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)
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 on March 28 2016 .
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, Rasna Therapeutics Limited (“Rasna UK”),
in which it was deemed the primary beneficiary.
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 in the transaction with Rasna UK have been written to fair value in accordance with ASC 805, Business Combinations.
Refer to
Note 3 - 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 focused on targeted drugs to treat diseases in oncology and immunology, mainly focusing on the treatment of Leukemia.
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.
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. See Note 2, Foreign currency policy.
The principal
accounting policies applied in the preparation of these unaudited 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
These unaudited condensed consolidated
financial statements have been prepared following the requirements of the Securities and Exchange Commission (“SEC”)
and United States generally accepted accounting principles(“GAAP”) for interim reporting. In the opinion of management,
the accompanying unaudited condensed consolidated financial statements include all adjustments, which include only normal recurring
adjustments, necessary to present fairly the Company’s interim financial information.
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 December 31, 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
3 - 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 December
31, 2016, had an accumulated deficit of $8,309,851, a net loss for the nine months ended December 31, 2016 of $3,485,803 and net
cash used in operating activities of $2,182,919.
We expect to continue to incur net losses and have significant cash outflows for at least the next twelve
months. The Company has sufficient funds to continue operating until the end of the fourth quarter of 2017, b ut 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 Company's ability to continue as a going concern. The accompanying condensed consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company'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 Company'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. The Company evaluates its estimates on an ongoing basis, including those related to the fair values
of stock based awards, income taxes and contingent liabilities, among others. The Company bases its estimates on historical experience
and on various other assumptions that the Company believes 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 the consolidated financial position and results of operations.
Fair Value
The
carrying value of the Company’s financial instruments, including cash and cash equivalent, a
ccounts
payable and accrued liabilities, approximate fair value because of the short-term nature of such financial instruments. Management
measures certain other assets
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 during the nine months ended December 31, 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 operations 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 nine months ended December 31, 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
net 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.
The following table sets forth potential common shares issuable
upon the exercise of outstanding options and the exercise of warrants, all of which have been excluded from the computation of
diluted weighted average shares outstanding as they would be anti-dilutive, including the impact on dilutive net loss per share
of in-the-money warrants as per ASC 260-10-45-35 through ASC 260-10-45-37:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Stock options
|
|
|
3,162,375
|
|
|
|
1,662,375
|
|
Warrants earned, pending issue
|
|
|
1,440,501
|
|
|
|
-
|
|
Total shares issuable upon exercise or conversion
|
|
|
4,602,876
|
|
|
|
1,662,375
|
|
The following is the computation of net loss per share
for the following periods:
|
|
For the Three Months Ended
December 31,
|
|
|
|
2016
(Unaudited)
|
|
|
2015
(Unaudited)
|
|
Net loss for the period
|
|
$
|
(1,356,084
|
)
|
|
$
|
(140,746
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
65,082,334
|
|
|
|
38,234,935
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
|
For
the
Nine Months Ended
December 31,
|
|
|
|
2016
(Unaudited)
|
|
|
2015
(Unaudited)
|
|
Net loss for the period
|
|
$
|
(3,485,803
|
)
|
|
$
|
(365,065
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
58,449,756
|
|
|
|
38,234,935
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.01
|
)
|
Warrants earned, pending issue
In April 2016, the Company committed to
issue warrants as compensation to the placement agents relating to fundraising. 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.
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 as these are offering costs. 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
ASC Topic 718 “Compensation—Stock
Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments
based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which
an employee is required to provide services in exchange for the award. The Company accounts for shares of common stock, stock options
and warrants issued to employees based on the fair value of the stock, stock option or warrant, if that value is more reliably
measurable than the fair value of the consideration or services received.
The Company accounts for stock options
issued and vesting to non-employees in accordance with ASC Topic 505-50 “Equity -Based Payment to Non-Employees” and
accordingly the value of the stock compensation to non-employees is based upon the measurement date as determined at either a)
the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity
instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the
measurement date is determined.
Recent Accounting Pronouncements
Not Yet Adopted
In March 2016, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09 “Compensation - Stock
Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The standard
is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact,
classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact
that the standard will have on its consolidated financial statements and disclosures.
