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Item 8. Financial Statements and Supplementary Data

2023-12-29 compared with 2022-12-22 · 709 added, 794 removed, 162 unchanged (90% of the section changed)

Financial Statements and Supplementary Data

CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

PHARMACEUTICALS, INC.

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID # 392 ) F-2

4 unchanged sentences

Notes to Consolidated Financial Statements F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Stockholders and Board of Directors of

Citius Pharmaceuticals, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of Citius Pharmaceuticals, Inc.

(the “Company”) as of September 30, 2022 and 2021, 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, 2022 and 2021, 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

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from

the current period audit of the consolidated financial statements that were communicated or required to be communicated to the 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.

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Stockholders and Board of Directors of Citius Pharmaceuticals, Inc.:

on the Financial Statements

have audited the accompanying consolidated balance sheets of Citius Pharmaceuticals, Inc.

(the “Company”) as of September

30, 2023 and 2022, 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, 2023 and 2022, 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.

of a Matter Regarding Going Concern

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.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

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.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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.

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

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.

Audit Matters

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.

Company, P.C.

We have served

as the Company’s auditor since 2014.

Boston, Massachusetts

December 22, 2022

CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2022 AND 2021

PHARMACEUTICALS, INC.

BALANCE SHEETS

30, 2023 AND 2022

and cash equivalents

Current Assets

Cash and cash equivalents

Prepaid expenses

Total Current Assets

Property and equipment, net

Operating lease right-of-use asset, net

Other Assets:

In-process research and development

Total Other Assets

and equipment, net

lease right-of-use asset, net

research and development

$ 103,611,150

$ 113,999,302

LIABILITIES AND STOCKHOLDERS’ EQUITY

AND STOCKHOLDERS’ EQUITY

lease liability

Current Liabilities

Accounts payable

Accrued expenses

Accrued compensation

Operating lease liability

Total Current Liabilities

Deferred tax liability

Operating lease liability – non current

Total Liabilities

Commitments and Contingencies

Stockholders’ Equity:

tax liability

lease liability – non current

and Contingencies

Stockholders’

Preferred stock - $ 0.001 par value;

4 unchanged sentences

158,857,798 and 146,211,130 shares issued and outstanding at September 30, 2023 and 2022, respectively

Additional paid-in capital

Accumulated deficit

paid-in capital

( 162,231,379 )

( 129,688,467 )

Total Citius Pharmaceuticals, Inc.

Citius Pharmaceuticals, Inc.

Stockholders’ Equity

Non-controlling interest

Total Liabilities and Equity

Non-controlling

Liabilities and Equity

$ 103,611,150

$ 113,999,302

The accompanying notes are an integral part of

these consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED SEPTEMBER 30, 2022 AND 2021

accompanying report of independent registered public accounting firm and notes to the financial statements.

PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

THE YEARS ENDED SEPTEMBER 30, 2023 AND 2022

Operating Expenses:

Research and development

and development

General and administrative

Stock-based compensation – general and administrative

Total Operating Expenses

Operating Loss

compensation – general and administrative

Operating Expenses

( 36,732,018 )

( 33,316,045 )

Other Income (Expense):

Other Income:

Interest income

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

Interest expense

Total Other Income, Net

on sale of New Jersey net operating losses

Loss before Income Taxes

4 unchanged sentences

( 33,640,646 )

Deemed dividend on warrant extension

Net Loss Applicable to Common Stockholders

dividend on warrant extension

Loss Applicable to Common Stockholders

$ ( 33,694,120 )

3 unchanged sentences

Basic and diluted

The accompanying notes are an integral part of

these consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

FOR THE YEARS ENDED SEPTEMBER 30, 2022 AND 2021

Citius Pharmaceuticals, Inc.

accompanying report of independent registered public accounting firm and notes to the financial statements.

PHARMACEUTICALS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THE YEARS ENDED SEPTEMBER 30, 2023 AND 2022

Pharmaceuticals, Inc.

Shareholder’s

Non-Controlling

October 1, 2020

September 30, 2021

$ 228,084,195

$ ( 96,047,821 )

of NoveCite common stock

$ 132,182,353

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

of common stock upon exercise of warrants

$ 132,782,733

of common stock for services

of common stock upon exercise of stock options

compensation expense

5 unchanged sentences

of common stock for services

of common stock upon exercise of stock options

Issuance of common stock in registered direct offering, net of costs of $ 1,201,818

compensation expense

5 unchanged sentences

$ ( 162,231,379 )

$ 102,825,865

$ 103,426,245

The accompanying notes are an integral part of

these consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 30, 2022 AND 2021

Cash Flows From Operating Activities:

accompanying report of independent registered public accounting firm and notes to the financial statements.

PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

THE YEARS ENDED SEPTEMBER 30, 2023 AND 2022

Cash Flows From Operating

$ ( 32,542,912 )

$ ( 33,640,646 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash

used in operating activities:

Stock-based compensation

Issuance of common stock for services

Amortization of operating lease right-of-use asset

Deferred income tax expense

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

Issuance of common stock

Amortization of operating

lease right-of-use asset

Deferred income tax

Changes in operating assets and liabilities:

4 unchanged sentences

Accrued compensation

Accrued interest

Operating lease liability

Net Cash Used In Operating Activities

( 28,361,256 )

lease liability

Cash Used In Operating Activities

( 29,060,212 )

Cash Flows From Investing Activities:

Purchase of property and equipment

Purchase of in-process research and development

( 28,361,256 )

Net Cash Used In Investing Activities

Cash Flows From Financing

Proceeds from common

stock option exercises

proceeds from registered direct offerings

Cash Provided By Financing Activities

Net Change in Cash and Cash

( 15,230,762 )

Cash Flows From Financing Activities:

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 private placement

Net proceeds from registered direct offerings

Net Cash Provided By Financing Activities

Net Change in Cash and Cash Equivalents

( 28,361,256 )

Cash and Cash Equivalents – Beginning of Year

Cash and Cash Equivalents – End of Year

The accompanying notes are an integral part of

these consolidated financial statements.

CITIUS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2022 AND 2021

and Cash Equivalents – Beginning of Year

and Cash Equivalents – End of Year

accompanying report of independent registered public accounting firm and notes to the financial statements.

PHARMACEUTICALS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

THE YEARS ENDED SEPTEMBER 30, 2023 AND 2022

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Citius Pharmaceuticals, Inc.

the “Company” or “we”) is a late-stage biopharmaceutical company dedicated to the development and commercialization

of critical care products with a focus on oncology, anti-infectives in adjunct cancer care, unique prescription products and stem cell

On March 30, 2016, Citius acquired Leonard-Meron

Biosciences, Inc.

Pharmaceuticals, Inc.

(“Citius Pharma,” the “Company” or “we”) is a late-stage biopharmaceutical

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

cancer care, unique prescription products and stem cell therapies.

March 30, 2016, we acquired Leonard-Meron Biosciences, Inc.

(“LMB”) as a wholly-owned subsidiary.

The Company acquired all 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

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.

On August 23, 2021, we formed Citius Acquisition

(“Citius Acq.”), a wholly-owned subsidiary in conjunction with the acquisition of I/ONTAK, which began operations in

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

consists of i) $ 19,400,000 acquisition 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, 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 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, LMB and Citius

Acq., and its majority-owned subsidiary NoveCite.

We acquired all the outstanding

stock of LMB by issuing shares of our common stock.

The net assets acquired included identifiable intangible assets of $ 19,400,000 related

to in-process research and development.

We recorded goodwill of $ 9,346,796 for the excess of the purchase price over the net assets acquired.

September 11, 2020, we formed NoveCite, Inc.

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

outstanding capital stock.

August 23, 2021, we formed Citius Oncology, Inc.

(formerly named Citius Acquisition Corp.) (“Citius Oncology”), as a wholly-owned

subsidiary in conjunction with the acquisition of LYMPHIR, which began operations in April 2022.

On October 23, 2023, Citius Pharma and

Citius Oncology entered into an agreement and plan of merger and reorganization with TenX Keane Acquisition, and its wholly owned subsidiary,

TenX Merger Sub Inc., whereby TenX Merger Sub Inc.

will merge with and into Citius Oncology, with Citius Oncology surviving as a wholly

owned subsidiary of TenX Keane Acquisition.

The newly combined publicly traded company is to be named “Citius Oncology, Inc.”

(see Note 11).

research and development (“IPR&D) consists of i) the $ 19,400,000 acquisition value of LMB’s 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) the $ 40,000,000 acquisition value of the exclusive license

for LYMPHIR (denileukin diftitox), a late-stage oncology immunotherapy for the treatment of cutaneous T-cell lymphoma (“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.

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.

its inception, we have devoted substantially all our efforts to business planning, research and development, recruiting management and

technical staff, and raising capital.

We are subject to a number of risks common to companies in the pharmaceutical industry including,

but not limited to, risks related to the development by the Company or its competitors of research and development stage products, regulatory

approval and market acceptance of its products, competition from larger companies, dependence on key personnel, dependence on key suppliers

and strategic partners, the Company’s ability to obtain additional financing and the Company’s compliance with governmental

and other regulations.

of Presentation

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

Citius Pharmaceuticals, LLC, LMB and Citius Oncology, and its majority-owned subsidiary NoveCite.

NoveCite, was inactive until October

began operations in April 2022.

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 $ 28,361,256 and $ 24,250,414 , for the years ended September

30, 2022 and 2021, respectively.

The Company had working capital of approximately $ 40 million at September 30, 2022.

The Company estimates

that its available cash resources will be sufficient to fund its operations through December 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 December 2023, including its development plans for E7777, Mino-Lok, Mino-Wrap, Halo-Lido and

NoveCite, will depend on its ability to obtain regulatory approval to market E7777 and/or Mino-Lok and generate substantial revenue from

the sale of E7777 and/or 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 E7777 and/or 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.

