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: March 31, ~~2022~~2023

☐ 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 001-38174

Citius Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Nevada		27-3425913
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

11 Commerce Drive, First Floor, Cranford, NJ		07016
(Address of principal executive offices)		(Zip code)

~~11 Commerce Drive, First Floor, Cranford, NJ 07016~~(908) 967-6677

(~~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:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common stock, $0.001 par value	CTXR	~~Nasdaq Capital Market~~
~~Warrants to purchase common stock~~	~~CTXRW~~	Nasdaq Capital Market

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 file 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 every Interactive Data File required to be submitted 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 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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

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 May 10, ~~2022,~~2023, there were ~~146,129,630~~158,857,798 shares of common stock, $0.001 par value, of the registrant issued and outstanding.

Citius Pharmaceuticals, Inc.

FORM 10-Q

TABLE OF CONTENTS

March 31, ~~2022~~2023

			Page
PART I.		FINANCIAL INFORMATION:		1


Item 1.	Financial Statements (Unaudited)		1
	Condensed Consolidated Balance Sheets at March 31, ~~2022~~2023 and September 30, ~~2021~~2022		1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, ~~2022~~2023 and ~~2021~~2022		2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended March 31, ~~2022~~2023 and ~~2021~~2022		3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, ~~2022~~2023 and ~~2021~~2022		4
	Notes to Condensed Consolidated Financial Statements		5


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1514
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		2120
Item 4.	Controls and Procedures		21
			20

PART II.		OTHER INFORMATION		22
			21

Item 1.	Legal Proceedings		2221
Item 1A.	Risk Factors		2221
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		2221
Item 3.	Defaults Upon Senior Securities		2221
Item 4.	Mine Safety Disclosures		2221
Item 5.	Other Information		2221
Item 6.	Exhibits		2322

	SIGNATURES		2423

EXPLANATORY NOTE

In this Quarterly Report on Form 10-Q, and unless the context otherwise requires, the “Company,” “we,” “us,” and “our” refer to Citius Pharmaceuticals, Inc. and its wholly-owned subsidiaries Citius Pharmaceuticals, LLC, 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~~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 cost, timing and results of our pre-clinical and clinical trials;

	●	our ability to raise funds for general corporate purposes and operations, including our pre-clinical and clinical trials;

●

our ability to obtain and maintain required regulatory approvals for our product candidates;

●

the commercial feasibility and success of our technology and product candidates;

●

our ability to recruit and retain qualified management and scientific and technical personnel to carry out our operations; and

●

the other factors discussed in the “Risk Factors” section of our most recent Annual Report on Form 10-K and elsewhere in this report.

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.~~Report.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CITIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			September 30,			March 31,			September 30,
	2022			2021			2023			2022
ASSETS
Current Assets:
Cash and cash equivalents	$	55,756,232		$	70,072,946		$	29,065,522		$	41,711,690
Prepaid expenses		2,503,109			2,741,404			5,835,602			2,852,580
Total Current Assets		58,259,341			72,814,350			34,901,124			44,564,270

Property and equipment, net		5,562			7,023			2,639			4,100

Operating lease right-of-use asset, net		736,209			822,828			552,205			646,074

Other Assets:
Deposits		38,062			38,062			38,062			38,062
In-process research and development		59,400,000			59,400,000			59,400,000			59,400,000
Goodwill		9,346,796			9,346,796			9,346,796			9,346,796
Total Other Assets		68,784,858			68,784,858			68,784,858			68,784,858

Total Assets	$	127,785,970		$	142,429,059		$	104,240,826		$	113,999,302

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,705,128		$	1,277,095		$	2,725,593		$	1,165,378
Accrued expenses		1,336,629			621,960			2,250,836			1,405,394
Accrued compensation		793,250			1,906,000			1,025,777			1,762,251
Operating lease liability		186,916			177,237			207,471			196,989
Total Current Liabilities		4,021,923			3,982,292			6,209,677			4,530,012

Deferred tax liability		4,985,800			4,985,800			5,849,800			5,561,800
Operating lease liability – non current		582,302			678,234
Operating lease liability – noncurrent								374,831			481,245
Total Liabilities		9,590,025			9,646,326			12,434,308			10,573,057

Commitments and Contingencies

Stockholders’ Equity:
Preferred stock – $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding		—			—			—			—
Common stock – $0.001 par value; 400,000,000 shares authorized; 146,129,630 and 145,979,429 shares issued and outstanding at March 31, 2022 and September 30, 2021, respectively		146,129			145,979
Common stock – $0.001 par value; 400,000,000 shares authorized; 146,357,797 and 146,211,130 shares issued and outstanding at March 31, 2023 and September 30, 2022, respectively								146,358			146,211
Additional paid-in capital		230,283,531			228,084,195			234,867,917			232,368,121
Accumulated deficit		(112,834,095	)		(96,047,821	)		(143,808,137	)		(129,688,467	)
Total Citius Pharmaceuticals, Inc. Stockholders’ Equity		117,595,565			132,182,353			91,206,138			102,825,865
Non-controlling interest		600,380			600,380			600,380			600,380
Total Equity		118,195,945			132,782,733			91,806,518			103,426,245

Total Liabilities and Equity	$	127,785,970		$	142,429,059		$	104,240,826		$	113,999,302

See notes to unaudited condensed consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, ~~2022~~2023 AND ~~2021~~2022

(Unaudited)

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	March 31,			March 31,			March 31,			March 31,			March 31,			March 31,			March 31,			March 31,
	2022			2021			2022			2021			2023			2022			2023			2022
Revenues	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Operating Expenses
Research and development		3,452,210			1,551,341			8,910,059			7,742,520			4,726,855			3,452,210			8,172,370			8,910,059
General and administrative		3,117,417			2,293,517			6,014,166			3,982,181			4,792,850			3,117,417			7,396,137			6,014,166
Stock-based compensation – general and administrative		1,020,998			342,962			1,925,602			619,544			1,165,595			1,020,998			2,366,676			1,925,602
Total Operating Expenses		7,590,625			4,187,820			16,849,827			12,344,245			10,685,300			7,590,625			17,935,183			16,849,827

Operating Loss		(7,590,625	)		(4,187,820	)		(16,849,827	)		(12,344,245	)		(10,685,300	)		(7,590,625	)		(17,935,183	)		(16,849,827	)

Other Income (Expense)
Other Income
Interest income		29,571			69,327			63,553			82,811			303,275			29,571			517,824			63,553
Interest expense		—			(3,939	)		—			(7,907	)
Total Other Income, Net		29,571			65,388			63,553			74,904
Gain on sale of New Jersey net operating losses														—			—			3,585,689			—
Total Other Income														303,275			29,571			4,103,513			63,553

Loss before Income Taxes														(10,382,025	)		(7,561,054	)		(13,831,670	)		(16,786,274	)
Income tax expense														144,000			—			288,000			—

