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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2023

or

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

For the transition period from              to

Commission File Number: 001-39683

REZOLUTE, INC.

(Exact Name of Registrant as Specified in its Charter)

Nevada

27-3440894

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

275 Shoreline Drive, Suite 500, Redwood City, California

94065

(Address of principal executive offices)

(Zip Code)

(650) 206-4507

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $0.001 per share

RZLT

Nasdaq Capital Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.).  Yes  No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, and an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer  

 

 

Non-accelerated filer  

Smaller reporting company 

 

 

 

Emerging growth company  

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 17(a)(2)(B) of the Securities Act. 

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

The registrant had 36,827,567 shares of its $0.001 par value common stock outstanding as of May 8, 2023.

Table of Contents

Table of Contents

Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Condensed Consolidated Balance Sheets – March 31, 2023 and June 30, 2022

3

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss – Three and Nine Months Ended March 31, 2023 and 2022

4

Unaudited Condensed Consolidated Statements of Shareholders’ Equity – Nine Months Ended March 31, 2023 and 2022

5

Unaudited Condensed Consolidated Statements of Cash Flows – Nine Months Ended March 31, 2023 and 2022

6

Notes to Unaudited Condensed Consolidated Financial Statements

8

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

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

32

Item 4. Controls and Procedures

32

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

33

Item 1A. Risk Factors

33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3. Defaults Upon Senior Securities

34

Item 4. Mine Safety Disclosures

35

Item 5. Other Information

35

Item 6. Exhibits

36

Signatures

37

i

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Report”) contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including, but not limited to “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment of the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “may,” “should,” “plan,” “project” and other words of similar meaning. In particular, these include, but are not limited to, statements relating to the following:

our projected operating or financial results, including anticipated cash flows used in operations;
our expectations regarding capital expenditures, research and development expenses and other payments;
our expectation about the extent and duration of the COVID-19 pandemic (“COVID-19”) on our business;
our beliefs and assumptions relating to our liquidity position, including our ability to obtain additional financing;
our ability to obtain regulatory approvals and the speed of such approvals, for our pharmaceutical drugs and diagnostics; and
our future dependence on third party manufacturers or strategic partners to manufacture any of our pharmaceutical drugs and diagnostics that receive regulatory approval, and our ability to identify strategic partners and enter into license, co-development, collaboration or similar arrangements.

Any or all of our forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known and unknown risks, uncertainties and other factors including, but not limited to, the risks described in Part II, Item 1.A Risk Factors, as well as “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (the “2022 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on September 15, 2022.

In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included elsewhere in this Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement can be guaranteed. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward-looking statements contained in this Report are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this Report, except as otherwise required by applicable law.

ii

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Rezolute, Inc.

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

    

March 31, 

June 30, 

    

2023

    

2022

Assets

Current assets:

 

  

  

Cash and cash equivalents

$

33,743

$

150,410

Investments in marketable debt securities

69,319

Prepaid expenses and other

2,464

1,694

Total current assets

 

105,526

 

152,104

Long-term assets:

Investments in marketable debt securities

26,210

Right-of-use assets

 

2,172

 

152

Property and equipment, net

 

149

 

16

Deposits and other

148

148

Total assets

$

134,205

$

152,420

Liabilities and Shareholders' Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

2,947

$

1,132

Accrued liabilities:

 

 

Accrued clinical and other

1,121

979

Insurance premiums

243

Current portion of operating lease liabilities

319

108

Total current liabilities

 

4,387

 

2,462

Long term liabilities:

Operating lease liabilities, net of current portion

 

2,055

 

80

Embedded derivative liabilities

447

407

Total liabilities

 

6,889

 

2,949

Commitments and contingencies (Notes 5, 9 and 10)

 

  

 

  

Shareholders' equity:

 

  

 

  

Preferred stock, $0.001 par value; 400 shares authorized; no shares issued and outstanding

 

 

Common stock, $0.001 par value; 100,000 shares authorized; issued and outstanding 36,827 and 33,582 shares as of March 31, 2023 and June 30, 2022, respectively

 

37

 

34

Additional paid-in capital

 

375,668

 

358,635

Accumulated other comprehensive loss

(132)

Accumulated deficit

 

(248,257)

 

(209,198)

Total shareholders’ equity

 

127,316

 

149,471

Total liabilities and shareholders’ equity

$

134,205

$

152,420

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

3

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Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

    

2023

    

2022

2023

    

2022

Operating expenses:

 

  

 

  

  

 

  

Research and development

 

$

14,231

 

$

8,686

$

32,880

$

23,912

General and administrative

 

2,911

 

2,068

8,872

 