Citius Oncology began operations in April 2022.

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

consolidation.

GOING CONCERN UNCERTAINTY AND MANAGEMENT’S PLAN

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

$ 29,060,212 and $ 28,361,256 , for the years ended September 30, 2023 and 2022, respectively.

The Company had working capital of approximately

$ 28.6 million at September 30, 2023.

The Company estimates that its available cash resources will be sufficient to fund its operations

through August 2024 which raises 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.

Company has generated no operating revenue to date and has principally raised capital through the issuance of debt and equity instruments

to finance its operations.

However, the Company’s continued operations beyond August 2024, including its development plans for

LYMPHIR, Mino-Lok, Mino-Wrap, Halo-Lido and NoveCite, will depend on its ability to obtain regulatory approval to market LYMPHIR and/or

Mino-Lok and generate substantial revenue from the sale of LYMPHIR and/or 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 LYMPHIR and/or 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 LYMPHIR and/or 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

and Technology License Agreement – Mino-Lok

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.

The Company recorded an annual maintenance fee expense of $ 90,000 in 2023 and 2022.

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 $ 60,000 and $ 45,000 in January 2022 and 2021, respectively.

The annual maintenance fee increases by $15,000 per year

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, 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.

will also pay annual royalties on net sales of licensed products, with royalties ranging from the mid-single digits to the low double

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.

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.

and Technology License Agreement – Mino-Wrap

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.

Anderson Cancer Center (“Licensor”), whereby we in-licensed exclusive worldwide

rights to the patented technology for any and all uses relating to breast implants.

We intend to develop a liquefying gel-based

wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive

surgeries (“Mino-Wrap”).

We are required to use commercially reasonable efforts to commercialize Mino-Wrap under several

regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval from the U.S.

Food and Drug

Administration (the “FDA”).

the license agreement, we paid an annual maintenance fee of $ 75,000 and $ 60,000 in January 2023 and 2022, respectively.

The annual maintenance

fee increases by $15,000 per year 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 .

Agreement with Eterna

October 6, 2020, our subsidiary, NoveCite, signed an exclusive license agreement for a novel cellular therapy for acute respiratory distress

syndrome (ARDS) with a subsidiary of Novellus, Inc.

(“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, if 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 continue on

a country-by-country and licensed product-by-licensed product basis until the expiration of the last-to-expire royalty term.

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.

Pursuant to the terms of the original stock subscription agreement, if NoveCite issued additional equity, subject to certain exceptions,

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

July 2021, Novellus was acquired by Brooklyn ImmunoTherapeutics, Inc.

(“Brooklyn”).

In connection with that transaction,

the stock subscription agreement 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.

In October 2022, Brooklyn changed its name to Eterna Therapeutics Inc.

License Agreement with Eisai

In September 2021, the Company entered into a

definitive agreement with Dr.

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.

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.

is obligated to pay Eterna 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 Eterna an

amount equal to a mid-twenties percentage of any sublicensee fees it receives.

the terms of the license agreement, if Eterna receives any revenue involving the original cell line included in the licensed technology,

then Eterna shall remit to NoveCite 50 % of such revenue.

term of the license agreement continue on a country-by-country and licensed product-by-licensed product basis until the expiration of

the last-to-expire royalty term.

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

NoveCite may terminate the license agreement at any time without cause upon 90 days prior written notice.

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 Eterna 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.

Agreement with Eisai

September 2021, the Company entered into an asset purchase agreement with Dr.

Reddy’s Laboratories SA, a subsidiary of Dr.

Reddy’s Laboratories, Ltd.

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

Reddy’s”) and a license agreement with Eisai Co., Ltd.

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

form of non-Hodgkin lymphoma.

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

We have obtained the trade name of LYMPHIR for E7777.

the terms of these agreements, we acquired Dr.

Reddy’s exclusive license for E7777 from Eisai and other related assets owned by

The exclusive license includes 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

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

Eisai retains exclusive development

and marketing rights for the agent in Japan and Asia.

Citius Pharma paid $ 40 million upfront payment which represents the acquisition

date fair value of the in-process research and development acquired from Dr.

2 unchanged sentences

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.

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

8 unchanged sentences

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.

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.

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.

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.

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 were required to reimburse Eisai for up to $2.65 million of its costs to complete the ongoing

Phase 3 pivotal clinical trial for LYMPHIR for the CTCL indication and reimburse Eisai for all reasonable costs associated with the preparation

of a Biologics License Application (“BLA”) for LYMPHIR.

Eisai was responsible for completing the CTCL clinical trial, and

chemistry, manufacturing, and controls (CMC) activities through the filing of a BLA for LYMPHIR with the FDA.

The BLA was filed with

the FDA on September 27, 2022.