Net Loss	$	(7,561,054	)	$	(4,122,432	)	$	(16,786,274	)	$	(12,269,341	)	$	(10,526,025	)	$	(7,561,054	)	$	(14,119,670	)	$	(16,786,274	)

Net Loss Per Share - Basic and Diluted	$	(0.05	)	$	(0.04	)	$	(0.11	)	$	(0.16	)	$	(0.07	)	$	(0.05	)	$	(0.10	)	$	(0.11	)

Weighted Average Common Shares Outstanding
Basic and diluted		146,041,852			95,997,427			146,026,847			75,565,121			146,251,945			146,041,852			146,231,313			146,026,847

See notes to unaudited condensed consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, ~~2022~~2023 AND ~~2021~~2022

(Unaudited)

	Preferred		Common Stock				Additional Paid-In		Accumulated			Total Citius Pharmaceuticals, Inc. Shareholder’s			Non-Controlling		Total			Preferred		Common Stock				Additional Paid-In		Accumulated			Total Citius Pharmaceuticals, Inc. Shareholder’s			Non-Controlling		Total
																				Stock		Shares		Amount		Capital		Deficit			Equity			Interest		Equity
Balance, October 1, 2022																				$	—		146,211,130	$	146,211	$	232,368,121	$	(129,688,467	)	$	102,825,865		$	600,380	$	103,426,245
Stock-based compensation expense																					—		—		—		1,201,081		—			1,201,081			—		1,201,081
Net loss																					—		—		—		—		(3,593,645	)		(3,593,645	)		—		(3,593,645	)
Balance, December 31, 2022																					—		146,211,130		146,211		233,569,202	$	(133,282,112	)	$	100,433,301		$	600,380	$	101,033,681
Issuance of common stock for services																					—		100,000		100		101,900		—			102,000			—		102,000
Issuance of common stock upon exercise of stock options																					—		46,667		47		31,220		—			31,267			—		31,267
Stock-based compensation expense																					—		—		—		1,165,595		—			1,165,595			—		1,165,595
Net loss																					—		—		—		—		(10,526,025	)		(10,526,025	)		—		(10,526,025	)
Balance, March 31, 2023																				$	—		146,357,797	$	146,358	$	234,867,917	$	(143,808,137	)	$	91,206,138		$	600,380	$	91,806,518
	Stock		Shares		Amount		Capital		Deficit			Equity			Interest		Equity
Balance, October 1, 2021	$	—		145,979,429	$	145,979	$	228,084,195	$	(96,047,821	)	$	132,182,353		$	600,380	$	132,782,733		$	—		145,979,429	$	145,979	$	228,084,195	$	(96,047,821	)	$	132,182,353		$	600,380	$	132,782,733
Issuance of common stock for services		—		50,201		50		95,834		—			95,884			—		95,884			—		50,201		50		95,834		—			95,884			—		95,884
Stock-based compensation expense		—		—		—		904,604		—			904,604			—		904,604			—		—		—		904,604		—			904,604			—		904,604
Net loss		—		—		—		—		(9,225,220	)		(9,225,220	)		—		(9,225,220	)		—		—		—		—		(9,225,220	)		(9,225,220	)		—		(9,225,220	)
Balance, December 31, 2021		—		146,029,630		146,029		229,084,633		(105,273,041	)		123,957,621			600,380		124,558,001			—		146,029,630		146,029		229,084,633		(105,273,041	)		123,957,621			600,380		124,558,001
Issuance of common stock for services		—		100,000		100		177,900		—			178,000			—		178,000			—		100,000		100		177,900		—			178,000			—		178,000
Stock-based compensation expense		—		—		—		1,020,998		—			1,020,998			—		1,020,998			—		—		—		1,020,998		—			1,020,998			—		1,020,998
Net loss		—		—		—		—		(7,561,054	)		(7,561,054	)		—		(7,561,054	)		—		—		—		—		(7,561,054	)		(7,561,054	)		—		(7,561,054	)
Balance, March 31, 2022	$	—		146,129,630	$	146,129	$	230,283,531	$	(112,834,095	)	$	117,595,565		$	600,380	$	118,195,945		$	—		146,129,630	$	146,129	$	230,283,531	$	(112,834,095	)	$	117,595,565		$	600,380	$	118,195,945


Balance, October 1, 2020	$	—		55,576,996	$	55,577	$	104,208,958	$	(70,593,867	)	$	33,670,668		$	—	$	33,670,668
Issuance of NoveCite common stock		—		—		—		1,799,640		(2,399,520	)		(599,880	)		600,380		500
Stock-based compensation expense		—		—		—		276,582		—			276,582			—		276,582
Net loss		—		—		—		—		(8,146,909	)		(8,146,909	)		—		(8,146,909	)
Balance, December 31, 2020		—		55,576,996		55,577		106,285,180		(81,140,296	)		25,200,461			600,380		25,800,841
Issuance of common stock in private placement offering, net of costs of $1,549,602		—		15,455,960		15,456		18,434,954		—			18,450,410			—		18,450,410
Issuance of common stock in registered direct offering, net of costs of $5,520,160		—		50,830,566		50,830		70,929,012		—			70,979,842			—		70,979,842
Issuance of common stock upon exercise of warrants		—		12,787,697		12,788		14,229,755		—			14,242,543			—		14,242,543
Issuance of common stock for services		—		50,000		50		67,950		—			68,000			—		68,000
Stock-based compensation expense		—		—		—		342,962		—			342,962			—		342,962
Net loss		—		—		—		—		(4,122,432	)		(4,122,432	)		—		(4,122,432	)
Balance, March 31, 2021	$	—		134,701,219	$	134,701	$	210,289,813	$	(85,262,728	)	$	125,161,786		$	600,380	$	125,762,166

See notes to unaudited condensed consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED MARCH 31, ~~2022~~2023 AND ~~2021~~2022

(Unaudited)

	2022			2021			2023			2022
Cash Flows From Operating Activities:
Net loss	$	(16,786,274	)	$	(12,269,341	)	$	(14,119,670	)	$	(16,786,274	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		1,925,602			619,544			2,366,676			1,925,602
Issuance of common stock for services		273,884			68,000			102,000			273,884
Amortization of operating lease right-of-use asset		86,619			80,112			93,869			86,619
Depreciation		1,461			305			1,461			1,461
Deferred income tax expense								288,000			—
Changes in operating assets and liabilities:
Prepaid expenses		238,295			(1,154,792	)		(2,983,022	)		238,295
Deposits		—			19,031
Accounts payable		428,033			(723,358	)		1,560,215			428,033
Accrued expenses		714,669			76,570			845,442			714,669
Accrued compensation		(1,112,750	)		(482,544	)		(736,474	)		(1,112,750	)
Accrued interest		—			7,907
Operating lease liability		(86,253	)		(77,315	)		(95,932	)		(86,253	)
Net Cash Used In Operating Activities		(14,316,714	)		(13,835,881	)		(12,677,435	)		(14,316,714	)

