What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-12-15 compared with 2020-12-16 · 783 added, 741 removed, 251 unchanged (86% of the section changed)

Financial Statements and

Supplementary Data

Financial Statements and Supplementary

CITIUS PHARMACEUTICALS, INC.

3 unchanged sentences

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

2 unchanged sentences

ACCOUNTING FIRM

To the Stockholders and Board of Directors

of Citius Pharmaceuticals, Inc.:

To the Stockholders and Board of Directors of

Citius Pharmaceuticals, Inc.:

Opinion on the Financial Statements

1 unchanged sentence

balance sheets of Citius Pharmaceuticals, Inc.

(the “Company”) as of September 30, 2020 and 2019, 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, 2020 and 2019, 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 Matter –

to Continue as a 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 negative cash flows from operations and has a significant accumulated deficit.

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.

(the “Company”) as of September 30, 2021 and 2020, 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, 2021 and 2020, 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.

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”)

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

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.

1 unchanged sentence

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.

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 board of

directors 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

3 unchanged sentences

SEPTEMBER 30, 2021 AND 2020

(as restated)

Current Assets:

7 unchanged sentences

Total Other Assets

LIABILITIES AND STOCKHOLDERS’

$ 142,429,059

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

3 unchanged sentences

Accrued interest

Notes payable –

related parties

Notes payable – related parties

Operating lease liability

Total Current Liabilities

Note payable –

paycheck protection program

Note payable – paycheck protection program

Deferred tax liability

Operating lease liability –

Operating lease liability – non current

Total Liabilities

Commitments and Contingencies

Stockholders’

Stockholders’ Equity:

Preferred stock - $ 0.001 par value;

8 unchanged sentences

( 70,593,867 )

Total Stockholders’

Liabilities and Stockholders’

See accompanying report of independent registered public accounting

firm and notes to the consolidated financial statements.

Total Citius Pharmaceuticals, Inc.

Stockholders’ Equity

Non-controlling interest

Total Liabilities and Equity

$ 142,429,059

See accompanying report of independent registered

public accounting firm and notes to the consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED SEPTEMBER 30, 2020

FOR THE YEARS ENDED SEPTEMBER 30, 2021 AND 2020

Operating Expenses:

1 unchanged sentence

General and administrative

Stock-based compensation –

general and administrative

Stock-based compensation – general and administrative

Total Operating Expenses

4 unchanged sentences

Interest income

Gain on forgiveness of note payable - Paycheck Protection Program and accrued interest

Interest expense

Total Other Income, Net

Loss before Income Taxes

( 23,054,434 )

( 17,548,085 )

Income tax benefit

Deemed dividend on warrant extension

Net Loss Applicable to Common Stockholders

$ ( 24,505,310 )

$ ( 17,548,085 )

Net Loss Per Share - Basic and Diluted

Net Loss Per Share Applicable to Common Stockholders - Basic and Diluted

Weighted Average Common Shares Outstanding

Basic and diluted

See accompanying report of independent registered public accounting

firm and notes to the consolidated financial statements.

See accompanying report of independent registered

public accounting firm and notes to the consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’

FOR THE YEARS ENDED SEPTEMBER 30, 2020

Stockholders’

Balance, October 1, 2018, as

previously reported

$ (40,257,838 )

Restatement (see Note 1)

Balance, October 1, 2018, as restated

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

FOR THE YEARS ENDED SEPTEMBER 30, 2021 AND 2020

Pharmaceuticals,

Shareholder’s

Non-Controlling

Balance, October 1, 2019

$ ( 53,045,782 )

Issuance of common stock in registered direct offering, net of costs of $466,000

Issuance of common stock in underwritten offering, net of costs of $710,342

Issuance of common stock upon exercise of warrants

Issuance of common stock for services

Issuance of common stock in registered direct offering, net of costs of $ 622,900

Issuance of common stock in underwritten offering, net of costs of $ 917,299

Stock-based compensation expense

1 unchanged sentence

( 17,548,085 )

Balance, September 30, 2020

( 70,593,867 )

Issuance of NoveCite common stock

( 2,399,520 )

Issuance of common stock in private placement offering, net of costs of $ 1,549,602

Issuance of common stock in registered direct offering, net of costs of $ 5,520,160

Issuance of common stock upon exercise of warrants

Issuance of common stock for services

Issuance of common stock in registered direct offering, net of costs of $622,900

Issuance of common stock in underwritten offering, net of costs of $917,299

Issuance of common stock upon exercise of stock options

Stock-based compensation expense

1 unchanged sentence

( 23,054,434 )

Balance, September 30, 2021

1 unchanged sentence

$ ( 96,047,821 )

See accompanying report of independent registered public accounting

firm and notes to the consolidated financial statements.

$ 132,182,353

$ 132,782,733

See accompanying report of independent registered

public accounting firm and notes to the consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 30, 2020

FOR THE YEARS ENDED SEPTEMBER 30, 2021 AND 2020

Cash Flows From Operating Activities:

5 unchanged sentences

Amortization of operating lease right-of-use asset

Gain from forgiveness of notes payable – paycheck protection program and accrued interest

Changes in operating assets and liabilities:

Other receivables

Prepaid expenses

( 2,619,167 )

Accounts payable

8 unchanged sentences

Purchase of property and equipment

Purchase of in-process research and development

( 40,000,000 )

Net Cash Used In Investing Activities

( 40,006,938 )

Cash Flows From Financing Activities:

Proceeds from notes payable –

paycheck protection program

Proceeds from notes payable – paycheck protection program

Principal paid on notes payable – related parties

Proceeds from sale of NoveCite, Inc.

Proceeds from common stock warrant exercises

Proceeds from common stock option exercises

Net proceeds from underwritten offerings

Net proceeds from private placement

Net proceeds from registered direct offerings

Net Cash Provided By Financing Activities

Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents –

Beginning of Year

Cash and Cash Equivalents –

Supplemental Disclosures of Cash Flow Information and Non-cash Transactions:

Net Change in Cash and Cash Equivalents

Cash and Cash Equivalents – Beginning of Year

Cash and Cash Equivalents – End of Year

Supplemental Disclosures of Cash Flow Information and Non-cash Activities:

Operating lease right-of-use asset and liability recorded upon adoption of ASC 842

See accompanying report of independent registered public accounting

firm and notes to the consolidated financial statements.

See accompanying report of independent registered

public accounting firm and notes to the consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2020

FOR THE YEARS ENDED SEPTEMBER 30, 2021 AND 2020

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Citius Pharmaceuticals, Inc.

(“Citius”

or the “Company”) is a specialty pharmaceutical company dedicated to the development and commercialization of critical

care products targeting unmet needs with a focus on anti-infectives, cancer care and unique prescription products.

the “Company” or “we”) is a specialty pharmaceutical company dedicated to the development and commercialization

of critical care products targeting unmet needs with a focus on anti-infectives, cancer care and unique prescription products.

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

(“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 acquired.

On September 11, 2020, we formed NoveCite, Inc.

(“NoveCite”),

a Delaware corporation, of which we own 75% of the issued and outstanding capital stock.

In-process research and development 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.

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.

Since its inception, the Company has devoted

substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and

raising capital.

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 products, market acceptance

of its products, competition from larger companies, dependence on key personnel, dependence on key suppliers and strategic partners,

the Company’s ability to obtain additional financing and the Company’s compliance with governmental and other regulations.

