UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DecemberMarch 31, 20172021
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: 000-54495

 

REZOLUTE, INC

INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware27-3440894
(State of other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
1450 Infinite Drive, Louisville, Colorado201 Redwood Shores Parkway, Suite 315, Redwood City, California8002794065
(Address of Principal Executive Offices)(Zip Code)

 

(303) 222-2128

(650) 206-4507

(Registrant’s Telephone Number, including Area Code)

 

AntriaBio, Inc.

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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 RZLTNasdaq 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.xYes¨No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files)files.).

xYes¨No

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, orand 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. (Check one):

 

Large accelerated filer  ¨Accelerated filer  ¨
  
Non-accelerated filer  ¨xSmaller reporting company x
(Do not check if a 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)

¨YesxNo

 

Number ofThe registrant had 8,352,277 shares of issuer’sits $0.001 par value common stock outstanding as of February 14, 2018: 54,073,309

May 12, 2021.

 

 

 

 

 

TABLE OF CONTENTS

 Page
PART I – FINANCIAL INFORMATION2
  
ITEM 1.PART I - FINANCIAL STATEMENTSINFORMATION2
  
Consolidated Balance Sheets – December 31, 2017 and June 30, 2017Item 1.  Financial Statements21
  
Unaudited Condensed Consolidated Balance Sheets – March 31, 2021 and June 30, 20201
Unaudited Condensed Consolidated Statements of Operations – Three and six months ended DecemberNine Months Ended March 31, 20172021 and 201620202
Unaudited Condensed Consolidated Statements of Stockholders’ Equity – Nine Months Ended March 31, 2021 and 20203
Unaudited Condensed Consolidated Statements of Cash Flows – Nine Months Ended March 31, 2021 and 20204
Notes to Unaudited Condensed Consolidated Financial Statements5
  
Consolidated StatementsItem 2.  Management’s Discussion and Analysis of Stockholders’ Equity – From June 30, 2017 to December 31, 2017Financial Condition and Results of Operations419
Item 3.  Quantitative and Qualitative Disclosures About Market Risk32
Item 4.  Controls and Procedures32
  
Consolidated Statements of Cash FlowsPART II – Six months ended December 31, 2017 and 2016OTHER INFORMATION5
  
Notes to Consolidated Financial Statements6
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS15
ITEM 3.  QUALITATIVE AND QUANTITATIVE DISCUSSION ABOUT MARKET RISK17
ITEM 4.  CONTROLS AND PROCEDURES18
PART II – OTHER INFORMATION18
ITEMItem 1.  LEGAL PROCEEDINGSLegal Proceedings18
ITEM 1A.  RISK FACTORS18
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS18
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES18
ITEM 4.  MINE SAFETY DISCLOSURE18
ITEM 5.  OTHER INFORMATION1933
Item 1A.  Risk Factors33
Item 2.  Unregistered Sales of Equity Securities and Use Of Proceeds35
Item 3.  Defaults Upon Senior Securities35
Item 4.  Mine Safety DisclosuresITEM35
Item 5.  Other Information35
Item 6.  EXHIBITSExhibits1935

 

Signatures i36

i

 

 

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,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:

 

•·projected operating or financial results, including anticipated cash flows used in operations;

 

•·expectations regarding capital expenditures, research and development expense and other payments;

 

•·our expectation that the disruptive impact 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 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 or unknown risks, uncertainties and other factors including, among others:but not limited to, the risks described in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 (the “2020 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on October 13, 2020.

 

•the loss of key management personnel or sponsored research partners on whom we depend;

•the progress and results of clinical trials for our product candidates;

•our ability to navigate the regulatory approval process in the U.S. and other countries, and our success in obtaining required regulatory approvals for our product candidates;

•commercial developments for products that compete with our product candidates;

•the actual and perceived effectiveness of our product candidates, and how those product candidates compare to competitive products;

•the strength of our intellectual property protection, and our success in avoiding infringing the intellectual property rights of others;

•adverse developments in our research and development activities;

•potential liability if our product candidates cause illness, injury or death, or adverse publicity from any such events;

•our ability to operate our business efficiently, manage capital expenditures and costs (including general and administrative expenses) and obtain financing when required;

•our expectations with respect to our acquisition activity.

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 Quarterly Report, on Form 10-Q, 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 Quarterly Report of Form 10-Q 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 Quarterly Report, on Form 10-Q, except as otherwise required by applicable law.

 

Special Note About COVID-19

We have been actively monitoring the COVID-19 situation and its impact. Our primary objectives have remained the same throughout the pandemic: to support the safety of our team members and their families and continue to support our preclinical studies and clinical trials. Currently, with respect to the operation of our facilities, we are closely adhering to applicable guidelines and orders. Essential operations in research and maintenance that occur within our facilities are continuing in accordance with the permissions granted under government ordinances. Across all our locations, we have instituted a temporary work from home policy for all office personnel who do not need to work on site to maintain productivity. At this time, we have not identified a material change to our productivity as a result of these measures, but this could change, particularly if restricted travel, closed schools, and shelter-in-place orders are not removed or significantly eased in the areas in which we operate.

While our financial results for the three and nine months ended March 31, 2021 and the fiscal year ended June 30, 2020 were not significantly impacted by COVID-19, we cannot predict the impact of the progression of the COVID-19 pandemic on future results due to a variety of factors, including the continued good health of our employees, the ability of us to maintain operations, access to healthcare facilities and patient willingness to participate in our clinical trials, any further government and/or public actions taken in response to the pandemic and ultimately the length of the pandemic. The ultimate impact of the COVID-19 pandemic on our business operations, our ability to raise capital, as well as our preclinical studies and clinical trials remains uncertain and subject to change and will depend on future developments, which cannot be accurately predicted. Any prolonged material disruption of our employees, suppliers, or manufacturing may negatively impact our consolidated financial position, results of operations and cash flows. We will continue to monitor the situation closely.

 1

ii

 

 

PART I –- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

 

Rezolute, Inc.

Rezolute, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

  March 31,  June 30, 
  2021  2020 
Assets        
Current assets:        
Cash and cash equivalents $31,989  $9,955 
Prepaid expenses and other  206  563 
Total current assets  32,195   10,518 
         
Long-term assets:        
Right-of-use assets, net  472   383 
Deferred offering and debt issuance costs  221   - 
Property and equipment, net  33   33 
Lease security deposits  12   31 
         
Total assets $32,933  $10,965 
         
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable $811  $893 
Accrued liabilities:        
Compensation and benefits  180   120 
Insurance premiums  -   188 
Other  469   180 
Derivative liability  1,807   - 
Current portion of license fees payable to Xoma  -   1,600 
Current portion of operating lease liabilities  321   245 
Total current liabilities  3,588   3,226 
         
Long-term liabilities:        
Operating lease liabilities, net of current portion  213   165 
License fees payable to Xoma, net of current portion  -   209 
Total liabilities  3,801   3,600 
         
Commitments and contingencies (Notes 4 and 8)        
         
Stockholders' equity:        
Preferred Stock, $0.001 par value; 400 shares and 20,000 shares authorized as of        
 March 31, 2021 and June 30, 2020, respectively; no shares issued and outstanding  -   - 
Common Stock, $0.001 par value, 10,000 shares and 500,000 shares authorized as of  8   6 
 March 31, 2021 and June 30, 2020, respectively; 8,352 and 5,867 shares issued and        
outstanding as of March 31, 2021 and June 30, 2020, respectively        
Additional paid-in capital  190,772   154,595 
Accumulated deficit  (161,648)  (147,236)
Total stockholders' equity  29,132   7,365 
         
Total liabilities and stockholders' equity $32,933  $10,965 

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


Rezolute, Inc.

