U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: DecemberMarch 31, 20172022

OR

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

For the transition period from ______________ to ______________

Commission File Number 333-170781001-38174

Citius Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

11 Commerce Drive, First Floor, Cranford, NJ 07016

(Address of principal executive offices and zip code)

(908) 967-6677

(Registrant’s telephone number, including area code)

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of February 7, 2018,May 10, 2022, there were 9,975,518146,129,630 shares of common stock, $0.001 par value, of the registrant issued and outstanding.

Citius Pharmaceuticals, Inc.

FORM 10-Q

TABLE OF CONTENTS

DecemberMarch 31, 20172022

EXPLANATORY NOTE

In this Quarterly Report on Form 10-Q, and unless the context otherwise requires, the “Company,” “we,” “us”“us,” and “our” refer to Citius Pharmaceuticals, Inc. and its wholly ownedwholly-owned subsidiaries Citius Pharmaceuticals, LLC, and Leonard-Meron Biosciences, Inc., Citius Acquisition Corp., and its majority-owned subsidiary, NoveCite, Inc., taken as a whole.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 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:

The foregoing list does not contain all of the risks and uncertainties. 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;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 - FINANCIAL INFORMATION

Item 1. Financial Statements

CITIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Unaudited)

See notes to unaudited condensed consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED DECEMBERMARCH 31, 20172022 AND 20162021

(Unaudited)

See notes to unaudited condensed consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED DECEMBERMARCH 31, 20172022 AND 2021

(Unaudited)

See notes to unaudited condensed consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREESIX MONTHS ENDED DECEMBERMARCH 31, 20172022 AND 20162021

(Unaudited)

See notes to unaudited condensed consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREESIX MONTHS ENDED DECEMBERMARCH 31, 20172022 AND 20162021

(Unaudited)

1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Citius Pharmaceuticals, Inc. (“Citius”Citius,” the “Company,” “we” or the “Company”“us”) is a specialty pharmaceutical company dedicated to the development and commercialization of critical care products targeting unmet needs with a focus on anti-infectives,anti-infective products in adjunct cancer care, and unique prescription products. The Company was founded as Citius Pharmaceuticals, LLC, a Massachusetts limited liability company, on January 23, 2007. On September 12, 2014, Citius Pharmaceuticals, LLC entered into a Share Exchangeproducts and Reorganization Agreement with Citius Pharmaceuticals, Inc. (formerly Trail One, Inc.), a publicly traded company incorporated under the laws of the State of Nevada. Citius Pharmaceuticals, LLC became a wholly-owned subsidiary of Citius.stem cell therapy.

On March 30, 2016, Citius acquired Leonard-Meron Biosciences, Inc. (“LMB”) as a wholly-owned subsidiary by issuing shares of its common stock.

On September 11, 2020, we formed NoveCite, Inc. (“NoveCite”), a Delaware corporation, of which we own 75% (7,500,000 shares) of the issued and outstanding capital stock (see “Acquisition of Leonard-Meron Biosciences, Inc.” below)Note 3).

On August 23, 2021, we formed Citius Acquisition Corp., as a wholly-owned subsidiary in conjunction with the acquisition of I/ONTAK (formerly E7777), but no activity has occurred to date.

In-process research and development (“IPR&D”) consists of (i) the $19,400,000 acquisition value of LMB’s leading drug candidate (Mino-Lok), which is an antibiotic solution used to treat catheter-related bloodstream infections and is expected to be amortized on a straight-line basis over a period of eight years commencing upon revenue generation, and (ii) the $40,000,000 acquisition value of the exclusive license for I/ONTAK (denileukin diftitox), which is a late-stage oncology immunotherapy for the treatment of cutaneous T-cell lymphoma (“CTCL”), a rare form of non-Hodgkin lymphoma, and is expected to be amortized on a straight-line basis over a period of twelve years commencing upon revenue generation.

Goodwill of $9,346,796 represents the value of LMB’s industry relationships and its assembled workforce. Goodwill will not be amortized but will be tested at least annually for impairment.

Citius is subject to a number of risks common to companies in the pharmaceutical industry including, but not limited to, risks related to the development by Citius or its competitors of research and development stage products,product candidates, market acceptance of its products,product candidates that might be approved, competition from larger companies, dependence on key personnel, dependence on key suppliers and strategic partners, the Company’s ability to obtain additional financing and the Company’s compliance with governmental and other regulations.

Acquisition of Leonard-Meron Biosciences, Inc.

On March 30, 2016, the Company acquired all of the outstanding stock of Leonard-Meron Biosciences, Inc. (“LMB”) by issuing 1,942,456 shares of its common stock. As of March 30, 2016, the stockholders of LMB received approximately 41% of the issued and outstanding common stock of the Company. In addition, the Company converted the outstanding common stock warrants of LMB into 243,020 common stock warrants of the Company and converted the outstanding common stock options of LMB into 77,252 common stock options of the Company.

The net assets of LMB acquired, including identifiable intangible assets of $19,400,000 related to in-process research and development, amounted to $17,428,277.

The fair value of LMB’s net assets acquired on the date of the acquisition, based on management’s analysis of the $17,482,093 fair value of the shares of common stock issued, the $1,071,172 fair value of the common stock warrants issued, and the $461,808 fair value of the vested portion of the common stock options issued was $19,015,073.

The Company recorded goodwill of $1,586,796 for the excess of the purchase price of $19,015,073 over the net assets acquired of $17,428,277.

In-process research and development represents the value of LMB’s leading drug candidate which is an antibiotic solution used to treat catheter-related bloodstream infections (Mino-Lok™) and is expected to be amortized on a straight-line basis over a period of eight years commencing upon revenue generation. Goodwill represents the value of LMB’s industry relationships and its assembled workforce. Goodwill will not be amortized but will be tested at least annually for impairment.

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Preparation — The accompanying condensed consolidated financial statements include the operations of Citius Pharmaceuticals, Inc., and its wholly-owned subsidiaries, Citius Pharmaceuticals, LLC, LMB, and LMB.Citius Acquisition Corp., and its majority-owned subsidiary NoveCite. Citius Acquisition Corp. is currently inactive. All significant inter-company balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted inon the United States of America for interimsame basis as the annual consolidated financial information, without being audited, pursuant to the rulesstatements and, regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, reflect all adjustments, consideredwhich include only normal recurring adjustments, necessary to makefairly state the condensed consolidated financial statements not misleading have been included. Operatingposition of the Company as of March 31, 2022, and the results of its operations and cash flows for the three and six month periods ended March 31, 2022 and 2021. The operating results for the three monthsand six month periods ended DecemberMarch 31, 20172022 are not necessarily indicative of the results that may be expected for the year ending September 30, 2018. The2022. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 20172021 filed with the Securities and Exchange Commission.

There have been no recently issued accounting pronouncements that have had or are expected to have a material impact on the Company’s consolidated financial statements.

