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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, 2024

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 40,135,147 shares of its $0.001 par value common stock outstanding as of May 13, 2024.

Table of Contents

Table of Contents

Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Condensed Consolidated Balance Sheets – as of March 31, 2024 and June 30, 2023

1

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss – Three and Nine Months Ended March 31, 2024 and 2023

2

Unaudited Condensed Consolidated Statements of Shareholders’ Equity – Nine Months Ended March 31, 2024 and 2023

3

Unaudited Condensed Consolidated Statements of Cash Flows – Nine Months Ended March 31, 2024 and 2023

4

Notes to Unaudited Condensed Consolidated Financial Statements

5

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

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk

32

Item 4. Controls and Procedures

32

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

34

Item 1A. Risk Factors

34

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

34

Item 3. Defaults Upon Senior Securities

34

Item 4. Mine Safety Disclosures

34

Item 5. Other Information

34

Item 6. Exhibits

35

Signatures

36

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 ability to obtain regulatory approvals or remove regulatory holds for clinical trials and our drug candidates;
expectations regarding clinical development and the timing of clinical trials in the United States and outside of the United States;
projected operating or financial results, including anticipated cash flows to be used in operating activities;
expectations regarding capital expenditures, research and development expenses and the timing of milestone payments required under license agreements;
our beliefs and assumptions relating to our liquidity position, including our ability to obtain additional financing; 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, “Risk Factors” described in (i) Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (the “2023 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on September 14, 2023 and (ii) in Part II, Item 1A of each of our Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30, 2023 and December 31, 2023 filed with the SEC on November 13, 2023 and February 13, 2024, respectively.

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

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, 

    

2024

    

2023

Assets

Current assets:

 

  

  

Cash and cash equivalents

$

5,930

$

16,036

Investments in marketable debt securities

74,092

85,860

Prepaid expenses and other

2,188

3,014

Total current assets

 

82,210

 

104,910

Long-term assets:

Investments in marketable debt securities

1,573

16,470

Right-of-use assets

 

2,006

 

2,054

Property and equipment, net

 

110

 

139

Deposits and other

1,838

148

Total assets

$

87,737

$

123,721

Liabilities and Shareholders' Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

3,499

$

3,269

Accrued liabilities:

 

 

Accrued clinical and other

2,027

507

Compensation and benefits

879

883

Current portion of operating lease liabilities

552

541

Total current liabilities

 

6,957

 

5,200

Long term liabilities:

Operating lease liabilities, net of current portion

 

1,819

 

1,937

Warrant derivative liability

7,647

Embedded derivative liability

453

412

Total liabilities

 

16,876

 

7,549

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 40,132 and 36,827 shares as of March 31, 2024 and June 30, 2023, respectively

 

40

 

37

Additional paid-in capital

 

377,367

 

377,471

Accumulated other comprehensive loss

(78)

(351)

Accumulated deficit

 

(306,468)

 

(260,985)

Total shareholders’ equity

 

70,861

 

116,172

Total liabilities and shareholders’ equity

$

87,737

$

123,721

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

1

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, 

    

2024

    

2023

2024

    

2023

Operating expenses:

 

  

 

  

  

 

  

Research and development

 

$

12,401

 

$

14,231

$

36,654

$

32,880

General and administrative

 

3,812

 

2,911

10,667

 

8,872

Total operating expenses

 

16,213

 

17,142

47,321

 

41,752

Operating loss

 

(16,213)

 

(17,142)

(47,321)

 

(41,752)

Non-operating income (expense):

 

  

 

  

  

 

  

Interest and other income, net

1,122

1,484

3,829

2,733

Loss from change in fair value of derivative liabilities

(1,959)

(14)

(1,991)

(40)

Total non-operating income (expense), net

 

(837)

 

1,470

1,838

 

2,693

Net loss

(17,050)

(15,672)

(45,483)

(39,059)

Other comprehensive income (loss):