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

term of the license agreement will continue until (i) March 30, 2026, if there has not been a commercial sale of a licensed product in

the territory, or (ii) if there has been a first commercial sale of a licensed product in the territory by March 30.

2026, the 10-year

anniversary of the first commercial sale on a country-by-country basis.

The term of the license may be extended for additional 10-year

periods for all countries in the territory by notifying Eisai and paying an extension fee equal to $10 million.

Either party may terminate

the license agreement upon written notice if the other party is in material breach of the agreement, subject to cure within the designated

time periods.

Either party also may terminate the license agreement immediately upon written notice if the other party files for bankruptcy

or takes related actions or is unable to pay its debts as they become due.

Additionally, either party will have the right to terminate

the agreement if the other party directly or indirectly challenges the patentability, enforceability or validity of any licensed patent.

under the asset purchase agreement with Dr.

Reddy’s, we are required to (i) use commercially reasonable efforts to make commercially

available products in the CTCL indication, peripheral T-cell lymphoma indication and immuno-oncology indication, (ii) initiate two investigator

initiated immuno-oncology trials, (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.

July 29, 2023, we received a Complete Response Letter, (“CRL”) from the FDA regarding the BLA seeking approval for LYMPHIR.

The FDA has required that we incorporate enhanced product testing, and additional controls agreed to with the FDA during the market application

The FDA raised no concerns relating to the safety and efficacy clinical data package.

September 8, 2023, we announced that the FDA agreed with our plans to address the requirements outlined in the CRL.

The guidance from

the FDA provides a path for completing the necessary activities to support the resubmission of the BLA.

No additional clinical efficacy

or safety trials have been requested by FDA for the resubmission.

Based on the feedback from the FDA, we plan to complete the CRL remediation

activities by the end of 2023 and file the resubmission in early 2024.

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.

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.

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

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.

summary of the significant accounting policies followed by the Company in the preparation of the consolidated financial statements is

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.

and Cash Equivalents

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.

Prepaid Expenses

Prepaid expenses at September

30, 2023 and 2022 consist of $ 154,611 and $ 162,398 of prepaid insurance, respectively, and $ 7,734,895 and $ 2,690,182 of advance payments

made for the preparation of long-lead time drug substance and product costs, respectively, which will be utilized in research and development

activities or in the manufacturing of LYMPHIR for sales upon approval.

and Development

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.

Research and Development and Goodwill

research and development of $ 19,400,000 represents the value of LMB’s 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.

research and development of $ 40,000,000 represents the value of our September 2021 acquisition of an exclusive license for LYMPHIR (denileukin

diftitox), a late-stage oncology immunotherapy for the treatment of CTCL, a rare form of non-Hodgkin lymphoma and is expected to be amortized

on a straight-line basis over a period of twelve years commencing upon revenue generation.

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.

Reddy’s 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 acquisitions

through September 30, 2022.

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 2022 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, 2022.

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.

There are no capitalized patents and trademarks as of September 30, 2022.

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.

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, 2022.

Any interest or penalties are charged to expense.

During the years ended

September 30, 2022 and 2021, the Company did not recognize any interest and penalties.

Tax years subsequent to September 30, 2018 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

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

The Company currently operates as a single segment.

Concentrations of Credit Risk

The Company has no significant off-balance-sheet

concentration of credit risk such as foreign exchange contracts, option contracts or other hedging arrangements.

Recently Issued Accounting Standards

In August 2020, the Financial Accounting

Standards Board (“FASB”) issued Accounting Standards Update (“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 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.

costs incurred on IPR&D after the acquisition date are expensed as incurred, unless there is an alternative future use.

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 acquisitions through September 30, 2023.

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.

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.

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

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.

Company performed a qualitative assessment for its 2023 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, 2023.

and Trademarks

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, 2023.

costs of unsuccessful and abandoned applications are expensed when abandoned.

The costs of maintaining existing patents are expensed

Company recognizes compensation costs resulting from the issuance of stock-based awards to employees and directors as an expense in the

consolidated statement of operations over the requisite service period based on the fair value for each stock award on the grant date.

The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option pricing model.

The Company estimates

volatility using the trading activity of its common stock.

Because the Company’s stock options have characteristics significantly

different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, the

existing model may not necessarily provide a reliable single measure of fair value of the Company’s stock options.

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

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, 2023.

or penalties are charged to expense.

During the years ended September 30, 2023 and 2022, the Company did not recognize any interest and

Tax years subsequent to September 30, 2019 are subject to examination by federal and state authorities.

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.

and Diluted Net Loss per Common Share

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.

Company currently operates as a single segment.

Concentrations

of Credit Risk

Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other

hedging arrangements.

Issued Accounting Standards

October 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 Accounting Standards Codification (“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.

ASU 2021-08 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

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 year ended September 30, 2021 was $ 9,606 .

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 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 for

the year ended September 30, 2021.

On July 28, 2021, the Small Business Administration

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.

Accounting for Acquired Contract Assets and

Contract Liabilities.

