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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

 

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

 

For the Quarterly Period Ended June 30, 2018

 

OR

 

 

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

 

For the Transition Period from ___ to ___

 

Commission file number 333-191083

 

RASNA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Nevada

39-2080103

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

  

420 Lexington Ave, Suite 2525, New York, NY 10170

(Address of principal executive offices)   (Zip Code)

 

Telephone: (646) 396-4087

(Registrant’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒   No ☐

 

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

 

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

 

 

Large accelerated filer  ☐

Accelerated filer  ☒

Non-accelerated filer  ☐

Smaller reporting company ☐

(Do not check if a smaller reporting company)

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

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

  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 68,908,003  shares of common stock were issued and outstanding as of August 8, 2018.

 

1



TABLE OF CONTENTS


   

   

  

 PAGE

PART I   FINANCIAL INFORMATION  
        
ITEM 1.   Financial statements 3
    Condensed Consolidated Balance Sheets - June 30, 2018 (Unaudited) and September 30, 2017 3
    Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2018 and 2017 4
    Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Nine Months Ended June 30, 2018 5
    Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2018 and 2017 6
    Notes to the Condensed Consolidated Interim Financial Statements 7
ITEM 2.   Management’s discussion and analysis of financial condition and results of operations 22
ITEM 3.   Controls and procedures 31
        
PART II   OTHER INFORMATION  
        
ITEM 1A.   Risk factors 32
ITEM 6.   Exhibits 32
       
SIGNATURES      33

2


 

PART I – FINANCIAL INFORMATION 

 

ITEM 1. FINANCIAL STATEMENTS

 

RASNA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    

 

 

 

 

 

 

 

 

June 30, 2018 

 

September 30, 2017


(Unaudited)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

20,357

 

 

$

2,537,611

 

Prepayments and other receivables

161,800

 

 

129,157

 

Related party receivable

105,274

 

 

28,931

 

Total current assets

287,431

 

 

2,695,699

 

 

 

 

 

Property and equipment, net

6,762

 

 

7,047

 

Intellectual property

236,269

 

 

236,269

 

In-process research and development

613,100

 

 

613,100

 

Indefinite lived intangible asset

1,300,000

 

 

1,300,000

 

Goodwill

2,722,985

 

 

2,722,985

 

Total non-current assets

4,879,116

 

 

4,879,401

 

 

 

 

 

Total assets

$

5,166,547

 

 

$

7,575,100

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

$

1,177,942

 

 

$

978,839

 

Taxes payable

8,525

 

 

8,525

 

Related parties payable

550,000

 

 

550,000

 

Total current liabilities

1,736,467

 

 

1,537,364

 

 

 

 

 

Total liabilities

1,736,467

 

 

1,537,364

 

 


Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

Common stock, $0.001 par value, respectively; 200,000,000 shares authorized, of which 68,908,003 are issued and outstanding.

68,909

 

 

68,909

 

Additional paid-in capital

19,331,217

 

 

18,267,895

 

Accumulated deficit

(15,970,046

)

 

(12,299,068

)

Total shareholders' equity

3,430,080

 

 

6,037,736

 

Total liabilities and shareholders' equity

$

5,166,547

 

 

$

7,575,100

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

3


 

RASNA THERAPEUTICS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

For the Three Months Ended

June 30,

 

For the Nine Months Ended

June 30,

 

2018

 

2017

 

2018

 

2017

Revenue

$

 

 

$

 

 

$

 

 

$ 

 

Cost of revenue

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative*

644,545

 

 

620,788

 

 

 

2,343,296

 

 

 

1,704,860

 

Research and development

136,131

 

277,326

 

 

 

345,645

 

 

 

974,585

 

Consultancy fees third parties and related parties**  

(100,192

)

 

49,126

 

 

454,218

 

 

 

56,541

 

Legal and professional fees

128,901

 

 

283,132

 

 

 

521,868

 

 

 

862,134

 

Total operating expenses

809,385

 

 

1,230,372

 

 

 

3,665,027

 

 

 

3,598,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

(809,385

)

 

(1,230,372

)

 

 

(3,665,027

)

 

 

(3,598,120

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency transaction (loss)/gain

5,420

 

16,816

 

 

 

(5,951

)

 

 

80,551

 

Total Other income/(expense)

5,420

 

16,816

 

 

 

(5,951

)

 

 

80,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations before income taxes

(803,965

)

 

(1,213,556

)

 

 

(3,670,978

)

 

 

(3,517,569

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(803,965

)

 

$

(1,213,556

)

 

(3,670,978

)

 

(3,517,569

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share attributable to common shareholders

$

(0.01

)

 

$

(0.02

)

 

$

(0.05

)

 

$

(0.05

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average common shares outstanding

68,908,003

 

 

68,046,465

 

 

 

68,908,003

 

 

 

65,802,020

 

 

* Share based payments to employees have been reclassified from consultancy fees third parties to general and administrative expenses for the three and nine months ended June 30, 2017 to conform to current year presentation.

** Consultancy fees to related parties three and nine months ended June 30, 2017 have been combined and included with consultancy fees third parties in both periods presented.


The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

4



RASNA THERAPEUTICS, INC.