On August 26, 2016, the FASB issued Accounting
Standards Update (ASU) 2016-15, Classification of Certain Cash Receipts and Cash Payments, seeking to eliminate diversity in practice
related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments
in ASU 2016-15 address eight specific cash flow issues and apply to all entities, including both business entities and not-for-profit
entities that are required to present a statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement
of Cash Flows.
The amendments in ASU 2016-15 are effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects
early adoption must adopt all of the amendments in the same period. The amendments in ASU 2016-15 should be applied using a retrospective
transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues,
the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating
the impact that the standard will have on its consolidated financial statements and disclosures.
In November 2016, the FASB issued ASU No.
2016-18,
Statement of Cash Flows (Topic 230) Restricted Cash a consensus of the FASB Emerging Issues Task Force
(“ASU
2016-18”). ASU 2016-18 requires restricted cash and cash equivalents to be included with cash and cash equivalents on the
statement cash flows. The new standard is expected to be effective for fiscal years, and interim periods within those years, beginning
after December 15, 2017, with early adoption permitted. The Company is currently evaluating the effects of ASU 2016-18 on its unaudited
condensed consolidated financial statements.
In December 2016, the FASB issued ASU 2016-19,
Technical Corrections and Improvements, which includes numerous technical corrections and clarifications to GAAP that are designed
to remove inconsistencies in the board’s accounting guidance. Several provisions in this accounting guidance are effective
immediately which did not have an impact on the Company’s consolidated financial statements. Additional provisions in this
accounting guidance are effective for the Company in annual financial reporting periods beginning after December 15, 2016. The
Company is currently evaluating the impact that the adoption of the additional provisions in this accounting guidance may have
on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with
the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions,
disposals, goodwill, and consolidation. The guidance is effective for annual financial reporting periods beginning after December
15, 2017. The Company is currently evaluating the impact of adopting this guidance.
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.
In addition, $607,159 of a related party
receivable due to Arna from Rasna Uk, was forgiven as part of the consideration transferred.
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. 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.
|
4.
|
GOODWILL
AND INTANGIBLE ASSETS
|
As noted in
Note 3 - 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 December 31, 2016
|
|
$
|
3,402,941
|
|
Intangible Assets
On 17 December 2013 the Company’s shareholder,
Panetta Partners Limited, transferred 5,000,000 of its shares in Arna Therapeutics Limited to Eurema Consulting S.r.l. and
5,000,000 shares in Arna Therapeutics Limited to TES Pharma S.r.l. In exchange for the shares, Panetta Partners Limited
obtained intellectual property in the form of IPR&D from TES Pharma S.r.l and Eurema Consulting S.r.l. Panetta Partners
Limited then assigned the IPR&D to Arna Therapeutics Limited, which was accounted for as a capital contribution. The fair
value of the shares exchanged for the IPR&D was $0.13 per share; in addition the issue price for shares in October 2013
was $0.13 per share (shares issued post acquisition of the IPR&Dwere issued at $0.28) and accordingly the Company valued
the IPR&D at $1.3 million.
The IPR&D and intellectual property
are considered to have an indefinite life and there were no impairment charges recognized during the periods ended December 31,
2016 and March 31, 2016.
The following table summarizes the Company’s
intangible assets as of the following periods:
|
|
December 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
|
|
Intellectual Property
|
|
Indefinite
|
|
|
-
|
|
|
|
236,269
|
|
|
|
-
|
|
|
|
236,269
|
|
|
|
|
|
$
|
1,300,000
|
|
|
$
|
236,269
|
|
|
$
|
-
|
|
|
$
|
1,536,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2016
|
|
|
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
|
|
|
5.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
The following table summarizes the Company’s
accounts payable and accrued expenses as of the following periods:
|
|
December
31, 2016
(Unaudited)
|
|
|
March 31, 2016
|
|
Accounts payable
|
|
$
|
236,516
|
|
|
$
|
-
|
|
Accrued expenses
|
|
|
683,785
|
|
|
|
78,227
|
|
|
|
$
|
920,301
|
|
|
$
|
78,227
|
|
|
6.
|
OBLIGATIONS
TO BE SETTLED IN WARRANTS
|
On April 10, 2016, the Company incurred
the obligation to issue warrants to placement agents relating to fundraising. The Company accounted for the obligation based on
an estimate of the fair value of warrants issued using the Black-Scholes Model (“BSM”). 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).