Net unrealized gain (loss) on available-for-sale marketable debt securities

(30)

(132)

273

(132)

Comprehensive loss

$

(17,080)

$

(15,804)

$

(45,210)

$

(39,191)

Net loss per common share:

Basic and diluted

$

(0.34)

$

(0.30)

$

(0.89)

$

(0.76)

Weighted average number of common shares outstanding:

 

 

Basic and diluted

50,811

51,409

51,212

 

51,113

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

2

Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Shareholders’ Equity

Nine Months Ended March 31, 2024 and 2023

(In thousands)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Shareholders'

    

Shares

    

Amount

    

Capital

    

Loss

Deficit

    

Equity

Nine Months Ended March 31, 2024:

Balances, June 30, 2023

 

36,827

$

37

$

377,471

$

(351)

$

(260,985)

$

116,172

Issuance of common stock upon exercise of stock options

5

10

10

Share-based compensation

5,589

5,589

Exercise of pre-funded warrants

6,300

6

(6)

Acquisition and retirement of treasury shares pursuant to Exchange Agreement

(3,000)

(3)

(5,697)

(5,700)

Net change in accumulated other comprehensive loss

273

273

Net loss

(45,483)

(45,483)

Balances, March 31, 2024

40,132

$

40

$

377,367

$

(78)

$

(306,468)

$

70,861

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

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

3

Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

    

Nine Months Ended

March 31, 

    

2024

    

2023

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net loss

$

(45,483)

$

(39,059)

Share-based compensation expense

5,589

5,465

Non-cash lease expense

399

233

Loss from change in fair value of embedded derivative liability

41

40

Loss from change in fair value of warrant derivative liability

1,950

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

(2,100)

(708)

Depreciation and amortization expense

29

21

Changes in operating assets and liabilities:

 

  

 

  

Increase in prepaid expenses and other assets

 

(558)

 

(770)

Increase in accounts payable

 

230

 

1,815

Increase (decrease) in accrued liabilities

1,057

(168)

Net Cash Used in Operating Activities

 

(38,846)

 

(33,131)

CASH FLOWS FROM INVESTING ACTIVITIES

 

Purchase of marketable debt securities

(56,730)

(94,954)

Proceeds from maturities of marketable debt securities

85,766

Purchase of property and equipment

 

(153)

Total Cash Provided by (Used in) Investing Activities

 

29,036

 

(95,107)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

  

Net cash payment pursuant to Exchange Agreement

(3)

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

12,330

Payment of commissions and other deferred offering costs

 

(293)

(759)

Net Cash Provided by (Used in) Financing Activities

 

(296)

 

11,571

Net decrease in cash and cash equivalents

(10,106)

(116,667)

Cash and cash equivalents at beginning of period

 

16,036

 

150,410

Cash and cash equivalents at end of period

$

5,930

$

33,743

SUPPLEMENTARY CASH FLOW INFORMATION:

 

 

  

Cash paid for interest

$

$

Cash paid for income taxes

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

544

87

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

352

2,204

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

  

Acquisition of treasury shares in exchange for issuing pre-funded warrant liability

$

5,697

$

Receivable from exercise of stock options

$

10

$

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

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Table of Contents

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 all forms of hyperinsulinism, including 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, 2023, 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 2023 Form 10-K, which contains the Company’s audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended June 30, 2023.

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, 2024, 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, 2024.

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 an allowance for credit losses is required or if other than temporary impairment exists for marketable debt securities, the fair value of an embedded derivative liability, fair value of share-based payments, management’s assessment of going concern, and estimates related to 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, international conflicts and wars, pandemics and other risks associated with a clinical stage business.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1 to the financial statements in Item 8 of the 2023 Form 10-K. 

