Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Dec. 31, 2014 | Feb. 13, 2015 | |
Document And Entity Information | ||
Entity Registrant Name | Citius Pharmaceuticals, Inc. | |
Entity Central Index Key | 1506251 | |
Document Type | 10-Q | |
Document Period End Date | 31-Dec-14 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -21 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | Yes | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 31,080,840 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2015 |
CONSOLIDATED_BALANCE_SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | Dec. 31, 2014 | Sep. 30, 2014 |
Current assets: | ||
Cash and cash equivalents | $817,237 | $1,552,060 |
Other Assets | ||
Trademarks | 5,401 | 5,401 |
Total assets | 822,638 | 1,557,461 |
Current liabilities: | ||
Accounts payable | 199,076 | 106,169 |
Accrued expenses | 520 | 60,317 |
Accrued interest | 25,833 | |
Promissory notes | 600,000 | |
Derivative warrant liability | 1,390,454 | 1,450,943 |
Due to related party | 56,134 | 56,134 |
Total current liabilities | 1,646,184 | 2,299,396 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Preferred stock - $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding | ||
Common stock - $0.001 par value; 90,000,000 shares authorized; 31,080,840 and 30,025,286 shares issued and outstanding at December 31, 2014 and September 30, 2014, respectively | 31,081 | 30,025 |
Additional paid-in capital | 6,107,362 | 5,366,321 |
Accumulated deficit | -6,961,989 | -6,138,281 |
Total Stockholders' Deficit | -823,546 | -741,935 |
Total Liabilities and Stockholders' Deficit | $822,638 | $1,557,461 |
CONSOLIDATED_BALANCE_SHEETS_Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Dec. 31, 2014 | Sep. 30, 2014 |
Consolidated Balance Sheets Parenthetical | ||
Preferred Stock Par Value | $0.00 | $0.00 |
Preferred Stock Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock Shares Issued | 0 | 0 |
Preferred Stock Shares Outstanding | 0 | 0 |
Common Stock Par Value | $0.00 | $0.00 |
Common Stock Shares Authorized | 90,000,000 | 90,000,000 |
Common Stock Shares Issued | 31,080,840 | 30,025,286 |
Common Stock Shares Outstanding | 31,080,840 | 30,025,286 |
CONSOLIDATED_STATEMENTS_OF_OPE
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 3 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Consolidated Statements Of Operations | ||
Revenues | ||
Operating expenses: | ||
Research and development | 477,123 | 437,397 |
General and administrative | 293,018 | 61,796 |
Stock-based compensation - general and administrative | 108,764 | |
Total Operating Expenses | 878,905 | 499,193 |
Operating Loss | -878,905 | -499,193 |
Other Income (Expense), Net: | ||
Interest income | 2,208 | |
Gain on revaluation of derivative warrant liability | 60,489 | |
Interest expense | -7,500 | -35,221 |
Total Other Income (Expense), Net | 55,197 | -35,221 |
Loss before Income Taxes | -823,708 | -534,414 |
Income tax benefit | ||
Net Loss | ($823,708) | ($534,414) |
Net Loss Per Share - Basic and Diluted | ($0.03) | ($0.03) |
Weighted Average Common Shares Outstanding Basic and diluted | 30,036,759 | 17,757,333 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT (Unaudited) (USD $) | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
USD ($) | USD ($) | USD ($) | USD ($) | ||
Beginning balance, Amount at Sep. 30, 2014 | $30,025 | $5,366,321 | ($6,138,281) | ($741,935) | |
Beginning balance, Shares at Sep. 30, 2014 | 30,025,286 | ||||
Conversion of promissory notes and accrued interest into common stock, Amount | 1,056 | 632,277 | 633,333 | ||
Conversion of promissory notes and accrued interest into common stock, Shares | 1,055,554 | ||||
Stock-based compensation | 108,764 | 108,764 | |||
Net loss | -823,708 | -823,708 | |||
Ending balance, Amount at Dec. 31, 2014 | $31,081 | $6,107,362 | ($6,961,989) | ($823,546) | |
Ending balance, Shares at Dec. 31, 2014 | 31,080,840 |
CONSOLIDATED_STATEMENTS_OF_CAS
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 3 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Cash flows from operating activities: | ||
Net loss | ($823,708) | ($534,414) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Amortization of debt issuance costs | 10,500 | |
Gain on revaluation of derivative warrant liability | -60,489 | |
Stock-based compensation | 108,764 | |
Changes in operating assets and liabilities: | ||
Prepaid expenses and other assets | -9,174 | |
Accounts payable | 92,907 | -17,249 |
Accrued expenses | -59,797 | 3,033 |
Accrued interest | 7,500 | 24,721 |
Due to related party | 701 | |
Net Cash Used In Operating Activities | -734,823 | -521,882 |
Cash flows from financing activities: | ||
Proceeds from promissory notes | 600,000 | |
Deferred offering costs | -25,000 | |
Net Cash Provided by Financing Activities | 575,000 | |
Net Change in Cash and Cash Equivalents | -734,823 | 53,118 |
Cash and cash equivalents - Beginning of Period | 1,552,060 | 1,272 |
Cash and cash equivalents - End of period | 817,237 | 54,390 |
Supplemental Disclosures of Cash Flow Information and Non-cash Transactions: | ||
Interest paid | ||
Income taxes paid | ||
Conversion of promissory notes and accrued interest into common stock | $633,333 |
NATURE_OF_OPERATIONS_BASIS_OF_
NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Dec. 31, 2014 | |
Notes to Financial Statements | |
NOTE 1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Business |
Citius Pharmaceuticals, Inc. (“Citius” or the “Company”) is a pharmaceutical company headquartered in Maynard, Massachusetts focused on developing innovative formulations aimed at improving the delivery and compliance of approved drugs. The Company was founded as Citius Pharmaceuticals, LLC, a Massachusetts limited liability company, on January 23, 2007. On September 12, 2014, Citius Pharmaceuticals, LLC entered into a Share Exchange and Reorganization Agreement (the “Exchange Agreement”), with Citius Pharmaceuticals, Inc. (formerly Trail One, Inc.), a publicly traded company incorporated under the laws of the State of Nevada. Citius Pharmaceuticals, LLC became a wholly-owned subsidiary of Citius (see “Reverse Acquisition” below). | |
The Company currently has one approved and marketed product, Suprenza (phentermine hydrochloride), which it has out licensed for promotion in the United States, Canada and Mexico. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital. | |
Citius is subject to a number of risks common to companies in the pharmaceutical industry including, but not limited to, risks related to the development by Citius or its competitors of research and development stage products, market acceptance of its products, competition from larger companies, dependence on key personnel, dependence on key suppliers and strategic partners, the Company’s ability to obtain additional financing and the Company’s compliance with governmental and other regulations. | |
Reverse Acquisition | |
On September 12, 2014, Citius completed a reverse acquisition transaction with Citius Pharmaceuticals, LLC, which became a wholly-owned subsidiary of Citius. As part of the reverse acquisition, the former members of Citius Pharmaceuticals, LLC received 21,625,219 shares of the Company’s common stock in exchange for their interest in Citius Pharmaceuticals, LLC and, immediately after the transaction, owned 72% of the outstanding common stock. Immediately prior to the transaction, Citius had 5,000,000 shares of common stock outstanding. In connection with the Exchange Agreement, the Company completed the first closing of a Private Offering. Following the acquisition, Citius Pharmaceuticals, LLC began operating as a wholly-owned subsidiary of Citius Pharmaceuticals, Inc. | |
Accounting principles generally accepted in the United States generally require that a company whose security holders retain the majority voting interest in the combined business be treated as the acquirer for financial reporting purposes. The acquisition was accounted for as a reverse acquisition whereby Citius Pharmaceuticals, LLC was deemed to be the accounting acquirer. Accordingly, the historical consolidated financial statements are those of Citius Pharmaceuticals, LLC as the accounting acquirer. The post-merger combination of Citius Pharmaceuticals, Inc. and Citius Pharmaceuticals, LLC is referred to throughout these notes to consolidated financial statements as the “Company.” As the accounting acquirer, Citius Pharmaceuticals, LLC did not acquire any tangible assets from Citius and did not assume any liabilities of Citius. This transaction is not considered a business combination because Citius, the non-operating public corporation, did not meet the definition of a business. Instead, this transaction is considered to be a capital transaction of Citius Pharmaceuticals, LLC and is equivalent to the issuance of shares by Citius Pharmaceuticals, LLC for the net assets of Citius accompanied by a recapitalization. | |
In connection with the reverse acquisition, Citius Pharmaceuticals, LLC adopted the fiscal year end of Citius, thereby changing our fiscal year end from December 31 to September 30. | |
Basis of Presentation and Summary of Significant Accounting Policies | |
Basis of Preparation — As a result of the reverse acquisition, the accompanying consolidated financial statements include the operations of Citius Pharmaceuticals, LLC (the accounting acquirer). The accompanying consolidated financial statements also include the operations of Citius Pharmaceuticals, Inc. (formerly Trail One, Inc.) since the date of the reverse acquisition. All significant inter-company balances and transactions have been eliminated in consolidation. | |
All share and per share amounts presented in these consolidated financial statements reflect the one-for-one exchange ratio of Citius Pharmaceuticals, LLC member interests to common shares in the reverse acquisition. | |
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, without being audited, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary to make the financial statements not misleading have been included. Operating results for the three months ended December 31, 2014 are not necessarily indicative of the results that may be expected for the year ending September 30, 2015. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the nine months ended September 30, 2014 filed with the Securities and Exchange Commission. | |
There have been no recently issued accounting pronouncements that have had or are expected to have a material impact on the Company’s consolidated financial statements. | |
