common stock at an exercise price of $0.60, (the "Private Offering"). As of September 12, 2014, we raised gross proceeds of $2,040,040. The exercise price of the Investor Warrants is subject to adjustment, for up to one year, in the event that we sell common stock at a price lower than the exercise price, subject to certain exceptions. The Investor Warrants are redeemable by us at a price of $0.001 per Investor Warrant at any time subject to the conditions that (i) our Common Stock has traded for twenty (20) consecutive trading days with a closing price of at least $1.50 per share with an average trading volume of 50,000 shares per day and (ii) we provide 20 trading days prior notice of the redemption and the closing price of our Common Stock is not less than $1.17 for more than any 3 days during such notice period and (iii) the underlying shares of Common Stock are registered.

On September 12, 2014, the Company issued its President and CEO options to purchase 3,300,000 shares of common stock at $.45 per share pursuant to the 2014 Plan.

On December 31, 2014, note holders requested conversion of $600,000 in Promissory Notes and accrued interest of $33,333 into 1,055,554 shares of common stock at a conversion price of $0.60 per share.

Between March 19, 2015 and September 30, 2015, we sold an aggregate of 2,837,037 Units at $0.54 per Unit and an aggregate of 200,000 Units at a price of $0.60 per Unit.

Between October 1, 2015 and November 20, 2015, we sold an additional 416,667 Units for a purchase price of $0.54 per Unit and 166,667 Units for a purchase price of $0.60 per Unit.

The transactions described above were exempt from registration under Section 4(a)(2) of the Securities Act.

Issuer Purchases of Equity Securities

We did not make any purchases of our common stock during the three months ended September 30, 2015, which is the fourth quarter of our fiscal year.

ITEM 6. SELECTED FINANCIAL DATA

Not required.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in this annual report on Form 10-K. Management's discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words "believe," "plan," "intend," "anticipate," "target," "estimate," "expect" and the like, and/or future tense or conditional constructions ("will," "may," "could," "should," etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties including those under "Risk Factors" in Item 1A in this Form 10-K that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the filing date of this report.

Historical Background

Citius Pharmaceuticals, Inc. ("Citius" or the "Company") is a pharmaceutical company focused on developing innovative formulations aimed at improving the delivery and compliance of approved drugs. On September 12, 2014, we acquired Citius Pharmaceuticals, LLC as a wholly-owned subsidiary.

Citius Pharmaceuticals, LLC was founded in Massachusetts in January 2007. Activities since Citius Pharmaceuticals, LLC's inception through September 30, 2015, were devoted primarily to the development and commercialization of therapeutic products for large and growing markets using innovative patented or proprietary formulations and novel drug delivery technology.

Through September 30, 2015, the Company has devoted substantially all of its efforts to product development, raising capital, building infrastructure through strategic alliances and coordinating activities relating to its first commercial product Suprenza. The Company has not yet realized any revenues from its planned principal operations.

Accounting principles generally accepted in the United States require that a company whose security holders retain the majority voting interest in the combined business be treated as the acquirer for financial statement reporting purposes. The acquisition was accounted for as a "Reverse Acquisition" whereby Citius Pharmaceuticals, LLC was deemed to be the accounting acquirer. The historical financial statements of Citius Pharmaceuticals, LLC are presented as our historical financial statements. The historical fiscal year end of Citius Pharmaceuticals, LLC was December 31. In connection with the Reverse Acquisition, we adopted the fiscal year end of Citius Pharmaceuticals, Inc. thereby changing our fiscal year end from December 31 to September 30. As a result, the fiscal year ended September 30, 2014 consists of only nine months. The following analysis of our results of operations reflects the accounting treatment required as a result of the Reverse Acquisition.

Business Agreements

Alpex Pharma S.A.

On June 12, 2008, the Company entered into a collaboration and license agreement (the "Alpex Agreement") with Alpex Pharma S.A. ("Alpex"), in which Alpex granted the Company an exclusive right and license to use certain Alpex intellectual property in order to develop and commercialize orally disintegrating tablet formulations of pharmaceutical products in United States, Canada and Mexico. In addition, Alpex manufactures Suprenza, the Company's commercialized pharmaceutical product, on a contract basis. The agreement was amended on November 15, 2011 as part of an Amendment and Coordination Agreement (see the "Three-Party Agreement" below).

