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.
Business
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. Citius Pharmaceuticals, LLC was dissolved on December 29, 2023.
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.
On September 11, 2020, we formed NoveCite, Inc.,
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 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 in December 2025.
Through September 30, 2025, 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.
Reverse Stock Split
Effective November 25, 2024, we executed a reverse
stock split of our common stock, at a ratio of 1-for-25. All share amounts have been retroactively adjusted to reflect the split.
68
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 $5,000,000 to Novellus and issued 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.
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), an oncology immunotherapy for the treatment of CTCL, a rare form of non-Hodgkin lymphoma. Citius Pharma
assigned these agreements to SpinCo effective April 1, 2022. We renamed E7777 as I/ONTAK and also obtained the trade name LYMPHIRTM
for the product. Denileukin diftitox is referred to in this annual report as E7777, I/ONTAK or LYMPHIR, depending on the period of time
and context that is being discussed.
Under the terms of these agreements, Citius Pharma
acquired Dr. Reddy’s exclusive license of 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. Eisai retains exclusive development and marketing rights for the agent in Japan, China, Korea, Taiwan, Hong Kong, Macau,
Indonesia, Thailand, Malaysia, Brunei, Singapore, India, Pakistan, Sri Lanka, Philippines, Vietnam, Myanmar, Cambodia, Laos, Afghanistan,
Bangladesh, Bhutan, Nepal, Mongolia, and Papua New Guinea. 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. 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 commercial milestone payments and low double-digit tiered royalties on net product sales (within
a range of 10% to 15%), and 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 (within a range of 10% to 15%). 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 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.
69
At the time of the FDA approval for LYMPHIR,
a $27.5 million milestone payment became payable to Dr. Reddy’s under the terms of the asset purchase agreement for which a balance
of $19.75 million remains due as of September 30, 2025. Dr. Reddy’s agreed to a partial deferral without penalty of this milestone
payment.
Under the license agreement, Eisai was due a
$5.9 million milestone payment, upon FDA approval, of which $2.9 million remains payable at September 30, 2025, 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. Citius Oncology was 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. Citius Oncology is responsible for development costs associated with potential additional indications.
On March 28, 2025, Citius Oncology and Eisai
entered into a letter agreement that amended the license agreement to provide for a payment schedule to Eisai for the milestone payment
and certain unpaid invoices. Citius Oncology agreed to pay Eisai on or before July 15, 2025, an aggregate amount of $2,535,318 and thereafter
on the 15th of each of the next four months to pay Eisai $2.35 million and make a final payment of $2,197,892 to Eisai
on or before December 15, 2025, in each case with interest on each obligation from its original due date through the date of actual payment
under the letter agreement at the rate of 2% per annum. During the year ended September 30, 2025, Citius Oncology recorded $218,032 in
interest expense under the agreement. The parties released each other from any and all claims, losses, damages, costs and expenses that
arise from or related to our failure to pay the milestone payment or the other incurred costs under the license agreement except for
any claims arising out of a breach of the letter agreement. All other terms of the license agreement remain in full force and effect.
During the year ended September 30, 2025 Citius Oncology paid $3 million of the development milestone and the balance of $2.9 million
is included in license fee payable at September 30, 2025. On July 21, 2025, Citius Oncology made a payment to Eisai of $1,616,522 for
other invoices and accumulated interest associated with the letter agreement.
The term of the license
agreement will continue until (i) March 30, 2026, if there has not been a commercial sale of a licensed product in the territory, or
(ii) if there has been a commercial sale of a licensed product in the territory by March 30, 2026, the 10-year anniversary of the first
commercial sale on a country-by-country basis. We expect the first commercial sale to occur in the first quarter of 2026. 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.
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; the launch of LYMPHIR in December 2025 satisfied this requirement in the U.S.
Specialty Distribution
Agreements
In 2025, the Company
executed three service agreements with pharmaceutical wholesalers to provide distribution of its LYMPHIR product to healthcare organizations
which include academic centers, community oncology practices, as well as infusion centers.
