The accompanying notes are an integral part
of these unaudited condensed consolidated interim financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated interim financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated interim financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED AND RESTATED)
Rasna Therapeutics, Inc. (formerly Active With
Me, Inc.) (the “Company” or “Rasna Successor”), is a company incorporated in the State of Nevada.
Rasna Therapeutics, Inc. (“Rasna Inc.”), is a company incorporated in the State of Delaware.
Prior to May 17, 2016 Rasna Therapeutics, Inc. was a non-trading holding company with an investment in one subsidiary company,
and also controlled an entity in which it was deemed the primary beneficiary, Rasna Therapeutics Limited (“Rasna UK”).
Arna Therapeutics Limited (“Arna”)
was a company incorporated in the British Virgin Islands under applicable law and regulation. Arna was incorporated on September
30, 2013. Arna only has one segment of activity which is that of a clinical stage biotechnology company focused on targeted drugs
to treat diseases in oncology and immunology, mainly focusing on the treatment of Leukemia.
On May 17, 2016, Rasna and its subsidiary Falconridge
entered into an Agreement of Merger and Plan of Reorganization (“Merger Agreement”) with Arna. Pursuant to the agreement,
Arna was merged into Falconridge and the shareholders of Arna were issued shares of Rasna in exchange for shares of Arna.
The Merger is being treated as a reverse acquisition
effected by a share exchange for financial accounting and reporting purposes since Arna’s operations, Board of Directors
and Management will remain subsequent to the consummation of the transaction, however, the legal aquiror is Rasna Inc. As a result,
the historical operations that are reflected in these financial statements are those of Arna, and the assets acquired and liabilities
assumed and in the transaction with Rasna Therapeutics, Inc have been written to fair value in accordance with ASC 805, Business
Combinations. Refer to
Note 4 - Acquisitions,
for more information related to the transaction.
On August 15, 2016, Active With Me, Inc., entered
into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Rasna, Inc., and Rasna Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Active With Me, Inc. (“Merger Sub”), providing for the
merger of Merger Sub with and into Rasna, Inc. (the “Merger”), with Rasna, Inc. surviving the Merger as a wholly-owned
subsidiary of Active With Me, Inc. As a result of the Merger, the resulting company, Rasna Therapeutics, Inc., is a biotechnology
company that is engaged in modulating the molecular targets NPM1 and LSD1, which are implicated in the disease progression of leukemia
and lymphoma.
The Merger is being treated as a reverse recapitalization
effected by a share exchange for financial accounting and reporting purposes since substantially all of Active With Me’s
operations were disposed of prior to the consummation of the transaction. Rasna Successor is treated as the accounting
acquirer as its stockholders control the Company after the Exchange Agreement, even though Active With Me, Inc. was the legal acquirer. As
a result, the assets and liabilities and the historical operations that are reflected in these financial statements are those of
Rasna Successor as if Rasna Successor had always been the reporting company. Since Active With Me, Inc. had no operations
upon the Merger Agreement taking place, the transaction was treated as a reverse recapitalization for accounting purposes and no
goodwill or other intangible assets were recorded by the Company as a result of the Merger Agreement.
The Company only has one segment of activity
which is that of a clinical stage biotechnology company focused on targeted drugs to treat diseases in oncology and immunology,
mainly focusing on the treatment of Leukemia.
These financial statements are presented in
United States dollars (“USD”) which is also the functional currency of the primary economic environment in which the
Company operates. Foreign operations are included in accordance with policies set out in note 2 below.
The principal
accounting policies applied in the preparation of these unaudited and restated condensed consolidated financial statements are
set out below. These policies have been applied consistently to all the periods presented unless otherwise stated.
Basis of preparation
The financial statements in this amended quarterly
report on Form 10-Q are restated to correct errors in accounting that were identified in the previously issued quarterly report
on Form 10-Q which was filed with the SEC on November 21, 2016. Please refer to Note 3 for further details on the specifics and
effects of these corrections of accounting error.
The accompanying restated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference
in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”)
and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Principles of Consolidation
In accordance with ASC 810,
Consolidation,
the Company consolidates any entity in which it has a controlling financial interest. Further, the Company consolidates any variable
interest entity that it is deemed to be the primary beneficiary of, and have the power to direct its significant activities. Upon
review of the relationship between Rasna Therapeutics Limited (“Rasna UK”) and Rasna Inc., Management noted that equity
investment in Rasna UK is not sufficient to fund its operations. Accordingly, Rasna Inc. is considered to be the primary beneficiary
of the assets held within Rasna UK, which primarily consist of cash received from Rasna Inc. to fund its operations, and has power
to direct its significant activities. As a result, Rasna Inc. consolidates this variable interest entity.
