Filing summary
Important identity discrepancy: The request identifies Citius Pharmaceuticals, Inc., but the supplied Form 10-Q is for Trail One, Inc. This summary reflects the filing text, which reports the quarter ended June 30, 2013 (the company’s fiscal third quarter).
Business context and period
Trail One described itself as a development-stage company marketing customized automobile license-plate tags as accessories. It had not generated revenue. The unaudited filing covers the three and nine months ended June 30, 2013, compared with the corresponding 2012 periods; the balance sheet compares June 30, 2013 with September 30, 2012.
Financial results and liquidity
| Metric | Three months ended June 30, 2013 | Nine months ended June 30, 2013 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $3,436 | $13,408 |
| Interest expense | $996 | $2,673 |
| Net loss | $4,432 | $16,081 |
| Net cash used in operating activities | — | $13,208 |
| Net cash from financing activities | — | $13,100 |
- At June 30, cash was $27, total assets $27, current liabilities $61,955, and working capital deficit $61,928. Accumulated deficit was $79,928; stockholders’ deficit was $61,928.
- Current liabilities included $51,840 of non-related-party notes payable and $5,765 of accrued interest. The notes are described as unsecured, bearing 8% interest and due on demand. The balance sheet shows no related-party note balance after reclassification.
- No meaningful revenue or gross margin was reported; the filing provides no operating margin measure. No interest or income taxes were paid in the nine-month period.
Changes versus prior comparable periods
- Quarterly operating expenses fell from $6,181 to $3,436, while interest expense rose from $655 to $996. Net loss narrowed from $6,836 to $4,432, a decrease of about 35%.
- Nine-month operating expenses declined from $15,076 to $13,408, but interest expense increased from $1,538 to $2,673. Net loss narrowed from $16,614 to $16,081, about 3%.
- Cash declined from $135 at September 30, 2012 to $27 at June 30, 2013. Notes payable increased, including through $13,100 of third-party borrowing during the nine months. Debt and interest formerly owed to the founder were reclassified as non-related-party balances following his sale of shares.
Outlook, risks and significant events
- Management stated that available liquidity was insufficient for operations and other requirements for at least the next 12 months, and that additional financing was needed. The stated monthly burn rate was approximately $1,787. The filing also says revenue was not expected to cover expenses in the next three months or at least the next 12 months.
- The going-concern note says recurring losses, no revenue, a $61,928 working-capital deficit and $27 cash raise substantial doubt about the company’s ability to continue. Continued operations depend on obtaining financing; the filing gives no assurance that financing will be available on acceptable terms or at all.
- On May 24, 2013, Mohammad Omar Rahman acquired 10,000,000 shares, approximately 55.6% of outstanding common shares, from founder Ralph Montrone and became CEO and a director. The filing reports aggregate consideration of $340,000, less company liabilities as of closing.
- The company was negotiating, on a non-binding basis, a potential reverse merger. It could issue shares, change control and assume liabilities or incur additional debt; completion was uncertain.
- Disclosure controls were deemed ineffective. The filing cites the lack of an independent board or audit committee, limited segregation of duties and reliance on a financial consultant for financial reporting.
- Management warned that equity fundraising could dilute existing holders and debt could rank ahead of equity and restrict operations. The filing reports no material pending legal proceedings and no material off-balance-sheet arrangements.
Most important facts to verify
- Confirm the issuer and filing identity: the supplied filing names Trail One, Inc., not Citius Pharmaceuticals, Inc.
- Verify the reported cash, liabilities, demand-loan balances, and the reclassification of related-party debt and accrued interest; the note and balance-sheet presentation warrant reconciliation.
- Check the status and terms of any financing or proposed reverse merger, including potential dilution, assumed liabilities and change of control.
- Assess whether the company obtained sufficient funding after June 30, 2013 to address its going-concern and near-term liquidity risks.
- Review remediation of the disclosed ineffective controls and the company’s progress toward generating revenue.