70
RESULTS OF OPERATIONS
Year ended September 30, 2025 compared to
year ended September 30, 2024
Revenues $ - $ -
Operating expenses:
Gain on sale of New Jersey net operating losses - 2,387,842
Revenues
We did not generate any revenues for the years ended September 30,
2025 or 2024. Revenue commenced in December 2025.
Research and Development Expenses
For the year ended September 30, 2025, research
and development expenses were $9,156,474 as compared to $11,906,601 during the year ended September 30, 2024, a decrease of $2,750,127.
Research and development costs for LYMPHIR were
$8,328,588 during the year ended September 30, 2025 as compared to $5,118,977 for the year ended September 30, 2024. The $3,209,611 increase
in expenses was primarily due to costs associated with the expense of a drug substance batch needed for the pre-license inspection of
the manufacturer.
71
Research and development costs for Mino-Lok decreased
by $3,863,984 to $798,984 for the year ended September 30, 2025 as compared to $4,662,968 for the year ended September 30, 2024, due
primarily to decreased costs since the completion of the Phase 3 trial and subsequent shutdown costs. In November 2024, the Company held
a Type C meeting with the FDA to discuss the results of the Phase 3 study and to obtain the FDA’s view on development plans for
Mino-Lok. The FDA provided clear, constructive, and actionable guidance during the discussion, underscoring a pathway to support a future
an NDA submission for Mino-Lok.
Research and development costs for Halo-Lido
decreased by $493,084 to $14,690 for the year ended September 30, 2025 as compared to $507,774 for the year ended September 30, 2024
due to lower costs since the completion of the Phase 2 study in April 2023. Citius subsequently met with the FDA for an end of Phase
2 meeting to discuss the next steps in the clinical development program.
We expect that research and development expenses
will continue to decrease in fiscal 2026 as we continue to focus on the commercialization of LYMPHIR and because we have completed the
Phase 3 trial for Mino-Lok.
General and Administrative Expenses
For the year ended September 30, 2025, general
and administrative expenses were $18,532,843 as compared to $18,249,402 for the year ended September 30, 2024. General and administrative
expenses increased by $283,441 in comparison with the prior period. The primary reason for the increase were higher costs for pre-launch
commercial 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, 2025, stock-based
compensation expense was $10,836,291 as compared to $11,839,678 for the year ended September 30, 2024. Stock-based compensation expense
includes $2,515,872 for stock options under the Citius Pharma stock plans, $8,116,678 for stock options and $203,741 for restricted stock
awards under the Citius Oncology stock plans for the year ended September 30, 2025. Stock-based compensation expense includes $4,293,287
for stock options under the Citius Pharma stock plans, $7,498,817 for stock options under the Citius Oncology stock plans, and $47,574
for stock options under the NoveCite Stock plan for the year ended September 30, 2024. Stock-based compensation expense for the year
ended September 30, 2025 decreased by $1,003,387 in comparison to the prior period primarily due to lower costs for the Citius Pharma
stock plans.
Other Income (Expense)
Interest income for the year ended September
30, 2025 was $110,081 as compared to interest income of $758,000 for the prior period. The decrease is due to lower average investable
balances of the remaining proceeds of our equity offerings in money market accounts.
Interest expense of $267,782 for the year ended
September 30, 2025 consists of $218,032 in interest expense under the payment agreement with Eisai and $49,750 in interest expense on
the note payable.
Other income for the year ended September 30,
2024 included a gain of $2,387,842 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 $1,056,960 and $576,000 for the years ended September 30, 2025 and 2024, respectively. Deferred income tax expense is related to the
amortization for taxable purposes of our in-process research and development asset.
72
Net Loss
For the year ended September 30, 2025, we incurred
a net loss of $39,740,269, compared to a net loss for the year ended September 30, 2024 of $39,425,839. The $314,430 increase in the
net loss was primarily due to the increase of $283,441 in general and administrative expenses, the decrease in other income (expense)
of $3,303,543 partially offset by lower research and development expense of $2,750,127 and lower stock-based compensation expense of
$1,003,387.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Working Capital
Citius Pharma has incurred operating losses since
inception and incurred net losses of $39,740,269 and $39,425,839 for the years ended September 30, 2025 and 2024, respectively. At September
30, 2025, Citius Pharma had an accumulated deficit of $238,804,129. Citius Pharma’s net cash used in operations during the years
ended September 30, 2025 and 2024 was $26,552,738 and $28,201,375, respectively.