Use of Estimates — Our accounting principles require our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Estimates having relatively higher significance include thestock-based compensation, accounting for acquisitions, stock-based compensation,leases, valuation of warrants, and income taxes. Actual results could differ from those estimates and changes in estimates may occur.

Basic and Diluted Net Loss per Common Share — Basic and diluted net loss per common share applicable to common stockholders is computed by dividing net loss applicable to common stockholders in each period by the weighted average number of shares of common stock outstanding during such period. For the periods presented, common stock equivalents, consisting of stock options warrants and convertible securitieswarrants were not included in the calculation of the diluted loss per share because they were anti-dilutive.

Income TaxesRecently Issued Accounting Standards — We recognize deferred tax assets and liabilities for the expected future tax consequences or events that have been included in our condensed consolidated financial statements and/or tax returns. Deferred tax assets and liabilities are based upon the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for loss and credit carryforwards using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

We provide reservesIn August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for potential payments of taxConvertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to various tax authorities related to uncertain tax positions when management determines that it is probable that a loss will be incurred related to these mattersaccount for contracts on an entity’s own equity. This ASU eliminates the beneficial conversion and the amount of the loss is reasonably determinable.

On December 22, 2017, the Tax Cuts and Jobs Act (“the Act”), was signed into law by the President of the United States. The Act includes a number of changes, including the lowering of the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018, and the establishment of a territorial-style systemcash conversion accounting models for taxing foreign-source income of domestic multinational corporations. The Company has determined and completedconvertible instruments. It also amends the accounting for certain income tax effectscontracts in an entity’s own equity that are currently accounted for as derivatives because of Actspecific settlement provisions. In addition, this ASU modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract Liabilities. Under the new guidance (ASC 805-20-30-28), the acquirer should determine what contract assets and/or contract liabilities it would have recorded under Accounting Standards Codification (“ASC”) 606 (the revenue guidance) as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquiree. The recognition and measurement of those contract assets and contract liabilities will likely be comparable to what the acquiree has recorded on its books under ASC 606 as of the acquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ASU 2021-08 is effective for the Company in the current reporting period. Asfirst quarter of fiscal 2024. Early adoption is permitted, including in an interim period, for any period for which financial statements have not yet been issued. However, adoption in an interim period other than the Company records a valuation allowance for its entire deferred income tax asset, there was no impactfirst fiscal quarter requires an entity to apply the reported amounts in these financials statements as a resultnew guidance to all prior business combinations that have occurred since the beginning of the Act.annual period in which the new guidance is adopted. The Company is currently evaluating the adoption date of ASU 2021-08 and the impact, if any, adoption will have on its financial position and results of operations.

2. LIQUIDITY AND MANAGEMENT’S PLAN

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company experienced negative cash flows from operations of $2,441,082$14,316,714 for the threesix months ended DecemberMarch 31, 2017. 2022. As a result of the Company’s common stock offerings and common stock warrant exercises during the year ended September 30, 2021, the Company had working capital of approximately $54,200,000 at March 31, 2022. The Company estimates that its available cash resources will be sufficient to fund its operations through March 2023.

The Company has generated no operating revenue to date and has principally raised capital through the issuance of debt and equity instruments to finance its operations. At December 31, 2017,The Company’s continued operations beyond March 2023, including its development plans for Mino-Lok, Mino-Wrap, Halo-Lido, NoveCite and I/ONTAK, will depend on its ability to obtain regulatory approval to market Mino-Lok and/or I/ONTAK and generate substantial revenue from the sale of Mino-Lok and/or I/ONTAK and on its ability to raise additional capital through various potential sources, such as equity and/or debt financings, strategic relationships, or out-licensing of its product candidates. However, the Company had limited capital to fund its operations. This raises substantial doubt about the Company’s ability to continue as a going concern.

The Company plans to raise capital through equity financings from outside investors as well as raise additional funds from existing investors and continued borrowings under related party debt agreements. There iscan provide no assurance, however,assurances on regulatory approval, commercialization or future sales of Mino-Lok or I/ONTAK or that the Company will be successful in raising the needed capital and, if funding is available, that itfinancing or strategic relationships will be available on acceptable terms, acceptableor at all. If the Company is unable to the Company. The accompanying condensed consolidated financial statements do not include any adjustments that might resultraise sufficient capital, find strategic partners or generate substantial revenue from the outcomesale of Mino-Lok or I/ONTAK, there would be a material adverse effect on its business. Further, the above uncertainty.Company expects to incur additional expenses as it continues to develop its product candidates, including seeking regulatory approval, and protecting its intellectual property.

3. PATENT AND TECHNOLOGY LICENSE AGREEMENTS

Patent and Technology License Agreement – Mino-Lok

LMB has a patent and technology license agreement with Novel Anti-Infective Therapeutics, Inc., (“NAT”) to develop and commercialize Mino-Lok™Mino-Lok® on an exclusive, worldwide sub licensable basis, as amended. Since May 2014, LMB has paidpays an annual maintenance fee of $30,000 that increases over five years to $90,000,each June until commercial sales of a product subject to the license commence. Since the acquisition of LMB, theThe Company recorded an annual maintenance fee expense of $50,000$90,000 in June 2021 and $45,000 during the years ended September 30, 2017 and 2016, respectively, under the terms of this agreement. There was no maintenance fee expense for the three months ended December 31, 2017 and 2016.2020.

LMB will also pay annual royalties on net sales of licensed products, with royalties ranging from the mid-single digits to the low double digits. In limited circumstances in which the licensed product is not subject to a valid patent claim and a competitor is selling a competing product, the royalty rate is in the low-singlelow- to mid-single digits. After a commercial sale is obtained, LMB must pay minimum aggregate annual royalties of $100,000 in the first commercial year which is prorated for a less than 12-month period, increasing $25,000 per year to a maximum of $150,000 annually. LMB must also pay NAT up to $1,390,000an aggregate of $1,100,000 upon achieving specified regulatory and sales milestones. Finally, LMB must pay NAT a specified percentage of payments received from any sub licensees.sub-licensees.

Unless earlier terminated by NAT, based on the failure to achieve certain development and commercial milestones, the license agreement remains in effect until the date that all patents licensed under the agreement have expired and all patent applications within the licensed patent rights have been cancelled, withdrawn or expressly abandoned.

Patent and Technology License Agreement – Mino-Wrap

On January 2, 2019, we entered into a patent and technology license agreement with the Board of Regents of the University of Texas System on behalf of the University of Texas M. D. Anderson Cancer Center (“Licensor”), whereby we in-licensed exclusive worldwide rights to the patented technology for any and all uses relating to breast implants. We intend to develop a liquefying gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive surgeries (“Mino-Wrap”). We are required to use commercially reasonable efforts to commercialize Mino-Wrap under several regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval from the U.S. Food and Drug Administration (“FDA”).