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 Accounting Standards Codification (“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.

ASU 2021-08 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 year 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.

COMMON STOCK, STOCK OPTIONS AND WARRANTS

Common Stock Issued for Services

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.

On November 2, 2021, the Company issued 50,201

shares of common stock for investor relations services and expensed the $ 95,884 fair value of the common stock issued.

On March 21, 2022, the Company issued 100,000

shares of common stock for media, public and investor relations services and expensed the $ 178,000 fair value of the common stock issued.

On September 13, 2022, the Company issued 81,500

shares of common stock for media, public and investor relations services and expensed the $ 104,320 fair value of the common stock issued.

Common Stock Offerings

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, we

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

Stock Issued for Services

November 2, 2021, the Company issued 50,201 shares of common stock for investor relations services and expensed the $ 95,884 fair value

of the common stock issued.

March 21, 2022, the Company issued 100,000 shares of common stock for media, public and investor relations services and expensed the

$ 178,000 fair value of the common stock issued.

September 13, 2022, the Company issued 81,500 shares of common stock for media, public and investor relations services and expensed the

$ 104,320 fair value of the common stock issued.

March 27, 2023, the Company issued 100,000 shares of common stock for media, public and investor relations services and expensed the

$ 102,000 fair value of the common stock issued.

Stock Offering

May 8, 2023, the Company closed a registered direct offering of 12,500,001 common shares and warrants to purchase up to 12,500,001 common

shares, at a purchase price of $ 1.20 per share and accompanying warrant for gross proceeds of $ 15,000,001 .

The warrants have an exercise

price of $ 1.50 per share, are exercisable six months from the date of issuance, and expire five years from the date of issuance.

estimated fair value of the warrants issued to the investors was approximately $ 11,000,000 .

proceeds were $ 13,798,183 after deducting the placement agent fee of $ 1,050,000 , placement agent expenses of $ 85,000 , legal fees of $ 50,868 ,

and other offering expenses of $ 15,950 .

The Company also issued 875,000 warrants to the placement agent at an exercise price of $ 1.50

per share, that are exercisable six months from the date of issuance, and expire five years from the date of issuance.

The estimated

fair value of the warrants issued to the placement agent was approximately $ 771,000 .

to our 2014 Stock Incentive Plan, we reserved 866,667 shares of common stock.

As of September 30, 2023, there were options to purchase

795,171 shares outstanding, options to purchase 4,829 shares were exercised, options to purchase 66,667 shares expired, and no shares

were available for future grants.

to our 2018 Omnibus Stock Incentive Plan, we reserved 2,000,000 shares of common stock.

As of September 30, 2023, 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 and we reserved 2,000,000 shares of common stock for issuance to employees, directors, and consultants.

As of September 30, 2022, there were options to purchase 1,820,000 shares outstanding, options to purchase 70,000 shares were exercised

to purchase 1,760,000 shares outstanding, options to purchase 116,667 shares were exercised, options to purchase 13,333 shares expired,

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, 2022, 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, 2022, options

to purchase 4,855,000 shares were outstanding and there were 3,885,000 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.

to our 2020 Plan, we reserved 3,110,000 shares of common stock.

As of September 30, 2023, there were options to purchase 1,820,000 shares

outstanding, options to purchase 50,000 shares expired and the remaining 1,240,000 shares were transferred to the 2021 Omnibus Stock

Incentive Plan (“2021 Stock Plan”).

to our 2021 Stock Plan, we reserved 8,740,000 shares of common stock.

As of September 30, 2023, options to purchase 8,630,000 shares

were outstanding, options to purchase 75,000 shares expired and the remaining 35,000 shares were transferred to the 2023 Omnibus Stock

Incentive Plan (“2023 Stock Plan”).

November 2022, our Board approved the 2023 Stock Plan, subject to stockholder approval, which was received on February 7, 2023.

Stock Plan has reserved for issuance 12,035,000 shares of common stock.

As of September 30, 2023, options to purchase 300,000 shares

were outstanding and 11,735,000 shares remain available for future grants.

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

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, 2022 and 2021:

Risk-free interest rate

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.

following assumptions were used in determining the fair value of stock option grants for the years ended September 30, 2023 and 2022:

interest rate

3.52 – 4.14 %

1.05 – 2.94 %

Expected dividend yield

Expected term

dividend yield

5.50 – 10 years

6.50 – 10 years

Expected volatility

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

Stock Plan) is presented below:

Outstanding at September 30, 2021

Outstanding at September 30, 2022

summary of option activity under the Citius Pharma plans (excluding the NoveCite and Citius Oncology Stock Plans) is presented below:

at September 30, 2022

at September 30, 2023

weighted average grant date fair value of the options granted during the year ended September 30, 2022 was estimated at $ 1.67 per share.

All these options vest over terms of 12 to 36 months and have a term of 10 years.

weighted average grant date fair value of the options granted during the year ended September 30, 2023 was estimated at $ 0.98 per share.

