Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion and analysis of our
financial condition and results of operations should be read together with our financial statements and related notes included elsewhere
in this annual report on Form 10-K. Management’s discussion and analysis contains forward-looking statements, such as statements
of our plans, objectives, expectations, and intentions. Any statements that are not statements of historical fact are forward-looking
statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,”
“estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,”
“could,” “should,” etc.), or similar expressions, identify these forward-looking statements. These forward-looking
statements are subject to risks and uncertainties including those under “Risk Factors” in Item 1A in this Form 10-K that could
cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results
and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors.
We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the filing
date of this report.
Historical Background
We are a biopharmaceutical company dedicated to
the development and commercialization of first-in-class critical care products. On September 12, 2014, we acquired Citius Pharmaceuticals,
LLC as a wholly-owned subsidiary.
On March 30, 2016, we acquired all of the outstanding
stock of Leonard-Meron Biosciences, Inc. 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.
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On September 11, 2020, we formed NoveCite, Inc.,
a Delaware corporation, of which we own 75% of the issued and outstanding capital stock.
On August 23, 2021, we formed Citius Acquisition
Corp., or SpinCo, as a wholly-owned subsidiary in conjunction with the acquisition of LYMPHIR, but Citius Acquisition did not begin operations
until April 2022, when Citius Pharma transferred to it the assets related to LYMPHIR, including the related license agreement with Eisai
and the related asset purchase agreement with Dr. Reddy’s Laboratories SA, a subsidiary of Dr. Reddy’s. At this time, Citius
Acquisition changed its name to Citius Oncology, Inc. In August 2024, as part of the Merger, the new publicly-traded company and majority-owned
subsidiary of Citius Pharma was named Citius Oncology, Inc.
In-process research and development of $19,400,000
represents the value of LMB’s leading drug candidate (Mino-Lok), which is an antibiotic solution used to treat catheter-related
bloodstream infections and is expected to be amortized on a straight-line basis over a period of eight years commencing upon revenue generation. 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. In-process research and development of $73,400,000 represents the value of our exclusive
license for LYMPHIR (denileukin diftitox), a late-stage oncology immunotherapy for the treatment of 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 within the first
half of 2025.
Through September 30, 2024, we have devoted substantially
all our efforts to product development, raising capital, building infrastructure through strategic alliances and coordinating activities
relating to our proprietary products. We have not yet realized any revenues from our operations.
Recent Developments
As previously disclosed, on October 23, 2023,
Citius Pharma and SpinCo entered into the Merger Agreement with TenX and Merger Sub, a wholly owned subsidiary of TenX. On August 12,
2024, pursuant to the terms and conditions of the Merger Agreement, Merger Sub merged with and into SpinCo, with SpinCo surviving as a
wholly owned subsidiary of TenX. Prior to Closing of the Merger, TenX migrated to and domesticated as a Delaware corporation in accordance
with Section 388 of the General Corporation Law of the State of Delaware and the Cayman Islands Companies Act (As Revised). As part of
the Domestication, TenX changed its name to “Citius Oncology, Inc.” (Nasdaq: CTOR). Immediately after the closing of the Merger,
Citius Pharma owned approximately 92.3% of the outstanding shares of common stock of Citius Oncology, Inc.
Reverse Stock Split
Effective November 25, 2024, the Company executed
a reverse stock split of its common stock, par value $0.001 per share, at a ratio of 1-for-25 (“Reverse Stock Split”). All share
amounts have been retroactively adjusted to reflect the split.
Patent and Technology License Agreements
Mino-Lok® – LMB has a patent
and technology license agreement with Novel Anti-Infective Therapeutics, Inc. (“NAT”) to develop and commercialize Mino-Lok
on an exclusive, worldwide sub-licensable basis, as amended. Since May 2014, LMB has paid an annual maintenance fee, which began at $30,000
and has 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. 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 $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.