Under the license agreement, the Company paid an annual maintenance fee of $60,000 and $45,000 in January 2022 and 2021, respectively. The annual maintenance fee increases by $15,000 per year up to a maximum of $90,000. Annual maintenance fees cease on the first sale of product. We also must pay up to an aggregate principal balanceof $2.1 million in milestone payments, contingent on the achievement of various regulatory and commercial milestones. Under the terms of the license agreement, we also must pay a royalty of mid- to upper-single digit percentages of net sales, depending on the amount of annual sales, and subject to downward adjustment to lower- to mid-single digit percentages in the event there is no valid patent for the product in the United States at the time of sale. After the first sale of product, we will owe an annual minimum royalty payment of $100,000 that will increase annually by $25,000 for the duration of the term. We will be responsible for all patent expenses incurred by Licensor for the term of the agreement although Licensor is responsible for filing, prosecution and maintenance of all patents. Unless earlier terminated by Licensor, based upon the failure by us to achieve certain development and commercial milestones or for various breaches by us, the agreement expires on the later of the expiration of the patents or January 2, 2034.

License Agreement with Novellus

On March 31, 2020, we entered into an option agreement with a subsidiary of Novellus, Inc. (“Novellus”) to in-license from Novellus on a worldwide basis, a novel cellular therapy for acute respiratory distress syndrome (“ARDS”).

Our Board Chairman Leonard Mazur, who is also our largest stockholder, was at the time a significant shareholder of Novellus and subsequent to the option agreement and the license agreement discussed below, became a director of Novellus. As required by our Code of Ethics, the Audit Committee of our Board of Directors approved the entry into the option agreement with Novellus, as did the disinterested members of our Board of Directors.

On October 6, 2020, our subsidiary, NoveCite, exercised the option and signed an exclusive license agreement with Novellus. Upon execution of the agreement, we paid $5,000,000 to Novellus, which was charged to research and development expense in the three-month period ended December 31, 2017 consists2020, and issued Novellus shares of NoveCite’s common stock representing 25% of the outstanding equity. We own the other 75% of NoveCite’s outstanding equity. Pursuant to the terms of the stock subscription agreement between Novellus and NoveCite, if NoveCite issued additional equity, subject to certain exceptions, NoveCite had to maintain Novellus’s ownership at 25% by issuing additional shares to Novellus.

Citius is responsible for the operational activities of NoveCite, and bears all costs necessary to operate NoveCite. Citius’s officers are also the officers of NoveCite and oversee the business strategy and operations of NoveCite. As such, NoveCite is accounted for as a consolidated subsidiary with a noncontrolling interest.

Novellus has no contractual rights in the profits or obligations to share in the losses of NoveCite, and the Company has not allocated any losses to the noncontrolling interest.

NoveCite is obligated to pay Novellus up to an aggregate of $51,000,000 upon the achievement of various regulatory and developmental milestones. NoveCite also must pay a royalty equal to low double-digit percentages of net sales, commencing upon the sale of a licensed product. This royalty is subject to downward adjustment to an upper-single digit percentage of net sales in any country in the event of the expiration of the last valid patent claim or if no valid patent claim exists in that country. The royalty will end on the earlier of (i) the date on which a biosimilar product is first marketed, sold, or distributed in the applicable country or (ii) the 10-year anniversary of the date of expiration of the last-to-expire valid patent claim in that country. In the case of a country where no licensed patent ever exists, the royalty will end on the later of (i) the date of expiry of such licensed product’s regulatory exclusivity and (ii) the 10-year anniversary of the date of the first commercial sale of the licensed product in the applicable country. In addition, NoveCite will pay to Novellus an amount equal to a mid-twenties percentage of any sublicensee fees it receives.

Under the terms of the license agreement, in the event that Novellus receives any revenue involving the original cell line included in the licensed technology, then Novellus shall remit to NoveCite 50% of such revenue.

The term of the license agreement will continue on a country-by-country and licensed product-by-licensed product basis until the expiration of the last-to-expire royalty term. Either party may terminate the license agreement upon written notice if the other party is in material default. NoveCite may terminate the license agreement at any time without cause upon 90 days prior written notice.

Novellus will be responsible for preparing, filing, prosecuting and maintaining all patent applications and patents included in the licensed patents in the territory, provided however, that if Novellus decides that it is not interested in maintaining a particular licensed patent or in preparing, filing, or prosecuting a licensed patent, NoveCite will have the right, but not the obligation, to assume such responsibilities in the territory at NoveCite’s sole cost and expense.

In July 2021, Novellus was acquired by Brooklyn ImmunoTherapeutics, Inc. (“Brooklyn”). In connection with that transaction, the stock subscription agreement between Novellus and NoveCite was amended to assign to Brooklyn all of Novellus’s right, title, and interest in the stock subscription agreement and delete the anti-dilution protection and replace it with a right of first refusal whereby Brooklyn will have the right to purchase all or a portion of the securities that NoveCite intends to sell or in the alternative, at the option of NoveCite, Brooklyn may purchase that amount of the securities proposed to be sold by NoveCite to allow Brooklyn to maintain its then percentage ownership.

License Agreement with Eisai

In September 2021, the Company entered into a definitive agreement with Dr. Reddy's Laboratories SA, a subsidiary of Dr. Reddy's Laboratories, Ltd. (collectively, "Dr. Reddy's"), to acquire its exclusive license of I/ONTAK (denileukin diftitox), a late-stage oncology immunotherapy for the treatment of CTCL, a rare form of non-Hodgkin lymphoma.

Under the terms of this agreement, Citius acquired Dr. Reddy's exclusive license of I/ONTAK from Eisai Co., Ltd. ("Eisai") and other related assets owned by Dr. Reddy's. Citius's exclusive license includes rights to develop and commercialize I/ONTAK in all markets except for Japan and certain parts of Asia. Additionally, Citius retained an option on the right to develop and market the product in India. Eisai retains exclusive development and marketing rights for the agent in Japan and Asia. Citius paid a $40 million upfront payment which represents the acquisition date fair value of the in-process research and development acquired from Dr. Reddy’s. Dr. Reddy’s is entitled to up to an aggregate of $40 million in development milestone payments related to CTCL approvals in the U.S. and other markets, up to an aggregate of $70 million in development milestones for additional indications, as well as commercial milestone payments and low double-digit tiered royalties on net product sales, and up to an aggregate of $300 million for commercial sales milestones. We also must pay on a fiscal quarter basis tiered royalties equal to low double-digit percentages of net product sales. The royalties will end on the earlier of (i) the 15-year anniversary of the first commercial sale of the latest indication that received regulatory approval in the applicable country and (ii) the date on which a biosimilar product results in the reduction of net sales in the applicable product by 50% in two consecutive quarters, as compared to the four quarters prior to the first commercial sale of the biosimilar product. We will also pay to Dr. Reddy’s an amount equal to a low-thirties percentage of any sublicense upfront consideration or milestone payments (or the like) received by us and the greater of (i) a low-thirties percentage of any sublicensee sales-based royalties or (ii) a mid-single digit percentage of such licensee’s net sales.