All these options vest over terms of 12 to 36 months and have a term of 10 years.

compensation expense for the years ended September 30, 2023 and 2022 was $ 6,616,705 (including $ 130,382 for the NoveCite plan and $ 1,965,500

for the Citius Oncology plan) and $ 3,905,954 (including $ 133,332 for the NoveCite plan), respectively.

September 30, 2023, unrecognized total compensation cost related to unvested awards under the Citius stock plans of $ 4,840,874 is expected

to be recognized over a weighted average period of 1.53 years.

Stock Plan – Under the NoveCite Stock Plan, we reserved 2,000,000 common shares of NoveCite.

As of September 30, 2023,

there were options outstanding to purchase 1,911,500 common shares of NoveCite and 88,500 common shares of NoveCite available for future

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 options to purchase 88,500 common shares were forfeited, and options to purchase

1,673,625 common shares were exercisable as of September 30, 2023.

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 7.39 years.

No options were

issued in fiscal years 2023 and 2022.

At September 30, 2023, unrecognized total compensation cost related to unvested awards under

the NoveCite Stock Plan of $ 47,575 is expected to be recognized over a weighted average period of 0.67 years.

Oncology Stock Plan - Under the Citius Oncology Stock Plan, adopted on April 29, 2023, we reserved 15,000,000 common shares of

Citius Oncology.

The Citius Oncology 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.

the year ended September 30, 2023, Citius Oncology granted options to purchase 12,750,000 common shares at a weighted average price of

$ 2.15 per share, of which options to purchase 150,000 common shares were forfeited and options to purchase 655,556 common shares were

exercisable at September 30, 2023.

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 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, 2022 was estimated at $ 1.67 per share.

All 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, 2022 and 2021 was $3,905,954 (including $133,332 for the NoveCite Stock Plan) and $1,454,979 (including $83,555 for

the NoveCite Stock Plan), respectively.

At September 30, 2022, unrecognized total compensation

cost related to unvested awards under the Citius stock plans of $ 5,317,681 is expected to be recognized over a weighted average period

of 1.92 years.

On November 5, 2020, the stockholders of NoveCite,

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, 2022, 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 1,084,444

are exercisable as of September 30, 2022.

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

30, 2023 was estimated at $ 1.65 per share.

All 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 8.39 years.

At September 30, 2022, unrecognized total compensation

cost related to unvested awards under the NoveCite Stock Plan of $183,111 is expected to be recognized over a weighted average period

of 1.45 years.

The Company has reserved 38,325,489 shares of

common stock for the exercise of outstanding warrants.

The following table summarizes the warrants outstanding at September 30, 2022:

Expiration Dates

December 2017 Registered Direct/Private Placement Investors

June 19, 2023

December 2017 Registered Direct/Private Placement Agent

December 19, 2022

March 2018 Registered Direct/Private Placement Investors

These options vest over periods from 12 to 36 months and have a term of 10 years.

average remaining contractual term of options outstanding under the Citius Oncology Stock Plan is 9.77 years.

At September 30, 2023,

unrecognized total compensation cost related to unvested awards under the Citius Oncology Stock Plan of $ 18,882,500 is expected to be

recognized over a weighted average period of 2.64 years.

Company has reserved 50,923,819 shares of common stock for the exercise of outstanding warrants.

The following table summarizes the warrants

outstanding at September 30, 2023:

2018 Registered Direct/Private Placement Investors

October 2, 2023

March 2018 Registered Direct/Private Placement Agent

March 28, 2023

August 2018 Offering Investors

2 unchanged sentences

August 8, 2024

April 2019 Registered Direct/Private Placement Investors

2019 Registered Direct/Private Placement Investors

April 5, 2024

April 2019 Registered Direct/Private Placement Agent

2019 Registered Direct/Private Placement Agent

April 5, 2024

September 2019 Offering Investors

September 2019 Offering

September 27, 2024

September 2019 Offering Underwriter

September 2019 Offering

September 27, 2024

February 2020 Exercise Agreement Placement Agent

February 2020 Exercise

Agreement Placement Agent

August 19, 2025

May 2020 Registered Direct Offering Investors

Registered Direct Offering Investors

November 18, 2025

May 2020 Registered Direct Offering Placement Agent

Registered Direct Offering Placement Agent

August 2020 Underwriter

August 10, 2025

January 2021 Registered Direct Offering Investors

2021 Registered Direct Offering Investors

July 27, 2026

January 2021 Registered Direct Offering Agent

2021 Registered Direct Offering Agent

July 27, 2026

February 2021 Offering Investors

February 2021 Offering

February 19, 2026

February 2021 Offering Agent

February 2021 Offering

February 19, 2026

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, 2022, the weighted average remaining

life of the outstanding warrants is 2.89 years, all warrants are exercisable, and the aggregate intrinsic value for the warrants

outstanding was $ 1,832,879 .