Cash Flows From Financing Activities:
Proceeds from sale of NoveCite, Inc. common stock		—			500
Net proceeds from private placement		—			18,450,410
Net proceeds from registered direct offering		—			70,979,842
Net proceeds from common stock warrant exercises		—			14,242,543
Proceeds from common stock option exercise								31,267			—
Net Cash Provided By Financing Activities		—			103,673,295			31,267			—

Net Change in Cash and Cash Equivalents		(14,316,714	)		89,837,414			(12,646,168	)		(14,316,714	)
Cash and Cash Equivalents - Beginning of Period		70,072,946			13,859,748			41,711,690			70,072,946
Cash and Cash Equivalents - End of Period	$	55,756,232		$	103,697,162		$	29,065,522		$	55,756,232

See notes to unaudited condensed consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED MARCH 31, ~~2022~~2023 AND ~~2021~~2022

(Unaudited)

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

Business

Citius Pharmaceuticals, Inc. (“Citius,” the “Company,” “we” or “us”) is a ~~specialty~~late-stage pharmaceutical company dedicated to the development and commercialization of first-in-class critical care products with a focus on ~~anti-infective products~~oncology, anti-infectives in adjunct cancer care, unique prescription products and stem cell ~~therapy.~~therapies.

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 Note 3).

On August 23, 2021, we formed Citius Acquisition Corp. (“Citius Acq.”), as a wholly-owned subsidiary in conjunction with the acquisition of I/ONTAK, ~~(formerly E7777), but no activity has occurred to date.~~which began operations in April 2022.

In-process research and development (“IPR&D”) consists of (i) the $19,400,000 acquisition value of LMB’s ~~leading~~ drug candidate ~~(Mino-Lok)~~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 product candidates, market acceptance of its 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.

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 Citius ~~Acquisition Corp.~~Acq., and its majority-owned subsidiary NoveCite. Citius ~~Acquisition Corp. is currently inactive.~~Acq. was inactive until April 1, 2022. 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 on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to fairly state the condensed consolidated financial position of the Company as of March 31, ~~2022,~~2023, and the results of its operations and cash flows for the three and six month periods ended March 31, ~~2022~~2023 and ~~2021.~~2022. The operating results for the three and six month periods ended March 31, ~~2022~~2023 are not necessarily indicative of the results that may be expected for the year ending September 30, ~~2022.~~2023. 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, ~~2021~~2022 filed with the Securities and Exchange ~~Commission.~~Commission (“SEC”).

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 ~~stock-based compensation,~~the accounting for ~~leases,~~in-process research and development and goodwill impairment, stock-based compensation, 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 and warrants, were not included in the calculation of the diluted loss per share because they were anti-dilutive.

Recently Issued Accounting Standards

~~In 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 Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific 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 first quarter of fiscal year 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 first fiscal quarter requires an entity to apply the new guidance to all prior business combinations that have occurred since the beginning of the 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 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 ~~$14,316,714~~$12,677,435 for the six months ended March 31, ~~2022.~~2023. 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~~$28,700,000 at March 31, ~~2022. The~~2023. After giving effect to the closing of its registered direct offering on May 8, 2023, in which it raised gross proceeds of $15,000,000, the Company estimates that its available cash resources will be sufficient to fund its operations through ~~March 2023.~~May 2024.

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. ~~The~~However, the Company’s continued operations beyond ~~March 2023,~~May 2024, including its development plans for I/ONTAK, Mino-Lok, Mino-Wrap, Halo-Lido ~~NoveCite~~ and ~~I/ONTAK,~~NoveCite, will depend on its ability to obtain regulatory approval to market ~~Mino-Lok~~I/ONTAK and/or ~~I/ONTAK~~Mino-Lok and generate substantial revenue from the sale of ~~Mino-Lok~~I/ONTAK and/or ~~I/ONTAK~~Mino-Lok 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 can provide no assurances on regulatory approval, commercialization, or future sales of ~~Mino-Lok~~ I/ONTAK and/or ~~I/ONTAK~~Mino-Lok or that financing or strategic relationships will be available on acceptable terms, or at all. If the Company is unable to raise sufficient capital, find strategic partners or generate substantial revenue from the sale of ~~Mino-Lok~~ I/ONTAK and/or ~~I/ONTAK,~~Mino-Lok, there would be a material adverse effect on its business. Further, the Company expects in the future 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. LMB pays an annual maintenance fee each June until commercial sales of a product subject to the license commence. The Company recorded an annual maintenance fee of $90,000 in June ~~2021~~2022 and ~~2020.~~2021.

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- 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 an 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.

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 Mino-Wrap as a liquefying gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive ~~surgeries (“Mino-Wrap”).~~surgeries. 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~~$75,000 and ~~$45,000~~$60,000 in January ~~2022~~2023 and ~~2021,~~2022, 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 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 the 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,~~October 6, 2020, ~~we entered into~~our subsidiary, NoveCite, signed an ~~option~~exclusive license 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 license agreement, we paid $5,000,000 to Novellus, which was charged to research and development expense induring the ~~three-month period~~year ended ~~December 31, 2020,~~September 30, 2021, 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 original 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.

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. In October 2022, Brooklyn changed its name to Eterna Therapeutics Inc. (“Eterna”).

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~~Eterna has no ~~contractual rights in the profits~~operational or ~~obligations~~financial responsibility 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~~Eterna 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~~Eterna 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~~if Eterna receives any revenue involving the original cell line included in the licensed technology, then ~~Novellus~~Eterna shall remit to NoveCite 50% of such revenue.

The term of the license agreement ~~will continue~~continues 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~~Eterna 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~~Eterna 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.

License Agreement with Eisai

In September 2021, the Company entered into a definitive agreement with Dr. ~~Reddy's~~Reddy’s Laboratories SA, a subsidiary of Dr. ~~Reddy's~~Reddy’s Laboratories, Ltd. (collectively, ~~"Dr. Reddy's"~~“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~~Reddy’s exclusive license of I/ONTAK from Eisai Co., Ltd. ~~("Eisai"~~(“Eisai”) and other related assets owned by Dr. ~~Reddy's. Citius's~~Reddy’s. Citius’s exclusive license ~~includes~~include 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~~denileukin diftitox in Japan and ~~Asia.~~most Asian countries. 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 up to $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~~biologics license application (“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 athe BLA for I/ONTAK with the ~~FDA.~~FDA (which was filed in September 2022). 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 (which we initiated in June 2021 and September 2022, respectively), (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 a principal balance of $104,000 accrued interest at the prime rate plus 1.0% per annum and notes with a principal balance of $68,970 accrued 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 $3,533 and $7,096 for the three and six months ended March 31, 2021, respectively.~~

~~Paycheck Protection Program~~

On April 12, 2020, the Company applied 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 pay qualifying costs such as payroll, rent and utilities. On April 15, 2020, the Company received $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 March 31, 2021, respectively.~~

5. COMMON STOCK, STOCK OPTIONS AND WARRANTS

~~Authorized Common Stock~~

On June 21, 2021, our stockholders approved an amendment to our Articles of Incorporation to increase the authorized number of shares of capital stock from 210,000,000 to 410,000,000 and the authorized number of common shares from 200,000,000 to 400,000,000.