 

  December 31, 2017  June 30, 2017 
  (Unaudited) 
Assets        
         
Current assets        
Cash $868,071  $4,486,538 
Other current assets  295,728  442,015 
Total current assets  1,163,799   4,928,553 
         
Non-current assets        
Fixed assets, net  4,797,823   5,325,401 
Intangible assets, net  40,676   44,322 
Deferred lease asset  74,831   86,293 
Deposits  244,341   244,341 
Total non-current assets  5,157,671   5,700,357 
         
Total Assets $6,321,470  $10,628,910 
         
Liabilities and Stockholders’ Equity        
         
Current liabilities:        
Accounts payable and accrued expenses $2,121,854  $1,652,677 
Convertible notes payable  10,000   10,000 
Deferred lease liability, current portion  116,234   105,295 
Interest payable  2,762   2,762 
Warrant derivative liability  90   588 
Total current liabilities  2,250,940   1,771,322 
         
Non-current liabilities:        
Deferred lease liability, less current portion  243,686   304,575 
Deposit liability  25,046   25,046 
Total non-current liabilities  268,732   329,621 
         
Total Liabilities  2,519,672   2,100,943 
         
Commitments and Contingencies  (Note 10)        
         
Stockholders’ equity:        
Preferred stock, $0.001 par value; 20,000,000 shares authorized; none issued and outstanding  -   - 
Common stock, $0.001 par value, 200,000,000 shares authorized; 54,073,309 and 49,228,640  shares issued and outstanding, December 31, 2017 and June 30, 2017  54,075   49,230 
Additional paid-in capital  80,472,885   72,800,699 
Accumulated deficit  (76,725,162)  (64,321,962)
Total stockholders’ equity  3,801,798   8,527,967 
         
Total Liabilities and Stockholders’ Equity $6,321,470  $10,628,910 

See accompanying notes to consolidated financial statements

 2

Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

 

  Three Months Ended  Nine Months Ended 
  March 31,  March 31, 
  2021  2020  2021  2020 
Operating expenses:                
Research and development:                
Compensation and benefits, net of related party reimbursements $1,529  $1,399  $4,865  $4,567 
Clinical trial costs  1,495   622   3,276   3,535 
Licensing costs  -   -   1,000   - 
Material manufacturing costs  253   284   561   725 
Consultants and outside services  206   1,278   480   2,736 
Facilities and other  275   150   416   442 
Total research and development  3,758   3,733   10,598   12,005 
General and administrative:                
Compensation and benefits  850   762   3,498   3,079 
Professional fees  655   319   1,506   952 
Facilities and other  220   256   656   933 
Total general and administrative  1,725   1,337   5,660   4,964 
Total operating expenses  5,483   5,070   16,258   16,969 
Operating loss  (5,483)  (5,070)  (16,258)  (16,969)
Non-operating income (expense):                
Gain on change in fair value of derivative liability  1,784   -   1,784   - 
Interest and other  4   30   62   183 
Net loss $(3,695) $(5,040) $(14,412) $(16,786)
                 
Net loss per common share - basic and diluted $(0.44) $(0.86) $(1.94) $(2.93)
                 
Weighted average number of common shares outstanding - basic and diluted  8,352   5,866   7,445   5,719 

  Three Months  Six Months 
  Ended December 31,  Ended December 31, 
  2017  2016  2017  2016 
  (Unaudited)  (Unaudited) 
Operating expenses                
Research and development                
Compensation and benefits $1,482,946  $1,909,518  $2,983,810  $3,213,358 
Consultants and outside costs  233,798   194,783   364,159   466,258 
Material manufacturing costs  227,602   567,430   653,691   1,079,137 
Clinical trial costs  581,988   -   1,561,754   - 
License costs  407,605   -   1,178,505   - 
Facilities and other costs  479,149   403,648   981,807   802,555 
   3,413,088   3,075,379   7,723,726   5,561,308 
                 
General and administrative                
Compensation and benefits  1,672,494   1,285,052   3,467,921   2,151,953 
Professional fees  213,399   139,865   436,993   286,016 
Investor relations  133,705   87,428   193,576   155,535 
General and administrative  318,272   301,520   645,872   558,115 
   2,337,870   1,813,865   4,744,362   3,151,619 
                 
Total operating expenses  5,750,958   4,889,244   12,468,088   8,712,927 
                 
Loss from operations  (5,750,958)  (4,889,244)  (12,468,088)  (8,712,927)
                 
Other income (expense)                
Interest income  524   -   861   - 
Rent income  31,838   -   63,676   - 
Interest expense  (147)  -   (147)  (1,595)
Derivative gains  156   1,313   498   10,725 
Total other income  32,371   1,313   64,888   9,130 
                 
Net loss $(5,718,587) $(4,887,931) $(12,403,200) $(8,703,797)
                 
Net loss per common share - basic and diluted $(0.11) $(0.12) $(0.23) $(0.23)
                 
Weighted average number of common shares outstanding - basic and diluted  53,762,358   40,788,241   53,327,558   38,091,406 

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


Rezolute, Inc.

 

See accompanying notes to consolidated financial statements

 3

Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

From June 30, 2016 to December 31, 2017 (Unaudited)(in thousands, except per share amounts)

 

        Additional     Total 
  Common Stock, $0.001 Par Value  Paid-in  Accumulated  Stockholders’ 
  Shares  Amount  Capital  Deficit  Equity 
                
Balance at June 30, 2017  49,228,640  $49,230  $72,800,699  $(64,321,962) $8,527,967 
                     
Stock-based compensation net of forfeitures of $317,674 (Unaudited)  -   -   2,701,728   -   2,701,728 
                     
Fair value of warrants issued for consulting services (Unaudited)  -   -   535,303   -   535,303 
                     
Issuance of common stock, net of issuance costs of $60,000 (Unaudited)  4,500,000   4,500   4,435,500   -   4,440,000 
                     
Commitment fee for issuance of common stock (Unaudited)  344,669   345   (345)  -   - 
                     
Net loss for the six months ended December 31, 2017 (Unaudited)  -   -   -   (12,403,200)  (12,403,200)
                     
Balance at December 31, 2017 (Unaudited)  54,073,309  $54,075  $80,472,885  $(76,725,162) $3,801,798 
        Additional     Total 
  Common Stock  Paid-in  Accumulated  Stockholders' 
  Shares  Amount  Capital  Deficit  Equity 
Nine Months Ended March 31, 2021:                    
Balances as of June 30, 2020  5,867  $6  $154,595  $(147,236) $7,365 
Stock-based compensation  -   -   2,305   -   2,305 
Fair value of warrants issued to consultants for services  -   -   8   -   8 
Issuance of Units for cash  2,485   2   40,998   -   41,000 
Advisory fees and other offering costs  -   -   (3,550)  -   (3,550)
Issuance of common stock for services  -   -   7   -   7 
Reclassification of derivative liability for authorized share deficiency  -   -   (3,591)  -   (3,591)
Net loss  -   -   -   (14,412)  (14,412)
Balances as of March 31, 2021  8,352  $8  $190,772  $(161,648) $29,132 
                     
Nine Months Ended March 31, 2020:                    
Balances as of June 30, 2019  4,208  $4  $128,651  $(126,903) $1,752 
Stock-based compensation  -   -   2,734   -   2,734 
Fair value of warrants issued to consultants for services  -   -   76   -   76 
Issuance of common stock for cash:                    
Related parties at $14.50 per share  1,380   2   19,998   -   20,000 
Other investors at $14.50 per share  279   -   4,050   -   4,050 
Advisory fees and other offering costs  -   -   (1,500)  -   (1,500)
Net loss  -   -   -   (16,786)  (16,786)
Balances as of March 31, 2020  5,867  $6  $154,009  $(143,689) $10,326 

 

SeeThe accompanying notes toare an integral part of these unaudited condensed consolidated financial statementsstatements.

 

 4

Rezolute, Inc.

 

Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(Unaudited)(in thousands)

 

  Six Months 
  Ended December 30, 
  2017  2016 
       
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net Loss $(12,403,200) $(8,703,797)
Amortization of intangible asset  3,646   3,646 
Depreciation expense  533,394   546,429 
Stock-based compensation expense  2,701,728   2,125,966 
Derivative gains  (498)  (10,725)
Warrant expense for consulting services  535,303   - 
Changes in operating assets and liabilities:        
Decrease in other assets  146,287   29,153 
Decrease in deferred lease asset  11,462   - 
Increase in accounts payable and accrued expenses  469,177   12,097 
Decrease in interest payable  -   (2,800)
Decrease in deferred lease liability  (49,950)  (58,924)
Net Cash Used In Operating Activities  (8,052,651)  (6,058,955)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of fixed assets  (5,816)  (272,587)
Return of security deposit  -   187,500 
Net Cash Used In Investing Activities  (5,816)  (85,087)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Payments on lease payable  -   (23,128)
Proceeds from issuance of equity financing  4,500,000   6,361,499 
Payment of placement agent compensation and issuance costs  (60,000)  (683,194)
Net Cash Provided by Financing Activities  4,440,000   5,655,177 
         
Net decrease in cash  (3,618,467)  (488,865)
         
Cash - Beginning of Period  4,486,538   4,062,013 
         
Cash - End of Period $868,071  $3,573,148 
         
SUPPLEMENTARY CASH FLOW INFORMATION:        
Cash Paid During the Period for:        
Taxes $-  $- 
Interest $-  $- 
         
Non-Cash Transactions:        
Fixed assets acquired through accounts payable and accrued expenses $-  $18,016 
Warrant value recorded as issuance costs $-  $516,550 
Conversion of note payable into common stock $-  $50,000 
Conversion of interest payable into common stock $-  $9,517 
  Nine Months Ended 
  March 31, 
  2021  2020 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(14,412) $(16,786)
Stock-based compensation expense  2,305   2,734 
Depreciation and amortization expense  10   14 
Non-cash lease expense  214   167 
Fair value of warrants issued for services  8   76 
Fair value of shares of Common Stock issued for services  7   - 
Gain on change in fair value of derivative liability  (1,784)  - 
Changes in operating assets and liabilities:        
Decrease in prepaid expenses and other assets  376   436 
Increase (decrease)  in accounts payable  (81)  694 
Decrease in accrued liabilities  (45)  (1,134)
Decrease in license fees payable to Xoma  (1,809)  (6,291)
Net Cash Used In Operating Activities  (15,211)  (20,090)
         
