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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2012
 
or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to ______________
 
Commission File Number: 333-150937

CURAXIS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)

(A)Nevada
 
(B)26-1919261
(C)(State or other jurisdiction of
(D)incorporation or organization)
 
(E)(I.R.S. Employer
(F)Identification Number)
 
1004 Chagford Way
Raleigh, NC 27614
(Address of principal executive offices)
 
(888) 919-2873
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer
¨
Accelerated Filer
¨
       
Non-Accelerated Filer
¨
Smaller Reporting Company
þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨   No þ

As of May 11, 2012, there were 83,554,940 shares outstanding of the registrant’s common stock.
 


 
 

 
TABLE OF CONTENTS

     
Page
 
PART I—FINANCIAL INFORMATION
         
Item 1.
Financial Statements.
    3  
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
    18  
           
Item 3.
Quantitative and Qualitative disclosures about Market Risk.
    24  
           
Item 4.
Controls and Procedures.
    24  
           
PART II—OTHER INFORMATION
           
Item 1.
Legal Proceedings.
    25  
           
Item1A.
Risk Factors.
    25  
           
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
    25  
           
Item 3.
Defaults Upon Senior Securities.
    26  
           
Item 4.
Mine Safety Disclosures.
    26  
           
Item 5.
Other Information.
    26  
           
Item 6.
Exhibits.
    26  
           
Signatures     27  

 
2

 
 
PART I—FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS.
 
INDEX TO CONDENSED FINANCIAL STATEMENTS
 
   
PAGE
 
       
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2012 (UNAUDITED) AND DECEMBER 31, 2011
    4  
         
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 AND THE CUMULATIVE PERIOD FROM INCEPTION (FEBRUARY 27, 2001) TO MARCH 31, 2012
    5  
         
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE CUMULATIVE PERIOD FROM INCEPTION (FEBRUARY 27, 2001) TO MARCH 31, 2012
    6  
         
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 AND THE CUMULATIVE PERIOD FROM INCEPTION (FEBRUARY 27, 2001) TO MARCH 31, 2012
    9  
         
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    11  

 
3

 
 
CURAXIS PHARMACEUTICAL CORPORATION
(A Development Stage Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
   
December 31,
   
March 31,
 
   
2011
   
2012
 
Assets
       
(Unaudited)
 
Current assets:
           
Cash and cash equivalents                                                                           
  $ 22     $ 11  
Prepaid assets                                                                           
    321       319  
Total current assets                                                                      
    343       330  
Property and equipment, net                                                                                
    1       1  
Other assets                                                                                
    314       241  
Total assets                                                                      
    658       572  
Liabilities and Stockholders’ Equity (Deficit)
               
Current liabilities:
               
Accounts payable                                                                           
    1,746       1,669  
Accrued expenses                                                                           
    1,068       1,258  
Current portion of capital lease obligation                                                                           
    4       4  
Notes payable                                                                           
    3,774       3,920  
Total current liabilities                                                                      
    6,592       6,851  
                 
Derivative Instrument
    99       31  
Deferred purchase credit                                                                                
    500       500  
Deferred revenue                                                                                
    1,727       1,727  
Total liabilities                                                                      
    8,918       9,109  
Commitments and contingencies                                                                                
           
Stockholders’ equity (deficit):
               
Preferred Stock, $.0001 par value; 20,000  authorized;  1  and  1 shares issued and outstanding at December 31, 2011 and March 31, 2012
           
Common stock, $0.0001 par value; 480,000 authorized;  80,120  and 83,555 shares issued and outstanding at December 31, 2011 and March 31, 2012 respectively
    8       8  
Additional paid-in capital
    80,247       80,318  
Deficit accumulated during the development stage
    (88,515 )     (88,863 )
Total stockholders’ equity (deficit)                                                                      
    (8,260 )     (8,537 )
Total liabilities and stockholders’ equity (deficit)
  $ 658     $ 572  
 
See notes to condensed consolidated financial statements
 
 
4

 
 
CURAXIS PHARMACEUTICAL CORPORATION
(A Development Stage Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except per share amounts)
 
   
Three months ended
March 31,
   
Cumulative from Inception
(February 27, 2001)
to
March 31,
 
   
2011
   
2012
   
2012
 
                   
Operating expenses
                 
Research and development
  $ 2     $ 19     $ 61,485  
General and administrative
    628       326       28,892  
Marketing
    -       -       5,557  
Loss on investment in real estate
    -       -       1,091  
Loss on lease termination                                                
    -       -       374  
Total operating (income) expenses
    630       345       97,399  
                         
Operating (loss) income                                                
    (630 )     (345 )     (97,399 )
                         
Gain on debt restructuring                                                
    -       -       6,766  
Gain on reduction of liablities                                                
    -       -       2,233  
Interest income (expense), net
    (62 )     (73 )     (1,428 )
Interest from derivative conversion feature
    -       -       (2,586 )
Change in fair value of derivatives
 
­121
      79       3,615  
                         
Net income (loss)                                                
  $ (571 )   $ (339 )   $ (88,799 )
Basic net income (loss) per share
  $ ( 0.01 )   $ 0.00          
Diluted net income (loss) per  share
  $ ( 0.01 )   $ 0.00          
Weighted average common shares outstanding – basic
    72,385       81,921          
Weighted average common shares outstanding – diluted
    72,385       81,921          
 
See notes to condensed consolidated financial statement
 
 
5

 
 
CURAXIS PHARMACEUTICAL CORPORATION
(A Development Stage Corporation)
CONDENSED CONSOILIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited - in thousands)
 
   
Preferred stock
   
Common stock
    Additional Paid-     Subscription     Deficit Accumulated during the Development        
   
