2.
GOING CONCERN UNCERTAINTY AND MANAGEMENT’S PLAN
The
accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company experienced negative cash flows from
operations of $6,008,122 for the six months ended March 31, 2019. 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. At March 31, 2019, the
Company had limited capital to fund its operations. This raises substantial doubt about the Company’s ability to continue
as a going concern.
The
Company plans to raise capital through equity financings from outside investors as well as raise additional funds from existing
investors and continued borrowings under related party debt agreements. There is no assurance, however, that the Company will
be successful in raising the needed capital and, if funding is available, that it will be available in amounts sufficient for
and on terms acceptable to the Company. The accompanying condensed consolidated financial statements do not include any adjustments
that might result from the outcome of the above uncertainty. In April 2019, the Company closed a registered direct offering with several institutional and accredited investors for gross
proceeds of $5.3 million (see Note 8).
3.
PATENT AND TECHNOLOGY LICENSE AGREEMENTS
Patent
and Technology License Agreement – Mino-Lok
LMB
has a patent and technology license agreement with Novel Anti-Infective Therapeutics, Inc. (“NAT”) to develop and
commercialize Mino-Lok® on an exclusive, worldwide sub licensable basis, as amended. LMB pays an annual maintenance fee in
June until commercial sales of a product subject to the license commence. There was no maintenance fee paid in each of the six-month
periods ended March 31, 2019 and 2018.
LMB
will also pay annual royalties on net sales of licensed products, with royalties ranging from the mid-single digits to the low
double digits. In limited circumstances in which the licensed product is not subject to a valid patent claim and a competitor
is selling a competing product, the royalty rate is in the low single digits. After a commercial sale is obtained, LMB must pay
minimum aggregate annual royalties 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 $1,390,000 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 – Mino-Wrap
On
January 2, 2019, we entered into a patent and technology license agreement with the Board of Regents of the University of Texas
System on behalf of the University of Texas M. D. Anderson Cancer Center (“Licensor”), whereby we in-licensed exclusive
worldwide rights to the patented technology for any and all uses relating to breast implants. We intend to develop a liquefying
gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast
reconstructive surgeries (“Mino-Wrap”). We are required to use commercially reasonable efforts to commercialize
Mino-Wrap under several regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval
from the U.S. Food and Drug Administration.
Under
the license agreement, the Company paid a nonrefundable upfront payment of $125,000 which was recorded as research and development
expense during the six months ended March 31, 2019. We are obligated to pay an annual maintenance fee of $30,000, commencing in
January 2020, that increases annually by $15,000 per year up to a maximum of $90,000. Annual maintenance fees cease on the first
sale of product. We also must pay up to an aggregate of $2.1 million in milestone payments, contingent on the achievement of various
regulatory and commercial milestones. Under the terms of the license agreement, we also must pay a royalty of mid- to upper-single
digit percentages of net sales, depending on the amount of annual sales, and subject to downward adjustment to lower- to mid-single
digit percentages in the event there is no valid patent for the product in the United States at the time of sale. After the first
sale of product, we will owe an annual minimum royalty payment of $100,000 that will increase annually by $25,000 for the duration
of the term. We will be responsible for all patent expenses incurred by Licensor for the term of the agreement although
Licensor is responsible for filing, prosecution and maintenance of all patents. The agreement expires on the later of the expiration
of the patents or January 2, 2034.
4.
NOTES PAYABLE – RELATED PARTIES
The
aggregate principal balance as of March 31, 2019 consists 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 accrue interest at the prime rate plus 1.0% per annum and notes with an aggregate principal balance
of $68,970 accrue interest at 12% per annum.
Interest
expense on notes payable – related parties was $4,105 and $4,705, respectively, for the three months ended March 31, 2019
and 2018. Interest expense on notes payable – related parties was $8,108 and $7,897, respectively, for the six months ended
March 31, 2019 and 2018.
5.