CASH FLOWS FROM INVESTING ACTIVITIES  -   - 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from issuance of Units  41,000   - 
Payment of commissions and other deferred offering costs  (3,680)  (1,500)
Payment of debt issuance costs  (75)  - 
Proceeds from issuance of Common Stock:        
Related parties  -   20,000 
Others  -   4,050 
Net Cash Provided by Financing Activities  37,245   22,550 
         
Net increase in cash, cash equivalents and restricted cash  22,034   2,460 
Cash, cash equivalents and restricted cash at beginning of period  9,955   11,573 
Cash, cash equivalents and restricted cash at end of period $31,989  $14,033 
         
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:        
Cash and cash equivalents, end of period $31,989  $14,033 
Restricted cash, end of period  -   - 
Total cash, cash equivalents and restricted cash, end of period $31,989  $14,033 
         
SUPPLEMENTARY CASH FLOW INFORMATION:        
Cash paid for interest $-  $- 
Cash paid for income taxes  -   - 
Right-of-use assets acquired in exchange for operating lease liabilities  302   - 
         
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Reclassification of derivative liability for authorized share deficiency $3,591  $- 
Furniture and equipment received as inducement under operating lease  10   - 
Increase in payables for debt issuance costs  16   - 

 

SeeThe accompanying notes toare an integral part of these unaudited condensed consolidated financial statementsstatements.

 

 5

Rezolute, Inc.

 

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements
December 31, 2017
(Unaudited)

 

Note 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNFICANT ACCOUNTING POLICIES

Nature of Operations

 

These financial statements represent the consolidated financial statements of Rezolute, Inc. (“Rezolute”(the “Company”), and its wholly owned operating subsidiary AntriaBio Delaware, Inc. (“Antria Delaware”). Rezolute and Antria Delaware are collectively referred to herein as the “Company”. The Company is a clinical stage biopharmaceutical Company.company incorporated in Delaware in 2010.

Reverse Stock Split

 

Note 2 SummaryIn August 2019, the Company’s Board of Significant Accounting PoliciesDirectors approved a reverse stock split that was subject to stockholder approval at a special meeting that was concluded on October 28, 2019. Stockholders approved the proposal whereby the Board of Directors had the ability at any time on or before October 23, 2020 to execute a reverse stock split and set an exchange ratio between 20 and 100 shares of the Company’s outstanding Common Stock, $0.001 par value per share, into one issued and outstanding share of Common Stock, without any change in the par value per share. On October 7, 2020, the Board of Directors approved reverse stock split whereby fifty shares were exchanged into one newly-issued share of the Company’s $0.001 par value Common Stock (the “Reverse Stock Split”), resulting in the filing with the Delaware Secretary of State of a Certificate of Amendment (the “Amendment”) to the Company’s Articles of Incorporation. The Amendment was effective on October 9, 2020. On February 17, 2021, the Company filed a certificate of correction (the “Charter Revision”) with the State of Delaware Secretary of State. The Charter Revision changed the number of authorized shares of Common Stock from 500,000,000 shares to 10,000,000 on February 17, 2021. The Charter Revision also changed the number of authorized shares of Preferred Stock from 20,000,000 shares to 400,000 shares that were authorized beginning on February 17, 2021.

 

In connection with the Reverse Stock Split, proportionate adjustments were made to increase the per share exercise prices and decrease the number of shares of Common Stock issuable upon exercise of stock options and warrants whereby approximately the same aggregate price is required to be paid for such securities upon exercise as had been payable immediately preceding the Reverse Stock Split. In addition, any fractional shares that would otherwise be issued as a result of the Reverse Stock Split were rounded up to the nearest whole share. All references in the accompanying unaudited condensed consolidated financial statements to the number of shares of Common Stock and per share amounts have been retroactively adjusted to give effect to the Reverse Stock Split.

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”) and the rules and regulations of the United States Securities and Exchange CommissionSEC for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.

 

The condensed consolidated balance sheet as of June 30, 2020, 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 Annual Report on2020 Form 10-K, filed on September 22, 2017, 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 year ended fiscal June 30, 2017.2020.

 

Certain information orand footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of AmericaGAAP have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange CommissionSEC for interim financial reporting. Accordingly, they do not include all the information and footnotesfootnote disclosures necessary for a comprehensive presentation of financial position, results of operations, orand cash flows. It is management’smanagement's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the periodthree and nine months ended DecemberMarch 31, 20172021 are not necessarily indicative of the financial condition and results of operations that may be expected for any future interim period or for the full fiscal year.year ending June 30, 2021.

 

Reclassifications

Certain amounts in the previously issued comparative interim financial statements for the three and nine months ended March 31, 2020 have been reclassified to conform to the current interim financial statement presentation. These reclassifications had no effect on the previously reported net loss, working capital, cash flows and stockholders’ equity.


Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Consolidation

On February 12, 2021, the Company filed a certificate of dissolution with the State of Delaware Secretary of State to dissolve AntriaBio Delaware, Inc., which was a dormant company with no assets, liabilities or operations. As a result, the Company now has two wholly owned subsidiaries consisting of Rezolute (Bio) Ireland Limited and Rezolute Bio UK, Ltd. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its two wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principlesGAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and the accompanying notes. SuchThe Company bases its estimates and assumptions impact, among others,on current facts, historical experience, and various other factors that it believes are reasonable under the following: estimated useful livescircumstances, to determine the carrying values of assets and impairmentliabilities that are not readily apparent from other sources. The Company’s significant accounting estimates include, but are not necessarily limited to, determination of depreciable assets, the fair value of the derivative liability for an authorized share deficiency, fair value of share-based payments, and warrants, fair valuemanagement’s assessment of derivative instruments,going concern, accrued clinical trial liabilities, and estimates of the probability and potential magnitude of contingent liabilities and the valuation allowance for deferred tax assets due to continuing and expected future operating losses.liabilities. Actual results could differ from those estimates.

 

Risks and Uncertainties

 

The Company’sCompany's operations may be subject to significant riskrisks and uncertainties including financial, operational, regulatory and other risks associated with a clinical stage company, including the potential risk of business failure. Seefailure as discussed further in Note 3 regarding going concern matters.

 6

Fixed Assets2, and the future impact of COVID-19 as discussed in Note 8.

 

Fixed assets are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives.

Research and Development Costs

Research and development costs are expensed as incurred and include salaries, benefits and other staff-related costs; consultants and outside costs; material manufacturing costs, clinical trial costs; and facilities and other costs. These costs relate to research and development costs without an allocation of general and administrative expenses.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value are as follows:

·Level 1: Quoted prices for identical assets and liabilities in active markets;
·Level 2: Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
·Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Significant Accounting Policies

 

The carrying amountsCompany’s significant accounting policies are described in its Annual Report on Form 10-K for the fiscal year ended June 30, 2020. During the three months ended March 31, 2021, the Company did not adopt any new accounting policies, however the Company did make the following accounting policy election with respect to accounting policies which are currently applied, as necessary, during the quarter:

Derivative Liability for Authorized Share Deficiency

As discussed above, the Company filed the Charter Revision that changed the number of financial instruments includingauthorized shares of Common Stock from 500,000,000 shares to 10,000,000 shares effective on February 17, 2021. Upon filing the Charter Revision, the Company had approximately 8,352,000 shares of Common Stock issued and outstanding plus approximately 2,428,000 shares reserved for issuance pursuant to the Company’s stock option plans and outstanding warrant agreements. Since authorized shares were limited to 10,000,000 shares, the Company could be required to settle in cash accounts payablethe shares subject to the deficiency of 780,000 shares. Since all of the Company’s outstanding stock options and accrued expenses, and convertible note payable approximatedwarrants previously met the criteria for classification in stockholders’ equity, the Company is required to reclassify the fair value as of December 31, 2017 and June 30, 2017 duerelated to the relatively short maturity of the respective instruments.780,000 shares from stockholders’ equity to a liability beginning on February 17, 2021.

 

The warrant derivative liability recorded as of DecemberFor the three months ended March 31, 20172021, the Company made an accounting policy election to select the stock options and June 30, 2017 is recorded at anwarrants with the earliest issuance dates to compute the estimated fair value based on a Black-Scholes pricing model. The warrant derivative liability is a level 3 fair value measurementof the financial instruments associated with the entire changeauthorized share deficiency. The result of the election of this accounting policy was to determine the liability using the stock options and warrants that generally had the highest exercise prices that were least likely to be exercised. Fair value of the stock options and warrants associated with the deficiency are computed on the date the deficiency arose and at the end of each reporting period using the Black-Scholes-Merton (“BSM”) option-pricing model. Key assumptions inherent in this valuation model include the balance recorded through earnings. Seehistorical volatility of the Company’s Common Stock, the remaining contractual term of the options and warrants, and the market price of our Common Stock on the valuation date. Changes in these factors from period to period can result in significant assumptionsincreases and decreases in Note 8. The following table sets forth a reconciliation of changes in the fair value of financial instruments classified as level 3the derivative liability, with corresponding gains or losses reflected in our operating results for each reporting period. If the fair value hierarchy:Company’s stockholders subsequently approve a sufficient increase in authorized shares, the Company will no longer include the derivative liability in its balance sheets after the approval date. However, any gains or losses reflected prior to the approval date will not be reversed.