Shares
   
Amount
   
Shares
   
Amount
   
in-Capital
   
receivable
   
Stage
   
Total
 
                                                 
Balances at Inception (February 27, 2001)
        $           $     $     $     $     $  
Sale of common stock
                    25,657       26       1,073                     1,099  
Stock-based compensation
                            100                   100  
Net loss
                                        (1,219 )     (1,219 )
Balances at December 31, 2001
                25,657       26       1,173             (1,219 )     (20 )
Sale of common stock
                4,054       4       4,105                   4,109  
Issuance of common stock in exchange for consulting services
                12             10                   10  
Stock-based compensation
                            272                   272  
Net loss
                                        (3,190 )     (3,190 )
Balances at December 31, 2002
                29,723       30       5,560             (4,409 )     1,181  
Sale of common stock
                4,794       5       8,239                   8,244  
Issuance of common stock in exchange for consulting services
                36             55                   55  
Repurchase of common stock
                (330 )           (379 )                 (379 )
Stock-based compensation
                            78                   78  
Net loss
                                        (6,633 )     (6,633 )
Balances at December 31, 2003
                34,223       35       13,553             (11,042 )     2,546  
Sale of common stock
                4,388       4       12,491                   12,495  
Issuance of common stock in exchange for consulting services
                20             66                   66  
Net loss
                                        (11,626 )     (11,626 )
Balances at December 31, 2004
                38,631       39       26,110             (22,668 )     3,481  
Sale of common stock
                3,305       3       28,839                   28,842  
Issuance of common stock in exchange for consulting services
                4             33                   33  
Stock-based compensation
                            10                   10  
Repurchase of common stock
                (1 )           (9 )                 (9 )
Net loss
                                        (32,904 )     (32,904 )
Balances at December 31, 2005
                41,939       42       54,983             (55,572 )     (547 )
Sale of common stock
                1,513       1       15,127                   15,128  
Sale of common stock under warrants
                2,886       3       286                   289  
Stock-based compensation
                            1,155                   1,155  
Repurchase of common stock
                (150 )                              
Net loss
                                        (28,235 )     (28,235 )
Balances at December 31, 2006
                46,188     $ 46     $ 71,551     $     $ (83,807 )   $ (12,210 )
 
See notes to condensed consolidated financial statements
 
 
6

 
 
CURAXIS PHARMACEUTICAL CORPORATION
(A Development Stage Corporation)
CONDENSED CONSOILIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) - CONTINUED
(Unaudited - in thousands)

   
Preferred stock
   
Common stock
    Additional Paid-     Subscription     Deficit Accumulated during the Development        
   
Shares
   
Amount
   
Shares
   
Amount
   
in-Capital
   
receivable
   
Stage
   
Total
 
                                                 
Sale of common stock
        $       1,822     $ 2     $ 2,336     $     $     $ 2,338  
Sale of common stock under  warrants
                    1,971       2       171                     173  
Stock-based compensation
                            889                   889  
Net loss
                                        (6,744 )     (6,744 )
Balances at December 31, 2007
                49,981       50       74,947             (90,551 )     (15,554 )
Sale of common stock
                5,120       5       518                   523  
Sale of common stock under  warrants
                41             4                   4  
Stock-based compensation
                            469                   469  
Net loss
                                        (1,986 )     (1,986 )
Balances at December 31, 2008
                55,142       55       75,938             (92,537 )     (16,544 )
Sale of common stock, net
                6,071       6       1,096                   1,102  
Sale of common stock under warrants
                1,448       1       143                   144  
Issuance of warrants
                            330                   330  
Stock grant
                150             30                   30  
Stock-based compensation
                            361                   361  
Net income
                                        4,987       4,987  
Balances at December 31, 2009
                62,811       62       77,898             (87,550 )     (9,590 )
                                                                 
Sale of common stock, net
                1,182       1       219                   220  
Sale of common stock under warrants
                528       1       50                   51  
Issuance of warrants
                            1,111                   1,111  
Recapitalization of Company upon Merger  effective July 29, 2010
                7,695       (57 )     (51 )                 (108 )
Stock-based compensation
                            231                   231  
Sale of Preferred stock
    1                               (104 )           (104 )
Dividends on convertible 4% preferred stock
                                        (10 )     (10 )
Net loss
                                                    (2,244 )     (2,244 )
Balances at December 31, 2010
    1             72,216       7       79,458       (104 )     (89,804 )     (10,443 )
Issuance of common stock under Equity Credit Agreement, net
                3,329             200                   200  
Sale of common stock under warrants
                2,483             35                   35  
Issuance of common stock under options
                372             1                     1  
Issuance of common stock in exchange for consulting services
                520       1       111                     112  
Stock-based compensation
                            173                   173  
Sale of Preferred stock
    1                         266       104             370  
Conversion of preferred stock to common stock
    (1 )           1,200                                
Dividends on convertible 4% preferred stock
                            3             (45 )     (42 )
Net loss
                                                    1,334       1,334  
Balances at December 31, 2011
    1     $       80,120     $ 8     $ 80,247     $     $ (88,515 )   $ (8,260 )

See notes to condensed consolidated financial statements
 
 
7

 
 
CURAXIS PHARMACEUTICAL CORPORATION
(A Development Stage Corporation)
CONDENSED CONSOILIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) - CONTINUED
(Unaudited - in thousands)

   
Preferred stock
   
Common stock
    Additional Paid-     Subscription     Deficit Accumulated during the Development        
   
Shares
   
Amount
   
Shares
   
Amount
   
in-Capital
   
receivable
   
Stage
   
Total
 
Issuance of common stock under Equity Credit Agreement, net
                2,235             (19 )                 (19 )
Issuance of common stock in exchange for consulting services
                1,200             43                     43  
Stock-based compensation
                            47                   47  
Dividends on convertible 4% preferred stock
                                        (9 )     (9 )
Net loss
                                                    (339 )     (339 )
Balances at March 31, 2012
    1     $       83,555     $ 8     $ 80,318     $     $ (88,863 )   $ (8,537 )
 
See notes to condensed consolidated financial statements
 
 
8

 
 
CURAXIS PHARMACEUTICAL CORPORATION
(A Development Stage Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
 
   
Three months Ended
March 31,
   
Cumulative from Inception
(February 27, 2001)
to
March 31,
 
   
2011
   
2012
   
2012
 
             
Cash flows from operating activities
                 
Net income (loss)                                                                                 
  $ (571 )   $ (339 )   $ (88,799 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
                       
Depreciation                                                                              
    1             995  
Stock-based compensation expense
    46       47       4,290  
Common stock issued in exchange for consulting service
          43       319  
Interest from derivative liability
                2,586  
Change in fair value of derivatives
    (121 )     (79 )     (3,615 )
Loss (gain) on disposal of property and equipment
                169  
Loss on investment in real estate
                1,091  
Gain on reduction in liabilities
                (2,233 )
Gain on restructuring of trade debt
                (6,766 )
Changes in operating assets and liabilities:
                       