COMMON STOCK, STOCK OPTIONS AND WARRANTS
2017
Public Offering and Release Agreement
On
November 7, 2017, the Company entered into a release agreement with the underwriter of the public offering that closed in August
2017. The Company had previously granted a right of first refusal to underwrite all equity and debt offerings for a period of
twelve months following completion of the August 2017 public offering (“Right of First Refusal”). Under the release,
the Company agreed to pay the underwriter $100,000 in cash and issue 60,000 shares of restricted common stock with a fair value
of $257,400 in exchange for a full release from all obligations related to the Right of First Refusal. The Company expensed the
$357,400 cost of the release agreement in November 2017.
Registered
Direct/Private Placement Offerings
On
December 19, 2017, the Company closed a registered direct offering with several institutional and accredited investors for the
sale of 1,280,360 shares of common stock at $4.6925 per share for gross proceeds of $6,008,089. Simultaneously, the Company privately
sold and issued to the investors 640,180 immediately exercisable five and a half year warrants with an exercise price of $4.63
per share. The Company paid the placement agent for the offering a fee of 7% of the gross proceeds totaling $420,566 and issued
the placement agent 89,625 immediately exercisable five-year warrants with an exercise price of $5.8656 per share. The Company
also reimbursed the placement agent for $85,000 in expenses and incurred $20,000 in other expenses. Net proceeds from the offering
were $5,482,523. The estimated fair value of the 640,180 warrants issued to the investors was $2,407,276 and the estimated fair
value of the 89,625 warrants issued to the placement agent was $316,071.
On
March 29, 2018, the Company closed a registered direct offering with an institutional and an accredited investor for the sale
of 669,504 shares of common stock at $2.985 per share for gross proceeds of $1,998,469. Simultaneously, the Company privately
sold and issued to investors 669,504 immediately exercisable five and a half year warrants with an exercise price of $2.86 per
share. The Company paid the placement agent for the offering a fee of 7% of the gross proceeds totaling $139,893 and issued the
placement agent 46,866 immediately exercisable five-year warrants with an exercise price of $3.73125 per share. The Company also
reimbursed the placement agent for $85,000 in expenses and incurred $10,000 in other expenses. Net proceeds from the offering
were $1,763,576. The estimated fair value of the 669,504 warrants issued to the investors was $1,679,482 and the estimated fair
value of the 46,866 warrants issued to the placement agent was $110,511.
August
2018 Offering
On
August 13, 2018, Citius closed an underwritten offering of (i) 5,521,569 units, each unit consisting of one share of common stock
and one immediately exercisable five-year warrant to purchase one share with an exercise price of $1.15 per share, and (ii) 2,321,569
pre-funded units, each pre-funded unit consisting of one pre-funded warrant to purchase one share and one immediately exercisable
five-year warrant to purchase one share with an exercise price of $1.15 per share. The pre-funded warrants included in the pre-funded
units are immediately exercisable at a price of $0.01 per share and do not expire. The offering price was $1.275 per unit and
$1.265 per pre-funded unit. The net proceeds of the offering were $8,926,786. The Company issued underwriter warrants to purchase
up to 549,020 shares with an exercise price of $1.59375 per share with an estimated fair value of $491,737. The underwriter warrants
are exercisable following February 8, 2019 and expire on August 8, 2023. The estimated fair value of the 2,321,569 pre-funded
warrants was $2,630,072, and the estimated fair value of the 7,843,138 warrants included in the units and the pre-funded units
issued to the investors was $7,311,727.
Unit
Purchase Options
On
April 7, 2017, the Company issued a three-year Unit Purchase Option Agreement for 38,000 units at a purchase price of $9.00 per
unit. Each unit consists of one share of common stock and a warrant to purchase one share of common stock at an exercise price
of $9.00 per share which expires on the earlier of three years after exercise of the Unit Purchase Option Agreement or April 7,
2023.
On
June 29, 2017, the Company issued a three-year Unit Purchase Option Agreement for 62,667 units at a purchase price of $9.00 per
unit. Each unit consists of one share of common stock and a warrant to purchase one share of common stock at an exercise price
of $9.00 per share which expires on the earlier of three years after exercise of the Unit Purchase Option Agreement or June 29,
2022. The Company estimated the fair value of the unit purchase option agreement at $193,860 and recorded it as a prepaid expense.