The Company assess the fair value for each reporting period and recorded changes to additional paid-in capital in the amount of
$2.083,211.
At December 31, 2016, the fair value of
the warrant obligation was $2,567,220. 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. At the date of issuance, the liability obligation and additional paid-in capital will be reversed.
In fair valuing
the warrant
obligation, at December 31, 2016, the Company used the following inputs in its BSM:
|
|
December
31, 2016
|
|
Warrants to be Issued
|
|
|
1,440,501
|
|
Exercise Price
|
|
$
|
0.37
|
|
Stock Price
|
|
$
|
1.86
|
|
Expected Term (Years)
|
|
|
10
|
|
Volatility %
|
|
|
105
|
%
|
Discount Rate - Bond Equivalent Yield
|
|
|
2.55
|
%
|
Dividend Yield
|
|
|
0.00
|
%
|
The input assumptions used are as follows:
Discount rate —Based on the daily
yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of the Company’s stock
options.
Dividend yield —The Company has not
paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable
future.
Expected volatility —Based on the
historical volatility of seven different comparable Companys’ stock.
Expected term —The Company has used
the life of the warrant.
|
7.
|
ISSUANCE
OF COMMON STOCK
|
On December
20
2016, the Company issued an aggregate of 3,366,667 shares of common stock, at $0.60 per share for aggregate net proceeds of $2,007,500,
in connection with a securities purchase agreement with certain accredited investors, as defined in Regulation D promulgated under
Securities Act of 1933.
The securities purchase agreement contained
the following features:
|
·
|
Anti-dilution provision
– if the Company issues any common stock or any securities of the Company which would entitle the holder thereof to acquire
at any time common stock, in a subsequent financing entitling any person or entity to acquire shares of common stock at an effective
price per share less $0.60 (subject to prior adjustment for reverse and forward stock splits and the like), the Company shall issue
to the holder a number of additional common stock shares equal to (a) the amount paid by the holder divided by 0.60 (subject to
prior adjustment for reverse and forward stock splits and the like), less (b) the common stock issued to the holder.
|
The Company has determined that host instrument
was more akin to equity than debt and that the above financial instruments were clearly and closely related to the host instrument,
with bifurcation and classification as a derivative liability not required. The host instrument, was classified as permanent equity
and the above identified embedded feature will not be bifurcated from the host and therefore classified as permanent equity with
the common stock.
As discussed in
Note 3 - 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 totaling
54,837,789. 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.
|
8.
|
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 December 31, 2016 and March 31, 2016.
Eurema Consulting
Eurema Consulting S.r.l. was
a significant shareholder of Arna Therapeutics Limited. During the three months ended December 31, 2016 and three months ended
December 31, 2015, Eurema Consulting S.r.l. supplied Arna Therapeutics Limited with consulting services amounting to $0 and $25,000,
respectively. During the nine months ended December 31, 2016 and nine months ended December 31, 2015, Eurema Consulting S.r.l.
supplied Arna Therapeutics Limited with consulting services amounting to $50,000 and $75,000, respectively. As of December 31,
2016, and March 31, 2016, Eurema Consulting S.r.l was owed $275,000 and $225,000, respectively, by Arna Therapeutics Limited.
Riccardo Dalla Favera
Riccardo Dalla Favera is a Director
of Rasna Therapeutics Inc. In the three months ended December 31, 2016 and 2015, Riccardo Dalla Favera charged the Company $6,250
and $6,250, respectively, relating to consultancy fees. During the nine months December 31, 2016 and 2015 Riccardo Dalla Favera
charged the Company $12,500 and $12,500, respectively, in respect of consultancy fees. As of December 31, 2016, and March 31, 2016
the balance due to Riccardo Dalla Fevera was $56,250 and $43,750, respectively.
James Mervis
James Mervis is a Director of
Rasna Therapeutics Inc. In the three months ended December 31, 2016 and 2015, James Mervis charged the Company $12,500 and $6,250,
respectively, relating to consultancy fees, travel and reimbursement of professional fees. During the nine months ended December
31, 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 December 31, 2016, and March 31, 2016 the balance due to James Mervis was $31,250 and
$43,750 respectively.
