Citius Pharmaceuticals, Inc. 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number 001-38174 Citius Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Nevada 27-3425913 ( State or other jurisdiction of incorporation or organization ) ( IRS Employer Identification No. ) 11 Commerce Drive , First Floor , Cranford , NJ 07016 ( Address of principal executive offices and zip code ) ( 908 ) 967-6677 ( Registrant’s telephone number, including area code ) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered Common stock, $0.001 par value CTXR Nasdaq Capital Market Warrants to purchase common stock CTXRW Nasdaq Capital Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of August 10, 2021, there were 145,979,429 shares of common stock, $0.001 par value, of the registrant issued and outstanding. Citius Pharmaceuticals, Inc. FORM 10-Q TABLE OF CONTENTS June 30, 2021 Page PART I. FINANCIAL INFORMATION: Item 1. Financial Statements (Unaudited) 1 Condensed Consolidated Balance Sheets at June 30, 2021 and September 30, 2020 1 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2021 and 2020 2 Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended June 30, 2021 and 2020 3 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2021 and 2020 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 Item 4. Controls and Procedures 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 1A. Risk Factors 21 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Mine Safety Disclosures 21 Item 5. Other Information 21 Item 6. Exhibits 22 SIGNATURES 23 i EXPLANATORY NOTE In this Quarterly Report on Form 10-Q, and unless the context otherwise requires, the “Company,” “we,” “us,” and “our” refer to Citius Pharmaceuticals, Inc. and its wholly owned subsidiaries, Citius Pharmaceuticals, LLC and Leonard-Meron Biosciences, Inc., and its majority-owned subsidiary, NoveCite, Inc., taken as a whole. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors discussed from time to time in this report and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to: ● the cost, timing and results of our pre-clinical and clinical trials; ● our ability to raise funds for general corporate purposes and operations, including our pre-clinical and clinical trials; ● our ability to obtain and maintain required regulatory approvals for our product candidates; ● the commercial feasibility and success of our technology and product candidates; ● our ability to recruit and retain qualified management and scientific and technical personnel to carry out our operations; and ● the other factors discussed in the “Risk Factors” section of our most recent Annual Report on Form 10-K and elsewhere in this report. Any forward-looking statements speak only as of the date on which they are made, and except as may be required under applicable securities laws, we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the filing date of this report. ii PART I - FINANCIAL INFORMATION Item 1. Financial Statements CITIUS PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, September 30, 2021 2020 ASSETS Current Assets: Cash and cash equivalents $ 115,663,976 $ 13,859,748 Prepaid expenses 1,271,395 122,237 Total Current Assets 116,935,371 13,981,985 Property and equipment, net 7,754 1,577 Operating lease right-of-use asset, net 864,865 986,204 Other Assets: Deposits 38,062 57,093 In-process research and development 19,400,000 19,400,000 Goodwill 9,346,796 9,346,796 Total Other Assets 28,784,858 28,803,889 Total Assets $ 146,592,848 $ 43,773,655 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 1,354,664 $ 1,856,235 Accrued expenses 366,736 164,040 Accrued compensation 1,539,813 1,654,919 Accrued interest 1,974 89,970 Notes payable – related parties — 172,970 Note payable – paycheck protection program 164,583 — Operating lease liability 172,540 158,999 Total Current Liabilities 3,600,310 4,097,133 Note payable – paycheck protection program — 164,583 Deferred tax liability 4,985,800 4,985,800 Operating lease liability – non current 724,785 855,471 Total Liabilities 9,310,895 10,102,987 Commitments and Contingencies Stockholders’ Equity: Preferred stock – $ 0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding — — Common stock – $ 0.001 par value; 400,000,000 shares authorized; 145,979,429 and 55,576,996 shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively 145,979 55,577 Additional paid-in capital 227,622,330 104,208,958 Accumulated deficit ( 91,086,736 ) ( 70,593,867 ) Total Citius Pharmaceuticals, Inc. Stockholders’ Equity 136,681,573 33,670,668 Non-controlling interest 600,380 — Total Equity 137,281,953 33,670,668 Total Liabilities and Equity $ 146,592,848 $ 43,773,655 See notes to unaudited condensed consolidated financial statements. 1 CITIUS PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2021 AND 2020 (Unaudited) Three Months Ended Nine Months Ended June 30, June 30, June 30, June 30, 2021 2020 2021 2020 Revenues $ — $ — $ — $ — Operating Expenses Research and development 2,203,748 2,644,244 9,946,268 7,324,730 General and administrative 3,407,088 1,869,636 7,389,269 5,690,953 Stock-based compensation – general and administrative 373,570 175,011 993,114 554,228 Total Operating Expenses 5,984,406 4,688,891 18,328,651 13,569,911 Operating Loss ( 5,984,406 ) ( 4,688,891 ) ( 18,328,651 ) ( 13,569,911 ) Other Income (Expense) Other income 59,917 — 59,917 110,207 Interest income 103,413 13,018 186,224 44,463 Interest expense ( 2,932 ) ( 4,245 ) ( 10,839 ) ( 12,216 ) Total Other Income, Net 160,398 8,773 235,302 142,454 Net Loss ( 5,824,008 ) $ ( 4,680,118 ) $ ( 18,093,349 ) $ ( 13,427,457 ) Deemed dividend on warrant extension 1,450,876 — 1,450,876 — Net Loss Applicable to Common Stockholders $ ( 7,274,884 ) $ ( 4,680,118 ) $ ( 19,544,225 ) $ ( 13,427,457 ) Net Loss Per Share Applicable to Common Stockholders - Basic and Diluted $ ( 0.05 ) $ ( 0.11 ) $ ( 0.20 ) $ ( 0.38 ) Weighted Average Common Shares Outstanding Basic and diluted 137,151,269 41,600,428 96,002,039 35,017,739 See notes to unaudited condensed consolidated financial statements. 2 CITIUS PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2021 AND 2020 (Unaudited) Preferred Common Stock Additional Paid-In Accumulated Total Citius Pharmaceuticals, Inc. Shareholder’s Non-Controlling Total Stock Shares Amount Capital Deficit Equity Interest Equity Balance, October 1, 2020 $ — 55,576,996 $ 55,577 $ 104,208,958 $ ( 70,593,867 ) $ 33,670,668 $ — $ 33,670,668 Issuance of NoveCite common stock — — — 1,799,640 ( 2,399,520 ) ( 599,880 ) 600,380 500 Stock-based compensation expense — — — 276,582 — 276,582 — 276,582 Net loss — — — — ( 8,146,909 ) ( 8,146,909 ) — ( 8,146,909 ) Balance, December 31, 2020 — 55,576,996 55,577 106,285,180 ( 81,140,296 ) 25,200,461 600,380 25,800,841 Issuance of common stock in private placement offering, net of costs of $ 1,549,602 — 15,455,960 15,456 18,434,954 — 18,450,410 — 18,450,410 Issuance of common stock in registered direct offering, net of costs of $ 5,520,160 — 50,830,566 50,830 70,929,012 — 70,979,842 — 70,979,842 Issuance of common stock upon exercise of warrants — 12,787,697 12,788 14,229,755 — 14,242,543 — 14,242,543 Issuance of common stock for services — 50,000 50 67,950 — 68,000 — 68,000 Stock-based compensation expense — — — 342,962 — 342,962 — 342,962 Net loss — — — — ( 4,122,432 ) ( 4,122,432 ) — ( 4,122,432 ) Balance, March 31, 2021 — 134,701,219 134,701 210,289,813 ( 85,262,728 ) 125,161,786 600,380 125,762,166 Issuance of common stock upon exercise of warrants — 11,208,210 11,208 16,876,383 — 16,887,591 — 16,887,591 Issuance of common stock upon exercise of stock options — 70,000 70 82,564 — 82,634 — 82,634 Stock-based compensation expense — — — 373,570 — 373,570 — 373,570 Net loss — — — — ( 5,824,008 ) ( 5,824,008 ) — ( 5,824,008 ) Balance, June 30, 2021 $ — 145,979,429 $ 145,979 $ 227,622,330 $ ( 91,086,736 ) $ 136,681,573 $ 600,380 $ 137,281,953 Balance, October 1, 2019, as restated $ — 28,930,493 $ 28,930 $ 80,169,724 $ ( 53,045,782 ) $ 27,152,872 $ — $ 27,152,872 Issuance of common stock upon exercise of warrants — 1,060,615 1,061 ( 955 ) — 106 — 106 Issuance of common stock for services — 186,566 187 99,813 — 100,000 — 100,000 Stock-based compensation expense — — — 220,384 — 220,384 — 220,384 Net loss — — — — ( 4,322,370 ) ( 4,322,370 ) — ( 4,322,370 ) Balance, December 31, 2019 — 30,177,674 30,178 80,488,966 ( 57,368,152 ) 23,150,992 — 23,150,992 Issuance of common stock upon exercise of warrants — 7,614,388 7,614 6,019,417 — 6,027,031 — 6,027,031 Issuance of common stock for services — 286,000 286 305,734 — 306,020 — 306,020 Stock-based compensation expense — — — 158,833 — 158,833 — 158,833 Net loss — — — — ( 4,424,969 ) ( 4,424,969 ) — ( 4,424,969 ) Balance, March 31, 2020 — 38,078,062 38,078 86,972,950 ( 61,793,121 ) 25,217,907 — 25,217,907 Issuance of common stock for services — 50,000 50 22,700 — 22,750 — 22,750 Issuance of common stock in registered direct offering, net of costs of $ 622,900 — 7,058,824 7,059 6,870,041 — 6,877,100 — 6,877,100 Issuance of common stock upon exercise of warrants — 1,129,412 1,129 1,128,283 — 1,129,412 — 1,129,412 Stock-based compensation expense — — — 175,011 — 175,011 — 175,011 Net loss — — — — ( 4,680,118 ) ( 4,680,118 ) — ( 4,680,118 ) Balance, June 30, 2020 $ — 46,316,298 $ 46,316 $ 95,168,985 $ ( 66,473,239 ) $ 28,742,062 $ — $ 28,742,062 See notes to unaudited condensed consolidated financial statements. 