6,632

Total operating expenses

 

17,142

 

10,754

41,752

 

30,544

Operating loss

 

(17,142)

 

(10,754)

(41,752)

 

(30,544)

Non-operating income (expense):

 

  

 

  

  

 

  

Interest and other income, net

1,484

2,733

13

Loss from change in fair value of derivative liabilities

(14)

(12)

(40)

(8)

Employee retention credit

231

Interest expense

 

 

(442)

 

(1,329)

Total non-operating income (expense), net

 

1,470

 

(454)

2,693

 

(1,093)

Net loss

$

(15,672)

$

(11,208)

$

(39,059)

$

(31,637)

Other comprehensive loss:

Net unrealized loss on available-for-sale marketable debt securities

(132)

(132)

Comprehensive loss

$

(15,804)

$

(11,208)

$

(39,191)

$

(31,637)

Net loss per common share:

Basic and diluted

$

(0.30)

$

(0.65)

$

(0.76)

$

(2.30)

Weighted average number of common shares outstanding:

 

 

Basic and diluted

51,409

17,218

51,113

 

13,748

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

4

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Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Shareholders’ Equity

Nine Months Ended March 31, 2023 and 2022

(In thousands)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Shareholders'

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Nine Months Ended March 31, 2023:

Balances, June 30, 2022

 

33,582

$

34

$

358,635

$

$

(209,198)

$

149,471

Gross proceeds from issuance of common stock for cash in 2022 Private Placement

3,245

3

12,327

12,330

Underwriting commissions and other equity offering costs

(759)

(759)

Share-based compensation

5,465

5,465

Net change in accumulated other comprehensive loss

(132)

(132)

Net loss

 

 

 

 

 

(39,059)

 

(39,059)

Balances, March 31, 2023

36,827

$

37

$

375,668

$

(132)

$

(248,257)

$

127,316

Nine Months Ended March 31, 2022:

Balances, June 30, 2021

8,352

$

8

$

194,229

$

$

(168,138)

$

26,099

Gross proceeds from issuance of equity securities for cash in Underwritten Public Offering:

Common stock

6,147

6

39,950

39,956

Pre-Funded warrants

10,783

10,783

Gross proceeds from issuance of common stock for cash:

In Registered Direct Offering

769

1

4,999

5,000

Under Equity Distribution Agreement

138

1

1,518

1,519

Under LPC Purchase Agreement

116

1,172

1,172

Underwriting discounts and other equity offering costs

(4,136)

(4,136)

Share-based compensation

2,701

2,701

Issuance of commitment shares

34

450

450

Net loss

(31,637)

(31,637)

Balances, March 31, 2022

 

15,556

$

16

$

251,666

$

$

(199,775)

$

51,907

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

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Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

    

Nine Months Ended

March 31, 

    

2023

    

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net loss

$

(39,059)

$

(31,637)

Share-based compensation expense

5,465

2,701

Non-cash lease expense

233

221

Accretion of discounts and amortization of premiums on marketable debt securities, net

(708)

Loss from change in fair value of derivative liabilities

40

8

Depreciation and amortization expense

21

10

Accretion of debt discount and issuance costs

319

Changes in operating assets and liabilities:

 

  

 

  

Decrease (increase) in prepaid expenses and other assets

 

(770)

 

17

Increase in accounts payable

 

1,815

 

548

Increase (decrease) in accrued liabilities

(168)

307

Net Cash Used in Operating Activities

 

(33,131)

 

(27,506)

CASH FLOWS FROM INVESTING ACTIVITIES

 

Purchase of marketable debt securities

(94,954)

Purchase of property and equipment

(153)

 

Total Cash Used in Investing Activities

 

(95,107)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

  

Gross proceeds from issuance of equity securities for cash:

2022 Private Placement

12,330

Proceeds from 2021 Underwritten Public Offering

50,738

Proceeds from 2021 Registered Direct Offering

5,000

Under Equity Distribution Agreement

1,519

Under LPC Purchase Agreement

1,171

Payment of commissions and other offering costs

 

(759)

(3,449)

Payment of debt discount and issuance costs

 

 

(104)

Net Cash Provided by Financing Activities

 

11,571

 

54,875

Net increase (decrease) in cash, cash equivalents and restricted cash

(116,667)

27,369

Cash, cash equivalents and restricted cash at beginning of period

 

150,410

 

41,047

Cash, cash equivalents and restricted cash at end of period

$

33,743

$

68,416

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

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Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows, Continued

(In thousands)

Nine Months Ended

March 31, 

2023

    

2022

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Cash and cash equivalents, end of period