The Company recorded an expense of $96,930 for this agreement during the year ended September 30, 2017 and expensed the remaining
balance of $96,930 during the three months ended December 31, 2017.
Common
Stock Issued for Services
On
February 7, 2018, the Company issued 22,200 shares of common stock for services provided by two consultants and expensed the $88,800
fair value of the common stock issued. On April 1, 2018, the Company issued 10,000 shares of common stock for services provided
by a consultant and expensed the $31,000 fair value of the common stock issued.
On
February 13, 2019, the Company issued 125,000 shares of common stock for investor relations services and expensed the $117,500
fair value of the common stock issued.
Stock
Option Plans
Pursuant
to its 2014 Stock Incentive Plan (the “2014 Plan”) the Company reserved 866,667 shares of common stock for issuance
to employees, directors and consultants. The Board of Directors (or committees and/or executive officers delegated by the Board
of Directors) may grant stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based
awards and cash-based awards under the 2014 Plan. As of March 31, 2019, there were options to purchase an aggregate of 856,039
shares of common stock outstanding under the 2014 Plan, options to purchase 4,829 shares were exercised, and 5,799 shares remain
available for future grants.
On
February 7, 2018, our stockholders approved the 2018 Omnibus Stock Incentive Plan (the “2018 Plan”) and the Company
reserved 2,000,000 shares of common stock for issuance to employees, directors and consultants. Pursuant to the 2018 Plan, the
Board of Directors (or committees and/or executive officers delegated by the Board of Directors) may grant stock options, stock
appreciation rights, restricted stock, restricted stock units, other stock-based awards and cash-based awards. As of March 31,
2019, there were options to purchase an aggregate of 790,000 shares of common stock outstanding under the 2018 Plan and 1,210,000
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. Due to its
limited operating history and limited number of sales of its common stock, the Company estimated its volatility in consideration
of a number of factors including the volatility of comparable public companies through December 31, 2018. During the three months
ended March 31, 2019, the Company estimated its volatility using the trading activity of its common stock. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.
The expected term of stock options granted, all of which qualify as “plain vanilla,” is based on the average of the
contractual term (generally 10 years) and the vesting period. For non-employee options, the expected term is the contractual
term.
A
summary of option activity under the 2014 Plan and 2018 Plan is presented below:
|
|
Option
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at October 1, 2018
|
|
|
1,601,039
|
|
|
$
|
4.35
|
|
|
|
8.56 years
|
|
|
$
|
173,291
|
|
Granted
|
|
|
45,000
|
|
|
|
0.94
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
|
1,646,039
|
|
|
$
|
4.25
|
|
|
|
8.11 years
|
|
|
$
|
114,886
|
|
Exercisable at March 31, 2019
|
|
|
772,331
|
|
|
$
|
7.01
|
|
|
|
6.68 years
|
|
|
$
|
93,820
|
|
Stock-based
compensation expense for the six months ended March 31, 2019 and 2018 was $374,944 and $504,687, respectively.
At
March 31, 2019, unrecognized total compensation cost related to unvested awards of $1,058,798 is expected to be recognized over
a weighted average period of 2.0 years.