3 CITIUS PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2021 AND 2020 (Unaudited) 2021 2020 Cash Flows From Operating Activities: Net loss $ ( 18,093,349 ) $ ( 13,427,457 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 993,114 554,228 Issuance of common stock for services 68,000 428,770 Amortization of operating lease right-of-use asset 121,339 112,605 Depreciation 761 632 Changes in operating assets and liabilities: Prepaid expenses ( 1,149,158 ) ( 3,471 ) Deposits 19,031 — Accounts payable ( 501,571 ) ( 901,918 ) Accrued expenses 202,696 ( 82,361 ) Accrued compensation ( 115,106 ) ( 180,374 ) Accrued interest ( 87,996 ) 12,216 Operating lease liability ( 117,145 ) ( 85,736 ) Net Cash Used In Operating Activities ( 18,659,384 ) ( 13,572,866 ) Cash Flows Used in Investing Activities: Purchase of property and equipment ( 6,938 ) ( 1,831 ) Net Cash Used In Operating Activities ( 6,938 ) ( 1,831 ) Cash Flows From Financing Activities: Proceeds from note payable – paycheck protection program — 164,583 Principal paid on notes payable – related parties ( 172,970 ) — Proceeds from sale of NoveCite, Inc. common stock 500 — Net proceeds from private placement 18,450,410 — Net proceeds from registered direct offering 70,979,842 6,877,100 Net proceeds from common stock warrant exercises 31,130,134 7,156,549 Net proceeds from common stock option exercises 82,634 — Net Cash Provided By Financing Activities 120,470,550 14,198,232 Net Change in Cash and Cash Equivalents 101,804,228 623,535 Cash and Cash Equivalents - Beginning of Period 13,859,748 7,893,804 Cash and Cash Equivalents - End of Period $ 115,663,976 $ 8,517,339 Supplemental Disclosures Of Cash Flow Information and Non-cash Activities: Operating lease right-of-use asset and liability recorded upon adoption of ASC 842 $ — $ 1,137,724 See notes to unaudited condensed consolidated financial statements. 4 CITIUS PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JUNE 30, 2021 AND 2020 (Unaudited) 1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Citius Pharmaceuticals, Inc. (“Citius,” the “Company,” “we” or “us”) is a specialty pharmaceutical company dedicated to the development and commercialization of critical care products with a focus on anti-infective products in adjunct cancer care, unique prescription products and stem cell therapy. On March 30, 2016, Citius acquired Leonard-Meron Biosciences, Inc. (“LMB”) as a wholly-owned subsidiary. The Company acquired all of the outstanding stock of LMB by issuing shares of its common stock. The net assets acquired included identifiable intangible assets of $ 19,400,000 related to in-process research and development. The Company recorded goodwill of $ 9,346,796 for the excess of the purchase price over the net assets. In-process research and development represents the value of LMB’s leading drug candidate, which is an antibiotic solution used to treat catheter-related bloodstream infections (Mino-Lok®) and is expected to be amortized on a straight-line basis over a period of eight years commencing upon revenue generation. Goodwill represents the value of LMB’s industry relationships and its assembled workforce. Goodwill will not be amortized but will be tested at least annually for impairment. On September 11, 2020, we formed NoveCite, Inc. (“NoveCite”), a Delaware corporation, of which we own 75 % ( 7,500,000 shares) of the issued and outstanding capital stock (see Note 3). Citius is subject to a number of risks common to companies in the pharmaceutical industry including, but not limited to, risks related to the development by Citius or its competitors of research and development stage product candidates, market acceptance of its product candidates that might be approved, competition from larger companies, dependence on key personnel, dependence on key suppliers and strategic partners, the Company’s ability to obtain additional financing and the Company’s compliance with governmental and other regulations. Basis of Presentation and Summary of Significant Accounting Policies Basis of Preparation — The accompanying condensed consolidated financial statements include the operations of Citius Pharmaceuticals, Inc., and its wholly-owned subsidiaries, Citius Pharmaceuticals, LLC, and LMB, and its majority-owned subsidiary NoveCite. NoveCite was inactive until October 2020. All significant inter-company balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to fairly state the condensed consolidated financial position of the Company as of June 30, 2021, and the results of its operations and cash flows for the three and nine month periods ended June 30, 2021 and 2020. The operating results for the three- and nine-month periods ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending September 30, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020 filed with the Securities and Exchange Commission. Use of Estimates — Our accounting principles require our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Estimates having relatively higher significance include stock-based compensation, accounting for leases, valuation of warrants, and income taxes. Actual results could differ from those estimates and changes in estimates may occur. 5 Basic and Diluted Net Loss per Common Share — Basic and diluted net loss per common share applicable to common stockholders is computed by dividing net loss applicable to common stockholders in each period by the weighted average number of shares of common stock outstanding during such period. For the periods presented, common stock equivalents, consisting of stock options and warrants were not included in the calculation of the diluted loss per share because they were anti-dilutive. Recently Issued Accounting Standards In December 2019, the FASB issued ASU No. 2019-12 Simplifications to Accounting for Income Taxes. ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including deferred taxes for goodwill and allocating taxes for members of a consolidated group. ASU 2019-12 is effective for all entities for fiscal years beginning after December 15, 2020, and earlier adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2019-12 on its consolidated financial statements. In August 2020, FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, this ASU modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this ASU are effective for the public companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements. 2. LIQUIDITY AND MANAGEMENT’S PLAN The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company experienced negative cash flows from operations of $ 18,659,384 for the nine months ended June 30, 2021. As a result of the Company’s recent common stock offerings and common stock warrant exercises during the nine months ended June 30, 2021, the Company had working capital of approximately $ 113,000,000 at June 30, 2021. The Company estimates that its available cash resources will be sufficient to fund its operations through March 2023. The Company has generated no operating revenue to date and has principally raised capital through the issuance of debt and equity instruments to finance its operations. However, the Company’s continued operations beyond March 2023, including its development plans for Mino-Lok, Mino-Wrap, Halo-Lido and Novecite, will depend on its ability to obtain regulatory approval to market Mino-Lok and generate substantial revenue from the sale of Mino-Lok and on its ability to raise additional capital through various potential sources, such as equity and/or debt financings, strategic relationships, or out-licensing of its product candidates. However, the Company can provide no assurances on future sales of Mino-Lok or that financing or strategic relationships will be available on acceptable terms, or at all. If the Company is unable to raise sufficient capital, find strategic partners or generate substantial revenue from the sale of Mino-Lok, there would be a material adverse effect on its business. Further, the Company expects in the future to incur additional expenses as it continues to develop its product candidates, including regulatory approval, and protect its intellectual property. 