 

Balance as of June 30, 2017 $(588)
Total unrealized gains (losses):    
Included in earnings  498 
Balance as of December 31, 2017 $(90)

Rezolute, Inc.

 

Notes to Unaudited Condensed Consolidated Financial Statements

Recent Accounting Pronouncements

 

Standards Required to be Adopted in Future Years. The following accounting standards are 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.

In JanuaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

In August 2020, the FASB issued ASU 2016-01,2020-06, FinancialDebt – 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 – Overall:Recognition and MeasurementContracts in an Entity’s Own Equity). ASU 2020-06 reduces the number of Financial Assetsaccounting models for convertible debt instruments and Financial Liabilities,convertible preferred stock, which addresses certain aspectsresults 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 recognition, measurement, presentation,convertible instruments and disclosure of financial instruments.contracts in an entity’s own equity. ASU 2016-01 will be effective for us starting on July 1, 2018,2020-06 allows entities to use a modified or full retrospective transition method and early adoption is not permitted. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). This update requires organizations to recognize lease assets and lease liabilities on the balance sheet and also disclose key information about leasing arrangements. This ASU is effective for annualsmaller reporting periodscompanies for fiscal years beginning on or after December 15, 2018, and2023, including interim periods within those annual periods. Earlier applicationfiscal years. Early adoption is permitted, for all entities as of the beginning of an interim or annual period. We will be required to adopt ASU 2016-02 starting on July 1, 2019. We are currently evaluating the impact the adoption of this ASU will have on our consolidated financial statements.

 7

In March 2016, the FASB issued ASU 2016-09.Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.The update will affect all entities that issue share-based payment awards to their employees and is effective for annual periodsbut no earlier than fiscal years beginning after December 15, 2016 for public entities. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions,2020, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted the ASU starting on July 1, 2017 and there is a minimal impact on our consolidated financial statements.interim periods within those fiscal years.

 

In May 2017,Other accounting standards that have been issued or proposed by the FASB issued ASU 2017-9.Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.The update includes guidance on what changes to share-based payment awards would require modification accounting and is effective for annual periods after December 15, 2017. We expect to adopt the ASU 2017-9 on July 1, 2018. Weor other standards-setting bodies that do not expect therequire adoption of the new provisionsuntil a future date are not currently expected to have a material impact on ourthe Company’s financial condition or results of operations.statements upon adoption.

 

Note 3 Going Concern2 — Liquidity

 

As reflected in the accompanying financial statements, the Company has a net loss of $12,403,200 and net cash used in operations of $8,052,651 for the six months ended December 31, 2017, working deficit of $1,087,141 and stockholders’ equity of $3,801,798 and an accumulated deficit of $76,725,162 at December 31, 2017.  In addition, theThe Company is in the clinical stage and has not yet generated any revenues. For the fiscal year ended June 30, 2020, the Company incurred a net loss of $20.3 million and net cash used in operating activities amounted to $24.2 million. For the nine months ended March 31, 2021, the Company incurred a net loss of $14.4 million and net cash used in operating activities amounted to $15.2 million. As of March 31, 2021, the Company had an accumulated deficit of $161.6 million, cash and cash equivalents of $32.0 million and total liabilities of $3.8 million.

As discussed in Note 6, on October 9, 2020 the Company received aggregate gross proceeds of $41.0 million from investors in a private placement from the issuance of units that consisted of approximately 2.5 million shares of Common Stock and warrants for the purchase of approximately 0.8 million shares of Common Stock.

As discussed in Note 13, the Company entered into a loan and security agreement in April 2021 that provides for total borrowings up to $30.0 million. The Company received gross proceeds of $15.0 million in April 2021 and the remaining $15.0 million is available subject to satisfaction of certain conditions described in the loan agreement. As a condition of the loan agreement, the Company is required to maintain a restricted cash balance of $5.0 million beginning no later than December 31, 2021. Borrowings under the loan agreement provide for interest at 8.75% plus a variable margin of at least 0.12%. The Company is permitted to make interest-only payments through May 1, 2023, and the maturity date is on April 1, 2026.


Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

As discussed in Note 8, COVID-19 has resulted in an economic environment that is unfavorable for many businesses to conduct operations and pursue new debt and equity financings. The U.S. economy has been adversely affected by mass quarantines and government mandated stay-in-place orders to halt the spread of the virus. These factors raise substantial doubt aboutorders are frequently changing and contain inherent uncertainty relative to their future application, creating considerable uncertainty surrounding the recovery period for the U.S. economy. The long-term effects on the Company are expected to result in higher costs in order to comply with safeguards to protect patients and staff engaged in clinical activities, and extended periods of time may be required to complete clinical trials. The current economic environment and financial market volatility is expected to make it more challenging for the Company to obtain funding for its clinical programs in the future.

Management believes the Company’s abilityexisting cash and cash equivalents balance of $32.0 million, combined with the debt financing proceeds of $15.0 million received in April 2021, will be adequate to continue as a going concern.carry out currently planned activities at least through June 30, 2022.

Note 3 — OPERATING LEASES

 

The carrying value of right-of-use (“ROU”) assets and operating lease liabilities are as follows (in thousands):

  March 31,  June 30, 
  2021  2020 
Right-of-Use Assets, net $472  $383 
         
Operating Lease Liabilities:        
Current $321  $245 
Long-term  213   165 
Total $534  $410 

For the three and nine months ended March 31, 2021 and 2020, operating lease expense was as follow (in thousands):

  Three Months Ended  Nine Months Ended 
  March 31,  March 31, 
  2021  2020  2021  2020 
Research and development $75  $49  $185  $138 
General and administrative  28   21   83   60 
                 
Total $103  $70  $268  $198 

On October 28, 2020, the Company expectsentered into an assignment, assumption and amendment of lease agreement for ancillary office space in Bend, Oregon. The leased space consists of approximately 5,000 square feet and provides for average monthly rent of approximately $8,700 through the expiration date in February 2024. The lease provides one option to renew the lease for an additional three years at market rates. The Company determined it was not reasonably assured that this renewal option would be exercised whereby the resulting lease term was estimated at 40 months. Using a discount rate of 6.0%, the Company recognized an ROU asset and corresponding operating lease liability of approximately $0.3 million at inception of the lease.

As of March 31, 2021, the weighted average remaining lease term under operating leases was 2.1 years, and the weighted average discount rate for operating lease liabilities was 7.6%. For each of the nine months ended March 31, 2021 and 2020, cash paid for amounts included in the measurement of operating lease liabilities was $0.2 million. These cash payments were included in the determination of net cash used in operating activities in the condensed consolidated statements of cash flows.


Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Future payments under all operating lease agreements as of March 31, 2021 are as follows (in thousands):

Fiscal year ending June 30,   
Remainder of fiscal year 2021 $92 
2022  283 
2023  117 
Thereafter  79 
     
Total lease payments  571 
Less imputed interest  (37)
     
Present value of operating lease liabilities $534 

Note 4 — License Agreements

Xoma License Agreement

In December 2017, the Company entered into a license agreement (“License Agreement”) with XOMA Corporation (“Xoma”), through its current cash resourceswholly-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 License Agreement was amended. with an updated payment schedule, as well as expected lackrevising the amount the Company was required to expend on development of operating cash flowsRZ358 and related licensed products, and revised provisions with respect to the Company’s diligence efforts in conducting clinical studies.

On March 31, 2020, the parties entered into Amendment No. 3 to the License Agreement to extend the payment schedule for the remaining balance of approximately $2.6 million. The revised payment schedule provided for seven quarterly payments to be paid from March 31, 2020 through September 30, 2021.

As discussed in Note 6, the Company completed a private placement of equity securities for gross proceeds of $41.0 million in October 2020, which resulted in acceleration of the entire obligation. On October 23, 2020, the Company paid the outstanding balance of $1.4 million. As of March 31, 2021, the Company does not have any remaining balance payable under Amendment No. 3 to the License Agreement. Upon the achievement of certain clinical and regulatory events, the Company will not be sufficientrequired to sustain operationsmake up to $37.0 million in aggregate milestone payments to Xoma.

In addition to the License Agreement between the Company and Xoma in December 2017, both parties also entered into a stock purchase agreement (“Stock Purchase Agreement”). As of March 31, 2021, Xoma owns approximately 162,000 shares of the Company’s Common Stock. The Stock Purchase Agreement provided Xoma with the right and option to require the Company to use its best efforts to facilitate orderly sales of the shares to a third party or purchase the shares (the “Put Option”). Xoma was permitted to exercise the Put Option for up to a period greater than one year.total of 50,000 shares of Common Stock for the calendar year ending December 31, 2020, and up to an additional 50,000 shares thereafter. On November 3, 2020, the Company’s shares of Common Stock were approved for listing on the Nasdaq Capital Market and the Put Option terminated pursuant to the terms of the Stock Purchase Agreement.