(“NoveCite”), a Delaware corporation, of which we own 75 % of the issued and outstanding capital stock.

On August 23, 2021, we formed Citius Acquisition

Corp., a wholly owned subsidiary in conjunction with the acquisition of I/ONTAK, but no activity has occurred to date.

In-process research and development (“IPR&D)

consists of i) $ 19,400,000 acquisition value of 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, and ii) $ 40,000,000 acquisition value of the exclusive license for E7777 (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.

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.

Since its inception, the Company has devoted substantially

all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital.

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 products, market acceptance of its products, competition from

larger companies, dependence on key personnel, dependence on key suppliers and strategic partners, the Company’s ability to obtain

additional financing and the Company’s compliance with governmental and other regulations.

Basis of Presentation

The accompanying consolidated financial

statements include the operations of Citius Pharmaceuticals, Inc., and its wholly-owned subsidiaries, Citius Pharmaceuticals, LLC

and LMB, and its recently formed majority-owned subsidiary NoveCite.

The accompanying consolidated financial statements

include the operations of Citius Pharmaceuticals, Inc., and its wholly-owned subsidiaries, Citius Pharmaceuticals, LLC, LMB and Citius

Acquisition Corp., and its majority-owned subsidiary NoveCite.

NoveCite, was inactive until October 2020.

All significant

inter-company balances and transactions have been eliminated in consolidation.

Restatement of Previously Issued

Financial Statements

Our consolidated balance sheet as of September

30, 2019 and the beginning balances in the consolidated statements of changes in stockholders’

equity for the year ended

September 30, 2019, have been restated for an error made with regard to a deferred tax liability, goodwill and accumulated deficit.

We determined that a deferred tax liability

should have been recorded in the amount of $7,760,000 related to the in-process research and development intangible asset recorded

in connection with the acquisition of LMB in March 2016, which would have resulted in additional goodwill of $7,760,000.

deferred tax liability been recorded upon acquisition of LMB, we would have also recognized an income tax benefit of $2,774,200

in 2018 as a result of the Tax Cuts and Jobs Act enacted into law on December 21, 2017, which lowered the U.S.

corporate tax rate

from 35% to 21%.

The table below indicates the impact of

the restatement at September 30, 2019:

Previously Recorded

LIABILITIES AND STOCKHOLDERS’

Deferred Tax Liability

Total Liabilities

Stockholders’

Accumulated deficit

$ (55,819,982 )

$ (53,045,782 )

Total Stockholders’

Total Liabilities and Stockholders’

GOING CONCERN UNCERTAINTY AND MANAGEMENT’S PLAN

The accompanying consolidated financial

statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities

in the normal course of business.

The Company experienced negative cash flows from operations of $16,930,658 and $12,437,751, for

the years ended September 30, 2020 and 2019, respectively.

The Company has no revenue and has relied on proceeds from equity transactions

and debt to finance its operations.

At September 30, 2020, the Company had limited capital to fund its operations.

substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying

consolidated financial statements are issued.

The Company plans to raise capital

through equity financings from outside investors as well as raise additional funds from existing investors.

assurance, however, that the Company will be successful in raising the needed capital and, if funding is available, that it

will be available on terms acceptable to the Company.

While the COVID-19 pandemic has adversely impacted the progress of the

Company’s clinical trials and operations, as of the date of this report, the Company has been able to access the

capital markets and successfully complete financing transactions.

However, the Company cannot be certain that any future

impact of COVID-19 on its operations will not negatively impact its ability to raise capital.

The accompanying consolidated

financial statements do not include any adjustments that might result from the outcome of the above uncertainty.

Citius Acquisition Corp.

inactive at September 30, 2021.

All significant inter-company balances and transactions have been eliminated in consolidation.

LIQUIDITY AND MANAGEMENT’S PLAN

The accompanying consolidated financial statements

have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal

course of business.

The Company experienced negative cash flows from operations of $ 24,250,414 and $ 16,930,658 , for the years ended September

30, 2021 and 2020, respectively.

As a result of the Company’s common stock offerings and common stock warrant exercises during the

year ended September 30, 2021, the Company had working capital of approximately $ 68,800,000 at September 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.

Company’s continued operations beyond March 2023, including its development plans for Mino-Lok, Mino-Wrap, Halo-Lido, Novecite and

E7777, 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 regulatory approval, commercialization or

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 seeking regulatory approval, and protecting its intellectual property.

PATENT AND TECHNOLOGY LICENSE AGREEMENTS

Patent and Technology License Agreement –

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.

LMB pays an annual maintenance fee each June until commercial sales of a product subject

to the license commence.

Patent and Technology License Agreement

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.

LMB pays an annual maintenance fee each June until commercial sales of a product subject to the license

The Company recorded an annual maintenance fee expense of $ 90,000 in 2021 and 2020.

LMB will also pay annual royalties on net

sales of licensed products, with royalties ranging from the mid-single digits to the low double digits.

In limited circumstances

in which the licensed product is not subject to a valid patent claim and a competitor is selling a competing product, the royalty

rate is in the low- to mid-single digits.

After a commercial sale is obtained, LMB must pay minimum aggregate annual royalties

of $100,000 in the first commercial year which is prorated for a less than 12-month period, increasing $25,000 per year to a maximum

of $150,000 annually.

LMB must also pay NAT up to $1,100,000 upon achieving specified regulatory and sales milestones.

LMB must pay NAT a specified percentage of payments received from any sub-licensees.

Unless earlier terminated by NAT, based

on the failure to achieve certain development and commercial milestones, the license agreement remains in effect until the date

that all patents licensed under the agreement have expired and all patent applications within the licensed patent rights have been

cancelled, withdrawn or expressly abandoned.

Patent and Technology License Agreement –

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

Anderson Cancer Center (“Licensor”), whereby it 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 (the “FDA”).

Under the license agreement, we paid a

nonrefundable upfront payment of $125,000 which was recorded as research and development expense during the year ended September

We paid an annual maintenance fee of $30,000 in January 2020.

LMB will also pay annual royalties on net sales

of licensed products, with royalties ranging from the mid-single digits to the low double digits.

In limited circumstances in which the

licensed product is not subject to a valid patent claim and a competitor is selling a competing product, the royalty rate is in the low-

to mid-single digits.

After a commercial sale is obtained, LMB must pay minimum aggregate annual royalties of $ 100,000 in the first commercial

year which is prorated for a less than 12-month period, increasing $ 25,000 per year to a maximum of $ 150,000 annually.

LMB must also pay

NAT up to $ 1,100,000 upon achieving specified regulatory and sales milestones.

Finally, LMB must pay NAT a specified percentage of payments

received from any sub-licensees.

Unless earlier terminated by NAT, based on the

failure to achieve certain development and commercial milestones, the license agreement remains in effect until the date that all patents

licensed under the agreement have expired and all patent applications within the licensed patent rights have been cancelled, withdrawn

or expressly abandoned.

Patent and Technology License Agreement

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.

Cancer Center (“Licensor”), whereby it 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 (the “FDA”).

Under the license agreement, we paid a nonrefundable

upfront payment of $ 125,000 which was recorded as research and development expense during the year ended September 30, 2019.

We 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.

The agreement expires on the later of the expiration of the patents or January 2, 2034.

up to a maximum of $90,000 and ceases 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.

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”) whereby we had the opportunity to in-license from Novellus

on a worldwide basis, a novel cellular therapy for acute respiratory distress syndrome (ARDS).

