What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-12-22 compared with 2021-12-15 · 97 added, 109 removed, 261 unchanged (44% of the section changed)

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of our plans, objectives, expectations, and intentions.

Any statements that are not statements of historical fact are forward-looking statements.

Any statements that are not statements of historical fact are forward-looking

When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,”

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Historical Background

We are 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 September 12, 2014, we acquired Citius Pharmaceuticals, LLC as a wholly-owned subsidiary.

We are a late-stage biopharmaceutical company

dedicated to the development and commercialization of first-in-class critical care products with a focus on oncology, anti-infectives

in adjunct cancer care, unique prescription products and stem cell therapies.

On September 12, 2014, we acquired Citius Pharmaceuticals,

LLC as a wholly-owned subsidiary.

On March 30, 2016, we acquired all of the outstanding

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On August 23, 2021, we formed Citius Acquisition

Corp., a wholly owned subsidiary.

Corp., a wholly owned subsidiary, which began operations in April 2022.

In-process research and development of $19,400,000

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Through September 30, 2022, we have devoted substantially

all of our efforts to product development, raising capital, building infrastructure through strategic alliances and coordinating activities

all our efforts to product development, raising capital, building infrastructure through strategic alliances and coordinating activities

relating to our proprietary products.

We have not yet realized any revenues from its operations.

We have not yet realized any revenues from our operations.

Patent and Technology License Agreements

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Pursuant to this transaction, the NoveCite license was assumed by Brooklyn with all original terms and conditions.

In October 2021, Brooklyn

changed its name to Eterna Therapeutics Inc.

As part of the Novellus and Brooklyn merger transaction,

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

Eisai will be responsible for completing the current CTCL clinical trial, and chemistry, manufacturing and controls (CMC) activities through

the filing of a BLA for E7777 with the FDA.

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

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.

Citius will be responsible for development costs associated with potential additional

Results of Operations for Year Ended September

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Interest income

Gain on forgiveness of note payable - Paycheck Protection

Program and accrued interest

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

Interest expense

Loss before income taxes

(33,064,646 )

(23,054,434 )

Income tax expense

$ (33,640,646 )

$ (23,054,434 )

We did not generate any revenues for the years

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and development expenses were $17,655,482 as compared to $12,240,503 for the year ended September 30, 2021, an increase of $5,414,979.

Research and development costs for Mino-Lok® decreased by $2,679,768 to $3,527,250 for the year ended September 30, 2021 as compared

to $6,207,018 for the year ended September 30, 2020 driven primarily by a decrease in the cost of registration batches produced in the

year ended September 30, 2021.

Research and development costs for our Halo-Lido product candidate decreased by $783,870 to $862,173 for

the year ended September 30, 2021 as compared to $1,646,043 for the year ended September 30, 2020 due to a reduction in costs associated

with manufacturing development as well as our patient reported outcome tool for the year ended September 30, 2021.

Research and development

costs for our Mino-Wrap product candidate increased by $51,990 to $165,507 for the year ended September 30, 2021 as compared to $113,517

during the year ended September 30, 2020.

During the year ended September 30, 2021, research and development costs for our proposed novel

cellular therapy for acute respiratory distress syndrome (ARDS) were $6,946,365 as compared to $846,232 for the year ended September 30,

The increase of $6,100,133 was primarily due to the $5,000,000 license fee paid to Novellus.

We also incurred $739,208 in research

and development expenses for our proposed product candidate related to the E7777 license.

Research and development costs for Mino-Lok®

increased by $723,405 to $4,250,655 for the year ended September 30, 2022 as compared to $3,527,250 for the year ended September 30, 2021

driven primarily by an increase in the costs associated with the addition of the global CRO, Biorasi, and the opening of international

sites, primarily in India, for the Phase 3 Mino-Lok trial.

Research and development costs for our Halo-Lido

product candidate increased by $1,835,175 to $2,697,348 for the year ended September 30, 2022 as compared to $862,173 for the year ended

September 30, 2021 due to an increase in costs associated with the initiation of the Phase 2 study for the year ended September 30, 2022.

Research and development costs for our Mino-Wrap

product candidate increased by $70,909 to $236,416 for the year ended September 30, 2022, as compared to $165,507 during the year ended

September 30, 2021, due to increased formulation work.

During the year ended September 30, 2022, research

and development costs for our proposed novel cellular therapy for acute respiratory distress syndrome (ARDS) were $1,777,288 as compared

to $6,946,365 for the year ended September 30, 2021.

The decrease of $5,169,077 was primarily related to the $5,000,000 license fee paid

to Novellus in the year ended September 30, 2021.