ActiveSite License Agreement

On August 4, 2017, the Company entered into a Development and 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 abilityCompany 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 Development and License Agreement requires various milestone payments up to $46.5 million. The first milestone payment for $1.0 million was due after acceptance of an Initial Drug Application, or IND, filed with the U.S. Food and Drug Administration (“FDA”). The Company is also required to pay royalties equal to 2.0% of any sales of products that use the PKI Portfolio.

On October 28, 2020, the Company submitted an IND to the FDA. On December 3, 2020, the Company received FDA clearance for the IND application filed by the Company. This clearance resulted in the Company owing the first milestone payment of $1.0 million, which was paid in December 2020. There have been no events that would result in any royalty payments owed under the ActiveSite Development and License Agreement to date.


Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 5 — Employee termination benefits

In March 2021, the Company entered into a severance agreement with an officer of the Company that provides for an aggregate of $0.2 million paid in monthly installments from March 2021 through September 2021. The severance agreement also resulted in the modification of certain stock options that were permitted to continue itsvesting through September 2021, whereby an aggregate of 46,250 stock options exercisable at a weighted average price of $18.17 will now expire in December 2021. Absent the modification, stock options for an aggregate of 38,750 vested shares would have expired in June 2021 and stock options for 7,500 never would have vested. The Company accounted for the modification of the original awards, whereby compensation cost was remeasured on the date of the modification that resulted in an increase in fair value of the modified awards for $0.1 million. Accordingly, an aggregate charge of $0.3 million related to severance costs and the modification of stock options is included in compensation expense under general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended March 31, 2021.

For the three and nine months ended March 31, 2021, activity affecting the accrued liability for severance benefits is dependent on Management’s plans, which include continuing to raise capital through equity or debt based financings. There can be no assurances that such capital will be available to us on acceptable terms, or at all.summarized as follows (in thousands):

Accrued severance, beginning of period $- 
Severance expense incurred  201 
Cash payments  (31)
     
Accrued severance, end of period $170 

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assetsliability for accrued severance costs is included in accrued compensation and the satisfaction of liabilitiesbenefits in the normal courseaccompanying unaudited condensed consolidated balance sheet as of business. These financial statements do not include any adjustments relatingMarch 31, 2021.

Note 6 — STOCKHOLDERS’ EQUITY

For changes in stockholders’ equity for the nine months ended March 31, 2021 and 2020, please refer to the recoveryunaudited condensed consolidated statements of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 8

Note 4 Fixed Assets

stockholders’ equity on page 3. The following is a summary of fixed assets and accumulated depreciation:

  Useful       
  Life  December 31, 2017  June 30, 2017 
Furniture and fixtures  5 - 7 years  $118,450  $118,450 
Lab equipment  3 - 15 years   3,951,855   3,946,040 
Leasehold Improvements  5 - 7 years   3,247,038   3,247,038 
       7,317,343   7,311,528 
Less: accumulated depreciation and amortization      (2,519,520)  (1,986,127)
      $4,797,823  $5,325,401 

Depreciation expense was $266,781 and $278,074table presents changes in stockholders’ equity for the three months ended DecemberMarch 31, 20172021 and 2016, respectively and was $533,394 and $546,429 for the six months ended December 31, 2017 and 2016, respectively2020:

        Additional     Total 
  Common Stock  Paid-in  Accumulated  Stockholders' 
  Shares  Amount  Capital  Deficit  Equity 
Three Months Ended March 31, 2021:                    
Balances as of December 31, 2020  8,352  $8  $193,831  $(157,953) $35,886 
Stock-based compensation  -   -   530   -   530 
Reclassification of derivative liability for authorized share deficiency  -   -   (3,591)  -   (3,591)
Fair value of warrants issued to consultants for services  -   -   2   -   2 
Net loss  -   -   -   (3,695)  (3,695)
                     
Balances as of March 31, 2021  8,352  $8  $190,772  $(161,648) $29,132 
                     
Three Months Ended March 31, 2020:                    
Balances as of December 31, 2019  5,867  $6  $153,331  $(138,649) $14,688 
Stock-based compensation  -   -   675   -   675 
Fair value of warrants issued to consultants for services  -   -   3   -   3 
Net loss  -   -   -   (5,040)  (5,040)
                     
Balances as of March 31, 2020  5,867  $6  $154,009  $(143,689) $10,326 


Rezolute, Inc.

 

Note 5 Related Party TransactionsNotes to Unaudited Condensed Consolidated Financial Statements

 

During the three and six months ended December 31, 2017, the Company incurred investor relations expense of $33,322 and $33,322 and general and administrative expenses of $67,439 and $67,439, see Note 8Derivative Liability for discussion related to warrants issued as compensation for such services. During the three and six months ended December 31, 2016, the Company incurred investor relations expense of $31,050 and $67,275 and general and administrative expenses of $13,928 and $13,928 for services performed by related parties of the Company and were included in the statement of operations. As of December 31, 2017, and June 30, 2017, there were none and $25,200, respectively, related party expenses recorded in accounts payable and accrued expense – related party.

Note 6 Convertible Notes PayableAuthorized Share Deficiency

 

As of December 31, 2017, and June 30, 2017, the convertible note outstanding balance was $10,000 and $10,000, respectively. As of December 31, 2017, the outstanding convertible note has matured and payment is due. The convertible note which has not been repaid or converted continues to accrue interest at a rate of 8%.

On January 30, 2018,discussed in Note 1, the Company issued a secured convertible promissory note for $500,000 as well as a warrantfiled the Charter Revision on February 17, 2021 to purchase 250,000change the number of authorized shares of common stockCommon Stock from 500,000,000 shares to a related party. The Note bears interest at 12% per annum and matures at10,000,000 shares. Upon filing the earlier of January 31, 2019 or whenCharter Revision, the Company raises $10 million in an equity financing. The note willhad approximately 8,352,000 shares of Common Stock issued and outstanding, plus approximately 2,428,000 shares were required to be secured byreserved for issuance pursuant to the Company’s stock option plans and outstanding warrant agreements. Since the Charter Revision reduced authorized shares to 10,000,000 shares, a perfected security interest in the tangible assets of the Company.

Note 7 Shareholders’ Equity

During the year ended June 30, 2017, the Company closed private placement transactions in which the Company issued 5,783,184 units to accredited investors. Each investor was issued either Class A Units or Class B units of the Company. Each Class A Unit received one share of common stock and one-half of one common share purchase warrant. If the investor had previously invested in the Company they were eligible for a Class B Unit which received one share of common stock and one common share purchase warrant. Each common share purchase warrant is exercisable at $1.65 per share and will expire 60 months following the issuance. As of June 30, 2017, the Company received net proceedsdeficiency of approximately $5.2 million after the placement agent compensation and issuance costs paid780,000 shares existed as of $683,194 and $516,550February 17, 2021. As a result of warrant expense recorded as issuance costs.

The Company also entered into a private placement transaction in which the Company issued common stockthis deficiency, it was not possible to accredited investors at an offering price of $1.00 per share. As of June 30, 2017, the Company received net proceeds of approximately $8.1 million after the placement agent compensation of $186,671 of warrant expense recorded as issuance costs, as there was no placement agent compensation.

During the six months ended December 31, 2017, the Company closed an additional private placement transaction in which the Company issued common stock to accredited investors at an offering price of $1.00 per share. The Company received net proceeds of $4.44 million after the placement agent compensation of $60,000.

 9

Lincoln Park Transaction – On December 22, 2017, we entered into the Lincoln Park Purchase Agreement pursuant to which Lincoln Park has agreed to purchase from usissue up to an aggregate of $10.0780,000 shares of Common Stock under outstanding stock options and warrants as of February 17, 2021. Accordingly, the Company could be required to settle in cash for the fair value of the 780,000 shares subject to this deficiency, which requires liability classification for these instruments beginning on February 17, 2021.