3. PATENT AND TECHNOLOGY LICENSE AGREEMENTS Patent and Technology License Agreement – Mino-Lok LMB has a patent and technology license agreement with Novel Anti-Infective Therapeutics, Inc. (“NAT”) to develop and commercialize Mino-Lok® on an exclusive, worldwide sub licensable basis. LMB is required to pay an annual maintenance fee each June until commercial sales of a product subject to the license commence. The annual fee paid in June 2021 was $ 90,000 (at which level it will remain for as long as it is due). 6 LMB will also pay annual royalties on net sales of licensed products, with royalties ranging from the mid-single digits to the low double digits or, in the event the licensed product is not subject to a valid patent claim, the royalty is reduced to mid- to lower-single digits. In limited circumstances in which the licensed product is not subject to a valid patent claim and a competitor is selling a competing product, the royalty rate is in the low single digits. After a commercial sale is obtained, LMB must pay minimum aggregate annual royalties of $ 100,000 in the first commercial year which is prorated for a less than 12-month period, increasing $ 25,000 per year to a maximum of $ 150,000 annually. LMB must also pay NAT up to $ 1,100,000 upon achieving specified regulatory and sales milestones. Finally, LMB must pay NAT a specified percentage of payments received from any sub licensees. Unless earlier terminated by NAT, based on the failure by the Company to achieve certain development and commercial milestones or for various breaches by the Company, the license agreement remains in effect until the date that all patents licensed under the agreement have expired and all patent applications within the licensed patent rights have been cancelled, withdrawn or expressly abandoned. Patent and Technology License Agreement – Mino-Wrap On January 2, 2019, we entered into a patent and technology license agreement with the Board of Regents of the University of Texas System on behalf of the University of Texas M. D. Anderson Cancer Center (“Licensor”), whereby we in-licensed exclusive worldwide rights to the patented technology for any and all uses relating to breast implants. We intend to develop a liquefying gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive surgeries (“Mino-Wrap”). We are required to use commercially reasonable efforts to commercialize Mino-Wrap under several regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval from the U.S. Food and Drug Administration (“FDA”). Under the license agreement, the Company paid annual maintenance fees of $45,000 and $30,000 in January 2021 and 2020, respectively. The annual maintenance fee increases by $15,000 per year up to a maximum of $90,000. Annual maintenance fees cease on the first sale of product. We also must pay up to an aggregate of $2.1 million in milestone payments, contingent on the achievement of various regulatory and commercial milestones. Under the terms of the license agreement, we also must pay a royalty of mid- to upper-single digit percentages of net sales, depending on the amount of annual sales, and subject to downward adjustment to lower- to mid-single digit percentages in the event there is no valid patent for the product in the United States at the time of sale. After the first sale of product, we will owe an annual minimum royalty payment of $100,000 that will increase annually by $25,000 for the duration of the term. We will be responsible for all patent expenses incurred by Licensor for the term of the agreement although Licensor is responsible for filing, prosecution and maintenance of all patents. Unless earlier terminated by Licensor, based upon the failure by us to achieve certain development and commercial milestones or for various breaches by us, the agreement expires on the later of the expiration of the patents or January 2, 2034 . License Agreement with Novellus On March 31, 2020, we entered into an option agreement with a subsidiary of Novellus, Inc. (“Novellus”) to in-license from Novellus on a worldwide basis, a novel cellular therapy for acute respiratory distress syndrome (“ARDS”). In April 2020, we paid Novellus $ 100,000 for the option and recorded it as a research and development expense. Our Board Chairman Leonard Mazur, who is also our largest stockholder, is a significant shareholder of Novellus and subsequent to the option agreement and the license agreement below, became a director of Novellus. As required by our Code of Ethics, the Audit Committee of our Board of Directors approved the entry into the option agreement with Novellus, as did the disinterested members of our Board of Directors. On October 6, 2020, our subsidiary, NoveCite, exercised the option and signed an exclusive license agreement with Novellus. Upon execution of the agreement, we paid $ 5,000,000 to Novellus, which was charged to research and development expense during the nine months ended June 30, 2021, and issued Novellus shares of NoveCite’s common stock representing 25 % of the outstanding equity. We own the other 75 % of NoveCite’s outstanding equity. Pursuant to the terms of the stock subscription agreement between Novellus and NoveCite, if NoveCite issues additional equity, subject to certain exceptions, NoveCite had to maintain Novellus’s ownership at 25 % by issuing additional shares to Novellus. The $ 5,000,000 payment to Novellus was charged to research and development expense during the nine months ended June 30, 2021. 7 Citius is responsible for the operational activities of NoveCite, and bears all costs necessary to operate NoveCite. Citius’s officers are also the officers of NoveCite and oversee the business strategy and operations of NoveCite. As such, NoveCite is accounted for as a consolidated subsidiary with a noncontrolling interest. Novellus has no contractual rights in the profits or obligations to share in the losses of NoveCite, and the Company has not allocated any losses to the noncontrolling interest. NoveCite is obligated to pay Novellus up to $51,000,000 upon the achievement of various regulatory and developmental milestones. NoveCite also must pay a royalty equal to low double-digit percentages of net sales, commencing upon the sale of a licensed product. This royalty is subject to downward adjustment to an upper-single digit percentage of net sales in any country in the event of the expiration of the last valid patent claim or if no valid patent claim exists in that country. The royalty will end on the earlier of (i) the date on which a biosimilar product is first marketed, sold, or distributed in the applicable country or (ii) the 10-year anniversary of the date of expiration of the last-to-expire valid patent claim in that country. In the case of a country where no licensed patent ever exists, the royalty will end on the later of (i) the date of expiry of such licensed product’s regulatory exclusivity and (ii) the 10-year anniversary of the date of the first commercial sale of the licensed product in the applicable country. In addition, NoveCite will pay to Novellus an amount equal to a mid-twenties percentage of any sublicensee fees it receives. Under the terms of the license agreement, in the event that Novellus receives any revenue involving the original cell line included in the licensed technology, then Novellus shall remit to NoveCite 50 % of such revenue. The term of the license agreement will continue on a country-by-country and licensed product-by-licensed product basis until the expiration of the