Under the license agreement, Eisai is to receive a $6.0 million development milestone payment upon initial approval and additional commercial milestone payments related to the achievement of net product sales thresholds (which increases to $7 million in the event we have exercised our option to add India to the licensed territory prior to FDA approval) and up to an aggregate of $22 million related to the achievement of net product sales thresholds. We also are required to reimburse Eisai for up to $2.65 million of its costs to complete the ongoing Phase 3 pivotal clinical trial for I/ONTAK for the CTCL indication and reimburse Eisai for all reasonable costs associated with the preparation of a BLA for I/ONTAK. Eisai will be responsible for completing the current CTCL clinical trial, and chemistry, manufacturing and controls (CMC) activities through the filing of a BLA for I/ONTAK with the FDA. Citius will be responsible for development costs associated with potential additional indications.

The term of the license agreement will continue until (i) if there has not been a commercial sale of a licensed product in the territory, until the 10-year anniversary of the original license effective date, March 30, 2016, or (ii) if there has been a first commercial sale of a licensed product in the territory within the 10-year anniversary of the original license effective date, the 10-year anniversary of the first commercial sale on a country-by-country basis. The term of the license may be extended for additional 10-year periods for all countries in the territory by notifying Eisai and paying an extension fee equal to $10 million. Either party may terminate the license agreement upon written notice if the other party is in material breach of the agreement, subject to cure within the designated time periods. Either party also may terminate the license agreement immediately upon written notice if the other party files for bankruptcy or takes related actions or is unable to pay its debts as they become due. Additionally, either party will have the right to terminate the agreement if the other party directly or indirectly challenges the patentability, enforceability or validity of any licensed patent.

Also under the agreement with Dr. Reddy’s, we are required to (i) use commercially reasonable efforts to make commercially available products in the CTCL indication, peripheral T-cell lymphoma indication and immuno-oncology indication, (ii) initiate two investigator initiated immuno-oncology trials, (iii) use commercially reasonable efforts to achieve each of the approval milestones, and (iv) complete each specified immuno-oncology investigator trial on or before the four-year anniversary of the effective date of the definitive agreement. Additionally, we are required to commercially launch a product in a territory within six months of receiving regulatory approval for such product in each such jurisdiction.

4. NOTES PAYABLE

Notes Payable – Related Parties

Prior to June 31, 2021, we had outstanding notes payable held by our Chairman, Leonard Mazur, in the amount of $160,470 and notes payable held by our then Chief Executive Officer, Myron Holubiak, in the amount of $12,500. Notes with an aggregatea principal balance of $104,000 accrueaccrued interest at the prime rate plus 1.0% per annum and notes with an aggregatea principal balance of $68,970 accrueaccrued interest at 12% per annum.

In June 2021, we repaid the $172,970 principal balance of these notes and paid accrued interest of $38,917. Accrued interest of $59,917 was forgiven and was recorded as other income in the year ended September 30, 2021.

Interest expense on notes payable – related parties was $3,192$3,533 and $13,228, respectively,$7,096 for the three and six months ended DecemberMarch 31, 2017 and 2016.2021, respectively.

Paycheck Protection Program

Derivative financial instruments are recognized as a liability on the consolidated balance sheet and measured at fair value. At December 31, 2017 and September 30, 2017,On April 12, 2020, the Company had no outstanding warrants that were consideredapplied for a forgivable loan through the Small Business Association’s Paycheck Protection Program (the “PPP”). The loan accrued interest at a rate of 1% and was forgivable if it was used to be derivative instruments althoughpay qualifying costs such as payroll, rent and utilities. On April 15, 2020, the Company did have such warrants outstanding duringreceived $164,583 from the PPP.

On July 28, 2021, the Small Business Administration gave full forgiveness of the PPP loan and the Company recorded a gain from debt extinguishment of $166,557 consisting of the principal balance and related accrued interest expense.

Interest expense was $406 and $811 for the three and six months ended DecemberMarch 31, 2016.2021, respectively.

5. COMMON STOCK, STOCK OPTIONS AND WARRANTS

The Company performed valuations of these warrants using the Black-Scholes option pricing model which value was also compared to a Binomial Option Pricing Model for reasonableness. The Black-Scholes option pricing model requires input of assumptions including the risk-free interest rates, volatility, expected life and dividends. Selection of these inputs involves management’s judgment and may impact net loss. 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 option pricing model has a significant effect on the resulting valuation of the derivative liabilities on our balance sheet. The volatility calculated at December 31, 2016 was 76%. We used a risk-free interest rate of 1.93%, estimated lives of 4.02 to 4.32 years, which were the remaining contractual lives of the warrants subject to “down round” provisions, and no dividends to our common stock.

During the three months ended December 31, 2016, anti-dilution rights related to warrants to purchase 583,334 shares of common stock expired which resulted in a reclassification from derivative warrant liability to additional paid-in capital of $149,209.

The table below presents the changes in the derivative warrant liability, which is measured at fair value on a recurring basis and classified as Level 3 in the fair value hierarchy:

Authorized Common Stock

On June 9, 2017,21, 2021, our stockholders approved an amendment to our Articles of Incorporation to increase the Company affected a 1-for-15 reverse stock split of its issued and outstanding shares of common stock, $0.001 par value. Under the terms of the reverse stock split, fractional shares issuable to stockholders were rounded up to the nearest whole share, resulting in a reverse split slightly less than 1-for-15 in the aggregate. All per share amounts and number of shares (other than authorized shares) in these consolidated financial statements and related notes have been retroactively restated to reflect the reverse stock split.

2016 Private Offering

In October 2016, the Company commenced an offering (the “2016 Offering”) of units at a price of $6.00 per unit (the “2016 Offering Units”). Each 2016 Offering Unit consists of (i) one share of common stock and (ii) a warrant to purchase one share of common stock (the “2016 Offering Warrants”) at an exercise price of $8.25 exercisable for five years from the date of issuance.  The placement agent for the 2016 Offering will receive a 10% cash commission on the gross proceeds of each sale of the 2016 Offering Units.  In addition, on each closing the placement agent will also receive (i) an expense allowance equal to 3% of the proceeds of the sale, and (ii) warrants to purchase a number of shares of capital stock from 210,000,000 to 410,000,000 and the authorized number of common stock equalshares from 200,000,000 to 10% of400,000,000.

Common Stock Offerings

On January 27, 2021, the 2016 Offering Units soldCompany closed a private placement for 15,455,960 common shares and warrants to purchase 7,727,980 common shares, at an exercisea purchase price of $8.25$1.294 per share.

On November 23, 2016, the Company sold 65,000 of the 2016 Offering Unitscommon share and accompanying warrant, for gross proceeds of $390,000.$20,000,012. The estimated fair value of the7,727,980 warrants included in the 2016 Offering Units sold to the investors was $234,505. Additionally, a warrant to purchase 6,500 shares ofare immediately exercisable at $1.231 per common stock was granted to the placement agent pursuant to the above pricing terms. The estimated fair value of the warrant granted to the placement agent was $23,451. The placement agent was paid commissions and an expense allowance of $50,700. Other costs of the placement were $156,896 including deferred offering costs of $64,801.