~~Common Stock Offerings~~

On January 27, 2021, the Company closed a private placement for 15,455,960 common shares and warrants to purchase 7,727,980 common shares, at a purchase price of $1.294 per common share and accompanying warrant, for gross proceeds of $20,000,012. The 7,727,980 warrants are immediately exercisable at $1.231 per common share for a term of five and one-half years. The Company paid the placement agent a fee of 7% of the gross proceeds totaling $1,400,001 and issued the placement agent 1,081,917 immediately exercisable warrants at $1.6175 per 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 $64,601 in other expenses. Net proceeds from the offering were $18,450,410. The estimated fair value of the 7,727,980 warrants issued to the investors was approximately $7,582,000 and the estimated fair value of the 1,081,917 warrants issued to the placement agent was approximately $1,025,000.

On February 19, 2021, the Company closed a registered direct offering for 50,830,566 common shares and warrants to purchase up to 25,415,283 common shares, at a purchase price of $1.505 per 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 term of five years. The Company paid the placement agent a fee of 7% of the gross proceeds totaling $5,355,000 and issued the placement agent 3,558,140 immediately exercisable warrants at $1.881 per common share for 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 fair value of the 25,415,283 warrants issued to the investors was approximately $42,322,000 and the estimated fair value of the 3,558,140 warrants issued to the placement agent was approximately $5,850,000.

Common Stock Issued for Services

On November 2, 2021, the Company issued 50,201 shares of common stock for investor relations services and expensed the $95,884 fair value of the 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.

On September 13, 2022, the Company issued 81,500 shares of common stock for media, public and investor relations services and expensed the $104,320 fair value of the common stock issued.

On March 27, 2023, the Company issued 100,000 shares of common stock for media, public and investor relations services and expensed the $102,000 fair value of the common stock issued.

Stock Option Plans

~~Pursuant to~~Under our 2014 Stock Incentive Plan, we reserved 866,667 common shares for issuance to employees, directors and consultants. As of March 31, ~~2022,~~2023, options to purchase 855,171 shares were outstanding and no shares remain available for future grants.

~~On February 7, 2018,~~

Under 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,~~2023, options to purchase ~~1,820,000~~1,733,333 shares were ~~outstanding.~~outstanding and no shares remain available for future grants.

~~On February 10,~~Under our 2020 ~~our stockholders approved the 2020~~Omnibus Stock Incentive Plan and we reserved 3,110,000 common shares for issuance to employees, directors, and consultants. As of March 31, ~~2022,~~2023, 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,~~Under our 2021 ~~our stockholders approved the 2021~~Omnibus Stock Incentive 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,~~2023, options to purchase ~~4,775,000~~8,705,000 shares were outstanding and ~~there~~the remaining 35,000 shares were ~~3,965,000~~transferred to the 2023 Omnibus Stock Incentive Plan (the “2023 Stock Plan”).

In November 2022, our Board approved the Citius Pharmaceuticals, Inc. 2023 Stock Plan, subject to stockholder approval, which was received on February 7, 2023. The 2023 Stock Plan has reserved for issuance 12,035,000 shares of our common stock. As of March 31, 2023, options to purchase 225,000 shares were outstanding under the 2023 Stock Plan and 11,810,000 share remain 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. 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 NoveCite 2020 Omnibus Stock Incentive Plan) is presented below:

	Option Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value		Option Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at October 1, 2021		5,755,171	$	2.13	8.02 years	$	3,589,392
Outstanding at October 1, 2022									9,400,171		$	2.07	7.81 years	$	869,509
Granted		3,565,000		1.98					4,075,000			1.26
Exercised		—		—					(46,667	)		0.67			34,067
Forfeited or expired		—		—					—			—
Outstanding at March 31, 2022		9,320,171	$	2.07	8.30 years	$	2,748,165
Outstanding at March 31, 2023									13,428,504		$	1.83	7.99 years	$	750,721

Exercisable at March 31, 2022		3,555,534	$	2.50	6.74 years	$	1,766,476
Exercisable at March 31, 2023									6,179,962		$	2.17	6.76 years	$	688,121

On October 4, 2022, the Board of Directors granted options to purchase 3,375,000 shares to employees, 375,000 shares to directors and 50,000 shares to a consultant at $1.25 per share. On November 8, 2022, the Board of Directors granted options to purchase 50,000 shares to a consultant at $1.04 per share. On February 7, 2023, the Board of Directors granted options to purchase 150,000 shares to an employee and 75,000 shares to a director at $1.42 per share. The weighted average grant date fair value of the options granted during the six months ended March 31, 2023 was estimated at $0.97 per share. All of these options vest over terms of 12 to 36 months and have a term of 10 years.

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 March 31, 2023 and 2022 ~~and 2021~~ was ~~$1,020,998~~$1,165,595 (including $33,333 for the NoveCite Stock Plan) and ~~$342,962~~$1,020,998 (including ~~$18,833~~$33,333 for the NoveCite Stock Plan), respectively. Stock-based compensation expense for the six months ended March 31, 2023 and 2022 was $2,366,676 (including $66,666 for the NoveCite Stock Plan) 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 March 31, ~~2022,~~2023, unrecognized total compensation cost related to unvested awards under the Citius stock plans of ~~$7,151,673~~$6,989,559 is expected to be recognized over a weighted average period of ~~2.3~~1.9 years.

~~On November 5, 2020,~~Under 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,~~2023, 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,~~2023, 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~~1,417,778 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~~7.9 years. At March 31, ~~2022,~~2023, unrecognized total compensation cost related to unvested awards under the NoveCite Stock Plan of ~~$249,778~~$116,444 is expected to be recognized over a weighted average period of ~~1.9~~1.0 years.