Use of Estimates — Our accounting principles require our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting periods. Estimates having relatively higher significance include stock-based compensation, valuation of warrants, and income taxes. Actual results could differ from those estimates. | |
Net Income (Loss) per Common Share — Basic net income (loss) per share of common stock has been computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted net income per share of common stock has been computed by dividing net income by the weighted average number of shares outstanding plus the diluting effect, if any, of outstanding stock options, warrants and convertible securities. Diluted net loss per share of common stock has been computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during such period. In a net loss period, options, warrants and convertible securities are anti-dilutive and therefore excluded from diluted loss per share calculations. |
GOING_CONCERN_UNCERTAINTY_AND_
GOING CONCERN UNCERTAINTY AND MANAGEMENT'S PLAN | 3 Months Ended |
Dec. 31, 2014 | |
Notes to Financial Statements | |
NOTE 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 $734,823, $183,164 and $1,095,266 for three months ended December 31, 2014, the nine months ended September 30, 2014 and the year ended December 31, 2013, respectively. At December 31, 2014, the Company had a working capital deficit of $828,947 and a stockholders’ deficit of $823,546. The Company has no revenue and has relied on proceeds from equity transactions and debt to finance its operations. At December 31, 2014, 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. 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 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. |
BUSINESS_AGREEMENTS
BUSINESS AGREEMENTS | 3 Months Ended |
Dec. 31, 2014 | |
Notes to Financial Statements | |
NOTE 3. BUSINESS AGREEMENTS | Alpex Pharma S.A. |
On June 12, 2008, the Company entered into a collaboration and license agreement (the “Alpex Agreement”) with Alpex Pharma S.A. (“Alpex”), in which Alpex granted the Company an exclusive right and license to use certain Alpex intellectual property in order to develop and commercialize orally disintegrating tablet formulations of pharmaceutical products in United States, Canada and Mexico. In addition, Alpex manufactures Suprenza, the Company’s commercialized pharmaceutical product, on a contract basis. The agreement was amended on November 15, 2011 as part of an Amendment and Coordination Agreement (see the “Three-Party Agreement” below). | |
Under the terms of the Alpex Agreement, as amended by the Three-Party Agreement dated November 15, 2011 (see below), Alpex is entitled to a payment per tablet manufactured and a percentage of all milestone, royalty and other payments received by the Company from Prenzamax, LLC, pursuant to a sublicense agreement (see below). In addition, under the terms of the Alpex Agreement, Alpex retained the right to use the clinical data generated by the Company to file for regulatory approval and market Suprenza in the rest of the world. In the event that Alpex has such sales, Alpex will pay the Company a percentage royalty on net sales, as defined (“Alpex Revenue”). No milestone, royalty or other payments have been earned or received by the Company through December 31, 2014. | |
Prenzamax, LLC | |
On November 15, 2011, the Company entered into an exclusive license agreement (the “Sublicense Agreement”) with Prenzamax, LLC (“Prenzamax”), in which the Company granted Prenzamax and its affiliates the exclusive right to commercialize Suprenza in the United States. Prenzamax is an affiliate of Akrimax, a related party (see Note 8) and was formed for the specific purpose of managing the Sublicense Agreement. Under the terms of the Sublicense Agreement, Prenzamax is to pay the Company a percentage of the product’s EBITDA, as defined (“Profit Share Payments”). In addition, Prenzamax is to reimburse the Company directly for certain development costs. These payments are to commence once Prenzamax has achieved profitability, as defined in the Sublicense Agreement. Further, under the terms of the Sublicense Agreement, Prenzamax is required to share in the royalty payment due to Alpex under the Alpex Agreement. In addition, Prenzamax is entitled to a percentage of the Alpex Revenue received by the Company. | |
The Company has not been reimbursed for any development costs nor has it earned any royalty payments through December 31, 2014. | |
Three-Party Agreement | |
On November 15, 2011, the Company, Alpex and Prenzamax entered into the Three-Party Agreement wherein the terms of the Alpex Agreement were modified and Prenzamax and the Company agreed to each pay a portion of certain regulatory filing fees for as long as Prenzamax is purchasing Suprenza from Alpex pursuant to the Three-Party Agreement. |
NOTES_PAYABLE
NOTES PAYABLE | 3 Months Ended |
Dec. 31, 2014 | |
Notes to Financial Statements | |
NOTE 4. NOTES PAYABLE | Convertible Promissory Notes |
