NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL INFORMATION
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 DE”), 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 UK 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.
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 was 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.
2. ACCOUNTING POLICIES
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 annual reporting. In the opinion of management, the accompanying consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s 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 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 June 30, 2017. All significant intercompany accounts and transactions have been eliminated in the preparation of the accompanying 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 acquisition 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 final valuation report of the purchase price allocation.
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
June 30, 2017
, had an accumulated deficit of
$10,471,336
, a net loss for the
for the three months ended June 30, 2017
of
$1,213,556
and net cash used in operating activities of
$758,051
.
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 May 2018, but will require significant additional cash resources to launch new development phases of existing products in its pipeline. In the event that the Company is unable to secure the necessary additional cash resources needed, the Company may slow current development phases or halt new development phases in order to mitigate the effects of the costs of development. 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 equivalents, accounts 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.
From time to time, the Company’s balances in its bank accounts exceed Federal Deposit Insurance Corporation limits. The Company will periodically evaluate the risk of exceeding insured levels and might transfer funds if it deems appropriate. The Company has not experienced any losses with regards to balances in excess of insured limits or as a result of other concentrations of credit risk.
Prepayments and other receivables
Prepayments consists of prepaid Directors and Officers liability insurance.
Property and Equipment
Expenditures for additions, renewals and improvements are capitalized at cost. Depreciation is computed in a straight line method based on the estimated useful lives of the related assets. The estimated useful lives of the major classes of depreciable assets are
2
to
5
years for equipment and furniture and fixtures. Expenditures for repairs and maintenance are charged to operations as incurred. The Company periodically evaluates whether current events or circumstances indicate that the carrying life of the depreciable assets may not be recoverable.
Goodwill and Intangible assets
Intangible assets are made up of indefinite lived intangible assets, in-process research and development, (“IPR&D”) and certain intellectual property (“IP”). The balance of the indefinite lived intangible assets represents the platform technology that was acquired in 2013, which, at the time, was determined to have alternative future uses. IPR&D assets represent the fair value assigned to acquired technologies in a business combination, which at the time of the business combination 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.
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 indefinite 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 three months ended June 30, 2017 and 2016.
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.
Reclassifications
Certain prior period amounts have been reclassified for comparative purposes to conform to the fiscal 2017 presentation. These reclassifications have no impact on the previously reported net loss.
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.
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:
|
|
|
|
|
|
|
|
June 30, 2017
|
|
June 30, 2016
|
Stock options
|
4,737,375
|
|
|
1,662,375
|
|
Warrants
|
1,440,501
|
|
|
—
|
|
Total shares issuable upon exercise or conversion
|
6,177,876
|
|
|
1,662,375
|
|
The following is the computation of net loss per share for the following periods:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
2017 (Unaudited)
|
|
2016 (Unaudited)
|
Net loss for the period
|
$
|
(1,213,556
|
)
|
|
$
|
(327,173
|
)
|
Weighted average number of shares
|
68,046,465
|
|
|
45,138,614
|
|
Net loss per share (basic and diluted)
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
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.
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-9 “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-9”). 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 2016-9 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company has evaluated the impact that the adoption of the additional provisions in this accounting guidance and it has not had a material impact on our 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 has evaluated the impact that the adoption of the additional provisions in this accounting guidance and it has not had a material impact on our financial statements.
Recent Accounting Pronouncements Not Yet Adopted
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 consolidated financial statements.
In January 2017, the FASB issued ASU 2017-1, 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.
In January 2017, the FASB issued ASU 2017-04, Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which addresses the concerns over the cost and complexity of the two-step impairment test, and removes the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of good will allocated to the reporting unit. The guidance is effective for annual and interim goodwill impairment tests performed for periods beginning after December 15, 2019 with early adoption permitted in January 2017. The Company is currently evaluating the impact of adopting this guidance.