NoveCite – On October 6, 2020, our
subsidiary NoveCite entered into a license agreement with Novellus Therapeutics Limited, whereby NoveCite acquired an exclusive, worldwide
license, with the right to sublicense, to develop and commercialize a stem cell therapy based on Novellus’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 an upfront payment of $5,000,000 to Novellus and issued to Novellus shares of Novecite’s common stock representing
25% of NoveCite’s currently outstanding equity. We own the other 75% of NoveCite’s currently outstanding equity.
In July 2021, Novellus was acquired by Brooklyn
ImmunoTherapeutics. Pursuant to this transaction, the NoveCite license was assumed by Brooklyn with all original terms and conditions.
In October 2021, Brooklyn changed its name to Eterna Therapeutics Inc.
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As part of the Novellus and Brooklyn merger transaction,
the 25% non-dilutive position per the subscription agreement between Novellus and NoveCite was removed.
Under the license agreement, NoveCite is obligated
to pay Novellus 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) date on which a biosimilar product is first marketed, sold, or distributed by Novellus or any third party in the
applicable country or (ii) the 10-year anniversary of the date of expiration of the last-to-expire valid patent claim in that country.
In the case of a country where no licensed patent ever exists, the royalty will end on the later of (i) the date of expiry of such licensed
product’s regulatory exclusivity and (ii) the 10-year anniversary of the date of the first commercial sale of the licensed product
in the applicable country. In addition, NoveCite will pay to Novellus an amount equal to a mid-twenties percentage of any sublicensee
fees it receives.
Under the terms of the license agreement, in the
event that Novellus receives any revenue involving the original cell line included in the licensed technology, then Novellus shall remit
to NoveCite 50% of such revenue.
LYMPHIR - In September 2021, the Company
entered into an asset purchase agreement with Dr. Reddy’s and a license agreement with Eisai to acquire an exclusive license of
E7777 (denileukin diftitox), a late-stage oncology immunotherapy for the treatment of CTCL, a rare form of non-Hodgkin lymphoma. We have
obtained the trade name of LYMPHIR for E7777. Citius Pharma assigned these agreements to SpinCo effective April 1, 2022.
Under the terms of these agreements, Citius Pharma
acquired Dr. Reddy’s exclusive license for E7777 from Eisai and other related assets owned by Dr. Reddy’s (which are now owned
by Citius Oncology). The exclusive license includes rights to develop and commercialize E7777 in all markets except for Japan and certain
parts of Asia. Additionally, we, through our subsidiary, retained an option on the right to develop and market the product in India. Eisai
retains exclusive development and marketing rights for the agent in Japan and Asia. Citius Pharma paid Dr. Reddy’s 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 $40 million in development milestone payments related to CTCL approvals in the U.S. and other markets,
up to $70 million in development milestones for additional indications, as well as up to $300 million for commercial sales milestones.
Citius Oncology 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.
Citius Oncology 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. Citius Pharma is a guarantor of Citius Oncology’s payment
obligations under these agreements.
At the time of the FDA approval for LYMPHIR, a
$27.5 million milestone payment became payable under the terms of the asset purchase agreement for which a balance of $22.5 million remains
due as of September 30, 2024. Pending further discussions with Dr. Reddy’s, Dr. Reddy’s agreed to a partial deferral without
penalty of this milestone payment.
Under the license agreement, Eisai is to receive
a $5.9 million milestone payment, upon FDA approval which is included in license payable at September 30, 2024, and additional commercial
milestone payments related to the achievement of net product sales thresholds and an aggregate of up to $22 million related to the achievement
of net product sales thresholds. The Company was also required to reimburse Eisai for up to $2.65 million of its costs to complete the
Phase 3 pivotal clinical trial for LYMPHIR for the CTCL indication and reimburse Eisai for all reasonable costs associated with the preparation
of a BLA for LYMPHIR. Eisai was responsible for completing the CTCL clinical trial, and CMC activities through the filing of the BLA for
LYMPHIR with the FDA. The Company 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, 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.