Warrants

As of March 31, ~~2022,~~2023, we have reserved shares of common stock for the exercise of outstanding warrants as follows:

Exercise
price Number Expiration Date
LMB Warrants $ 7.50 5,795 April 29, 2022
2017 Public Offering Investors 4.13 1,622,989 August 2, 2022
2017 Public Offering Underwriter 4.54 65,940 February 2, 2023
December 2017 Registered Direct/Private Placement Offering Investors 4.63 640,180 June 19, 2023
December 2017 Registered Direct/Private Placement Offering Placement Agent 5.87 89,625 December 19, 2022
March 2018 Registered Direct/Private Placement Offering Investors 2.86 218,972 October 2, 2023
March 2018 Registered Direct/Private Placement Offering Placement Agent 3.73 46,866 March 28, 2023
August 2018 Offering Investors 1.15 3,921,569 August 14, 2023
August 2018 Offering Agent 1.59 189,412 August 8, 2023
April 2019 Registered Direct/Private Placement Offering Investors 1.42 1,294,498 April 5, 2024
April 2019 Registered Direct/Private Placement Offering Placement Agent 1.93 240,130 April 5, 2024
September 2019 Offering Investors 0.77 2,793,297 September 27, 2024
September 2019 Offering Underwriter 1.12 194,358 September 27, 2024
February 2020 Exercise Agreement Placement Agent 1.28 138,886 August 19, 2025
May 2020 Registered Direct Offering Investors 1.00 1,670,588 November 18, 2025
May 2020 Registered Direct Offering Placement Agent 1.33 155,647 May 14, 2025
August 2020 Underwriter 1.31 201,967 August 10, 2025
January 2021 Private Placement Offering Investors 1.23 3,091,192 July 27, 2026
January 2021 Private Placement Offering Agent 1.62 351,623 July 27, 2026
February 2021 Registered Direct Offering Investors 1.70 20,580,283 February 19, 2026
February 2021 Registered Direct Offering Agent 1.88 2,506,396 February 19, 2026
40,020,213

	Exercise price		Number		Expiration Date
December 2017 Registered Direct/Private Placement Investors	$	4.63		640,180	June 19, 2023
March 2018 Registered Direct/Private Placement Investors		2.86		218,972	October 2, 2023
August 2018 Offering Investors		1.15		3,921,569	August 14, 2023
August 2018 Offering Agent		1.59		189,412	August 8, 2023
April 2019 Registered Direct/Private Placement Investors		1.42		1,294,498	April 5, 2024
April 2019 Registered Direct/Private Placement Agent		1.93		240,130	April 5, 2024
September 2019 Offering Investors		0.77		2,793,297	September 27, 2024
September 2019 Offering Underwriter		1.12		194,358	September 27, 2024
February 2020 Exercise Agreement Agent		1.28		138,886	August 19, 2025
May 2020 Registered Direct Offering Investors		1.00		1,670,588	November 18, 2025
May 2020 Registered Direct Offering Agent		1.33		155,647	May 14, 2025
August 2020 Underwriter		1.31		201,967	August 10, 2025
January 2021 Private Placement Investors		1.23		3,091,192	July 27, 2026
January 2021 Private Placement Agent		1.62		351,623	July 27, 2026
February 2021 Offering Investors		1.70		20,580,283	February 19, 2026
February 2021 Offering Agent		1.88		2,506,396	February 19, 2026
				38,188,998

At March 31, ~~2022,~~2023, the weighted average remaining life of the outstanding warrants is ~~3.3~~2.4 years, all warrants are exercisable, and the aggregate intrinsic value of the warrants outstanding was ~~$11,206,022.~~$1,489,687.

Common Stock Reserved

A summary of common stock reserved for future issuances as of March 31, ~~2022~~2023 is as follows:

Stock plan options outstanding			~~9,320,171~~13,428,504
Stock plan shares available for future grants			~~3,965,000~~11,810,000
Warrants outstanding			~~40,020,213~~38,188,998
Total			~~53,305,384~~63,427,502

~~6. RELATED PARTY TRANSACTIONS~~

~~The Company had outstanding debt due to Leonard Mazur (Chairman of the Board) and Myron Holubiak (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).~~

7.5. OPERATING LEASE

Effective July 1, 2019, Citius entered into a 76-month lease for office space in Cranford, NJ. Citius ~~will pay~~pays 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:

●

As the Company’s lease does not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments based on the remaining lease term as of the adoption date.

●

Since the Company elected to account for each lease component and its associated non-lease components as a single combined component, all contract consideration was allocated to the combined lease component.

●

The expected lease terms include noncancelable lease periods.

The elements of lease expense are as follows:

Lease cost	Six Months Ended March 31, 2023			Six Months Ended March 31, 2022
Operating lease cost	$	119,412		$	119,411
Variable lease cost		2,363			—
Total lease cost	$	121,775		$	119,411

Other information
Weighted-average remaining lease term - operating leases		2.6 Years			3.6 Years
Weighted-average discount rate - operating leases		8.0	%		8.0	%

Lease cost Six Months Ended
March 31,
2022 Six Months Ended
March 31,
2021
Operating lease cost $ 119,411 $ 119,412
Variable lease cost — 194
Total lease cost 119,411 $ 119,606

Other information
Weighted-average remaining lease term - operating leases 3.6 Years 4.6 Years
Weighted-average discount rate - operating leases 8.0 % 8.0 %

Maturities of lease liabilities due under the Company’s non-cancellable leases as of March 31, 2023 is as follows:

Year Ending September 30,	March 31, 2023
2023 (excluding the 6 months ended March 31, 2023)	$	122,690
2024		249,024
2025		253,883
2026		21,460
Total lease payments		647,057
Less: interest		(64,755	)
Present value of lease liabilities	$	582,302

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

Year Ending September 30, March 31,
2022
2022 (excluding the 6 months ended March 31, 2022) $ 120,260
2023 244,165
2024 249,024
2025 253,883
2026 21,460
Total lease payments 888,792
Less: interest (119,574 )
Present value of lease liabilities $ 769,218

Leases	Classification		March 31, 2022		September 30, 2021		Classification	March 31, 2023		September 30, 2022
Assets
Lease asset		Operating	$	736,209	$	822,828	Operating	$	552,205	$	646,074
Total lease assets			$	736,209	$	822,828		$	552,205	$	646,074

Liabilities
Current		Operating	$	186,916	$	177,237	Operating	$	207,471	$	196,989
Non-current		Operating		582,302		678,234	Operating		374,831		481,245
Total lease liabilities			$	769,218	$	855,471		$	582,302	$	678,234

Interest expense on the lease liability was ~~$32,792~~$25,543 and ~~$39,300~~$32,792 for the six months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

6. GAIN ON SALE OF NEW JERSEY NET OPERATING LOSSES

The Company recognized a gain of $3,585,689 for the six months ended March 31, 2023 in connection with the sale of certain New Jersey income tax net operating losses to a third party under the New Jersey Technology Business Tax Certificate Transfer Program.

7. SUBSEQUENT EVENTS

On May 4, 2023, the Company entered into definitive agreements with certain healthcare-focused and institutional investors for the purchase of an aggregate of 12,500,001 shares of its common stock and accompanying warrants to purchase up to an aggregate of 12,500,001 shares of its common stock, at a purchase price of $1.20 per share and accompanying warrant in a registered direct offering. The warrants have an exercise price of $1.50 per share, will be exercisable six months from the date of issuance, and will expire five years from the date of issuance.

The closing of the offering occurred on May 8, 2023, in which the aggregate gross proceeds were $15.0 million before deducting the placement agent fees and other offering expenses payable by the Company.

The Company also issued 875,000 warrants to the placement agent as part of the transaction.

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~~month periods ended March 31, ~~2022~~2023 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, ~~2021.~~2022. 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” on page ii of this Report.