In July 2017, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral. The ASU applies to issuers of financial instruments with down-round features. It amends (1) the classification of such instruments as liabilities or equity by revising the guidance in ASC 815 on the evaluation of whether instruments or embedded features with down-round provisions must be accounted for as derivative instruments and (2) the guidance on recognition and measurement of the value transferred upon the trigger of a down-round feature for equity-classified instruments by revising ASC 260. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted.
The Company has not yet determined the impact of the update on our financial statements.
3. ACQUISITIONS
The following transactions were accounted for using the acquisition 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 purchase price allocation as of the date of acquisition is set forth in the table below. As per the purchase accounting method, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the remaining purchase price recorded as goodwill.
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
|
)
|
Prepayment
|
(66,856
|
)
|
Related party receivables
|
(20,412
|
)
|
Intellectual property
|
(236,269
|
)
|
In-Process research and development
|
(613,100
|
)
|
|
|
|
Plus: Liabilities assumed
|
|
|
Accounts payable and accrued expenses
|
492,603
|
|
Related party payables
|
15,656
|
|
|
|
|
Goodwill
|
$
|
2,722,985
|
|
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.
Acquired In-Process Research and Development
Acquired IPR&D is the fair value of the LSD-1 asset at the acquisition date. The Company determined that the fair value of LSD-1 was
$613,100
as of the acquisition date using the cost approach. This was based on the fact that LSD-1 was not yet technologically feasible or in use as of the valuation date. Also as no prospective revenue stream could be determined, the cost approach was deemed to be the most appropriate.
The Company retained a Clinical Research Organisation ("CRO") to perform all related research and development associated with LSD-1. As all research and development associated with LSD‐1 was performed by the CRO and no other contributions to LSD‐1 IPR&D were made beyond payments to the CRO, the Company considered the payments made to estimate the fair value of LSD‐1.
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. INTANGIBLE ASSETS
On December 17, 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 from TES Pharma S.r.l and Eurema Consulting S.r.l. The intellectual property acquired was an intangible asset comprised of research and conclusions reached regarding the effect of applying certain treatments to an individual gene by Prof. Falini (the “Platform Technology”). Panetta Partners Limited then assigned the Platform Technology to Arna Therapeutics Limited, which was accounted for as a capital contribution. The fair value of the shares exchanged for the Platform Technology was
$0.13
per share; in addition, the issue price for shares in October 2013 was
$0.13
per share and accordingly the Company valued the Platform Technology at
$1.3 million
.
At the time of the acquisition, the Company had reasonably expected to use the Platform Technology, in the asset’s then current state, in
two
independent research projects that had not commenced as of the date of the acquisition. The Company’s research projects applied the conclusions reached in the Platform Technology to develop treatments for AML through reformulation of certain available pharmaceuticals and independent development of a new pharmaceutical treatment. Both research projects were initiated shortly after the Platform Technology was acquired and continue through the date of the financial statements.
At the time of acquisition, and at present, no legal, regulatory, contractual, competitive, economic, or other factors were present that would constrain the useful life of the Asset to the Company. The agreement to purchase the Asset has no provisions that would limit the timeframe of use, legally, contractually or economically, and the Asset remains a competitive platform for results in the treatment of Acute Myeloid Leukemia and lymphoma. Specifically, the agreement irrevocably assigns all rights and title to the Asset, without limitation or contingencies. No limitations or alternative technology has emerged that would suggest obsolescence or a change in the competitive landscape for the Platform Technology as of the most recent reporting period. In addition, the Company has concluded that the useful life of the Platform Technology at the time of acquisition was beyond a foreseeable horizon, and therefore the asset is classified as an indefinite lived intangible asset.
The IPR&D and intellectual property are considered to have an indefinite life and there were
no
impairment charges recognized during the periods ended
June 30, 2017
and June 30, 2016.
