The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL INFORMATION
Rasna Therapeutics, Inc. “Rasna Inc.”
or the “Company”), is a biotechnology company incorporated in the State of Delaware on March 28, 2016. The Company is engaged
in modulating the molecular targets NPM1 and LSD1, which are implicated in the disease progression of leukemia and lymphoma.
These unaudited condensed consolidated 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.
Risks
and Uncertainties
Management continues to evaluate the impact of
the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s
financial position, results of its operations and/or ability to secure additional cash resources, the specific impact is not readily determinable
as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
Management continues to evaluate the impact of
inflation and the economic environment on the Company, and has concluded that while it is reasonably possible that inflation could have
a negative effect on the Company’s financial position, results of its operations and/or ability to secure additional cash resources,
there is no current impact as cash resources are currently secured by existing shareholders. The
financial statements do not include any adjustments that might result from this uncertainty.
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. There have been no material changes in the Company’s significant accounting
policies as compared to the significant accounting policies described in the Company’s annual report on Form 10-K/A for the Fiscal
year ended September 30, 2021.
Basis of preparation
These unaudited condensed consolidated financial
statements have been prepared following the requirements of the Securities and Exchange Commission (the “SEC”) and United
States generally accepted accounting principles (“US GAAP”) for interim reporting. The principles for condensed interim financial
information do not require the inclusion of all the information and footnotes required by generally accepted accounting principles for
complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements as of and for the year ended September 30, 2021 and notes thereto included in the Company’s
Annual Report on Form 10-K/A filed with the SEC on June 9, 2022. The accompanying unaudited condensed consolidated financial statements have
not been audited by an independent registered public accounting firm in accordance with the standards of the Public Company Accounting
Oversight Board (United States), but in the opinion of management, such financial statements include all adjustments, which include
only normal recurring adjustments, necessary to present fairly the Company’s interim financial information.
The results of the operations for the three and
nine months ended June 30, 2022 may not be indicative of the results that may be expected for the year ending September 30, 2022.
Principles of Consolidation
The consolidated financial statements include
the financial statements of the Company and its wholly owned subsidiary, Rasna Research Inc, and Rasna 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.
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. The Company evaluates its estimates on an ongoing basis, including those related to the fair values of share 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 Company’s consolidated
financial position and results 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
income per share includes potentially dilutive securities such as outstanding options, warrants and convertible loan notes, using
various methods such as the treasury stock, modified treasury stock, and if converted methods in the determination of dilutive shares
outstanding during each reporting period.
The shares issuable on the exercise of options
and warrants have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive.
| | |
June 30,
2022 | | |
June 30,
2021 | |
| Stock options | |
| 3,648,675 | | |
| 3,648,675 | |
| Warrants | |
| 1,926,501 | | |
| 1,926,501 | |
| Convertible notes and associated fees | |
| — | | |
| 81,877,887 | |
| Total shares issuable upon exercise or conversion | |
| 5,575,176 | | |
| 87,453,063 | |
Recent Accounting Pronouncements
In August
2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by
removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial
conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account
for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce
reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope
of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and treasury
stock method will be no longer available. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption
permitted no earlier than fiscal years beginning after December 15, 2020. The Company does not intend to early adopt and continues to
evaluate the impact of the provisions of ASU 2020-06 on its consolidated financial statements.
The Company
has determined that all other 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.
3. LIQUIDITY AND GOING CONCERN
The Company has no present revenue and has experienced
net losses and significant cash outflows from cash used in operating activities since inception.
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 and as of June 30, 2022, had an accumulated deficit of $24,161,543, a net loss for
the nine months ended June 30, 2022 of $627,064 and net cash used in operating activities of $122,139.
The Company expects to continue to incur net losses
and have significant cash outflows for at least the next 12 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 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 for a period of one year from the date of this filing. The accompanying condensed consolidated financial statements
have been prepared assuming that the Company will continue as a going concern one year from the date of this filing. 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.
4. SHARE-BASED COMPENSATION
For the three and nine months ended June 30, 2022
there have been no charges for share based compensation.
For the three and nine months ended June 30, 2021, $5,106 and
$41,094 related to share based compensation to directors and employees respectively, has been included within the general and administrative
expense category in the accompanying unaudited condensed consolidated interim financial statements.