Prepaid expenses
    (3 )     2       59  
Accounts receivable                                                                            
    -              
Security deposits                                                                            
    6              
Accounts payable                                                                            
    50       34       8,184  
Accrued expenses                                                                            
    93       192       3,262  
Deferred purchase credit
                500  
Deferred revenue
       
­―
      1,727  
Net cash used in operating activities
    (499 )     (100 )     (78,231 )
Cash flows from investing activities
                       
Purchase of property and equipment
                (1,195 )
Purchase of real estate investment
                (3,155 )
Proceeds from the sale of property and equipment
                50  
Proceeds from the sale of real estate
                2,064  
Net cash provided by (used in) investing activities
  $     $     $ (2,236 )
Cash flows from financing activities
                 
Issuance of common stock
  $ 136     $ 54     $ 75,324  
Issuance of Preferred Stock
    266             1,162  
Proceeds from subscription receivable on preferred stock
    104             104  
Issuance of notes payable
          35       5,046  
Issuance of long-term debt
                592  
Payments on notes payable
                (1,343 )
Payments on capital lease obligation
                (16 )
Repurchase of common stock
                (388 )
Repayments of notes payable to related parties
                (202 )
Payments on long-term debt
                (3 )
Proceeds from notes payable to related parties
                202  
Repayment of mortgage note payable
                (3,100 )
Proceeds from the issuance of mortgage note
                3,100  
Net cash provided by financing activities
    506       89       80,478  

See notes to condensed consolidated financial statements
 
 
9

 
 
CURAXIS PHARMACEUTICAL CORPORATION
(A Development Stage Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited - in thousands)
 
   
Three monthsEnded
March 31,
   
Cumulative from Inception
(February 27, 2001)
to
March 31,
 
   
2011
   
2012
   
2012
 
                   
Net increase (decrease) in cash and cash equivalents
    7       (11 )     11  
Cash and cash equivalents, beginning of period
    2       22        
Cash and cash equivalents, end of period
  $ 9     $ 11     $ 11  
                         
                         
Supplemental disclosure of cash flow information:
                       
 Cash paid for interest
  $ 1     $     $ 260  
         Cash paid for income taxes
  $     $     $  ―  
Non-cash financing activities:
                       
Conversion of trade payables to notes
  $     $ 111     $ 5 ,714  
Restructuring of trade debt
  $     $     $ 6,766  
Issuance of warrant for accrued liability
  $     $     $ 129  
Issuance of warrants for prepaid asset
  $     $     $ (881 )
Net liabilities acquired in Merger Transaction
  $     $     $ (92 )
Charge to paid-in-capital for amortization of warrants issued with respect to the Equity Credit Agreement
  $     $ 199     $ 199  
Subscription receivable for issuance of preferred stock
  $     $     $ 104  
 
See notes to condensed consolidated financial statements
 
 
10

 
 
CURAXIS PHARMACEUTICAL CORPORATION
(A Development Stage Corporation)
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.  Description of business and basis of presentation

The accompanying unaudited condensed consolidated financial statements of Curaxis Pharmaceutical Corporation (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the U.S. Securities and Exchange Commission (the “SEC”).  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest audited financial statements.  The audited financial statements for the year ended December 31, 2011, are included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 29, 2012.

In the opinion of management, all adjustments, consisting only of normal, recurring adjustments, considered necessary for a fair presentation of the results of these interim periods have been included.  The results of operations for the three months ended March 31, 2012, may not be indicative of the results that may be expected for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

Business

The Company is an emerging specialty pharmaceutical company with a hormone drug product candidate for the treatment of Alzheimer’s disease and multiple cancers.  Our therapeutic platform is based on the hypothesis that many diseases of aging may be caused by age-related changes in the function of the hypothalamic-pituitary-gonadal (HPG) axis.  The HPG axis is a hormonal endocrine feedback loop that controls development, reproduction and aging in animals.  This drug development platform is built on the premise that hormones associated with this feedback loop are beneficial early in life, when they promote growth and development, but are harmful later in life when the mechanism for feedback is compromised, thereby leading to disease processes, including pathologies associated with Alzheimer’s disease and various cancers.  We believe our discovery of similar hormonal signaling mechanisms at the cellular level in brain tissue from Alzheimer’s patients and in multiple tumors will enable us to develop significant new treatments for Alzheimer’s disease as well as many cancers.

Corporate History

The Company incorporated in Nevada on February 1, 2008, under the name Auto Search Cars, Inc.  The Company initially was engaged in the development of a web-based e-commerce site platform to provide information for the sale of vehicles and vehicle financing and warranties.  However, no significant activities related to the website development occurred.  On February 8, 2010, the Company entered into an Agreement and Plan of Merger and Plan of Reorganization (the “Merger Agreement”) with Auto Search Cars Acquisition Corp. (“Acquisition Sub”), a Delaware corporation wholly owned by the Company, and Curaxis Pharmaceutical Corporation, a Delaware corporation (“Curaxis Delaware”), pursuant to which Acquisition Sub would be merged with and into the Curaxis Delaware with Curaxis Delaware continuing as the surviving wholly-owned subsidiary of the Company.  Upon effectiveness of the Merger Agreement, the Company ceased its e-commerce business and initiated the business plan of Curaxis Delaware.  On July 29, 2010, the parties executed an amendment to the Merger Agreement in order to amend the consideration paid for the cancellation of certain shares of the Corporation’s common stock.

 
11

 
 
On July 29, 2010, the merger transaction was closed.  Pursuant to the amended Merger Agreement, the Company issued 64.2 million shares of its common stock to the holders of common stock of the Curaxis Delaware (the “Merger”).  Under the terms of the Merger, all but 8.7 million of these shares were restricted from trading for a period of one year from the closing of the Merger.  In addition, each issued Curaxis Delaware Warrant (as defined in the Merger Agreement) were converted into warrants to purchase an equal number of shares of Auto Search’s common stock at the exercise price defined in the Company’s warrants.  Further the sole officer of Auto Search agreed to cancel 181,285,000 shares of Auto Search common stock in exchange for payment of $100 thousand dollars in the form of a promissory note and the issuance of 3,589,460 warrants to purchase common stock of the surviving corporation.