$

33,743

$

63,416

Restricted cash, end of period

5,000

Total cash, cash equivalents and restricted cash, end of period

$

33,743

$

68,416

SUPPLEMENTARY CASH FLOW INFORMATION:

 

  

 

  

Cash paid for interest

$

$

1,011

Cash paid for income taxes

Cash paid for amounts included in the measurement of operating lease liabilities

87

254

Operating lease liabilities incurred in exchange for right-of-use assets

2,204

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

  

 

  

Issuance of commitment shares for deferred offering costs subsequently charged to additional paid-in capital

$

$

450

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

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Rezolute, Inc. (the “Company”) is a clinical stage biopharmaceutical business developing transformative therapies for metabolic diseases related to chronic glucose imbalance. The Company’s primary clinical assets consist of (i) RZ358, which is a potential treatment for congenital hyperinsulinism, an ultra-rare pediatric genetic disorder characterized by excessive production of insulin by the pancreas, and (ii) RZ402, which is an oral plasma kallikrein inhibitor (“PKI”) being developed as a potential therapy for the chronic treatment of diabetic macular edema.

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the rules and regulations of the SEC for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X.

The condensed consolidated balance sheet as of June 30, 2022, has been derived from the Company’s audited consolidated financial statements. The unaudited interim financial statements should be read in conjunction with the Company’s 2022 Form 10-K, which contains the Company’s audited financial statements and notes thereto, together with the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended June 30, 2022.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all information and footnote disclosures necessary for a comprehensive presentation of financial position, results of operations, and cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) that are necessary for a fair financial statement presentation have been made. The interim results for the three and nine months ended March 31, 2023 are not necessarily indicative of the financial condition and results of operations that may be expected for any future interim period or for the fiscal year ending June 30, 2023.

Consolidation

The Company has two wholly owned subsidiaries consisting of Rezolute (Bio) Ireland Limited, and Rezolute Bio UK, Ltd. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the unaudited condensed consolidated financial statements and the accompanying notes. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. The Company’s significant accounting estimates include, but are not necessarily limited to, determination if other than temporary impairment exists for marketable debt securities, the fair value of derivative liabilities, fair value of share-based payments, management’s assessment of going concern, and clinical trial accrued liabilities. Actual results could differ from those estimates.

Risks and Uncertainties

The Company’s operations may be subject to significant risks and uncertainties including financial, operational, regulatory and other risks associated with a clinical stage business, including the potential risk of business failure, and the future impact of COVID-19.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies from those described in Note 1 to the financial statements in Item 8 of the 2022 Form 10-K other than the policy described below.

Investments in Marketable Debt Securities

    

Under the investment policy approved by the Company’s Board of Directors, eligible investments in fixed income debt securities must be denominated and payable in U.S. dollars, including eligible corporate bonds, corporate commercial paper, U.S. government obligations, and money market funds. This investment policy only permits investments in the debt securities of issuers that meet stringent credit quality ratings on the date of the investment. The investment policy also places restrictions on the length of maturities and concentrations by type and issuer. The Company’s cash and investments are held or issued by financial institutions that management believes are of high credit quality. However, they are exposed to credit risk in the event of default by the third parties that hold or issue such assets. The Company classifies investments in marketable debt securities that mature in less than one year as short-term assets. For investments that mature in more than one year, the investments are classified as long-term assets unless management intends to liquidate the investments to fund current operations before the scheduled maturity dates.

The Company accounts for its investments in marketable debt securities as available-for-sale securities whereby they are recorded in the unaudited condensed consolidated balance sheet at fair value. Interest income is recognized in the unaudited condensed consolidated statement of operations, consisting of accrued interest earned based on the coupon rate of the security, plus the impact of accreting discounts and amortizing premiums to maturity using the straight-line method which approximates the interest method. Unrealized gains and losses due to subsequent changes in fair value of the investments are reported in shareholders’ equity as a component of accumulated other comprehensive income (loss). The Company reviews the components of its portfolio of available-for-sale debt securities, using both quantitative and qualitative factors, to determine if declines in fair value below amortized cost have resulted from a credit-related loss or other factors. If declines in fair value are due to a deterioration of credit quality of the issuer, the Company recognizes (i) a loss in other comprehensive income (loss) if the reduction in fair value is considered temporary, or (ii) a loss in the consolidated statement of operations if the reduction in fair value is considered other than temporary. For a decline in fair value that is solely due to changes in interest rates, impairment is not recognized if the Company has the ability and intent to hold the investment until maturity. The cost basis of any securities sold prior to maturity will be determined using the specific identification method. 