Recent Accounting Pronouncements

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 expected credit loss model, if declines in fair value below amortized costs are due to the deterioration of an issuer’s credit quality, the Company is required to record an allowance for credit losses related to such investments with a corresponding loss recognized in the consolidated statements of operations. Allowances for credit losses may be reversed in subsequent periods if conditions improve and credit-related losses are no longer expected. For declines in fair value that are 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. Effective as of July 1, 2023, the Company implemented the guidance in ASU 2016-13. The adoption of ASU 2016-13 did not have any impact on the accompanying unaudited condensed 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 $306.5 million as of March 31, 2024. For the nine months ended March 31, 2024, the Company incurred a net loss of $45.5 million and net cash used in operating activities amounted to $38.8 million. For the fiscal year ended June 30, 2023, the Company incurred a net loss of $51.8 million and net cash used in operating activities amounted to $44.5 million. As of March 31, 2024, the Company’s capital resources consist of cash and cash equivalents of $5.9 million, short-term investments in marketable debt securities of $74.1 million and long-term investments in marketable debt securities of $1.6 million.

As discussed in Note 7, in November 2023 the Company entered into an agreement for an “at-the-market” offering for the sale of up to $50.0 million in shares of common stock. The net proceeds from the “at-the-market” offering, if any, will be used to fund a portion of the Company’s liquidity requirements. However, even if the entire $50.0 million is obtained in the “at-the-market” offering, the Company will need to obtain additional equity or debt financing in order to fund all of its long-term capital requirements.

As of March 31, 2024, the Company has total liabilities of $16.9 million, including current liabilities of $7.0 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 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. An additional $5.0 million milestone payment will be due upon the dosing of the last patient in a Phase 3 clinical trial for RZ358, which 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 through May 2025, at a minimum.

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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, are accounted for as available-for-sale investments and consist of the following (in thousands):

March 31, 

June 30, 

2024

    

2023

Short-term investments

$

74,092

$

85,860

Long-term investments

1,573

16,470

Total investments

$

75,665

$

102,330

The Company’s investments in debt securities are subject to interest rate risk and credit risk that results in differences between the amortized cost basis and the fair value of investments. To minimize the exposure to reductions in fair value if long-term interest rates rise, 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, 2024, investments in marketable debt securities with an aggregate fair value of $74.1 million are scheduled to mature during the 12-month period ending March 31, 2025. Substantially all remaining investments, with an aggregate fair value of $1.6 million, are scheduled to mature during the 12-month period ending March 31, 2026.

During the nine months ended March 31, 2024, marketable debt securities for $85.8 million matured and approximately $56.7 million of the proceeds were reinvested in additional marketable debt securities. The Company did not sell any marketable debt securities prior to the scheduled maturity dates for the nine months ended March 31, 2024.

Accrued interest receivable on all marketable debt securities amounted to $0.5 million and $0.3 million as of March 31, 2024 and June 30, 2023, respectively. Accrued interest receivable is included in other current assets in the accompanying condensed consolidated balance sheets.

For the three and nine months ended March 31, 2024, the Company did not recognize any allowance for credit losses or other than temporary impairment related to investments in marketable debt securities. The following table summarizes the cumulative unrealized gains and losses that result in differences between the amortized cost basis and fair value of the Company’s marketable debt securities held as of March 31, 2024 (in thousands):

Gross Unrealized

Amortized Cost

    

Gains

    

Losses

    

Fair Value

Corporate commercial paper

$

22,573

$

1

$

(9)

$

22,565

Obligations of U.S. government agencies

11,324

(11)

11,313

U.S. Treasury obligations

1,001

(6)

995

Corporate notes and bonds

38,507

1

(69)

38,439

Asset-backed securities

2,338

16

(1)

2,353

Total

$

75,743

$

18

$

(96)

$

75,665

NOTE 4 — OPERATING LEASES

In October 2023, the Company entered into an addendum to the lease agreement for its office in Bend, Oregon. The addendum provided for a 36-month extension, which extends the lease through February 2027. The average base rent payable over the remaining lease term

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Table of Contents

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

is approximately $9,000. Upon execution of the addendum, the Company re-measured the Bend, Oregon operating lease liability at approximately $345,000 using a discount rate of 10.0%, and the related right-of-use asset was recognized for approximately $351,000.

