ACTAVIA LIFE SCIENCES, INC. Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes and other information that are included elsewhere in this Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the cautionary note regarding "Forward-Looking Statements" contained elsewhere in this Form 10-K. Additionally, you should read the "Risk Factors" section of this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Our audited financial statements are stated in
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
Company Background Overview
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:
? continue enrollment in our ongoing clinical trials;
? 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.
We only have one segment of activity which is that of a clinical stage biotechnology company focused on targeted drugs to treat diseases in oncology and immunology, mainly focusing on the treatment of leukemia.
48
Summary of significant accounting policies
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe 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 audited consolidated financial statements appearing elsewhere in this Annual 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 consolidated financial statements have been prepared in conformity with accounting principles generally accepted inthe United States of America ("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 theFinancial Accounting Standards Board ("FASB"). Principles of Consolidation
In accordance with ASC 810, Consolidation, the Company consolidates any entity in which it has a controlling financial interest.
The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary,Rasna Research Inc , andRasna Research Inc's subsidiary,Arna Therapeutics Limited . All significant intercompany accounts and transactions have been eliminated in the preparation of the accompanying consolidated financial statements. 49 Going Concern We are 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 our 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. We have experienced net losses and significant cash outflows from cash used in operating activities over the past two years, and as ofSeptember 30, 2022 , had an accumulated deficit of$24,221,067 , a net loss for the period endedSeptember 30, 2022 of$686,588 and net cash used in operating activities of$312,663 . These conditions indicate that there is substantial doubt about our ability to continue as a going concern within the next twelve months from the filing date of this annual report on Form 10-K. We expect to continue to incur net losses and have significant cash outflows for at least the next twelve months. We currently have sufficient funds to continue operating until the end ofFebruary 2023 , but will require significant additional cash resources to launch new development phases of existing products in its pipeline. Additional cash injections are expected from Panetta partners which is expected to enable the Company to continue our operations through at leastMarch 2023 , however in the event that we are unable to secure the necessary additional cash resources needed, we may need to slow current development phases or halt new development phases in order to mitigate the effects of the costs of development. The accompanying 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 US 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 compensation awards, the
modification and extinguishment of debt, troubled debt restructuring,
derivatives and valuations associated with derivatives, 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
amounts 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.
50
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.
Research and development Expenditure on research and development is charged to the statement 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 regard 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. Income Taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management considers many factors when assessing the likelihood of future realization of deferred tax assets, including recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available for tax reporting purposes, as well as other relevant factors. A valuation allowance may be established to reduce deferred tax assets to the amount that management believes is more likely than not to be realized. Due to inherent complexities arising from the nature of the business, future changes in income tax law and variances between actual and anticipated operating results, management makes certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates. OnDecember 22, 2017 , The Tax Cuts and Jobs Act was signed into law and has resulted in significant change to theU.S corporate income tax system. These changes include a federal statutory rate reduction from 34% to 21%, a transition tax, which applies to the repatriation 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. 51
Changes in tax rates and tax laws are accounted for in the period of enactment.
We recognize in the financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. We record a liability for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on our tax return. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. We have incurred no liability and, therefore, did not need to record interest and penalties during the year endedSeptember 30, 2022 and 2021. Foreign Currency Items included in the financial statements are measured using their functional currency, which is the currency of the primary economic environment in which the company operates. The Company's consolidated financial statements are presented inUnited States Dollar ("USD"), which is the company's functional and presentational currency. 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, the exercise of warrants and conversion of loan notes, 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: September 30, September 30, 2022 2021 Stock options 2,790,675 3,648,675 Warrants 1,926,501 1,926,501 Convertible Notes 171,233,333 82,487,678 Total shares issuable upon exercise or conversion 175,950,509 88,062,854 Convertible Notes Debt Discount The Company issued certain convertible notes that have certain embedded derivatives and/or required bifurcation. In connection with these features, the Company has recorded a discount to the debt that will be accreted to the face value of the note under the effective interest method over the term of the
note.