Recent Accounting Pronouncements

Recently Adopted Standard.  The following standard was adopted during the nine months ended March 31, 2023:

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, which results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Additionally, ASU 2020-06 affects the diluted earnings per share calculation for instruments that may be settled in cash or shares and for convertible instruments and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. ASU 2020-06 allows entities to use a modified or full retrospective transition method. The Company adopted this standard using the full retrospective transition method effective July 1, 2022. The adoption did not have any impact on the Company’s consolidated financial statements.

Standard Required to be Adopted in Future Periods. The following accounting standard is not yet effective; management has not completed its evaluation to determine the impact that adoption of this standard will have on the Company’s consolidated financial statements.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This update adds an impairment model (known as the current expected credit losses model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses. In November 2019, ASU 2016-13 was amended by ASU 2019-10, Financial Instruments- Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) whereby the effective date for ASU 2016-13 for smaller reporting companies is now required for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not expect the adoption of ASU 2016-13 will have a material impact on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not currently expected to have a material impact on the Company’s financial statements upon adoption.

NOTE 2 — LIQUIDITY

As a clinical stage business, the Company has not yet generated any revenues and had an accumulated deficit of $248.3 million as of March 31, 2023. For the nine months ended March 31, 2023, the Company incurred a net loss of $39.1 million and net cash used in operating activities amounted to $33.1 million. For the fiscal year ended June 30, 2022, the Company incurred a net loss of $41.1 million and net cash used in operating activities amounted to $39.6 million.  As of March 31, 2023, the Company’s capital resources consist of cash and cash equivalents of $33.7 million, short-term investments in marketable debt securities of $69.3 million and long-term investments in marketable debt securities of $26.2 million.

As of March 31, 2023, the Company has total liabilities of $6.9 million, including current liabilities of $4.4 million. As discussed in Note 5, the Company is subject to license agreements that provide for future contractual payments upon achievement of various milestone events. Pursuant to the ActiveSite License Agreement (as defined below), a $3.0 million milestone payment was paid in February 2023 upon dosing of the first patient in a Phase 2 clinical trial for RZ402.  Pursuant to the XOMA License Agreement (as defined below), a $5.0 million milestone payment will be due upon dosing of the first patient in a Phase 3 clinical trial for RZ358.  First patient dosing milestone RZ358 Phase 3 clinical trial is expected to occur within the next 12 months.

Management believes the Company’s existing cash and cash equivalents and investments in marketable debt securities will be adequate to meet the Company’s contractual obligations and carry out ongoing clinical trials and other planned activities at least through May 2024.

On March 10, 2023, Silicon Valley Bank (“SVB”) was shut down, followed on March 11, 2023 by Signature Bank and on May 1, 2023 by First Republic Bank whereby the Federal Deposit Insurance Corporation was appointed as receiver for each of those banks. Starting in January 2023, SVB Asset Management (“SAM”), a nonbank affiliate of SVB and a member of SVB Financial Group, provided investment services relating to the Company’s investment in marketable debt securities held in a segregated custodial account held by a third-party custodian, U.S. Bank. At the time of the closing of SVB, the Company had approximately $20.5 million in cash and certain cash equivalents in an Overnight Money Market Mutual Fund (“MMF”), for which SAM was the investment advisor of until April 13, 2023, when the MMF was liquidated and transferred to a similar investment under the control of a new investment advisor. The Company’s investment portfolio did not and currently does not contain any securities of SVB, and the Company did not have any deposit accounts with SVB. The Company does not believe it was or will be impacted by the closure of SVB and will continue to monitor the banking industry situation as it evolves.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 3 —INVESTMENTS IN MARKETABLE DEBT SECURITIES

Investments in marketable debt securities, including cash and cash equivalents, are as follows (in thousands):

Estimated Fair Value at

March 31, 

June 30, 

2023

    

2022

Cash and cash equivalents

$

33,743

$

150,410

Short-term investments in marketable debt securities

69,319

Long-term investments in marketable debt securities

26,210

Total cash, cash equivalents and investments in marketable debt securities

$

129,272

$

150,410

The Company only invests in liquid, high quality debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, the Company generally invests in securities with expected maturities of two years or less and maintains a weighted average maturity of one year or less. As of March 31, 2023 investments in marketable debt securities with a fair value of $69.3 million are scheduled to mature during the 12-month period ending March 31, 2024 and substantially all of the remaining investments, which have a fair value of $26.2 million, are scheduled to mature during the 12 month period ending March 31, 2025.

During the nine months ended March 31, 2023 and 2022, we sold no available-for-sale securities.

Accrued interest receivable on all marketable debt securities amounted to $0.3 million which is included in other current assets in the accompanying condensed consolidated balance sheet as of March 31, 2023.  We did not have any accrued interest receivable as of June 30, 2022.