The carrying values of all right-of-use assets and operating lease liabilities is as follows (in thousands):

March 31, 

June 30, 

    

2024

    

2023

Right-of-use assets

$

2,006

$

2,054

Operating lease liabilities:

 

  

 

  

Current

$

552

$

541

Long-term

 

1,819

 

1,937

Total

$

2,371

$

2,478

For the three and nine months ended March 31, 2024 and 2023, 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, 

    

2024

    

2023

2024

    

2023

Research and development

$

97

$

139

$

358

$

331

General and administrative

 

74

 

34

 

155

 

105

Total

$

171

$

173

$

513

$

436

As of March 31, 2024, the weighted average remaining lease term under operating leases was 3.5 years, and the weighted average discount rate for operating lease liabilities was 7.2%. Future cash payments under all operating lease agreements as of March 31, 2024 are as follows (in thousands):

Fiscal year ending June 30, 

    

  

Remainder of fiscal year 2024

$

184

2025

748

2026

770

2027

750

Thereafter

224

Total lease payments

2,676

Less imputed interest

 

(305)

Present value of operating lease liabilities

$

2,371

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.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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. There have been no events that would result in any royalty payments owed under the XOMA License Agreement to date.

ActiveSite License Agreement

In August 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 dosing of the first 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 (collectively, the “Lenders”). The Lenders agreed to loan up to $30.0 million but the actual amount borrowed by the Company amounted to $15.0 million. The maturity date of the outstanding borrowings was April 1, 2026 (the “Maturity Date”), but the Company elected to repay the entire amount and terminated the Loan Agreement 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 for a total of $0.6 million in the event certain transactions (defined as “Exit Events”) occur prior to April 13, 2031. The Exit Fee Agreement was not impacted by the termination of the Loan Agreement discussed above. The Company is accounting for the Exit Fee Agreement as an embedded derivative liability with an estimated fair value of $0.5 million and $0.4 million as of March 31, 2024 and June 30, 2023. 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 shares. Fair value of this embedded derivative liability is reassessed at the end of each reporting period with changes in fair value recognized as a non-operating gain or loss.  

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Table of Contents

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 7 — SHAREHOLDERS’ EQUITY

Changes in Shareholders’ Equity for the Three Months Ended March 31, 2024 and 2023

The following table presents changes in shareholders’ equity for the three months ended March 31, 2024 and 2023:

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Shareholders'

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Three Months Ended March 31, 2024:

Balances, December 31, 2023

 

39,625

$

40

$

381,154

$

(48)

$

(289,418)

$

91,728

Issuance of common stock upon exercise of stock options

5

10

10

Share-based compensation

1,903

1,903

Exercise of pre-funded warrants

3,502

3

(3)

Acquisition and retirement of treasury shares pursuant to Exchange Agreement

(3,000)

(3)

(5,697)

(5,700)

Net change in accumulated other comprehensive loss

(30)

(30)

Net loss

 

 

 

 

 

(17,050)

 

(17,050)

Balances, March 31, 2024

40,132

$

40

$

377,367

$

(78)

$

(306,468)

$

70,861

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

Exchange Agreement

On March 8, 2024 (the “Closing Date”), the Company entered into a securities exchange agreement (the “Exchange Agreement”) with certain of its stockholders (the “Exchanging Shareholders”), whereby the Company purchased 3,000,000 shares of common stock representing approximately 7% of outstanding shares with an aggregate fair value of $5,700,000 (the “Retired Shares”) from the Exchanging Shareholders. The Retired Shares were immediately cancelled whereby they will remain as authorized shares for future issuance in accordance with Nevada law. Consideration for the acquisition of the Retired Shares consisted of (i) a cash payment to the Exchanging Shareholders of $3,000, and (ii) the issuance of pre-funded warrants (the “Exchange PFWs”) to the Exchanging Shareholders with an estimated fair value of $5,697,000. The Exchange PFWs do not expire and are exercisable to purchase an aggregate of 3,000,000 shares, or approximately 7%, of the Company’s outstanding common stock (subject to adjustment in the event of stock splits, recapitalizations and other similar events) at an exercise price of $0.001 per share.