52
Fair Value of Financial Instruments
Fair value is defined under FASB ASC Topic 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for an asset or liability in an orderly transaction between participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The levels are as follows:
? Level 1 - Quoted prices in active markets for identical assets or liabilities
? Level 2 - Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or
corroborated by observable market data for substantially the full term of the
assets or liabilities
? Level 3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the value of the assets or liabilities.
The following is a listing of the Company's liabilities required to be measured at fair value on a recurring basis and where they are classified within the fair value hierarchy as ofSeptember 30, 2022 andSeptember 30, 2021 :
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. We account 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-based compensation awards issued to non-employees underFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") No. 718-10, Compensation - Stock Compensation - Overall, and uses the Black-Scholes Merton option-pricing model to determine the fair value of such awards. The Company values awards issued to non-employees on the grant date and has elected to estimate forfeitures as they occur and uses the simplified method to estimate the term of such awards. The Company recognizes stock-based compensation expense related to non-employee awards on a straight-line basis over the service period. 53
Recent Accounting Pronouncements
The Company has determined that all recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations. 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 years ended
Revenues
There were no revenues for the year ended
Operating Income/(Expenses) Operating expenses, consisting of research and development costs, consultancy fees, legal and professional fees and general and administrative expenses, for the year endedSeptember 30, 2022 , decreased to an operating income of$141,088 from an operating loss of$247,814 for year endedSeptember 30, 2021 , a decrease of$388,902 . The decrease is predominantly due to a$150,000 and$375,000 gain on the settlement of accounts payable and related party payable, respectively, due to the release of payment obligations to TES Pharma S.R.L and Eurema Consulting S.R.L (and their affiliates) as all intellectual property rights and assignments relating to NPM1 were returned to them by the Company, offset by increased general and administrative expenses of$107,460 and increased research and development patent expenses of$28,638 . Other expense During the year endedSeptember 30, 2022 , other expense increased to$827,676 from$628,184 for the year endedSeptember 30, 2021 . This is predominantly due to additional interest expense which includes accretion of debt discount of$425,086 offset by a gain on the adjustment of a derivative liability of$113,317 , a decrease in foreign exchange loss of$332 and net savings of expenses in connection with the gain on troubled debt restructuring and modification and extinguishment of convertible promissory notes incurred in
2021 of$111,945 . Net Loss
Net loss for the year endedSeptember 30, 2022 decreased to$686,588 from a net loss of$875,998 for the year endedSeptember 30, 2021 , a decrease of$189,410 . This is predominantly due to$150,000 and$375,000 gain on the settlement of accounts payable and related party payable, respectively, due to the release of payment obligations due to TES Pharma S.R.L and Eurema Consulting S.R.L (and their affiliates) as all intellectual property rights and assignments relating to NPM1 were returned to them by the Company, offset by increased general and administrative expenses of$107,460 and increased research and development patent expenses of$28,638 . There was additional interest expense which includes accretion of debt discount of$425,086 offset by a gain on the adjustment of a derivative liability of$113,317 , a decrease in foreign exchange loss of$332 and net savings of expenses in connection with the gain on troubled debt restructuring and modification and extinguishment of convertible promissory notes incurred in 2021 of$111,945 . 54
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. OnNovember 18, 2021 , the Company entered into an eleventh 12% Convertible Promissory Note withPanetta Partners Ltd. (the "Holder") with a maturity date ofDecember 31, 2023 . The Holder provided the Company with$30,000 in cash. The Note provides the Holder with the right to convert, at any time, all or any part of the outstanding principal and accrued but unpaid interest into shares of the Company's common stock at a conversion price equal to the lower of (i)$0.01 per share or (ii) the price of the next equity financing, which raises at least US$1,000,000 , subject to adjustments noted within the Agreement. The number of shares issuable upon a conversion shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of the Note to be converted by (y) the Conversion Price. The Note requires the Company to reserve and keep available out of its authorized and unissued shares of common stock the number of shares that would be issued upon conversion of the Note, which includes the outstanding principal amount of the Note and interest accrued and to be accrued through the date of maturity. OnNovember 29, 2021 , the Company entered into another 12% Convertible Promissory Note again withPanetta Partners Ltd. (the "Holder") pursuant to which the Company issued a Convertible Promissory Note to the Holder. The Holder provided the Company with$55,000 in cash. All other terms were the same as