Historical Background

~~Citius Pharmaceuticals, Inc. (“Citius,” the “Company,” “we” or “us”) is~~We are a late-stage biopharmaceutical company ~~developing~~dedicated to the development and ~~commercializing~~commercialization of first-in-class critical care ~~products.~~products with a focus on oncology, anti-infectives in adjunct cancer care, unique prescription products and stem cell therapies. On September 12, 2014, we acquired Citius Pharmaceuticals, LLC as a wholly-owned ~~subsidiary and on~~subsidiary.

On March 30, 2016, we acquired all of the outstanding stock of Leonard-Meron Biosciences, Inc. (“LMB”) ~~as a wholly-owned subsidiary.~~ by issuing shares of our common stock. We acquired identifiable intangible assets of $19,400,000 related to in-process research and development and recorded goodwill of $9,346,796 for the excess of the purchase consideration over the net assets acquired.

On September 11, 2020, we formed NoveCite, Inc. (“NoveCite”), a Delaware corporation, of which we own 75% of the issued and outstanding capital stock.

On August 23, 2021, we formed Citius Acquisition Corp., as a ~~wholly-owned~~wholly owned subsidiary, which began operations in April 2022.

In-process research and development of $19,400,000 represents the value of LMB’s 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. Goodwill of $9,346,796 represents the value of LMB’s industry relationships and its assembled workforce. Goodwill will not be amortized but ~~no activity has occurred~~will be tested at least annually for impairment. In-process research and development of $40,000,000 represents the value of our September 2021 acquisition of an exclusive license for I/ONTAK (denileukin diftitox), a late-stage oncology immunotherapy for the treatment of CTCL, a rare form of non-Hodgkin lymphoma and is expected to ~~date.~~be amortized on a straight-line basis over a period of twelve years commencing upon revenue generation.

Through March 31, ~~2022, the Company has~~2023, we have devoted substantially all ~~of its~~our efforts to ~~business planning, acquiring~~product development, raising capital, building infrastructure through strategic alliances and coordinating activities relating to our proprietary ~~technology, research and development, recruiting management and technical staff, and raising capital.~~products. We have not yet realized any revenues from our operations.

Patent and Technology License Agreements

~~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.~~basis, as amended. Since May 2014, LMB has paid an annual maintenance fee, which began at $30,000 and that increased over five years to $90,000, where it will remain until the commencement of commercial sales of a product subject to the 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 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 ~~an 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 Mino-Wrap as a liquefying gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive ~~surgeries (“Mino-Wrap”).~~surgeries. 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”).~~FDA.

Under the license agreement, we paid a nonrefundable upfront payment of $125,000. We ~~paid~~are obligated to pay an annual maintenance ~~fees~~fee of ~~$60,000 and $45,000~~$30,000, commencing in January ~~2022 and 2021, respectively. The annual maintenance fee~~2020 that 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”~~Novellus”), whereby NoveCite acquired an exclusive, worldwide license, with the right to sublicense, to develop and commercialize a stem cell therapy based on the ~~Licensor’s~~Novelllus’s patented technology for the treatment of acute pneumonitis of any etiology in which inflammation is a major agent in humans. Upon execution of the license agreement, NoveCite paid aan upfront payment of $5,000,000 ~~license fee and~~to Novellus issued to Novellus shares of Novecite’s common stock representing 25% of ~~its~~NoveCite’s currently outstanding ~~equity to the Licensor.~~equity. 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~~Pursuant to this transaction, the ~~stock~~NoveCite license was assumed by Brooklyn with all original terms and conditions. In October 2021, Brooklyn changed its name to Eterna Therapeutics Inc.

As part of the Novellus and Brooklyn merger transaction, the 25% non-dilutive position as per the 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.removed.

Under the license agreement, NoveCite is obligated to pay ~~Licensor~~Eterna 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~~Novellus 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~~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 ~~Licensor~~Eterna receives any revenue involving the original cell line included in the licensed technology, then ~~Licensor~~Eterna 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”),~~CTCL, a rare form of non-Hodgkin lymphoma.

Under the terms of this agreement, Citius acquired Dr. ~~Reddy's~~Reddy’s exclusive license of I/~~ONTAK~~ONTAL from Eisai ~~Co., Ltd. (“Eisai”)~~ and other related assets owned by Dr. ~~Reddy's. Citius's~~Reddy’s. Citius’s exclusive license rights include rights to develop and commercialize ~~E7777~~I/ONTAK 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~~denileukin diftitox in Japan and Asia. Dr. ~~Reddy's~~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”)~~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 March 31, ~~2022~~2023 compared with the three months ended March 31, ~~2021~~2022

	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021			Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
Revenues	$	—		$	—		$	—		$	—

Operating expenses:
Research and development		3,452,210			1,551,341			4,726,855			3,452,210
General and administrative		3,117,417			2,293,517			4,792,850			3,117,417
Stock-based compensation expense		1,020,998			342,962			1,165,595			1,020,998
Total operating expenses		7,590,625			4,187,820			10,685,300			7,590,625

Operating loss		(7,590,625	)		(4,187,820	)		(10,685,300	)		(7,590,625	)
Interest income		29,571			69,327			303,275			29,571
Interest expense		—			(3,939	)
Loss before income taxes								(10,382,025	)		(7,561,054	)
Income tax expense								144,000			—
Net loss	$	(7,561,054	)	$	(4,122,432	)	$	(10,526,025	)	$	(7,561,054	)

Revenues

We did not generate any revenues for the three months ended March 31, ~~2022~~2023 or ~~2021.~~2022.

Research and Development Expenses

For the three months ended March 31, ~~2022,~~2023, research and development expenses were ~~$3,452,210~~$4,726,855 as compared to ~~$1,551,341~~$3,452,210 during the three months ended March 31, ~~2021,~~2022, an increase of ~~$1,900,869.~~$1,274,645.

Research and development costs for ~~Mino-Lok® decreased~~Mino-Lok increased by ~~$203,699~~$143,461 to $1,050,093 for the three months ended March 31, 2023 as compared 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~~associated with the addition of Biorasi, LLC (“Biorasi”), a global clinical research organization (CRO), to ~~catheter integrity testing incurred in~~help expand the ~~three months ended March 31, 2021.~~Company’s Phase 3 Mino-Lok trial to additional sites outside the United States.

Research and development costs for ~~our~~ Halo-Lido ~~product candidate~~ increased by ~~$461,201~~$1,258,672 to $1,962,572 for the three months ended March 31, 2023 as compared 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~~higher costs associated with the Phase 2b trial ~~which is expected to begin~~incurred in the ~~quarter ending June 30, 2022. .~~three months ended March 31, 2023. On ~~February 15, 2022,~~April 3, 2023, Citius announced that enrollment in the ~~FDA issued a Study May Proceed Letter for our~~ Phase 2b ~~Halo-Lido study.~~trial has been completed. Results of the study are anticipated by the end of the second quarter of 2023.