5. CONVERTIBLE NOTES
The table below summarizes outstanding convertible notes as of
June 30, 2022 and June 30, 2021:
| Balance of non-related notes payable, net as of September 30, 2021 | |
$ | 371,997 | |
| Accrued Interest | |
| 9,153 | |
| Accretion of debt discount | |
| 358,118 | |
| Beneficial conversion feature related to issuance and extension of convertible notes | |
| (206,801 | ) |
| Derivative liabilities in connection with issuance and extension of convertible notes | |
| (28,017 | ) |
| Conversion of convertible notes | |
| (504,450 | ) |
| Balance of non-related notes payable, net as of June 30, 2022 | |
$ | — | |
| | |
| | |
| Balance of related party notes payable, net as of September 30, 2021 | |
$ | 230,287 | |
| Issuance of debt | |
| 160,000 | |
| Accrued Interest | |
| 27,792 | |
| Accretion of debt discount | |
| 512,303 | |
| Beneficial conversion feature related to issuance and extension of convertible notes | |
| (389,680 | ) |
| Derivative liabilities in connection with issuance and extension of convertible notes | |
| (46,505 | ) |
| Conversion of convertible notes | |
| (494,197 | ) |
| Balance of related notes payable, net as of June 30, 2022 | |
$ | — | |
| | |
| | |
| Balance of non-related notes payable, net as of September 30, 2020 | |
$ | 356,702 | |
| Principal value of Related Party Notes | |
| 100,000 | |
| Accrued Interest | |
| 32,194 | |
| Balance of non-related notes payable, net as of June 30, 2021 | |
$ | 488,896 | |
| | |
| | |
| Balance of related notes payable, net as of September 30, 2020 | |
$ | 90,262 | |
| Principal value of Related Party Notes | |
| 190,000 | |
| Accrued Interest | |
| 17,696 | |
| Beneficial conversion feature related to issuance of convertible notes | |
| (81,818 | ) |
| Balance of related notes payable, net as of June 30, 2021 | |
$ | 216,140 | |
On November 18, 2021, the Company entered
into an eleventh 12% Convertible Promissory Note with Panetta Partners Ltd. (the “Holder”) with a maturity date of December
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 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.
On November 29, 2021, the Company entered into
the twelfth 12% Convertible Promissory Note again with Panetta 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 eleventh note.
On February 8, 2022, the Company entered into
the thirteenth 16% Convertible Promissory Note again with Panetta 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.
On March 2, 2022, the Company entered into the
fourteenth 16% Convertible Promissory Note again with Panetta 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.
Amendment
On December 31, 2021, all previously outstanding
notes due December 31, 2021 were modified with amended expiry terms. The expiry of the notes was amended to December 31, 2023.
The Company determined that the extension of maturity
dates resulted in extinguishment for Notes carrying interest at 12%, while the Notes carrying interest at 1% resulted in modification.
The Company measured the present value of future
cash flows that existed just prior to the earliest restructuring in the twelve-month period, which was used to apply the 10% test, since
the earlier restructurings was accounted for as a modification. As the change in cash flows for all Notes carrying interest at 12% was
greater than 10%, the term amendment was accounted for as an extinguishment. Under extinguishment accounting, the debt was remeasured
and recorded at fair value. There was no difference between the carrying value of the debt, prior to the extinguishment, and the new fair
value of the debt.
The Notes carrying interest at 1% did not have
a change in cash flows greater than 10%, so these Notes were accounted for as a modification.
The Company also noted that the stock was thinly
traded with any trading activity resulting in a disproportionate effect on the stock price. Therefore, a Black Scholes valuation was deemed
to be inappropriate in this case.
On May 13, 2022, all outstanding notes with a
principal value of $828,500 and accrued interest of $170,147 were converted into 111,071,358 ordinary shares with a par value of $0.01.
Embedded Derivative Liability
Under the promissory note agreement, the interest
rate will reset upon the event of a default and an additional penalty of 6% will be accrued. The Company analyzed the conversion features
of the note agreement for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined the interest rate
resets met the definition of a derivative. It also noted that the Contingent Interest Rate feature required bifurcation from the host
note contract and was to be accounted for at fair value. In accordance with ASC 815-15, the Company bifurcated the Contingent Interest
Rate feature of the note and recorded a derivative liability.
The embedded derivatives for the notes are carried
on the Company’s balance sheet at fair value. During the three and nine months to June 30, 2021, the Company recognized an additional
$3,000 and $71,522 respectively due to the extension and issuance of the convertible notes. Additionally, the Company recognized a gain
of $73,569 and $112,538 for the three and nine months periods ended June 30, 2022, relating to the issuance and extension of convertible
notes and the release of the derivative liability due to the conversion of the notes.
Beneficial Conversion Feature
The conversion features for all notes issued are
in the money as of the issuance date and accordingly a beneficial conversion feature was recorded upon issuance. As the intrinsic value
of the beneficial conversion feature exceeds the face value, the recorded beneficial conversion feature was limited to the gross proceeds
less any debt discounts. Upon conversion of the notes, the beneficial conversion feature of $596,481 was fully amortized.
6.
NOTE PAYABLE
On May 15, 2022, the Company entered into a one-year
Directors and Officers Liability Insurance agreement for $89,242. Under the terms of the agreement, the Company made a down payment of
$10,210, with the remaining balance financed over the remaining term at an annual percentage rate of 7.328%. Beginning in May 2022, the
Company is making 8 monthly payments of $10,210, with the last payment expected to be made in December 2022. At June 30, 2022, the outstanding
balance on the note payable was $51,051. The interest expense for the three and nine months ending June 30, 2022 was $884.