The interim condensed consolidated financial
statements include the financial statements of the Company and its subsidiary, Arna Therapeutics Limited as well as the operations
of Rasna Inc. for the period from May 17, 2016 through September 30, 2016. All significant intercompany accounts and transactions
have been eliminated in the preparation of the accompanying condensed consolidated financial statements.
Business Combinations
Management accounts for business combinations
under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 805-10”),
which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed,
including non-controlling interests, are recorded at the date of acquisition at their respective fair values. ASC 805-10 also specifies
criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill.
Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in
a business combination. Acquisition-related expenses are recognized separately from the business combinations and are expensed
as incurred.
The amounts reflected within the
Note 4
- Acquisitions
are the results of the preliminary purchase price allocation and will be updated upon completion of the final
valuation report. Management is required to complete the purchase price allocation within 12 months of the acquisition date. If
such completion of the allocation results in a change in the preliminary values, the measurement period adjustment will be recognized
in the period in which the adjustment amount is determined in accordance with Accounting Standards Update 2015-16, Simplifying
the Accounting for Measurement-Period Adjustments (“ASU 2015-16”).
Going concern
The Company is subject to a number of risks
similar to those of other pre-commercial stage companies, including its dependence on key individuals, uncertainty of product development
and generation of revenues, dependence on outside sources of capital, risks associated with research, development, testing, and
obtaining related regulatory approvals of its pipeline products, suppliers and collaborators, successful protection of intellectual
property, competition with larger, better-capitalized companies, successful completion of the Company’s development programs
and, ultimately, the attainment of profitable operations are dependent on future events, including obtaining adequate financing
to fulfill its development activities and generating a level of revenues adequate to support the Company’s cost structure.
The Company has experienced net losses and significant cash outflows from cash used in operating activities
over the past years, and as at September 30, 2016, had an accumulated deficit of $6,953,767, a net loss for the six months ended
September 30, 2016 of $2,129,719 and net cash used in operating activities of $1,421,286.
We expect to continue
to incur net losses and have significant cash outflows for at least the next twelve months. The Group has sufficient funds to
continue operating until the end of the third quarter of 2017, but will require significant additional cash resources to launch
new development phases of existing products in its pipeline. These conditions, among others, raise substantial doubt about the
Group’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared
assuming that the Group will continue as a going concern. This basis of accounting contemplates the recovery of the Group’s
assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations
is dependent upon achieving a level of positive cash flows adequate to support the Group’s cost structure.
Use of Estimates
The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses
during the reporting period. We evaluate our estimates on an ongoing basis, including those related to the fair values of stock
based awards, income taxes and contingent liabilities, among others. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying
values of assets and liabilities. Actual results could differ from those estimates and such differences could be material to our
consolidated financial position and results of operations.
Fair Value
The carrying value of the Company’s financial
instruments, including cash and cash equivalents, related party balances, accounts payable and accrued liabilities, approximate
fair value because of the short-term nature of such financial instruments. Management measures certain other assets, including
nonmarketable equity securities, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of related party receivables.
Deposits held with banks, including those held
in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. These deposits may be redeemed
upon demand and bear minimal risk. Management believes that the institutions that hold our instruments are financially sound and
are subject to minimal credit risk.
Cash and cash equivalents
Cash and cash equivalents consists of cash
on deposit with banks with an original maturity of three months or less.
Goodwill and Intangible assets
Intangible assets are made up of in-process
research and development, (“IPR&D”) and certain intellectual property (“IP”). IPR&D assets represent
the fair value assigned to acquired technologies, which at the time of acquisition have not reached technological feasibility and
have no alternative future use. IP assets represent the fair value assigned to technologies, which at the time of acquisition have
reached technological feasibility, however, have not yet been put into service. Intangible assets are considered to have an indefinite
useful life until the completion or abandonment of the associated research and development projects at which time they will be
amortized on a straight-line basis over the shorter of their economic or legal useful life.
Goodwill represents the premium paid over the
fair value of the net tangible and intangible assets acquired in business combinations. Goodwill is not amortized; rather,
it is subject to a periodic assessment for impairment by applying a fair value based test. Goodwill is assessed for
impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired.
An impairment charge is recognized only when the implied fair value of the Company’s reporting unit’s goodwill is less
than its carrying amount.
Management evaluates indefinite life intangible
assets for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual impairment
tests indicate that the asset might be impaired. The ongoing evaluation for impairment of its indefinite life intangible assets
requires significant management estimates and judgment. Management reviews definite life intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment
charges as of the six months ended September 30, 2016 or 2015.
Risks and Uncertainties
The Company intends
to operate in an industry that is subject to rapid change. The Company’s operations will be subject to significant risk and
uncertainties including financial, operational, technological, regulatory, and other risks associated with an early stage company,
including the potential risk of business failure.