Warrants
As
of March 31, 2019, the Company has reserved shares of common stock for the exercise of outstanding warrants. The following table
summarizes the warrants outstanding:
|
|
Exercise
price
|
|
|
Number
|
|
|
Expiration Dates
|
Investor and Placement Agent Warrants
|
|
$
|
9.00
|
|
|
|
384,006
|
|
|
September 12, 2019
|
Investor Warrants
|
|
|
9.00
|
|
|
|
202,469
|
|
|
March 19, 2020 – September 14, 2020
|
Investor Warrants
|
|
|
9.00
|
|
|
|
307,778
|
|
|
November 5, 2020 – April 25, 2021
|
LMB Warrants
|
|
|
6.15
|
|
|
|
90,151
|
|
|
June 12, 2019 – March 2, 2021
|
LMB Warrants
|
|
|
9.90
|
|
|
|
8,155
|
|
|
September 30, 2019 – January 8, 2020
|
LMB Warrants
|
|
|
20.70
|
|
|
|
17,721
|
|
|
November 3, 2019 – March 6, 2020
|
LMB Warrants
|
|
|
7.50
|
|
|
|
73,883
|
|
|
August 18, 2020 – March 14, 2021
|
LMB Warrants
|
|
|
7.50
|
|
|
|
53,110
|
|
|
March 24, 2022 – April 29, 2022
|
Financial Advisor Warrants
|
|
|
3.00
|
|
|
|
25,833
|
|
|
August 15, 2021
|
2016 Offering Warrants
|
|
|
4.13
|
|
|
|
140,819
|
|
|
November 23, 2021 – February 27, 2022
|
Convertible Note Warrants
|
|
|
9.75
|
|
|
|
40,436
|
|
|
September 12, 2019
|
2017 Public Offering Warrants
|
|
|
4.13
|
|
|
|
1,622,989
|
|
|
August 2, 2022
|
2017 Public Offering Underwriter Warrants
|
|
|
4.54
|
|
|
|
65,940
|
|
|
February 2, 2023
|
December 2017 Registered Direct/Private Placement Offering Investor Warrants
|
|
|
4.63
|
|
|
|
640,180
|
|
|
June 19, 2023
|
December 2017 Registered Direct/Private Placement Offering Placement Agent Warrants
|
|
|
5.87
|
|
|
|
89,625
|
|
|
December 19, 2022
|
March 2018 Registered Direct/Private Placement Offering Investor Warrants
|
|
|
2.86
|
|
|
|
669,504
|
|
|
October 2, 2023
|
March 2018 Registered Direct/Private Placement Offering Placement Agent Warrants
|
|
|
3.73
|
|
|
|
46,866
|
|
|
March 28, 2023
|
August 2018 Offering Investor Warrants
|
|
|
1.15
|
|
|
|
7,843,138
|
|
|
August 14, 2023
|
August 2018 Offering Agent Warrants
|
|
|
1.59
|
|
|
|
549,020
|
|
|
August 8, 2023
|
|
|
|
|
|
|
|
12,871,623
|
|
|
|
During
the six months ended March 31, 2018, 40,834 of the Financial Advisor Warrants were exercised on a cashless basis resulting in
the issuance of 16,547 shares of common stock and 272,767 of the August 2017 public offering warrants were exercised at $4.125
per share for net proceeds of $1,125,148.
During
the six months ended March 31, 2019, the 2,321,569 August 2018 Offering Pre-Funded Unit Warrants were exercised at $0.01 per share
for net proceeds of $23,216.
At
March 31, 2019, the weighted average remaining life of the outstanding warrants is 3.92 years, all warrants are exercisable, and
the aggregate intrinsic value for the warrants outstanding was $2,117,647.
Common
Stock Reserved
A
summary of common stock reserved for future issuances as of March 31, 2019 is as follows:
Stock plan options outstanding
|
|
|
1,646,039
|
|
Stock plan shares available for future grants
|
|
|
1,215,799
|
|
Warrants outstanding
|
|
|
12,871,623
|
|
Unit purchase options outstanding
|
|
|
201,334
|
|
Total
|
|
|
15,935,795
|
|
6. RELATED PARTY TRANSACTIONS
Our
Chairman of the Board, Leonard Mazur, is the cofounder and Vice Chairman of Akrimax Pharmaceuticals, LLC (“Akrimax”),
a privately held pharmaceutical company specializing in producing cardiovascular and general pharmaceutical products. The Company
leases office space from Akrimax (see Note 7).
The
Company has outstanding debt due to Leonard Mazur (Chairman of the Board) and Myron Holubiak (Chief Executive Officer) (see Note
4).
In
connection with the December 2017 Registered Direct/Private Placement Offering, Mr. Mazur purchased 213,106 shares of common stock
at $4.6925 per share and received 106,553 warrants with an exercise price of $4.63 per share (See Note 5). In connection
with the March 2018 Registered Direct/Private Placement Offering, Mr. Mazur purchased 167,504 shares of common stock at $2.985
per share and received 167,504 warrants with an exercise price of $2.86 per share (See Note 5). The purchases were made on
the same terms as for all other investors.