The Company had working capital of approximately
($16,980,000) at September 30, 2025. At September 30, 2025, Citius Pharma had cash and cash equivalents of approximately $4,252,000 available
to fund its operations. The Company’s only source of cash flow since inception has been from financing activities.
During the years ended September 30, 2025 and
2024, the Company received net proceeds of $32,329,748 and $13,803,684, respectively 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.
After giving effect to a $6.0 million capital
raise by us in October 2025 and an $18.0 million capital raise by Citius Oncology in December 2025, we expect that we will have sufficient
funds to continue our operations through March 2026.
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, Citius Pharma sold 857,143
shares of common stock and warrants to purchase 857,143 shares, at $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 after issuance, and expire on October 30, 2029.
During the year ended September 30, 2024, Citius
Pharma sold 18,168 shares for gross proceeds of $252,140 under its at the market offering agreement.
On November 15, 2024, Citius Pharma sold 480,000
shares of common stock and warrants to purchase 480,000 shares at $6.25 per share for gross proceeds of $3,000,000. The immediately
exercisable warrants have an exercise price of $6.25 per share and expire on November 19, 2029.
On January 7, 2025, Citius Pharma sold 743,496
shares of common stock and warrants to purchase 743,496 shares at $4.035 per share for gross proceeds of $3,000,000. The immediately
exercisable warrants have an exercise price of $3.91 per share and expire on January 8, 2030.
On April 1, 2025, Citius Pharma sold 465,000
shares of common stock, and pre-funded warrants to purchase 1,274,131 shares at offering prices of $1.15 per share and $1.1499 per pre-funded
warrant for gross proceeds of $1,999,873. The immediately exercisable pre-funded warrants have an exercise price of $0.0001 per
share and do not expire. All of the pre-funded warrants were exercised during the year ended September 30, 2025.
73
On June 11, 2025, Citius Pharma sold 540,000
shares of common stock at $1.22 per share, sold pre-funded warrants to purchase 4,380,000 shares at $1.2199 per share, and issued immediately
exercisable two-year warrants to purchase 9,840,000 shares at $1.00 per share. for gross proceeds of $6,001,962. The pre-funded
warrants are exercisable immediately at $0.0001 per share and do not expire. During the year ended September 30, 2025 all of the pre-funded
warrants were exercised.
On July 17, 2025, Citius Oncology sold 6,818,182
shares of common stock and warrants to purchase 6,818,182 shares at a unit price of $1.32 for gross proceeds of $9,000,000. The immediately
exercisable five-year warrants have an exercise price of $1.32 per share.
On September 10, 2025, Citius Oncology sold 5,142,858
shares of common stock and warrants to purchase 5,142,858 shares at a unit price of $1.75 for gross proceeds of $9,000,000. The warrants
are exercisable at $1.84 per share beginning on March 10, 2026 and expire on March 10, 2031.
During the year ended September 30, 2025, Citius
Pharma sold 2,917,874 shares for gross proceeds of $4,968,618 under its at-the-market offering facility.
On October 21, 2025, Citius Pharma sold 3,973,510
shares of common stock (or pre-funded warrants in lieu thereof) and accompanying warrants to purchase 3,973,510 shares of common stock
at a combined per unit price of $1.51 per share for gross proceeds of $6,000,000. The immediately exercisable five-year warrants have
an exercise price of $1.40 per share.
We need to obtain substantial additional financing
in order to satisfy our outstanding milestone payment obligations, as well as meet minimum purchase commitments under our agreements
for the manufacture and supply of our drug product, and cannot be sure that any additional funding will be available on terms favorable
to us, or at all. As of September 30, 2025, our outstanding milestone payments and purchase commitments for 2025 include:
Based on our cash and cash equivalents at September
30, 2025 and our October 21, 2025 equity sale and the December 2025 equity sale by Citius Oncology, we expect that we will have sufficient
funds to continue our operations through March 2026. We will need to raise additional capital in the future to support our operations
beyond March 2026. 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.