The option exercise period ran for

six months and the option agreement contained the agreed upon financial terms for the license.

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 director and significant shareholder 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, we signed an exclusive

agreement with Novellus and have created a subsidiary, NoveCite, that will be focused on developing cellular therapies.

Upon execution

of the agreement, we advanced $5,000,000 to NoveCite 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 must maintain

Novellus’s ownership at 25% by issuing additional shares to Novellus.

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) 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

Either party may terminate the license agreement upon written notice if the other party is in material default.

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.

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.

SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

A summary of the significant accounting

policies followed by the Company in the preparation of the consolidated financial statements is as follows:

On March 31, 2020, we entered into an option agreement

with a subsidiary of Novellus, Inc.

(“Novellus”) whereby we had the opportunity to in-license from Novellus on a worldwide

basis, a novel cellular therapy for acute respiratory distress syndrome (ARDS).

The option exercise period ran for six months and the

option agreement contained the agreed upon financial terms for the license.

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, was a director and significant shareholder of Novellus at this time and until the acquisition of Novellus by

Brooklyn ImmunoTherapeutics, Inc.

(“Brooklyn”) in July 2021.

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 year ended September 30, 2021, and issued Novellus shares of NoveCite’s

common stock representing 25 % of the outstanding equity.

We own the other 75 % of NoveCite’s outstanding equity.

Pursuant to the

terms of the original stock subscription agreement between Novellus and NoveCite, if NoveCite issued additional equity, subject to certain

exceptions, NoveCite had to maintain Novellus’s ownership at 25 % by issuing additional shares to Novellus.

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) 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.

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.

In connection with that transaction, the stock subscription agreement between Novellus and NoveCite was amended to assign to Brooklyn

all of Novellus’s right, title, and interest in the stock subscription agreement and delete the anti-dilution protection and replace

it with a right of first refusal whereby Brooklyn will have the right to purchase all or a portion of the securities that NoveCite intends

to sell or in the alternative, at the option of NoveCite, Brooklyn may purchase that amount of the securities proposed to be sold by NoveCite

to allow Brooklyn to maintain its then percentage ownership.

License Agreement with Eisai

In September 2021, the Company entered into a

definitive agreement with Dr.

Reddy's Laboratories SA, a subsidiary of Dr.

Reddy's Laboratories, Ltd.

(collectively, "Dr.

to acquire its exclusive license of E7777 (denileukin diftitox), a late-stage oncology immunotherapy for the treatment of CTCL, a rare

form of non-Hodgkin lymphoma.

Under the terms of this

agreement, Citius acquired Dr.

Reddy's exclusive license of E7777 from Eisai Co., Ltd.

("Eisai") and other related assets owned

Citius's exclusive license include rights to develop and commercialize E7777 in all markets except for Japan and certain

parts of Asia.

Additionally, Citius retained an option on the right to develop and market the product in India.

Eisai retains exclusive

development and marketing rights for the agent in Japan and Asia.

Citius paid $40 million upfront payment which represents the acquisition

date fair value of the in-process research and development acquired from 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, and up

to $300 million for commercial sales milestones.

We also must pay on a fiscal quarter basis tiered royalties equal to low double-digit

percentages of net product sales.

The royalties will end on the earlier of (i) the 15-year anniversary of the first commercial sale of

the latest indication that received regulatory approval in the applicable country and (ii) the date on which a biosimilar product results

in the reduction of net sales in the applicable product by 50% in two consecutive quarters, as compared to the four quarters prior to

the first commercial sale of the biosimilar product.

We will also pay to Dr.

Reddy’s an amount equal to a low-thirties percentage

of any sublicense upfront consideration or milestone payments (or the like) received by us and the greater of (i) a low-thirties percentage

of any sublicensee sales-based royalties or (ii) a mid-single digit percentage of such licensee’s net sales.

Under the license agreement, Eisai is to receive a $6.0 million development

milestone payment upon initial approval and additional commercial milestone payments related to the achievement of net product sales thresholds

(which increases to $7 million in the event we have exercised our option to add India to the licensed territory prior to FDA approval)

and an aggregate of up to $22 million related to the achievement of net product sales thresholds.

We also are required to reimburse Eisai

for up to $2.65 million of its costs to complete the ongoing Phase 3 pivotal clinical trial for I/ONTAK for the CTCL indication and reimburse

Eisai for all reasonable costs associated with the preparation of a BLA for I/ONTAK.

Eisai will be responsible for completing the current

CTCL clinical trial, and chemistry, manufacturing and controls (CMC) activities through the filing of a BLA for E7777 with the FDA.

will be responsible for development costs associated with potential additional indications.

The term of the license

agreement will continue until (i) if there has not been a commercial sale of a licensed product in the territory, until the 10-year anniversary

of the original license effective date, March 30, 2016, or (ii) if there has been a first commercial sale of a licensed product in the

territory within the 10-year anniversary of the original license effective date, the 10-year anniversary of the first commercial sale

on a country-by-country basis.

The term of the license may be extended for additional 10-year periods for all countries in the territory

by notifying Eisai and paying an extension fee equal to $10 million.

Either party may terminate the license agreement upon written notice

if the other party is in material breach of the agreement, subject to cure within the designated time periods.

Either party also may terminate

the license agreement immediately upon written notice if the other party files for bankruptcy or takes related actions or is unable to

pay its debts as they become due.

Additionally, either party will have the right to terminate the agreement if the other party directly

or indirectly challenges the patentability, enforceability or validity of any licensed patent.

Also under the agreement

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, (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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies

followed by the Company in the preparation of the consolidated financial statements is as follows:

Use of Estimates

The process of preparing financial statements

in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management

to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets

and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period.

Estimates having relatively higher significance include the accounting for in-process research and development and goodwill impairment,

stock-based compensation, valuation of warrants, and income taxes.

Actual results could differ from those estimates and changes

in estimates may occur.

in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to

make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities

at the date of financial statements and the reported amounts of revenues and expenses during the reporting period.

Estimates having relatively

higher significance include the accounting for in-process research and development and goodwill impairment, stock-based compensation,

valuation of warrants, and income taxes.

Actual results could differ from those estimates and changes in estimates may occur.

Cash and Cash Equivalents

The Company considers all highly liquid

instruments with maturities of less than three months at the time of purchase to be cash equivalents.

From time to time, the Company

may have cash balances in financial institutions in excess of insurance limits.

The Company has never experienced any losses related

to these balances.

The Company considers all highly liquid instruments

with maturities of less than three months at the time of purchase to be cash equivalents.

From time to time, the Company may have cash

balances in financial institutions in excess of insurance limits.

The Company has never experienced any losses related to these balances.

Research and Development

Research and development costs, including

upfront fees and milestones paid to collaborators who are performing research and development activities under contractual agreements

with the Company, are expensed as incurred.

The Company defers and capitalizes its nonrefundable advance payments that are for

research and development activities until the related goods are delivered or the related services are performed.

When the Company

is reimbursed by a collaboration partner for work the Company performs, it records the costs incurred as research and development

expenses and the related reimbursement as a reduction to research and development expenses in its consolidated statement of operations.

Research and development expenses primarily consist of clinical and non-clinical studies, materials and supplies, third-party costs

for contracted services, and payments related to external collaborations and other research and development related costs.

In-process Research and Development and Goodwill

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.