7. RELATED PARTY TRANSACTIONS
The following is a summary of the related party
transactions for the periods presented.
Eurema Consulting
Eurema Consulting S.r.l. is a significant
shareholder of the Company. During the three and nine months ended June 30, 2022 and June 30, 2021 Eurema Consulting did
not supply the Company with consulting services.
In March 2022, the Company agreed to return back
to Eurema Consulting S.R.L all intellectual property rights and assignments relating to NPM1. In exchange for this, Eurema Consulting
S.R.L agreed to waive any payments due to them and their affiliates by Rasna, this amounted to a $200,000 gain on the settlement of the
related party payable. Rasna may be entitled to 20% of any future royalties and/or milestone payments upon successful completion of a
clinical Proof of Concept study under certain agreed upon circumstances.
As of June 30, 2022, and September 30,
2021, the balance due to Eurema Consulting S.r.l. was $0 and $200,000, respectively for past consultancy services.
Gabriele Cerrone
Gabriele Cerrone is the majority shareholder of
Panetta Partners, one of the Company’s principal shareholders. As of June 30, 2022, and September 30, 2021, the balance
due to Gabriele Cerrone was $175,000 for past consultancy services.
In March 2020, the Company entered into a 12%
Convertible Promissory Note with Gabriele Cerrone for $20,000 with an extended maturity date of December 31, 2023. In February
2021, Gabriele Cerrone assigned the Note to Panetta Partners Ltd. In November 2021, the Company entered into two 12% Convertible
Promissory Notes with Panetta Partners Ltd for the aggregate amount of $85,000. In February and March 2022, the Company entered into
a further two 16% Convertible Promissory Notes with Panetta Partners Ltd for the $30,000 and $45,000 respectively. All notes were converted
in May 2022.
Roberto Pellicciari and TES Pharma
Roberto Pellicciari is the majority shareholder
of TES Pharma Srl, one of the Company’s principal shareholders. During the three and nine months ended June 30, 2022 and June
30, 2021, Roberto Pellicciari did not supply the Company with consulting services.
In March 2022, the Company agreed to return back
to TES Pharma S.R.L all intellectual property rights and assignments relating to NPM1. In exchange for this, TES Pharma S.R.L agreed to
waive any payments due to them and their affiliates (which includes Roberto Pelliciari) by Rasna. this amounted to a $175,000 gain on
the settlement of the related party payable to Roberto Pellicciari and a $150,000 gain on the settlement of accounts payable to TES Pharma
and its affiliates. Rasna may be entitled to 20% of any future royalties and/or milestone payments upon successful completion of a clinical
Proof of Concept study under certain agreed upon circumstances.
As of June 30, 2022, and September 30, 2021, the
balance due to Roberto Pellicciari was $0 and $175,000 respectively, for past consultancy services. As of June 30, 2022 and September
30, 2021, TES Pharma was owed $0 and $75,000 respectively.
Tiziana Life Sciences Plc (“Tiziana”)
The Company is party to a Shared Services Agreement
with Tiziana, whereby the Company is charged for shared services and rent. Tiziana had previously agreed to waive all charges
for shared services from October 2018 onwards, until further notice since the amounts due for such services are de minimis. Notice
was given and recharges from October 1, 2020 were resumed. Keeren Shah, the Company’s Finance Director, is also Finance Director of Tiziana,
and the Company’s directors, Willy Simon and John Brancaccio are also non-executive directors of Tiziana.
As of June 30, 2022, $100,821 was due to Tiziana under
services charged under the shared services agreement. This is recorded as a related party payable in the accompanying condensed consolidated
balance sheets.
In March 2020, Tiziana extended a loan facility
to Rasna of $65,000. The loan is repayable within 18 months and is incurring an interest charge of 8% per annum. In April 2020, the
loan facility was extended by a further $7,000, so the loan facility totals $72,000. As of June 30, 2022, the amounts due to Tiziana under
this loan facility were $84,960 and the interest charged in the three and nine months to June 30, 2022, was $1,440 and $4,320 respectively.
Panetta Partners
Panetta Partners
Limited, a shareholder of Rasna, is a company in which Gabriele Cerrone is a major shareholder and also serves as a director.
The Company has entered into numerous 12% Convertible Promissory Notes with Panetta Partners for a total of $361,000. The amount
due for these notes upon conversion in May 2022 with respect to the principal and accrued interest was $494,383. As at September
30, 2021 $276,303 was due with respect to notes issued.
Apart from
the Convertible Promissory Notes, 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.
8. SUBSEQUENT EVENTS
In July 2022, the Company
entered into a promissory note with Panetta Partners Ltd for $165,000. The note carries an interest rate of 16% with a conversion
price of $0.001 and is due for repayment by December 31, 2024.