The following table summarizes the unrealized gains and losses that result in differences between the amortized cost basis and fair value of the Company’s cash, cash equivalents and marketable debt securities held as of March 31, 2023 and June 30, 2022 (in thousands):

March 31, 2023

June 30,

Gross Unrealized

2022

Amortized Cost

    

Gains

    

Losses

    

Fair Value

Fair Value

Corporate commercial paper

$

38,416

$

2

$

(37)

$

38,381

$

Obligations of U.S. government agencies

24,379

23

(1)

24,401

U.S. Treasury obligations

5,941

1

5,942

Corporate notes and bonds

22,150

4

(122)

22,032

Asset-backed securities

4,775

(2)

4,773

Available-for-sale investments

$

95,661

$

30

$

(162)

$

95,529

$

Money market funds

20,497

Cash

13,246

150,410

Total cash, cash equivalents and investments in marketable debt securities

$

129,272

$

150,410

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 4 — OPERATING LEASES

In April 2022, the Company entered into a lease agreement for a new corporate headquarters in Redwood City, California.  The space consists of approximately 9,300 square feet and provides for total base rent payments of approximately $2.9 million through the expected expiration of the lease in November 2027. The landlord was required to make improvements to the facility before the Company could occupy the space. These improvements were completed in October 2022, triggering the commencement of the lease. The lease provided for a six-month rent abatement period beginning upon commencement of the lease term. In addition, the lease provided an allowance of approximately $0.1 million that may be utilized by the Company for the purchase of furniture and equipment. The average base rent payable in cash over the 60-month lease term is approximately $48,000 per month. Upon commencement of the lease, the Company recognized a right-of-use asset for approximately $2.3 million, and a related operating lease liability for approximately $2.2 million.

The carrying values of all of the Company’s right-of-use assets and operating lease liabilities are as follows (in thousands):

March 31, 

June 30, 

    

2023

    

2022

Right-of-use assets

$

2,172

$

152

Operating lease liabilities:

 

  

 

  

Current

$

319

$

108

Long-term

 

2,055

 

80

Total

$

2,374

$

188

For the three and nine months ended March 31, 2023 and 2022, operating lease expense is included under the following captions in the accompanying condensed consolidated statements of operations and comprehensive loss (in thousands):

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

    

2023

    

2022

2023

    

2022

Research and development

$

139

$

66

$

331

$

216

General and administrative

 

34

 

32

 

105

 

75

Total

$

173

$

98

$

436

$

291

As of March 31, 2023, the weighted average remaining lease term under operating leases was 4.4 years, and the weighted average discount rate for operating lease liabilities was 6.8%. Future cash payments under all operating lease agreements as of March 31, 2023 are as follows (in thousands):

Fiscal year ending June 30, 

    

  

Remainder of fiscal year 2023

$

80

2024

689

2025

627

2026

646

2027

666

Thereafter

224

Total lease payments

2,932

Less imputed interest

 

(558)

Present value of operating lease liabilities

$

2,374

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 5 — LICENSE AGREEMENTS

XOMA License Agreement

In December 2017, the Company entered into a license agreement (the “XOMA License Agreement”) with XOMA Corporation (“XOMA”), through its wholly-owned subsidiary, XOMA (US) LLC, pursuant to which XOMA granted an exclusive global license to the Company to develop and commercialize XOMA 358 (formerly X358, now RZ358) for all indications. In January 2019, the XOMA License Agreement was amended with an updated payment schedule, as well as revising the amount the Company was required to expend on development of RZ358 and related licensed products, and revised provisions with respect to the Company’s diligence efforts in conducting clinical studies.

In January 2022, the Company was required to make a milestone payment under the XOMA License Agreement of $2.0 million that became due upon the dosing of the last patient in the Company’s Phase 2b Clinical Trial for RZ358.  Upon the achievement of certain clinical and regulatory events under the XOMA License Agreement, the Company will be required to make additional milestone payments to XOMA up to $35.0 million.  After the clinical and regulatory milestones, the Company will be required, upon the future commercialization of RZ358, to pay royalties to XOMA based on the net sales of the related products and additional milestone payments to XOMA up to $185.0 million related to annual net sales amounts. The next milestone payment of $5.0 million will be due upon dosing of the first patient in a Phase 3 clinical trial for RZ358.