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Common Stock

 

Additional Paid-In

 

Accumulated

 

Total Shareholders’

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

Balance at September 30, 2017

68,908,003

 

 

$

68,909

 

 

$

18,267,895

 

 

$

(12,299,068

)

 

$

6,037,736

 

 

 

 

 

 

 

 

 

 

 

Share based compensation

 

 

 

 

540,972

 

 

 

 

540,972

 

Warrants issued for consulting services

 

 

 

 

522,350

 

 

 

 

522,350

 

Net loss

 

 

 

 

 

 

(3,670,978

)

 

(3,670,978

)

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

68,908,003

 

 

$

68,909

 

 

$

19,331,217

 

 

$

(15,970,046

)

 

$

3,430,080

 

  

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

5


 

RASNA THERAPEUTICS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   

 

 

 

 

 

 

 

 

For the Nine Months Ended June 30,

 

2018

 

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

$

(3,670,978

)

 

$

(3,517,569

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Share based compensation

540,972

 

 

763,532

 

Warrants issued for consulting services

522,350

 

 

 

Depreciation

4,358

 

 

4,328

 

Related party receivable write off

28,931

 

 

 

Changes in operating assets and liabilities:

 

 

 

Prepayments and other receivables

(32,643

)

 

(149,716

)

Related party receivable

(105,274

)

 

12,056


Accounts payable and accrued expenses

199,105

 

686,747

 

Related party payable

 

 

(100,000

)

Net cash used in operating activities

(2,513,179

)

 

(2,300,622

)

 

 

 

 

 CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchase of property, plant and equipment

(4,073

)

 

(10,493

)

Net cash used in investing activities

(4,073

)

 

(10,493

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Net proceeds from issuance of shares of common stock

 

 

2,007,500

 

Net cash provided by financing activities

 

 

2,007,500

 

 

 

 

 

Effect of foreign exchange rate

(2

)

 

(112,976

)

 

 

 

 

Net (Decrease) in cash and cash equivalents

(2,517,254

)

 

(416,591

)

 

 

 

 

Cash and cash equivalents, beginning of period

2,537,611

 

 

3,695,323

 

 

 

 

 

Cash and cash equivalents, end of period

$

20,357

 

 

$

3,278,732

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

6



 RASNA THERAPEUTICS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.    GENERAL INFORMATION  

 

Rasna Therapeutics, Inc. (“Rasna DE" or "Rasna Inc.”), is a company incorporated in the State of Delaware on March 28, 2016.

 

On October 11, 2017, the Company changed its fiscal year end from March 31 to September 30 and  filed a Form 10-KT on November 30, 2017.

 

On April 27, 2016, Rasna Therapeutics Limited, a private limited company incorporated in England and Wales under the U.K. Companies Act (“Rasna UK”) sold its stake in Falconridge Holdings Limited, or Falconridge, to Rasna DE for  $1. This entity had no operations, no assets or liabilities as of this date.

 

On May 17, 2016, Rasna DE and its subsidiary Falconridge entered into an Agreement of Merger and Plan of Reorganization (“Merger Agreement”) with Arna Therapeutics Limited, a British Virgin Islands company, or Arna, which was a clinical stage biotechnology company focused on drugs to treat diseases in oncology and immunology, mainly focusing on the treatment of leukemia. Pursuant to the agreement, Arna was merged into Falconridge and the shareholders of Arna were issued shares of Rasna DE in exchange for shares of Arna.

 

On August 15, 2016, Active With Me, Inc., or AWM, entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Rasna DE, and Rasna Acquisition, providing for the merger of Rasna Acquisition with and into Rasna DE, (the “Merger”), with Rasna DE, surviving the Merger as a wholly-owned subsidiary of AWM. 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 has been treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of AWM’s operations were disposed of prior to the consummation of the transaction.  Rasna DE is treated as the accounting acquirer as its stockholders control the Company after the Merger and  AWM was the legal acquirer.  As a result, the assets and liabilities and the historical operations that are reflected in the financial statements are those of Rasna DE as if Rasna DE had always been the reporting company. Since AWM 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 interim 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 interim financial information.

 

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the six months ended September 30, 2017, contained in the Company's annual report on Form 10-KT filed with the SEC on November 30, 2017.

 

7



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 was not sufficient to fund its operations. Accordingly, Rasna Inc. was 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, which has minimal activity and is in the process of being liquidated.  

 

The consolidated financial statements include the financial statements of the Company and its subsidiary, Arna Therapeutics Limited and its variable interest entity, Rasna Therapeutics Ltd, as well as the operations of Rasna Inc. for the period from May 17, 2016 through June 30, 2018. 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 at June 30, 2018, had an accumulated deficit of $15,970,046, a net loss for the nine months ended June 30, 2018 of $3,670,978 and net cash used in operating activities of $2,513,179.  

 

We expect to continue to incur net losses and have significant cash outflows for at least the next 12 months. The Company believes it has sufficient funds to continue operating until the end of  October 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.

 

8


 

Fair Value

 

The carrying value of the Company’s financial instruments, including cash and cash equivalents, related party balances,  accounts payable and accrued liabilities, approximate fair value because of the short-term nature of such financial instruments. Management measures certain other assets  at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired.

 

Concentration of Credit Risk

 

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, payroll and rental expenses incurred under the shared services agreement with Tiziana Life Sciences PLC and prepaid consultancy fees.

 

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 nine months ended June 30, 2018 and 2017.

 

9


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 2018 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:

 

 

 

 

 

 

 

 

 

June 30, 2018

 

June 30, 2017

Stock options

 

4,829,875

 

 

 

3,162,375

 

Warrants

 

1,926,501

 

 

 

1,440,501

 

Total shares issuable upon exercise or conversion

 

6,756,376

 

 

 

4,602,876

 

 

10


 

The following is the computation of net loss per share for the following periods:

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

2018

 

2017

 

(Unaudited)

 

(Unaudited)

Net loss for the period

$

(803,965

)

 

$

(1,213,556

)

Weighted average number of shares

68,908,003

 

 

68,046,465

 

Net loss per share (basic and diluted)

$

(0.01

)

 

$

(0.02

)

 

 

 

 

 

 

 

 

 

For the Nine Months Ended June 30,

 

2018

 

2017

 

(Unaudited)

 

(Unaudited)

Net loss for the period

$

(3,670,978

)

 

$

(3,517,569

)

Weighted average number of shares

68,908,003

 

 

65,802,020

 

Net loss per share (basic and diluted)

$

(0.05

)

 

$

(0.05

)

 

Warrants

 

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 had determined that the service inception date preceded the grant date, and accordingly, recorded 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 was marked to market each period until the grant date, at which point the Company 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.