Research and development
Expenditure on research and development is
charged to the statements of operation in the year in which it is incurred with the exception of expenditures incurred in respect
of the development of major new products where the outcome of those projects is assessed as being reasonably certain in regards
to viability and technical feasibility. Such expenditure is capitalized and amortized straight line over the estimated period of
sale for each product, commencing in the year that sales of the product are first made. To date, the Company has not capitalized
any such expenditures other than certain IPR&D & IP recorded in connection with certain acquisition or equity transactions.
Income Taxes
The Company accounts for income taxes under
the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. Management considers many factors when assessing
the likelihood of future realization of deferred tax assets, including recent earnings experience by jurisdiction, expectations
of future taxable income, and the carryforward periods available for tax reporting purposes, as well as other relevant factors.
A valuation allowance may be established to reduce deferred tax assets to the amount that management believes is more likely than
not to be realized. Due to inherent complexities arising from the nature of the business, future changes in income tax law and
variances between actual and anticipated operating results, management makes certain judgments and estimates. Therefore, actual
income taxes could materially vary from these estimates.
The Company recognizes in the financial statements
the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical
merits of the position. The Company records a liability for the difference between the benefit recognized and measured and the
tax position taken or expected to be taken on the Company’s tax return. To the extent that the assessment of such tax positions
changes, the change in estimate is recorded in the period in which the determination is made. To the extent interest and penalties
are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall
income tax provision. The Company incurred no liability and, therefore, did not need to record interest and penalties during the
six months ended September 30, 2016 and 2015.
Foreign Currency
Items included in the financial
statements are measured using their functional currency, being the currency of the primary economic environment in which the company
operates. The financial statements are presented in United States Dollar (“USD”), which is the company’s functional
and presentational currency.
Foreign currency transactions
are translated using the rate of exchange applicable at the date of the transaction. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the re-translation at the year-end of monetary assets and liabilities denominated
in foreign currencies are recognized in the statements of operations.
Net Loss per Share
Basic loss per share is computed by dividing
net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted
loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as
the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting
period. As of September 30, 2016 and March 31, 2016 there were no common equivalent shares.
The following is the computation of net loss per share for the following
periods:
|
|
For the Three Months Ended September 30,
|
|
|
|
2016
(Unaudited and
Restated)
|
|
|
2015
(Unaudited)
|
|
Net loss for the period
|
|
$
|
(1,802,546
|
)
|
|
$
|
(117,343
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
61,746,656
|
|
|
|
38,234,935
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.00
|
)
|
|
|
For the Six Months Ended September 30,
|
|
|
|
2016
(Unaudited and
Restated)
|
|
|
2015
(Unaudited)
|
|
Net loss for the period
|
|
$
|
(2,129,719
|
)
|
|
$
|
(224,319
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
55,115,345
|
|
|
|
38,234,935
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
Warrants earned, pending issue
April 2016, in connection with the issuance
of equity, the Company committed to issue warrants as compensation to the placement agents. On February 28
th
2017, the
Company issued a ten year warrant to purchase 1,440,501 shares of common stock at an exercise price of $0.37 per share.
Based upon the Company’s analysis of
the criteria contained in ASC Topic 815-40, the Company has determined that the service inception date precedes the grant date,
and accordingly, will record a liability to issue warrants in the Company as of the date that the equity was issued, with an offset
charge to Additional paid in capital. The liability to issue warrants would be marked to market each period until the grant date,
at which point the Company has determined that in accordance with ASC 815-40-25-7, the warrants should be classified in stockholder’s
equity. See Note 7 for additional information.
Equity-Based Payments to Non-Employees
The Company offers stock-based compensation
awards based on fair value as of the grant date. Management uses the Black-Scholes-Merton option-pricing model to estimate the
fair value of stock options on the dates of grant.
Given the limited history with employee grants,
the “simplified” method is used for estimating the expected term for stock option awards. The “simplified”
method, is calculated as the average of the contractual term and the average vesting period. Estimated volatility is based upon
the historical volatility of similar entities whose share prices are publicly available, as the Company did not have sufficient
trading history for its common stock. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond
on the date the stock option award is granted, with a maturity equal to the expected term of the stock option award. The expected
dividend assumption is based on the current expectations about the Company’s anticipated dividend policy.
The fair value of an award expected to vest
on a straight-line basis is amortized over the requisite service period of the award, which is generally the period from the grant
date to the end of the vesting period. For awards with service only conditions and a graded vesting schedule, management elected
to recognize costs on a straight-line basis. The Company uses historical data to estimate the number of future forfeitures.
|
3.
|
RESTATEMENT OF PRIOR FINANCIAL
STATEMENTS
|
As discussed above in “Explanatory Note” in the
course of preparing our quarterly report on Form 10-Q for the quarterly period ended December 31, 2016, certain errors were identified
in our previously issued unaudited condensed consolidated Financial Statements as of September 30, 2016 included in our Original
Form 10-Q.