ActiveSite License Agreement

On August 4, 2017, the Company entered into a Development and License Agreement (the “ActiveSite License Agreement”) with ActiveSite Pharmaceuticals, Inc. (“ActiveSite”) pursuant to which the Company acquired the rights to ActiveSite’s Plasma Kallikrein Inhibitor program (“PKI Portfolio”). The Company is initially using the PKI Portfolio to develop an oral PKI therapeutic for diabetic macular edema (RZ402) and may use the PKI Portfolio to develop other therapeutics for different indications. The ActiveSite License Agreement requires various milestone payments up to $46.5 million, if all milestones are achieved. The first milestone payment for $1.0 million was paid in December 2020 after clearance was received for an Initial Drug Application, or IND, filed with the U.S. Food and Drug Administration (“FDA”). The second milestone payment of $3.0 million was paid in February 2023 after dosing of the first patient in a Phase 2 clinical trial for RZ402. The next milestone payment of $5.0 million will be due upon the first dosing of a patient in a Phase 3 clinical trial. The Company is also required to pay royalties equal to 2.0% of any sales of products that use the PKI Portfolio. There have been no events that would result in any royalty payments owed under the ActiveSite License Agreement to date.

NOTE 6 — EMBEDDED DERIVATIVE LIABILITY

On April 14, 2021, the Company entered into a $30.0 million Loan and Security Agreement (the “Loan Agreement”) with SLR Investment Corp. and certain other lenders (the “Lenders”). The Lenders agreed to loan up to $30.0 million in three tranches consisting of (i) a $15.0 million term A loan that was funded on April 14, 2021, (ii) term B and term C loans for an aggregate of $15.0 million, which were subject to the Company’s ability to obtain prescribed amounts of financing and the achievement of certain clinical milestones. The Company did not achieve the initial clinical milestones by January 2022 and, accordingly, the term B and term C loans were no longer a source of liquidity. The term A loan had a maturity date of April 1, 2026 (the “Maturity Date”) but was repaid in full on June 30, 2022.

Concurrently with the execution of the Loan Agreement, the Company entered into an exit fee agreement (the “Exit Fee Agreement”) that provides for a fee of 4.00% of the funded principal balance of each term loan in the event certain transactions (defined as “Exit Events”) occur prior to April 13, 2031. Exit Events include, but are not limited to, sales of substantially all assets, certain mergers, change of control transactions, and issuances of common stock that result in new investors owning more than 35% of the Company’s

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

shares. As of April 14, 2021, the Company allocated a portion of the proceeds from the term A loan to recognize a liability for the fair value of embedded derivatives. Fair value was determined primarily based on the Company’s strategic corporate development plans.  Management has performed a detailed evaluation of the different types of Exit Events that could occur and has determine fair value using a discounted rate equivalent to the effective rate for the term A loan of 12.6%. Fair value of embedded derivatives is reassessed at the end of each reporting period with changes in fair value recognized as a nonoperating gain or loss.  

NOTE 7 — SHAREHOLDERS’ EQUITY

Quarterly Changes in Shareholders’ Equity

The following table presents changes in shareholders’ equity for the three months ended March 31, 2023 and 2022:

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Shareholders'

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Three Months Ended March 31, 2023:

Balances, December 31, 2022

 

36,827

$

37

$

373,813

$

$

(232,585)

$

141,265

Share-based compensation

1,855

1,855

Net change in accumulated other comprehensive loss

(132)

(132)

Net loss

 

 

 

 

 

(15,672)

 

(15,672)

Balances, March 31, 2023

36,827

$

37

$

375,668

$

(132)

$

(248,257)

$

127,316

Three Months Ended March 31, 2022:

Balances, December 31, 2021

15,556

$

16

$

250,816

$

$

(188,567)

$

62,265

Share-based compensation

850

850

Net loss

(11,208)

(11,208)

Balances, March 31, 2022

 

15,556

$

16

$

251,666

$

$

(199,775)

$

51,907

July 2022 Financing

In May 2022, the Company entered into securities purchase agreements (“SPAs”) with Handok, Inc. (“Handok”) and certain of its affiliates.  Handok is an affiliate of a member of the Company’s Board of Directors. In July 2022, the Company entered into amended SPAs for a private placement of common stock (the “2022 Private Placement”).   The 2022 Private Placement resulted in gross proceeds of $12.3 million in exchange for the issuance of approximately 3.2 million shares of common stock. The Company incurred approximately $0.8 million for underwriting commissions and other offering costs, resulting in net proceeds of $11.5 million.