Unlike the Company’s shares of common stock, the holders of Exchange PFWs do not have voting rights except to the extent required by Nevada law. No later than six months after the Closing Date, the Company agreed to file a registration statement covering the resale of the shares issuable upon the exercise of the Exchange PFWs.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The Exchange PFWs are exercisable at any time, subject to the then effective ownership blocker percentage (the “OBP”) as elected by each of the Exchanging Shareholders. The OBP is a percentage designated by the holders whereby the Exchange PFWs cannot be exercised if, after giving effect thereto, the Exchanging Shareholders would beneficially own more than the designated OBP. The terms of the Exchange PFWs initially provide for an OBP of 9.99%. However, upon at least 61 days’ prior notice to the Company, any holder of Exchange PFWs may elect to increase or decrease the OBP to any other percentage not to exceed 19.99%. 

The Exchange PFWs required approval by the Company’s shareholders if the exercise of the Exchange PFWs resulted in aggregate beneficial ownership by the holders in excess of 19.99%.  Even though the Exchange PFWs only entitled the holders to purchase 7% of the Company’s outstanding shares of common stock, the requirement to obtain shareholder approval for ownership in excess of 19.99% resulted in the treatment of the exchange PFWs as a derivative liability of $5.7 million as of the issuance date.  The fair value of this derivative liability increased by $1,950,000 for a total of $7.6 million as of March 31, 2024.  The increase in fair value of $1,950,000 is included in non-operating loss in the accompanying unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2024. As discussed in Note 14, on May 13, 2024, the Exchange PFWs were amended to further support the equity classification, whereby the derivative liability will be reclassified to shareholders’ equity for the fiscal quarter ending June 30, 2024.   As a result of this amendment, there is no possibility that the Exchange PFWs will be settled with current assets whereby the liability is included in long-term liabilities as of March 31, 2024.  

Jefferies Open Market Sales Agreement

On November 14, 2023, the Company and Jefferies LLC (the “Agent) entered into an open market sales agreement (the “Sales Agreement”) 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 is acting as sales agent and is 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 Sales Agreement will terminate when all of the Placement Shares have been sold, or earlier upon the election of either the Company or the Agent.

The Company has no obligation to sell any of the Placement Shares under the Sales Agreement. The Company intends to use the net proceeds, if any, from amounts sold under the Sales Agreement for general corporate purposes, including working capital. Under the terms of the Sales Agreement, 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, 2024, the Company sold no shares of its common stock pursuant to the Sales Agreement. Accordingly, the maximum amount remaining for sale under the Sales Agreement amounts to $50.0 million as of March 31, 2024.

2022 PFW Exercises

As discussed in Note 8, certain holders of 2022 PFWs elected to exercise 4,773,684 shares for the nine months ended March 31, 2024.  The holders elected to exercise their 2022 PFWs on a cashless basis, that resulted in the issuance of 4,770,190 shares of common stock.

2021 PFW Exercise

As discussed in Note 8, certain holders of 2021 PFWs elected to exercise an aggregate of 1,538,461 shares for the nine months ended March 31, 2024.  The holders elected to exercise their 2021 PFWs on a cashless basis that resulted in the issuance of 1,529,890 shares of common stock.