 

In July 2017, the Company committed to issue warrants as compensation to the placement agents relating to fundraising. On August 31, 2017, the Company issued a ten year warrant to purchase 112,000 shares of common stock at an exercise price of $0.65 per share.

 

On August 31, 2017, the Company entered into consulting agreements with placement agents who were providing consulting services in the areas of capital market advisory and investor relations. In lieu of fees for these consulting services, on September 1, 2017, the Company issued ten year warrants to purchase 374,000 shares of common stock at an exercise price of $0.60 per share. The Company determined that the service inception date did not preceed the grant date, and accordingly classifies the warrants in stockholder's equity, in accordance with ASC 815-40-25-7. 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.

 

Income taxes

 

On December 22, 2017, The Tax Cuts and Jobs Act was signed into law and has resulted in significant change to the U.S corporate income tax system.  These changes include a federal statutory rate reduction from 35% to 21%, a transition tax which applies to the repatriate of foreign earnings and profits, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. 

 

Changes in tax rates and tax laws are accounted for in the period of enactment. During the nine month period ended June 30, 2018, the tax impact of the  2017 Tax Cuts and Jobs Act was immaterial to the financial statements.

 

11


 

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 expects to adopt this ASU described above in its Consolidated Financial Statements beginning in October 1, 2018. Management has evaluated and concluded that there will be no material impact on its consolidated financial statements.

 

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. Management has evaluated the effects of ASU 2016-18 and concluded that there will be no material impact 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 expects to adopt this ASU described above in its Consolidated Financial Statements beginning in October 1, 2018. Management has evaluated and concluded that there will be no material impact on its consolidated financial statements.

 

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 goodwill 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. Management has evaluated and concluded that there will be no material impact on its consolidated financial statements.

 

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. Management has evaluated and concluded that there will be no material impact on its consolidated financial statements. 


In June 2018, the FASB issued ASU 2018-07, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. We do not plan to early adopt this ASU. We are currently evaluating the potential impacts of this updated guidance, and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and related disclosures.

 

12


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.

 

13


 

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 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.

 

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, $613,100 of In-process research and development, and $2,722,985 of goodwill.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method of accounting. The following table summarizes the Company’s goodwill for the periods indicated resulting from the acquisitions by the Company:

 

 

 

 

 

 

 

 

 

June 30,

 

September 30,

 

2018

 

2017

Goodwill

$

2,722,985

 

 

$

2,722,985

 

 

The Company  performed an impairment analysis and no impairment was determined. Therefore no impairment was recorded for the nine months ended June 30, 2018 and the period ended September 30, 2017.

 

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 ("Platform Technology") from TES Pharma S.r.l and Eurema Consulting S.r.l. 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 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&D were issued at $0.28) and accordingly the Company valued the Platform Technology at $1.3 million.

 

14


 

IPR&D relating to LSD-1, was acquired in the reverse acquisition of Rasna UK by Arna as of May 17, 2016. The Company retained a Clinical Research Organisation ("CRO") to perform all related research and development associated with LSD‐1. Based on review of the license agreement dated January 1, 2015, between the CRO and Rasna, the Company agreed to pay 100,002 Euros for costs incurred to date and to perform research and development on a going forward basis. Additionally, the Company entered into an amended license agreement whereby Rasna agreed to pay TTFactor an additional 435,000 Euros as of May 17, 2016, regarding services rendered between September 9, 2014 to May 17, 2016. Based on the cost approach, the IPR&D was valued at $613,100.

 

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 nine months ended June 30, 2018 and the period ended September 30, 2017.

 

The following table summarizes the Company’s intangible assets as of the following periods: 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

September 30,

 

 

 

 

2018

 

2017

 

Estimated

 

 

(Unaudited)

 

 

Useful Life

 

In-process research and development

$

613,100

 

 

$

613,100

 

 

Indefinite

 

Intellectual Property

 

236,239

 

 

 

236,269

 

 

Indefinite

 

Indefinite lived intangible asset

 

1,300,000

 

 

 

1,300,000

 

 

Indefinite

 

 

$

2,149,339

 

 

$

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, 2018

 

 

 

 

(Unaudited) 

 

September 30, 2017

Accounts payable

 

$

570,411

 

 

$

658,921

 

Accrued expenses

 

607,531

 

 

319,918

 

 

 

$

1,177,942

 

 

$

978,839

 


Accounts payable is predominantly made up of unpaid invoices relating to research and development, accounting and professional fees. Included within the accrued expenses balance of $607,531 at June 30, 2018 is approximately $193,000 relating to vendors for research and development expenses, $138,000 relating to an accrual for directors fees, approximately $21,000 relating payroll accruals, approximately $63,000 related to travel and entertainment expenses and approximately $193,000 of accrued legal and other costs.

 

Included within the accrued expenses balance of $319,918 at September 30, 2017 is $128,000 of accrued legal, accounting and professional fees, $60,000 for payroll related expenses and $50,000 for Directors fees.