Under the terms of the Alpex Agreement, as amended by the Three-Party Agreement dated November 15, 2011 (see below), Alpex is entitled to a payment per tablet manufactured and a percentage of all milestone, royalty and other payments received by the Company from Prenzamax, LLC, pursuant to a sublicense agreement (see below). A milestone is generally understood in the industry as a completion of a specific defined task towards the completion of a project or performance of a contract. Pursuant to our agreement with Alpex, we are required to pay Alpex for the completion of certain tasks including, but not limited to, the development of the analytical methods, formulations and filings of the NDA, which we have done. In addition, under the terms of the Alpex Agreement, Alpex retained the right to use the clinical data generated by the Company to file for regulatory approval and market Suprenza in the rest of the world. In the event that Alpex has such sales, Alpex will pay the Company a percentage royalty on net sales, as defined ("Alpex Revenue"). No milestone, royalty or other payments have been earned or received by the Company through September 30, 2015.

Prenzamax, LLC

On November 15, 2011, the Company entered into an exclusive license agreement (the "Sublicense Agreement") with Prenzamax, LLC ("Prenzamax"), in which the Company granted Prenzamax and its affiliates the exclusive right to commercialize Suprenza in the United States. Prenzamax is an affiliate of Akrimax, a related party and was formed for the specific purpose of managing the Sublicense Agreement. Under the terms of the Sublicense Agreement, Prenzamax is to pay the Company a percentage of the product's EBITDA, as defined ("Profit Share Payments"). In addition, Prenzamax is to reimburse the Company directly for certain development costs. These payments are to commence once Prenzamax has achieved profitability, as defined in the Sublicense Agreement. Further, under the terms of the Sublicense Agreement, Prenzamax is required to share in the royalty payment due to Alpex under the Alpex Agreement. In addition, Prenzamax is entitled to a percentage of the Alpex Revenue received by the Company.

The Company has not been reimbursed for any development costs nor has it earned any Profit Share Payments through September 30, 2015.

Three-Party Agreement

On November 15, 2011, the Company, Alpex and Prenzamax entered into the Three-Party Agreement wherein the terms of the Alpex Agreement were modified and Prenzamax and the Company agreed to each pay a portion of certain regulatory filing fees for as long as Prenzamax is purchasing Suprenza from Alpex pursuant to the Three-Party Agreement.

Results of Operations for Year Ended September 30, 2015 compared to Nine Months Ended September 30, 2014

Revenues

We did not generate any revenues for the year ended September 30, 2015 and the nine months ended September 30, 2014. Beginning in May 2012, our strategic sales and marketing partner, Prenzamax, generated revenues from the sale of Suprenza, our first commercial product. Under the partnering agreement, we were not entitled to any revenues during the year ended September 30, 2015 and the nine months ended September 30, 2014. It is unlikely that we will ever receive any material revenues from Suprenza.

Research and Development Expenses

For the year ended September 30, 2015, research and development expenses were $1,797,045 as compared to $574 during the nine months ended September 30, 2014. The $1,796,471 increase in 2015 was primarily due to costs incurred in the development of our product for the treatment of hemorrhoids in the current year and our limited working capital in the prior period. We are actively seeking additional capital in order to fund our research and development efforts.

General and Administrative Expenses

For the year ended September 30, 2015, general and administrative expenses were $946,613, as compared to $183,044 for the nine months ended September 30, 2014. The increase of $763,569 was attributable to additional compensation costs for our new Chief Executive Officer, plus additional financial and consulting expenses, higher insurance costs and increases in professional fees due to being a public company. Expense increases in the year ended September 30, 2015 were also attributable to our ability to fund our efforts as a result of the working capital raised in our private placements. Expenses were limited in 2014 as we focused our efforts solely on raising new capital to fund operations.

Stock-based Compensation Expense

For the year ended September 30, 2015, stock-based compensation expense was $486,271 compared to $470,185 for the nine months ended September 30, 2014. The $16,086 increase in 2015 was primarily due to options granted to two consultants during the year ended September 30, 2015. A majority of the stock-based compensation expense for the year ended September 30, 2015 and all of the stock-based compensation expense for the nine month period ended September 30, 2014 relates to options granted to our Chief Executive Officer in September 2014 in connection with his employment agreement to purchase 3,300,000 shares of the Company's common stock.

Other Income (Expense)

Interest income earned was $3,066 for the year ended September 30, 2015 compared to $555 for the nine months ended September 30, 2014. The interest income was earned on the proceeds of our private offerings that were invested in money market accounts.