On July 30, 2010, the Company entered into an agreement and plan of merger with Curaxis Pharmaceutical Corporation, a Nevada corporation formed solely for the purpose of a name change.  Pursuant to the short-form merger, the Company changed its name to Curaxis Pharmaceutical Corporation (“Curaxis” or the “Company”).

In connection with the Merger dated as of July 29, 2010 and described in our Form 8-K filed on June 30, 2010, the Company on August 11, 2011 entered into an Agreement and Plan of Merger (the “Curaxis Merger Agreement”) by and between the Company and Curaxis Pharma Corporation, a Delaware corporation and a wholly owned subsidiary of the Company (“Pharma”), pursuant to which Pharma merged with and into the Company and the Company is the surviving corporation.

Basis of Presentation

The Company is a going concern development stage company and has focused its efforts to date on raising capital and research and development.  The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.  The Company has a limited operating history and has incurred significant losses from operations since its inception.  The cash position of the Company has deteriorated significantly over the last three years and the Company has been unable to satisfy its outstanding liabilities with many vendors and is currently in default of several credit agreements.  In late 2006, the Company terminated its Phase III clinical trial VP-AD-301 and in 2007 closed its research facility.  These factors raise substantial doubt as to the Company’s ability to continue as a going concern.  The accompanying financial statements do not include adjustments that might result from this uncertainty.

In 2009, the Company entered into a series of agreements with Southridge Business Solutions Group (“Southridge”) and Canterbury Investment Partners LLC (“Canterbury”), in order to restructure its balance sheet and establish a trading market for its common stock.  Under the terms of those agreements, Southridge and Canterbury have assisted Curaxis in negotiating settlements with its creditors to eliminate or substantially reduce and defer its trade debt.  To date, the Company has realized reductions in excess of $6 million in liabilities as the result of the combined efforts.  In addition, Southridge assisted Curaxis in securing a $25 million equity facility under which the Company can periodically, over a period of three years, sell up to $25 million of its common stock to an affiliate of Southridge.  On December 8, 2010, the Company filed a registration statement on Form S-1 to register 13,000,000 shares of common stock to be reserved for issuance under the equity line facility.  The proceeds of the equity facility will be used to meet current operating requirements and to fund the next step in Curaxis’ clinical development plan.

On June 27, 2011, the Company announced changes to its Board of Directors (the “Board”) and its executive management team to better position the Company for its next phase of growth and development.  The new Board has a wealth of experience and comprehensive knowledge of life sciences, operations and strategic management in the area of pharmaceuticals.  In addition, the newly appointed Board members have significant experience in the necessary industry arenas to execute the Company’s business plan on an accelerated basis.  The Board  and the executive management team is focused on attracting bridge financing for ongoing operational support and has  a strategy in place to identify and attract a strategic partner to absorb a portion of the clinical trial cost and processes to advance the Company’s lead drug candidate into a Phase IIb or Phase III clinical trial.  Currently, the Company is doing its best to secure such financing.

 
12

 
 
Assuming favorable results from the proposed trial are achieved, Curaxis’ management expects to fund the remaining development of its product candidate through public equity offerings, debt financings and possibly corporate collaborations and licensing arrangements.  However, the ability to secure such funding on a prospective basis is uncertain.  If Curaxis is unable to secure funding as intended, Curaxis will be forced to delay, reduce or eliminate its research and development programs or commercialization efforts.  There can be no assurance that the Company will be successful in achieving its goals.

Fair Value of Financial Instruments

The carrying amounts for cash, cash equivalents, accounts receivables, prepaid assets, accounts payable, and accrued expenses approximate fair value because of their short-term nature.  We have determined that it is not practical to estimate the fair value of our notes payable because of their unique nature and the costs that would be incurred to obtain an independent valuation.  We do not have comparable outstanding debt on which to base an estimated current borrowing rate or other discount rate for purposes of estimating the fair value of the notes payable and we have not yet obtained or developed a valuation model.  Additionally, we are engaged in research and development activities and have not yet developed products for sale.  Accordingly, at this stage of our development, a credit risk assessment is highly judgmental.  These factors all contribute to the impracticability of estimating the fair value of the notes payable.  At March 31, 2012, the carrying value of the notes payable and accrued interest was $3.9 million and $783 thousand, respectively.

Fair Value Measurements

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.  Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.  The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

  
Level 1 – Quoted prices in active markets for identical assets or liabilities.

  
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities.

  
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities.

Derivative Instrument

The Derivative instrument consists of the Series A and B convertible preferred stock, which has certain cash settlement provisions.  This financial instrument is recorded in the balance sheet at fair value as a liability.  Changes in fair value are recognized in earnings in the period of change.

Recently Issued Accounting Standards

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

 
13

 
 
2.  Notes payable

Notes payable consist of the following (in thousands):

   
December 31,
   
March 31,
 
   
2011
   
2012
 
             
Notes payable to clinical research sites                                                                                      
  $ 404     $ 404  
Promissory Note dated September 15, 2006                                                                                      
    1,925       1,925  
Promissory Installment Note dated September 26, 2006
    500       500  
Promissory Note dated July 1, 2007                                                                                      
    300       300  
Promissory Note dated August  21, 2007                                                                                      
    420       420  
Promissory Note and Security Agreement dated September 22, 2008
    26       26  
Default judgment dated October 29, 2009                                                                                      
    99       99  
Promissory note dated July 29, 2010                                                                                      
    100       100  
Promissory note dated February 20, 2012                                                                                      
    -       146  
      3,774       3,920  
Less: Current portion of notes payable
    3,774       3,920  
    $ -     $ -  

On February 20, 2012, the Company executed a Promissory Note payable to Southridge Partners II, LP.  The $146 thousand unsecured note bears interest at 6% per annum and is payable on or before June 30, 2012.  The proceeds of the note were used to meet current operating needs of the Company.