Management became aware of several misstatements that had occurred
in the prior quarterly filings with the SEC. Based on reviews of equity transactions and accruals, the following determinations
were made:
Error in Accrued Expenses
Subsequent to Rasna’s September 30, 2016
quarterly financial filing, it was determined that certain expenses were incurred, however, were not appropriately accrued due
to the timing of invoice receipt. In general, the accruals were inadequate due to lack of efficient procedures around period end
to identify and accrue such incurred expenses.
The unrecorded expenses should have been included
in the operating expense section of the Company’s Condensed Consolidated Statements of Operations, more specifically under
the general and administrative, research and development, and legal and professional fees groupings on the quarterly filings for
the periods ended June 30, 2016 and September 30, 2016.
Warrants earned, pending issue
In April 2016, in connection with the issuance
of equity, the Company committed to issue warrants as compensation to the placement agents. On February 28
th
2017, the
Company issued a ten year warrant to purchase 1,440,501 shares of common stock at an exercise price of $0.37 per share.
Based upon the Company’s analysis of the criteria contained
in ASC Topic 815-40, the Company has determined that the service inception date precedes the grant date, and accordingly, will
record a liability to issue warrants in the Company as of the date that the equity was issued, with an offset charge to Additional
paid in capital. The liability to issue warrants would be marked to market each period until the grant date, at which point the
Company has determined that in accordance with ASC 815-40-25-7, the warrants should be classified in stockholder’s equity.
Stock Based Compensation
During review of the valuations performed for
certain stock based compensation granted in September 2016 it was determined that certain assumptions were not accurately reflected
in the valuation; specifically, the strike price of the stock options had not been updated for the stock split, while the current
share price included in the valuation was updated. Further, the expected life of certain options were not included in the calculation
of fair value. This led to an understatement of stock based compensation expense recorded in the Company’s September 30,
2016 10-Q filing.
Foreign Currency Adjustment
Subsequent to Rasna’s June 30, 2016 quarterly financial filing, it was determined that the Company
had not applied the correct translation methodology to convert some banking transactions into USD. This led to an overstatement
of cash and an understatement of accounts payable by $67,448 as at September 30, 2016.
As a result of the aforementioned changes,
the financial statements have been restated as follows:
Item
|
|
As of
September 30,
2016,
as Previously
Reported
|
|
|
As of September 30, 2016,
as Corrected
|
|
|
Difference Increase/
(Decrease)
|
|
Current Assets
|
|
$
|
3,797,410
|
|
|
$
|
3,729,922
|
|
|
$
|
(67,488
|
)
|
Current Liabilities
|
|
|
849,854
|
|
|
|
3,287,388
|
|
|
|
2,437,534
|
|
Working Capital
|
|
|
2,947,556
|
|
|
|
442,534
|
|
|
|
(2,505,022
|
)
|
Non-Current Assets
|
|
|
4,939,210
|
|
|
|
4,939,210
|
|
|
|
-
|
|
Total Assets
|
|
|
8,736,620
|
|
|
|
8,669,132
|
|
|
|
(67,488
|
)
|
Non-Current Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Liabilities
|
|
|
849,854
|
|
|
|
3,287,388
|
|
|
|
2,437,534
|
|
Total Shareholders’ Equity
|
|
|
7,886,766
|
|
|
|
5,381,744
|
|
|
|
(2,505,022
|
)
|
Item
|
|
Quarter Ended
September 30,
2016,
as Previously
Reported
|
|
|
Quarter Ended
September 30, 2016,
as Corrected
|
|
|
Difference Increase/
(Decrease)
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross Profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating Expenses
|
|
|
1,341,726
|
|
|
|
1,836,946
|
|
|
|
495,220
|
|
Income from Operations
|
|
|
(1,341,726
|
)
|
|
|
(1,836,946
|
)
|
|
|
(495,220
|
)
|
Other Income (Expense)
|
|
|
50,356
|
|
|
|
34,400
|
|
|
|
(15,956
|
)
|
Pre-Tax Income
|
|
|
(1,291,370
|
)
|
|
|
(1,802,546
|
)
|
|
|
(511,176
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net Income
|
|
|
(1,291,370
|
)
|
|
|
(1,802,546
|
)
|
|
|
(511,176
|
)
|
EPS
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
|
Item
|
|
Six Months Ended
September 30, 2016,
as Previously Reported
|
|
|
Six Months Ended
September 30, 2016,
as Corrected
|
|
|
Difference
Increase/
(Decrease)
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross Profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating Expenses
|
|
|
1,560,152
|
|
|
|
2,166,780
|
|
|
|
606,628
|
|
Income from Operations
|
|
|
(1,560,152
|
)
|
|
|
(2,166,780
|
)
|
|
|
(606,628
|
)
|
Other Income (Expense)
|
|
|
53,017
|
|
|
|
37,061
|
|
|
|
(15,956
|
)
|
Pre-Tax Income
|
|
|
(1,507,135
|
)
|
|
|
(2,129,719
|
)
|
|
|
(622,584
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net Income
|
|
|
(1,507,135
|
)
|
|
|
(2,129,719
|
)
|
|
|
(622,584
|
)
|
EPS
|
|
|
(0.03
|
)
|
|
|
(0.04
|
)
|
|
|
(0.01
|
)
|
The following transactions were accounted
for using the purchase accounting method which requires, among other things, that the assets acquired and liabilities assumed are
recognized at their acquisition date fair value.
