Filing summary
Important identity discrepancy: The supplied filing is Trail One, Inc.’s Form 10-Q, not a filing by Citius Pharmaceuticals, Inc. Trail One describes a planned customized automobile license-plate accessory business, not a pharmaceutical business.
Business context and reporting period
The unaudited quarterly report covers the three and six months ended March 31, 2013; Trail One’s fiscal year ends September 30. The company identifies itself as a development-stage enterprise and reports no product sales to date.
Financial results and position
| Metric | Three months ended March 31, 2013 | Six months ended March 31, 2013 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $9,336 | $9,972 |
| Interest expense | $893 | $1,677 |
| Net loss | $10,229 | $11,649 |
| Net cash used in operating activities | Not provided for the quarter | $9,972 |
For the six-month comparison, revenue was also zero in 2012; operating expenses were $8,895, interest expense was $883, and net loss was $9,778. Quarterly 2012 figures were $6,699 in operating expenses, $511 in interest expense, and a $7,210 net loss. The company reported no gross margin because it had no revenue.
At March 31, 2013, cash was $63, total assets were $63, current liabilities were $57,559, and working capital was negative $57,496. Stockholders’ deficit was $57,496 and accumulated deficit was $75,496. Notes payable totaled $48,640: $21,693 to the CEO/founder and $26,947 to a third party; both bear 8% interest and are due on demand. Accrued interest totaled $4,769. During the six months, the company received $9,900 in financing, primarily through third-party loans.
Changes, outlook and risks
- Year-over-year net loss increased 42% for the quarter and 26% for the six-month period. Management attributed higher quarterly operating costs mainly to audit and accounting fees; the six-month operating-expense increase was attributed mainly to general and administrative costs. Interest expense also rose.
- Management said it needs additional capital and expects revenue to be insufficient to cover expenses for at least the next 12 months. It cited an approximate monthly burn rate of $1,952 and sought $75,000 to complete its marketing program. The company said it planned an online sales site by September 2013, subject to funding, and anticipated pursuing equity or debt financing; availability is not assured.
- The filing states that recurring losses, no revenue, a $57,496 working-capital deficit, and only $63 in cash raise substantial doubt about the company’s ability to continue as a going concern. Management was seeking additional capital, with no assurance it would succeed.
- Potential equity financing could dilute existing holders; debt could rank ahead of equity and restrict operations. Management also warned that its estimated product price (about $150) and outsourced manufacturing, packaging, shipping, and marketing costs were not confirmed by definitive orders.
- Disclosure controls and procedures were deemed ineffective. The filing cites no independent board or audit committee, inadequate segregation of duties, and reliance on a financial consultant for financial reporting. Management said it intended to address the weaknesses when resources permitted.
- No material pending legal proceedings or off-balance-sheet arrangements were reported. The filing says risk factors had not changed since the company’s 2011 registration-statement filing. A business-plan passage refers to revenue from “liquid gels,” which conflicts with the filing’s description of automobile tags.
Important facts for investors to verify
- Confirm the intended issuer: the source is a Trail One, Inc. filing, not a Citius Pharmaceuticals filing.
- Verify the filing’s issuer identity, business description, and period against the original SEC filing and accession details.
- Assess the company’s ability to obtain financing, given its minimal cash, demand debt, and going-concern warning.
- Check whether the proposed website, product launch, and $75,000 capital plan were subsequently funded or implemented.
- Clarify the “liquid gels” reference and verify the disclosed product pricing and cost assumptions.