Between July 12, 2010 and November 30, 2012, the Company issued several convertible promissory notes (collectively the “Convertible Notes”) to two existing investors in aggregate total principal amount of $1,460,000. The Convertible Notes accrue interest at 3.00% per annum and are payable on demand only after their respective 10-year maturities. Between January 1, 2013 and March 25, 2013, the Company issued additional Convertible Notes to existing investors in aggregate total principal amount of $225,000. The additional Convertible Notes accrue interest at 5.00% per annum and are payable on demand only after their respective 10-year maturities. The unpaid principal and accrued interest are only convertible into common stock following a reorganization or conversion into a corporation at the option of the holder. The unpaid principal and accrued interest will convert into common stock at the greater of the fair value of the common stock on the date of the conversion or $0.25 ($0.69 if the Company’s common stock is admitted to trade on a national exchange prior to the date of conversion). | |
On July 31, 2014, in anticipation of the completion of the reverse acquisition and the Private Offering, the note holders demanded conversion of the outstanding $1,685,000 Convertible Notes and accrued interest of $151,813 into 3,061,355 shares of common stock at a conversion price of $0.60 per share. | |
Promissory Notes | |
In November 2013, the Company issued two promissory notes (the “Promissory Notes”) to two existing investors in aggregate total principal amount of $600,000. The Promissory Notes accrue interest at 5.00% per annum and are due at the earliest of (1) December 19, 2014, (2) the occurrence of an event of default as defined in the Promissory Notes, (3) an initial installment of $100,000 principal amount, to each investor, upon the receipt by the Company of a minimum $6,500,000 in aggregate proceeds under any financing transaction, (4) a second installment of $100,000 principal amount, to each investor, upon the receipt by the Company of a minimum $8,500,000 in aggregate proceeds under any financing transaction, and (5) a third installment of $100,000 principal amount, to each investor, upon the receipt by the Company of a minimum $10,000,000 in aggregate proceeds under any financing transaction. At September 30, 2014, the Promissory Notes had an outstanding aggregate principal balance of $600,000. | |
On December 31, 2014, the note holders requested conversion of the outstanding $600,000 Promissory Notes and accrued interest of $33,333 into 1,055,554 shares of common stock at a conversion price of $0.60 per share. | |
Subordinated Convertible Promissory Note | |
In 2013, the Company entered into an investment banking agreement (“2013 PPM”) to raise up to $6 million of 10% subordinated convertible promissory notes. The agreement contemplated a reverse acquisition with a public company and an automatic conversion of the notes into units of common stock and warrants, as defined therein. In April 2013, the Company issued a $350,000 subordinated convertible promissory note (the “Subordinated Note”). The Subordinated Note accrued interest at 10% per annum and was payable on demand any time after April 2014. If the Company has not repaid the Subordinated Note at the closing of a reverse acquisition, the unpaid principal and accrued interest will automatically convert into common stock by dividing the amount due by a price per unit of $0.65. Also, upon automatic conversion, the purchaser of the Subordinated Note will receive a warrant to purchase the same number of shares in to which the Subordinated Note converts. | |
On July 31, 2014, in anticipation of the completion of the reverse acquisition and the Private Offering, the note holder demanded conversion of the outstanding $350,000 Subordinated Note and accrued interest of $44,245 into 606,531 shares of common stock at a conversion price of $0.65 per share. | |
Interest Expense | |
During 2013, the Company incurred $42,000 of debt issuance costs related to the Subordinated Note which was amortized over the term of the underlying debt. Amortization of debt issuance costs recorded as interest expense for the three months ended December 31, 2014 and 2013 amounted to $0 and $10,500, respectively. | |
Interest expense on the notes for the three months ended December 31, 2014 and 2013, including non-cash interest related to debt issuance costs, was $7,500 and $35,221, respectively. |
DERIVATIVE_WARRANT_LIABILITY
DERIVATIVE WARRANT LIABILITY | 3 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Notes to Financial Statements | |||||||||
NOTE 5. DERIVATIVE WARRANT LIABILITY | Derivative financial instruments are recognized as a liability on the consolidated balance sheet and measured at fair value. At December 31, 2014 and September 30, 2014, the Company had outstanding warrants to purchase 5,080,080 shares of its common stock that are considered to be derivative instruments since the agreements contain “down round” provisions whereby the exercise price of the warrants is subject to adjustment in the event that the Company issues common stock for less than $0.60 per share prior to September 12, 2015 (see Note 6). | ||||||||
