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, 20222023

OR

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

For the transition period from ______________ to ______________

Commission File Number 001-38174

Citius Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Nevada27-3425913
(State or other jurisdiction of
incorporation or organization
)
(IRS Employer
Identification No.
)

11 Commerce Drive, First Floor, Cranford, NJ07016
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, $0.001 par valueCTXRNasdaq Capital Market
Warrants to purchase common stockCTXRWNasdaq 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 filerAccelerated filer
Non-accelerated filerSmaller 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 146,129,630158,857,798 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, 20222023

Page
PART I.FINANCIAL INFORMATION:1
Item 1.Financial Statements (Unaudited)1
Condensed Consolidated Balance Sheets at March 31, 20222023 and September 30, 202120221
Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 20222023 and 202120222
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended March 31, 20222023 and 202120223
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 20222023 and 202120224
Notes to Condensed Consolidated Financial Statements5
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1514
Item 3.Quantitative and Qualitative Disclosures about Market Risk2120
Item 4.Controls and Procedures21
20
PART II.OTHER INFORMATION22
21
Item 1.Legal Proceedings2221
Item 1A.Risk Factors2221
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2221
Item 3.Defaults Upon Senior Securities2221
Item 4.Mine Safety Disclosures2221
Item 5.Other Information2221
Item 6.Exhibits2322
SIGNATURES2423

 

i

 

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 reportReport 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.

ii

 

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, 20222023 AND 20212022

(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, 20222023 AND 20212022

(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, 20222023 AND 20212022

(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, 20222023 AND 20212022

(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 specialtylate-stage pharmaceutical company dedicated to the development and commercialization of first-in-class critical care products with a focus on anti-infective productsoncology, 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, 20222023 and 2021.2022. The operating results for the three and six month periods ended March 31, 20222023 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, 20212022 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. The2023. 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. TheHowever, 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-LokI/ONTAK and/or I/ONTAKMino-Lok and generate substantial revenue from the sale of Mino-LokI/ONTAK and/or I/ONTAKMino-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/ONTAKMino-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 20212022 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 20222023 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 intoour subsidiary, NoveCite, signed an optionexclusive 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 periodyear 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.

NovellusEterna has no contractual rights in the profitsoperational or obligationsfinancial 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 NovellusEterna 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 NovellusEterna 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 Novellusif Eterna receives any revenue involving the original cell line included in the licensed technology, then NovellusEterna shall remit to NoveCite 50% of such revenue.

The term of the license agreement will continuecontinues 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.

NovellusEterna 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 NovellusEterna decides that it is not interested in maintaining a particular licensed patent or in preparing, filing, or prosecuting a licensed patent, NoveCite will have the right, but not the obligation, to assume such responsibilities in the territory at NoveCite’s sole cost and expense.

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

License Agreement with Eisai

In September 2021, the Company entered into a definitive agreement with Dr. Reddy'sReddy’s Laboratories SA, a subsidiary of Dr. Reddy'sReddy’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'sReddy’s exclusive license of I/ONTAK from Eisai Co., Ltd. ("Eisai"(“Eisai”) and other related assets owned by Dr. Reddy's. Citius'sReddy’s. Citius’s exclusive license includesinclude 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 agentdenileukin 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 BLAbiologics 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 toUnder 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 1,820,0001,733,333 shares were outstanding.outstanding and no shares remain available for future grants.

On February 10,Under our 2020 our stockholders approved the 2020Omnibus 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 2021Omnibus 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 4,775,0008,705,000 shares were outstanding and therethe remaining 35,000 shares were 3,965,000transferred 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 2.31.9 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 376,6651,417,778 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 8.97.9 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 1.91.0 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 3.32.4 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, 20222023 is as follows:

 

Stock plan options outstanding9,320,17113,428,504
Stock plan shares available for future grants3,965,00011,810,000
Warrants outstanding40,020,21338,188,998
Total53,305,38463,427,502

 

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 paypays 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, 20222023 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 monthsmonth periods ended March 31, 20222023 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”) isWe are a late-stage biopharmaceutical company developingdedicated to the development and commercializingcommercialization 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 onsubsidiary.