The following table summarizes the Company’s intangible assets as of the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017 (Unaudited)
|
|
Estimated
Useful
Life
|
|
Gross
Carrying
Amount
|
|
Additions
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Intellectual Property
|
Indefinite
|
|
$
|
236,269
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
236,269
|
|
In-process research and development
|
Indefinite
|
|
613,100
|
|
|
—
|
|
|
—
|
|
|
613,100
|
|
Indefinite lived intangible asset
|
Indefinite
|
|
1,300,000
|
|
|
—
|
|
|
—
|
|
|
1,300,000
|
|
|
|
|
$
|
2,149,369
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,149,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Estimated
|
|
Gross
|
|
|
|
|
|
|
|
Useful
|
|
Carrying
|
|
|
|
Accumulated
|
|
Net Book
|
|
Life
|
|
Amount
|
|
Additions
|
|
Amortization
|
|
Value
|
Intellectual Property
|
Indefinite
|
|
$
|
—
|
|
|
$
|
236,269
|
|
|
$
|
—
|
|
|
$
|
236,269
|
|
In-process research and development
|
Indefinite
|
|
—
|
|
|
613,100
|
|
|
—
|
|
|
613,100
|
|
Indefinite lived intangible asset
|
Indefinite
|
|
1,300,000
|
|
|
—
|
|
|
—
|
|
|
1,300,000
|
|
|
|
|
$
|
1,300,000
|
|
|
$
|
849,369
|
|
|
$
|
—
|
|
|
$
|
2,149,369
|
|
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table summarizes the Company’s accounts payable and accrued expenses as of the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017 (Unaudited)
|
|
March 31, 2017
|
Accounts payable
|
|
$
|
563,691
|
|
|
$
|
548,514
|
|
Accrued expenses
|
|
521,339
|
|
|
354,488
|
|
|
|
$
|
1,085,030
|
|
|
$
|
903,002
|
|
Accounts payable is predominantly made up of unpaid invoices relating to research and development, accounting and professional fees. Included within the accrued expenses balance is
$145,822
and
$103,672
owed to Tiziana Life Sciences PLC (“Tiziana”) under a shared services agreement (see Note 8),
$102,833
and
$75,000
relating to an accrual for directors fees,
$117,418
and
$114,736
relating to vendors for research and development expenses and
$90,551
and
$61,080
of accrued legal, accounting and professional fees as of June 30, 2017 and March 31, 2017 respectively.
6. 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 during the three months ended
June 30, 2017
and 2016.
Eurema Consulting
Eurema Consulting S.r.l. was a significant shareholder of Arna Therapeutics Limited. During
the three months ended June 30, 2017
and
three months ended June 30, 2016
, Eurema Consulting S.r.l. supplied the Company with consulting services amounting to
$0
and
$25,000
, respectively. As of
June 30, 2017
, and
March 31, 2017
, Eurema Consulting S.r.l was owed
$200,000
and
$275,000
, respectively, by the Company.
Gabriele Cerrone
Gabriele Cerrone was a Director of Arna Therpeutics Limited. During
the three months ended June 30, 2017
and
2016
, Gabriele Cerrone charged the Company
$0
, and
$25,000
, respectively, relating to consultancy fees. As of
June 30, 2017
, and
March 31, 2017
, the balance due to Gabriele Cerrone was
$175,000
and
$125,000
, respectively.
Roberto Pellicciari
Roberto Pellicciari was a Director of Arna Therpeutics Limited and sole shareholder of TES Pharma Srl. In
the three months ended June 30, 2017
and
2016
, Roberto Pellicciari charged the Company
$0
and
$25,000
, respectively, relating to consultancy fees. As of
June 30, 2017
, and
March 31, 2017
, the balance due to Roberto Pellicciari 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.
7. 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.