Research and development costs, including upfront

fees and milestones paid to collaborators who are performing research and development activities under contractual agreements with the

Company, are expensed as incurred.

The Company defers and capitalizes its nonrefundable advance payments that are for research and development

activities until the related goods are delivered or the related services are performed.

When the Company is reimbursed by a collaboration

partner for work the Company performs, it records the costs incurred as research and development expenses and the related reimbursement

as a reduction to research and development expenses in its consolidated statement of operations.

Research and development expenses primarily

consist of clinical and non-clinical studies, materials and supplies, third-party costs for contracted services, and payments related

to external collaborations and other research and development related costs.

In-process Research and Development and

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.

In-process research and development of $ 40,000,000

represents the value of our September 2021 acquisition of an exclusive license for E7777 (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.

Included in the IPR&D is the historical know-how, formula protocols,

designs, and procedures expected to be needed to complete Phase 3.

In addition, the contracts acquired in connection with Dr.

transaction with the clinical research and manufacturing organization are at market rates and could be provided by multiple vendors in

the marketplace Therefore, there is no fair value associated with the contracts acquired.

Incremental costs incurred on IPR&D after

the acquisition date are expensed as incurred, unless there is an alternative future use.

The Company reviews intangible assets annually

to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change

in the remaining useful life of any intangible asset.

If the carrying value of an asset exceeds its undiscounted cash flows, the

Company writes down the carrying value of the intangible asset to its fair value in the period identified.

No impairment has occurred since the acquisition through September 30, 2020.

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

Simplifying the Accounting for Goodwill Impairment issued by the Financial Accounting Standards Bureau (“FASB”).

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.

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 in the period identified.

No impairment has occurred since the acquisitions

through September 30, 2021.

Goodwill represents the value of LMB’s industry

relationships and its assembled workforce.

Goodwill is not amortized but it is 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 issued by the Financial Accounting Standards Bureau (“FASB”).

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

Under the simplified model, a goodwill impairment is calculated as the difference between the carrying amount of the reporting

unit and its fair value.

The Company performed a qualitative assessment

for its 2021 analysis of goodwill.

Based on this assessment, management does not believe that it is more likely than not that the

carrying value of the reporting unit exceeds its fair value.

Accordingly, no further testing was performed as management believes

that there are no impairment issues with respect to goodwill as of September 30, 2020.

Based on this assessment, management does not believe that it is more likely than not that the carrying

value of the reporting unit exceeds its fair value.

Accordingly, no further testing was performed as management believes that there are

no impairment issues with respect to goodwill as of September 30, 2021.

Patents and Trademarks

Certain costs of outside legal counsel

related to obtaining trademarks for the Company are capitalized.

Patent costs are amortized over the legal life of the patents,

generally twenty years, starting at the patent issuance date.

Certain costs of outside legal counsel related

to obtaining trademarks for the Company are capitalized.

Patent costs are amortized over the legal life of the patents, generally twenty

years, starting at the patent issuance date.

There are no capitalized patents and trademarks as of September 30, 2021.

The costs of unsuccessful and abandoned

applications are expensed when abandoned.

The costs of unsuccessful and abandoned applications

are expensed when abandoned.

The costs of maintaining existing patents are expensed as incurred.

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.

Due to its limited operating

history, limited number of sales of its common stock, and limited history of its shares being publicly traded, the Company estimated

its volatility in consideration of a number of factors including the volatility of comparable public companies through December

Since January 1, 2019, the Company has estimated its volatility using the trading activity of its common stock.

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.

The Company follows accounting guidance

regarding the recognition, measurement, presentation and disclosure of uncertain tax positions in the consolidated financial statements.

Tax positions taken or expected to be taken in the course of preparing the Company’s 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 consolidated financial statements.

are no uncertain tax positions that require accrual or disclosure as of September 30, 2020.

Any interest or penalties are charged

During the years ended September 30, 2020 and 2019, the Company did not recognize any interest and penalties.

subsequent to September 30, 2016 are subject to examination by federal and state authorities.

The Company recognizes deferred tax assets

and liabilities based on differences between the financial reporting and tax basis of assets and liabilities, and operating loss

and tax credit carry forwards.

Deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected

to be in effect when the differences are expected to reverse.

The Company provides a valuation allowance, if necessary, for deferred

tax assets for which it does not consider realization of such assets to be “more-likely-than-not.”

The deferred tax

benefit or expense for the period represents the change in the deferred tax asset or liability from the beginning to the end of

Basic and Diluted Net Loss per Common Share

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.

The Company follows accounting guidance regarding

the recognition, measurement, presentation and disclosure of uncertain tax positions in the consolidated financial statements.

Tax positions

taken or expected to be taken in the course of preparing the Company’s 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 consolidated financial statements.

There are no uncertain tax positions

that require accrual or disclosure as of September 30, 2021.

Any interest or penalties are charged to expense.

During the years ended

September 30, 2021 and 2020, the Company did not recognize any interest and penalties.

Tax years subsequent to September 30, 2017 are

subject to examination by federal and state authorities.

The Company recognizes deferred tax assets and

liabilities based on differences between the financial reporting and tax basis of assets and liabilities, and operating loss and tax credit

carry forwards.

Deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect

when the differences are expected to reverse.

The Company provides a valuation allowance, if necessary, for deferred tax assets for which

it does not consider realization of such assets to be “more-likely-than-not.” The deferred tax benefit or expense for the

period represents the change in the deferred tax asset or liability from the beginning to the end of the period.

Basic and Diluted Net Loss per Common Share

is computed by dividing net loss in each period by the weighted average number of shares of common stock outstanding during such

For the periods presented, common stock equivalents, consisting of options, warrants and convertible securities were not

included in the calculation of the diluted loss per share because they were anti-dilutive.

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 options and

warrants were not included in the calculation of the diluted loss per share because they were anti-dilutive.

Segment Reporting

4 unchanged sentences

Recently Adopted Accounting Standards

In February 2016, the FASB issued

Leases (Topic 842) .

ASU 2016-02 requires a lessee to record a right-of-use asset and a corresponding lease

liability, initially measured at the present value of the lease payments, on the balance sheet for all leases with terms longer

than 12 months, as well as the disclosure of key information about leasing arrangements.

ASU 2016-02 requires recognition in the

statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally

on a straight-line basis.

ASU 2016-02 requires classification of all cash payments within operating activities in the statement

of cash flows.

Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases.

retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after,

the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

The Company elected to adopt the package of practical expedients, which among other things, allows it to carry forward the historical

lease classification and combine lease and non-lease components as a single lease component.

ASU 2016-02 is effective for fiscal

years beginning after December 15, 2018, including interim periods within those fiscal years.

The Company adopted the provisions

of ASU 2016-02 in the quarter beginning October 1, 2019.

This adoption approach resulted in a balance sheet presentation that is

not comparable to the prior period in the year of adoption.

The adoption of this ASU resulted in the recognition of a right of

use asset and lease liability of $1,137,724.

In June 2018, the FASB issued ASU No.

Compensation - Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting, which is intended to

reduce cost and complexity and to improve financial reporting for nonemployee share-based payments.

The amendment is effective

for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.

The Company adopted ASU

2018-07 on October 1, 2019 and it did not have a material effect on the Company’s financial position, results of operations

or disclosures.

In May 2021, the FASB issued ASU 2021-04 Earnings

Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718),

and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting for Certain Modifications

or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force) .

The amendments

in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within

those fiscal years.