 

15


 

6.    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 nine months ended June 30, 2018 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 June 30, 2018, no 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 nine months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$1.10

 

$1.10

 

$1.10

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%

 

100.80%

 

102.30%

 

103.50%

Expected dividend yield

%

 

%

 

%

 

%

 

%

 

%

 

%

Risk-free interest rate

1.57%

 

1.57%

 

1.57%

 

1.57%

 

2.66%

 

2.67%

 

2.68%


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 no 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.

 

16



The following table summarizes stock option activity for the nine months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Options

 

Weighted Average Exercise Price Per Option

 

Weighted Average remaining Contractual Life (years)

 

Aggregate Intrinsic Value

Outstanding balance at September 30, 2017

4,829,875

 

 

0.56

 

 

8.22

 

 

$

16,636,397

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited and Expired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding balance at June 30, 2018

4,829,875

 

 

0.56

 

 

7.48

 

 

$

2,898,009

 

 

 

 

 

 

 

 

 

Options exercisable at June 30, 2018

2,795,706

 

 

0.34

 

 

6.72

 

 

$

2,112,591

  

  

There were no options exercised during the nine months ended June 30, 2018. As of June 30, 2018, there was approximately $779,253 of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over a weighted average period of 1.0 years.

 

For the three and nine months ended June 30, 2018, $193,540 and $692,634 related to share based compensation to directors and employees respectively, has been included within the general and administrative expense category in the unaudited condensed consolidated interim financial statements. An additional ($120,192) and ($151,662) related to non-employees respectively, has been included within the Consultancy fees third parties and related parties expense category in the unaudited condensed consolidated interim financial statements.

 

For the three and nine months ended June 30, 2017, $231,878 and $644,520 related to share based compensation to directors and employees respectively, has been included within the general and administrative expense category in the unaudited condensed consolidated interim financial statements. An additional $89,960 and $119,012 related to non-employees respectively, has been included within the Consultancy fees third parties and related parties expense category in the unaudited condensed consolidated interim financial statements.

 

7.    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”) and the Company recorded $484,009 as a liability and a reduction to proceeds of the equity offering (additional paid-in-capital). The Company assessed the fair value for each reporting period of the liability and recorded changes to additional paid-in capital. At February 28, 2017, the date the warrants were issued, the obligation was reversed to additional paid-in capital and no outstanding liability existed. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that the warrants issued as placement agent warrants are classified as equity in additional paid-in capital. 

 

On July 3, 2017, the Company entered into a finders agreement with a placement agent whereby they incurred an obligation to issue warrants once a private placement has successfully been entered into. On August 31, 2017, the performance condition had been satisfied and the Company issued the related warrants. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that the warrants issued as placement agent warrants are classified as equity in additional paid-in capital.

 

On September 1, 2017, the Company issued warrants to placement agents in lieu of fees for consultancy services to be provided over a period of 6 months. Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that the warrants issued in lieu of consultancy fees are classified as equity in additional paid in-capital.

 

17


 

The fair value of the warrants at the date of issuance has been calculated based on the following inputs and assumptions using the Black-Scholes Model:

 

 

 

 

 

September 1, 2017

August 31, 2017

February 28, 2017

Fair value at issuance date

$1,420,456

$424,179

$2,914,884

Warrants issued

374,000

112,000

1,440,501

Exercise Price

$0.60

$0.65

$0.37

Stock Price

$4.00

$4.00

$2.10

Expected Term (Years)

10

10

10

Volatility %

91%

91%

105%

Discount Rate - Bond Equivalent Yield

2.35%

2.35%

2.55%

Dividend Yield

%

%

%

 

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 Companies’ stock.

 

Expected term —The Company has used the life of the warrant.

 

The following table summarizes warrant activity for the nine months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Warrants

 

Weighted Average Exercise Price Per Option

 

Weighted Average remaining Contractual Life (years)

 

Aggregate Intrinsic Value

Outstanding balance at September 30, 2017

1,926,501

 

 

0.43

 

 

8.86

 

 

6,875,819

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding balance at June 30, 2018

1,926,501

 

 

0.43

 

 

8.11

 

 

$

1,288,966

 

 

 

 

 

 

 

 

 

Warrants exercisable at June 30, 2018

1,926,501

 

 

0.43

 

 

8.11

 

 

$

1,288,966

 

 

The performance related warrants issued on August 31, 2017 are fully vested and do not have any forfeiture conditions attached.

 

During the three and nine months ended June 30, 2018, $0 and $522,350 of costs were recognized for consultancy related warrants respectively. These costs are included within the Consultancy fees third parties and related parties expense category in the consolidated financial statements. As of February 28, 2018, the consultancy warrants were fully vested.

 

18


 

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 during the three and  nine months ended June 30, 2018 and 2017.

 

Eurema Consulting

 

Eurema Consulting S.r.l. was a significant shareholder of Arna Therapeutics Limited. During the three and nine months ended June 30, 2018 and 2017, Eurema Consulting S.r.l. did not supply the Company with consulting services. As of June 30, 2018, and September 30, 2017, Eurema Consulting S.r.l was owed $200,000 and $200,000, respectively, by the Company for past consultancy services.

 

Gabriele Cerrone

 

Gabriele Cerrone was a Director of Arna Therpeutics Limited. During the three and nine months ended June 30, 2018 and 2017Gabriele Cerrone did not supply the Company with consulting services. As of June 30, 2018, and September 30, 2017, the balance due to Gabriele Cerrone was $175,000 and $175,000, respectively for past consultancy services.

 

Roberto Pellicciari

 

Roberto Pellicciari was a Director of Arna Therpeutics Limited and sole shareholder of TES Pharma Srl. During the three and nine months ended June 30, 2018 and 2017Roberto Pellicciari did not supply the Company with consulting services. As of June 30, 2018, and September 30, 2017, the balance due to Roberto Pellicciari was $175,000 and $175,000, respectively for past consultancy services.