Underwritten Public Offering

On October 12, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer & Co., Inc., as representative of the underwriters listed therein (the “Underwriters”) for the planned issuance and sale of equity securities in an underwritten public offering (the “Underwritten Offering”). On October 15, 2021, closing occurred for the Underwritten Offering resulting in the issuance of (i) 6,030,847 shares of common stock at $6.50 per share for gross proceeds of $39.2 million, and (ii) 1,661,461 pre-funded warrants to purchase 1,661,461 shares of common stock at an issuance price of $6.49 per warrant (the “Pre-Funded Warrants”) for gross proceeds of $10.8 million. The aggregate gross proceeds from the Underwritten Offering amounted to $50.0 million, excluding the exercise of the Underwriters’ Option discussed below, and before deductions for underwriting discounts

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

and commissions of 6.0% of the gross proceeds and other offering costs of approximately $0.3 million. After deducting total offering costs of $3.3 million, the net proceeds of the Underwritten Offering amounted to approximately $46.7 million.

In connection with the Underwritten Offering, the Company granted the Underwriters a 30-day option to purchase up to an additional 1,153,845 shares of its common stock in the Underwritten Offering at a public offering price of $6.50 per share, less underwriting discounts and commissions (the “Underwriters’ Option”). In November 2021, the Underwriters’ Option was partially exercised for 116,266 shares resulting in additional gross proceeds of approximately $0.8 million.

Pre-Funded Warrants

The Pre-Funded Warrants issued in the Underwritten Offering have an exercise price of $0.01 per share, which is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. Each Pre-Funded Warrant is exercisable at any time and from time to time after issuance with no stated expiration date. In the event of certain corporate transactions, the holders of the Pre-Funded Warrants will be entitled to receive, upon exercise of the Pre-Funded Warrants, the kind and amount of securities, cash or other property that the holders would have received had they exercised the Pre-Funded Warrants immediately prior to such transaction. The Pre-Funded Warrants do not entitle the holders thereof to any voting rights or any of the other rights or privileges to which holders of the Company’s common stock are entitled.

The gross proceeds of $10.8 million received from issuance of the Pre-Funded Warrants was recorded as a component of shareholders’ equity within additional paid-in capital. In accordance with the terms of the warrant agreement, holders of the outstanding warrants are not entitled to exercise any portion of the Pre-Funded Warrant if, upon exercise of such portion of the warrant, the holder’s aggregate ownership of the Company’s common stock or the combined voting power beneficially owned by such holder would exceed a designated percentage elected by the holder ranging from 4.99% to 19.99%, after giving effect to the exercise (the “Maximum Ownership Percentage”). Upon at least 61 days’ prior notice to the Company, any warrant holder may elect to increase or decrease the Maximum Ownership Percentage to any other percentage not to exceed 19.99%. As of March 31, 2023, no shares underlying the Pre-Funded Warrants have been exercised.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Registered Direct Offering

Concurrently with the Underwritten Offering, a major shareholder (the “Purchaser”) that is affiliated with a member of the Company’s Board of Directors entered into a subscription agreement for a registered direct offering, pursuant to which the Company agreed to sell to the Purchaser an aggregate of 769,231 shares of the Company’s common stock at a purchase price of $6.50 per share. The closing for the registered direct offering occurred on October 27, 2021, whereby the Company received gross proceeds of $5.0 million.

Equity Distribution Agreement

In December 2020, the Company and Oppenheimer & Co. Inc. (the “Agent”) entered into an Equity Distribution Agreement (the “EDA”) that provides for an “at the market offering” for the sale of up to $50.0 million in shares of the Company’s common stock (the “Placement Shares”) through the Agent. The Agent was acting as sales agent and was required to use commercially reasonable efforts to sell all of the Placement Shares requested to be sold by the Company, consistent with the Agent’s normal trading and sales practices, on mutually agreed terms between the Agent and the Company. The EDA was scheduled to terminate when all of the Placement Shares had been sold, or earlier upon the election of either the Company or the Agent. In May 2022, the Company provided the Agent with notice of termination of the EDA and no further shares will be issued under this agreement.

Under the terms of the EDA, the Company agreed to pay the Agent a commission equal to 3.0% of the gross sales price of the Placement Shares plus certain expenses incurred by the Agent in connection with the offering. For the nine months ended March 31, 2022, the Company sold 138,388 shares of its common stock pursuant to the EDA for net proceeds of approximately $1.5 million.

LPC Purchase Agreement

In August 2021, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “RRA”) with Lincoln Park Capital Fund, LLC (“LPC”), which provides that the Company may sell to LPC up to an aggregate of $20.0 million shares (the “Purchase Shares”) of its common stock. The Company concurrently filed a prospectus supplement with the SEC to register the shares issuable under the Purchase Agreement. The aggregate number of shares that the Company could sell to LPC under the Purchase Agreement was 1,669,620 shares of common stock, subject to certain exceptions set forth in the Purchase Agreement.