Early application is permitted, including in an interim period as of the beginning of the fiscal year that includes

that interim period.

The Company adopted the provisions of ASU 2021-04 in the quarter beginning April 1, 2021.

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

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.

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,

The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.

2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Acquired Contract Assets and Contract

Under the new guidance (ASC 805-20-30-28), the acquirer should determine what contract assets and/or contract liabilities

it would have recorded under ASC 606 (the revenue guidance) as of the acquisition date, as if the acquirer had entered into the original

contract at the same date and on the same terms as the acquiree.

The recognition and measurement of those contract assets and contract

liabilities will likely be comparable to what the acquiree has recorded on its books under ASC 606 as of the acquisition date.

is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

ASU 2021-08 is effective

for the Company in the first quarter of fiscal 2024.

Early adoption is permitted, including in an interim period, for any period for which

financial statements have not yet been issued.

However, adoption in an interim period other than the first fiscal quarter requires an

entity to apply the new guidance to all prior business combinations that have occurred since the beginning of the annual period in which

the new guidance is adopted.

The Company is currently evaluating the adoption date of ASU 2021-08 and the impact, if any, adoption will

have on its financial position and results of operations.

NOTES PAYABLE

Notes Payable –

Related Parties

A summary of notes payable –

related parties outstanding

as of September 30, 2020 and 2019 is as follows:

Demand notes payable –

Leonard Mazur

Demand notes payable –

Myron Holubiak

Notes payable –

related parties

On March 30, 2016, the Company assumed

$772,970 of demand notes payable in the acquisition of LMB, including $760,470 to its Chairman, Leonard Mazur, and $12,500 to its

Chief Executive Officer, Myron Holubiak.

In April 2016, $600,000 of demand notes payable was repaid to Leonard Mazur.

a principal balance of $104,000 accrue interest at the prime rate plus 1% and notes with a principal balance of $68,970 accrue

interest at 12% per annum.

Interest expense on notes payable –

related parties for the years ended September 30, 2020 and 2019 was $14,932 and $16,443, respectively.

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

during the year ended September 30, 2021.

Interest expense on notes payable – related

parties for the years ended September 30, 2021 and 2020 was $ 9,606 and $ 14,932 , respectively.

Paycheck Protection Program

On April 12, 2020, due to the business

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”).

In accordance with the provisions of 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 two years from the date of the loan.

On April 15, 2020, the Company received funding

in the amount of $164,583 from the Paycheck Protection Program through its bank.

Interest expense on the PPP loan was $741

for the year ended September 30, 2020.

On April 12, 2020, due to the business 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”).

In accordance with the provisions of the PPP, the loan accrued 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 two years from the date of the loan.

On April 15, 2020, the Company received $164,583 from the PPP through

Interest expense on the PPP loan was $ 1,233 and

$ 741 for the years ended September 30, 2021 and 2020, respectively.

On July 28, 2021, the Small Business Administration

(“SBA”) gave full forgiveness of the PPP loan.

The Company recorded a gain from debt extinguishment of $ 166,557 consisting

of the principal balance and related accrued interest expense.

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 Issued for Services

On February 13, 2019, the Company issued

125,000 shares of common stock for investor relations services and expensed the $117,500 fair value of the common stock issued.

On September 16, 2019, the Company issued

94,097 shares of common stock for investor relations services and expensed the $94,097 fair value of the common stock issued.

On November 4, 2019, the Company issued 186,566

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 $ 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.

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.

Common Stock Offerings

On April 3, 2019, the Company closed a

registered direct offering with several institutional and accredited investors for the sale of 3,430,421 shares of common stock

at $1.545 per share for gross proceeds of $5,300,001.

Simultaneously, the Company also privately sold and issued 3,430,421 immediately

exercisable two-year unregistered warrants to the investors with an exercise price of $1.42 per share.

The Company paid the placement

agent a fee of 7% of the gross proceeds totaling $371,000 and issued the placement agent 240,130 immediately exercisable two-year

warrants with an exercise price of $1.93125 per share.

The Company also reimbursed the placement agent for $85,000 in expenses

and incurred $10,000 in other expenses.

Net proceeds from the offering were $4,834,001.

The estimated fair value of the 3,430,421

warrants issued to the investors was $2,709,467 and the estimated fair value of the 240,130 warrants issued to the placement agent

was $169,854.

On September 27, 2019, Citius closed an

underwritten at-the-market offering of (i) 6,760,615 units, each unit consisting of one share of common stock and one immediately

exercisable five-year warrant to purchase one share at $0.77 per share, and (ii) 1,060,615 pre-funded units, each pre-funded unit

consisting of one pre-funded warrant to purchase one share and one immediately exercisable five-year warrant to purchase one share

at $0.77 per share.

The pre-funded warrants included in the pre-funded units are immediately exercisable at a price of $0.0001

per share and do not expire.

The offering price was $0.8951 per unit and $0.895 per pre-funded unit.

The net proceeds of the offering

were $6,290,335.

The Company issued the underwriter immediately exercisable five-year warrants to purchase up to 547,486 shares

at $1.118875 per share with an estimated fair value of $323,414.

The estimated fair value of the 1,060,615 pre-funded warrants

was $809,145, and the estimated fair value of the 7,821,230 warrants included in the units and the pre-funded units issued to the

investors was $4,845,341.

On May 18, 2020, the Company closed a registered

direct offering with several institutional and accredited investors for the sale of 7,058,824 shares of common stock at $1.0625

per share for gross proceeds of $7,500,001.

The Company also agreed to issue 3,529,412 unregistered immediately exercisable warrants

to the investors with an exercise price of $1.00 per share and a term of five and one-half years.

The Company paid the placement

agent for the offering 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 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.

direct offering with several institutional and accredited investors for the sale of 7,058,824 shares of common stock 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 share and a term of five and one-half years.

The Company paid the placement agent for the offering 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 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 shares of common stock 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 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.

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 shares of common stock 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 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.

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

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.

Stock Option Plans

Pursuant to its 2014 Stock Incentive Plan

(the “2014 Plan”) the Company reserved 866,667 shares of common stock for issuance to employees, directors and consultants.

The Board of Directors (or committees and/or executive officers delegated by the Board of Directors) may grant stock options, stock

appreciation rights, restricted stock, restricted stock units, other stock-based awards and cash-based awards.

As of September

30, 2020, there were options to purchase 855,171 shares outstanding, options to purchase 4,829 shares were exercised, options to

purchase 6,667 shares expired, and no shares were available for future grants.

Pursuant to its 2014 Stock Incentive Plan, we

reserved 866,667 shares of common stock for issuance to employees, directors and consultants.

As of September 30, 2021, there were options

to purchase 855,171 shares outstanding, options to purchase 4,829 shares were exercised, options to purchase 6,667 shares expired, and

no shares were available for future grants.

On February 7, 2018, our stockholders approved

the 2018 Omnibus Stock Incentive Plan (the “2018 Plan”) and the Company reserved 2,000,000 shares of common stock for

issuance to employees, directors and consultants.

Pursuant to the 2018 Plan, the Board of Directors (or committees and/or executive

officers delegated by the Board of Directors) may grant stock options, stock appreciation rights, restricted stock, restricted

stock units, other stock-based awards and cash-based awards.

As of September 30, 2020, there were options to purchase 1,890,000

shares outstanding and no shares available for future grants.

