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-K filed on January 13, 2020 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 and convertible notes.
We anticipate that our expenses will increase substantially if and as we:
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initiate new clinical trials;
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seek to identify, assess, acquire and develop other products, therapeutic candidates and technologies;
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seek regulatory and marketing approvals in multiple jurisdictions for our therapeutic candidates that successfully complete clinical studies;
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establish collaborations with third parties for the development and commercialization of our products and therapeutic candidates;
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make milestone or other payments under our agreements pursuant to which we have licensed or acquired rights to intellectual property and technology;
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seek to maintain, protect, and expand our intellectual property portfolio;
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seek to attract and retain skilled personnel;
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incur the administrative costs associated with being a public company and related costs of compliance;
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create additional infrastructure to support our operations as a commercial stage public company and our planned future commercialization efforts; and
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experience any delays or encounter issues with any of the above.
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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.
On May 17, 2016, Rasna DE and its subsidiary Falconridge Holdings Ltd, or 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 Merger 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 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 was 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 was treated as the accounting acquirer as its shareholders control the Company after the Merger, 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 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.
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.
The Company is currently looking into raising funds to progress its R&D pipeline.
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 US 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 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 US GAAP. Any reference in these notes to applicable guidance is meant to refer to US GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“the FASB”).
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 no present revenue and have experienced net losses and significant cash outflows from cash used in operating activities since inception, and at June 30, 2020, had an accumulated deficit of $20,368,004, a net loss for the three months ended June 30, 2020 of $3,056,195 and net cash used in operating activities of $193,919 for the nine months ended June 30, 2020.
We expect to continue to incur net losses and have significant cash outflows for at least the next twelve months and will require significant additional cash resources to launch new development phases of existing products in its pipeline. In the event that the Company is unable to secure the necessary additional cash resources needed, we may slow current development phases or halt new development phases in order to mitigate the effects of the costs of development. These conditions, among others, raise substantial doubt about our ability to continue as a going concern one year from the date of this filing. The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern one year from the date of this filing. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support our cost structure.
Results of Operations
The following paragraphs set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.
Results of Operations for the Nine Months Ended June 30, 2020 and 2019
The following table sets forth the summary statements of operations for the periods indicated:
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For the Nine Months Ended June 30,
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2020
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2019
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(Unaudited)
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(Unaudited)
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Revenue
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$
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—
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$
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—
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Cost of revenue
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—
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—
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Gross profit
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—
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—
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Operating expenses:
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General and administrative
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292,531
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518,604
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Research and development
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—
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75,000
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Consultancy fees
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59,995
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54,658
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Legal and professional fees
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70,899
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206,201
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Total operating expenses
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423,425
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854,463
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Loss from operations
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(423,425
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(854,463
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Other expense:
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Interest on convertible notes payable
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(29,785
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(20,517
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Gain on sale of asset
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120,000
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—
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Goodwill impairment
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(2,722,985)
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—
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Foreign currency transaction gain
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—
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(1,227
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Other expense
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(2,632,770
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(21,744
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Net loss
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$
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(3,056,195
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$
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(876,207
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Revenues
There were no revenues for the nine months ended June 30, 2020 and 2019 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, 2020 decreased to $423,425 from $854,463 for the nine months ended June 30, 2019, a decrease of $431,038. The decrease is primarily attributable to a reduction in payroll and the options charge (approximately $188,000), a reduction in travel expenses reflecting the decreased activity in the Company (approximately $16,000), the absence of any R&D related activities (approximately $75,000), a reduction in professional fees relating to patent costs ($52,000), and a decrease in fees for legal and payroll services ($98,000). This is a result of the Company having insufficient cash resources to fund its operations.
Net Loss
Net loss for the nine months ended June 30, 2020 increased to $3,056,195 from $876,207 for the nine months ended June 30, 2019, an increase of $2,179,988. The increase is primarily attributable a goodwill impairment charge of $2,722,985, offset by gain on the sale of ACT D of $120,000, a reduction in payroll and the options charge (approximately $188,000), a reduction in travel expenses reflecting the decreased activity in the Company (approximately $16,000), the absence of any R&D related activities in the quarter (approximately $75,000), a reduction in professional fees relating to patent costs ($52,000), a decrease in fees for legal and payroll services ($98,000). This is a result of the Company having insufficient cash resources to fund its operations.
Liquidity and Capital Resources
We believe we will require significant additional cash resources to continue to launch new development phases of existing products in the Company's 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 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 November 12, 2019, we issued a 12% convertible promissory note (the “Note”) to an investor, in the principal amount of $57,500 with a maturity date of November 12, 2020. The Note 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.
On February 07, 2020, we issued a 12% convertible promissory note (the “Note”) to an investor, in the principal amount of $31,000 with a maturity date of February 07, 2021. The Note is convertible by the holder at any time into shares of our common stock at a conversion price equal to the lower of (i) $0.20 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.
On March 20, 2020, we issued a 12% convertible promissory note (the “Note”) to an investor, in the principal amount of $20,000 with a maturity date of March 20, 2021. The Note is convertible by the holder at any time into shares of our common stock at a conversion price equal to the lower of (i) $0.20 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.
All Notes contain 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.
On April 16, 2020, we entered into an asset purchase agreement with Tiziana pursuant to which we agreed to sell all of the intellectual property relating to a nanoparticle-based formulation of Act D to Tiziana in exchange for an upfront payment of $120,000 and milestone payments of up to an aggregate $630,000.
Capital Resources
The following table summarizes total current assets, liabilities and working capital as of the periods indicated:
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June 30, 2020
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September 30, 2019
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Change
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(Unaudited)
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Current assets
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$
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72,679
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$
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71,579
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$
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1,100
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Current liabilities
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$
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2,627,239
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$
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2,408,530
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$
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218,709
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Working capital deficit
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$
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(2,554,560
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)
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$
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(2,336,951
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$
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(217,609
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We had a cash balance of $36,649 and $50,068 at June 30, 2020 and September 30, 2019, respectively.
Liquidity
The following table sets forth a summary of our cash flows for the periods indicated:
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For the Nine Months Ended June 30,
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2020
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2019
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Increase
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Net cash used in operating activities
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$
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(193,919
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$
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(85,687
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)
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$
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(108,232
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Net cash used in investing activities
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$
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—
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$
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—
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$
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—
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Net cash provided by financing activities
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$
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180,500
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$
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100,000
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$
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80,500
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Net Cash Used in Operating Activities
Net 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 $193,919 for the nine months ended June 30, 2020 compared to $85,687 for the nine months ended June 30, 2019. The net loss of $3,056,195 for the nine months ended June 30, 2020 was partially offset primarily by non-cash share based compensation of $114,375, a good will impairment charge of $2,722,985, interest accrued on the Convertible Loan Notes of $28,345 and changes in operating assets and liabilities of $4,655. The net loss of $876,207 for the nine months ended June 30, 2020, was partially offset by non-cash items such as share based compensation of $297,932, depreciation expense of $2,197 and changes in operating assets and liabilities of $469,874.
Net Cash Provided by Financing Activities
Net cash provided by financing activities consists of proceeds from the issuance of a convertible note of $180,500 and a related party loan payable of $72,000 for the nine months ended June 30, 2020 compared to $100,000 of proceeds from the issuance of a convertible note during the nine months ended June 30, 2019.
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.