Gain on revaluation of derivative warrant liability for the year ended September 30, 2015 was $332,095 compared to a gain of $8,588 for the nine months ended September 30, 2014 was $8,588. The $332,095 gain for the year ended September 30, 2015 was primarily due to the decrease in our stock price used to calculate the fair value of the derivative liability from $0.60 at September 30, 2014 to $0.54 at September 30, 2015. The $8,588 gain for the nine months ended September 30, 2014 was due to the change in the fair value of the derivative warrant liability that we recognized in connection with the first closing of the Private Offering on September 12, 2014.

For the year ended September 30, 2015, interest expense decreased by $85,567 in comparison to the nine months ended September 30, 2014. On July 31, 2014, $2,035,000 of convertible promissory notes and accrued interest of $196,058 were converted to equity, and on December 31, 2014, $600,000 of promissory notes and accrued interest of $33,333 were converted to equity. Since December 31, 2014 the Company has had no outstanding interest bearing debt.

Net Loss

For the year ended September 30, 2015, we incurred a net loss of $2,902,268 compared to a net loss of $737,727 for the nine months ended September 30, 2014. The $2,164,541 increase in the net loss was primarily due to our $1,796,471 increase in research and development expenses.

Results of Operations for Nine Months Ended September 30, 2014 compared to Year Ended December 31, 2013

Revenues

We did not generate any revenues for the nine months ended September 30, 2014 and the year ended December 31, 2013. Beginning in May 2012, our strategic sales and marketing partner, Prenzamax, generated revenues from the sale of Suprenza, our first commercial product. Under the partnering agreement, we were not entitled to any revenues during the nine months ended September 30, 2014 and the year ended December 31, 2013.

Research and Development Expenses

For the nine months ended September 30, 2014, research and development expenses were $574 as compared to $492,136 during the year ended December 31, 2013. The $491,562 decrease in 2014 was primarily due to our limited working capital. During the nine months ended September 30, 2014, we were actively seeking to raise additional capital in order to fund our research and development efforts.

General and Administrative Expenses

For the nine months ended September 30, 2014, general and administrative expenses decreased by $507,352, or approximately 73%, compared to general and administrative expenses for the year ended December 31, 2013. Expense decreases were primarily attributable to our limited working capital as we focused our efforts solely on raising new capital to fund operations.

General and administrative staffing expenses decreased by $338,656 during the nine months ended September 30, 2014 compared to the year ended December 31, 2013 due to the resignation of certain employees. In addition, professional fees decreased by $176,686 primarily due to higher financing costs incurred for legal services, financial consulting and accounting fees during the year ended December 31, 2013.

Stock-based Compensation Expense

For the nine months ended September 30, 2014, stock-based compensation expense was $470,185 as compared to no expense for the year ended December 31, 2013. The $470,185 expense was due to the stock options to purchase 3,300,000 shares of the Company's common stock granted to our Chief Executive Officer in connection with his employment agreement.

Other Income (Expense)

Interest income earned on the net proceeds of our September 12, 2014 Private Offering was $555 for the nine months ended September 30, 2014. There was no interest income for the year ended December 31, 2013.

Gain on revaluation of derivative warrant liability for the nine months ended September 30, 2014 was $8,588. The gain was due to the change in the fair value of the derivative warrant liability that we recognized in connection with the first closing of the Private Offering on September 12, 2014.

For the nine months ended September 30, 2014, interest expense decreased by $12,404 in comparison to the year ended December 31, 2013. On July 31, 2014, $2,035,000 of convertible promissory notes and accrued interest of $196,058 were converted to equity. The Company borrowed $1,175,000 during the year ended December 31, 2013. In addition, we incurred $42,000 in debt issuance costs in April 2013 that were amortized to interest expense over the twelve month term of the note. Amortization expense was $14,000 and $28,000 for the nine months ended September 30, 2014 and the year ended December 31, 2013, respectively.

Net Loss

For the nine months ended September 30, 2014, we incurred a net loss of $737,727 compared to a net loss for the year ended December 31, 2013 of $1,288,003. The decrease in the net loss was primarily due to our decreased activities resulting from our inability to fund our operations.

LIQUIDITY AND CAPITAL RESOURCES

Going Concern Uncertainty and Working Capital

Citius has incurred operating losses of $2,902,268, $737,727 and $1,288,003 for the year ended September 30, 2015, the nine months ended September 30, 2014, and the year ended December 31, 2013, respectively. At September 30, 2015, Citius had a stockholders' deficit of $635,213 and an accumulated deficit of $9,040,549. Citius' net cash used in operations during the year ended September 30, 2015, the nine months ended September 30, 2014, and the year ended December 31, 2013 was $2,385,416, $183,164 and $1,095,266, respectively.