the note before. OnFebruary 8, 2022 , the Company entered into the thirteenth 16% Convertible Promissory Note again withPanetta Partners Ltd. (the "Holder") pursuant to which the Company issued a Convertible Promissory Note to the Holder. The Holder provided the Company with$30,000 in cash. The Note provides the Holder with the right to convert, at any time, all or any part of the outstanding principal and accrued but unpaid interest into shares of the Company's common stock at a conversion price equal to the lower of (i)$0.005 per share or (ii) the price of the next equity financing, which raises at least US$1,000,000 , subject to adjustments noted within the Agreement. The number of shares issuable upon a conversion shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of the Note to be converted by (y) the Conversion Price. The Note requires the Company to reserve and keep available out of its authorized and unissued shares of common stock the amount of shares that would be issued upon conversion of the Note, which includes the outstanding principal amount of the Note and interest accrued and to be accrued through the date
of maturity. OnMarch 2, 2022 , the Company entered into the fourteenth 16% Convertible Promissory Note again withPanetta Partners Ltd. (the "Holder") pursuant to which the Company issued a Convertible Promissory Note to the Holder. The Holder provided the Company with$45,000 in cash. All other terms were the same as
the thirteenth note. OnMay 13, 2022 , all outstanding notes with a principal value of$828,500 and accrued interest of$170,150 were converted into 111,071,358 ordinary shares with a par value of$0.01 . OnJuly 7, 2022 , the Company entered into the fifteenth 16% Convertible Promissory Note again withPanetta Partners Ltd. (the "Holder") pursuant to which the Company issued a Convertible Promissory Note to the Holder. The Holder provided the Company with$165,000 in cash. The Note provides the Holder with the right to convert, at any time, all or any part of the outstanding principal and accrued but unpaid interest into shares of the Company's common stock at a conversion price equal to the lower of (i)$0.001 per share or (ii) the price of the next equity financing, which raises at least US$1,000,000 , subject to adjustments noted within the Agreement. The number of shares issuable upon a conversion shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of the Note to be converted by (y) the Conversion Price. The Note requires the Company to reserve and keep available out of its authorized and unissued shares of common stock the amount of shares that would be issued upon conversion of the Note, which includes the outstanding principal amount of the Note and interest accrued and to be accrued through the date
of maturity. Capital Resources
The following table summarizes total current assets, liabilities and working capital as of the periods indicated:
September 30, September 30,
2022 2021 Change
Current assets $ 85,276 $ 44,577 $ 40,699
Current liabilities $ 1,681,906 $ 2,798,389 $ (1,116,483 )
Working capital deficiency $ (1,596,630 ) $ (2,753,812 ) $ 1,157,182 We had a cash balance of
55
Liquidity
The following table sets forth a summary of our cash flows for the periods
indicated:
For the For the
year ended year ended
September 30, September 30, Increase/
2022 2021 (Decrease)Net cash used in operating activities$ (312,663 ) $ (293,393 ) $ 19,270 Net cash used in investing activities $ - $ - $ - Net cash provided by financing activities$ 341,178 $
290,000 $ (51,178 ) 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$312,663 for the year endedSeptember 30, 2022 compared to$293,393 for the year endedSeptember 30, 2021 . The net loss of$686,588 for the year endedSeptember 30, 2022 was partially offset primarily by a gain on derivative liability of$113,317 , gain on the settlement of accounts payable of$150,000 and a gain on the settlement of a related party payable of$375,000 adjusted for accretion of debt discount of$885 , 085, interest expense of$55,904 and changes in operating assets and liabilities of$71,253 .
Net Cash Provided by Financing Activities
Net cash provided by financing activities consists of proceeds from the issuance of convertible notes of$325,000 , proceeds from a related party loan of$85,000 offset by payments for on a note payable of$68,882 for the year endedSeptember 30, 2022 compared to proceeds from the issuance of convertible notes of$290,000 for the year endedSeptember 30, 2021 .
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