Citius Pharma(CTXR) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company presents its unaudited condensed consolidated financial statements and accompanying notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (Unaudited) | Metric | June 30, 2020 | September 30, 2019 (as restated) | | :--- | :--- | :--- | | ASSETS | | | | Total Assets | $38,399,718 | $36,746,394 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total Liabilities | $9,657,656 | $9,593,522 | | Total Stockholders' Equity | $28,742,062 | $27,152,872 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Nine Months Ended June 30, 2020 | Nine Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $— | $— | $— | $— | | Research and development | $2,644,244 | $2,766,260 | $7,324,730 | $6,579,237 | | General and administrative | $1,869,636 | $1,456,451 | $5,690,953 | $4,782,972 | | Stock-based compensation | $175,011 | $204,002 | $554,228 | $578,946 | | Total Operating Expenses | $4,688,891 | $4,426,713 | $13,569,911 | $11,941,155 | | Operating Loss | $(4,688,891) | $(4,426,713) | $(13,569,911) | $(11,941,155) | | Net Loss | $(4,680,118) | $(4,405,583) | $(13,427,457) | $(11,912,242) | | Net Loss Per Share - Basic and Diluted | $(0.11) | $(0.20) | $(0.38) | $(0.61) | | Weighted Average Common Shares Outstanding | 41,600,428 | 22,000,387 | 35,017,739 | 19,412,641 | Condensed Consolidated Statements of Changes in Stockholders' Equity - The company issued 7,058,824 shares of common stock in a registered direct offering, contributing $6,877,100 to equity net of costs[20] - Net loss for the nine months ended June 30, 2020, was $(13,427,457), increasing the accumulated deficit[19][20] Changes in Stockholders' Equity (Unaudited) | Metric | October 1, 2019 (as restated) | June 30, 2020 | | :--- | :--- | :--- | | Common Shares Outstanding | 28,930,493 | 46,316,298 | | Common Stock Amount | $28,930 | $46,316 | | Additional Paid-In Capital | $80,169,724 | $95,168,985 | | Accumulated Deficit | $(53,045,782) | $(66,473,239) | | Total Stockholders' Equity | $27,152,872 | $28,742,062 | Condensed Consolidated Statements of Cash Flows - Financing activities were the primary source of cash, driven by registered direct offerings and common stock warrant exercises[23] Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended June 30 | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | $(13,572,866) | $(9,530,469) | | Net Cash Used in Investing Activities | $(1,831) | $— | | Net Cash Provided By Financing Activities | $14,198,232 | $4,857,217 | | Net Change in Cash and Cash Equivalents | $623,535 | $(4,673,252) | | Cash and Cash Equivalents - End of Period | $8,517,339 | $4,510,751 | Notes to Condensed Consolidated Financial Statements Note 1. Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies - Citius Pharmaceuticals, Inc is a specialty pharmaceutical company focused on developing and commercializing critical care products[25] - The company acquired Leonard-Meron Biosciences, Inc (LMB) in March 2016, which included $19,400,000 in-process R&D related to Mino-Lok® and $9,346,796 in goodwill[26][27] - The company adopted ASU 2016-02 (ASC 842) on October 1, 2019, recognizing a right-of-use asset and lease liability of $1,137,724[31] Note 2. Going Concern Uncertainty and Management's Plan - The company experienced negative cash flows from operations of $13,572,866 and had an accumulated deficit of $66,473,239, raising substantial doubt about its ability to continue as a going concern[37] - As of June 30, 2020, cash resources are estimated to fund operations through January 2021, with management planning to raise additional capital[37][38] Note 3. Patent and Technology License Agreements - LMB holds an exclusive, worldwide license for Mino-Lok®, involving annual maintenance fees, sales royalties, and milestone payments up to $1,100,000[39][40] - The company in-licensed exclusive worldwide rights for Mino-Wrap, involving an upfront payment, annual fees, milestone payments up to $2.1 million, and royalties[43][44] - On March 31, 2020, an exclusive option agreement was entered with Novellus, Inc for a novel cellular therapy for ARDS, with a $100,000 payment recorded as R&D expense[45] Note 4. Notes Payable - Notes payable to related parties totaled $172,970 as of June 30, 2020, with interest rates from prime plus 1.0% to 12% per annum[47] - The company received $164,583 from the Paycheck Protection Program (PPP) on April 15, 2020, accruing interest at 1%[49] Note 5. Common Stock, Stock Options and Warrants - In May 2020, the company closed a registered direct offering of 7,058,824 common shares, generating net proceeds of $6,877,100[54] - Common stock was issued for services, totaling $100,000 in November 2019, $306,020 in February 2020, and $22,750 in April 2020[56][57] Stock Option Plans Summary (as of June 30, 2020) | Plan | Shares Reserved | Shares Outstanding | Shares Available for Future Grants | | :--- | :--- | :--- | :--- | | 2014 Stock Incentive Plan | 866,667 | 855,171 | 0 | | 2018 Omnibus Stock Incentive Plan | 2,000,000 | 1,890,000 | 0 | | 2020 Omnibus Stock Incentive Plan | 3,110,000 | 20,000 | 3,090,000 | Stock-based compensation expense for the nine months ended June 30, 2020, was $554,228 Warrants Outstanding (as of June 30, 2020) | Category | Number of Warrants | | :--- | :--- | | Total Warrants Outstanding | 26,285,479 | | Weighted Average Remaining Life | 3.75 years | | Aggregate Intrinsic Value | $2,016,532 | Note 6. Related Party Transactions - The company has outstanding debt to its Chairman, Leonard Mazur ($160,470), and CEO, Myron Holubiak ($12,500)[47][73] - Mr Mazur and Mr Holubiak participated in equity offerings in April and September 2019 on the same terms as other investors[74][75] - The option agreement with Novellus, Inc involves a related party, as Board Chairman Leonard Mazur is a director and significant shareholder of Novellus[46][76] Note 7. Operating Lease - Effective July 1, 2019, Citius entered into a 76-month operating lease for office space in Cranford, NJ[78] Operating Lease Information (as of June 30, 2020) | Metric | Value | | :--- | :--- | | Operating lease cost (9 