55
Also under the purchase
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 (both of which have been initiated), (iii) use commercially reasonable efforts to achieve each of the approval milestones, and
(iv) to 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.
Results of Operations for Year Ended September
30, 2024 compared to Year Ended September 30, 2023
Revenues $ - $ -
Operating expenses:
Revenues
We did not generate any revenues for the years
ended September 30, 2024 and 2023.
Research and Development Expenses
For the year ended September 30, 2024, research
and development expenses were $11,906,601 as compared to $14,819,729 for the year ended September 30, 2023, a decrease of $2,913,128.
Research and development costs for Mino-Lok®
increased by $446,207 to $4,662,968 for the year ended September 30, 2024 as compared to $4,216,761 for the year ended September 30, 2023,
driven primarily by shutdown costs associated with the end of the Phase 3 trial for Mino-Lok.
Research and development costs for our Halo-Lido
product candidate decreased by $3,538,640 to $507,774 for the year ended September 30, 2024 as compared to $4,046,414 for the year ended
September 30, 2023 due to completion of the Phase 2 study in April 2023. Citius subsequently met with the FDA at an end of Phase
2 meeting to discuss next steps in the clinical development program.
During the year ended September 30, 2024, research
and development costs for our proposed novel cellular therapy for acute respiratory distress syndrome (ARDS) were $19,120 as compared
to $199,172 for the year ended September 30, 2023. The decrease of $180,607 was primarily related to lower manufacturing costs in the
year ended September 30, 2023.
During the year ended September 30, 2024, research
and development expenses for our LYMPHIR product candidate were $5,118,977 as compared to $6,081,385 during the year ended September 30,
2023. The decrease of $962,408 was primarily due to development activities completed for the resubmission of the BLA of LYMPHIR in January
2024 which were associated with CRL remediation.
We expect that research and development expenses
will continue to decrease in fiscal 2025 as we continue to focus on the commercialization of LYMPHIR and because we have completed the
Phase 3 trial for Mino-Lok.
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General and Administrative Expenses
For the year ended September 30, 2024, general
and administrative expenses were $18,249,402 as compared to $15,295,584 for the year ended September 30, 2023, an increase of $2,953,818.
The primary reason for the increase was costs associated with pre-launch and market research activities associated with LYMPHIR. 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 year ended September 30, 2024, stock-based
compensation expense was $11,839,678 as compared to $6,616,705 for the year ended September 30, 2023. Stock-based compensation expense
includes options granted to directors, employees, and consultants. The primary reason for the $5,222,973 increase in stock-based compensation
expenses is associated with the Citius Oncology stock plan. Stock based compensation expense under the Citius Oncology stock plan was
$7,498,817 during the year ended September 30, 2024, vs $1,965,500 for the year ended September 30. 2023 as the plan was initiated in
July 2023. For the years ended September 30, 2024 and 2023, stock-based compensation expense also includes $47,547 and $130,382, respectively,
for the NoveCite stock option plan. In fiscal year 2023, we granted options to our new employees and additional options to other employees,
our directors, and consultants.
Other Income
During the year ended September 30, 2024, the
Company earned $758,000 of net interest income compared to $1,179,417 of interest income during the year ended September 30, 2023. The
decrease of $421,417 was due to lower average cash balances over the course of 2024 vs. 2023.
Other income for the year ended September 30,
2024 also includes the $2,387,842 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 $576,000 in each of the years ended September 30, 2024 and 2023 related to the amortization for taxable purposes of its in-process
research and development asset.
Net Loss
For the year ended September 30, 2024, we incurred
a net loss of $39,425,839 compared to a net loss of $32,542,912 for the year ended September 30, 2023. The $6,882,927 increase in the
net loss was primarily due to the decrease in other income of $1,619,264 and an increase in our operating expenses of $5,263,663. Operating
expense increased due to increases in stock-based compensation and general and administrative expenses, which were offset by decreased
research and development expense.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Working Capital
Citius Pharma has incurred operating losses since
inception and incurred net losses of $39,425,839 and $32,542,912 for the years ended September 30, 2024 and 2023, respectively. At September
30, 2024, Citius Pharma had an accumulated deficit of $201,370,218. Citius Pharma’s net cash used in operations during the years
ended September 30, 2024 and 2023 was $28,201,375 and $29,060,212, respectively.
