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.

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 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 six months ended March 31, 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 Income/(loss) per Share

Basic net income/(loss) per share is computed by dividing net income/(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. Common stock equivalents are  included in the diluted income per share calculation only when exercise or conversion prices are lower than the average market price of the common shares for the periods presented. This does not apply to the diluted loss per share calculation.

Diluted loss per share does not include any common stock equivalents as their effects are anti-dilutive. 

The fully diluted earnings per share includes the shares issuable upon the conversion of the outstanding convertible loan notes for the three and six months to March 31, 2022.

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.  

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 generally experienced net losses and significant cash outflows from cash used in operating activities over the past two years, and as of March 31, 2021, had an accumulated deficit of $23,515,120, a net income for the six months March 31, 2022 of $19,359 and net cash used in operating activities of $142,770.

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 six months ended March 31, 2022 there have been no charges for share based compensation.

For the three and six months ended March 31, 2021, $17,796 and $35,988 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.

 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.

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 six months to March 31, 2021, the Company recognized an additional $3,000 and $71,520 respectively due to the extension and issuance of the convertible notes. Additionally, the Company recognized a gain of $10,114 and $38,969 for the three and six month periods ended March 31, 2022, relating to the issuance and extension of convertible 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 will be limited to the gross proceeds less any debt discounts. As at March 31, 2022 this amounted to $596,481 for the amended and new notes issued. 

6. 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 six months ended March 31, 2022 and March 31, 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 March 31, 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 March 31, 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.

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 six months ended March 31, 2022 and March 31, 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 March 31, 2022, and September 30, 2021, the balance due to Roberto Pellicciari was $0 and $175,000 respectively, for past consultancy services. At March 31, 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 March 31, 2022, $25,822 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 March 31, 2022, the amounts due to Tiziana under this loan facility were $83,520 and the interest charged in the three and six months to March 31, 2021, was $1,440 and $2,880 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 as at March 31, 2022, with respect to the principal and accrued interest is $462,842, net of debt discounts of $358,817 . 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. 

7. SUBSEQUENT EVENTS

On May 13, 2022, the Company received notice from all noteholders that all notes were to be converted into stock. The Company issued 111,071,358 of common stock on May 13, 2022 in respect of these conversions.