3.  Equity Credit Agreement

On September 16, 2010, the Company entered into a Private Equity Credit Agreement (the “Equity Credit Agreement”) with Southridge Partners II, LP (the “Investor”), a limited partnership organized and existing under the laws of the State of Delaware and an affiliate of Southridge.  Pursuant to this Equity Credit Agreement, the Investor shall commit to purchase upon to $25 million of the Company’s common stock over the course of thirty-six months commencing the effective date of the initial registration statement covering the registrable securities pursuant to the Equity Credit Agreement.  The put option price is 95% of the average of three lowest closing bid price (the “Bid Price”) of any two applicable trading days, consecutive or inconsecutive, during the five trading day period (the “Valuation Period”) commencing the date a put notice (the “Put Notice”) is delivered to the Investor (the “Put Date”) in a manner provided by the Equity Credit Agreement.

In addition, pursuant to the Equity Credit Agreement, in each Put Notice, the Company is required to specify a minimum stock price which in no event shall be less than 80% of the average of the Bid Price during the five trading day period commencing the Put Date (the “Floor Price”).  In the event the Bid Price decreases below the Floor Price during the Valuation Period, the Investors obligation to fund one-fifth of the put amount for each such trading day shall terminate and the put amount shall be adjusted accordingly.

The “Registrable Securities” include the Put Shares, any Blackout Shares (as defined in the Equity Credit Agreement) and any securities issued or issuable with respect to any of the foregoing by way of exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise.

 
14

 
 
Upon execution of the Equity Credit Agreement, the Company issued 820,856 warrants to the Investor in accordance with that certain Transaction Management Agreement with Southridge.  The exercise price is equal to 120% of the average closing price of the Company’s stock for the previous 20 days or $1.52.  The fair value of the warrants totaling $881 thousand has been recognized as prepaid financing costs as of the agreement date and are amortized over the life of the agreement or 36 months.

On December 7, 2010, the Company filed a registration statement on Form S-1 which was subsequently amended on January 13, 2011, to register 13,000,000 shares of the Company’s common stock to be issued under the terms of the Equity Credit Agreement.  The registration statement was declared effective January 26, 2011.  From January 1, 2012, to March 31, 2012, the Investor purchased 2.2 million shares of common stock pursuant to the terms of the Equity Credit Agreement, for which the proceeds to the Company totaled $54 thousand.  Expenses of $73 thousand associated with the warrants issued to the Investor upon execution of the Equity Credit Agreement have been netted against the proceeds for reporting purposes.

4.  Stock Purchase Warrants

At December 31, 2011 and March 31, 2012 outstanding warrants to purchase the company’s common stock are as follows:

   
December 31,
2011
   
March 31,
2012
   
Exercise
Price
 
Expiration
Date
                     
Warrants issued to outside consultants for services rendered in connection with the financing round completed on February 5, 2010.
    844,400       844,400     $ 0.22  
August 31, 2016
                           
Warrants issued as consideration for the cancellation of 181,285,000 shares of common stock upon consummation of the Merger transaction effective July 29, 2010.
    3,589,500       3,589,500     $ 0.001  
July 29, 2017
                           
Warrants issued to Southridge under the Transaction Management Agreement upon execution of Equity Credit Agreement dated September 16, 2010.
    820,800       820,800     $ 1.52  
September 15, 2015
                           
Warrants issued August 31, 2010 to outside vendor for development of the Company’s website.
    100,000       100,000     $ 0.30  
August 31, 2015
      5,354,700       5,354,700            

During the three months ended March 31, 2012, no warrants were exercised.

 
15

 
 
5.  Accounting for stock-based compensation

Total stock-based compensation expense recognized in the accompanying condensed consolidated statement of operations for the three months ended March 3, 2011 and 2012 was as follows (in thousands):

   
Three-months ended
March 31,
 
   
2011
   
2012
 
             
Employee-related stock-based compensation
  $ 46     $ 47  
Non-employee related stock based compensation
 
­-
      -  
    $ 46     $ 47  

During the three months ended March 31, 2011 and 2012, no options were granted, exercised or cancelled. As of March 31, 2012, there was $223 thousand of total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the Plans.  That cost is expected to be recognized over a weighted–average period of 1.6 years.
 
6.  Earnings per share

In accordance with ASC 260, “Earnings Per Share”, basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding.  Diluted net loss per common share is computed similarly to basic net loss per share, except that the denominator is increased to include all potential dilutive common shares, including outstanding options and warrants.  Potentially dilutive common shares have been excluded from the diluted loss per common share computation for the three months ended March 31, 2011 and 2012, because such securities have an anti-dilutive effect on loss per share.

The following table sets forth the number of potential shares of common stock that have been excluded from diluted earnings per share because their effect was anti-dilutive (in thousands):

 
 
March 31,
 
   
2011
   
2012
 
             
Outstanding stock options
    3,528       3,730  
Outstanding warrants
    10,647       5,355  
Outstanding preferred stock at conversion
    3,701       2,653  
      17,876       11,738  

 
16

 
 
7.  Fair Value

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as  December 31, 2011 and  March 31, 2012 (in thousands):

 
Level 2
 
Level 2
 
 
December 31, 2011
 
March 31, 2012
 
             
Derivative instruments (long term)
  $ 99     $ 31  
Total
  $ 99     $ 31  

8.  Commitments

Management Advisory and Consulting Agreements

Southridge Agreement

On May 28, 2009, Curaxis Delaware entered into a transaction management agreement with Southridge to assist Curaxis in restructuring its balance sheet, principally through negotiations with several large trade creditors to reduce their claims, and to assist Curaxis in effectuating a merger with a suitable public corporation (the “Transaction Management Agreement”).  Pursuant to the Transaction Management Agreement, Curaxis had worked with Southridge to reduce its trade debt by approximately $6,000,000 and entered into the Merger Agreement with Auto Search Cars, Inc.  Under the terms of the Transaction Management Agreement, Curaxis is obligated to pay Southridge a management fee of $10,000 per month, from June 1, 2009 through the first anniversary of the closing of the Merger with Auto Search Cars, Inc., or July 29, 2011.  Curaxis Delaware may terminate the Transaction Management Agreement at any time by giving 90 days’ advance notice to Southridge.  In addition, Curaxis Delaware was obligated to issue to Southridge warrants equal to 3% of Curaxis’ outstanding stock as of the date of the Merger with Auto Search at an exercise price of $0.001 per share.  A total of 2,149,148 warrants have been issued to Southridge under the agreement.  On May 27, 2011, the Transaction Management Agreement was terminated by Southridge.