Gabriele Cerrone
Gabriele Cerrone is a Director
of Rasna Therapeutics Inc. In the three months ended December 31, 2016 and 2015, Gabriele Cerrone charged the Company $0,
and $25,000, respectively, relating toof consultancy fees plus an additional amount of approximately $5000 of out of pocket expenses
. During the nine months ended December 31, 2016 and 2015, Gabriele Cerrone charged the Company $50,000, and $75,000, respectively,
in respect of consultancy fees. As of December 31, 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 December 31, 2016 and 2015, Roberto
Pellicceri charged the Company $0 and $25,000, respectively, relating to consultancy fees. During the nine months ended December
31, 2016 and 2015, Roberto Pellicceri charged the Company $50,000 and $75,000 respectively, in respect of consultancy fees. As
of December 31, 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.
|
9.
|
STOCK-BASED
COMPENSATION
|
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 9,750,000
shares of the Company’s common stock was authorized for issuance with respect to awards granted under the Equity Incentive
Plan. During the nine months ended December 31, 2016, an aggregate of 1,500,000 shares were granted under the Equity Incentive
Plan.
The fair values of stock option grants
during the nine months ended December 31, 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 nine months ended
December 31, 2016, 1,500,000 options were granted by the Company. No stock options were granted in the nine months ended December
31, 2015. The following assumptions were used in the Black-Scholes options pricing model to estimate the fair value of stock options
for the nine months ended December 31, 2016:
|
|
Directors
– Vesting period
|
|
Non
– Employees – Vesting Period
|
|
|
Immediate
|
|
1
Year
|
|
2
Years
|
|
3
Years
|
|
Immediate
|
|
1
Year
|
|
2
Years
|
|
3
Years
|
Stock Price
|
|
$1.495-$1.55
|
|
$1.495-$1.55
|
|
$1.495-$1.55
|
|
$1.495-$1.55
|
|
$1.495
|
|
$1.495-$1.85
|
|
$1.495-$1.85
|
|
$1.495-$1.85
|
Expected life (years)
|
|
5
|
|
5.5
|
|
5.75
|
|
6
|
|
5
|
|
5.5
|
|
5.75
|
|
6
|
Expected volatility
|
|
85-89%
|
|
85-89%
|
|
85-89%
|
|
85-89%
|
|
85-89%
|
|
85-89%
|
|
85-89%
|
|
85-89%
|
|
85-89%
|
Expected dividend yield
|
|
0%
|
|
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%
|
|
1.57%
|
The input assumptions used are as follows:
Discount rate —Based on the daily
yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of the Company’s stock
options.
Dividend yield —The Company has not
paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable
future.
Expected volatility —Based on the
historical volatility of seven different comparable Companys’ stock.
Expected term —The Company has had
minimal stock options exercised since inception. The expected option term represents the period that stock-based awards are expected
to be outstanding based on the simplified method provided in Staff Accounting Bulletin (“SAB”) No. 107, Share-Based
Payment , (“SAB No. 107”), which averages an award’s weighted-average vesting period and expected term for “plain
vanilla” share options. Under SAB No. 107, options are considered to be “plain vanilla” if they have the following
basic characteristics: (i) granted “at-the-money”; (ii) exercisability is conditioned upon service through the vesting
date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of
service; and (v) options are non-transferable and non-hedgeable.
The Company will continue to use the simplified
method for the expected term until it has the historical data necessary to provide a reasonable estimate of expected life in accordance
with SAB No. 107, as amended by SAB No. 110. For the expected term, the Company has “plain-vanilla” stock options,
and therefore used a simple average of the vesting period and the contractual term for options granted subsequent to January 1,
2006 as permitted by SAB No. 107.
Forfeitures —ASC Topic 718 requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company has estimated zero forfeiture.
The following table summarizes stock option activity for the
nine month period ended December 31, 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
|
|
|
1,500,000
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited and Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2016
|
|
|
3,162,375
|
|
|
|
0.29
|
|
|
|
8.25
|
|
|
$
|
4,932,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2016
|
|
|
1,222,275
|
|
|
|
0.26
|
|
|
|
7.68
|
|
|
$
|
1,947,974
|
|
There
were no options exercised during the nine month period ended December 31, 2016 or 2015. As of December 31, 2016, there was approximately
$1,339,992 of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over a weighted
average period of 2.5 years.