The fair values of stock option grants during the
three months ended June 30, 2017
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
three months ended June 30, 2017
,
1,700,000
options were granted by the Company. The following assumptions were used in the Black-Scholes options pricing model to estimate the fair value of stock options
for the three months ended June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee – Vesting Period
|
|
Non- Employee – Vesting Period
|
|
1 Year
|
|
2 Years
|
|
3 Years
|
|
4Years
|
|
1 Year
|
|
2 Years
|
|
3 Years
|
Stock Price
|
$0.85
|
|
$0.85
|
|
$0.85
|
|
$0.85
|
|
$4.00
|
|
$4.00
|
|
$4.00
|
Expected life (years)
|
5.50
|
|
5.75
|
|
6.00
|
|
6.25
|
|
5.50
|
|
5.75
|
|
6.00
|
Expected volatility
|
82.40%
|
|
82.20%
|
|
81.90%
|
|
81.70%
|
|
86.60%
|
|
85.40%
|
|
89.00%
|
Expected dividend yield
|
—%
|
|
—%
|
|
—%
|
|
—%
|
|
—%
|
|
—%
|
|
—%
|
Risk-free interest rate
|
1.57%
|
|
1.57%
|
|
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 three months ended June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
Weighted Average Exercise Price Per Option
|
|
Weighted Average remaining Contractual Life (years)
|
|
Aggregate Intrinsic Value
|
Outstanding balance at March 31, 2017
|
3,162,375
|
|
|
0.29
|
|
|
8.09
|
|
|
$5,975,874
|
|
|
|
|
|
|
|
|
Granted
|
1,700,000
|
|
|
0.85
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited and Expired
|
(125,000
|
)
|
|
0.40
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding balance at June 30, 2017
|
4,737,375
|
|
|
0.49
|
|
|
8.45
|
|
|
$
|
16,636,397
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2017
|
1,629,825
|
|
|
0.24
|
|
|
7.17
|
|
|
$
|
6,128,631
|
|
There were
no
options exercised during the
three months ended June 30, 2017
and June 30,
2016
. As of
June 30, 2017
, there was approximately
$1,969,376
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
. For the three months ended June 30, 2017 and 2016,
$321,838
and
$9,491
respectively, related to share based compensation to directors and non employees which has been included within the Consultancy fees third parties expense category in the unaudited condensed consolidated interim financial statements.
8. COMMITMENTS AND CONTINGENCIES
Research Agreements
In December 2013, 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 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. During the three months ended June 30, 2017 and 2016, the Company had incurred approximately
$40,000
and
$132,000
, respectively, 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. During the three months ended June 30, 2017, the Company had incurred approximately
$200,000
of research and development expenses related to this agreement.
On June 7, 2017, the Company entered into a further agreement with Ascendia under which the Company is committed to pay
$60,000
for services provided over a period from July 2017 to September 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. During the three months ended June 30, 2017, the Company had incurred approximately
$80,000
of research and development expenses related to this agreement.
License Agreements
In November 2016, the Company entered into a license agreement with Profs. Falini and Martelli, 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 was committed to paying milestone payments, the first being a EUR
50,000
payment to be paid
6 months
after the agreement was signed. The payment was made to Profs. Falini and Martelli in June 2017.
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. During the three months ended June 30, 2017, the Company had incurred approximately
$4
,000 of rental expenses related to this agreement.
Employment and Consultancy Agreements
In 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's consultancy agreement ended in May 2017 and all outstanding obligations are settled with him.
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
. Upon the end of Mr Tripp's consultancy agreement, all options have been forfeited.
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. This was increased to
$80,000
a year in April 2017 by the Company's compensation committee.
On May 24, 2017, the Company entered into an executive employment agreement with Kunwar Shailubhai to serve as Chief Executive Officer and Chief Scientific Officer for a renumeration of
$300,000
per annum. Also included within the agreement is a performance related bonus of
35%
of base salary.
In June 2017, the board of directors awarded Dr Shailubhai
1,700,000
options to vest over a
4
year period, with an exercise price of
$0.85
.
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
$179,500
for the period to December 2017. Bonus accruals of
$22,000
are included within this expense.
Shared Services Agreement
The Company has entered into a shared services agreement with Tiziana Life Sciences Plc. Under the terms of this agreement, the Company will be charged for shared services including payroll and rent for the Lexington Avenue premises, on a monthly basis based on allocated costs incurred. This agreement is effective from January 1, 2017. At June 30, 2017
$145,822
is due to Tiziana Life Sciences PLC. During the three months ended June 30, 2017, the Company had incurred approximately
$19,000
of payroll and
$23,000
of rental expenses related to this agreement.
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.