Filing summary
Entity and period mismatch: The supplied filing is for Trail One, Inc., not Citius Pharmaceuticals, Inc. It is a Form 10-Q for the quarter ended June 30, 2012 (Trail One’s fiscal third quarter), filed August 17, 2012. The figures below describe Trail One and should not be attributed to Citius.
Business context and performance
Trail One was a development-stage company developing and marketing customized aluminum automobile license-plate tags as accessories. It had not commenced sales or generated revenue through June 30, 2012.
- Revenue: $0 for the three and nine months ended June 30, 2012, and the comparable 2011 periods.
- Net loss: $6,836 for the quarter, versus $7,315 in the prior-year quarter; $16,614 for the nine months, versus $23,583 in the prior-year period.
- Operating expenses: $6,181 for the quarter (general and administrative $3,231; professional fees $2,950), versus $7,095. Nine-month expenses were $15,076 (general and administrative $3,423; professional fees $11,653), versus $23,196.
- Interest expense: $655 for the quarter and $1,538 for the nine months, compared with $220 and $387, respectively, in the prior-year periods.
- Margins: Not meaningful because the company had no revenue.
Cash flow, debt and liquidity
- At June 30, 2012, cash was $171, total assets $171, current liabilities $40,626, and stockholders’ deficit $40,455. Working-capital deficit was $40,455, compared with $23,841 at September 30, 2011.
- Nine-month operating cash use was $14,876; financing provided $14,835. Cash declined by $41 from $212 at September 30, 2011. No investing cash flow was reported.
- Debt included $30,393 owed to the CEO/founder and $2,935 owed to BK Consulting, both unsecured, bearing 8% interest and due on demand. Accrued interest was $2,165 on related-party debt and $77 on other debt. A further $200 BK Consulting loan was received July 31, 2012.
- Management reported an approximate monthly burn rate of $1,630 and stated existing resources were insufficient to fund operations for the next 12 months. The filing says the company was seeking financing; it identifies no committed financing source.
Outlook, risks and notable disclosures
- Management planned to launch an online sales site in September 2012, but said additional funding was needed to develop it. The company estimated it needed to raise $75,000 to complete its marketing program and expected to seek equity, debt or private financing.
- Management expected no revenue sufficient to cover expenses for at least the next 12 months. Failure to obtain financing could materially impair operations or force the company to cease operations. The going-concern note states that substantial doubt exists about the company’s ability to continue as a going concern.
- Management estimated a retail price of about $150 per tag, but had placed no definitive orders with outside manufacturers; actual pricing and costs could differ and lead to operating losses.
- 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.
- The MD&A describes the business as selling automobile tags but later says cash requirements would be met through revenue from “liquid gels,” an apparent inconsistency that warrants clarification.
Investor verification points
- Confirm the intended issuer: the supplied report identifies Trail One, Inc., not Citius Pharmaceuticals, Inc.
- Verify whether the planned website, product launch and stated financing needs were achieved, and whether additional funding was obtained.
- Clarify the “liquid gels” reference and reconcile it with the automobile-tag business description.
- Review subsequent filings for updated liquidity, going-concern disclosures, related-party borrowing and remediation of control weaknesses.