Canterbury Agreement

On June 12, 2009, Curaxis Delaware entered into a letter agreement with Canterbury Investment Partners, LLC of Hingham, Massachusetts (“Canterbury”), to assist Curaxis Delaware in a range of issues in connection with its contemplated merger with a public shell corporation, including its negotiations with Southridge, in developing a strategy to negotiate reductions, deferrals and/or equity exchanges with its trade creditors and in raising funds from current or prospective investors and in negotiating the terms of the acquisition of a public corporation (the “Letter Agreement”).  Under the terms of the Letter Agreement, Curaxis paid Canterbury a retainer of $50,000 and is also obligated to pay Canterbury a monthly fee of $5,833 for a period of twelve (12) months from September 2009 through August 2010. In addition, under the Letter Agreement, Curaxis Delaware has issued a warrant to Canterbury to purchase 854,358 shares of Curaxis Common Stock at a price of $0.22 per share. Following the closing of the Merger with Auto Search, Curaxis was obligated to pay Canterbury the sum of $8,000 per month for a period of six (6) months for Canterbury’s assistance in developing and implementing a strategy to support Curaxis in its dealings with the financial community.

 
17

 
 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward Looking Statements

This quarterly report on Form 10-Q and other reports filed by Curaxis Pharmaceutical Corporation (“we,” “us,” “our,” or the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements (collectively the “Filings”) and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management.  Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof.  When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors.  Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements.  Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).  These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made.  These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented.  Our financial statements would be affected to the extent there are material differences between these estimates and actual results.  In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application.  There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.  The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

Overview

We are an emerging specialty pharmaceutical company with a pipeline of product candidates in Alzheimer’s disease and oncology.  Curaxis’ most advanced product candidate is VP4896, a proprietary, small, biodegradable implant that is comprised of leuprolide acetate and a polymer.  Curaxis’ therapeutic platform is based on the hypothesis that many diseases of aging may be caused by age-related changes in the function of the hypothalamic-pituitary-gonadal (HPG) axis.  The HPG axis is a hormonal endocrine feedback loop that controls development, reproduction and aging in animals.  We believe that Curaxis’ discovery of similar hormonal signaling mechanisms at the cellular level in brain tissue from Alzheimer’s patients and in multiple tumors may enable us to develop significant new treatments for Alzheimer’s disease as well as many tumors.

From inception through early 2006, Curaxis completed two Phase II clinical trials, Aladdin I and Aladdin II, to support the efficacy of its drug candidate in women and men, respectively.  In addition, a Phase I trial was completed to support safety and the drug release profile of the proprietary subcutaneous implant.  In August 2006, Curaxis completed enrollment in Aladdin 301, the first of its two Phase III clinical trials of the VP4896 implant for the treatment of mild to moderate Alzheimer’ s disease.  In October 2006, this trial was discontinued due to financial constraints and converted to a Phase II trial.  At the time of termination, approximately 625 patients had been enrolled at 62 sites located throughout the United States and Canada.  Curaxis has not conducted material research and development activities for VP4896 since terminating its clinical trials and closing its research facility in 2007.
 
 
18

 

Since Curaxis’ inception, it has not received approval to market any product, has had no revenues from product sales and has devoted substantially all of its efforts to the development of its treatment for mild to moderate Alzheimer’s disease.  Curaxis funded its operations primarily through the sale of common stock, preferred stock and warrants to private investors, which have provided net cash proceeds of approximately $76.5 million as of March 31, 2012.  Curaxis has never been profitable and, as March 31, 2012, it had an accumulated deficit of $88.9 million.

We do not expect to generate product revenue for at least the next several years, if at all.  If any of our programs experience delays or do not result in a commercial product, we would not generate revenue from that program in a timely manner or at all.  We expect that our operating expenses will continue to increase and may vary substantially from quarter to quarter and year-to-year based on the timing of clinical trial patient enrollment and our other research and development activities.  In particular, as we initiate a potential Phase IIb and/or pivotal Phase III trials of Memryte, we expect that our research and development expenses will increase significantly.  We expect general and administrative costs also to increase as we add personnel.  In connection with our preparation for the commercial launch of Memryte, we expect that our capital expenditures may increase as a result of increased manufacturing equipment costs.  We believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied on as indicative of our future performance.

Critical Accounting Policies

There have been no material changes to our critical accounting policies as described in our audited financial statements included in our Annual Report on Form 10-K, filed with the SEC on March 29, 2012.

RESULTS OF OPERATIONS
 
Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
 
The table below summarizes the results of operations of Curaxis for the three month periods ended March 31, 2012 and 2011.
 
   
For the Three Months ended
March 31,
 
   
2012
   
2011
 
Operating expenses:
               
Research and development
 
19
   
 $
2
 
General and administrative
   
326
     
628
 
Total operating expenses
   
345
     
630
 
(Loss) income from operations
   
(345
)
   
(630
)
Interest income (expense), net
   
(73
)
   
(62
 
Change in fair value of derivatives
   
79
     
121
 
Net income (loss)
 
$
(339
)
 
$
(571
)

Curaxis accounts for equity awards to employees and non-employee directors and service providers under ASC 718 Compensation – Stock Compensation.  As of March 31, 2012, there was $0.2 million of total unrecognized compensation costs related to unvested stock options.  That cost is expected to be amortized on a straight-line basis over a weighted average service period of 1.6 years.  Share-based compensation expenses recorded in the three months ended March 31, 2012 and 2011 were $47 thousand and $46 thousand, respectively.
 
 
19

 
 
Research and Development Expense
 
   
Three Months Ended
             
   
March 31,
             
   
2012
   
2011
   
$ Change
   
% Change
 
   
(Unaudited - Dollars in thousands)
 
Research and development costs
 
$
19
   
$
2
   
$
17
     
850.0
%
Percent of total operating expenses
   
5.5
%
   
.4
%
               
 
During 2007, Curaxis terminated all clinical trial activities and closed its’ research facility.  Further, the Company did not employ any personnel devoted to research and development activities in 2012 and 2011.  As a result, research and development expenses in 2012 and 2011 were limited to legal and professional fees associated with the pursuit and maintenance of various patents and pending patent applications related to our Alzheimer’s disease and oncology drug candidates and assistance in coordination of scientific due-diligence.  The increase in research and development expenses for the three months ended March 31, 2012, as compared to the same period for 2011, is directly due to an increase in legal fees relating to our pending patent applications.  Specifically, during the first quarter of 2012 legal fees incurred to advance the prosecution of the Company’s European combination therapy patent application and respond to office actions relating to our domestic applications totaled $15 thousand compared to $2 thousand in fees recognized for the corresponding period of 2011.  In addition, consulting fees of $4 thousand were incurred by the Company during the first quarter of 2012, to assist management in the presentation of the Company’s scientific collateral to potential strategic partners and investors.