The Company had working capital of approximately
$(21,600,000) at September 30, 2024. At September 30, 2024, Citius Pharma had cash and cash equivalents of $3,251,880 available to fund
its operations. The Company’s only source of cash flow since inception has been from financing activities. During the year ended
September 30, 2024, the Company received net proceeds of $13,803,684 from the issuance of equity. 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.
We expect that we will have sufficient funds to
continue our operations through February 2025.
57
Financing Activities
In the quarter ended December 31, 2023, the Company
was selected to participate in New Jersey’s Technology Business Tax Certificate Transfer (NOL) Program and received $2,387,842
million in non-dilutive capital through the New Jersey Economic Development Authority in March 2024.
On April 30, 2024, the Company closed a registered
direct offering of 857,143 common shares and warrants to purchase up to 857,143 common shares, at a purchase price of $17.50 per share
and accompanying warrant for gross proceeds of $15,000,002. The warrants have an exercise price of $18.75 per share, are exercisable six
months from the date of issuance, and expire on October 30, 2029. The estimated fair value of the warrants issued to the investors was
approximately $11,206,000.
Based on our cash and cash equivalents at September
30, 2024, we expect that we will have sufficient funds to continue our operations through February 2025. We expect to raise additional
capital in the future to support our operations beyond February 2025. 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
Our discussion and analysis of our financial condition
and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. We review our estimates
on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe to be reasonable under
the circumstances. Actual results may differ from these estimates. We believe the judgments and estimates required by the following accounting
policies to be critical in the preparation of our financial statements.
In-process Research and Development
The Company reviews intangible assets annually
to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the
remaining useful life of any intangible asset. If the carrying value of an asset exceeds its undiscounted cash flows, the Company writes
down the carrying value of the intangible asset to its fair value for the period identified. No impairments have occurred since the acquisitions
of our intangible assets through September 30, 2024.
The Company capitalizes intangible assets purchased from others for
use in research and development activities as In Process Research & Development (IPR&D) when the assets acquired have an alternative
future use, the Company anticipates future economic benefit from that use and the assets acquired are not dependent on future development.
Milestone payments upon regulatory approval that meet the same criteria are capitalized when the payments are considered recoverable based
on expected future cash flows. Amortization of IPR&D over the exclusive regulatory period of the acquired asset commences upon revenue
generation.
58
In-process research and development includes $19,400,000
representing the value of LMB’s drug candidate, Mino-Lok, an antibiotic lock solution in Phase 3 clinical development, which if
approved, would be 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. In-process research and development also includes $73,400,000 representing
the value of Citius Oncology’s exclusive license for LYMPHIR (denileukin diftitox), a late-stage oncology immunotherapy for the
treatment of 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. Citius Oncology’s In-process research and development consists of $40,000,000 paid to
Dr. Reddy’s from the asset purchase agreement and approval milestone fees of $27,500,000 to Dr. Reddy’s and $5,900,000 to
Eisai.
Incremental costs incurred on IPR&D after
the acquisition date are expensed as incurred, unless there is an alternative future use.
The Company reviews intangible assets annually
to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the
remaining useful life of any intangible asset. If the carrying value of an asset exceeds its undiscounted cash flows, the Company writes
down the carrying value of the intangible asset to its fair value for the period identified. No impairments have occurred since the acquisitions
of our intangible assets through September 30, 2024.
Goodwill
Goodwill represents the value of LMB’s industry
relationships and its assembled workforce. Goodwill will not be amortized and will be tested at least annually for impairment.