On June 8, 2017, the Company entered into release agreements with the investors in the 2016 Offering where each investor released the Company from the restrictions on certain corporate actions that were included in the unit purchase agreements. In connection with the release agreements the Company repriced the sale of the units to $4.125 per unit and repriced the warrants to an exercise price of $4.125 per share on August 8, 2017.

2017 Public Offering and Release Agreement

On August 8, 2017, the Company closed a public offering of 1,648,484 shares of common stock and warrants to purchase 1,648,484 shares of common stock at an offering price of $4.125 per share and $0.01 per warrant. The warrants have a per share exercise price of $4.125, are exercisable immediately and will expire five years from the date of issuance.  The gross proceeds from this offering were $6,802,469, before deducting underwriting discounts and commissions and other offering expenses of $685,573. The Company granted the underwriters a 45-day option to purchase up to an additional 247,272 shares of common stock and warrants to purchase 247,272 shares of common stock to cover over-allotments. On August 8, 2017, the underwriters partially exercised the over-allotment and purchased the additional 247,272 warrants. The estimated fair value of the 1,895,756 warrants issued to the investors was $4,160,195 and the estimated fair value of the 65,940 warrants issued to the underwriters was $142,419.

On November 7, 2017, the Company entered into a release agreement with the underwriter. The Company had previously granted a right of first refusal to underwrite all equity and debt offerings for a periodterm of twelve months following completion of the 2017 public offering (“Right of First Refusal”). Under the release, the Company agreed to pay the underwriter $100,000 in cash and issue 60,000 shares of restricted common stock with a fair value of $257,400 in exchange for a full release from all obligations related to the Right of First Refusal. The Company expensed the $357,400 cost of the release agreement during the three months ended December 31, 2017.

2017 Registered Direct/Private Placement Offering

On December 19, 2017, the Company closed a registered direct offering with several institutional and accredited investors for the purchase of 1,280,360 shares of common stock at $4.6925 per share for gross proceeds of $6,008,089. Simultaneously, the Company issued privately to the investors 640,180 immediately exercisable five and a half year warrants at $4.63 per share.one-half years. The Company paid the placement agent for the offering a fee of 7% of the gross proceeds totaling $420,566$1,400,001 and issued the placement agent 89,6251,081,917 immediately exercisable five year warrants at $5.8656$1.6175 per share.common share for a term of five and one-half years. The Company also reimbursed the placement agent for $85,000 in expenses and incurred $20,000$64,601 in other expenses. Net proceeds from the offering were $5,482,523.

$18,450,410. The estimated fair value of the 640,1807,727,980 warrants issued to the investors was $2,407,276approximately $7,582,000 and the estimated fair value of the 89,6251,081,917 warrants issued to the placement agent was $316,071.approximately $1,025,000.

Unit Purchase Options

On April 7, 2017,February 19, 2021, the Company issuedclosed a three-year Unit Purchase Option Agreementregistered direct offering for 50,830,566 common shares and warrants to a consultant for the purchase of 38,000 unitsup to 25,415,283 common shares, at a purchase price of $9.00$1.505 per unit. Each unit consists of one share of common stock and accompanying warrant, for gross proceeds of $76,500,002. The 25,415,283 warrants are immediately exercisable at $1.70 per common share for a warrant to purchase one shareterm of common stock at an exercise pricefive years. The Company paid the placement agent a fee of $9.00 per share which expires on the earlier of three years after exercise7% of the Unit Purchase Option Agreement or April 7, 2023. The consultant providedgross proceeds totaling $5,355,000 and issued the Company with business development and financing assistanceplacement agent 3,558,140 immediately exercisable warrants at $1.881 per common share for the three months ended June 30, 2017.a term of five years. The Company also reimbursed the placement agent for $85,000 in expenses and incurred $80,160 in other expenses. Net proceeds from the offering were $70,979,842. The estimated the fair value of the unit purchase option agreement at $104,13825,415,283 warrants issued to the investors was approximately $42,322,000 and expensed it during the year ended September 30, 2017.

On June 29, 2017, the Company issued a three-year Unit Purchase Option Agreement to a consultant for the purchase of 62,667 units at a purchase price of $9.00 per unit. Each unit consists of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $9.00 per share which expires on the earlier of three years after exercise of the Unit Purchase Option Agreement or June 29, 2022. The consultant provided the Company with business development and financing assistance through December 31, 2017. The Company estimated the fair value of the unit purchase option agreement at $193,860 and recorded it as a prepaid expense at June 30, 2017. The3,558,140 warrants issued to the placement agent was approximately $5,850,000.

Common Stock Issued for Services

On November 2, 2021, the Company recorded an expenseissued 50,201 shares of $96,930common stock for this agreement during the year ended September 30, 2017investor relations services and expensed the remaining balance$95,884 fair value of $96,930 during the three months ended December 31, 2017.common stock issued.

On March 21, 2022, the Company issued 100,000 shares of common stock for media, public and investor relations services and expensed the $178,000 fair value of the common stock issued.

Stock OptionsOption Plans

On September 12, 2014, the Board of Directors adopted thePursuant to our 2014 Stock Incentive Plan, (the “2014 Plan”) andwe reserved 866,667 shares of common stockshares for issuance to employees, directors and consultants. On September 12, 2014, the stockholders approved the plan. Pursuant to the 2014 Plan, the Board of Directors (or committees and/or executive officers delegated by the Board of Directors) may grant stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and cash-based awards. As of DecemberMarch 31, 2017, there were2022, options to purchase an aggregate of 861,039 shares of common stock outstanding under the 2014 Plan, options to purchase 4,829855,171 shares were exercised,outstanding and 799no shares remain available for future grants.

On February 7, 2018, our stockholders approved the 2018 Omnibus Stock Incentive Plan and we reserved 2,000,000 common shares for issuance to employees, directors and consultants. As of March 31, 2022, options to purchase 1,820,000 shares were outstanding.

On February 10, 2020, our stockholders approved the 2020 Stock Plan and we reserved 3,110,000 common shares for issuance to employees, directors, and consultants. As of March 31, 2022, options to purchase 1,870,000 shares were outstanding and the remaining 1,240,000 shares were transferred to the 2021 Omnibus Stock Incentive Plan (“2021 Stock Plan”).

On May 24, 2021, our stockholders approved the 2021 Stock Plan and we reserved 8,740,000 shares for issuance to employees, directors, and consultants through options, SARs, dividend equivalent rights, restricted stock, restricted stock units, or other rights. As of March 31, 2022, options to purchase 4,775,000 shares were outstanding and there were 3,965,000 shares available for future grants.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. Due to its limited operating history and limited number of sales of its Common Stock, the Company estimated its volatility in consideration of a number of factors including the volatility of comparable public companies. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the consolidated financial statements, to estimate option exercises and employee terminations within the valuation model. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption. The expected term of stock options granted, all of which qualify as “plain vanilla,” is based on the average of the contractual term (generally 10 years) and the vesting period. For non-employee options, the expected term is the contractual term.