In
connection with the August 2018 offering, Mr. Mazur purchased 3,137,255 shares of common stock at $1.275 per share and received
3,137,255 warrants with an exercise price of $1.15 per share, and Mr. Holubiak purchased 784,314 shares of common stock at $1.275
per share and received 784,314 warrants with an exercise price of $1.15 per share (See Note 5). The purchases were made on the
same terms as for all other investors.
General
and administrative expense for the six months ended March 31, 2019 and 2018 includes $20,000 and $24,000, respectively, paid to
a financial consultant who is a stockholder of the Company. The consulting agreement ended in February 2019.
7.
OPERATING LEASE
LMB
leases office space from Akrimax (see Note 6) in Cranford, New Jersey at a monthly rental rate of $2,167 pursuant to an agreement
which expired on April 30, 2019. Citius is in the process of negotiating a new lease for space in the same location. Rent expense
for the six months ended March 31, 2019 and 2018 was $13,000 for both periods.
8.
SUBSEQUENT EVENTS
On
April 3, 2019, the Company closed a registered direct offering with several institutional and accredited investors for the sale
of 3,430,421 shares of common stock at $1.545 per share for gross proceeds of $5.3 million. The Company also issued 3,430,421
immediately exercisable two-year unregistered warrants to the investors. The warrants have an exercise price of $1.42 per share.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis
of our financial condition and results of operations for the six months ended March 31, 2019 should be read together with our unaudited
consolidated financial statements and related notes included elsewhere in this report and
in
conjunction with the audited financial statements of Citius Pharmaceuticals, Inc. included in our Annual Report on Form 10-K for
the year ended September 30
, 2018. The following discussion contains “forward-looking statements” that
reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially
from
those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. We caution that
assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and
the differences can be material. Please see “Cautionary Note Regarding Forward-Looking Statements.”
Historical Background
Citius Pharmaceuticals, Inc. (“Citius”
or the “Company”) is a specialty pharmaceutical company dedicated to the development and commercialization of critical
care products targeting unmet needs with a focus on anti-infectives, cancer care and unique prescription products. On September
12, 2014, we acquired Citius Pharmaceuticals, LLC as a wholly-owned subsidiary.
On March 30, 2016, the Company acquired
all of the outstanding stock of Leonard-Meron Biosciences, Inc. (“LMB”) by issuing 1,942,956 shares of its common stock.
In connection with the acquisition, the Company acquired net assets of $17,428,277, including identifiable intangible assets of
$19,400,000 related to in-process research and development. The Company recorded goodwill of $1,586,796 for the excess of the purchase
price over the net assets acquired.
In-process research and development represents
the value of LMB’s leading drug candidate, Mino-Lok®, which is an antibiotic solution used to treat catheter-related
bloodstream infections. Goodwill represents the value of LMB’s industry relationships and its assembled workforce.
In-process research and development is expected to be amortized on a straight-line basis over a period of eight years commencing
upon revenue generation. Goodwill will not be amortized, but will be tested at least annually for impairment.
Through March 31, 2019, the Company has
devoted substantially all of its efforts to product development, raising capital, building infrastructure through strategic alliances
and coordinating activities relating to its proposed proprietary products. On July 1, 2016, the Company announced that it was discontinuing
Suprenza, its first commercial product, for strategic reasons and not due to safety or regulatory concerns, and was focusing on
the Phase 3 development of Mino-Lok®, and the Phase 2b development of Hydro-Lido for hemorrhoids. The Company has not yet realized
any revenues from its planned principal operations.
Patent and Technology License Agreements
Mino-Lok®
- LMB has a patent
and technology license agreement with Novel Anti-Infective Therapeutics, Inc. (“NAT”) to develop and commercialize
Mino-Lok® on an exclusive, worldwide sub-licensable basis, as amended. Since May 2014, LMB has paid an annual maintenance fee,
which began at $30,000 and that increases over five years to $90,000, where it is to remain until commercial sales of a product
subject to the license commence. LMB will also pay annual royalties on net sales of licensed products, with royalties ranging from
the mid-single digits to the low double digits. In limited circumstances in which the licensed product is not subject to a valid
patent claim and a competitor is selling a competing product, the royalty rate is in the low single digits. After a commercial
sale is obtained, LMB must pay minimum aggregate annual royalties that increase in subsequent years. LMB must also pay NAT up to
$1,390,000 upon achieving specified regulatory and sales milestones. Finally, LMB must pay NAT a specified percentage of payments
received from any sub licensees.