On February 10, 2020, the Company’s

stockholders approved the 2020 Omnibus Stock Incentive Plan (“2020 Plan”).

The 2020 Plan authorizes a maximum of 3,110,000

The 2020 Plan provides incentives to employees, directors, and consultants of the Company in the form of granting an option,

SAR, dividend equivalent right, restricted stock, restricted stock unit, or other right or benefit under the 2020 Plan.

As of September

30, 2020, there were options to purchase 645,000 shares outstanding under the 2020 Plan and 2,465,000 shares available for future

The fair value of each stock option award

is estimated on the date of grant using the Black-Scholes option pricing model.

Due to its limited operating history and limited

number of sales of its common stock, the Company estimated its volatility in consideration of a number of factors including the

volatility of comparable public companies through December 31, 2018.

Since January 1, 2019, the Company has estimated its volatility

using the trading activity of its common stock.

the 2018 Omnibus Stock Incentive Plan and we reserved 2,000,000 shares of common stock for issuance to employees, directors and consultants.

As of September 30, 2021, there were options to purchase 1,820,000 shares 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 Plan”).

On February 10, 2020, our stockholders approved

the 2020 Plan and we reserved 3,110,000 common shares.

As of September 30, 2021, there were options to purchase 1,870,000 shares 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 September 30, 2021, options

to purchase 1,210,000 shares were outstanding and there were 7,530,000 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.

Volatility is estimated using the trading activity of our common stock.

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 to employees and

directors, 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.

The following assumptions were used in

determining the fair value of stock option grants for the years ended September 30, 2020 and 2019:

Treasury yield curve in effect at the time of grant commensurate with the expected term

The expected term of stock options granted to employees and directors, 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.

The following assumptions were used in determining

the fair value of stock option grants for the years ended September 30, 2021 and 2020:

Risk-free interest rate

0.32 – 0.89 %

0.26 – 1.66 %

Expected dividend yield

Expected term

6.50 – 10 years

Expected volatility

A summary of option activity under the plans is presented below:

A summary of option activity under the plans (excluding the NoveCite

Stock Plan) is presented below:

Outstanding at September 30, 2020

2 unchanged sentences

Exercisable at September 30, 2021

The weighted average grant date fair value

of the options granted during the year ended September 30, 2019 was estimated at $1.04 per share.

These options vest over terms

of 12 to 36 months and have a term of 10 years.

The weighted average grant date fair value

of the options granted during the year ended September 30, 2020 was estimated at $0.76 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

years ended September 30, 2020 and 2019 was $803,261 and $715,983, respectively.

The weighted average grant date fair value of

the options granted during the year ended September 30, 2020 was estimated at $ 0.76 per share.

All of these options vest over terms of

12 to 36 months and have a term of 10 years.

The weighted average grant date fair value of

the options granted during the year ended September 30, 2021 was estimated at $ 1.34 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 years

ended September 30, 2021 and 2020 was $1,454,979 (including $83,555 for the NoveCite Stock Plan) and $803,261, respectively.

At September 30, 2021, unrecognized total compensation

cost related to unvested awards under the Citius stock plans of $ 3,012,685 is expected to be recognized over a weighted average period

of 2.34 years.

On November 5, 2020, the stockholders of NoveCite,

Inc., approved NoveCite’s Stock Plan and under which 2,000,000 common shares of NoveCite were reserved.

The NoveCite Stock Plan

provides incentives to employees, directors, and consultants through grants of options, SARs, dividend equivalent rights, restricted stock,

restricted stock units, or other rights.

As of September 30, 2021, there were options outstanding to purchase 2,000,000 common shares

of NoveCite and no common shares of NoveCite available for future grants.

During the year ended September 30, 2021, NoveCite

granted options to purchase 2,000,000 common shares to employees at a weighted average exercise price of $ 0.24 per share, of which none

are exercisable as of September 30, 2021.

The weighted average grant date fair value of the options granted during the year ended September

30, 2021 was estimated at $0.20 per share.

All of these options vest over 36 months and have a term of 10 years.

The weighted average

remaining contractual term of options outstanding under the NoveCite Stock Plan is 9.39 years.

At September 30, 2021, unrecognized total

compensation cost related to unvested awards of $1,166,073 is expected to be recognized over a weighted average period of 1.90

The Company has reserved 26,831,989 shares

of common stock for the exercise of outstanding warrants.

The following table summarizes the warrants outstanding at

September 30, 2020:

compensation cost related to unvested awards under the NoveCite Stock Plan of $316,445 is expected to be recognized over a weighted average

period of 2.42 years.

The Company has reserved 40,208,347 shares of

common stock for the exercise of outstanding warrants.

The following table summarizes the warrants outstanding at September 30, 2021:

Expiration Dates

Investor Warrants

November 5, 2020 –

April 25, 2021

November 20, 2020 –

March 2, 2021

November 2, 2020 –

March 14, 2021

March 24, 2022 –

April 29, 2022

Financial Advisor Warrants

August 15, 2021

March 24 – April 29, 2022

2016 Offering Warrants

November 23, 2021 –

February 27, 2022

2017 Public Offering Warrants

November 23, 2021 – February 27, 2022

2017 Public Offering Investors

August 2, 2022

2017 Public Offering Underwriter Warrants

2017 Public Offering Underwriter

February 2, 2023

December 2017 Registered Direct/Private Placement Offering Investor Warrants

December 2017 Registered Direct/Private Placement Offering Investors

June 19, 2023

December 2017 Registered Direct/Private Placement Offering Agent Warrants

December 2017 Registered Direct/Private Placement Offering Placement Agent

December 19, 2022

March 2018 Registered Direct/Private Placement Offering Investor Warrants

March 2018 Registered Direct/Private Placement Offering Investors

October 2, 2023

March 2018 Registered Direct/Private Placement Offering Agent Warrants

March 2018 Registered Direct/Private Placement Offering Placement Agent

March 28, 2023

August 2018 Offering Investor Warrants

August 2018 Offering Investors

August 14, 2023

August 2018 Offering Agent Warrants

August 2018 Offering Agent

August 8, 2023

April 2019 Registered Direct/Private Placement Offering Investor Warrants

April 2019 Registered Direct/Private Placement Offering Investors

April 5, 2024

April 2019 Registered Direct/Private Placement Offering Placement Agent Warrants

April 2019 Registered Direct/Private Placement Offering Placement Agent

April 5, 2024

September 2019 Offering Investor Warrants

September 2019 Offering Investors

September 27, 2024

September 2019 Offering Underwriter Warrants

September 2019 Offering Underwriter

September 27, 2024

February 2020 Exercise Agreement Warrants

August 19, 2025

February 2020 Exercise Agreement Placement Agent Warrants

February 2020 Exercise Agreement Placement Agent

August 19, 2025

May 2020 Registered Direct Offering Investor Warrants

May 2020 Registered Direct Offering Investors

November 18, 2025

May 2020 Registered Direct Offering Placement Agent Warrants

August 2020 Underwriter Warrants

May 2020 Registered Direct Offering Placement Agent

August 2020 Underwriter

August 10, 2025

During the year ended September 30, 2019,

2,321,569 August 2018 offering pre-funded unit warrants were exercised at $0.01 per share for net proceeds of $23,216.

January 2021 Registered Direct Offering Investors

July 27, 2026

January 2021 Registered Direct Offering Agent

July 27, 2026

February 2021 Offering Investors

February 19, 2026

February 2021 Offering Agent

February 19, 2026

In December 2019, 1,060,615 of the September 2019

2 unchanged sentences

Offering Investor Warrants were exercised at $ 0.77 per share for net proceeds of $ 1,013,101 .