A summary of option activity under our stock option plans (excluding the 2014 Plan as of December 31, 2017 and the changes during the three months then endedNoveCite Stock Plan) is presented below:

On October 11, 2021, the Board of Directors granted options to purchase 2,515,000 shares to employees, 375,000 shares to directors and 175,000 shares to consultants at $2.04 per share. On November 1, 2021, the Board of Directors granted options to purchase 200,000 shares to an employee at $1.87 per share. During January and February 2022, options to purchase 300,000 shares were granted to three new employees at exercise prices ranging from $1.44 to $1.49 per share. The weighted average grant date fair value of the options granted during the six months ended March 31, 2022 was estimated at $1.69 per share. All of these options vest over terms of 12 to 36 months and have a term of 10 years.

On October 6, 2020, the Board of Directors granted stock options to purchase a total of 800,000 shares to employees, 175,000 shares to directors and 125,000 shares to consultants at $1.01 per share. On February 16, 2021, the Board of Directors granted stock options to purchase a total of 125,000 shares to directors at $1.69 per share. The weighted average grant date fair value of the options granted during the six months ended March 31, 2021 was estimated at $0.93 per share. All of these options vest over terms of 12 to 36 months and have a term of 10 years.

Stock-based compensation expense for the three months ended DecemberMarch 31, 20172022 and 20162021 was $290,021$1,020,998 (including $33,333 for the NoveCite Stock Plan) and $241,514,$342,962 (including $18,833 for the NoveCite Stock Plan), respectively. Stock-based compensation expense for the six months ended March 31, 2022 and 2021 was $1,925,602 (including $66,666 for the NoveCite Stock Plan) and $619,544 (including $31,389 for the NoveCite Stock Plan), respectively.

At DecemberMarch 31, 2017,2022, unrecognized total compensation cost related to unvested awards under the Citius stock plans of $940,560$7,151,673 is expected to be recognized over a weighted average period of 1.712.3 years.

On November 5, 2020, the stockholders of NoveCite, approved NoveCite’s Stock Plan and we reserved 2,000,000 common shares of NoveCite for issuance. The NoveCite Stock Plan provides incentives to employees, directors, and consultants through grants of options, SARs, dividend equivalent rights, restricted stock, restricted stock units, or other rights. As of March 31, 2022, there were options outstanding to purchase 2,000,000 common shares of NoveCite and no shares available for future grants.

As of March 31, 2022, NoveCite has options outstanding to purchase 2,000,000 common shares at a weighted average exercise price of $0.24 per share, of which 376,665 are exercisable. All of these options vest over 36 months and have a term of 10 years. The weighted average remaining contractual term of options outstanding under the NoveCite Stock Plan is 8.9 years. At March 31, 2022, unrecognized total compensation cost related to unvested awards under the NoveCite Stock Plan of $249,778 is expected to be recognized over a weighted average period of 1.9 years.

Warrants

As of DecemberMarch 31, 2017, the Company has2022, we have reserved shares of common stock for the exercise of outstanding warrants. The following table summarizes the warrants outstanding:as follows:

During the three months ended DecemberAt March 31, 2017, 40,834 of the Financial Advisor Warrants were exercised on a cashless basis resulting in the issuance of 16,547 shares of common stock and 272,767 of the 2017 Public Offering Warrants were exercised at $4.125 per share for net proceeds of $1,125,148.

See Note 6 (2017 Registered Direct/Private Placement Offering) for a description of the 2017 registered direct/private placement offering warrants and the registered direct/private placement offering placement agent warrants.

At December 31, 2017,2022, the weighted average remaining life of all of the outstanding warrants is 4.093.3 years, all warrants are exercisable, and the aggregate intrinsic value forof the warrants outstanding was $20,667. $11,206,022.

Common Stock Reserved

A summary of common stock reserved for future issuances as of DecemberMarch 31, 2017 and September 30, 20172022 is as follows:

6. RELATED PARTY TRANSACTIONS

As of December 31, 2017 and September 30, 2017, the Company owed $17,637 and $27,637, respectively, to a company affiliated through common ownership for the expenses the related party paid on the Company’s behalf and services performed by the related party.

Our Chairman of the Board, Leonard Mazur, is the cofounder and Vice Chairman of Akrimax Pharmaceuticals, LLC (“Akrimax”), a privately held pharmaceutical company specializing in producing cardiovascular and general pharmaceutical products. The Company leases office space from Akrimax (see Note 8).

The Company hashad outstanding debt due to Leonard Mazur (Chairman of the Board) and Myron Holubiak (Chief(then Chief Executive Officer) (see Note 4).

Leonard Mazur was a director and significant shareholder of Novellus until July 2021. On October 6, 2020, the Company, through its subsidiary NoveCite, entered into an exclusive agreement with Novellus to develop cellular therapies (see Note 3).

In April 2021, we extended the term by three years for 1,294,498 warrants held by our Chairman and our Chief Executive Officer (see Note 5).

7. OPERATING LEASE

Effective July 1, 2019, Citius entered into a 76-month lease for office space in Cranford, NJ. Citius will pay its proportionate share of real estate taxes and operating expenses in excess of the base year expenses. These costs are considered to be variable lease payments and are not included in the determination of the lease’s right-of-use asset or lease liability.

The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:

The elements of lease expense are as follows: 

Maturities of lease liabilities due under the Company’s non-cancellable leases as of March 31, 2022 is as follows: 

In connection with

Interest expense on the 2017 Registered Direct/Private Placement Offering, Mr. Mazur purchased 213,106 shares of common stock at $4.6925 per sharelease liability was $32,792 and received 106,553 warrants exercisable at $4.63 per share (See Note 6).

General and administrative expense$39,300 for each of the threesix months ended DecemberMarch 31, 20172022 and 2016 includes $12,000 paid to a financial consultant who is a stockholder of the Company.2021, respectively.

LMB leases office space from Akrimax (see Note 7) in Cranford, New Jersey at a monthly rental rate of $2,167 pursuant to an agreement which currently expires on October 31, 2018. Rent expense for the three months ended December 31, 2017 and 2016 was $6,501 in each period.

On February 7, 2018, the Company held its annual stockholders meeting. The stockholders elected seven directors to serve until the 2019 annual meeting, ratified the appointment of our independent registered public accounting firm, and approved the 2018 Omnibus Stock Incentive Plan.

Item 2. 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 for the three and six months ended DecemberMarch 31, 20172022 should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this report and in conjunction with the audited financial statements of Citius Pharmaceuticals, Inc. included in our Annual Report on Form 10-K for the year ended September 30, 2017.2021. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Cautionary Note Regarding Forward-Looking Statements.”Statements” on page ii of this Report.

Historical Background

Citius Pharmaceuticals, Inc. (“Citius”Citius,” the “Company,” “we” or the “Company”“us”) is a specialty pharmaceuticallate-stage biopharmaceutical company dedicated to the developmentdeveloping and commercialization ofcommercializing first-in-class critical care products targeting unmet needs with a focus on anti-infectives, cancer care and unique prescription products. On September 12, 2014, we acquired Citius Pharmaceuticals, LLC as a wholly-owned subsidiary. Citius Pharmaceuticals, LLC was founded in Massachusetts in January 2007.