Mino-Wrap
- On January 2, 2019,
we entered into a patent and technology license agreement with the Board of Regents of the University of Texas System on behalf
of the University of Texas M. D. Anderson Cancer Center (“Licensor”), whereby we in-licensed exclusive worldwide rights
to the patented technology for any and all uses relating to breast implants. We intend to develop a liquefying gel-based
wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive
surgeries (“Mino-Wrap”). We are required to use commercially reasonable efforts to commercialize Mino-Wrap under
several regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval from the U.S.
Food and Drug Administration.
Under the license agreement, the Company
paid a nonrefundable upfront payment of $125,000. We are obligated to pay an annual maintenance fee of $30,000, commencing in January
2020, that increases annually by $15,000 per year up to a maximum of $90,000. Annual maintenance fees cease on the first sale of
product. We also must pay up to an aggregate of $2.1 million in milestone payments, contingent on the achievement of various regulatory
and commercial milestones. Under the terms of the license agreement, we also must pay a royalty of mid- to upper-single digit percentages
of net sales, depending on the amount of annual sales, and subject to downward adjustment to lower- to mid-single digit percentages
in the event there is no valid patent for the product in the United States at the time of sale. After the first sale of product,
we will owe an annual minimum royalty payment of $100,000 that will increase annually by $25,000 for the duration of the term.
We will be responsible for all patent expenses incurred by Licensor for the term of the agreement although Licensor is responsible
for filing, prosecution and maintenance of all patents. The agreement expires on the later of the expiration of the patents or
January 2, 2034.
RESULTS OF OPERATIONS
Three months ended March 31, 2019 compared
with the three months ended March 31, 2018
|
|
Three Months Ended
March 31,
2019
|
|
|
Three Months Ended
March 31,
2018
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,699,876
|
|
|
|
3,439,853
|
|
General and administrative
|
|
|
1,738,397
|
|
|
|
1,212,425
|
|
Stock-based compensation expense
|
|
|
203,695
|
|
|
|
214,666
|
|
Total operating expenses
|
|
|
3,641,968
|
|
|
|
4,866,944
|
|
Operating loss
|
|
|
(3,641,968
|
)
|
|
|
(4,866,944
|
)
|
Gain on extinguishment of liability
|
|
|
—
|
|
|
|
450,000
|
|
Interest income
|
|
|
14,144
|
|
|
|
—
|
|
Interest expense
|
|
|
(4,105
|
)
|
|
|
(4,706
|
)
|
Net loss
|
|
$
|
(3,631,929
|
)
|
|
$
|
(4,421,650
|
)
|
Revenues
We did not generate any revenues for the
three months ended March 31, 2019 or 2018.
Research and Development Expenses
For the three months ended March 31, 2019,
research and development expenses were $1,699,876 as compared to $3,439,853 during the three months ended March 31, 2018. The $1,739,977
decrease in 2019 was primarily due to expenses associated with the initiation of registration batches for Mino-Lok® in the
prior quarter. Research and development costs for Mino-Lok® decreased by $1,950,147 to $1,207,212 for the three months ended
March 31, 2019 as compared to $3,157,359 for the three months ended March 31, 2018. Research and development costs for our Hydro-Lido
product candidate increased by $85,170 to $367,664 for the three months ended March 31, 2019 as compared to $282,494 for the three
months ended March 31, 2018. We also incurred $125,000 in research and development expense related to the Mino-Wrap license agreement
during the three months ended March 31, 2019. We expect that research and development expenses will increase in fiscal 2019 as
we continue to focus on our Phase 3 trial for Mino-Lok® and commence our research and development efforts related to the recently
acquired Mino-Wrap license agreement. We are actively seeking to raise additional capital in order to fund our research and development
efforts.