On February 14, 2020, the Company entered

into a warrant exercise agreement for an aggregate of 3,712,218 shares of common stock having an existing exercise price of $0.77

and 2,586,455 shares of common stock at a reduced exercise price of $1.02.

In consideration for the exercise of the warrants for

cash, the exercising holders received new unregistered warrants to purchase 6,298,673 shares of common stock at an exercise price

of $1.02 per share, exercisable six months after issuance and which have a term of exercise equal to five years.

The offering closed

on February 19, 2020 and net proceeds were $5,013,930 after placement agent fees and offering expenses.

The Company also issued

warrants to purchase 440,907 shares to the placement agent.

The placement agent warrants have identical terms to the investor warrants

except that the exercise price is $1.275 per share.

The estimated fair value of the 6,298,673 warrants issued to the investors

was $5,360,465 and the estimated fair value of the 440,907 warrants issued to the placement agent was $367,022.

On June 26, 2020, 1,129,412 of the May

2020 Registered Direct Offering Investor Warrants were exercised at $1.00 per share for net proceeds of $1,129,412.

At September 30, 2020, the weighted average

remaining life of all of the outstanding warrants is 3.55 years, all warrants are exercisable, and the aggregate intrinsic

value for the warrants outstanding was $976,164.

On February 14, 2020, the Company entered into

a warrant exercise agreement for an aggregate of 3,712,218 shares of common stock having an existing exercise price of $0.77 and 2,586,455

shares of common stock at a reduced exercise price of $1.02.

In consideration for the exercise of the warrants for cash, the exercising

holders received new unregistered warrants to purchase 6,298,673 shares of common stock at an exercise price of $1.02 per share, exercisable

six months after issuance and which have a term of exercise equal to five years.

The offering closed on February 19, 2020 and net proceeds

were $5,013,930 after placement agent fees and offering expenses.

The Company also issued warrants to purchase 440,907 shares to the placement

The placement agent warrants have identical terms to the investor warrants except that the exercise price is $1.275 per share.

The estimated fair value of the 6,298,673 warrants issued to the investors was $5,360,465 and the estimated fair value of the 440,907

warrants issued to the placement agent was $367,022.

On June 26, 2020, 1,129,412 of the May 2020 Registered

Direct Offering Investor Warrants were exercised at $ 1.00 per share for net proceeds of $ 1,129,412 .

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 year ended September 30, 2021.

During the year ended September 30, 2021, we received

$ 31,130,134 in proceeds from the exercise of common stock warrants.

At September 30, 2021, the weighted average remaining

life of all of the outstanding warrants is 3.74 years, all warrants are exercisable, and the aggregate intrinsic value for the warrants

outstanding was $ 19,903,185 .

Common Stock Reserved

A summary of common stock reserved for future issuances as of

September 30, 2020 is as follows:

A summary of common stock reserved for future issuances as of September

30, 2021 is as follows:

Stock plan options outstanding

1 unchanged sentence

Warrants outstanding

The three-year unit purchase options issued

during the year ended September 30, 2017 expired during the year ended September 30, 2020.

RELATED PARTY

Our Chairman of the Board, Leonard Mazur,

was the cofounder and Vice Chairman of Akrimax Pharmaceuticals, LLC (“Akrimax”), a privately held pharmaceutical company

specializing in producing cardiovascular and general pharmaceutical products.

The Company leased office space from Akrimax through

April 30, 2019 (see Note 10).

The Company has outstanding debt due to

Leonard Mazur (Chairman of the Board) and Myron Holubiak (Chief Executive Officer) (see Note 5).

In connection with the April 2019 registered

direct/private placement offering, Mr.

Mazur purchased 1,165,048 shares of common stock at $1.545 per share and received 1,165,048

warrants with an exercise price of $1.42 per share, and Mr.

Holubiak purchased 129,450 shares of common stock at $1.545 per share

and received 129,450 warrants with an exercise price of $1.42 per share.

The purchases were made on the same terms as for all other

In connection with the September 2019 offering,

Mazur purchased 2,234,700 shares of common stock at $0.8951 per share and received 2,234,700 warrants exercisable at $0.77

per share, and Mr.

Holubiak purchased 558,597 shares of common stock at $0.8951 per share and received 558,597 warrants exercisable

at $0.77 per share.

The purchases were made on the same terms as for all other investors.

Mazur is a director and significant

shareholder of Novellus, Inc.

RELATED PARTY TRANSACTIONS

The Company had outstanding debt due to Leonard

Mazur (Chairman of the Board) and Myron Holubiak (Chief Executive Officer) (see Note 5).

Mazur was a director and significant shareholder

of Novellus, Inc.

until July 2021.

On October 6, 2020, the Company, through its subsidiary NoveCite, entered into an exclusive agreement

with Novellus to develop cellular therapies (see Note 3).

In April 2021, we extended the term by three years

for 1,294,498 warrants held by our Chairman and our Chief Executive Officer (see Note 6).

EMPLOYMENT AND CONSULTING AGREEMENTS

Employment Agreements

The Company entered into a three-year employment

agreement with its then Chief Executive Officer, Leonard Mazur, effective September 12, 2014.

Upon expiration, the agreement was

to automatically renew for successive periods of one-year.

The agreement required the Company to pay base compensation plus incentives

over the employment term plus severance benefits upon the occurrence of certain events as described in the agreement.

agreement, Leonard Mazur was granted options to purchase 220,000 shares of common stock.

On March 30, 2016, in connection with

the acquisition of LMB, Leonard Mazur resigned as Chief Executive Officer but continues to serve as Chairman of the Board under

the agreement.

On October 19, 2017, the Company and Mr.

Mazur, entered into an amended employment agreement with a three-year term.

Upon expiration, the agreement automatically renews for successive periods of one-year.

Under the terms of the amended agreement,

the Company is required to pay base compensation plus incentives over the employment term plus severance benefits upon the occurrence

of certain events as described in the agreement.

On March 30, 2016, in connection with the

acquisition of LMB, the Company entered into a three-year employment agreement with Myron Holubiak to serve as Chief Executive

Upon expiration, the agreement automatically renews for successive periods of one-year.

The agreement requires the Company

to pay base compensation plus incentives over the employment term plus severance benefits upon the occurrence of certain events

as described in the agreement.

On July 13, 2020, Citius entered into an

at will employment agreement with Myron Czuczman, M.D.

On October 19, 2017, the Company and its Chairman

of the Board, Leonard Mazur, entered into an employment agreement with a three-year term.

Upon expiration, the agreement automatically

renews for successive periods of one-year unless terminated pursuant to its terms.

Under the terms of the agreement, the Company is required

to pay base compensation plus incentives over the employment term plus severance benefits upon the occurrence of certain events as described

in the agreement.

On March 30, 2016, the Company entered into a

three-year employment agreement with Myron Holubiak to serve as Chief Executive Officer.

Upon expiration, the agreement automatically

renews for successive periods of one-year unless terminated pursuant to its terms.

The agreement requires the Company to pay base compensation

plus incentives over the employment term plus severance benefits upon the occurrence of certain events as described in the agreement.

On July 13, 2020, Citius entered into an employment

agreement with Myron Czuczman, M.D.

to serve as Executive Vice President, Chief Medical Officer.