We also incurred $8,693,775 in research and development

expenses for our E7777 product candidate during the year ended September 30, 2022 as compared to $739,208 during the year ended September

The increase of $7,954,567 was primarily due to costs associated with the completion of the Phase 3 trial, as well as the preparation

and submission of the Biologics License Application to the FDA, which we filed in September 2022.

We expect that research and development expenses

will continue to increase in fiscal 2022 as we continue to focus on our Phase 3 trial for Mino-Lok, progress the Halo-Lido product candidate,

and accelerate our research and development efforts related to ARDS, Mino-Wrap and E7777.

will continue to increase in fiscal 2023 as we continue to focus on the commercialization of E7777, our Phase 3 trial for Mino-Lok, our

Phase 2b trial for Halo-Lido, and accelerate our research and development efforts related to Mino-Wrap and ARDS.

General and Administrative Expenses

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and administrative expenses were $11,754,609 as compared to $9,836,412 for the year ended September 30, 2021, an increase of $1,918,197.

The primary reason for the increase was additional compensation costs for new employees and performance bonuses.

General and administrative

expenses consist primarily of compensation costs, consulting fees incurred for financing activities and corporate development services,

and investor relations expenses.

The primary reason for the increase was additional compensation costs for new employees, as well as increased investor relations expense.

General and administrative expenses consist primarily of compensation costs, consulting fees incurred for financing activities and corporate

development services, and investor relations expenses.

Stock-based Compensation Expense

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compensation expense was $3,905,954 as compared to $1,454,979 for the year ended September 30, 2021.

Stock-based compensation expense includes

options granted to directors, employees and consultants.

For the year ended September 30, 2021, stock-based compensation includes $83,555

in expense for the NoveCite stock option plan that was adopted in November 2020.

Stock-based compensation expense increased by $651,718

in comparison to the prior year due to new grants made by Citius and the expense for the NoveCite stock plan.

In fiscal year 2012, we

granted options to our new employees and additional options to other employees, our directors and consultants.

At September 30, 2021,

unrecognized total compensation cost related to unvested options for Citius common stock of $3,012,685 is expected to be recognized over

a weighted average period of 2.34 years and unrecognized total compensation cost related to unvested options for NoveCite common stock

of $316,444 is expected to be recognized over a weighted average period of 2.42 years

Stock-based compensation expense

includes options granted to directors, employees, and consultants.

For the years ended September 30, 2022 and 2021, stock-based compensation

expense includes $133,332 and $83,555, respectively, for the NoveCite stock option plan that was adopted in November 2020.

compensation expense increased by $2,450,975 in comparison to the prior year due to new grants made by Citius and the increase in expense

for the NoveCite stock plan.

In fiscal year 2022, we granted options to our new employees and additional options to other employees, our

directors, and consultants.

At September 30, 2022, unrecognized total compensation cost related to unvested options for Citius common

stock of $5,317,681 is expected to be recognized over a weighted average period of 1.9 years and unrecognized total compensation cost

related to unvested options for NoveCite common stock of $183,111 is expected to be recognized over a weighted average period of 1.5 years.

Other Income (Expense)

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Company earned $251,399 of interest income compared to $261,825 of interest income during the year ended September 30, 2021.

was due to our investment of most of the 2021 equity offerings and common stock warrant exercises proceeds in money market accounts.

The Company recorded a gain of $166,557 for the

principal and accrued interest on the Paycheck Protection Program loan that was forgiven on July 28, 2021.

was due to lower balances of investable funds offset by an increase in interest rates.

We have invested the remaining balance of the 2021

equity offerings and common stock warrant exercises proceeds in money market accounts.

The Company recorded a gain of $166,557 during

the year ended September 30, 2021 for the principal and accrued interest on the Paycheck Protection Program loan that was forgiven on

July 28, 2021.

Other income for the year ended September 30,

2021 consists of accrued interest of $59,917 on notes payable – related parties that was forgiven in June 2021.

In November 2019, we 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.

Interest expense for the year ended September

30, 2021 was $10,839 as compared to $15,673 for the year ended September 30, 2020.

Interest expense for both years is primarily for the

notes payable to related parties that were acquired in the acquisition of LMB.

We also accrued interest expense on the COVID-19 related

Small Business Administration (“SBA”) Paycheck Protection Program loan received on April 15, 2020.

At September 30, 2021,

there were no outstanding notes payable.

There was no interest expense for the year ended

September 30, 2022 as compared to $10,839 for the year ended September 30, 2021.

Interest expense was for the notes payable to related

parties that were acquired in the acquisition of LMB and the COVID-19 related Small Business Administration (“SBA”) Paycheck

Protection Program loan received on April 15, 2020.