last-to-expire royalty term. Either party may terminate the license agreement upon written notice if the other party is in material default. NoveCite may terminate the license agreement at any time without cause upon 90 days prior written notice. Novellus will be responsible for preparing, filing, prosecuting and maintaining all patent applications and patents included in the licensed patents in the territory, provided however, that if Novellus decides that it is not interested in maintaining a particular licensed patent or in preparing, filing, or prosecuting a licensed patent, NoveCite will have the right, but not the obligation, to assume such responsibilities in the territory at NoveCite’s sole cost and expense. In July 2021, Novellus was acquired by Brooklyn ImmunoTherapeutics, Inc. In connection with that transaction, the stock subscription agreement between Novellus and NoveCite was amended to assign to Brooklyn ImmunoTherapeutics, Inc. all of Novellus’s right, title, and interest in the stock subscription agreement and delete the anti-dilution protection and replace it with a right of first refusal whereby Brooklyn ImmunoTherapeutics, Inc. will have the right to purchase all or a portion of the securities that NoveCite intends to sell or in the alternative, at the option of NoveCite, Brooklyn ImmunoTherapeutics, Inc. may purchase that amount of the securities proposed to be sold by NoveCite to allow Brooklyn ImmunoTherapeutics, Inc. to maintain its then percentage ownership. 4. NOTES PAYABLE Notes Payable – Related Parties The aggregate principal balance consisted of notes payable held by our Chairman, Leonard Mazur, in the amount of $ 160,470 and notes payable held by our Chief Executive Officer, Myron Holubiak, in the amount of $ 12,500 . Notes with an aggregate principal balance of $104,000 accrued interest at the prime rate plus 1.0% per annum and notes with an aggregate principal balance of $68,970 accrued interest at 12% per annum. In June 2021, we repaid the $ 172,970 principal balance of these notes and paid accrued interest of $ 38,917 . Accrued interest of $ 59,917 was forgiven and has been recorded as other income in the three and nine months ended June 30, 2021. Interest expense on notes payable – related parties was $ 2,509 and $ 3,909 , respectively, for the three months ended June 30, 2021 and 2020. Interest expense on notes payable – related parties was $ 9,605 and $ 11,880 , respectively, for the nine months ended June 30, 2021 and 2020. Paycheck Protection Program On April 12, 2020, due to the disruption caused by the COVID-19 health crisis, the Company applied for a forgivable loan through the Small Business Association’s Paycheck Protection Program (the “PPP”). The loan accrues interest at a rate of 1% and a portion of the loan may be forgiven if it is used to pay qualifying costs such as payroll, rent and utilities. Amounts that are not forgiven will be repaid 2 years from the date of the loan. On April 15, 2020, the Company received $164,583 from the PPP and in June 2021, the Company applied for forgiveness of the loan. Interest expense was $ 423 and $ 1,234 for the three and nine months ended June 30, 2021, respectively. Interest expense was $ 336 for the three and nine months ended June 30, 2020. The Company received notification of the PPP loan formal forgiveness approval on July 28, 2021. 8 5. COMMON STOCK, STOCK OPTIONS AND WARRANTS Authorized Common Stock On June 21, 2021, our stockholders approved an amendment to our Articles of Incorporation to increase the authorized number of shares of capital stock from 210,000,000 to 410,000,000 and the authorized number of common shares from 200,000,000 to 400,000,000 . Common Stock Offerings On May 18, 2020, the Company closed a registered direct offering of 7,058,824 common shares at $ 1.0625 per share for gross proceeds of $ 7,500,001 . The Company also issued 3,529,412 unregistered immediately exercisable warrants to the investors with an exercise price of $ 1.00 per common share and a term of five and one-half years. The Company paid the placement agent a fee of 7% of the gross proceeds totaling $525,000 and issued the placement agent 494,118 immediately exercisable warrants with an exercise price of $1.3281 per common share and a term of five years. The Company also reimbursed the placement agent for $ 85,000 in expenses and incurred $ 12,901 in other expenses. Net proceeds from the offering were $ 6,877,100 . The estimated fair value of the 3,529,412 warrants issued to the investors was $ 2,138,998 and the estimated fair value of the 494,118 warrants issued to the placement agent was $ 275,724 . On August 10, 2020, the Company closed an underwritten public offering of 9,159,524 common shares at a price of $ 1.05 per share for gross proceeds of $ 9,617,500 . The Company paid the underwriter a fee of 7% of the gross proceeds totaling $673,225 and issued the underwriters 641,166 immediately exercisable warrants with an exercise price of $1.3125 per common share and a term of five years. The Company also reimbursed the placement agent for $ 135,000 in expenses and incurred $ 109,074 in other expenses. Net proceeds from the offering were $ 8,700,201 . The estimated fair value of the 641,166 warrants issued to the underwriter was $ 569,426 . On January 27, 2021, the Company closed a private placement for 15,455,960 common shares and warrants to purchase 7,727,980 common shares, at a purchase price of $1.294 per common share and accompanying warrant, for gross proceeds of $20,000,012. The 7,727,980 warrants are immediately exercisable at $1.231 per common share for a term of five and one-half years. The Company paid the placement agent a fee of 7% of the gross proceeds totaling $1,400,001 and issued the placement agent 1,081,917 immediately exercisable warrants at $1.6175 per common share for a term of five and one-half years. The Company also reimbursed the placement agent for $85,000 in expenses and incurred $64,601 in other expenses. Net proceeds from the offering were $18,450,410. The estimated fair value of the 7,727,980 warrants issued to the investors was approximately $7,582,000 and the estimated fair value of the 1,081,917 warrants issued to the placement agent was approximately $1,025,000. On February 19, 2021, the Company closed a registered direct offering for 50,830,566 common shares and warrants to purchase up to 25,415,283 common shares, at a purchase price of $1.505 per share of common stock and accompanying warrant, for gross proceeds of $76,500,002. The 25,415,283 warrants are immediately exercisable at $1.70 per common share for a term of five years. The Company paid the placement agent a fee of 7% of the gross proceeds totaling $5,355,000 and issued the placement agent 3,558,140 immediately exercisable warrants at $1.881 per common share for a term of five years. The Company also reimbursed the placement agent for $85,000 in expenses and incurred $80,160 in other expenses. Net proceeds from the offering were $70,979,842. The estimated fair value of the 25,415,283 warrants issued to the investors was approximately $42,322,000 and the estimated fair value of the 3,558,140 warrants issued to the placement agent was approximately $5,850,000. Common Stock Issued for Services On November 4, 2019, the Company issued 186,566 shares of common stock for strategic consulting and corporate development services and expensed the $ 100,000 fair value of the common stock issued. On February 10, 2020, the Company issued 150,000 shares of common stock for investor relations services and 136,000 shares of common stock for general advisory and business development advisory services. The Company expensed the $ 306,020 fair value of the common stock issued. On April 6, 2020, the Company issued 50,000 shares of common stock for strategic consulting and corporate development services and expensed the $ 22,750 fair value of the common stock issued. On September 8, 2020, the Company issued 101,174 shares of common stock for investor relations services and expensed the $ 100,000 fair value of the common stock issued. 