The Company performs valuations of the warrants using the Black-Scholes option pricing model. This model requires input of assumptions including the risk-free interest rates, volatility, expected life and dividend rates. Selection of these inputs involves management’s judgment and may impact net income. Due to our limited operating history and limited number of sales of our common stock, we estimate our volatility based on a number of factors including the volatility of comparable publicly traded pharmaceutical companies. The volatility factor used in the Black-Scholes option pricing model has a significant effect on the resulting valuation of the derivative liabilities on our balance sheet. The volatility calculated at December 31, 2014 was 53%. We used a risk-free interest rate of 1.65%, an estimated life of 4.70 years, which is the remaining contractual life of the warrants and no dividends to our common stock. | |||||||||
The table below presents the changes in the derivative warrant liability, which is measured at fair value on a recurring basis and classified as Level 3 in the fair value hierarchy: | |||||||||
Three Months Ended | Three Months Ended | ||||||||
December 31, | December 31, | ||||||||
2014 | 2013 | ||||||||
Derivative warrant liability, beginning of period | $ | 1,450,943 | $ | — | |||||
Total realized/unrealized gains included in net loss (1) | (60,489 | ) | — | ||||||
Derivative warrant liability, end of period | $ | 1,390,454 | $ | — | |||||
(1) Included in gain or loss on revaluation of derivative warrant liability in the Condensed Consolidated Statement of Operations. |
COMMON_STOCK_STOCK_OPTIONS_AND
COMMON STOCK, STOCK OPTIONS AND WARRANTS | 3 Months Ended | |||||||||||||
Dec. 31, 2014 | ||||||||||||||
Notes to Financial Statements | ||||||||||||||
NOTE 6. COMMON STOCK, STOCK OPTIONS AND WARRANTS | Common Stock | |||||||||||||
In March 2014, the Company issued 200,000 shares of common stock for $50,000, or $0.25 per share. | ||||||||||||||
On September 12, 2014, in connection with the Reverse Acquisition, 5,000,000 shares of common stock were recorded in the financial statements of Citius Pharmaceuticals, LLC, the accounting acquirer (See Note 1 – Reverse Acquisition). | ||||||||||||||
Private Offering | ||||||||||||||
In 2014, the Company entered into an investment banking agreement to raise up to $5.1 million and issue up to 8,500,000 Units described below. The agreement contemplated a Reverse Acquisition with a public company. As of December 31, 2013, the Company capitalized as deferred offering costs a $25,000 retainer for legal costs associated with this offering. The $25,000 retainer was charged to additional paid-in capital on completion of the first closing of the offering. | ||||||||||||||
On September 12, 2014, the Company sold 3,400,067 Units for a purchase price of $0.60 per Unit for gross proceeds of $2,040,040. Each Unit consists of one share of common stock and one five-year warrant (the “Investor Warrants”) to purchase one share of common stock at an exercise price of $0.60, (the “Private Offering”). The exercise price of the Investor Warrants is subject to adjustment, for up to one year, if the Company issues common stock at a price lower than the exercise price, subject to certain exceptions. The Investor Warrants will be redeemable by the Company at a price of $0.001 per Investor Warrant at any time subject to the conditions that (i) the common stock has traded for twenty (20) consecutive trading days with a closing price of at least $1.50 per share with an average trading volume of 50,000 shares per day and (ii) the Company provides 20 trading days prior notice of the redemption and the closing price of the common stock is not less than $1.17 for more than any 3 days during such notice period and (iii) the underlying shares of common stock are registered. | ||||||||||||||
The Placement Agent was paid a commission of ten percent (10%) and a non-accountable expense allowance of three percent (3%) of the funds raised in the Private Offering. As a result of the foregoing arrangement, the Placement Agent was paid commissions and expenses of $265,206. In addition, the Company issued to the Placement Agent and their designees five-year warrants (the “Placement Agent Unit Warrants”) to purchase 680,013 Units at an exercise price of $0.60 per Unit. The Placement Agent Unit Warrants are exercisable on a cash or cashless basis with respect to purchase of the Units, and will be exercisable only for cash with respect to warrants received as part of the Units. The exercise price of the warrants underlying the Placement Agent Unit Warrants is subject to weighted-average adjustment, for up to one year, if the Company issues common stock at a price lower than the exercise price, subject to certain exceptions. | ||||||||||||||
In addition, the Placement Agent was issued warrants to purchase 1,000,000 shares of common stock exercisable for cash at $0.60 per share for investment banking services provided in connection with the transaction (the “Placement Agent Share Warrants”). Other cash expenses related to the private placement totaled $169,000. The Placement Agent may, while the Placement Agent Unit Warrants are outstanding, appoint one person to the Board of Directors, and designate one person who may attend meetings of the Board of Directors as an observer. | ||||||||||||||