 

Other related party transactions are discussed in Note 9, Commitments and contingencies.

 

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.    COMMITMENTS AND CONTINGENCIES

 

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 six months after the agreement was signed. The payment was made to Profs. Falini and Martelli in June 2017.

 

During the nine months ended June 30, 2018, the second milestone was achieved triggering a payment EUR 50,000. This was paid in March 2018.

 

The specific timing of the remaining milestones cannot be predicted and depends upon research and clinical developments. The Company expects to incur further payments of EUR 400,000 in respect of this agreement once milestones are achieved.


Lease Agreements

 

In February 2018, the Company renewed its lease agreement with the same terms, 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, 2018 to January 31, 2019 of $13,480, plus and utility expense estimate of $237 per month. During the three and nine months ended June 30, 2018, the Company had incurred approximately $4,000 and $12,000 respectively, of rental expenses related to this and the prior agreement.

 

19


 

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 were 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 in May 2017, all options were 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. During the three and nine months ended June 30, 2018, the Company had incurred approximately $20,000 and $60,000 respectively, of consultancy expenses related to this agreement. An additional $13,333 has been prepaid for fees relating to July and August 2018.

 

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. Based on Board discretion, it is not probable that this bonus will be paid out for the period October 1, 2017 to June 30, 2018, therefore no bonus has been accrued as of June 30, 2018During the three and nine months ended June 30, 2018, the Company had incurred approximately $75,000 and $225,000 respectively, of salary expenses related to this appointment.

 

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 and a fair value at grant date of $985,081During the three and nine months ended June 30, 2018, the Company had incurred approximately $77,000 and $331,000 respectively, of expenses related to these options.

 

The Company has entered a number of employment agreements commencing in January 2017. These agreements relate to clinical and non clinical employees, and are reviewable on an annual basis. The Company's committed to paying approximately $499,000 of salary and bonus expenses for the 12 month period to June 2019.

 

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, 2018 $37,012 is due to Tiziana Life Sciences PLC. During the three and nine months ended June 30, 2018, the Company had incurred approximately $61,000 and $159,000 of payroll and $30,000 and $88,000 of rental expenses respectively, related to this agreement. During the three and nine months ended June 30, 2017, the Company had incurred approximately $19,000  and $130,000 of payroll and $23,000 and $84,000 of rental expenses respectively, related to this agreement. 


As at June 30, 2018, the Company had also prepaid $48,946 of payroll and $59,489 of rental expenses respectively for the period July to December 2018 related to this agreement.


In addition to this, as at June 30, 2018, the Company is also owed $105,274 from Tiziana Life Sciences Plc. The majority of the $105,274 were a transfer of funds to Tiziana Life Sciences PLC that were repaid back to Rasna in July 2018.  

 

Other Commitments

 

The Company may enter 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.

 

20


 

10.    SUBSEQUENT EVENTS

 

On August 8, 2018 the Company issued a 12% convertible promissory note (the “Note”) in the principal amount of $135,000. The Note has a maturity date of August 8, 2019 and is convertible by the holder at any time into shares of the Company’s common stock at a conversion price equal to the lower of (i) $0.65 per share or (ii) the price of the next financing during the 180 days after the date of the Note. If the holder has not converted the Note into common stock by the maturity date,  the Company must repay the outstanding principal amount plus accrued interest.

 

The Note contains an anti-dilution provision which adjusts the conversion price in the event of an issuance by the Company of common stock below the then effective conversion price.

 

21


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements 

 

This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the Company’s Transitional Report on Form 10-KT filed on November, 30, 2017 under the heading “Risk Factors,” which are incorporated herein by reference.

 

We assume no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Unless expressly indicated or the context requires otherwise, the terms "Rasna,",” the “Company,” “we,” “us,” and “our” refer to Rasna Therapeutics, Inc., a Nevada corporation, and, where appropriate, its wholly owned subsidiaries.

 

Company Background

 

To date, we have devoted substantially all of our resources to research and development efforts relating to our therapeutic candidates, including conducting clinical trials and developing manufacturing capabilities, in-licensing related intellectual property, protecting our intellectual property and providing general and administrative support for these operations. Since our inception, we have funded our operations primarily through the issuance of equity securities.

 

We anticipate that our expenses will increase substantially if and as we:

 

 

initiate new clinical trials;

 

 

seek to identify, assess, acquire and develop other products, therapeutic candidates and technologies;

 

 

seek regulatory and marketing approvals in multiple jurisdictions for our therapeutic candidates that successfully complete clinical studies;

 

 

establish collaborations with third parties for the development and commercialization of our products and therapeutic candidates;

 

 

make milestone or other payments under our agreements pursuant to which we have licensed or acquired rights to intellectual property and technology;

 

 

seek to maintain, protect, and expand our intellectual property portfolio;

 

 

seek to attract and retain skilled personnel;

 

 

incur the administrative costs associated with being a public company and related costs of compliance;

 

 

create additional infrastructure to support our operations as a commercial stage public company and our planned future commercialization efforts; and 

 

 

experience any delays or encounter issues with any of the above.

 

We expect to continue to incur significant expenses and increasing losses for at least the next several years. Accordingly, we anticipate that we will need to raise additional capital in addition to the net proceeds from this offering in order to obtain regulatory approval for, and the commercialization of our therapeutic candidates. Until such time that we can generate meaningful revenue from product sales, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any approved therapies or products or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially adversely affect our business, financial condition and results of operations.

 

22


On October 11, 2017, we changed our fiscal year end from June 30 to September 30 and we filed a Form 10-KT on November 30, 2017.