The Company evaluates the recoverability of goodwill
annually or more frequently if events or changes in circumstances indicate that the carrying value of an asset might be impaired, in accordance
with Accounting Standard Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting
for Goodwill Impairment. Goodwill is first qualitatively assessed to determine whether further impairment testing is necessary. Factors
that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance
(both current and projected), changes in management and strategy and changes in the composition or carrying amount of net assets. If this
qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount,
a one-step test is then performed in accordance with ASU 2017-04. Under the simplified model, a goodwill impairment is calculated as the
difference between the carrying amount of the reporting unit and its fair value.
The Company performed a qualitative assessment
for its 2024 analysis of goodwill. Based on this assessment, management does not believe that it is more likely than not that the carrying
value of the reporting unit exceeds its fair value. Accordingly, no further testing was performed as management believes that there are
no impairment issues with respect to goodwill as of September 30, 2024.
Stock-Based Compensation
The Company recognizes compensation costs resulting
from the issuance of stock-based awards to employees and directors as an expense in the consolidated statement of operations over the
requisite service period based on the fair value for each stock award on the grant date. The fair value of each option grant is estimated
as of the date of grant using the Black-Scholes option pricing model. The Company estimates volatility using the trading activity of its
common stock. Because the Company’s stock options have characteristics significantly different from those of traded options, and
because changes in the input assumptions can materially affect the fair value estimate, the existing model may not necessarily provide
a reliable single measure of fair value of the Company’s stock options.
The Company recognizes compensation costs resulting
from the issuance of stock-based awards to non-employees as an expense in the consolidated statement of operations over the service period
based on the measurement of fair value for each stock award and records forfeitures as they occur.
Income Taxes
We follow accounting guidance regarding the recognition,
measurement, presentation, and disclosure of uncertain tax positions in the financial statements. Tax positions taken or expected to be
taken in the course of preparing our tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not”
of being sustained by the applicable tax authorities. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded
in the financial statements.
We recognize deferred tax assets and liabilities
based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that
are expected to be in effect when the differences are expected to reverse. We provide a valuation allowance for deferred tax assets for
which we do not consider realization of such assets to be more likely than not.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Not required.
Item 8. Financial Statements and Supplementary Data
See the financial statements included in this report beginning on page
F-1.
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Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
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 September 30, 2024, the end of our fiscal year. 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 September 30, 2024, 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.
Management’s Annual Report on Internal
Control over Financial Reporting
Our management is responsible for establishing
and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Because
of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement
of our financial statements would be prevented or detected. Under the supervision of our Chief Executive Officer and Chief Financial Officer,
the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2024 using
the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) (2013 Framework).
Based on this evaluation, management has concluded
that our internal controls were effective and that we maintained effective controls over our financial reporting as of September 30, 2024.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Changes in Internal Controls over Financial
Reporting
There were no changes in our internal controls
over financial reporting during the fourth quarter of fiscal 2024 that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Attestation Report of Registered Public Accounting
Firm
Our independent registered public accounting firm
has not assessed the effectiveness of our internal control over financial reporting and, under SEC rules, will not be required to provide
an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as a “non-accelerated
filer”.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers and
Corporate Governance
We have adopted a written Code of Ethics and Business
Conduct that applies to our directors, officers, and all employees. We intend to disclose any amendments to, or waivers from, our code
of ethics and business conduct that are required to be publicly disclosed pursuant to rules of the SEC by filing such amendment or waiver
with the SEC. This code of ethics and business conduct can be found in the “Investors - Corporate Governance” section of our
website, www.citiuspharma.com.
The other information required by this Item concerning
our directors and executive officers is incorporated by reference to the section captioned “Proposal No. 1—Election of Directors”
and “Corporate Governance” to be contained in our proxy statement related to the 2025 Annual Meeting of Stockholders (the
“Proxy Statement”), which information is expected to be filed with the SEC within 120 days of the end of our fiscal year pursuant
to General Instruction G(3) of Form 10-K. The information required by this Item concerning compliance with Section 16(a) of the Exchange
Act by our directors, executive officers and persons who own more than 10% of our outstanding common stock is incorporated by reference
from the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” to be contained in the Proxy Statement.