9 On February 12, 2021, the Company issued 50,000 shares of common stock for investor relations services and expensed the $ 68,000 fair value of the common stock issued. Stock Option Plans Pursuant to our 2014 Stock Incentive Plan, we reserved 866,667 common shares for issuance to employees, directors and consultants. As of June 30, 2021, options to purchase 855,171 shares were outstanding, options to purchase 4,829 shares were exercised, options to purchase 6,667 shares expired, and no shares remain available for future grants. On February 7, 2018, our stockholders approved the 2018 Omnibus Stock Incentive Plan and we reserved 2,000,000 common shares for issuance to employees, directors and consultants. As of June 30, 2021, options to purchase 1,820,000 shares were outstanding, options to purchase 70,000 shares were exercised, and the remaining 110,000 shares were transferred to the 2020 Omnibus Stock Incentive Plan (“2020 Stock Plan”). On February 10, 2020, our stockholders approved the 2020 Stock Plan and we reserved 3,110,000 common shares. The 2020 Stock Plan provides incentives to employees, directors, and consultants through options, SARs, dividend equivalent rights, restricted stock, restricted stock units, or other rights. As of June 30, 2021, options to purchase 1,870,000 shares were outstanding and the remaining 1,240,000 shares were transferred to the 2021 Omnibus Stock Incentive Plan (“2021 Stock Plan”). On May 24, 2021, our stockholders approved the 2021 Stock Plan and we reserved 8,740,000 shares. The 2021 Stock Plan provides incentives to employees, directors, and consultants through options, SARs, dividend equivalent rights, restricted stock, restricted stock units, or other rights. As of June 30, 2021, options to purchase 110,000 shares were outstanding and there were 8,630,000 shares available for future grants. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption. The expected term of stock options granted, all of which qualify as “plain vanilla,” is based on the average of the contractual term (generally 10 years) and the vesting period. For non-employee options, the expected term is the contractual term. A summary of option activity under our stock option plans (excluding the NoveCite Stock Plan) is presented below: Option Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at October 1, 2020 3,390,171 $ 2.51 8.0 years $ 440,336 Granted 1,335,000 1.20 Exercised ( 70,000 ) 1.18 Forfeited or expired — — Outstanding at June 30, 2021 4,655,171 $ 2.16 7.9 years $ 9,128,675 Exercisable at June 30, 2021 1,899,637 $ 3.64 6.3 years $ 2,652,917 On October 6, 2020, the Board of Directors granted options to purchase 800,000 shares to employees, 175,000 shares to directors and 125,000 shares to consultants at $ 1.01 per share. On February 16, 2021, the Board of Directors granted options to purchase a total of 125,000 shares to directors at $ 1.69 per share. On June 10, 2021, the Board of Directors granted options to purchase 100,000 shares to employees, and 10,000 shares to a consultant at $ 2.50 per share. All of these options vest over terms of 12 to 36 months and have a term of 10 years. Stock-based compensation expense for the three months ended June 30, 2021 and 2020 was $373,570 (including $18,833 for the NoveCite Stock Plan) and $175,011, respectively. Stock-based compensation expense for the nine months ended June 30, 2021 and 2020 was $ 993,114 (including $ 50,222 for the NoveCite Stock Plan) and $ 554,228 , respectively. At June 30, 2021, unrecognized total compensation cost related to unvested awards under the Citius stock plans of $ 1,550,712 is expected to be recognized over a weighted average period of 1.9 years. 10 On November 5, 2020, the stockholders of NoveCite, Inc., approved NoveCite’s Stock Plan and we reserved 2,000,000 common shares of NoveCite. The NoveCite Stock Plan provides incentives to employees, directors, and consultants through grants of options, SARs, dividend equivalent rights, restricted stock, restricted stock units, or other rights under the NoveCite Stock Plan. As of June 30, 2021, there were options outstanding to purchase 1,130,000 common shares of NoveCite and 870,000 common shares of NoveCite available for future grants. On November 5, 2020, NoveCite granted options to purchase 1,130,000 common shares to employees at a weighted average exercise price of $ 0.24 per share, of which, none are exercisable as of June 30, 2021. The weighted average remaining contractual term of options outstanding under the NoveCite Stock Plan is 9.4 years. At June 30, 2021, unrecognized total compensation cost related to unvested awards under the NoveCite Stock Plan of $ 175,778 is expected to be recognized over a weighted average period of 2.3 years. Warrants As of June 30, 2021, we have reserved shares of common stock for the exercise of outstanding warrants as follows: Exercise price Number Expiration Dates LMB Warrants $ 7.50 53,110 March 24 – April 29, 2022 Financial Advisor Warrants 3.00 25,833 August 15, 2021 2016 Offering Warrants 4.13 140,819 November 23, 2021 – February 27, 2022 2017 Public Offering Investors 4.13 1,622,989 August 2, 2022 2017 Public Offering Underwriter 4.54 65,940 February 2, 2023 December 2017 Registered Direct/Private Placement Offering Investors 4.63 640,180 June 19, 2023 December 2017 Registered Direct/Private Placement Offering Placement Agent 5.87 89,625 December 19, 2022 March 2018 Registered Direct/Private Placement Offering Investors 2.86 218,972 October 2, 2023 March 2018 Registered Direct/Private Placement Offering Placement Agent 3.73 46,866 March 28, 2023 August 2018 Offering Investors 1.15 3,921,569 August 14, 2023 August 2018 Offering Agent 1.59 189,412 August 8, 2023 April 2019 Registered Direct/Private Placement Offering Investors 1.42 1,294,498 April 5, 2024 April 2019 Registered Direct/Private Placement Offering Placement Agent 1.93 240,130 April 5, 2024 September 2019 Offering Investors 0.77 2,793,297 September 27, 2024 September 2019 Offering Underwriter 1.12 194,358 September 27, 2024 February 2020 Exercise Agreement Placement Agent 1.28 138,886 August 19, 2025 May 2020 Registered Direct Offering Investors 1.00 1,670,588 November 18, 2025 May 2020 Registered Direct Offering Placement Agent 1.33 155,647 May 14, 2025 August 2020 Underwriter 1.31 201,967 August 10, 2025 January 2021 Registered Direct Offering Investors 1.23 3,091,192 July 27, 2026 January 2021 Registered Direct Offering Agent 1.62 351,623 July 27, 2026 February 2021 Offering Investors 1.70 20,580,283 February 19, 2026 February 2021 Offering Agent 1.88 2,506,396 February 19, 2026 40,234,180 In April 2021, we extended the term by three years to April 5, 2024 for 1,294,498 warrants for common stock with an exercise price of $ 1.42 per share and 240,130 warrants with an exercise price of $ 1.93 per share. We recorded a deemed dividend of $ 1,450,876 based on the excess of the fair value of the modified warrants over the fair value of the warrants before the modification, the effect of which was an increase in the net loss attributable to common shareholders in the statement of operations for the three and nine months ended June 30, 2021. At June 30, 2021, the weighted average remaining life of the outstanding warrants is 4.0 years, all warrants are exercisable, and the aggregate intrinsic value of the warrants outstanding was $ 74,179,624 . 11 Common Stock Reserved A summary of common stock reserved for future issuances as of June 30, 2021 is as follows: Stock plan options outstanding 4,655,171 Stock plan shares available for future grants 8,630,000 Warrants outstanding 40,234,180 Total 53,519,351 6. RELATED PARTY TRANSACTIONS The Company had outstanding debt due to Leonard Mazur (Chairman of the Board) and Myron Holubiak (Chief Executive Officer) (see Note 4). Leonard Mazur is a director and significant shareholder of Novellus, Inc. On October 6, 2020, the Company, through its subsidiary NoveCite, entered into an exclusive agreement with Novellus to develop cellular therapies (see Note 3). In April 2021, we extended the term by three years for 1,294,498 warrants held by our Chairman and our Chief Executive Officer (see Note 5). 