 

On April 27, 2016, Rasna Therapeutics Limited, a private limited company incorporated in England and Wales under the U.K. Companies Act (“Rasna UK”) sold its stake in Falconridge Holdings Limited, or Falconridge, to Rasna DE for $1. This entity had no operations, no assets or liabilities as of this date.

 

On May 17, 2016, Rasna DE and its subsidiary Falconridge entered into an Agreement of Merger and Plan of Reorganization (“Merger Agreement”) with Arna Therapeutics Limited, a British Virgin Islands company, or Arna, which was a clinical stage biotechnology company focused on drugs to treat diseases in oncology and immunology, mainly focusing on the treatment of leukemia. Pursuant to the agreement, Arna was merged into Falconridge and the shareholders of Arna were issued shares of Rasna DE in exchange for shares of Arna.

 

On August 15, 2016, Active With Me, Inc., or AWM, entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Rasna DE, and Rasna Acquisition, providing for the merger of Rasna Acquisition with and into Rasna DE, (the “Merger”), with Rasna DE, surviving the Merger as a wholly-owned subsidiary of AWM. 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 has been treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of AWM’s operations were disposed of prior to the consummation of the transaction.  Rasna DE is treated as the accounting acquirer as its stockholders control us after the Merger Agreement, even though AWM was the legal acquirer.  As a result, the assets and liabilities and the historical operations that are reflected in our financial statements are those of Rasna DE as if Rasna DE had always been the reporting company. Since AWM 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 us 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 DE to a former officer and director of AWM in exchange for cancellation of an aggregate of 1,500,000 shares of Rasna DE's common stock held by such person.

 

In connection with the share exchange, each share of Rasna DE was exchanged for the right to receive .33 shares in AWM. Once issued, the new shares were combined with the 3,305,000 common shares held by legacy AWM shareholders. Immediately following the Merger, 1,500,000 shares were canceled, which related to one legacy AWM shareholder that effectively spun off the remaining assets of AWM in connection with the transaction. Finally, subsequent to the transaction, the legal acquirer executed a 3.25 for 1 stock split on its common shares. Historical common stock amounts and additional paid-in capital have been retroactively adjusted for the effect of the share splits executive in connection with the Merger transaction.

 

On September 20, 2016, we filed a Certificate of Change in Nevada which effected a 3.25 for 1 forward stock split of our common stock for shareholders of record as of August 16, 2016 and increased the authorized number of shares of common stock to 200,000,000 shares.

 

We only have one segment of activity which is that of a biotechnology company focused on targeted drugs to treat diseases in oncology and immunology, mainly focusing on the treatment of leukemia and lymphoma.

 

Critical Accounting Policies and Estimates

 

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. In accordance with US GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

 

While our significant accounting policies are more fully described in Note 2 to our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report, we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.

 

Basis of preparation 

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

 

23


 

Principles of Consolidation

 

In accordance with ASC 810, Consolidation, we consolidate any entity in which we have a controlling financial interest. Further, we consolidate any variable interest entity that we are deemed to be the primary beneficiary of, and have the power to direct its significant activities. Upon review of the relationship between Rasna Therapeutics (“Rasna UK”) and Rasna, Management noted that equity investment in Rasna UK is not sufficient to fund its operations. Accordingly, Rasna is considered to be the primary beneficiary of the assets held within Rasna UK, which primarily consist of cash received from Rasna to fund its operations, and has power to direct its significant activities. As a result, Rasna consolidates this variable interest entity, which has minimal activity and is in the process of being liquidated.  

 

The interim condensed consolidated financial statements include the financial statements of the Company and its subsidiary, Arna Therapeutics Limited and its variable interest entity, Rasna Therapeutics Ltd, as well as the operations of Rasna Inc. for the period from May 17, 2016 through June 30, 2018. All significant intercompany accounts and transactions have been eliminated in the preparation of the accompanying condensed consolidated financial statements.

 

Going Concern

 

We are subject to a number of risks similar to those of other pre-commercial stage companies, including our 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 our development programs and, ultimately, the attainment of profitable operations are dependent on future events, including obtaining adequate financing to fulfill our development activities and generating a level of revenues adequate to support our cost structure. 

 

We have experienced net losses and significant cash outflows from cash used in operating activities over the past years, and at June 30, 2018, had an accumulated deficit of $15,970,046, a net loss for the nine months ended June 30, 2018 of $3,670,978 and net cash used in operating activities of $2,513,179.

 

We expect to continue to incur net losses and have significant cash outflows for at least the next twelve months. We have sufficient funds to continue operating until the end of October 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, we 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 our ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our 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 our cost structure.


Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates on an ongoing basis, including those related to the fair values of stock based awards, income taxes and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates and such differences could be material to our consolidated financial position and results of operations.

 

Fair Value of Financial Instruments

 

The carrying value of our financial instruments, including cash and cash equivalents, related party balances, accounts payable and accrued liabilities, approximate fair value because of the short-term nature of such financial instruments. Management measures certain other assets, including nonmarketable equity securities, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired.


24


 

Concentration of Credit Risk

 

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,our balances in our bank accounts exceed Federal Deposit Insurance Corporation limits. We will periodically evaluate the risk of exceeding insured levels and might transfer funds if we deem appropriate. We have not experienced any losses with regards to balances in excess of insured limits or as a result of other concentrations of credit risk.

 

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 definite life intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges as of the nine months ended June 30, 2018 or 2017.

 

Risks and Uncertainties

 

We intend to operate in an industry that is subject to rapid change. Our 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 2018 presentation. These reclassifications have no impact on the previously reported net loss.