The notes payable to related parties were paid in full in June 2021 and therefore

were not outstanding at September 30, 2021 or 2022.

The Company recorded deferred income tax expense

of $576,000 for the year ended September 30, 2022 related to the amortization for taxable purposes of its in-process research and development

There was no provision for income taxes for the year ended September 30, 2021 due to the Company’s operating losses and the

valuation reserve on deferred tax assets.

For the year ended September 30, 2022, we incurred

a net loss of $33,640,646 compared to a net loss of $23,054,434 for the year ended September 30, 2021.

The $5,506,349 increase in

the net loss was primarily due to the $3,427,693 increase in research and development expenses and the $1,741,798 increase in general

and administrative expenses, which increases were primarily associated with NoveCite.

The $10,586,212 increase in the

net loss was primarily due to the $5,414,979 increase in research and development expenses, the $1,918,197 increase in general and administrative

expenses, and the $2,450,975 increase in stock-based compensation expense.

LIQUIDITY AND CAPITAL RESOURCES

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common stock warrant exercises in fiscal year 2021, the Company had working capital of approximately $40,000,000 at September 30, 2022.

We expect that we will have sufficient funds to continue our operations through March 2023.

At September 30, 2021, Citius had cash and cash equivalents of $70,072,946 available to fund its operations.

The Company’s only

source of cash flow since inception has been from financing activities.

During the years ended September 30, 2021 and 2020, the Company

received net proceeds of $120,643,020 and $22,733,850, respectively, from the issuance of equity.

We also received $164,583 from the COVID-related

SBA paycheck protection program loan received on April 15, 2020.

Our primary uses of operating cash were for in-licensing of intellectual

property, product development and commercialization activities, employee compensation, consulting fees, legal and accounting fees, insurance

and investor relations expenses.

We expect that we will have sufficient funds to continue our operations through December 2023.

At September 30, 2022, Citius had cash

and cash equivalents of $41,711,690 available to fund its operations.

The Company’s only source of cash flow since inception has

been from financing activities.

During the year ended September 30, 2021, the Company received net proceeds of $120,643,020, from the

issuance of equity.

Our primary uses of operating cash were for in-licensing of intellectual property, product development and commercialization

activities, employee compensation, consulting fees, legal and accounting fees, insurance, and investor relations expenses.

Financing Activities

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

Offering Pre-Funded Unit Warrants were exercised at $0.0001 per share for net proceeds of $106.

In January 2020, investors who participated in

the September 2019 Offering exercised 1,315,715 warrants at $0.77 per share resulting in net proceeds of $1,013,101 to the Company.

On February 14, 2020, the Company entered into

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

at a reduced exercise price of $1.02.

The offering closed on February 19, 2020 and net proceeds were $5,013,930 after placement agent

fees and offering expenses.

On May 18, 2020, the Company closed a registered

direct offering 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.

Net proceeds from the offering were $6,877,100.

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.

On August 10, 2020, the Company closed an underwritten

public offering of 9,159,524 shares of common stock at $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 underwriter 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.

On January 27, 2021, the Company closed a private

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Based on our cash and cash equivalents at September

30, 2021, we expect that we will have sufficient funds to continue our operations through March 2023.

We may need to raise additional

capital in the future to support our operations beyond March 2023.

There is no assurance, however, that we will be successful in raising

the needed capital or that the proceeds will be received in an amount or in a timely manner to support our operations.

30, 2022, we expect that we will have sufficient funds to continue our operations through December 2023.

Additionally, in November 2022,

the Company was selected to participate in New Jersey’s Technology Business Tax Certificate Transfer (NOL) Program and will receive

$3.6 million in non-dilutive capital through the New Jersey Economic Development Authority;

the Company expects to receive these funds

by late 2022 or early 2023.

We may need to raise additional capital in the future to support our operations beyond December 2023.

is no assurance, however, that we will be successful in raising the needed capital or that the proceeds will be received in an amount

or in a timely manner to support our operations.

While the COVID-19 pandemic has adversely impacted

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represents the value of LMB’s leading drug candidate, Mino-Lok, an antibiotic lock solution in Phase 3 clinical development, which

if approved, would be used to treat catheter-related bloodstream infections and is expected to be amortized on a straight-line basis over

a period of eight years commencing upon revenue generation.

In-process research and development 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

if approved, would be used to treat catheter-related bloodstream infections, and is expected to be amortized on a straight-line basis

over a period of eight years commencing upon revenue generation.

In-process research and development 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.

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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 7. Management’s Discussion and Analysis