On May 5, 2016, Rasna UK sold its intellectual
property to Falconridge, a subsidiary of Rasna, for a note payable in the amount of $236,269. Rasna UK is considered a VIE and
consolidated in these financial statements, however, is not an entity under common control as Rasna controlled both Falconridge
and Rasna UK at the time of the transaction, this transaction eliminates on consolidation.
On May 17, 2016, Rasna and its subsidiary
Falconridge entered into an Agreement of Merger and Plan of Reorganization with Arna. Pursuant to the agreement, Arna was merged
into Falconridge and the shareholders of Arna were issued shares of Rasna in exchange for shares of Arna. Arna was deemed to be
the accounting acquirer because Rasna and Falconridge Holdings Limited were non-trading holding companies and Arna’s operations
will comprise the ongoing operations of the combined entity and its senior management will serve as the senior management of the
combined entity. Further, 65% of the voting interest in Rasna was acquired by Arna shareholders in connection with the transaction.
Therefore, the assets and liabilities of the acquired entity, Rasna, were written to fair value in accordance with the Acquisition
Method prescribed in ASC 805, Business Combinations.
The consideration transferred was measured
based upon the share price recently received during a non-public equity raise in Rasna, during which non-related investors paid
$0.40 per share of common stock. During the acquisition transaction, 19,187,500 of 54,837,790 shares were issued to legacy Rasna
shareholders, which results in consideration transferred to the acquiree’s shareholders of $7,675,000.
The preliminary purchase price allocation
as of the date of acquisition is set forth in the table below and reflects various preliminary fair value estimates and analysis.
These estimates are subject to change during the purchase price allocation period (up to one year from the acquisition date) as
valuations are finalized. The Company’s allocation of the purchase price in connection with the acquisition was calculated
as follows:
|
|
Balance as of
|
|
|
|
May 17, 2016
|
|
|
|
|
|
Share consideration transferred
|
|
$
|
7,675,000
|
|
Forgiveness of receivable
|
|
|
607,159
|
|
Consideration transferred
|
|
$
|
8,282,159
|
|
Less: Fair value of assets acquired
|
|
|
|
|
Cash and cash equivalents
|
|
|
(5,116,609
|
)
|
Other receivables
|
|
|
(14,187
|
)
|
Related party receivables
|
|
|
(20,412
|
)
|
Intellectual property
|
|
|
(236,269
|
)
|
|
|
|
|
|
Plus: Liabilities assumed
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
492,603
|
|
Related party payables
|
|
|
15,656
|
|
|
|
|
|
|
Goodwill
|
|
$
|
3,402,941
|
|
Of the above assets acquired and liabilities
assumed, the intellectual property acquired was owned by Falconridge and the residual assets acquired and liabilities assumed comprised
the VIE that was controlled by Rasna, Inc.
Active With Me, Inc.
On August 15, 2016, Active With Me, Inc.,
entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Rasna, Inc., and Rasna
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Active With Me, Inc. (“Merger Sub”), providing
for the merger of Merger Sub with and into Rasna, Inc. (the “Merger”), with Rasna, Inc. surviving the Merger as a wholly-owned
subsidiary of Active With Me, Inc. As a result of the Merger, the resulting company, Rasna Therapeutics, Inc., is a biotechnology
company that is engaged in modulating the molecular targets NPM1 and LSD1, which are implicated in the disease progression of leukemia
and lymphoma.
The Merger is being treated as a reverse
recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of Active
With Me’s operations were disposed of prior to the consummation of the transaction. Rasna Successor is treated
as the accounting acquirer as its stockholders control the Company after the Exchange Agreement, even though Active With Me, Inc.
was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in
these financial statements are those of Rasna Successor as if Rasna Successor had always been the reporting company. Since
Active With Me, Inc. had no operations upon the Merger Agreement taking place, the transaction was treated as a reverse recapitalization
for accounting purposes and no goodwill or other intangible assets were recorded by the Company as a result of the Merger Agreement.