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-ownedwholly 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 occurredwill 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 has2023, we have devoted substantially all of itsour efforts to business planning, acquiringproduct 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 paidare obligated to pay an annual maintenance feesfee of $60,000 and $45,000$30,000, commencing in January 2022 and 2021, respectively. The annual maintenance fee2020 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’sNovelllus’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 andto Novellus issued to Novellus shares of Novecite’s common stock representing 25% of itsNoveCite’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 thatPursuant to this transaction, the stockNoveCite 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 LicensorEterna 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 LicensorNovellus 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 LicensorNovellus 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 LicensorEterna receives any revenue involving the original cell line included in the licensed technology, then LicensorEterna 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'sReddy’s exclusive license of I/ONTAKONTAL from Eisai Co., Ltd. (“Eisai”) and other related assets owned by Dr. Reddy's. Citius'sReddy’s. Citius’s exclusive license rights include rights to develop and commercialize E7777I/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 agentdenileukin diftitox in Japan and Asia. Dr. Reddy'sReddy’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, 20222023 compared with the three months ended March 31, 20212022

 

 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, 20222023 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® decreasedMino-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 relatedassociated with the addition of Biorasi, LLC (“Biorasi”), a global clinical research organization (CRO), to catheter integrity testing incurred inhelp 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-uphigher costs associated with the Phase 2b trial which is expected to beginincurred 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 $1,582,571were $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 announcedThe $179,663 decrease in expenses was primarily due to the topline results from the pivotal Phase 3 trialcompletion and based on this data, Citius anticipates filing aof our BLA with the FDA in the second half ofSeptember 2022.

 

We expect that research and development expenses will continue to increasestabilize in fiscal 20222023 as we continue to focus on the commercialization of I/ONTAK, and complete our Phase 3 trialstrial 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 costsassociated 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, 20222023 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 expenseprovision for income taxes for the three months ended March 31, 2022 as compareddue to $3,939 in interest expense for the three months ended March 31, 2021. Interest expense was $3,533 forCompany’s operating losses and the three months ended March 31, 2021valuation 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, 20212022 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 $823,900an increase of $1,675,433 in general and administrative expenses.

 

Six months ended March 31, 20222023 compared with the six months ended March 31, 20212022

 

 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, 20222023 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 increase2022, a decrease of $1,167,539.$737,689.

 

Research and development costs for our Halo-Lido product candidateMino-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 compareddue primarily to $473,573 for the six months ended March 31, 2021 due to start-upincreased 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 inadditional 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 ourHalo-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 $4,520,366were $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 BLAThe $1,688,912 decrease in expenses was primarily due to costs associated with the FDAcompleted I/ONTAK phase 3 clinical trial which were incurred in the second half ofsix months ended March 31, 2022.

 

We expect that research and development expenses will continue to increasestabilize in fiscal 20222023 as we continue to focus on the commercialization of I/ONTAK, and complete our Phase 3 trialstrial 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 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 reasonsreason for the increase were additional compensation costs for new employees, increased investor relations costsassociated 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 quartersix 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, 20222023 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 expenseprovision for income taxes for the six months ended March 31, 2022 as compareddue to $7,907 in interest expense for the six months ended March 31, 2021. Interest expense was $7,096 forCompany’s operating losses and the six months ended March 31, 2021valuation 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, 20212022 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 researchother income offset by an aggregate increase in operating expenses of $1,085,356 and development expenses and thea $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, 20222023 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 as2022 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, 20222023 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 AmendedPatent and Restated EmploymentTechnology License Agreement, dated May 14, 2014, between Myron HolubiakNovel 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.INSInline XBRL Instance Document*
EX-101.SCHInline XBRL Taxonomy Extension Schema DocumentDocument**
EX-101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document*
EX-101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document*
EX-101.LABInline XBRL Taxonomy Extension Label Linkbase Document*
EX-101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document*
EX-104Cover 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, 20222023By:/s/ Leonard Mazur
  Leonard Mazur
  Chief Executive Officer
(Principal Executive Officer)
   
Date: May 12, 20222023By:/s/ Jaime Bartushak
  Jaime Bartushak
  Chief Financial Officer
(Principal Financial and Accounting Officer)

 

2423

 

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