In connection with the Private Offering, the Company entered into a Registration Rights Agreement pursuant to which the Company is required to file a registration statement (the “Registration Statement”), registering for resale all shares of common stock (i) included in the Units; and (ii) issuable upon exercise of the Investor Warrants. The Company has agreed to use its reasonable efforts to cause the Registration Statement to be filed no later than 60 days after the completion of the Private Offering (the “Filing Deadline”), and to have the Registration Statement declared effective within 180 days of the Filing Deadline. The Private Offering is still in progress. Any holders of the shares of common stock removed from the Registration Statement as a result of a Section 415 comment from the SEC shall be included in a subsequent registration statement the Company will file no later than six months after the prior registration statement (or such other period as permitted by SEC rules). | ||||||||||||||
Stock Options | ||||||||||||||
On September 12, 2014, the Board of Directors adopted the 2014 Stock Incentive Plan (the “2014 Plan”) and reserved 13,000,000 shares of common stock for issuance to employees, directors and consultants. On September 12, 2014, the stockholders approved the plan. Pursuant to the 2014 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 December 31, 2014, there were options to purchase an aggregate of 3,300,000 shares of common stock outstanding under the 2014 Plan and 9,700,000 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 that uses the assumptions noted in the following table. 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. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercises and employee terminations within the valuation model. 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 as of December 31, 2014 and the changes during the three months then ended is presented below: | ||||||||||||||
Options | Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||
Outstanding at October 1, 2014 | 3,300,000 | $ | 0.45 | |||||||||||
Granted | ||||||||||||||
Exercised | — | — | ||||||||||||
Forfeited or expired | — | — | ||||||||||||
Outstanding at December 31, 2014 | 3,300,000 | $ | 0.45 | 9.71 years | $ | 495,000 | ||||||||
Exercisable at December 31, 2014 | 1,300,000 | $ | 0.45 | 9.71 years | $ | 195,000 | ||||||||
On September 12, 2014, the Board of Directors granted stock options to purchase 3,300,000 shares of common stock at an exercise price of $0.45 per share. The weighted average grant-date fair value of the options granted was estimated at $0.34 per share. These options vest over three years and have a term of 10 years. | ||||||||||||||
Stock-based compensation expense for the three months ended December 31, 2014 and 2013 was $108,764 and $0, respectively. | ||||||||||||||
At December 31, 2014, unrecognized total compensation cost related to unvested awards of $553,728 is expected to be recognized over a weighted average period of 1.62 years. | ||||||||||||||
Warrants | ||||||||||||||
The Company has reserved 5,760,093 shares of common stock for the exercise of outstanding warrants. The following table summarizes the warrants outstanding at December 31, 2014: | ||||||||||||||
Exercise price | Number | Expiration Date | ||||||||||||
Investor Warrants | $ | 0.6 | 3,400,067 | -1 | 12-Sep-19 | |||||||||
Placement Agent Unit Warrants | $ | 0.6 | 680,013 | 12-Sep-19 | ||||||||||
Warrants underlying Placement Agent Unit Warrants | $ | 0.6 | 680,013 | -1 | 12-Sep-19 | |||||||||
Placement Agent Share Warrants | $ | 0.6 | 1,000,000 | -1 | 12-Sep-19 | |||||||||
5,760,093 | ||||||||||||||
(1) Fair value of these warrants are included in the derivative warrant liability | ||||||||||||||
The weighted average remaining life of the warrants is 4.70 years. At December 31, 2014, all warrants are exercisable and there is no aggregate intrinsic value for the warrants outstanding. |
RELATED_PARTY_TRANSACTIONS
RELATED PARTY TRANSACTIONS | 3 Months Ended |
Dec. 31, 2014 | |
Notes to Financial Statements | |
NOTE 7. RELATED PARTY TRANSACTIONS | The Company’s headquarters is located in the office space of a company affiliated through common ownership. The Company has not recorded any revenue or expense related to the use of the office space as management has determined the usage to be immaterial and the affiliate has not charged for the usage. |
As of December 31, 2014 and September 30, 2014, the Company owed $56,134 to the company affiliated through common ownership for the expenses the related party paid on the Company’s behalf. | |
Our Chief Executive Officer is the cofounder and Vice Chairman of Akrimax Pharmaceuticals, LLC (“Akrimax”), a privately held pharmaceutical company specializing in producing cardiovascular and general pharmaceutical products (see Note 3). |
EMPLOYMENT_AND_CONSULTING_AGRE
EMPLOYMENT AND CONSULTING AGREEMENTS | 3 Months Ended |
Dec. 31, 2014 | |
Notes to Financial Statements | |
NOTE 8. EMPLOYMENT AND CONSULTING AGREEMENTS | Employment Agreement |
The Company entered into a three year employment agreement with its new Chief Executive Officer effective September 12, 2014. Upon expiration, the agreement automatically renews for successive periods of one-year. The agreement requires the Company to pay base compensation plus incentives over the employment term plus severance benefits upon the occurrence of certain events as described in the agreement. Under the agreement, the Chief Executive Officer was granted options to purchase 3,300,000 shares of common stock. | |