Thereafter, pursuant to a Stock Purchase
Agreement, the Company transferred all of the outstanding capital stock of Rasna Successor to a former officer and director of
Active With Me, Inc. in exchange for cancellation of an aggregate of 1,500,000 shares of Rasna Successor’s common stock held
by such person.
In connection with the share exchange,
each share of Rasna, Inc was exchanged for the right to receive .33 shares in Active With Me, Inc. Once issued, the new shares
were combined with the 3,305,000 common shares held by legacy Active With Me, Inc. shareholders. Immediately following the Merger,
1,500,000 shares were canceled, which related to one legacy Active With Me shareholder that effectively spun off the remaining
assets of Active With Me in connection with the transaction. Finally, subsequent to the transaction, the legal acquirer executed
a 3.25 for 1 stock split on its common shares. Historical common stock amounts and additional paid-in capital have been adjusted
for the effect of the share splits executive in connection with the Merger transaction at the time of the Merger, as the stock
splits occurred in conjunction with the Merger transaction. Following the closing of the Merger and Rasna Successor’s cancellation
of 1,500,000 shares in the Split-Off, there were 19,901,471 shares of Rasna Successor issued and outstanding, which once effected
for the 3.25 for 1 reverse stock split, resulted in 64,679,798 shares outstanding in the combined entity.
|
5.
|
GOODWILL AND INTANGIBLE
ASSETS
|
As noted in
Note 4 - Acquisitions,
on May 17, 2016, there was a transaction where the Company acquired an entity and, at initial purchase price, it was determined
that there was $236,269 of intellectual property and $3,402,941 of Goodwill.
Goodwill
The following table summarizes the Company’s
goodwill for the periods indicated resulting from the acquisitions by the Company:
|
|
Goodwill
|
|
|
|
|
|
Balance at March 31, 2016
|
|
$
|
-
|
|
Acquisition of Rasna and its subsidiaries
|
|
|
3,402,941
|
|
Balance at September 30, 2016
|
|
$
|
3,402,941
|
|
Intangible Assets
The IPR&D and intellectual property
are considered to have an indefinite life and there were no impairment charges recognized during the periods ended September 30,
2016 or September 30, 2015.
The following table summarizes the Company’s
intangible assets as of the following periods:
|
|
Six Months Ended September 30, 2016
(Unaudited and Restated)
|
|
|
Estimated
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
Carrying
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Life
|
|
Amount
|
|
|
Additions
|
|
|
Amortization
|
|
|
Value
|
|
In-process research and development
|
|
Indefinite
|
|
$
|
1,300,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,300,000
|
|
Intellectual property
|
|
Indefinite
|
|
|
-
|
|
|
|
236,269
|
|
|
|
-
|
|
|
|
236,269
|
|
|
|
|
|
$
|
1,300,000
|
|
|
$
|
236,269
|
|
|
$
|
-
|
|
|
$
|
1,536,269
|
|
|
|
Six Months Ended March 31, 2016
(Unaudited)
|
|
|
Estimated
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
Carrying
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Life
|
|
Amount
|
|
|
Additions
|
|
|
Amortization
|
|
|
Value
|
|
In-process research and development
|
|
Indefinite
|
|
$
|
1,300,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,300,000
|
|
|
|
|
|
$
|
1,300,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,300,000
|
|
|
6.
|
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES
|
The following table summarizes the Company’s
accounts payable and accrued expenses as of the following periods:
|
|
September 30, 2016
(Unaudited and
Restated)
|
|
|
March 31, 2016
|
|
Accounts payable
|
|
$
|
411,674
|
|
|
$
|
-
|
|
Accrued expenses
|
|
|
78,227
|
|
|
|
78,227
|
|
|
|
$
|
489,901
|
|
|
$
|
78,227
|
|
On April 10, 2016, the Company incurred
the obligation for an issuance of warrants at a future date. The obligation was in regards to services provided for equity funding.
The Company accounts for the issuances of warrant for service based on an estimate of the fair value of warrants issued using the
Black-Scholes Model (“BSM”). As of September 30, 2016, the Company did not issue the warrants though recorded the obligation
on the accompanying consolidated balance sheet. Any changes in the fair value of the obligations to be settled in warrants are
recorded to additional paid-in-capital. On the date of recognition of the associated obligation, the Company recorded $484,009
as a reduction to proceeds of the equity offering (additional paid-in-capital).
At September 30, 2016, the fair value of
the warrant obligation was $2,056,831. On February 28, 2017, the Company issued a ten year warrant to purchase 1,440,501 shares
of common stock at an exercise price of $0.37 per share. These warrants were issued to placement agents in respect of fundraising
services. The total amount charged to additional paid-in capital at the time of issuance is $2,567,220.