As of September 30, 2015, Citius had a working capital deficit of $640,614. The working capital deficit was attributable to the operating losses incurred by the Company since inception offset by our capital raising activities. At September 30, 2015, Citius had cash and cash equivalents of $676,137 available to fund its operations. The Company's primary sources of cash flow since inception have been from financing activities. During the year ended September 30, 2015 and the nine months ended September 30, 2014, the Company received net proceeds of $1,509,493 and $1,680,834, respectively from the issuance of equity. During the year ended December 31, 2013, the Company received proceeds of $1,175,000 from the issuance of debt. Our primary uses of operating cash were for product development and commercialization activities, regulatory expenses, employee compensation, consulting fees, legal and accounting fees, and insurance and travel expenses.

On July 31, 2014, the note holders demanded conversion of the outstanding $1,685,000 in Convertible Notes, the $350,000 Subordinated Note and the accrued interest of $196,058 into 3,667,886 membership interests of Citius. Citius and the two note holders agreed to convert the Convertible Notes and accrued interest at the 2014 Private Offering price of $0.60 per share of common stock while the Subordinated Note issued in the 2013 private placement converted at $0.65 per share. All the Citius membership interests were exchanged on a one for one basis for shares of common stock in the Reverse Acquisition.

On September 12, 2014, the Company sold 3,400,067 units ("Units") for a purchase price of $0.60 per Unit for gross proceeds of $2,040,040 and net proceeds of $1,630,834. Each Unit consists of one share of common stock and one five-year warrant (the "Investor Warrants") to purchase one share of common stock at an exercise price of $0.60, (the "Private Offering"). The exercise price of the Investor Warrants is subject to adjustment, for up to one year, if the Company issues common stock at a price lower than the exercise price, subject to certain exceptions. The Investor Warrants will be redeemable by the Company at a price of $0.001 per Investor Warrant at any time subject to the conditions that (i) the common stock has traded for twenty (20) consecutive trading days with a closing price of at least $1.50 per share with an average trading volume of 50,000 shares per day and (ii) the Company provides 20 trading days prior notice of the redemption and the closing price of the common stock is not less than $1.17 for more than any 3 days during such notice period and (iii) the underlying shares of common stock are registered.

On December 31, 2014, the note holders requested conversion of $600,000 in Promissory Notes and accrued interest of $33,333 into 1,055,554 shares of common stock at a conversion price of $0.60 per share.

Between March 19, 2015 and September 14, 2015, the Company sold an additional 2,837,037 Units for a purchase price of $0.54 per Unit and 200,000 Units for a purchase price of $0.60 per Unit for gross proceeds of $1,652,000.

We expect that we will have sufficient capital to continue our operations for the next six months however, based upon our cash availability and expenses, we will not have sufficient capital to fund our operations for the next twelve months. We plan to raise additional capital in the future to support our operations. There is no assurance, however, that we will be successful in raising the needed capital or that the proceeds will be received in a timely manner to fully support our operations.

Inflation

Our management believes that inflation has not had a material effect on our results of operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe the judgments and estimates required by the following accounting policies to be critical in the preparation of our financial statements.

Principles of Consolidation

As a result of the Reverse Acquisition, the accompanying consolidated financial statements include the operations of Citius Pharmaceuticals, LLC (the accounting acquirer) and its parent, Citius Pharmaceuticals, Inc. (formerly Trail One) since the Reverse Acquisition. All significant inter-company balances and transactions have been eliminated in consolidation.

Research and Development

Research and development costs, including upfront fees and milestones paid to collaborators who are performing research and development activities under contractual agreement with us, are expensed as incurred. We defer and capitalize our nonrefundable advance payments that are for research and development activities until the related goods are delivered or the related services are performed. When we are reimbursed by a collaboration partner for work we perform, we record the costs incurred as research and development expenses and the related reimbursement as a reduction to research and development expenses in our statement of operations. Research and development expenses primarily consist of clinical and non-clinical studies, materials and supplies, third-party costs for contracted services, and payments related to external collaborations and other research and development related costs.

Patents and Trademarks

Certain costs of outside legal counsel related to obtaining our patents and trademarks are capitalized. Patent costs are amortized over the legal life of the patents, generally twenty years, starting at the patent issuance date. The costs of unsuccessful and abandoned applications are expensed when abandoned. The cost of maintaining existing patents are expensed as incurred.