Research and development costs for ~~our~~ I/ONTAK ~~product candidate, which we in-licensed in September 2021, was $1,582,571~~were $1,402,908 during the three months ended March 31, 2023 as compared to $1,582,571 for the three months ended March 31, 2022. ~~On April 6, 2022, Citius announced~~The $179,663 decrease in expenses was primarily due to the ~~topline results from the pivotal Phase 3 trial~~completion and ~~based on this data, Citius anticipates~~ filing aof our BLA with the FDA in ~~the second half of~~September 2022.

We expect that research and development expenses will ~~continue to increase~~stabilize in fiscal ~~2022~~2023 as we ~~continue to~~ focus on the commercialization of I/ONTAK, and complete our Phase 3 ~~trials~~trial for ~~Mino-Lok®~~Mino-Lok and ~~I/ONTAK, progress the Halo-Lido product candidate and continue~~ our ~~research and development efforts related to ARDS and Mino-Wrap.~~Phase 2b trial for Halo-Lido.

General and Administrative Expenses

For the three months ended March 31, ~~2022,~~2023, general and administrative expenses were ~~$3,117,417~~$4,792,850 as compared to ~~$2,293,517~~$3,117,417 during the three months ended March 31, ~~2021.~~2022. General and administrative expenses increased by ~~$823,900~~$1,675,433 in comparison with the prior period. The primary reasons for the increase were ~~additional compensation~~ costs ~~for new employees, increased investor relations costs~~associated with pre-launch and ~~additional insurance expense.~~market research activities associated with I/ONTAK General and administrative expenses consist primarily of compensation costs, professional fees for legal, regulatory, accounting, and corporate development services, and investor relations expenses.

Stock-based Compensation Expense

For the three months ended March 31, ~~2022,~~2023, stock-based compensation expense was ~~$1,020,998~~$1,165,595 as compared to ~~$342,962~~$1,020,998 for the three months ended March 31, ~~2021.~~2022. For the three months ended March 31, 2023 and 2022, stock-based compensation includes $33,333 in expense for the NoveCite stock option ~~plan that was adopted in November 2020 as compared to $18,833 for the three months ended March 31, 2021.~~plan. Stock-based compensation expense for the most recently completed quarter increased by ~~$678,036~~$144,597 in comparison to the prior year 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 March 31, ~~2022~~2023 was ~~$29,571~~$303,275 as compared to interest income of ~~$69,327~~$29,571 for the prior period. ~~We have invested the remaining proceeds of our early 2021 equity offerings and common stock warrant exercises in money market accounts.~~The increase is due to higher interest rates.

Income Taxes

The Company recorded deferred income tax expense of $144,000 for the three months ended March 31, 2023, related to the amortization for taxable purposes of its in-process research and development asset. There was no ~~interest expense~~provision for income taxes for the three months ended March 31, 2022 ~~as compared~~due to ~~$3,939 in interest expense for~~ the ~~three months ended March 31, 2021. Interest expense was $3,533 for~~Company’s operating losses and the ~~three months ended March 31, 2021~~valuation reserve 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.deferred tax assets.

Net Loss

For the three months ended March 31, ~~2022,~~2023, we incurred a net loss of ~~$7,561,054~~$10,526,025, compared to a net loss for the three months ended March 31, ~~2021~~2022 of ~~$4,122,432.~~$7,561,054. The ~~$3,438,622~~$2,964,971 increase in the net loss was primarily due to the increase of ~~$1,900,869 increase~~$1,274,645 in research and development expenses and ~~the $823,900~~an increase of $1,675,433 in general and administrative expenses.

Six months ended March 31, ~~2022~~2023 compared with the six months ended March 31, ~~2021~~2022

	Six Months Ended March 31, 2022			Six Months Ended March 31, 2021			Six Months Ended March 31, 2023			Six Months Ended March 31, 2022
Revenues	$	—		$	—		$	—		$	—

Operating expenses:
Research and development		8,910,059			7,742,520			8,172,370			8,910,059
General and administrative		6,014,166			3.982,181			7,396,137			6,014,166
Stock-based compensation expense		1,925,602			619,544			2,366,676			1,925,602
Total operating expenses		16,849,827			12,344,245			17,935,183			16,849,827

Operating loss		(16,849,827	)		(12,344,245	)		(17,935,183	)		(16,849,827	)
Interest income		63,553			82,811			517,824			63,553
Interest expense		—			(7,907	)
Gain on sale of New Jersey net operating losses								3,585,689			—
Loss before income taxes								(13,831,670	)		(16,786,274	)
Income tax expense								288,000			—
Net loss	$	(16,786,274	)	$	(12,269,341	)	$	(14,119,670	)	$	(16,786,274	)

Revenues

We did not generate any revenues for the six months ended March 31, ~~2022~~2023 or ~~2021.~~2022.

Research and Development Expenses

For the six months ended March 31, ~~2022,~~2023, research and development expenses were ~~$8,910,059~~$8,172,370 as compared to ~~$7,742,520~~$8,910,059 during the six months ended March 31, ~~2021, an increase~~2022, a decrease of ~~$1,167,539.~~$737,689.

Research and development costs for ~~our Halo-Lido product candidate~~Mino-Lok increased by ~~$1,227,904~~$335,463 to ~~$1,701,477~~$2,217,748 for the six months ended March 31, 2023 as compared to $1,882,285 for the six months ended March 31, 2022, ~~as compared~~due primarily to ~~$473,573 for the six months ended March 31, 2021 due to start-up~~increased costs associated with the addition of Biorasi, LLC (“Biorasi”), a global clinical research organization (CRO), to help expand the Company’s Phase 2b3 Mino-Lok trial ~~which is expected~~ to ~~begin in~~additional sites outside the ~~quarter ending June 30, 2022. On February 15, 2022, Citius announced that the FDA issued a Study May Proceed Letter for our Phase 2b Halo-Lido study.~~

During the six months ended March 31, 2022, research and development costs for our proposed novel cellular therapy for ARDS decreased by $4,731,973 to $651,753 as compared to $5,383,726 for the six months ended March 31, 2021. We expensed the $5,000,000 license fee paid to Novellus during the six months ended March 31, 2021.United States.

Research and development costs for ~~our~~Halo-Lido increased by $1,029,621 to $2,731,098 for the six months ended March 31, 2023 as compared to $1,701,477 for the six months ended March 31, 2022 due to higher costs associated with the Phase 2b trial incurred in the six months ended March 31, 2023. On April 3, 2023, Citius announced that enrollment in the Phase 2b trial has been completed. Results of the study are anticipated by the end of the second quarter of 2023.

Research and development costs for I/ONTAK ~~product candidate, which we in-licensed in September 2021, was $4,520,366~~were $2,831,453 during the six months ended March 31, 2023 as compared to $4,520,365 for the six 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~~The $1,688,912 decrease in expenses was primarily due to costs associated with the ~~FDA~~completed I/ONTAK phase 3 clinical trial which were incurred in the ~~second half of~~six months ended March 31, 2022.