74
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, 2025.
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.
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), an 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
12 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.
75
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.
For its 2025 goodwill analysis, the Company performed a quantitative assessment as of September 30, 2025. Based on this analysis, management
concluded that the estimated fair value of the reporting unit exceeded its carrying amount. Accordingly, no impairment charge was recorded,
and goodwill continues to be carried at its current value.
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.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
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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, 2025, 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, 2025, 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,
2025 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,
2025.
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 2025 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.
On December 2, 2025, we approved and entered into an amendment (the
“Pagoda Note Amendment”) to our existing unsecured promissory note with Pagoda. The original note provided for aggregate principal
of $1,000,000, bore interest at a per annum rate of 15.00% compounded monthly (or such lesser rate as the maximum permitted by applicable
law), and was scheduled to mature on December 2, 2025. Pursuant to the Pagoda Note Amendment, we extended the maturity date to January
2, 2026. In consideration for the extension, we issued to Pagoda a warrant to purchase 75,000 shares of our common stock. The warrant
has a five-year term commencing on the date of issuance and an exercise price equal to the closing price of our common stock on Nasdaq
on the date of issuance, which was $1.26 per share.
On December 10, 2025, in connection with a common stock transaction
effected by Citius Oncology, we amended the promissory note, dated August 16, 2024, as previously amended on September 10, 2025 (the “Note”),
issued by Citius Oncology to us to provide that the maturity of the Note would be the date at which Citius Oncology has closed a series
of capital raises that in the aggregate provide gross proceeds of at least $50 million through the issuance of debt or equity securities
or the royalty-backed monetization of LYMPHIR. All other terms of the Note remain the same.
On December 23, 2025, we extended the term of the Amended and Restated
Employment Agreement between us and Myron Holubiak for an additional 12 months until October 31, 2026, effective as of October 31, 2025.
Item 9C. Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections.
Not applicable.
77
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. Additionally, we have adopted an insider trading policy to establish guidelines for our employees, officers, directors,
and consultants regarding transactions in our securities and the disclosure of material nonpublic information related to our Company,
which are reasonably designed to promote compliance with insider trading laws, rules and regulations, and any listing standards applicable
to the registrant. Each of these policies can be found in the “Investors - Governance – Governance Documents” 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 2026 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 “Corporate Governance”, “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, 2025 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 sections captioned “Corporate Governance”, “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.
78
PART IV
Item 15. Exhibits and Financial Statement Schedules
3.1.5 Certificate of Designation of Series A Preferred Stock. 8-K 4/18/2025 3.1
79
4.31 Form of Warrant issued on December 2, 2025. X
80
81
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.
82
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 23, 2025 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 23, 2025
Leonard Mazur (Principal Executive Officer)
/s/ Myron Holubiak Executive Vice Chairman and Director December 23, 2025
Myron Holubiak
/s/ Jaimie Bartushak Chief Financial Officer December 23, 2025
Jaime Bartushak (Principal Financial Officer and Principal Accounting Officer)
/s/ Suren Dutia Director December 23, 2025
Suren Dutia
/s/ Eugene Holuka Director December 23, 2025
Eugene Holuka
/s/ Dennis McGrath Director December 23, 2025
Dennis McGrath
/s/ Robert J. Smith Director December 23, 2025
Robert J. Smith
/s/ Carol Webb Director December 23, 2025
Carol Webb
83
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, 2025 and 2024, 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, 2025 and 2024, 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, 2025. 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 23, 2025
F-2
CITIUS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2025 AND 2024
ASSETS
Current Assets:
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, 2025 AND
2024
Revenues $ — $ —
Operating Expenses:
Other Income (Expense):
Gain on sale of New Jersey net operating losses — 2,387,842
Net loss attributable to non-controlling interest 2,306,358 287,000