Onsubsidiary and on March 30, 2016, the Companywe acquired all of the outstanding stock of Leonard-Meron Biosciences, Inc. (“LMB”) by issuing 1,942,956 sharesas a wholly-owned subsidiary. On September 11, 2020, we formed NoveCite, Inc. (“NoveCite”), a Delaware corporation, of its common stock. As of March 30, 2016, the stockholders of LMB received approximately 41%which we own 75% of the issued and outstanding common stock of the Company. In addition, the Company converted the outstanding common stock warrants of LMB into 243,020 common stock warrants and converted the outstanding common stock options of LMB into 77,252 common stock options. Management estimated the fair value of the purchase considerationcapital stock. On August 23, 2021, we formed Citius Acquisition Corp., as a wholly-owned subsidiary, but no activity has occurred to be $19,015,073.date.

In connection with the acquisition, the Company acquired net assets of $17,428,277, including identifiable intangible assets of $19,400,000 related to in-process research and development. The Company recorded goodwill of $1,586,796 for the excess of the purchase price over the net assets acquired.

In-process research and development represents the value of LMB’s leading drug candidate, which is an antibiotic solution used to treat catheter-related bloodstream infections.  Goodwill represents the value of LMB’s industry relationships and its assembled workforce. In-process research and development is expected to be amortized on a straight-line basis over a period of eight years commencing upon revenue generation. Goodwill will not be amortized, but will be tested at least annually for impairment.

Through DecemberMarch 31, 2017,2022, the Company has devoted substantially all of its efforts to productbusiness planning, acquiring our proprietary technology, research and development, recruiting management and technical staff, and raising capital, building infrastructure through strategic alliances and coordinating activities relating to its proprietary products. On July 1, 2016, the Company announced that it was discontinuing Suprenza, its first commercial product, and was focusing on the Phase 3 development of Mino-Lok™, an antibiotic lock solution used to treat patients with catheter-related bloodstream infections, and the Phase 2b development of Hydro-Lido for hemorrhoids. The Company has not yet realized any revenues from its planned principal operations. capital.

Patent and Technology License AgreementAgreements

Our patent and technology license agreements are discussed in the footnotes to our unaudited consolidated financial statements included in this Report.

Mino-Lok® - LMB has a patent and technology license agreement with Novel Anti-Infective Therapeutics, Inc., (“NAT”) to develop and commercialize Mino-Lok™Mino-Lok® on an exclusive, worldwide sub-licensable basis, as amended.basis. Since May 2014, LMB has paid an annual maintenance fee, ofwhich began at $30,000 and that increasesincreased over five years to $90,000, where it will remain until the commencement of commercial sales of a product subject to the license commence.license. LMB will also pay annual royalties on net sales of licensed products, with royalties ranging from the mid-single digits to the low double digits or, in the event the licensed product is not subject to a valid patent claim, the royalty is reduced to mid- to lower-single digits. In limited circumstances in which the licensed product is not subject to a valid patent claim and a competitor is selling a competing product, the royalty rate is in the low-singlelow single digits. After a commercial sale is obtained, LMB must pay minimum aggregate annual royalties that increase in subsequent years. LMB must also pay NAT up to $1,390,000an aggregate of $1,100,000 upon achieving specified regulatory and sales milestones. Finally, LMB must pay NAT a specified percentage of payments received from any sub licensees.

Mino-Wrap - On January 2, 2019, we entered into a patent and technology license agreement with the Board of Regents of the University of Texas System on behalf of the University of Texas M. D. Anderson Cancer Center (“Licensor”), whereby we in-licensed exclusive worldwide rights to the patented technology for any and all uses relating to breast implants. We intend to develop a liquefying gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive surgeries (“Mino-Wrap”). We are required to use commercially reasonable efforts to commercialize Mino-Wrap under several regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval from the Food and Drug Administration (“FDA”).

Under the license agreement, we paid a nonrefundable upfront payment of $125,000. We paid annual maintenance fees of $60,000 and $45,000 in January 2022 and 2021, respectively. The annual maintenance fee increases annually by $15,000 per year up to a maximum of $90,000. Annual maintenance fees cease on the first sale of product. We also must pay up to an aggregate of $2.1 million in milestone payments, contingent on the achievement of various regulatory and commercial milestones. Under the terms of the license agreement, we also must pay a royalty of mid- to upper-single digit percentages of net sales, depending on the amount of annual sales, and subject to downward adjustment to lower- to mid-single digit percentages in the event there is no valid patent for the product in the United States at the time of sale. After the first sale of product, we will owe an annual minimum royalty payment of $100,000 that will increase annually by $25,000 for the duration of the term. We will be responsible for all patent expenses incurred by Licensor for the term of the agreement although Licensor is responsible for filing, prosecution and maintenance of all patents.

NoveCite – On October 6, 2020, our subsidiary NoveCite entered into a license agreement with Novellus Therapeutics Limited (“Licensor”), to develop and commercialize a stem cell therapy based on the Licensor’s patented technology for the treatment of acute pneumonitis of any etiology in which inflammation is a major agent in humans. NoveCite paid a $5,000,000 license fee and issued 25% of its outstanding equity to the Licensor. We own the other 75% of NoveCite’s currently outstanding equity. If NoveCite issues additional equity, subject to certain exceptions, NoveCite had to maintain Novellus’s ownership at 25% by issuing additional shares to Novellus. In July 2021, Novellus was acquired by Brooklyn ImmunoTherapeutics, Inc. (“Brooklyn”). In that transaction, the stock subscription agreement between Novellus and NoveCite was amended to delete the anti-dilution protection and replace it with a right of first refusal whereby Brooklyn will have the right to purchase all or a portion of the securities that NoveCite intends to sell or in the alternative, at the option of NoveCite, Brooklyn may purchase that amount of the securities proposed to be sold by NoveCite to allow Brooklyn to maintain its then percentage ownership.

Under the license agreement, NoveCite is obligated to pay Licensor up to an aggregate of $51,000,000 in regulatory and developmental milestone payments. NoveCite also must pay a royalty equal to low double-digit percentages of net sales, commencing upon the first commercial sale of a licensed product. This royalty is subject to downward adjustment on a product-by-product and country-by-country basis to an upper-single digit percentage of net sales in any country in the event of the expiration of the last valid patent claim or if no valid patent claim exists in that country. The royalty will end on the earlier of (i) the date on which a biosimilar product is first marketed, sold, or distributed by Licensor or any third party in the applicable country or (ii) the 10-year anniversary of the date of expiration of the last-to-expire valid patent claim in that country. In the case of a country where no licensed patent ever exists, the royalty will end on the later of (i) the date of expiry of such licensed product’s regulatory exclusivity and (ii) the 10-year anniversary of the date of the first commercial sale of the licensed product in the applicable country. In addition, NoveCite will pay to Licensor an amount equal to a mid-twenties percentage of any sublicensee fees it receives.