As discussed in Note 1, the Company made an accounting policy election to select the stock options and warrant agreements with the earliest issuance dates to compute the estimated fair value of the financial instruments associated with the authorized share deficiency. These stock options and warrants were generally those with the highest exercise prices that were least likely to be exercised. The fair value of such stock options and warrants is accounted for as a derivative liability that amounted to $3.6 million as of February 17, 2021. As a result of the expiration of stock options for approximately 40,000 shares in March 2021, the authorized share deficiency was reduced to approximately 740,000 as of March 31, 2021. Primarily due to the reduction in the market price of the Company’s commonCommon Stock, the fair value of stock (subjectoptions and warrants for an aggregate of 740,000 shares amounted to certain limitations) from time to time over the 36-month term$1.8 million as of March 31, 2021. Presented below is a summary of the agreement. Wederivative liability associated with stock options and warrants as of February 17, 2021 and March 31, 2021 (in thousands, expect per share amounts):

  February 17, 2021  March 31, 2021 
  Stock        Stock       
  Options  Warrants  Total  Options  Warrants  Total 
Number of shares  253   527   780   213   527   740 
Weighted average fair value per share $6.46  $3.71  $4.60  $4.03  $1.80  $2.44 
                         
Fair value of derivative liability $1,638  $1,953  $3,591  $858  $949  $1,807 

Due to the reduction in fair value of the derivative liability from February 17, 2021 to March 31, 2021, the Company recognized a non-cash gain of approximately $1.8 million in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended March 31, 2021. In order to determine the fair value of the stock options and warrants set forth above, the Company used the BSM option-pricing model with the following weighted-average assumptions for the valuations performed as of February 17, 2021 and March 31, 2021:

  February 17, 2021  March 31, 2021 
  Stock        Stock       
  Options  Warrants  Total  Options  Warrants  Total 
Market price of Common Stock $11.99  $11.99  $11.99  $7.06  $7.06  $7.06 
Exercise price $84.19  $63.88  $70.48  $70.48  $63.84  $65.75 
Risk-free interest rate  0.6%  0.1%  0.3%  1.0%  0.2%  0.4%
Dividend rate  0.0%  0.0%  0.0%  0.0%  0.0%  0.0%
Remaining contractual term (years)  4.6   1.5   2.5   5.3   1.4   2.5 
Historical volatility  112.6%  123.5%  119.9%  118.4%  112.0%  113.9%

Equity Distribution Agreement

On December 18, 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 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 EDA will terminate when all of the Placement Shares have been sold, or earlier upon the election of either the Company or the Agent.


Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company has no obligation to sell any of the Placement Shares under the EDA. The Company intends to use the net proceeds, if any, from amounts sold under the EDA for general corporate purposes, including working capital. 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. Through March 31, 2021, no shares were sold pursuant to the EDA and no commissions were incurred. As of March 31, 2021, total expenses incurred by the Agent and the Company amounted to an aggregate of $0.1 million and are included in deferred offering costs in the Company’s unaudited condensed consolidated balance sheet.

Reverse Stock Split

As discussed in Note 1, the Company effected Reverse Stock Split on October 9, 2020. All references in the accompanying consolidated financial statements to the number of shares of Common Stock and per share amounts have been retroactively adjusted to give effect to the Reverse Stock Split.

Fiscal 2021 Equity Financing

On September 15, 2020, the Company entered into financial advisory agreements to undertake a private placement of equity or equity equivalent securities (the “Fiscal 2021 Equity Financing”). Pursuant to the financial advisory agreements, the Company agreed to pay transaction fees to the financial advisors for an aggregate of 6.0% of the gross proceeds plus out-of-pocket expenses. In addition, for any financing completed within 60 days of the closing of the Fiscal 2021 Equity Financing, the financial advisors were entitled to additional transaction fees equal to 6.0% of the gross proceeds. As of March 31, 2021, the advisory agreements were no longer active.

On October 9, 2020, the Company completed the Fiscal 2021 Equity Financing through the sale of units (the “Units”) consisting of (i) approximately 2.5 million shares of Common stock, and (ii) warrants entitling the holders to purchase approximately 0.8 million shares of Common Stock (the “Warrants”). The Warrants are exercisable at $19.50 per share for a period of seven years and may be exercised on a cash or cashless basis at the election of the holders.

The Units were issued for a purchase price of $16.50 per Unit, resulting in gross proceeds of $41.0 million. Pursuant to the financial advisory agreements, the Company paid transaction fees of $2.5 million, and costs for professional fees and other offering costs amounted to approximately $1.1 million. After deducting the financial advisory fees and other offering costs, the estimated net proceeds amounted to approximately $37.5 million. Pursuant to the terms of the Fiscal 2021 Equity Financing, the Company executed the Reverse Stock Split of fifty shares into one share as discussed in Note 1 and agreed to enable trading of its Common Stock on the Nasdaq Capital Market, whereby the Company’s listing application was approved by Nasdaq on November 3, 2020. The Company also entered into a registration rights agreement with Lincoln Park(“RRA”), pursuant to which the Company filed with the Securities and Exchange Commission (the “SEC”) the registration statementagreed to use commercially reasonable efforts to register for resale under the Securities Act of 1933, as amended, or the Securities Act,(i) the shares of common stock that have been or may be issued to Lincoln Park underCommon Stock included in the Purchase Agreement.Units, and (ii) the shares of Common Stock issuable upon exercise of the warrants. The Company successfully registered the units on November 27, 2020.

 

As a result, on December 22, 2017, 344,669 newly issued shares of the Company’s common stock, equal to three percent of the $10 million availability, were issued to Lincoln Park as consideration for Lincoln Park’s commitment to purchase shares of the Company’s common stock under the agreement.Fiscal 2020 Private Placement

 

Under the terms and subject to the conditions of the Lincoln Park Purchase Agreement,In connection with a Series AA Preferred Stock financing in January 2019, the Company hasgranted call options to Handok, Inc. and Genexine, Inc. (collectively, “H&G”) whereby upon the right, but notearlier of (i) December 31, 2020 and (ii) such date that the obligation,Company requested H&G to sell to Lincoln Park, and Lincoln Park is obligatedprovide additional financing, each investor was entitled to purchase up to $10.0 million worth of sharesCommon Stock at a purchase price equal to the greater of (i) $14.50 per share or (ii) 75% of the volume weighted average closing price (“VWAP”) of the Company’s common stock. Such future sales of common stock by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the Company’s option, over the 36-month term of the agreement.

As contemplated by the Lincoln Park Purchase Agreement, and so long as the closing price of the Company’s common stock exceeds $0.40 per share, then the Company may direct Lincoln Park, at its sole discretion to purchase up to 65,000 shares of its common stock on any business day, provided that five business day has passed since the most recent purchase. The price per share for such purchases will be equal to the lower of: (i) the lowest sale price on the applicable purchase date and (ii) the arithmetic average of the three (3) lowest closing sale prices for the Company’s common stockCommon Stock during the twelve (12)thirty consecutive businesstrading days ending on the business day immediately preceding such purchase date (in each case,prior to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction that occurs on or after the date of the purchase agreement). The maximum amount of shares subject to any single regular purchase increases as the Company’s share price increases, subject to a maximum of $500,000.notice.

 

On June 19, 2019, the Company entered into a financial advisory agreement to undertake a private placement (the “Fiscal 2020 Private Placement”) of (i) the shares of Common Stock issuable under the H&G call options for a total of $20.0 million, plus (ii) up to $10.0 million of equity or equity equivalent securities to be issued to other investors. On July 23, 2019, the Company entered into purchase agreements whereby H&G exercised their call options to purchase an aggregate of approximately 1.4 million shares of Common Stock for gross cash proceeds of $20.0 million at a purchase price of $14.50 per share. In addition, during July and August 2019 other investors purchased an aggregate of approximately 279,000 shares of Common Stock at a purchase price of $14.50 per share for gross cash proceeds of $4.1 million. Pursuant to regular purchases,the financial advisory agreement, the Company may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional purchases if the closing sale pricepaid a fee of 6.0% of the common stock exceeds certain threshold prices as set forthgross proceeds received from the Fiscal 2020 Private Placement. The total advisory fees and other offering costs amounted to approximately $1.5 million, resulting in net proceeds of $22.6 million for the purchase agreement. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the purchase agreement if it would result in Lincoln Park beneficially owning more than 9.99% of its common stock. There are no trading volume requirements or restrictions under the purchase agreement nor any upper limits on the price per share that Lincoln Park must pay for shares of common stock.nine months ended March 31, 2020.


Rezolute, Inc.

 

The Lincoln Park Purchase Agreement and the registration rights agreement contain customary representations, warranties, agreements and conditionsNotes to completing future sale transactions, indemnification rights and obligationsUnaudited Condensed Consolidated Financial Statements

Restricted Cash

One of the parties.investors in the Fiscal 2020 Private Placement purchased approximately 262,000 shares of Common Stock for gross proceeds of $3.8 million. The Company hasagreed to spend the right to terminate the purchase agreement at any time, at no cost or penalty. During any “event of default” under the purchase agreement, all of which are outside of Lincoln Park’s control, Lincoln Park does not have the right to terminate the purchase agreement; however, the Company may not initiate any regular or other purchase of shares by Lincoln Park, until such event of default is cured. In addition, in the event of bankruptcy proceedings by or against the Company, the purchase agreement will automatically terminate.

Actual sales of shares of common stock to Lincoln Park under the purchase agreement will depend onproceeds for certain research and development activities and for a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. Lincoln Park has no right to require any sales by the Company, but is obligated to make purchases from the Company as it directs in accordance with the purchase agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedgingplanned uplisting of the Company’s shares.

 10

TheCommon Stock to the Nasdaq Capital Market. For the three and nine months ended March 31, 2020, the Company has not declared or paid any dividends or returned any capital to common stockholders asmade qualified expenditures of December$1.6 million and $2.3 million, respectively. As of March 31, 2017.2020, the entire $3.8 million had been spent on qualified activities and there was no restricted cash balance remaining, whereby there were no restrictions on cash balances after that date.