7. OPERATING LEASE Effective July 1, 2019, Citius entered into a 76-month lease for office space in Cranford, NJ. Citius will pay its proportionate share of real estate taxes and operating expenses in excess of the base year expenses. These costs are considered to be variable lease payments and are not included in the determination of the lease’s right-of-use asset or lease liability. The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities: ● As the Company’s current Cranford lease does not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company estimated its incremental borrowing rate based on the remaining lease term as of the adoption date. ● Since the Company elected to account for each lease component and its associated non-lease components as a single combined component, all contract consideration was allocated to the combined lease component. ● The expected lease terms include noncancelable lease periods. The elements of lease expense are as follows: Lease cost Nine Months Ended June 30, 2021 Nine Months Ended June 30, 2020 Operating lease cost $ 179,118 $ 167,725 Variable lease cost 194 — Total lease cost 179,312 $ 167,725 Other information Weighted-average remaining lease term - operating leases 4.3 Years 5.3 Years Weighted-average discount rate - operating leases 8.0 % 8.0 % 12 Maturities of lease liabilities due under the Company’s non-cancellable leases as of June 30, 2021 is as follows: Year Ending September 30, June 30, 2021 2021 (excluding the 9 months ended June 30, 2021) $ 59,522 2022 239,306 2023 244,165 2024 249,024 2025 and thereafter 275,343 Total lease payments 1,067,360 Less: interest ( 170,035 ) Present value of lease liabilities $ 897,325 Leases Classification June 30, 2021 September 30, 2020 Assets Lease asset Operating $ 864,865 $ 986,204 Total lease assets $ 864,865 $ 986,204 Liabilities Current Operating $ 172,540 $ 158,999 Non-current Operating 724,785 855,471 Total lease liabilities $ 897,325 $ 1,014,470 Interest expense on the lease liability was $ 57,779 and $ 66,512 for the nine months ended June 30, 2021 and 2020, respectively. 8. FDA REFUND In November 2019, the Company received a $ 110,207 refund from the FDA for 2016 product and establishment fees because the fees paid by the Company exceeded the costs of the FDA’s review of the associated applications. The Company recorded the $ 110,207 as other income during the nine months ended June 30, 2020. 9. SUBSEQUENT EVENTS On July 19, 2021 Novellus was acquired by Brooklyn ImmunoTherapeutics, Inc., see Note 3. On July 28, 2021, the Company received notification from the Small Business Administration, (the “SBA”) granting full forgiveness of its PPP Loan. 13 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations for the three and nine months ended June 30, 2021 should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this report and in conjunction with the audited financial statements of Citius Pharmaceuticals, Inc. included in our Annual Report on Form 10-K for the year ended September 30, 2020. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Cautionary Note Regarding Forward-Looking Statements” on page ii of this Report. Historical Background Citius Pharmaceuticals, Inc. (“Citius,” the “Company,” “we” or “us”) is a specialty pharmaceutical company dedicated to the development and commercialization of critical care products with a focus on anti-infective products in adjunct cancer care, unique prescription products and stem cell therapy. On September 12, 2014, we acquired Citius Pharmaceuticals, LLC as a wholly-owned subsidiary and on March 30, 2016, we acquired Leonard-Meron Biosciences, Inc. (“LMB”) as a wholly-owned subsidiary. On September 11, 2020, we formed NoveCite, Inc. (“NoveCite”), a Delaware corporation, of which we own 75% of the issued and outstanding capital stock. Through June 30, 2021, the Company has devoted substantially all of its efforts to business planning, acquiring our proprietary technology, research and development, recruiting management and technical staff, and raising capital. We are developing three proprietary products: Mino-Lok, an antibiotic lock solution used to treat patients with catheter-related bloodstream infections by salvaging the infected catheter; Mino-Wrap, a liquifying gel-based wrap for reducing tissue expander infections following breast reconstructive surgeries; and Halo-Lido, a corticosteroid-lidocaine topical formulation that is intended to provide anti-inflammatory and anesthetic relief to persons suffering from hemorrhoids. NoveCite is focused on the development and commercialization of its proprietary mesenchymal stem cells for the treatment of acute respiratory disease syndrome (“ARDS”). Patent and Technology License Agreements Our patent and technology license agreements are discussed in the footnotes to our unaudited consolidated financial statements included in this Report. Mino-Lok® - LMB has a patent and technology license agreement with Novel Anti-Infective Therapeutics, Inc. (“NAT”) to develop and commercialize Mino-Lok® on an exclusive, worldwide sub-licensable basis. Since May 2014, LMB has paid an annual maintenance fee, which began at $30,000 and that increased over five years to $90,000, where it will remain until the commencement of commercial sales of a product subject to the license. LMB will also pay annual royalties on net sales of licensed products, with royalties ranging from the mid-single digits to the low double digits or, in the event the licensed product is not subject to a valid patent claim, the royalty is reduced to mid- to lower-single digits. In limited circumstances in which the licensed product is not subject to a valid patent claim and a competitor is selling a competing product, the royalty rate is in the low single digits. After a commercial sale is obtained, LMB must pay minimum aggregate annual royalties that increase in subsequent years. LMB must also pay NAT up to $1,100,000 upon achieving specified regulatory and sales milestones. Finally, LMB must pay NAT a specified percentage of payments received from any sub licensees. Mino-Wrap - On January 2, 2019, we entered into a patent and technology license agreement with the Board of Regents of the University of Texas System on behalf of the University of Texas M. D. Anderson Cancer Center (“Licensor”), whereby we in-licensed exclusive worldwide rights to the patented technology for any and all uses relating to breast implants. We intend to develop a liquefying gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive surgeries (“Mino-Wrap”). We are required to use commercially reasonable efforts to commercialize Mino-Wrap under several regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval from the Food and Drug Administration (“FDA”). 14 Under the license agreement, we paid a nonrefundable upfront payment of $125,000. We paid annual maintenance fees of $45,000 and $30,000 in January 2021 and 2020, respectively. The annual maintenance fee increases annually by $15,000 per year up to a maximum of $90,000. Annual maintenance fees cease on the first sale of product. We also must pay up to an aggregate of $2.1 million in milestone payments, contingent on the achievement of various regulatory and commercial milestones. Under the terms of the license agreement, we also must pay a royalty of mid- to upper-single digit percentages of net sales, depending on the amount of annual sales, and subject to downward adjustment to lower- to mid-single digit percentages in the event there is no valid patent for the product in the United States at the time of sale. After the first sale of product, we will owe an annual minimum royalty payment of $100,000 that will increase annually by $25,000 for the duration of the term. We will be responsible for all patent expenses incurred by Licensor for the term of the agreement although Licensor is responsible for filing, prosecution and maintenance of all patents. NoveCite – On October 6, 2020, our subsidiary NoveCite entered into a license agreement with Novellus Therapeutics Limited (“Licensor”), to develop and commercialize a stem cell therapy based on the Licensor’s patented technology for the treatment of acute pneumonitis of any etiology in which inflammation is a major agent in humans. NoveCite paid a $5,000,000 license fee and issued 25% of its outstanding equity to the Licensor. We own the other 75% of NoveCite’s currently outstanding equity. If NoveCite issues additional equity, subject to certain exceptions, NoveCite had to maintain Novellus’s ownership at 25% by issuing additional shares to Novellus. In July 2021, Novellus was acquired by Brooklyn ImmunoTherapeutics, Inc. In that transaction, the stock subscription agreement between Novellus and NoveCite was amended to delete the anti-dilution protection and replace it with a right of first refusal whereby