In fair valuing the warrant obligation,
at September 30, 2016, the Company used the following inputs in its BSM:
|
|
September 30, 2016
|
|
Warrants Outstanding
|
|
|
1,440,501
|
|
Exercise Price
|
|
$
|
0.37
|
|
Stock Price
|
|
$
|
1.50
|
|
Expected Term (Years)
|
|
|
10
|
|
Volatility %
|
|
|
105
|
%
|
Risk Free Rate
|
|
|
1.57
|
%
|
Dividend Yield
|
|
|
0.00
|
%
|
|
8.
|
ISSUANCE OF COMMON STOCK
|
As discussed in
Note 4 - Acquisitions
, on May 17, 2016, the Company completed a reverse merger whereby 35,650,289 shares of Arna were canceled and converted to a right
to receive 35,650,289 shares of the Company’s stock. In effect, as a result of the share exchange, an additional 19,187,500
shares were ultimately issued to previous Rasna non-affiliate shareholders at a price of $0.40 per share of common stock. Management
used the price of $0.40 per share of common stock based on the value of shares used by Rasna in its equity raise that occurred
in April 2016, where such shares were issued in contemplation of the merger transaction occurring in May 2016.
In addition, as noted in the Reverse Recapitalization
section of Note 1, the Company effectively completed a 1 for 3 share exchange prior to the Merger, and then issued 3,305,000 common
shares to legacy Active With Me shareholders. Immediately following the Merger, 1,500,000 shares were canceled, which related to
one legacy Active With Me shareholder that effectively spun off the remaining assets of Active With Me in connection with the transaction.
Finally, subsequent to the transaction, the Company executed a 3.25 for 1 stock split on its common shares. Common stock amounts
and additional paid-in capital have been adjusted for the effect of the share splits executed in connection with the Merger transaction
at the time of the Merger, as the stock splits occurred in conjunction with the Merger transaction.
|
9.
|
RELATED PARTY TRANSACTIONS
|
During the normal course of its business,
the Company enters into various transactions with entities that are both businesses and individuals. The following is a summary
of the related party transactions as of September 30, 2016 and March 31, 2016.
|
(1)
|
Eurema Consulting S.r.l.
|
Eurema Consulting S.r.l. was
a significant shareholder of Arna Therapeutics Limited. During the three months ended September 30, 2016 and three months
ended September 30, 2015, Eurema Consulting S.r.l. supplied Arna Therapeutics Limited with consulting services amounting to $25,000
and $25,000, respectively. During the six months ended September 30, 2016 and six months ended September 30, 2015, Eurema
Consulting S.r.l. supplied Arna Therapeutics Limited with consulting services amounting to $25,000 and $50,000, respectively. As
of September 30, 2016, and March 31, 2016, Eurema Consulting S.r.l was owed $275,000 and $225,000, respectively, by Arna Therapeutics
Limited.
|
(2)
|
Non-corporate related parties.
|
Riccardo Dalla Favera
Riccardo Dalla Favera is a Director
of Rasna Therapeutics Inc. In the three months ended September 30, 2016 and 2015, Riccardo Dalla Favera charged the Company $18,750
and $6,250, respectively, in respect of consultancy fees. During the six months September 30, 2016 and 2015 Riccardo Dalla Favera
charged the Company $25,000 and $12,500, respectively, in respect of consultancy fees. As of September 30, 2016, and March 31,
2016 the balance due to Riccardo Dalla Fevera was $68,849 and $56,250, respectively.
James Mervis
James Mervis is a Director of
Rasna Therapeutics Inc. In the three months ended September 30, 2016 and 2015, James Mervis charged the Company $9,406 and $6,250,
respectively, in respect of consultancy fees, travel and reimbursement of professional fees. During the six months ended September
30, 2016 and 2015, James Mervis charged the Company $12,500 and $6,250, respectively, in respect of consultancy fees, travel and
reimbursement of professional fees. As of September 30, 2016, and March 31, 2016 the balance due to James Mervis was $46,807 and
$34,406, respectively.
Gabriele Cerrone
Gabriele Cerrone is a Director
of Rasna Therapeutics Inc. In the three months ended September 30, 2016 and 2015, Gabriele Cerrone charged the Company $25,000,
and $25,000, respectively, in respect of consultancy fees. During the six months ended September 30, 2016 and 2015, Gabriele
Cerrone charged the Company $50,000, and $50,000, respectively, in respect of consultancy fees. As of September 30, 2016, and March
31, 2016, the balance due to Gabriele Cerrone was $175,000 and $125,000, respectively.
Roberto Pellicceri
Roberto Pellicceri is a
Director of Rasna Therapeutics Inc. and sole shareholder of TES Pharma Srl. In the three months ended September 30, 2016 and
2015, Roberto Pellicceri charged the Company $25,000 and $25,000, respectively, in respect of consultancy fees. During the
six months ended September 30, 2016 and 2015, Roberto Pellicceri charged the Company $50,000 and $50,000 respectively, in
respect of consultancy fees. As of September 30, 2016, and March 31, 2016, the balance due to Roberto Pellicceri was $175,000
and $125,000, respectively.