2022 Private Placement

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

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

NOTE 8 — SHARE-BASED COMPENSATION AND WARRANTS

Inducement Grant

In connection with the hiring of the company’s Chief Financial Officer in January 2024, the Board of Directors granted a stock option exercisable for the purchase of 275,000 shares of the Company’s common stock at an exercise price of $1.02 per share. This stock option is considered an inducement grant (the “Inducement Grant”) pursuant to Nasdaq Listing Rule 5635(c)(4) whereby the underlying shares were not authorized under any of the Company’s stock option plans. The Inducement Grant is exercisable until January 2029 and vests for (i) one-fourth of the option shares on the one-year anniversary of the grant date, and (ii) one thirty-sixth of the remaining option shares shall vest on the same day of each month thereafter until the Inducement Grant is 100% vested. The fair value of the Inducement Grant of $0.2 million was computed using the Black-Scholes-Merton (“BSM”) option pricing model.

Stock Option Plans

Presented below is a summary of the number of shares outstanding, authorized, and available for future grants under the Company’s stock option plans and the Inducement Grant as of March 31, 2024 (in thousands):

    

Number of Shares

Description

    

Authorized

    

Outstanding

    

Available

2015 Plan

 

17

 

17

 

2016 Plan

 

123

 

123

 

2019 Plan

 

200

 

200

 

2021 Plan

10,695

10,293

402

Inducement Grant

275

275

Total

 

11,310

 

10,908

 

402

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. There have been no offering periods under the 2022 ESPP through March 31, 2024.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Stock Options Outstanding

For the nine months ended March 31, 2024, the following table sets forth a summary of the activity with respect to all outstanding options (shares in thousands):

    

Shares

    

Price (1)

    

Term (2)

Outstanding, June 30, 2023

 

8,745

$

4.56

8.8

Grants to employees

2,482

1.18

Exercises

(5)

1.92

Expired

(43)

9.49

Forfeited

(271)

2.66

Outstanding, March 31, 2024

 

10,908

(3)

 

3.82

 

8.3

Vested, March 31, 2024

 

4,374

(4)

 

5.59

 

7.7

(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.
(3)As of March 31, 2024, the intrinsic value of outstanding options was approximately $3.6 million.
(4)As of March 31, 2024, the aggregate intrinsic value of vested stock options was approximately $0.2 million.

For the nine months ended March 31, 2024, the aggregate fair value of stock options granted for approximately 2.5 million shares of common stock amounted to $2.3 million or approximately $0.92 per share as of the grant dates. Fair value was computed using the 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, 2024, 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

$

1.18

Expected volatility

    

99

%

Risk free interest rate

 

4.1

%

Expected term (years)

 

5.6

Dividend yield

 

0

%

Share-based compensation expense for the three and nine months ended March 31, 2024 and 2023 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, 

    

2024

    

2023

2024

    

2023

Research and development

$

863

$

849

$

2,544

$

2,449

General and administrative

 

1,040

 

1,006

 

3,045

 

3,016

Total

$

1,903

$

1,855

$

5,589

$

5,465

Unrecognized share-based compensation expense is approximately $13.0 million as of March 31, 2024. This amount is expected to be recognized over a weighted average period of 2.4 years.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Pre-Funded Warrants

In connection with an underwritten offering in October 2021, the Company issued 1,661,461 pre-funded warrants (“PFWs”) to purchase 1,661,461 shares of common stock at an issuance price of $6.49 per warrant for gross proceeds of $10.8 million (the “2021 PFWs”). The 2021 PFWs may be exercised at any time by paying the exercise price of $0.01 per share, subject to certain ownership restrictions.  On March 7, 2024, a holder of 2021 PFWs provided notice of cashless exercise of their 1,538,461 2021 PFWs, resulting in the issuance of 1,529,890 shares of common stock on March 11, 2024. No cash proceeds were received by the Company as a result of this exercise.

As of March 31, 2024, there are 123,000 of the 2021 PFWs which may be exercised at any time by paying the exercise price of $0.01 per share, subject to certain ownership restrictions.