The agreement

requires the Company to pay base compensation plus incentives over the employment term plus severance benefits upon the occurrence

of certain events as described in the agreement.

The agreement requires the Company to

pay base compensation plus incentives over the employment term plus severance benefits upon the occurrence of certain events as described

in the agreement.

Czuczman was granted an option to purchase 500,000 shares of common stock.

The Company has employment agreements with

certain other employees that require the Company to pay base compensation plus incentives over the employment term plus severance

benefits upon the occurrence of certain events as described in the agreement.

The Company has employment agreements with certain

other employees that require the Company to pay base compensation plus incentives over the employment term plus severance benefits upon

the occurrence of certain events as described in the agreement.

Consulting Agreements

Effective September 1, 2014, the Company

entered into three consulting agreements.

Two of the agreements are for financial consulting services including accounting, preparation

of financial statements and filings with the SEC.

The third agreement is for financing activities, product development strategies

and corporate development.

Effective September 1, 2014, the Company entered

into three consulting agreements.

Two of the agreements were for financial services including accounting, preparation of financial statements

and filings with the SEC.

The third agreement was for financing activities, product development strategies and corporate development.

The agreements may be terminated by the Company or the consultant with 90 days written notice.

Consulting expense under the agreements

for the years ended September 30, 2020 and 2019 was $324,000 and $344,000, respectively.

Consulting expense for the year ended

September 30, 2019 includes $20,000 paid to a financial consultant who is a stockholder of the Company.

The consulting agreement

with the stockholder ended in February 2019.

On August 29, 2018, the Company received

notification from the Food and Drug Administration (“FDA”) that the Company was being refunded $818,343 of 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 $818,343 receivable as other income during the year ended September 30, 2018 and received the refund on

October 1, 2018.

In November 2019, the Company 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

year ended September 30, 2020.

A consulting agreement for financial services

ended in February 2019 and the agreement for financing activities, product development strategies and corporate development ended in December

Consulting expense under the agreements for the

years ended September 30, 2021 and 2020 was $ 144,000 and $ 324,000 , respectively.

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 year ended September 30, 2020.

COMMITMENTS AND CONTINGENCIES

Operating Lease

LMB leased office space from Akrimax (see

Note 7) in Cranford, New Jersey at a monthly rental rate of $2,167 pursuant to an agreement which expired on April 30, 2019.

expense for the year ended September 30, 2019 was $56,063.

Effective July 1, 2019, Citius entered

into a 76-month lease for office space in Cranford, NJ.

Rent expense under this agreement for the year ended September 30, 2019

Citius will also 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.

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 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 has estimated its incremental borrowing rate based on the remaining lease term as of the adoption date.

3 unchanged sentences

September 30,

Operating lease cost

4 unchanged sentences

Weighted-average discount rate - operating leases

Maturities of lease liabilities due under the Company’s

non-cancellable leases are as follows:

Maturities of lease liabilities due under the Company’s non-cancellable

leases are as follows:

Year Ending September 30,

3 unchanged sentences

September 30,

Total lease assets

Total lease liabilities

Interest expense on the lease liability

was $87,303 for the year ended September 30, 2020.

Interest expense on the lease liability was $ 75,448

and $ 87,303 for the years ended September 30, 2021 and 2020, respectively.

Legal Proceedings

1 unchanged sentence

that it believes could have a material adverse effect on its financial position or results of operations.

There is no action, suit,

proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body

pending or, to the knowledge of the Company’s executive officers, threatened against or affecting the Company or its officers

or directors in their capacities as such.

There was no provision for federal or state

income taxes for the years ended September 30, 2020 and 2019 due to the Company’s operating losses and the valuation reserve

on deferred tax assets.

The income tax benefit differs from the

amount of income tax determined by applying the U.S.

federal income tax rate to pretax income for the years ended September 30,

2020 and 2019 due to the following:

Computed “expected”

There is no action, suit, proceeding,

inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to

the knowledge of the Company’s executive officers, threatened against or affecting the Company or its officers or directors in their

capacities as such.

There was no provision for federal or state income

taxes for the years ended September 30, 2021 and 2020 due to the Company’s operating losses and the valuation reserve on deferred

The income tax benefit differs from the amount

of income tax determined by applying the U.S.

federal income tax rate to pretax income for the years ended September 30, 2021 and 2020

due to the following:

Computed “expected” tax benefit

Increase (decrease) in income taxes resulting from:

2 unchanged sentences

Increase in the valuation reserve

Deferred income taxes reflect the net tax

effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the

amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as

Deferred income taxes reflect the net tax effects

of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used

for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

September 30,

9 unchanged sentences

In-process research and development

( 4,985,800 )

Total deferred tax liability

( 4,985,800 )

Net deferred tax liability

1 unchanged sentence

$ ( 4,985,800 )

The Company has recorded a valuation

allowance against deferred tax assets as the utilization of the net operating loss carryforward and other deferred tax assets

is uncertain.

During the years ended September 30, 2020 and 2019, the valuation allowance increased by $3,591,000 and

$3,017,000, respectively.

The increase in the valuation allowance during the years ended September 30, 2020 and 2019 was

primarily due to the Company’s net operating loss.

At September 30, 2020, the Company has a federal net operating

loss carryforward of approximately $65,000,000 which begins expiring in 2034.

As of September 30, 2020, the Company also

has federal research and development credits of $1,055,000 to offset future income taxes.

The Company has recorded a valuation allowance

against deferred tax assets as the utilization of the net operating loss carryforward and other deferred tax assets is uncertain.

the years ended September 30, 2021 and 2020, the valuation allowance increased by $ 12,257,000 and $ 3,591,000 , respectively.

in the valuation allowance during the years ended September 30, 2021 and 2020 was primarily due to the Company’s net operating loss.

September 30, 2021, the Company has a federal net operating loss carryforward of approximately $ 88,000,000 .

Federal net operating loss

carryforwards of approximately $ 35,000,000 begin expiring in 2034 and carryforwards of approximately $ 53,000,000 generated in tax years

beginning after 2017 may be carried forward indefinitely.

As of September 30, 2021, the Company also has

estimated federal research and development credits of $ 2,044,000 to offset future income taxes.

The tax credit carryforwards will begin

to expire in 2036.

The Company accounts for uncertain tax

positions in accordance with the guidance provided in ASC 740, “Accounting for Income Taxes.”

This guidance describes

a recognition threshold and measurement attribute for the financial statement disclosure of tax positions taken or expected to

be taken in a tax return and requires recognition of tax benefits that satisfy a more-likely-than-not threshold.

ASC 740 also provides

guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.

There have been

no reserves for uncertain tax positions recorded by the Company to date.

SUBSEQUENT EVENTS

Novellus License

On October 6, 2020 the Company, through

its subsidiary NoveCite, entered into an exclusive agreement with Novellus to develop cellular therapies (see Note 3).

Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure

The Company accounts for uncertain tax positions

in accordance with the guidance provided in ASC 740, “Accounting for Income Taxes.” This guidance describes a recognition

threshold and measurement attribute for the financial statement disclosure of tax positions taken or expected to be taken in a tax return

and requires recognition of tax benefits that satisfy a more-likely-than-not threshold.

ASC 740 also provides guidance on de-recognition,

classification, interest and penalties, accounting in interim periods and disclosure.

There have been no reserves for uncertain tax positions

recorded by the Company to date.

Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data