Under the terms of the license agreement, in the event that Licensor receives any revenue involving the original cell line included in the licensed technology, then Licensor shall remit to NoveCite 50% of such revenue.

I/ONTAK - In September 2021 the Company announced that it had entered into a definitive agreement with Dr. Reddy’s Laboratories SA, a subsidiary of Dr. Reddy’s Laboratories, Ltd. (collectively, “Dr. Reddy's”) to acquire its exclusive license of I/ONTAK (formerly E7777) (denileukin diftitox), a late-stage oncology immunotherapy for the treatment of cutaneous T-cell lymphoma (“CTCL”), a rare form of non-Hodgkin lymphoma.

Under the terms of this agreement, Citius acquired Dr. Reddy's exclusive license of I/ONTAK from Eisai Co., Ltd. (“Eisai”) and other related assets owned by Dr. Reddy's. Citius's exclusive license rights include rights to develop and commercialize E7777 in all markets except for Japan and certain parts of Asia. Additionally, Citius has an option on the right to develop and market the product in India. Eisai retains exclusive development and marketing rights for the agent in Japan and Asia. Dr. Reddy's received a $40 million upfront payment and is entitled to up to an aggregate of $40 million in development milestone payments related to CTCL approvals in the U.S. and other markets, up to an aggregate of $70 million in development milestones for additional indications, as well as commercial milestone payments and low double-digit tiered royalties on net product sales. Eisai is to receive a $6 million development milestone payment upon initial approval and additional commercial milestone payments related to the achievement of net product sales thresholds. Eisai will be responsible for completing the current CTCL clinical trial, and chemistry, manufacturing and controls (CMC) activities through the filing of a biologics license application (“BLA”) for I/ONTAK with the FDA. Citius will be responsible for development costs associated with potential additional indications.

RESULTS OF OPERATIONS

Three months ended DecemberMarch 31, 20172022 compared with the three months ended DecemberMarch 31, 20162021

Revenues

We did not generate any revenues for the three months ended DecemberMarch 31, 2017 and 2016.2022 or 2021.

Research and Development Expenses

For the three months ended DecemberMarch 31, 2017,2022, research and development expenses were $606,521$3,452,210 as compared to $1,411,159$1,551,341 during the three months ended DecemberMarch 31, 2016. The $804,638 decrease2021, an increase of $1,900,869.

Research and development costs for Mino-Lok® decreased by $203,699 to $906,632 for the three months ended March 31, 2022 as compared to $1,110,331 for the three months ended March 31, 2021 due primarily to increased costs related to catheter integrity testing incurred in 2017 was primarilythe three months ended March 31, 2021.

Research and development costs for our Halo-Lido product candidate increased by $461,201 to $703,900 for the three months ended March 31, 2022 as compared to $242,699 for the three months ended March 31, 2021 due to start-up costs associated with the Phase 2b trial which is expected to begin in the quarter ending June 30, 2022. . On February 15, 2022, Citius announced that the FDA issued a decreaseStudy May Proceed Letter for our Phase 2b Halo-Lido study.

Research and development costs for our I/ONTAK product candidate, which we in-licensed in September 2021, was $1,582,571 during the three months ended March 31, 2022. On April 6, 2022, Citius announced the topline results from the pivotal Phase 3 trial and based on this data, Citius anticipates filing a BLA with the FDA in the second half of $782,452 in costs incurred by LMB on the development of Mino-Lok™. 2022.

We expect that research and development expenses will continue to increase in 2018fiscal 2022 as we commencecontinue to focus on our Phase 3 trials of Mino-Lok™for Mino-Lok® and are actively seeking to raise additional capital in order to fundI/ONTAK, progress the Halo-Lido product candidate and continue our research and development efforts.efforts related to ARDS and Mino-Wrap.

General and Administrative Expenses

For the three months ended DecemberMarch 31, 2017,2022, general and administrative expenses were $2,346,240$3,117,417 as compared to $1,132,183$2,293,517 during the three months ended DecemberMarch 31, 2016.2021. General and administrative expenses increased by $823,900 in comparison with the prior period. The $1,214,057primary reasons for the increase in 2017 was primarily due to increasedwere additional compensation costs for new employees, increased consultinginvestor relations costs and additional insurance expense. General and administrative expenses consist primarily of compensation costs, professional fees incurred for financing activitieslegal, regulatory, accounting, and corporate development services, and increased investor relations fees. In addition, we incurred $357,400 in settlement costs for the termination of the right of first refusal agreement with the underwriter of our 2017 Public Offering.expenses.

Stock-based Compensation Expense

For the three months ended DecemberMarch 31, 2017,2022, stock-based compensation expense was $290,021$1,020,998 as compared to $241,514$342,962 for the three months ended DecemberMarch 31, 2016. The $48,507 increase2021. For the three months ended March 31, 2022, stock-based compensation includes $33,333 in expense includesfor the expense for options assumedNoveCite stock option plan that was adopted in the acquisition of LMB,November 2020 as well as recent grantscompared to new directors and new employees.

Other Income (Expense)

There was no gain on revaluation of derivative warrant liability$18,833 for the three months ended DecemberMarch 31, 2017 as there were no warrants classified as derivative warrants during2021. Stock-based compensation expense for the period. Gain on revaluation of derivative warrant liabilitymost recently completed quarter increased by $678,036 in comparison to the prior period primarily due to new grants made to employees (including new hires), directors and consultants.

Other Income (Expense)

Interest income for the three months ended DecemberMarch 31, 20162022 was $622,186. The fair value$29,571 as compared to interest income of the derivative warrant liability fluctuates with changes in our stock price, volatility, remaining lives of the warrants, and interest rates. The gain$69,327 for the three months ended December 31, 2016 was primarily due to a decrease inprior period. We have invested the fair valueremaining proceeds of our early 2021 equity offerings and common stock from $9.45 per share at September 30, 2016 to $6.60 per share at December 31, 2016.warrant exercises in money market accounts.

InterestThere was no interest expense for the three months ended DecemberMarch 31, 2017 was $3,3842022 as recent borrowings from our Chairman were convertedcompared to common stock on August 8, 2017. Interest$3,939 in interest expense on the notes payables acquired in the acquisition of LMB and recent borrowings from our Chairman was $13,228 for the three months ended DecemberMarch 31, 2016.2021. Interest expense was $3,533 for the three months ended March 31, 2021 on the notes payable – related parties that were repaid in full in June 2021. Interest expense was $406 for the three months ended March 31, 2021 on the Paycheck Protection Program loan that was forgiven in July 2021.

Net Loss

For the three months ended DecemberMarch 31, 2017,2022, we incurred a net loss of $3,246,166$7,561,054 compared to a net loss for the three months ended DecemberMarch 31, 20162021 of $2,175,898.$4,122,432. The $1,070,268$3,438,622 increase in the net loss was primarily due to the increase of $1,214,057$1,900,869 increase in research and development expenses and the $823,900 increase in general and administrative expenses.

Six months ended March 31, 2022 compared with the six months ended March 31, 2021