 

Note 8 Stock-Based Compensation7 — STOCK-BASED COMPENSATION AND WARRANTS

 

Options –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, 2021 (in thousands):

  Termination Number of Shares 
Description Date Authorized  Outstanding  Available 
2014 Plan March 2019  3   3   - 
2015 Plan February 2020  88   88   - 
2016 Plan October 2021  560   483   77 
2019 Plan July 2029  300   300   - 
Total    951   874   77 

On March 26, 2014,31, 2021, the CompanyCompany’s Board of Directors adopted, subject to stockholder approval, the AntriaBio,Rezolute, Inc. 20142021 Stock and Incentive Plan which allows the Company(the “2021 Equity Plan”). The 2021 Equity Plan, if approved by stockholders, would provide authority to issue up to 3,750,0001,200,000 shares of commonCommon Stock with a plan termination date in ten years. Currently outstanding stock options under each of the stock option plans shown in the formtable above for an aggregated of stock options, incentive options or common stock.approximately 874,000 shares will be governed by their own respective equity plans. The Company had granted 3,295,000 of thesecurrently authorized shares to current employees and directorsavailable for grants under the 2016 Plan will no longer be available for future grants if stockholders approve the 2021 Equity Plan.

Stock Options Outstanding

The following table sets forth a summary of the Company asstock option activity for options with time-based vesting and hybrid vesting granted under all of June 30, 2017 and no additional grants as of Decemberthe Company’s stock option plans for the nine months ended March 31, 2017. The options have an exercise price from $1.29 to $3.44 per share. The options vest monthly over four years, with some options subject to a one year cliff before options begin to vest monthly.2021 (shares in thousands):

  Shares  Price (1)  Term (2) 
Outstanding, July 1, 2020  963  $33.06   8.1 
Stock options granted:            
Awards with time-based vesting  8   24.05     
Stock options forfeited:            
Awards with time-based vesting  (72)  95.28     
Awards with hybrid vesting conditions  (25)  14.50     
Outstanding, March 31, 2021  874   28.41   7.2 
             
Vested, March 31, 2021  508   38.02   6.5 

(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.


Rezolute, Inc.

 

On February 23, 2015,Notes to Unaudited Condensed Consolidated Financial Statements

Stock-based compensation expense for the Company adoptedthree and nine months ended March 31, 2021 and 2020 is included in compensation and benefits under the AntriaBio, Inc. 2015 Non Qualified Stock Option Plan which allows the Company to issue up to 6,850,000 of common stockfollowing captions in the formunaudited condensed consolidated statements of stock options. The Company had granted 4,487,000 of these shares to current employees and directors of the Company as of June 30, 2017 and no additional grants as of December 31, 2017. The options have an exercise price of from $1.00 to $2.06 per share. The options vest monthly over 4 years with some options subject to a one year cliff before options begin to vest monthly.operations (in thousands):

 

  Three Months Ended
March 31,		  Nine Months Ended
March 31,		 
  2021  2020  2021  2020 
Research and development $284  $354  $1,098  $1,279 
General and administrative  246   321   1,207   1,455 
Total $530  $675  $2,305  $2,734 

On October 31, 2016, the Board adopted the AntriaBio, Inc. 2016 Non Qualified Stock Option Plan which allows the Company

Unrecognized stock-based compensation expense related to issue up to 35,000,000 shares of common stock in the form of stock options. The 2016 Non Qualified Stock Option Plan was amended on August 21, 2017 to reduce the number of shares to be issued to 15,000,000 shares of common stock in the form of stock options. The Board had issued options to purchase 28,995,000 of these shares to current employees and directors as of June 30, 2017, of which 4,360,000 were cancelled before their terms were established and 11,090,000 were additionally cancelled by the Board during the year ended June 30, 2017. The Company had 1,550,000 of the cancelled stock options that had begunprovide solely for time-based vesting prioris approximately $1.5 million as of March 31, 2021. This amount is expected to the cancellation and with the cancellationbe recognized over a remaining weighted average period of 1.6 years.

In July 2019, the Company recorded $1,199,847granted employee stock options for approximately 0.2 million shares that commence vesting upon the achievement of market, performance and service conditions (“Hybrid Options”). Total unrecognized stock compensation expense.cost, net of forfeitures, for the Hybrid Options amounted to approximately $1.9 million as of November 2, 2020. The Company had granted 255,000 of these shares to current employees and directorsHybrid Options will become exercisable when all of the following have occurred: (i) the option recipient has been employed by the Company asfor at least one year, (ii) the Company’s shares of December 31, 2017. The optionsCommon Stock have an exercise price from $1.00 to $1.20 per share. The options expirebeen listed for trading on a national stock exchange, and (iii) such date no later than ten yearsJuly 31, 2023, when the Company’s closing stock price exceeds $29.00 per share for 20 trading days in any consecutive 30-day period. On November 3, 2020, the performance condition to obtain a listing on a national stock exchange was achieved, when the Company’s shares began trading on the Nasdaq Capital Market. Prior to this date, no compensation cost had been recognized for the Hybrid Options as it was not considered probable that the performance condition would be achieved. Upon achievement of the performance condition, the Company recognized the cumulative effect of compensation cost of approximately $0.5 million for the period from the grant date through November 3, 2020. The remainder of the grant. The options vest onunrecognized compensation related to the Hybrid Options of approximately $1.4 million, is being recognized ratably through July 2024 when the Hybrid Options are expected to be fully vested. As of March 31, 2021, total unrecognized compensation cost, net of forfeitures, for the Hybrid Options amounted to approximately $1.2 million which is expected to be recognized over a monthly basis over 48 months, except for 75,000weighted average term of the options which do not begin to vest until specific events have occurred and then begin to vest over 48 months and 60,000 of the options that all vest at the end of the consulting contract. Some options are subject to a one year cliff and all options have an exercise price based on the fair value of the common stock on the date of grant.3.3 years.

Warrants

 

The Company has computed the fair value of all options granted that have begun vesting using the Black-Scholes option pricing model.issued warrants in conjunction with various debt and equity financings and for services. The options that require specific events before they begin to vest are not valued until the specific event has occurred. In order to calculate the fair valuefollowing table sets forth a summary of the options, certain assumptions are made regarding componentswarrant activity for the nine months ended March 31, 2021 (shares in thousands):

  Shares  Price (1)  Term (2) 
Outstanding, June 30, 2020  618  $57.46   2.3 
Warrants issued  820(3)  19.50     
Warrants expired  (1)  92.50     
Outstanding, March 31, 2021  1,437   35.77   4.4 

(1)Represents the weighted average exercise price.

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

(3)Represents warrants granted in connection with the Fiscal 2021 Equity Financing on October 9, 2020. The warrants are exercisable at $19.50 per share for a period of 7 years and may be exercised on a cash or cashless basis at the election of the holder.


Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 8 — COMMITMENTS AND CONTINGENCIES

Commitments

Please refer to Note 4 for further discussion of commitments to make milestone payments and to pay royalties under license agreements with Xoma and ActiveSite.

COVID-19

In December 2019, COVID-19 was reported to have surfaced in Wuhan, China, and by March 2020 the spread of the model, includingvirus had resulted in a world-wide pandemic. The U.S. economy has been adversely affected by mass quarantines and government mandated stay-in-place orders to halt the estimated fair valuespread of the underlying common stock, risk-free interest rate, volatility,virus. While these orders are being lifted gradually, a full recovery of the U.S. economy may not occur until 2021 or later. Federal and state governments in the U.S. have approved funding for many programs that may provide financial assistance to individuals and businesses. The Company intends to pursue all material types of government assistance that it may be entitled to. However, no assurance can be provided that the Company will qualify and realize any material benefits from such assistance.

COVID-19 has resulted in an economic environment that is unfavorable for many businesses to pursue new equity financings. Accordingly, the current economic environment is expected dividend yield and expected option life. Changesto present greater challenges for the Company to obtain additional funding for its clinical programs on terms that are acceptable to the assumptions could cause significant adjustments to valuation. The Company estimated a volatility factor utilizing comparable published volatilityCompany’s Board of several peer companies. Due to the small number of option holders, the Company does not calculate a forfeiture rate but simply accounts for forfeitures as they occur. The Company estimates the expected term based on the average of the vesting term and the contractual term of the options. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity.Directors.

 

The Company has computedIn February 2020, Rezolute announced the fair valueinitiation of all options grantedits Phase 2b trial in congenital hyperinsulinism. New site initiation and enrollment resumed during the six monthsfiscal quarter ended December 31, 2017 using2020. However, similar to many other clinical studies conducted by other companies throughout the following assumptions:world, effects of the pandemic remain uncertain, and no guarantees can be made that hold in future site initiation or enrollment will not be encountered again. There are no mitigation strategies we can employ to help avoid potential timeline delays should there be an extended enrollment pause due to COVID-19. The long-term effects of COVID-19 are expected to require additional safeguards to protect patients and staff engaged in clinical activities, and extended periods of time required to complete clinical trials, both of which are expected to result in higher overall costs. While the current business disruption is expected to be temporary, the long-term financial impact and the duration cannot be reasonably estimated at this time.