General and Administrative Expenses
For the three months ended March 31,
2019, general and administrative expenses were $1,738,397 as compared to $1,212,425 during the three months ended March 31,
2018. General and administrative expenses increased by $525,972 in comparison with the prior period. The increase was due to
an increase of $50,965 in investor relations expenses, an increase of $62,000 in financial consulting expenses, an increase
of $111,785 in other professional fees, an increase of $96,248 in travel, entertainment and advertising expenses, and various
increases in other general and administrative expenses. General and administrative expenses consist primarily of compensation
costs, consulting fees incurred for financing activities and corporate development services, and investor relations
expenses.
Stock-based Compensation Expense
For the three months ended March 31, 2019,
stock-based compensation expense was $203,695 as compared to $214,666 for the three months ended March 31, 2018. Stock-based compensation
expense includes options granted to directors, employees and consultants. Stock-based compensation expense for the current quarter
decreased by $10,971 as certain options have been fully expensed.
Other Income (Expense)
During the three months ended March 31,
2018, the Company recorded a $450,000 gain on the extinguishment of a liability. The Company reversed an accrual for certain research
and development expenses that was recorded in a prior year that will not be paid.
Interest income for the three months ended
March 31, 2019 was $14,144 as we invested some of the proceeds from the August 2018 offering. There was no interest income for
the three months ended March 31, 2018.
Interest expense for the three months ended
March 31, 2019 was $4,105 compared to $4,706 for the three months ended March 31, 2018.
Net Loss
For the three months ended March 31, 2019,
we incurred a net loss of $3,631,929 compared to a net loss for the three months ended March 31, 2018 of $4,421,650. The $789,721
decrease in the net loss was primarily due to the decrease of $1,739,977 in research and development expenses being offset by the
$525,972 increase in general and administrative expenses and the $450,000 prior year gain on the extinguishment of a liability.
Six months ended March 31, 2019 compared
with the six months ended March 31, 2018
|
|
Six Months Ended March 31,
2019
|
|
|
Six Months Ended March 31,
2018
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3,812,977
|
|
|
|
4,046,374
|
|
General and administrative
|
|
|
3,326,521
|
|
|
|
3,558,665
|
|
Stock-based compensation expense
|
|
|
374,944
|
|
|
|
504,687
|
|
Total operating expenses
|
|
|
7,514,442
|
|
|
|
8,109,726
|
|
Operating loss
|
|
|
(7,514,442
|
)
|
|
|
(8,109,726
|
)
|
Gain on extinguishment of liability
|
|
|
—
|
|
|
|
450,000
|
|
Interest income
|
|
|
15,891
|
|
|
|
—
|
|
Interest expense
|
|
|
(8,108
|
)
|
|
|
(8,090
|
)
|
Net loss
|
|
$
|
(7,506,659
|
)
|
|
$
|
(7,667,816
|
)
|
Revenues
We did not generate any revenues for the
six months ended March 31, 2019 and 2018.
Research and Development Expenses
For the six months ended March 31, 2019,
research and development expenses were $3,812,977 as compared to $4,046,374 during the six months ended March 31, 2018. The $233,397
decrease in 2019 was primarily due to decreased expenses related to the ongoing Phase 3 trial of Mino-Lok® which commenced
during the quarter ended March 31, 2018. The decrease in research and development expenses is primarily related to expenses associated
with the initiation of registration batches for MinoLok® in the prior period. Research and development costs for Mino-Lok®
decreased by $517,227 to $3,201,315 for the six months ended March 31, 2019 as compared to $3,718,542 for the six months ended
March 31, 2018. Research and development costs for our Hydro-Lido product candidate increased by $158,830 to $486,662 for the six
months ended March 31, 2019 as compared to $327,832 for the six months ended March 31, 2018. We also incurred $125,000 in research
and development expense related to the Mino-Wrap license agreement during the six months ended March 31, 2019. We expect that research
and development expenses will increase in fiscal 2019 as we continue to focus on our Phase 3 trial for Mino-Lok® and commence
our research and development efforts related to the recently acquired Mino-Wrap license agreement. We are actively seeking to raise
additional capital in order to fund our research and development efforts.