General and Administrative Expenses

For the six months ended March 31, ~~2022,~~2023, general and administrative expenses were ~~$6,014,166~~$7,396,137 as compared to ~~$3,982,181~~$6,014,166 during the six months ended March 31, ~~2021.~~2022. General and administrative expenses increased by ~~$2,031,985~~$1,381,971 in comparison with the prior period. The primary ~~reasons~~reason for the increase were ~~additional compensation~~ costs ~~for new employees, increased investor relations costs~~associated with pre-launch and ~~additional insurance expense.~~market research activities associated with I/ONTAK. General and administrative expenses consist primarily of compensation costs, professional fees for legal, regulatory, accounting, and corporate development services, and investor relations expenses.

Stock-based Compensation Expense

For the six months ended March 31, ~~2022,~~2023, stock-based compensation expense was ~~$1,925,602~~$2,366,676 as compared to ~~$619,544~~$1,925,602 for the six months ended March 31, ~~2021.~~2022. For the six months ended March 31, 2023 and 2022, stock-based compensation includes $66,666 in expense for the NoveCite stock option ~~plan that was adopted in November 2020 as compared to $31,389 for the six months ended March 31, 2021.~~plan. Stock-based compensation expense for the most recently completed ~~quarter~~six months increased by ~~$1,306,058~~$441,074 in comparison to the prior year period primarily due to new grants made to employees (including new hires), directors and consultants.

Other Income ~~(Expense)~~

Interest income for the six months ended March 31, ~~2022~~2023 was ~~$63,553~~$517,824 as compared to interest income of ~~$82,811~~$63,553 for the prior period. ~~We have invested the remaining proceeds of our early 2021 equity offerings and common stock warrant exercises in money market accounts.~~The increase is due to higher interest rates.

Other income for the six months ended March 31, 2023 consists of the $3,585,689 gain recognized in connection with the sale of certain New Jersey income tax net operating losses to a third party under the New Jersey Technology Business Tax Certificate Transfer Program.

Income Taxes

The Company recorded deferred income tax expense of $288,000 for the six months ended March 31, 2023, related to the amortization for taxable purposes of its in-process research and development asset. There was no ~~interest expense~~provision for income taxes for the six months ended March 31, 2022 ~~as compared~~due to ~~$7,907 in interest expense for~~ the ~~six months ended March 31, 2021. Interest expense was $7,096 for~~Company’s operating losses and the ~~six months ended March 31, 2021~~valuation reserve on the notes payable – related parties that were repaid in full in June 2021. Interest expense was $811 for the six months ended March 31, 2021 on the Paycheck Protection Program loan that was forgiven in July 2021.deferred tax assets.

Net Loss

For the six months ended March 31, ~~2022,~~2023, we incurred a net loss of ~~$16,786,274~~$14,119,670, compared to a net loss for the six months ended March 31, ~~2021~~2022 of ~~$12,269,341.~~$16,786,274. The ~~$4,516,933 increase~~$2,666,604 decrease in the net loss was primarily due to the increase of ~~$1,167,539~~$4,039,960 in ~~research~~other income offset by an aggregate increase in operating expenses of $1,085,356 and ~~development expenses and the~~a $288,000 increase ~~of $2,031,985~~ in ~~general and administrative expenses.~~income tax expense.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Working Capital

Citius has incurred operating losses since inception and incurred a net loss of ~~$16,786,274~~$14,119,670 for the six months ended March 31, ~~2022.~~2023. At March 31, ~~2022,~~2023, Citius had an accumulated deficit of ~~$112,834,095.~~$143,808,137. Citius’ net cash used in operations during the six months ended March 31, ~~2022~~2023 was ~~$14,316,714.~~$12,677,435.

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~~$28,700,000 at March 31, ~~2022.~~2023. At March 31, ~~2022,~~2023, Citius had cash and cash equivalents of ~~$55,756,232~~$29,065,522 available to fund its operations. The Company’s primary sources of cash flow since inception have been from financing activities. Our primary uses of operating cash were for in-licensing of intellectual property, product development and commercialization activities, employee compensation, consulting fees, legal and accounting fees, insurance and investor relations expenses.

Based on our cash and cash equivalents at March 31, ~~2022,~~2023, and after giving effect to the closing of our registered direct offering on May 8, 2023, in which we raised gross proceeds of $15,000,000, we expect that we will have sufficient funds to continue our operations through ~~March 2023.~~May 2024. We expect to need to raise additional capital in the future to support our operations beyond ~~March 2023.~~May 2024. There is no assurance, however, that we will be successful in raising the needed capital or that the proceeds will be received in an amount or in a timely manner to 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 and Estimates

The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements and the amounts of revenues and expenses recorded during the reporting periods. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

Our critical accounting policies and use of estimates are discussed in, and should be read in conjunction with, the annual consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2021 as~~2022 filed with the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.

Our Chief Executive Officer (who is our principal executive officer) and Chief Financial Officer (who is our principal financial officer and principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of March 31, ~~2022.~~2023. In designing and evaluating disclosure controls and procedures, we recognize that any disclosure controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objective. As of March 31, ~~2022,~~2023, based on the evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes In Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There has been no change in the Company’s risk factors since the Company’s Form 10-K filed with the SEC on December ~~15, 2021.~~22, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On March ~~21, 2022,~~27, 2023, we issued 100,000 shares of our common stock to a consultant for investor relations services pursuant to the agreed upon compensation terms in the consulting agreement with the entity. The issuance of the shares was exempt from registration under Section 4(a)(2) of the Securities Act.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

10.1		~~Amended~~Patent and ~~Restated Employment~~Technology License Agreement, dated May 14, 2014, between ~~Myron Holubiak~~Novel Anti-Infective Technologies, LLC and ~~Citius Pharmaceuticals,~~Leonard-Meron Biosciences, Inc.~~, dated April 12, 2022 and effective May 1, 2022.~~ *+

31.1		Certification of the Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a).*

31.2		Certification of the Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a).*

32.1		Certification of the Principal Executive and Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.*

EX-101.INS		Inline XBRL Instance Document*

EX-101.SCH		Inline XBRL Taxonomy Extension Schema ~~Document~~Document**

EX-101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document*

EX-101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document*

EX-101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document*

EX-101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document*

EX-104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

	*	Filed herewith.
+	Portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CITIUS PHARMACEUTICALS, INC.

Date: May 12, ~~2022~~2023	By:	/s/ Leonard Mazur
		Leonard Mazur
		Chief Executive Officer (Principal Executive Officer)

Date: May 12, ~~2022~~2023	By:	/s/ Jaime Bartushak
		Jaime Bartushak
		Chief Financial Officer (Principal Financial and Accounting Officer)

2423

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Year Ending September 30,	March 31, 2022
2022 (excluding the 6 months ended March 31, 2022)	$	120,260
2023		244,165
2024		249,024
2025		253,883
2026		21,460
Total lease payments		888,792
Less: interest		(119,574	)
Present value of lease liabilities	$	769,218