Consulting Agreements | |
Effective September 1, 2012, the Company entered into three consulting agreements. Two of the agreements are for financial consulting services including accounting, preparation of financial statements and filings with the SEC. The third agreement is for financing activities, product development strategies and corporate development. The agreements may be terminated by the Company or the consultant with 90 days written notice. Consulting expense under the agreements for the three months ended December 31, 2014 was $87,000, including $12,000 paid to a consultant who is a stockholder of the Company. In addition, one financial consulting services agreement provides for the grant of options to purchase 500,000 shares of common stock contingent upon approval by the Board of Directors. |
NATURE_OF_OPERATIONS_BASIS_OF_1
NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Dec. 31, 2014 | |
Nature Of Operations Basis Of Presentation And Summary Of Significant Accounting Policies Policies | |
Basis of Preparation | As a result of the reverse acquisition, the accompanying consolidated financial statements include the operations of Citius Pharmaceuticals, LLC (the accounting acquirer). The accompanying consolidated financial statements also include the operations of Citius Pharmaceuticals, Inc. (formerly Trail One, Inc.) since the date of the reverse acquisition. All significant inter-company balances and transactions have been eliminated in consolidation. |
All share and per share amounts presented in these consolidated financial statements reflect the one-for-one exchange ratio of Citius Pharmaceuticals, LLC member interests to common shares in the reverse acquisition. | |
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, without being audited, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary to make the financial statements not misleading have been included. Operating results for the three months ended December 31, 2014 are not necessarily indicative of the results that may be expected for the year ending September 30, 2015. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the nine months ended September 30, 2014 filed with the Securities and Exchange Commission. | |
There have been no recently issued accounting pronouncements that have had or are expected to have a material impact on the Company’s consolidated financial statements. | |
Use of Estimates | Our accounting principles require our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting periods. Estimates having relatively higher significance include stock-based compensation, valuation of warrants, and income taxes. Actual results could differ from those estimates. |
Net Income (Loss) per Common Share | Basic net income (loss) per share of common stock has been computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted net income per share of common stock has been computed by dividing net income by the weighted average number of shares outstanding plus the diluting effect, if any, of outstanding stock options, warrants and convertible securities. Diluted net loss per share of common stock has been computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during such period. In a net loss period, options, warrants and convertible securities are anti-dilutive and therefore excluded from diluted loss per share calculations. |
DERIVATIVE_WARRANT_LIABILITY_T
DERIVATIVE WARRANT LIABILITY (Tables) | 3 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Derivative Warrant Liability Tables | |||||||||
Schedule of derivative warrant liabilities | The table below presents the changes in the derivative warrant liability, which is measured at fair value on a recurring basis and classified as Level 3 in the fair value hierarchy: | ||||||||
Three Months Ended | Three Months Ended | ||||||||
December 31, | December 31, | ||||||||
2014 | 2013 | ||||||||
Derivative warrant liability, beginning of period | $ | 1,450,943 | $ | — | |||||
Total realized/unrealized gains included in net loss (1) | (60,489 | ) | — | ||||||
Derivative warrant liability, end of period | $ | 1,390,454 | $ | — | |||||
(1) Included in gain or loss on revaluation of derivative warrant liability in the Condensed Consolidated Statement of Operations. |
COMMON_STOCK_STOCK_OPTIONS_AND1
COMMON STOCK, STOCK OPTIONS AND WARRANTS (Tables) | 3 Months Ended | |||||||||||||
Dec. 31, 2014 | ||||||||||||||
Common Stock Stock Options And Warrants Tables | ||||||||||||||
Schedule of stock option activity | A summary of option activity under the 2014 Plan as of December 31, 2014 and the changes during the three months then ended is presented below: | |||||||||||||
Options | Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||
Outstanding at October 1, 2014 | 3,300,000 | $ | 0.45 | |||||||||||
Granted | ||||||||||||||
Exercised | — | — | ||||||||||||
Forfeited or expired | — | — | ||||||||||||
Outstanding at December 31, 2014 | 3,300,000 | $ | 0.45 | 9.71 years | $ | 495,000 | ||||||||
Exercisable at December 31, 2014 | 1,300,000 | $ | 0.45 | 9.71 years | $ | 195,000 | ||||||||