LPC’s initial purchase consisted of 95,708 Purchase Shares at a purchase price of approximately $10.45 per share for a total purchase price of $1.0 million. Concurrently, the Company issued 33,799 shares of common stock to LPC as an initial fee for its commitment to purchase shares of common stock under the Purchase Agreement. Subject to the terms of the Purchase Agreement, the Company had the right, in its sole discretion, to present LPC with a purchase notice (a “Regular Purchase Notice”), directing LPC to purchase up to 25,000 Purchase Shares (a “Regular Purchase”). LPC’s committed obligation under any single Regular Purchase generally could not exceed $2.0 million. The Purchase Agreement provided for a purchase price per share for each Regular Purchase (the “Purchase Price”) equal to the lesser of (i) the lowest sale price of the common stock on the Nasdaq Capital Market (“NCM”) on the purchase date of such shares; and (ii) the average of the three lowest closing sale prices for the common stock traded on the NCM during the ten consecutive business days ending on the business day immediately preceding the purchase date of such shares.

On September 17, 2021, the Company submitted a Regular Purchase Notice, resulting in the sale of 20,000 Purchase Shares to LPC for net proceeds of approximately $0.2 million. In May 2022, the Company provided LPC with notice of termination of the Purchase Agreement whereby no further shares are issuable under this agreement.

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Table of Contents

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 8 — SHARE-BASED COMPENSATION AND WARRANTS

Stock Option Plans

Presented below is a summary of the number of shares authorized, outstanding, and available for future grants under each of the Company’s stock option plans as of March 31, 2023 (in thousands):

    

Plan Termination

    

Number of Shares

Description

    

Date

    

Authorized

    

Outstanding

    

Available

2015 Plan

 

February 2020

 

17

 

17

 

2016 Plan

 

October 2021

 

140

 

140

 

2019 Plan

 

July 2029

 

200

 

200

 

2021 Plan

March 2031

10,700

8,422

2,278

Total

 

  

 

11,057

 

8,779

 

2,278

2022 Employee Stock Purchase Plan

On June 16, 2022, the Company’s shareholders approved the adoption of the 2022 Employee Stock Purchase Plan (the “2022 ESPP”). The 2022 ESPP provides an opportunity for employees to purchase the Company’s common stock through accumulated payroll deductions.

The 2022 ESPP has consecutive offering periods that begin approximately every 6 months commencing on the first trading day on or after July 1 and terminating on the last trading day of the offering period ending on December 31 and commencing on the first trading day on or after January 1 and terminating on the last trading day of the offering period ending on June 30. The 2022 ESPP reserves 0.5 million shares for purchases. The first offering period concluded on December 31, 2022, and no purchases were made under the 2022 ESPP. As of March 31, 2023, no shares have been purchased under the 2022 ESPP.

Stock Options Outstanding

The following table sets forth a summary of the activity under all of the Company’s stock option plans for the nine months ended March 31, 2023 (shares in thousands):

    

Shares

    

Price (1)

    

Term (2)

Outstanding, June 30, 2022

 

8,506

$

5.24

9.7

Grants to employees

668

1.98

Expired

(116)

40.73

Forfeited

(279)

3.78

Outstanding, March 31, 2023

 

8,779

 

4.57

 

9.1

Vested, March 31, 2023

 

966

 

11.65

 

7.73

(1)Represents the weighted average exercise price.
(2)Represents the weighted average remaining contractual term for the number of years until the stock options expire.

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Table of Contents

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the nine months ended March 31, 2023, the aggregate fair value of stock options granted for approximately 0.7 million shares of common stock amounted to $1.0 million or approximately $1.51 per share as of the grant dates. Fair value was computed using the Black-Scholes-Merton (“BSM”) option-pricing model and will result in the recognition of compensation cost ratably over the expected vesting period of the stock options.

For the nine months ended March 31, 2023, the fair value of stock options was estimated on the respective dates of grant, with the following weighted-average assumptions:

Market price of common stock on grant date

$

1.98

Expected volatility

    

91

%

Risk free interest rate

 

3.7

%

Expected term (years)

 

6.0

Dividend yield

 

0

%

Share-based compensation expense for the three and nine months ended March 31, 2023 and 2022 is included under the following captions in the unaudited condensed consolidated statements of operations and comprehensive loss (in thousands):

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

2023

    

2022

2023

    

2022

Research and development

$

849

$

327

$

2,449

$

1,014

General and administrative

 

1,006

 

523

 

3,016

 

1,687

Total

$

1,855

$

850

$

5,465

$

2,701

Unrecognized share-based compensation expense is approximately $