Item 11. Executive Compensation
The information required by this Item concerning
directors and executive compensation is incorporated by reference from the sections captioned “Director Compensation” and
“Executive Compensation”, respectively, to be contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The following table sets forth the indicated information
as of September 30, 2024 with respect to our equity compensation plans:
Equity compensation plans approved by security holders
Our equity compensation plans consist of the Citius
Pharmaceuticals, Inc. 2023 Omnibus Stock Incentive Plan, 2021 Omnibus Stock Incentive Plan, 2020 Omnibus Stock Incentive Plan, 2018 Omnibus
Stock Incentive Plan and 2014 Stock Incentive Plan, which were all approved by our stockholders. We do not have any equity compensation
plans or arrangements that have not been approved by our stockholders.
We no longer may grant awards under the 2014 Stock
Incentive Plan, the 2018 Omnibus Stock Incentive Plan, the 2020 Omnibus Stock Incentive Plan or the 2021 Omnibus Stock Incentive Plan.
The other information required by this Item is
incorporated by reference to the information under the section captioned “Security Ownership of Certain Beneficial Owners and
Management” to be contained in the Proxy Statement.
Item 13. Certain Relationships and Related
Transactions, and Director Independence
The information required by this Item is incorporated
by reference to the information under the section captioned “Certain Relationships and Related Transactions” and “Proposal
No. 1—Election of Directors” to be contained in the Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated
by reference to the information under the section captioned “Auditor and Audit Committee Matters” to be contained in the Proxy
Statement.
61
PART IV
Item 15. Exhibits and Financial Statement Schedules
3.5 Amended and Restated Bylaws of Citius Pharmaceuticals, Inc. 8-K 2/9/2018 3.1
62
4.22 Description of Common Stock. X
63
64
19.1 Insider Trading Policy. -- -- -- X
23.1 Consent of Independent Registered Public Accounting Firm. -- -- -- X
EX-101.INS INLINE XBRL INSTANCE DOCUMENT -- -- -- X
EX-101.SCH INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT -- -- -- X
EX-101.CAL INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE -- -- -- X
EX-101.DEF INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE -- -- -- X
EX-101.LAB INLINE XBRL TAXONOMY EXTENSION LABELS LINKBASE -- -- -- X
EX-101.PRE INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE -- -- -- X
* Management contract or compensatory plan.
Item 16. Form 10-K Summary.
Not applicable.
65
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CITIUS PHARMACEUTICALS, INC.
Date: December 27, 2024 By: /s/ Leonard Mazur
Leonard Mazur
Chief Executive Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Leonard Mazur Chief Executive Officer and Director December 27, 2024
Leonard Mazur (Principal Executive Officer)
/s/ Myron Holubiak Executive Vice Chairman and Director December 27, 2024
Myron Holubiak
/s/ Jaimie Bartushak Chief Financial Officer December 27, 2024
Jaime Bartushak (Principal Financial Officer and Principal Accounting Officer)
/s/ Suren Dutia Director December 27, 2024
Suren Dutia
/s/ Carol Webb Director December 27, 2024
Carol Webb
/s/ Eugene Holuka Director December 27, 2024
Eugene Holuka
/s/ Dennis McGrath Director December 27, 2024
Dennis McGrath
/s/ Robert J. Smith Director December 27, 2024
Robert J. Smith
66
CITIUS PHARMACEUTICALS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID #392) F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders’ Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholders and Board of Directors of
Citius Pharmaceuticals, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Citius Pharmaceuticals, Inc. (the Company) as of September 30, 2024 and 2023, and the related consolidated statements
of operations, changes in stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated
financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 2024 and 2023, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of a Matter Regarding Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has
suffered recurring losses and has a working capital deficit as of September 30, 2024. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from
the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Wolf & Company, P.C.