General and Administrative Expenses
 
   
Three Months Ended
             
   
March 31,
             
   
2012
   
2011
   
$ Change
   
% Change
 
   
(Unaudited - Dollars in thousands)
 
                                 
General and administrative expenses
 
$
326
   
$
628
   
$
(302
   
(48.1)
%
Percent of total operating expenses
   
94.5
%
   
99.7
%
               

The decrease in general and administrative expenses for the three months ended March 31, 2012, as compared to the corresponding period of 2011, is attributed to a decrease in consulting and advisory fees of $240 thousand; a decrease in international travel expenses of $50 thousand; a decrease in payroll and related benefit expense of $47 thousand; and a decrease in occupancy expense of $20 thousand.

The decrease in consulting and advisory fees recognized reflects the reduction of fees paid to a European advisor upon commencement of Company’s European capital market initiatives in 2011 and a reduction in fees recognized under the Company’s agreements with Southridge and Canterbury.
 
 
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On February 8, 2011, the Company’s stock was approved for listing on the Frankfurt Exchange under the symbol “8CX.”  In anticipation of the listing, the Company engaged a European advisor, Continental Advisors, to complement its European capital markets initiatives as well as explore further business development or European strategic partnerships.  Fees paid to Continental Advisors in 2011 totaled $202 thousand.  Along with the advisory services rendered, the fees also reflect work contracted by Continental Advisors on the Company’s behalf for preparation and submission of the foreign exchange application, public relations activities, analyst research, and escrow agent and stock placement fees.  Travel fees incurred by management to promote the Company’s stock internationally during the first three months of 2011 totaled $50 thousand.

During the three months ended March 31, 2011, total expenses recognized under the under agreements executed between the Company and Southridge and Canterbury totaled $38 thousand.  Pursuant to the executed agreements, Southridge and Canterbury were to assist Curaxis in negotiating settlements with its creditors to eliminate or substantially reduce and defer its trade date and assist Curaxis in merging with a publicly traded corporation to establish a public trading market for its stock.  Compensation for the services rendered includes monthly fees plus warrants issued for the purchase of the Company’s stock at agreed upon terms upon consummation of the proposed merger transaction.  The agreement with Canterbury expired during the first quarter of 2011 and the agreement with Southridge was terminated in May 2011.

Payroll and related benefit expense for the three months ended March 31, 2012, totaled $166 thousand compared to $213 thousand for the corresponding period of 2011.  Effective June 24, 2011, two of the executive officers of the Company resigned and five of the existing Board members resigned, six new members were appointed to the Board of Directors and one of the new Board members was appointed as Interim Chief Executive Officer.  The decrease in headcount resulted in a decrease of $41 thousand in the 2012 expense recorded.  The reduced expense for 2012 also reflects a reduction in health insurance and other benefits expense of $6 thousand.

Occupancy expense for the three months ended March 31, 2012 totaled $1 thousand compared to $21 thousand for the corresponding period of 2011, a decrease of $20 thousand.  The 2011 expense includes monthly rent recognized under the lease for the corporate office location vacated in 2008, the original lease term expired in April of 2011.  Further, the 2011 expense includes rent of the corporate office location in Durham.  The master lease for these managed office spaces expired in February of 2011.

As discussed above the Company restructured the Board in 2011, which resulted in an increase of two external members.  In conjunction with this transition, the Board also established four standing committees.  Each Board member is entitled to compensation of $6 thousand per fiscal quarter, which is consistent with the 2011 compensation structure, and Committee Chairs are entitled additional compensation of $2 thousand per fiscal quarter.  As a result of the above actions, the Company recognized an increase in Board fees of $20 thousand for the first of quarter of 2012, as compared to the corresponding period of 2011.

Interest expense, Net
 
   
Three Months Ended
             
   
March 31,
             
   
2012
   
2011
   
$ Change
   
% Change
 
   
(Unaudited - Dollars in thousands)
 
Interest expense, net
 
$
73
   
$
62
   
$
11
     
17.8
%

Interest expense, net for the three months ended March 31, 2012 and 2011, includes mainly interest accrued on Curaxis’ outstanding promissory notes payable to certain vendors and clinical sites.  The majority of the notes outstanding were issued during 2007 and 2008 to satisfy, in part, liabilities generated for services performed in conjunction with the terminated Phase III clinical trial.

The increase in interest expense for the three month period ended March 31, 2012, as compared to the respective period of 2011, can be attributed to interest expense accrued on delayed payments on the restructured debt totaling $12 thousand and interest accrued on the promissory note executed in February 2012 totaling $1 thousand.
 
 
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Change in fair value of derivatives
 
   
Three Months Ended
             
   
March 31,
             
   
2012
   
2011
   
$ Change
   
% Change
 
   
(Unaudited - Dollars in thousands)
 
Change in fair value of derivatives
 
$
79
   
$
121
   
$
(42
)
   
(34.8)
%

During September, 2010, the Company issued Series A and Series B Convertible preferred stock.  Because the Series A and Series B stock provide for a potential cash settlement in certain circumstances, the preferred stock is classified as a liability.  The liability has been recorded at fair value based on potential shares of common stock issuable upon conversion multiplied by the current quoted market price of the Company’s common stock and is subject to re-measurement at each balance sheet date.

The change in fair value recognized for the three months ended March 31, 2012, reflects the decrease in the quoted market price of the Company’s stock from January 1 through March 31, 2012, coupled with the capitalization of unpaid dividends at March 15, 2012.  The quoted market prices of the Company’s stock at January 1, 2012 and March 31, 2012, were $0.039 and $0.012 per share, respectively.  Dividends capitalized at March 15, 2012, totaled $11 thousand representing an increase in the number of shares subject to conversion of 25,500.