General and Administrative Expenses
For the six months ended March 31, 2019,
general and administrative expenses were $3,326,521 as compared to $3,558,665 during the six months ended March 31, 2018. General
and administrative expenses decreased by $232,144 in comparison with the prior period. The decrease was primarily due to the $357,400
in settlement costs for the termination of the right of first refusal agreement with the underwriter of our 2017 Public Offering
incurred in the prior period being offset by various increases in other general and administrative expenses. General and administrative
expenses consist primarily of compensation costs, consulting fees incurred for financing activities and corporate development services,
and investor relations expenses.
Stock-based Compensation Expense
For the six months ended March 31, 2019,
stock-based compensation expense was $374,944 as compared to $504,687 for the six months ended March 31, 2018. Stock-based compensation
expense includes options granted to directors, employees and consultants. Stock-based compensation expense for the six months ended
March 31, 2019 decreased by $129,743 as certain options have been fully expensed.
Other Income (Expense)
During the six months ended March 31, 2018,
the Company recorded a $450,000 gain on the extinguishment of a liability. The Company reversed an accrual for certain research
and development expenses that was recorded in a prior year that will not be paid.
Interest income for the six months ended
March 31, 2019 was $15,891 as we invested some of the proceeds from the August 2018 offering. There was no interest income for
the six months ended March 31, 2018.
Interest expense for the six months ended
March 31, 2019 was $8,108 compared to $8,090 for the six months ended March 31, 2018.
Net Loss
For the six months ended March 31, 2019,
we incurred a net loss of $7,506,659 compared to a net loss for the six months ended March 31, 2018 of $7,667,816. The $161,157
decrease in the net loss was due to the decrease of $233,397 in research and development expenses, a decrease of $232,144 in general
and administrative expenses and a decrease of $129,743 in stock-based compensation expense, offset by the $450,000 prior year gain
on the extinguishment of a liability.
LIQUIDITY AND CAPITAL RESOURCES
Going Concern Uncertainty and Working Capital
Citius has incurred operating losses since
inception and incurred a net loss of $7,506,659 for the six months ended March 31, 2019. At March 31, 2019, Citius had an accumulated
deficit of $47,764,497. Citius’ net cash used in operations during the six months ended March 31, 2019 was $6,008,122.
Our September 30, 2018 consolidated financial
statements contains an emphasis of a matter regarding substantial doubt about our ability to continue as a going concern and that
the consolidated financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of
liabilities that may result if we do not continue as a going concern.
As of March 31, 2019, Citius had a working
capital deficit of $115,291. Our limited working capital is attributable to the operating losses incurred by the Company since
inception offset by our capital raising activities. At March 31, 2019, Citius had cash and cash equivalents of $3,199,097 available
to fund its operations. The Company’s primary sources of cash flow since inception have been from financing activities. During
the six months ended March 31, 2019, the Company received net proceeds of $23,216 from the exercise of warrants. Our primary uses
of operating cash were for product development and commercialization activities, employee compensation, consulting fees, legal
and accounting fees, insurance and investor relations expenses.
On April 3, 2019, the Company closed a
registered direct offering with several institutional and accredited investors for the sale of 3,430,421 shares of common stock
at $1.545 per share for gross proceeds of $5.3 million. The Company also issued 3,430,421 immediately exercisable two-year unregistered
warrants to the investors. The warrants have an exercise price of $1.42 per share.
Based on our cash and cash equivalents
at March 31, 2019, and after giving effect to the April 2019 financing, we expect that we will have sufficient funds to continue
our operations through September 2019. We plan to raise additional capital in the future to support our operations. There is no
assurance, however, that we will be successful in raising the needed capital or that the proceeds will be received in an amount
or in a timely manner to support our operations.
Inflation
Our management believes that inflation has not had a material
effect on our results of operations.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of our financial statements
and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent
assets and liabilities as of the date of the financial statements and the amounts of revenues and expenses recorded during the
reporting periods. We base our estimates on historical experience, where applicable and other assumptions that we believe are reasonable
under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.
Our critical accounting policies and use
of estimates are discussed in, and should be read in conjunction with, the annual consolidated financial statements and notes included
in the Company’s Annual Report on Form 10-K for the year ended September 30, 2018 as filed with the SEC.