Derivative Warrant Liability

The FASB ASC 815-40: Derivatives and Hedging-Contracts in Entity's Own Equity requires freestanding contracts that are settled in a company's own stock, including common stock warrants, to be designated as an equity instrument, asset or a liability. Under the provisions of ASC 815-40, a contract designated as an asset or a liability must be carried at fair value on a company's balance sheet, with any changes in fair value recorded in the company's results of operations. A contract designated as an equity instrument must be included within equity, and no fair value adjustments are required from period to period. The 3,400,067 Investor Warrants, the 680,013 warrants underlying the placement agent's Unit warrants and the 1,000,000 warrants issued for investment banking services in the Private Offering on September 12, 2014 were separately accounted for as liabilities at issuance. In addition, the 3,037,037 Investor Warrants issued between March 19, 2015 and September 14, 2015 were accounted for as liabilities at issuance. The warrants are classified as liabilities because the exercise price of the warrants is subject to adjustment in the event that the Company issues common stock for less than $0.60 per share within one-year of the issuance of the warrants. The 2015 private placements did not result in an adjustment of the exercise price.

The Company performs valuations of the warrants issued in the Private Offering using a probability weighted Black-Scholes Pricing Model which value was compared to a Binomial Option Pricing Model for reasonableness. The model uses market-sourced inputs such as underlying stock prices, risk-free interest rates, volatility, expected life and dividend rates and has also considered the likelihood of "down-round" financings. Selection of these inputs involves management's judgment and may impact net income. Due to our limited operating history and limited number of sales of our Common Stock, we estimate our volatility based on a number of factors including the volatility of comparable publicly traded pharmaceutical companies. The volatility factor used in the Black-Scholes Pricing Model has a significant effect on the resulting valuation of the derivative liabilities on our balance sheet. The volatility calculated at September 30, 2015 was 57%. We used a risk-free interest rate of 1.37% and estimated lives of 4.47 to 4.96 years, which are the remaining contractual lives of the warrants. The volatility calculated at September 30, 2014 was 54%. We used a risk-free interest rate of 1.78% and an estimated life of 4.95 years, which is the remaining contractual life of the warrants.

On September 12, 2015, anti-dilution rights related to warrants to purchase 5,080,080 shares of common stock expired which resulted in a reclassification from derivative warrant liability to additional paid-in capital of $1,148,328.

Income Taxes

Citius Pharmaceuticals, LLC was treated as a partnership for federal and state income taxes prior to the Reverse Acquisition. A partnership's income or loss is allocated directly to the Members for income tax purposes. Accordingly, there is no provision for federal and state income taxes in the accompanying financial statements for the year ended December 31, 2013.

We follow accounting guidance regarding the recognition, measurement, presentation and disclosure of uncertain tax positions in the financial statements. Tax positions taken or expected to be taken in the course of preparing our tax returns, including the position that Citius Pharmaceuticals, LLC qualified as a pass-through entity, are required to be evaluated to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authorities. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded in the financial statements. There are no uncertain tax positions, however the Company is still in the process of filing their 2013, 2014 and 2015 tax returns.

Any interest or penalties are charged to expense. None have been recognized in these financial statements. Generally, we are subject to federal and state tax examinations by tax authorities for all years subsequent to December 31, 2011.

After the Reverse Acquisition, we recognize deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We provide a valuation allowance for deferred tax assets for which we do not consider realization of such assets to be more likely than not.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Citius Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Citius Pharmaceuticals, Inc. as of September 30, 2015 and 2014, and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the year ended September 30, 2015, the nine month period ended September 30, 2014, and the year ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Citius Pharmaceuticals, Inc. as of September 30, 2015 and 2014, and the results of its operations and its cash flows for the year ended September 30, 2015, the nine month period ended September 30, 2014, and the year ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, has negative cash flows from operations, and has a significant accumulated deficit. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Wolf & Company, P.C.                     

Boston, Massachusetts

December 14, 2015

 CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2015 AND 2014

See accompanying report of independent registered public accounting firm and notes to the consolidated financial statements.

 CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying report of independent registered public accounting firm and notes to the consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE YEAR ENDED SEPTEMBER 30, 2015, THE NINE MONTHS ENDED SEPTEMBER 30, 2014,

AND THE YEAR ENDED DECEMBER 31, 2013