The change in fair value recognized for the three months ended March 31, 2011, reflects the decrease in the quoted market price of the Company’s stock from January 1, 2011 through March 31, 2011.  The quoted market prices of the Company’s stock at January 1, 2011 and March 31, 2011, were $0.55 and $0.50 per share, respectively.

Net Loss
 
   
Three Months Ended
             
   
March 31,
             
   
2012
   
2011
   
$ Change
   
% Change
 
   
(Unaudited - Dollars in thousands)
 
Net income (loss)
 
$
(339
)
 
$
(571)
   
$
232
     
40.7
%
 

Net loss for the three months ended March 31, 2012, was $339 thousand compared to a net loss $571 thousand for the same period in 2011.  The decrease in the net loss is primarily due to the reduction in administrative and general expense recognized.  This decrease was offset by increases in research and development expense and interest expense.  Also, the decrease was offset by a decrease in the fair value adjustment recorded on the derivative liability in 2012, as compared to 2011.
 
 
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Liquidity and Capital Resources

Curaxis has been a developmental stage pharmaceutical company, has had no FDA approved products and has generated no commercial revenue.  Since inception, Curaxis has incurred losses from operations and has reported negative cash flows.

As of March 31, 2012, Curaxis had an accumulated deficit of $88.9 million and cash and cash equivalents of $11 thousand.  The cash position of Curaxis continues to be insufficient to satisfy its obligations with many vendors.  Curaxis will continue to incur operating losses and will not recognize revenues until it is successful in developing and commercializing its lead product candidate, VP4986, for the treatment of Alzheimer’s disease. We expect our minimum cash needs to fund our operating expenses and capital expenditures, excluding direct costs of a potential Phase IIb or registration trial, for the twelve-month period ending March 31, 2013, to be approximately $2 million.

Historically, Curaxis had relied on private placements of its common stock and the issuance of preferred stock to fund operations.  In 2009, Curaxis entered into a series of agreements with Southridge and Canterbury, in order to restructure its balance sheet and establish a trading market for its common stock.  Under the terms of those agreements, Southridge and Canterbury have assisted Curaxis in negotiating settlements with its creditors to eliminate or substantially reduce and defer its trade debt.  To date, Curaxis had realized reductions in excess of $6 million in liabilities as the result of the combined efforts.  In addition, Southridge assisted Curaxis in securing a $25 million equity facility under which Curaxis can periodically, over a period of three years, sell up to $25 million of its common stock to a third party or affiliate of Southridge.  The registration statement which registered 13,000,000 shares of the Company’s common stock to be issued under the terms of the Equity Credit Agreement became effective January 26, 2011.  To date, cash proceeds received for draws under the equity line have totaled $526 thousand which have been used to meet current operating needs.  Common stock issued as a result of such draws total 5.6 million shares.  Because our ability to draw down amounts under the Equity Credit Agreement is subject to a number of conditions, and due to the fact that the number of remaining registered shares approximates 7.4 million, there is no guarantee that we will be able to draw down any significant portion of the remaining $25 million commitment available to us under the Equity Credit Agreement.

The Board and the executive management team is focused on attracting bridge financing for ongoing operational support and to enable the Company to effectively restructure its balance sheet.  The Company has a strategy in place to identify and attract a strategic partner to absorb a portion of the clinical trial cost and processes to advance the Company’s lead drug candidate into a Phase IIb or registration clinical trial.  However, the ability to secure a partner will be dependent upon the Company ability to reduce a significant portion of their current liabilities through restructured settlement agreements with cash and/or equity payments with all vendors.

Off-Balance Sheet Arrangements

Curaxis had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
 
 
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We do not hold any derivative instruments and do not engage in any hedging activities.

ITEM 4. CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer participated in and supervised the evaluation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by us in the reports that we file is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our chief executive officer or officers and principal financial officer, to allow timely decisions regarding required disclosure.  The Company’s principal executive officer and principal financial officer determined that, as of the end of the period covered by this report, the Company had a material weakness because it did not have a sufficient number of personnel with an appropriate level of knowledge and experience of generally accepted accounting principles in the United States of America (U.S. GAAP) that are commensurate with the Company’s financial reporting requirements. As a result, management concluded that the Company’s disclosure controls and procedures were not effective at March 31, 2012.

(b) Changes in the Company’s Internal Controls Over Financial Reporting.

Other than described above, there have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 
24

 

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We believe there are no significant changes that constitute material changes from the legal proceedings previously disclosed in the Company's Annual Report on Form 10-K filed March 29, 2012.

Other than disclosed in the Company's Annual Report on Form 10-K, filed on March 29, 2012, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

ITEM 1A. RISK FACTORS.

We believe that there are no changes that constitute material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K, filed on March 29, 2012.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On January 19, 2012, the Company issued 700,000 shares of the Company’s common stock as compensation for services rendered by members of the Board of Directors.  These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.
 
 
25

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

As of the date of this Quarterly Report on Form 10-Q, the Company was in default with regard to meeting its payment obligations or with technical provisions of debt agreements in the aggregate principal amount of $3,774,706.  During the quarter ended March 31, 2012, or in the subsequent period through the date of this report, the Company entered into default on the following debt agreements:

  
principal amount of $1,250,000 related to promissory note dated September 16, 2006.  The Company entered into a restructured payment agreement with respect to this note on September 29, 2009, which required the Company to make payments totaling $750,000, commencing on September 1, 2010, and a final payment of $1,250,000 on March 31, 2012.  Payments made under the agreement through the date of this Quarterly Report on Form 10-Q total $75,000.

As of the date of this Quarterly Report on Form 10-Q, principal due on various notes in the aggregate amount of $3,774,706 was deemed to be in default.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

There is no othe information required to be disclosed under this item which has not been previously reported.

ITEM 6. EXHIBITS.

Exhibit No.
 
Description
     
 
Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*
     
 
Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*
     
 
Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
 
Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*


 
26

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
CURAXIS PHARMACEUTICAL CORPORATION
 
       
       
Dated: May 14, 2012
By:
 /s/ Timothy R. Wright
 
   
Timothy R. Wright
 
   
Chief Executive Officer
(Principal Executive Officer)
 
       
       
Dated: May 14, 2012
By:
 /s/ Judith S.T. Geaslen
 
   
Judith S.T. Geaslen
 
   
Vice President of Finance
(Principal Financial Officer)
(Principal Accounting Officer)
 
 
 
 
27