Schedule of Warrants | The Company has reserved 5,760,093 shares of common stock for the exercise of outstanding warrants. The following table summarizes the warrants outstanding at December 31, 2014: | |||||||||||||
Exercise price | Number | Expiration Date | ||||||||||||
Investor Warrants | $ | 0.6 | 3,400,067 | -1 | 12-Sep-19 | |||||||||
Placement Agent Unit Warrants | $ | 0.6 | 680,013 | 12-Sep-19 | ||||||||||
Warrants underlying Placement Agent Unit Warrants | $ | 0.6 | 680,013 | -1 | 12-Sep-19 | |||||||||
Placement Agent Share Warrants | $ | 0.6 | 1,000,000 | -1 | 12-Sep-19 | |||||||||
5,760,093 | ||||||||||||||
(1) Fair value of these warrants are included in the derivative warrant liability. |
GOING_CONCERN_UNCERTAINTY_AND_1
GOING CONCERN UNCERTAINTY AND MANAGEMENT'S PLAN (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | |
Going Concern Uncertainty And Managements Plan Details Narrative | ||||
Cash flows from operations | $734,823 | $521,882 | $183,164 | $1,095,266 |
Working capital deficit | 828,947 | |||
Stockholders' Deficit | $823,546 | $741,935 |
NOTES_PAYABLE_Details_Narrativ
NOTES PAYABLE (Details Narrative) (USD $) | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2013 | Sep. 30, 2014 | |
Interest expense | $7,500 | $35,221 | ||
Amortization of debt issuance costs | 10,500 | |||
Accrued interest | 25,833 | |||
Promissory Notes [Member] | ||||
Outstanding aggregate principal balance | 600,000 | |||
Common stock for conversion | 1,055,554 | |||
Conversion price | $0.60 | |||
Accrued interest | 33,333 | |||
Subordinated Note [Member] | ||||
Debt issuance costs | $42,000 |
DERIVATIVE_WARRANT_LIABILITY_D
DERIVATIVE WARRANT LIABILITY (Details) (USD $) | 3 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Derivative Warrant Liability Details | ||
Derivative warrant liability, beginning of period | $1,450,943 | |
Total realized/unrealized losses included in net loss (1) | -60,489 | |
Derivative warrant liability, end of period | $1,390,454 |
DERIVATIVE_WARRANT_LIABILITY_D1
DERIVATIVE WARRANT LIABILITY (Details Narrative) | 3 Months Ended | |
Dec. 31, 2014 | Sep. 30, 2014 | |
Derivative Warrant Liability Details Narrative | ||
Outstanding warrants to purchase of its common stock | 5,080,080 | 5,080,080 |
Volatility rate | 53.00% | |
Risk-free interest rate | 1.65% | |
Estimated life | 4 years 8 months 12 days |
COMMON_STOCK_STOCK_OPTIONS_AND2
COMMON STOCK, STOCK OPTIONS AND WARRANTS (Details) (Stock Options [Member], USD $) | 3 Months Ended |
Dec. 31, 2014 | |
Stock Options [Member] | |
Stock Options | |
Outstanding, beginning balance | 3,300,000 |
Exercised | |
Forfeited or expired | |
Outstanding, ending balance | 3,300,000 |
Exercisable, ending balance | 1,300,000 |
Weighted Average Exercise Price | |
Outstanding, beginning balance | $0.45 |
Granted | |
Exercised | |
Forfeited | |
Outstanding, ending balance | $0.45 |
Exercisable, ending balance | $0.45 |
Remaining Contractual Life (years) | |
Remaining Contractual Life (years) | 9 years 8 months 16 days |
Exercisable Remaining Contractual Life (years) | 9 years 8 months 16 days |
Aggregate Intrinsic value | |
Outstanding ending balance | $495,000 |
Exercisable ending balance | $195,000 |
COMMON_STOCK_STOCK_OPTIONS_AND3
COMMON STOCK, STOCK OPTIONS AND WARRANTS (Details 1) (USD $) | 3 Months Ended |
Dec. 31, 2014 | |
Investor Warrants [Member] | |
Exercise price | $0.60 |
Number | 3,400,067 |
Expiration Date | 12-Sep-19 |
Placement Agent Unit Warrants [Member] | |
Exercise price | $0.60 |
Number | 680,013 |
Expiration Date | 12-Sep-19 |
Warrants underlying Placement Agent Unit Warrants [Member] | |
Exercise price | $0.60 |
Number | 680,013 |
Expiration Date | 12-Sep-19 |
Placement Agent Share Warrants [Member] | |
Exercise price | $0.60 |
Number | 1,000,000 |
Expiration Date | 12-Sep-19 |
Warrant [Member] | |
Number | 5,760,093 |
COMMON_STOCK_STOCK_OPTIONS_AND4
COMMON STOCK, STOCK OPTIONS AND WARRANTS (Details Narrative) (USD $) | 3 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | |
Stock-based compensation expense | $108,764 | ||
2014 Plan [Member] | |||
Common stock outstanding | 3,300,000 | ||
Shares available for future grants | 9,700,000 | ||
Stock Options [Member] | |||
Common stock outstanding | 3,300,000 | 3,300,000 | |
Stock-based compensation expense | 108,764 | 0 | |
Unrecognized total compensation cost related to unvested awards | 553,728 | ||
Weighted average period of recognition | 1 year 7 months 13 days | ||
Weighted average remaining life | 9 years 8 months 16 days | ||
Warrant [Member] | |||
Common stock outstanding | 5,760,093 | ||
Weighted average remaining life | 4 years 8 months 12 days | ||
Private Offering [Member] | |||
Deferred offering costs | $25,000 |
RELATED_PARTY_TRANSACTIONS_Det
RELATED PARTY TRANSACTIONS (Details Narrative) (USD $) | Dec. 31, 2014 | Sep. 30, 2014 |
Related Party Transactions Details Narrative | ||
Company owes to related party | $56,134 | $56,134 |
EMPLOYMENT_AND_CONSULTING_AGRE1
EMPLOYMENT AND CONSULTING AGREEMENTS (Details Narrative) (USD $) | 3 Months Ended |
Dec. 31, 2014 | |
Employment And Consulting Agreements Details Narrative | |
Consulting expense | $87,000 |
Payment to stockholder under counsulting fee | $12,000 |
Granted options to purchase common stock | 500,000 |