The charge related to
share based compensation to directors and non employees is included within the Consultancy fees third parties expense category
in the unaudited condensed consolidated interim financial statements.
|
10.
|
COMMITMENTS
AND CONTINGENCIES
|
Research Agreements
In December 2013, the Arna Therapeutics
Limited entered into a research agreement with TES Pharma SRL to collaborate on a research program to discover and optimize compounds
for the diagnosis or treatment of Acute Myloid Leukemia. Under the terms of the agreement, Arna Therapeutics Limited paid TES Pharma
$1,500,000 in the year ended March 2014. In December 2015, Arna Therapeutics Limited entered into a standstill agreement with
TES Pharma, whereby TES Pharma agreed to carry on with the research program in a reduced capacity until January 2016 for no additional
payment. On the May 3, 2016, the existing agreement was novated from Arna Therapeutics Limited to Rasna Therapeutics Inc and the
Company entered in an amendment into the research agreement whereby work on the original research plan was to continue inconsideration
for EUR 500,000 for one year through to May 2017. As of December 31, 2016, the Company had incurred approximately $245,000 of research
and development expenses related to this agreement.
In February 2017, the Company entered into
a research agreement with Ascendia Pharmaceutical to conduct feasibility studies into a formulation for Actinomycin D. Under the
agreement, the Company is committed to pay $200,000 for services provided over a period of 4 months to June 2017.
In February 2017, the Company entered into
a research agreement with Particle Sciences Inc to carry out formulation development for Actinomycin D. Under the agreement, the
Company is committed to pay $105,800 for services provided over a period of 3 months to May 2017.
License Agreements
In November 2016, the Company entered into a license agreement
with Profs. Falini and Martellii, wherein it obtained the exclusive rights related to the use or reformulation of Actinomycin
D and intends to utilize these rights for the development of new product. In connection with this agreement, the Company is committed
to paying milestone payments, the first being a EUR 50,000 payment to be paid 6 months after the agreement was signed. The specific
timing of the remaining milestones cannot be predicted and depend upon research and clinical developments.
Lease Agreements
In January 2017, the Company entered into
a lease agreement with Bucks County Biotechnology Centre Inc in Doylestown Pennsylvania, where certain employees of the Company
are based. The lease provides for annual basic lease payments from February 1, 2017 to January 31, 2018 of $13,480, plus and utility
expense estimate of $237 per month.
Employment and Consultancy Agreements
October 2015, Rasna Therapeutics Ltd entered
into a consultancy agreement with James Tripp in which he agreed to consult on clinical operations for a fee of $10,000 per calendar
quarter.
Mr. Tripp is also eligible to earn a target
cash bonus of up to $10,000 per calendar year based on meeting certain performance objectives and bonus criteria. In September
2016, the board of Directors awarded Mr Tripp 125,000 options to vest over a 3 year period, with an exercise price of $0.40.
In October 2016, the Company entered into
a consultancy agreement with Tiziano Lazzaretti in which he agreed to serve as Chief Financial Officer for a fee of $50,000 per
year. In September 2016, the board of Directors awarded Mr Lazzaretti 100,000 options to vest over a 3 year period. An additional
200,000 options with a 3 year vesting period, were also awarded in November 2016. The options under both awards have an exercise
price of $0.40.
The Company has entered a number of employment
agreements commencing in January 2017. These appointments relate to clinical and non clinical employees, and are reviewable on
an annual basis. The Company's committed to paying $278,500 for the period to December 2017.
Other Commitments
The Company has entered into certain licensing agreements for
products currently under development. The Company may be obligated in future periods to make additional payments, which would become
due and payable only upon the achievement of certain research and development, regulatory, and approval milestones. The specific
timing of such milestones cannot be predicted and depend upon future discretionary research and clinical developments, as well
as, regulatory agency actions. Further, under the terms of certain agreements the Company may be obligated to pay commercial milestones
contingent upon the realization of sales revenues and sublicense revenues. Due to the long range nature of such commercial milestones,
they are neither probable at this time nor predictable, and consequently are not considered contingent milestone payment amounts.