Novellus will have the right to purchase all or a portion of the securities that NoveCite intends to sell or in the alternative, at the option of NoveCite, Novellus may purchase that amount of the securities proposed to be sold by NoveCite to allow Novellus to maintain its then percentage ownership. Under the license agreement, NoveCite is obligated to pay Licensor up to an aggregate of $51,000,000 in regulatory and developmental milestone payments. NoveCite also must pay a royalty equal to low double-digit percentages of net sales, commencing upon the first commercial sale of a licensed product. This royalty is subject to downward adjustment on a product-by-product and country-by-country basis to an upper-single digit percentage of net sales in any country in the event of the expiration of the last valid patent claim or if no valid patent claim exists in that country. The royalty will end on the earlier of (i) the date on which a biosimilar product is first marketed, sold, or distributed by Licensor or any third party in the applicable country or (ii) the 10-year anniversary of the date of expiration of the last-to-expire valid patent claim in that country. In the case of a country where no licensed patent ever exists, the royalty will end on the later of (i) the date of expiry of such licensed product’s regulatory exclusivity and (ii) the 10-year anniversary of the date of the first commercial sale of the licensed product in the applicable country. In addition, NoveCite will pay to Licensor an amount equal to a mid-twenties percentage of any sublicensee fees it receives. Under the terms of the license agreement, in the event that Licensor receives any revenue involving the original cell line included in the licensed technology, then Licensor shall remit to NoveCite 50% of such revenue. 15 RESULTS OF OPERATIONS Three months ended June 30, 2021 compared with the three months ended June 30, 2020 Three Months Ended June 30, 2021 Three Months Ended June 30, 2020 Revenues $ — $ — Operating expenses: Research and development 2,203,748 2,644,244 General and administrative 3,407,088 1,869,636 Stock-based compensation expense 373,570 175,011 Total operating expenses 5,984,406 4,688,891 Operating loss (5,984,406 ) (4,688,891 ) Other income 59,917 — Interest income 103,413 13,018 Interest expense (2,932 ) (4,245 ) Net loss $ (5,824,008 ) $ (4,680,118 ) Revenues We did not generate any revenues for the three months ended June 30, 2021 or 2020. Research and Development Expenses For the three months ended June 30, 2021, research and development expenses were $2,203,748 as compared to $2,644,244 during the three months ended June 30, 2020, a decrease of $440,496. Research and development costs for Mino-Lok® decreased by $335,318 to $1,153,967 for the three months ended June 30, 2021 as compared to $1,489,285 for the three months ended June 30, 2020 due to a decrease in the costs associated with our registration batches. Research and development costs for our Halo-Lido product candidate decreased by $263,806 to $104,507 for the three months ended June 30, 2021 as compared to $368,313 for the three months ended June 30, 2020 due to a reduction in costs associated with manufacturing development as well as our patient reported outcome tool. Research and development costs for our Mino-Wrap product candidate were $41,507 for the three months ended June 30, 2021 as compared to $22,216 during the three months ended June 30, 2020, an increase of $19,291. During the three months ended June 30, 2021, research and development costs for our proposed novel cellular therapy for ARDS increased by $139,337 to $903,767 as compared to $764,430 for the three months ended June 30, 2020. As a result of the capital raised in our recent common stock offerings and common stock warrant exercises, we expect that research and development expenses will continue to increase in fiscal 2021 as we continue to focus on our Phase 3 trial for Mino-Lok®, progress the Halo-Lido product candidate and continue our research and development efforts related to ARDS and Mino-Wrap. General and Administrative Expenses For the three months ended June 30, 2021, general and administrative expenses were $3,407,088 as compared to $1,869,636 during the three months ended June 30, 2020. General and administrative expenses increased by $1,537,452 in comparison with the prior period. The primary reason for the increase is incremental costs associated with investor relations and legal services, as well as additional compensation costs for new employees and performance bonuses. General and administrative expenses consist primarily of compensation costs, consulting fees incurred for financing activities and corporate development services, and investor relations expenses. 16 Stock-based Compensation Expense For the three months ended June 30, 2021, stock-based compensation expense was $373,570 as compared to $175,011 for the three months ended June 30, 2020. Stock-based compensation expense includes options granted to directors, employees and consultants. For the three months ended June 30, 2021, stock-based compensation includes $18,833 in expense for the NoveCite stock option plan that was adopted in November 2020. Stock-based compensation expense for the most recently completed quarter increased by $198,559 in comparison to the prior period due to new grants made by Citius and the expense for the NoveCite stock plan. Other Income (Expense) Other income for the three months ended June 30, 2021 was $59,917 and consists of accrued interest of $59,917 on notes payable – related parties that was forgiven in June 2021. Interest income for the three months ended June 30, 2021 was $103,413 as compared to interest income of $13,018 for the prior period. We have invested the majority of the proceeds of our recent equity offerings and common stock warrant exercises in money market accounts. Interest expense on notes payable for the three months ended June 30, 2021 was $2,932 compared to $4,245 for the three months ended June 30, 2020. In June 2021, we repaid the $172,970 principal balance of the notes payable – related parties. Net Loss For the three months ended June 30, 2021, we incurred a net loss of $5,824,008 compared to a net loss for the three months ended June 30, 2020 of $4,680,118. The $1,143,890 increase in the net loss was primarily due to the increase of $1,537,452 in general and administrative expenses. Nine months ended June 30, 2021 compared with the nine months ended June 30, 2020 Nine Months Ended June 30, 2021 Nine Months Ended June 30, 2020 Revenues $ — $ — Operating expenses: Research and development 9,946,268 7,324,730 General and administrative 7,389,269 5,690,953 Stock-based compensation expense 993,114 554,228 Total operating expenses 18,328,651 13,569,911 Operating loss (18,328,651 ) (13,569,911 ) Other income 59,917 110,207 Interest income 186,224 44,463 Interest expense (10,839 ) (12,216 ) Net loss $ (18,093,349 ) $ (13,427,457 ) Revenues We did not generate any revenues for the nine months ended June 30, 2021 or 2020. 17 Research and Development Expenses For the nine months ended June 30, 2021, research and development expenses were $9,946,268 as compared to $7,324,730 during the nine months ended June 30, 2020, an increase of $2,621,538. Research and development costs for Mino-Lok® decreased by $2,216,656 to $2,983,951 for the nine months ended June 30, 2021 as compared to $5,200,607 for the nine months ended June 30, 2020 driven primarily by a decrease in the cost of registration batches produced in the nine months ended June 30, 2021. Research and development costs for our Halo-Lido product candidate decreased by $670,280 to $578,080 for the nine months ended June 30, 2021 as compared to $1,248,360 for the nine months ended June 30, 2020 due to a reduction in costs associated with manufacturing development as well as our patient reported outcome tool for the nine months ended June 20, 2021. Research and development costs for our Mino-Wrap product candidate were $96,744 for the nine months ended June 30, 2021 as compared to $111,333 during the nine months ended June 30, 2020, a decrease of $14,589. During the nine months ended June 30, 2021, research and development costs for our proposed novel cellular therapy for ARDS were $6,287,493 as compared to $764,430 during the nine months ended June 30, 2020, an increase