We have served as the Company’s auditor since 2014.
Boston, Massachusetts
December 27, 2024
F-2
CITIUS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2024 AND 2023
ASSETS
Current Assets:
Property and equipment, net — 1,432
Other Assets:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Commitments and Contingencies
Stockholders’ Equity:
See accompanying report of independent registered
public accounting firm and notes to the financial statements.
Reflects a 1-for-25 reverse stock split effective
November 25, 2024.
F-3
CITIUS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
Revenues $ — $ —
Operating Expenses:
Other Income:
Net loss attributable to non-controlling interest 287,000 -
Weighted Average Common Shares Outstanding
See accompanying report of independent registered
public accounting firm and notes to the financial statements.
Reflects a 1-for-25 reverse stock split effective
November 25, 2024.
F-4
CITIUS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
Stock Shares Amount Capital Deficit Equity Interest Equity
Issuance of common stock upon exercise of stock options — 2,082 2 (2 ) — — — —
See accompanying report of independent registered
public accounting firm and notes to the financial statements.
Reflects a 1-for-25 reverse stock split effective
November 25, 2024.
F-5
CITIUS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
Cash Flows From Operating Activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of operating lease right-of-use asset 208,179 191,648
Changes in operating assets and liabilities:
Cash Flows From Investing Activities:
Net Cash Used In Investing Activities (5,000,000 ) -
Cash Flows From Financing Activities:
Proceeds from common stock option exercises - 31,267
Supplemental Disclosures of Cash Flow Information and Non-cash Activities:
IPR&D Milestones included in License Payable $ 28,400,000 $ -
Prepaid Manufacturing transferred to Inventory $ 6,134,895 $ -
See accompanying report of independent registered
public accounting firm and notes to the financial statements.
F-6
CITIUS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Business
Citius Pharmaceuticals, Inc. (“Citius Pharma,”
the “Company” or “we”) is a late-stage biopharmaceutical company dedicated to the development and commercialization
of critical care products with a focus on oncology, anti-infectives in adjunct cancer care, unique prescription products and stem cell
therapies.
On March 30, 2016, we acquired Leonard-Meron Biosciences,
Inc. (“LMB”) as a wholly-owned subsidiary. We acquired all the outstanding stock of LMB by issuing shares of our common stock.
The net assets acquired included identifiable intangible assets of $19,400,000 related to in-process research and development. We recorded
goodwill of $9,346,796 for the excess of the purchase price 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 Oncology,
Inc. (formerly named Citius Acquisition Corp.) (“Citius Oncology”), as a wholly-owned subsidiary in conjunction with the acquisition
of LYMPHIR, which began operations in April 2022. On August 12, 2024, Citius Pharma and Citius Oncology entered into a merger agreement
with TenX Keane Acquisition, and its wholly owned subsidiary, TenX Merger Sub Inc (“Merger Sub”), whereby Merger Sub merged
with and into Citius Oncology. After the merger and recapitalization (the “Merger”), the newly combined publicly traded company
is owned 92.3% by Citius Pharma, and is named Citius Oncology, Inc. (see Note 9).
Since its inception, we have devoted substantially
all our efforts to business planning, research and development, recruiting management and technical staff, and raising capital. We are
subject to a number of risks common to companies in the pharmaceutical industry including, but not limited to, risks related to the development
by the Company or its competitors of research and development stage products, regulatory approval and market acceptance of its products,
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
The accompanying consolidated financial statements
include the operations of Citius Pharmaceuticals, Inc., and its wholly-owned subsidiaries, Citius Pharmaceuticals, LLC and LMB and its
majority-owned subsidiaries NoveCite and Citius Oncology. NoveCite, was inactive until October 2020. On August 12, 2024, Citius Oncology,
previously a wholly-owned subsidiary, became a 92.3% majority-owned subsidiary.
The operations of NoveCite and Citius Oncology