Common Stock Reserved

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

30, 2022 is as follows:

Registered Direct Offering Investors

2023 Registered Direct Offering Agent

August 8, 2023, we extended the term by one year to August 14, 2024 for 3,921,569 warrants for common stock with an exercise price

of $ 1.15 per share and extended the term by one year to August 8, 2024 for 189,412 warrants with an exercise price of $ 1.59 per

We recorded a deemed dividend of $ 1,151,208 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, 2023.

September 30, 2023, the weighted average remaining life of the outstanding warrants is 2.72 years, all warrants are exercisable, and

there was no aggregate intrinsic value for the warrants outstanding.

Stock Reserved

of common stock reserved for future issuances as of September 30, 2023 is as follows:

Stock plan options outstanding

2 unchanged sentences

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 AGREEMENTS

August 8, 2023, we extended the term by one year for 3,921,569 warrants held by our Chairman and by our Executive Vice Chairman (see

EMPLOYMENT AGREEMENTS

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 April 12, 2022, the Company entered into an

18-month employment agreement with Myron Holubiak to serve as Executive Vice Chairman.

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.

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.

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.

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.

November 27, 2017, the Company entered into an employment agreement with Jaime Bartushak to serve as the Chief Financial Officer and

Principal Financial Officer of the Company.

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.

April 12, 2022, we entered into an 18-month employment agreement with Myron Holubiak to serve as Executive Vice Chairman.

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.

July 13, 2020, we entered into an employment agreement with Myron Czuczman, M.D.

to serve as Executive Vice President, Chief Medical

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.

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.

COMMITMENTS AND CONTINGENCIES

Operating Lease

Effective July 1, 2019, Citius entered into a

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

Citius will pay its proportionate share of real estate taxes and operating expenses in

excess of the base year expenses.

These costs are 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.

July 1, 2019, we entered into a 76-month lease for office space in Cranford, NJ.

We pay our proportionate share of real estate taxes

and operating expenses in excess of the base year expenses.

These costs are variable lease payments and are not included in the determination

of the lease’s right-of-use asset or lease liability.

identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:

As the Cranford lease does

not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease

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

Since the Company elected to account for each lease component and its associated non-lease components as a single combined component, all contract consideration was allocated to the combined lease component.

The expected lease terms include noncancelable lease periods.

The elements of lease expense are as follows:

Since the Company elected

to account for each lease component and its associated non-lease components as a single combined component, all contract consideration

was allocated to the combined lease component.

The expected lease terms

include noncancelable lease periods.

elements of lease expense are as follows:

September 30,

4 unchanged sentences

Other information

Weighted-average remaining lease term - operating leases

Weighted-average discount rate - operating leases

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

leases are as follows:

Year Ending September 30,

Total lease payments

Present value of lease liabilities

Weighted-average remaining lease term - operating

Weighted-average discount rate - operating

of lease liabilities due under the Company’s non-cancellable leases are as follows:

September 30,

lease payments

value of lease liabilities

Classification

1 unchanged sentence

September 30,

Total lease assets

Total lease liabilities

Interest expense on the lease liability was $ 62,068

and $ 75,448 for the years ended September 30, 2022 and 2021, respectively.

Legal Proceedings

The Company is not involved in any litigation

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.

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.

The income tax expense (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, 2022

and 2021 due to the following:

Computed “expected” tax benefit

Increase (decrease) in income taxes resulting from:

lease liabilities

expense on the lease liability was $ 47,176 and $ 62,068 for the years ended September 30, 2023 and 2022, respectively.

Company is not involved in any litigation 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.

GAIN ON SALE OF NEW JERSEY NET OPERATING LOSSES

Company recognized a gain of $ 3,585,689 for the year ended September 30, 2023 in connection with the sale of certain New Jersey income

tax net operating losses to a third party under the New Jersey Technology Business Tax Certificate Transfer Program.

Company recorded deferred income tax expense of $ 576,000 for the both the years ended September 30, 2023 and 2022 related to the amortization

for taxable purposes of its in-process research and development asset.

income tax expense (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, 2023 and 2022 due to the following:

Computed “expected”

Increase (decrease) in income taxes resulting

State taxes, net of federal benefit

Permanent differences

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 follows:

Increase in the

valuation reserve

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,

3 unchanged sentences

Stock-based compensation

Valuation allowance on deferred tax assets

Capitalized research and development

Valuation allowance

on deferred tax assets

( 44,915,000 )

( 39,931,000 )

Total deferred tax assets

deferred tax assets

Deferred tax liabilities:

In-process research and development

In-process research

and development

( 6,137,800 )

( 5,561,800 )

Total deferred tax liability

deferred tax liability

( 6,137,800 )

( 5,561,800 )

Net deferred tax liability

deferred tax liability

$ ( 6,137,800 )

$ ( 5,561,800 )

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.

the years ended September 30, 2022 and 2021, the valuation allowance increased by $ 10,754,000 and $ 12,257,000 , respectively.

in the valuation allowance during the years ended September 30, 2022 and 2021 was primarily due to the Company’s net operating loss.