In connection with a registered direct offering in May 2022, the Company issued 1,973,684 Class A PFWs and 10,947,371 Class B PFWs to purchase an aggregate of 12,921,055 shares of common stock at an issuance price of $3.799 per warrant (collectively, the “2022 PFWs”). On October 4, 2023, a holder of Class B PFW’s provided notice of cashless exercise of their 2,800,000 Class B PFW’s, resulting in the issuance of 2,797,404 shares of common stock on October 6, 2023. Subsequently, on March 1, 2024, another investor provided notice of cashless exercise of 1,973,684 Class A PFW’s, resulting in the issuance of 1,972,486 shares of common stock on March 5, 2024. No cash proceeds were received by the Company as a result of either of these exercises.  

As of March 31, 2024, there are 8,147,371 of the 2022 PFWs which may be exercised at any time by paying the exercise price of $0.001 per share, subject to certain ownership restrictions.

As discussed in Note 7, the Company issued 3,000,000 Exchange PWFs on March 8, 2024. As of March 31, 2024, all Exchange PFWs remain outstanding and may be exercised at any time by paying the exercise price of $0.001 per share, subject to certain ownership restrictions.

Other Warrants

In connection with an equity financing in October 2020, the Company issued warrants entitling the holders to purchase approximately 0.8 million shares of common stock. The warrants are exercisable at $19.50 per share for a period of seven years, may be exercised on a cash or cashless basis at the election of the holders, and the holders are entitled to share in any dividends or distributions payable to holders of common stock on an as-converted basis. In addition, the Company has issued warrants in conjunction with various debt and equity financings and for services. As of March 31, 2024, all of the warrants were vested. These warrants are collectively referred to as the “Other Warrants.”

For the nine months ended March 31, 2024, no Other Warrants were granted or exercised. The following table sets forth a summary of all Other Warrants for the nine months ended March 31, 2024 (shares in thousands):

    

Shares

    

Price (1)

    

Term (2)

Outstanding, June 30, 2023

 

888

  

$

22.10

 

4.1

Expirations

 

(27)

  

 

78.60

 

  

Outstanding, March 31, 2024

 

861

  

 

20.28

 

3.5

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

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Licensing Commitments

Please refer to Note 5 for further discussion of commitments to make milestone payments and to pay royalties under license agreements with XOMA and ActiveSite.

Legal Matters

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of March 31, 2024, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the Company’s results of operations. At each reporting period, the Company evaluates known claims to determine whether a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies. Legal fees are expensed as incurred.

NOTE 10 — RELATED PARTY TRANSACTIONS

Related Party Licensing Agreement

On September 15, 2020, the Company and Handok entered into an exclusive license agreement (the “Handok License”) for the territory of the Republic of Korea. The Handok License relates to pharmaceutical products in final dosage form containing the pharmaceutical compounds developed or to be developed by the Company, including those related to RZ358 and RZ402. The Handok License is in effect for a period of 20 years after the first commercial sale of each product and requires (i) milestone payments to the Company of $0.5 million upon approval of a New Drug Application (“NDA”) for each product in the territory, and (ii) the Company will sell products ordered by Handok at a transfer price equal to 70% of the net selling price of the products. To date, no milestone payments have been earned by the Company.

Investors in 2022 Private Placement

Handok and certain of its affiliates were the sole investors in the 2022 Private Placement and the Registered Direct Offering discussed in Note 7.

NOTE 11 — INCOME TAXES

Income tax expense during interim periods is based on applying an estimated annualized effective income tax rate applied to the respective quarterly periods, adjusted for discrete tax items in the period in which they occur. The computation of the annualized estimated effective tax rate for each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating results for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred income tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.

For the three and nine months ended March 31, 2024 and 2023, the Company did not recognize any income tax benefit due to a full valuation allowance on its deferred income tax assets. The Company did not have any material changes to its conclusions regarding valuation allowances for deferred income tax assets or uncertain tax positions for the three and nine months ended March 31, 2024 and 2023.

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