 

25


 

Research and development

 

Expenditure on research and development is charged to the statements of operation in the year in which it is incurred with the exception of expenditures incurred in respect of the development of major new products where the outcome of those projects is assessed as being reasonably certain in regards to viability and technical feasibility. Such expenditure is capitalized and amortized straight line over the estimated period of sale for each product, commencing in the year that sales of the product are first made. To date, we have 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 net 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, 2018

 

June 30, 2017

Stock options

 

4,829,875

 

 

 

3,162,375

 

Warrants

 

1,926,501

 

 

 

1,440,501

 

Total shares issuable upon exercise or conversion

 

6,756,376

 

 

 

4,602,876

 

 

Equity-Based Payments to Non-Employees

 

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.


We account 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.

 

26


 

Income taxes

 

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law and has resulted in significant change to the U.S corporate income tax system.  These changes include a federal statutory rate reduction from 35% to 21%, a transition tax which applies to the repatriate of foreign earnings and profits, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. 

 

Changes in tax rates and tax laws are accounted for in the period of enactment. During the nine month period ended June 30, 2018, the tax impact of the  2017 Tax Cuts and Jobs Act was immaterial to the 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. We expect to adopt this ASU described above in our Consolidated Financial Statements beginning in October 1, 2018. Management has evaluated and concluded that there will be no material impact on our consolidated financial statements.

 

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. Management has evaluated the effects of ASU 2016-18 and concluded that there will be no material impact on our 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. We expect to adopt this ASU described above in our Consolidated Financial Statements beginning in October 1, 2018. Management has evaluated and concluded that there will be no material impact on our consolidated financial statements.

 

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 goodwill 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. Management has evaluated and concluded that there will be no material impact on our consolidated financial statements.

 

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. Management has evaluated and concluded that there will be no material impact on our consolidated financial statements.

 

27


 

In June 2018, the FASB issued ASU 2018-07, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. We do not plan to early adopt this ASU. We are currently evaluating the potential impacts of this updated guidance, and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and related disclosures.

 

Results of Operations

 

The following paragraphs set forth our results of operations for the periods presented.  The period-to-period comparison of financial results is not necessarily indicative of future results.

 

Results of Operations for the Three Months Ended June 30, 2018 and 2017

 

The following table sets forth the summary statements of operations for the periods indicated:

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

2018 

 

2017 

 

(Unaudited) 

 

 (Unaudited)

Revenue

$

 

 

$

 

Cost of revenue

 

 

 

Gross profit

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

General and administrative

644,545

 

 

620,788

 

Research and development

136,131

 

 

277,326

 

Consultancy fees third parties and related parties

(100,192

)

 

49,126


Legal and professional fees

128,901


 

283,132

 

Total operating expenses

809,385


 

1,230,372

 

 

 

 

 

Loss from operations

(809,385

)

 

(1,230,372

)

 

 

 

 

Other income/(expense):

 

 

 

 

 

Foreign currency transaction gain

5,420


 

16,816

 

Other income

5,420


 

16,816

 

 

 

 

 

Net loss

$

(803,965

)

 

$

(1,213,556

)

 

Revenues

 

There were no revenues for the three months ended June 30, 2018 and 2017 because the Company does not have any commercial biopharmaceutical products.

 

28


 

Operating Expenses

 

Operating expenses consisting of, research and development costs, consultancy fees, legal and professional fees and general and administrative expenses for the three months ended June 30, 2018 decreased to $809,385 from $1,230,372 for the three months ended June 30, 2017, a decrease of $420,987. The decrease is primarily attributable to a reduction in R&D related activities in the quarter (approximately $141,000), a reduction in professional fees relating to patent costs ($130k) as in this fiscal year the patents were maintained rather than filed, as they were in 2017 and a reduction in consultancy fees due to the options fair value charge driven by an adverse movement in the share price from $2 to $1.1 (approximately $149,000).  


Net Loss

 

Net loss for the three months ended June 30, 2018 decreased to $803,965 from $1,213,556 for the three months ended June 30, 2017, a decrease of $409,591.  The decrease is primarily attributable to a reduction in R&D related activities in the quarter (approximately $141,000), a reduction in professional fees relating to patent costs ($130k) and a reduction in consultancy fees due to the options fair value charge driven by an adverse movement in the share price from $2 to $1.1 (approximately $149,000).  

 

Results of Operations for the Nine Months Ended June 30, 2018 and 2017

 

The following table sets forth the summary statements of operations for the periods indicated:

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended June 30,

 

2018 

 

2017 

 

(Unaudited) 

 

 (Unaudited)

Revenue

$

 

 

$

 

Cost of revenue

 

 

 

Gross profit

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

General and administrative

2,343,296

 

 

1,704,860

 

Research and development

345,645

 

 

974,585

 

Consultancy fees third parties and related parties

454,218

 

 

56,541

 

Legal and professional fees

521,868

 

 

862,134

 

Total operating expenses

3,665,027

 

 

3,598,120

 

 

 

 

 

Loss from operations

(3,665,027

)

 

(3,598,120

)

 

 

 

 

Other income/(expense):

 

 

 

 

 

Foreign currency transaction gain

(5,951

)

 

80,551

 

Other income

(5,951

)

 

80,551

 

 

 

 

 

Net loss

$

(3,670,978

)

 

$

(3,517,569

)

 

Revenues

 

There were no revenues for the nine months ended June 30, 2018 and 2017 because the Company does not have any commercial biopharmaceutical products.