September 30, 2022, the Company has a federal net operating loss carryforward of approximately $ 121,000,000 .

Federal net operating loss

carryforwards of approximately $ 35,000,000 begin expiring in 2034 and carryforwards of approximately $ 86,000,000 generated in tax years

beginning after 2017 may be carried forward indefinitely.

As of September 30, 2022, the Company also has

estimated federal research and development credits of $ 3,208,000 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.

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, 2023 and 2022, the valuation allowance increased by $ 4,984,000

and $ 10,754,000 , respectively.

The increase in the valuation allowance during the years ended September 30, 2023 and 2022 was primarily

due to the Company’s net operating loss.

At September 30, 2023, the Company has a federal net operating loss carryforward

of approximately $ 133,000,000 .

Federal net operating loss carryforwards of approximately $ 35,000,000 begin expiring in 2034 and carryforwards

of approximately $ 98,000,000 generated in tax years beginning after 2017 may be carried forward indefinitely.

of September 30, 2023, the Company also has estimated federal research and development credits of $ 3,511,000 to offset future income

The tax credit carryforwards will begin to expire in 2036.

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.

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

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

NASDAQ LISTING

September 12, 2023, we received a notification letter from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that we were

not in compliance with Nasdaq Listing Rule 5550(a)(2) because the minimum bid price of our common stock on the Nasdaq Capital Market

closed below $ 1.00 per share for 30 consecutive business days.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has

a compliance period of 180 calendar days, or until March 11, 2024, to regain compliance with the Bid Price Rule.

If at any time before

March 11, 2024, the bid price of the Company’s common stock closes at $ 1.00 per share or more for a minimum of ten consecutive

business days, Nasdaq will provide the Company with a written confirmation of compliance with the Bid Price Rule.

If the Company does

not regain compliance with the Bid Price Rule by March 11, 2024, the Company may be eligible for an additional 180-day compliance period.

To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all

other initial listing standards for the Nasdaq Capital Market, with the exception of the Bid Price Rule, and would need to provide written

notice of its intention to cure the bid price deficiency during the second compliance period by effecting a reverse stock split, if necessary.

SUBSEQUENT EVENTS

In November 2022, the Company was selected to

participate in New Jersey’s Technology Business Tax Certificate Transfer (NOL) Program, more commonly known as the Net Operating

Loss (NOL) Program, and will receive $ 3.6 million in non-dilutive capital through the New Jersey Economic Development Authority (NJEDA).

The Company expects to receive the funds by late 2022 or early 2023.

Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure

Agreement - On October 23, 2023, Citius Pharma and Citius Oncology entered into an agreement and plan of merger and reorganization

(the “Merger Agreement”) with TenX Keane Acquisition, a Cayman Islands exempted company (“TenX”), and TenX Merger

Sub Inc., a Delaware corporation, and a wholly owned subsidiary of TenX (“Merger Sub”).

The Merger Agreement provides, among

other things, (i) on the terms and subject to the conditions set forth therein, that Merger Sub will merge with and into Citius Oncology,

with Citius Oncology surviving as a wholly owned subsidiary of TenX (the “Merger”), and (ii) that prior to the effective

time of the Merger (the “Effective Time”), TenX will migrate to and domesticate as a Delaware corporation in accordance with

Section 388 of the General Corporation Law of the State of Delaware and the Cayman Islands Companies Act (As Revised) (the “Domestication”).

The newly combined publicly traded company is to be named “Citius Oncology, Inc.” (the “Combined Company”).

Domestication, Merger and the other transactions contemplated by the Merger Agreement are referred to as the “Business Combination.”

the Merger, all shares of Citius Oncology would be converted into the right to receive common stock of the Combined Company.

upon closing, Citius Pharma would receive 67.5 million shares of common stock of the Combined Company.

As part of the transaction, Citius

Pharma will contribute $ 10 million in cash to the Combined Company.

The 12.6 million existing Citius Oncology common stock options will

be assumed by the Combined Company.

Citius Pharma and the Combined Company will also enter into an amended and restated shared services

agreement, which, among other things, will govern certain management and scientific services that Citius Pharma will continue to provide

to the Combined Company following the Effective Time.

Merger Agreement, Business Combination and the transactions contemplated thereby were unanimously approved by the boards of directors

of each of Citius Pharma, Citius Oncology and TenX.

The transaction is expected to be completed in the first half of 2024, subject to

approval by stockholders of TenX and other customary closing conditions, including final regulatory approvals and SEC filings.

can be no assurance regarding the ultimate timing of the proposed transaction or that the transaction will be completed at all.

On December 11, 2023, the Company terminated the Mino-Wrap license

agreement with the Board of Regents of the University of Texas System on behalf of MDACC.

In late December 2023, the Company determined that patient enrollment

for the Mino-Lok trial was complete and that it would begin site shutdown activities.

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