There is no interest charged on the balances
with related parties. There are no defined repayment terms and such amounts can be called for payment at any time.
|
10.
|
STOCK-BASED COMPENSATION
|
The Company adopted a new stock option
plan in July 2016. Historically, the Company has awarded stock grants to certain of its consultants that did not contain any performance
or service conditions. Compensation expense included in the Company’s consolidated statement of operations includes the fair
value of the awards at the time of issuance.
2016 EQUITY INCENTIVE PLAN
On July 19, 2016, the Company adopted its
2016 Equity Incentive Plan (the "Equity Incentive Plan"). The plan was established to attract, motivate, retain and reward
selected employees and other eligible persons. For the Equity Incentive Plan, employees, officers, directors and consultants who
provide services to the Company or one of the Company’s subsidiaries may be selected to receive awards. A total of 3,000,000
shares of the Company’s common stock was authorized for issuance with respect to awards granted under the Equity Incentive
Plan. During the six months ended September 30, 2016, an aggregate of 1,300,000 shares were granted under the Equity Incentive
Plan.
The fair values of stock option grants
during the six months ended September 30, 2016 were calculated on the date of the grant using the Black-Scholes option pricing
model. Compensation expense is recognized over the period of service, generally the vesting period. During the six months ended
September 30, 2016, 1,300,000 options were granted by the Company. No stock options were granted in the six months ended September
30, 2015. The following assumptions were used in the Black-Scholes options pricing model to estimate the fair value of stock options
for the six months ended September 30, 2016:
|
|
Employees – Vesting period
|
|
|
Non – Employees – Vesting Period
|
|
|
|
Immediate
|
|
|
1 Year
|
|
|
2 Years
|
|
|
3 Years
|
|
|
Immediate
|
|
|
1 Year
|
|
|
2 Years
|
|
|
3 Years
|
|
Stock Price
|
|
$
|
1.495
|
|
|
$
|
1.495
|
|
|
$
|
1.495
|
|
|
$
|
1.495
|
|
|
$
|
1.495
|
|
|
$
|
1.495
|
|
|
$
|
1.495
|
|
|
$
|
1.495
|
|
Expected life (years)
|
|
|
5
|
|
|
|
5.5
|
|
|
|
5.75
|
|
|
|
6
|
|
|
|
5
|
|
|
|
5.5
|
|
|
|
5.75
|
|
|
|
6
|
|
Expected volatility
|
|
|
89
|
%
|
|
|
86.6
|
%
|
|
|
85.4
|
%
|
|
|
89
|
%
|
|
|
89
|
%
|
|
|
86.6
|
%
|
|
|
85.4
|
%
|
|
|
89
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
0.91
|
%
|
|
|
0.91
|
%
|
|
|
0.91
|
%
|
|
|
0.91
|
%
|
|
|
1.57
|
%
|
|
|
1.57
|
%
|
|
|
1.57
|
%
|
|
|
1.57
|
%
|
Weighted average fair value of options granted during the period
|
|
$
|
1.275
|
|
|
$
|
1.281
|
|
|
$
|
1.284
|
|
|
$
|
1.303
|
|
|
$
|
1.276
|
|
|
$
|
1.282
|
|
|
$
|
1.285
|
|
|
$
|
1.304
|
|
Estimated volatility is based upon the
historical volatility of similar entities whose share prices are publicly available, as the Company did not have sufficient trading
history for its common stock.
The following table summarizes stock option activity for the
six month period ended September 30, 2016:
|
|
Number of
Options
|
|
|
Weighted
Average Exercise
Price Per Option
|
|
|
Weighted Average
remaining
Contractual Life
(years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding balance at March 31, 2016
|
|
|
1,662,375
|
|
|
|
0.20
|
|
|
|
7.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,300,000
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited and Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance at September 30, 2016
|
|
|
2,962,375
|
|
|
|
0.28
|
|
|
|
8.38
|
|
|
$
|
3,590,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2016
|
|
|
1,222,275
|
|
|
|
0.26
|
|
|
|
7.93
|
|
|
$
|
1,514,067
|
|
There were no options exercised during
the six month period ended September 30, 2016 or 2015. Options for the purchase of an aggregate of 375,000 shares of common
stock vested during the six month period ended September 30, 2016, and the aggregate fair value at grant date of these options
was $498,325. As of September 30, 2016, there was approximately $1,369,996 of total unrecognized compensation cost related
to stock options. The cost is expected to be recognized over a weighted average period of 2.74 years. The charge related to share
based compensation to non-employees is included within the Consultancy fees third parties expense category in the unaudited condensed
consolidated interim financial statements.