months) | $167,725 | | Weighted-average remaining lease term | 5.3 Years | | Weighted-average discount rate | 8.0% | | Operating lease asset | $1,025,119 | | Total lease liabilities | $1,051,988 | Note 8. FDA Refund - In November 2019, the company received a $110,207 refund from the FDA for 2016 fees, recorded as other income[84] Note 9. Restatement of Previously Issued Financial Statements - Financial statements were restated due to errors in recording deferred tax liability, goodwill, and accumulated deficit related to the 2016 LMB acquisition[86][87] Impact of Restatement at September 30, 2019 | Metric | As Previously Recorded | Adjustment | As Restated | | :--- | :--- | :--- | :--- | | Goodwill | $1,586,796 | $7,760,000 | $9,346,796 | | Total Assets | $28,986,394 | $7,760,000 | $36,746,394 | | Deferred Tax Liability | $— | $4,985,000 | $4,985,000 | | Accumulated Deficit | $(55,819,982) | $2,774,200 | $(53,045,782) | | Total Stockholders' Equity | $24,378,672 | $2,774,200 | $27,152,872 | Note 10. Subsequent Events - On July 10, 2020, the company regained compliance with Nasdaq's $1.00 minimum bid price requirement[90] - On July 13, 2020, a new Chief Medical Officer was appointed with an annual base salary of $400,000 and an option for 500,000 shares[91][92] - On August 10, 2020, Citius closed a public offering generating approximately $9.6 million in gross proceeds for clinical trial funding[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, liquidity, and capital resources Historical Background - Citius Pharmaceuticals, Inc is a specialty pharmaceutical company focused on critical care products, particularly anti-infectives in adjunct cancer care[98] - The company's pipeline includes Mino-Lok®, Mino-Wrap, Halo-Lido, and a novel cellular therapy for ARDS[100] Patent and Technology License Agreements - The company holds exclusive worldwide rights for Mino-Lok® and Mino-Wrap through license agreements involving fees, royalties, and milestone payments[101][102][103] Results of Operations Three months ended June 30, 2020 compared with the three months ended June 30, 2019 - No revenues were generated in either period[107] - R&D costs for Mino-Lok® decreased by $881,515, while new R&D costs for ARDS therapy were $764,430[108] - Net loss increased by $274,535 to $4,680,118, primarily due to increased general and administrative expenses[116] Operating Expenses (Three Months Ended June 30) | Expense Category | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Research and Development | $2,644,244 | $2,766,260 | $(122,016) | | General and Administrative | $1,869,636 | $1,456,451 | $413,185 | | Stock-based Compensation | $175,011 | $204,002 | $(28,991) | | Total Operating Expenses | $4,688,891 | $4,426,713 | $262,178 | Nine months ended June 30, 2020 compared with the nine months ended June 30, 2019 - No revenues were generated in either period[117] - R&D expenses increased by $745,493, driven by Halo-Lido and new ARDS costs, partially offset by a decrease for Mino-Lok®[118] - General and administrative expenses increased by $907,981, including $428,770 in common stock issued for services[122] - Net loss increased by $1,515,215 to $13,427,457, primarily due to increases in R&D and G&A expenses[126] Operating Expenses (Nine Months Ended June 30) | Expense Category | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Research and Development | $7,324,730 | $6,579,237 | $745,493 | | General and Administrative | $5,690,953 | $4,782,972 | $907,981 | | Stock-based Compensation | $554,228 | $578,946 | $(24,718) | | Total Operating Expenses | $13,569,911 | $11,941,155 | $1,628,756 | Liquidity and Capital Resources - The company had an accumulated deficit of $66,473,239 and net cash used in operations of $13,572,866, indicating a going concern uncertainty[128][129] - As of June 30, 2020, cash and cash equivalents were $8,517,339, expected to fund operations through January 2021[130][136] - Key financing activities included $1,013,101 from warrant exercises in January, $5,013,930 in February, $6,877,100 from an offering in May, and $1,129,412 in June[131][132][134][135] Off Balance Sheet Arrangements - The company does not have any off-balance sheet arrangements[138] Critical Accounting Policies and Estimates - Management's estimates significantly affect reported amounts in areas like stock-based compensation, leases, warrant valuation, and income taxes[35][139] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company - The section is not applicable to the company[141] Item 4. Controls and Procedures The company's disclosure controls and procedures were evaluated and found to be effective - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2020[143] - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2020[144] PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no legal proceedings to report - No legal proceedings are reported[147] Item 1A. Risk Factors There have been no changes to the company's risk factors since its previous filing - There has been no change in the Company's risk factors since the Form 10-Q filed on May 14, 2020[148] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There are no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities and use of proceeds are reported[149] Item 3. Defaults Upon Senior Securities There are no defaults upon senior securities to report - No defaults upon senior securities are reported[150] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[151] Item 5. Other Information There is no other information to report - No other information is reported[152] Item 6. Exhibits This section lists the exhibits filed as part of the report, including agreements and certifications - Exhibits include forms of investor and placement agent warrants, securities purchase agreements, an engagement letter, an employment agreement, and certifications from principal officers[153] SIGNATURES Official Signatures The report is certified by the official signatures of the registrant's principal officers - The report is signed by Myron Holubiak, Chief Executive Officer, and Jaime Bartushak, Chief Financial Officer, on August 14, 2020[157]