of $5,523,063. We expect that research and development expenses will continue to increase in fiscal 2021 as we continue to focus on our Phase 3 trial for Mino-Lok®, progress the Halo-Lido product candidate and continue our research and development efforts related to ARDS and Mino-Wrap. General and Administrative Expenses For the nine months ended June 30, 2021, general and administrative expenses were $7,389,269 as compared to $5,690,953 during the nine months ended June 30, 2020. General and administrative expenses increased by $1,698,316 in comparison with the prior period. The primary reason for the increase is incremental costs associated with investor relations and legal services, as well as additional compensation costs for new employees and performance bonuses. General and administrative expenses consist primarily of compensation costs, consulting fees incurred for financing activities and corporate development services, and investor relations expenses. Stock-based Compensation Expense For the nine months ended June 30, 2021, stock-based compensation expense was $993,114 as compared to $554,228 for the nine months ended June 30, 2020. Stock-based compensation expense includes options granted to directors, employees and consultants. For the nine months ended June 30, 2021, stock-based compensation includes $50,222 in expense for the NoveCite stock option plan that was adopted in November 2020. Stock-based compensation expense for the most recently completed quarter increased by $438,886 in comparison to the prior period due to new grants made by Citius and the expense for the NoveCite stock plan. Other Income (Expense) Other income for the nine months ended June 30, 2021 was $59,917 and consists of accrued interest of $59,917 on notes payable – related parties that was forgiven in June 2021. In November 2019, we received an additional $110,207 refund from the FDA for 2016 product and establishment fees because the fees paid by the Company exceeded the costs of the FDA’s review of the associated applications. The Company recorded the $110,207 as other income during the nine months ended June 30, 2020. Interest income for the nine months ended June 30, 2021 was $186,224 as compared to interest income of $44,463 for the prior period. We have temporarily invested most of the proceeds of our recent equity offerings and common stock warrant exercises in money market accounts. Interest expense on notes payable for the nine months ended June 30, 2021 was $10,839 compared to $12,216 for the nine months ended June 30, 2020. In June 2021, we repaid the $172,970 principal balance of the notes payable – related parties. Net Loss For the nine months ended June 30, 2021, we incurred a net loss of $18,093,349 compared to a net loss for the nine months ended June 30, 2020 of $13,427,457. The $4,665,892 increase in the net loss was primarily due to the $2,621,538 increase in research and development expenses and the $1,698,316 increase in general and administrative expenses. 18 LIQUIDITY AND CAPITAL RESOURCES Liquidity and Working Capital Citius has incurred operating losses since inception and incurred a net loss of $18,093,349 for the nine months ended June 30, 2021. At June 30, 2021, Citius had an accumulated deficit of $91,086,736. Citius’ net cash used in operations during the nine months ended June 30, 2021 was $18,659,384. Our September 30, 2020 consolidated financial statements contain an emphasis of a matter regarding substantial doubt about our ability to continue as a going concern and that the consolidated financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if we do not continue as a going concern. As a result of the Company’s recent common stock offerings and common stock warrant exercises, the Company had working capital of approximately $113,000,000 at June 30, 2021. At June 30, 2021, Citius had cash and cash equivalents of $115,663,976 available to fund its operations. The Company’s primary sources of cash flow since inception have been from financing activities. Our primary uses of operating cash were for in-licensing of intellectual property, product development and commercialization activities, employee compensation, consulting fees, legal and accounting fees, insurance and investor relations expenses. On January 27, 2021, the Company closed a private placement for 15,455,960 common shares and warrants to purchase 7,727,980 common shares, at a purchase price of $1.294 per share of common stock and accompanying warrant, for gross proceeds of $20,000,012. Net proceeds from the offering were $18,450,410. On February 19, 2021, the Company closed a registered direct offering for 50,830,566 common shares and warrants to purchase 25,415,283 common shares, at a purchase price of $1.505 per share and accompanying warrant, for gross proceeds of $76,500,002. Net proceeds from the offering were $70,979,842. During the nine months ended June 30, 2021, we received $31,130,134 in proceeds from the exercise of common stock warrants. Based on our cash and cash equivalents at June 30, 2021, we expect that we will have sufficient funds to continue our operations through March 2023. We may need to raise additional capital in the future to support our operations beyond March 2023. There is no assurance, however, that we will be successful in raising the needed capital or that the proceeds will be received in an amount or in a timely manner to support our operations. Inflation Our management believes that inflation has not had a material effect on our results of operations. Off Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Critical Accounting Policies and Estimates The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements and the amounts of revenues and expenses recorded during the reporting periods. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions. Our critical accounting policies and use of estimates are discussed in, and should be read in conjunction with, the annual consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020 as filed with the SEC. 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure. Our Chief Executive Officer (who is our principal executive officer) and Chief Financial Officer (who is our principal financial officer and principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of June 30, 2021. 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 June 30, 2021, based on the evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Changes In Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 20 PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 1A. Risk Factors There has been no change in the Company’s risk factors since the Company’s Form 10-K filed with the SEC on December 16, 2020. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On February 26, 2021, we issued 50,000 shares of our common stock to a consultant for media relations, public relations and investor relations services pursuant to the agreed upon compensation terms in the consulting agreement with the entity. The issuance of the shares was exempt from registration under Section 4(a)(2) of the Securities Act. Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information None. 21 Item 6. Exhibits 3.1 Certificate of Amendment to the Articles of Incorporation of Citius Pharmaceuticals, Inc. dated June 21, 2021 (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on June 22, 2021). 31.1 Certification of the Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a).* 31.2 Certification of the Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a).* 32.1 Certification of the Principal Executive and Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.* 101.INS Inline XBRL Instance Document* 101.SCH Inline XBRL Taxonomy Extension Schema Document.* 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.* 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.* 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.* 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.* 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* * Filed herewith. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CITIUS PHARMACEUTICALS, INC. Date: August 12, 2021 By: /s/ Myron Holubiak Myron Holubiak Chief Executive Officer (Principal Executive Officer) Date: August 12, 2021 By: /s/ Jaime Bartushak Jaime Bartushak Chief Financial Officer (Principal Financial and Accounting Officer) 23