 

Operating Expenses

 

Operating expenses consisting of, research and development costs, consultancy fees, legal and professional fees and general and administrative expenses for the nine months ended June 30, 2018 increased to $3,665,027 from $3,598,120, an increase of $66,907.  The increase is primarily attributable to payroll and rental expenditure incurred due to the hiring additional employees (approximately $638,000), an increase in the fair value charge for consultancy and performance related warrants (approximately $397,000), offset by a reduction in R&D related activities in the period ($628,000) and legal and professional fees (approximately $340,000) and the absence of any foreign exchange gain

 

29


 

Net Loss

 

Net loss for the nine months ended June 30, 2018 decreased to $3,670,978 from $3,517,569 for the nine months ended June 30, 2017, a decrease of $153,409. The decrease is primarily attributable to an increase in payroll and rental expenditure incurred due to the hiring additional employees (approximately $638,000), an increase in the fair value charge for consultancy and performance related warrants (approximately $397,000), offset by a reduction in R&D related activities in the period ($628,000) and legal and professional fees (approximately $340,000) and the impact of less costs being incurred in a foreign currency  (approximately $86,000).


Liquidity and Capital Resources 

 

We believe we have sufficient cash to carry out our activities until October 2018, but will require significant additional cash resources to launch new development phases of existing products in its pipeline. In the event that we are unable to secure the necessary additional cash resources needed, we 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 our ability to continue as a going concern. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support our cost structure. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution. Any debt financing, if available, may (i) involve restrictive covenants that impact our ability to conduct, delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize its self on unfavorable terms. 

 

On August 8, 2018, we issued  a 12% convertible promissory note (the “Note”) to an investor, in the principal amount of $135,000. The Note has a maturity date of August 8, 2019 and  is convertible by the holder at any time into shares of our common stock at a conversion price equal to the lower of (i) $0.65 per share or (ii) the price of the next financing during the 180 days after the date of the Note. If the holder has not converted the Note into common stock by the maturity date, we must repay the outstanding principal amount plus accrued interest.  

The Note contains an anti-dilution provision which adjusts the conversion price in the event of an issuance by us of common stock below the then effective conversion price.

Capital Resources

 

The following table summarizes total current assets, liabilities and working capital as of the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018 

 

September 30, 2017

 

Change

 

(Unaudited) 

 

 

 

 

Current assets

$

287,431

 

 

$

2,695,699

 

 

$

(2,408,268

)

Current liabilities

$

1,736,467

 

 

$

1,537,364

 

 

$

199,103


Working capital

$

(1,449,036

)

 

$

1,158,335

 

 

$

(2,607,371

)

 

We had a cash balance of $20,357 and $2,537,611 at June 30, 2018 and September 30, 2017, respectively. 

 

Liquidity

 

The following table sets forth a summary of our cash flows for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended June 30,

 

2018

 

2017

 

Increase/(Decrease)

Net cash used in operating activities

$

(2,513,179

)

 

$

(2,300,622

)

 

$

(212,557

)

Net cash used in investing activities

$

(4,073

)

 

$

(10,493

)

 

$

6,420

 

Net cash provided by financing activities

$

 

 

$

2,007,500

 

 

$

(2,007,500

)

 

30


Cash Used in Operating Activities

 

Cash used in operating activities consists of net loss adjusted for the effect of changes in operating assets and liabilities.

 

Net cash used in operating activities was $2,513,179 for the nine months ended June 30, 2018 compared to $2,300,622 for the nine months ended June 30, 2017. The change is principally attributable to net loss of $3,670,978 excluding non-cash items such as share based compensation of $540,972, consulting expense for warrants issued of $522,350 and changes in operating assets and liabilities of $61,188.


Cash Used in Investing Activities

 

Cash used in investing activities consists of fixed assets acquired. This was $4,073 for the nine months ended June 30, 2018 compared to $10,493 for the nine months ended June 30, 2017.

 

Cash Provided by Financing Activities

 

Cash provided by financing activities consists of proceeds received from the sale of shares of common stock issued in a private placement to accredited investors. This was $0 for the nine months ended June 30, 2018 compared to $2,007,500 for the nine months ended June 30, 2017.

 

Off-Balance Sheet Arrangements

 

We consolidate variable interest entities (“VIE”) in which we hold a controlling financial interest as evidenced by the power to direct the activities of a VIE that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE and therefore are deemed to be the primary beneficiary. We take into account our entire involvement in a VIE (explicit or implicit) in identifying variable interests that individually or in the aggregate could be significant enough to warrant our designation as the primary beneficiary and hence require us to consolidate the VIE or otherwise require us to make appropriate disclosures. 

 

ITEM 3. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within the required time periods. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

As of the end of the period covered by this Report, the Company’s Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, each officer concluded that, as of the date of the evaluation, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed in the Company’s periodic filings under the Securities Exchange Act of 1934 is accumulated and communicated to management to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

31


 

PART II – OTHER INFORMATION

 

ITEM 1A. RISK FACTORS

 

There have been no material changes from the risk factors disclosed in our Form 10-KT as of and for the period ended  September 30, 2017. 

 

ITEM 6. EXHIBITS

 

 

 

 

10.1*

 

Form of 12% Convertible Promissory Note

31.1*

 

Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.2*

 

Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

32.1*

 

Certification of Principal Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

32.2*

 

Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

101.INS*

 

XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH*

 

XBRL Taxonomy Schema Document

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase

 

* Filed Herewith

 

32


 


Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

Rasna Therapeutics, Inc.

  

 

 

 

 

 

August 9, 2018 

By:

/s/ Kunwar Shailubhai

 

 

Name: Kunwar Shailubhai

Title: Chief Executive Officer

 

 

 

 

 

 

August 9, 2018 

By:

/s/ Tiziano Lazzaretti

 

 

Name: Tiziano Lazzaretti

Title: Chief Financial Officer

 

 

33