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, 2021, 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 or not 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 9 — RELATED PARTY TRANSACTIONS

Related Party Licensing Agreement

On September 15, 2020, the Company entered into an exclusive license agreement with Handok, Inc. (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 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.

Equity Issuances

On July 23, 2019, H&G agreed to purchase an aggregate of approximately 1.4 million shares of Common Stock at an issuance price of $14.50 per share for gross proceeds of $20.0 million. This purchase was made pursuant to the terms of call options that were issued in connection with the Fiscal 2020 Private Placement discussed in Note 6.

 

 11


Rezolute, Inc.

Expected volatility84%
Risk free interest rate2.0 - 2.21% 
Expected term (years)7
Dividend yield0%

 

Stock option activity is as follows:Notes to Unaudited Condensed Consolidated Financial Statements

 

     Weighted  Weighted Average 
  Number of  Average  Remaining 
  Options  Exercise Price  Contractual Life 
Outstanding, June 30, 2017  21,290,751  $1.65   7.7 
Granted  255,000  $1.08     
Forfeited  (457,000) $1.65     
Outstanding, December 31, 2017  21,088,751  $1.65   7.7 
             
Exercisable at December 31, 2017  9,250,001  $2.09   6.4 

On June 26, 2020, Handok entered into a 10b5-1 purchasing plan (the “10b5-1 Plan”) with JMP Securities. Subject to the terms of the 10b5-1 Plan, Handok purchased on the open market an aggregate of approximately 189,000 shares of Common Stock through October 2020. As of March 31, 2021, Handok, Inc. owns approximately 24% and Genexine, Inc. owns approximately 22% of the Company’s outstanding shares of Common Stock.

 

Stock-basedMaster Services Agreement

Effective July 1, 2019, the Company entered into a Master Services Agreement (“MSA”) with H&G whereby the Company agreed to assist H&G in an evaluation of their long-acting growth hormone program referred to as GX-H9. For the nine months ended March 31, 2020, the Company billed H&G for employee services of approximately $0.1 million and reimbursable expenses incurred with unrelated parties of approximately $0.1 million. Amounts billed under the MSA for employee services are reflected as a reduction of research and development compensation expense related tocosts in the fair value of stock options was included in theaccompanying unaudited condensed consolidated statement of operations as research and development – compensation and benefits expense of $281,814 and $444,801 and as general and administrative – compensation and benefits expense of $912,215 and $792,137for the nine months ended March 31, 2020. No amounts were billed under the MSA for the three months ended DecemberMarch 31, 20172020 and 2016, respectively. Stock-based compensation expense related to the fair value of stock options was included in the statement of operations as research and development – compensation and benefits expense of $580,769 and $749,770 and as general and administrative – compensation and benefits expense of $2,120,959 and $1,376,196 for the six months ended December 31, 2017 and 2016, respectively. The unrecognized stock-based compensation expense at December 31, 2017 is $8,637,760. The Company determined the fair value as of the date of grant using the Black-Scholes option pricing method and expenses the fair value ratably over the vesting period.

Warrants – The Company issued warrants to agents in conjunction with the closing of various financings and issued warrants in private placements as follows:

     Weighted  Weighted Average 
  Number of  Average  Remaining 
  Warrants  Exercise Price  Contractual Life 
Outstanding, June 30, 2017  32,796,448  $1.71   3.7 
Warrants issued for consulting services  650,000  $1.03     
Warrants expired  (285,407) $2.43     
Outstanding, December 31, 2017  33,161,041  $1.69   3.2 

For the Six Months Ended December 31, 2017: The Company issued warrants to purchase 100,000 shares of common stock at a price of $1.00 per share in connection with a consulting agreement. The Company also issued warrants to purchase 50,000 shares of common stock at a price of $1.00 per share in connection with investor services. The Company issued warrants to purchase 500,000 shares of common stock at a price of $1.04 per share in connection with a consulting agreement.

The warrants exercisable for 16,667 shares of common stock at December 31, 2017 are accounted for under liability accounting. The fair value as of December 31, 2017 and June 30, 2017 were $90 and $588, respectively which is reflected as a liability with the fair value adjustment recorded as derivative gains or losses on the consolidated statements of operations.

 12

The warrants exercisable for the 250,000 shares of common stock are accounted for under the equity method of accounting and are fair valued monthly at the date that the warrants vest. As of June 30, 2017, warrants to purchase 15,624 shares of common stock had vested and $12,564 had been recorded into equity and investor relations expense. As of December 31, 2017, warrants to purchase an additional 31,248 shares of common stock had vested and $27,333 had been recorded into equity and investor relations expense.

The warrants exercisable for 100,000 shares were accounted for under equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued at $66,643 and recorded as additional paid-in-capital and as general and administrative expenses. The warrants exercisable for 50,000 shares were accounted for under equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued at $33,322 and recorded as additional paid-in-capital and as investor relations expense. The warrants exercisable for 500,000 shares were accounted for under equity treatment and were fair valued as of the date of issuance. The fair value of the warrants was valued at $407,605 and recorded as additional paid-in-capital and license costs.

These warrants were valued using the Black-Scholes option pricing model on the date of issuance. In order to calculate the fair value of the warrants, certain assumptions were made regarding components of the model, including the closing price of the underlying common stock, risk-free interest rate, volatility, expected dividend yield, and warrant term. Changes to the assumptions could cause significant adjustments to valuation. Rezolute estimated a volatility factor utilizing comparable published volatilities of several peer companies. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity.

The Black-Scholes valuation methodology was used because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions for the warrant values calculated for the three and nine months ended DecemberMarch 31, 2017 were as follows:2021.

Expected volatility53% - 85% 
Risk free interest rate1.76% - 2.37% 
Warrant term (years) 1 - 10
Dividend yield0%

 

NoteNote 9 Income Taxes10 — INCOME TAXES

 

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income,operating results, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating incomeresults 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 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. In connection with the New Tax Cuts and Jobs Act, all gross deferred tax assets and liabilities have been remeasured at the 21% Federal statutory rate. There was no change to the net deferred tax asset recorded as the valuation allowance was also adjusted offsetting these changes.

 

InFor the three and sixnine months ended DecemberMarch 31, 2017,2021 and 2020, the Company did not record any income tax provisionbenefit due to expected future losses anda full valuation allowance on its deferred 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, 2021 and 2020.

 

Note 10 Commitments and Contingencies11 — EARNINGS PER SHARE

 

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. For the three and nine months ended March 31, 2021 and 2020, basic and diluted net loss per share were the same since all common stock equivalents were anti-dilutive. As of March 31, 2021 and 2020, the following outstanding potential common stock equivalents were excluded from the computation of diluted net loss per share since the impact of inclusion was anti-dilutive (in thousands):

  2021  2020 
Stock options  874   963 
Warrants  1,437   618 
         
Total  2,311   1,581 

Note 12 — FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS

Lease Commitments –Fair Value MeasurementsIn May 2014,

Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:


Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Level 1—Quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2—Other than quoted prices included in Level 1 that are observable for the asset and liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.

Level 3—Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any market activity for the asset or liability at the measurement date.

Due to the relatively short maturity of the respective instruments, the fair value of cash and cash equivalents, accounts payable and accrued liabilities approximated their carrying values as of March 31, 2021 and June 30, 2020. The derivative liability discussed in Note 6 was required to be measured at fair value on a recurring basis beginning on February 17, 2021. Please refer to Note 6 for the key Level 3 inputs used for the valuation of this derivative liability as of February 17, 2021 and March 31, 2021. The Company did not have any assets or other liabilities measured at fair value on a recurring basis as of March 31, 2021 and June 30, 2020. The Company’s policy is to recognize asset or liability transfers among Level 1, Level 2 and Level 3 as of the actual date of the events or change in circumstances that caused the transfer. During the three and nine months ended March 31, 2021 and 2020, the Company did not have any transfers of its assets or liabilities between levels of the fair value hierarchy.

Significant Concentrations

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents at high-quality financial institutions. For the nine months ended March 31, 2021, cash deposits have exceeded the amount of federal insurance provided on such deposits. As of March 31, 2021 and June 30, 2020, the Company had cash and cash equivalents with a single financial institution with an aggregate balance of $32.0 million and $10.0 million, respectively. The Company has never experienced any losses related to its investments in cash and cash equivalents.

Note 13 — SUBSEQUENT EVENTS

Loan Agreement

On April 14, 2021, the Company entered into a lease$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 approximately 27,000 square feet of office, laboratory and clean room space(i) a $15.0 million term A loan that was funded on April 14, 2021, (ii) a $7.5 million term B loan to be leasedfunded upon request by the Company no later than January 25, 2022, and (iii) a $7.5 million term C loan to be funded upon request by the Company no later than September 25, 2022. Funding of the term B loan is subject to the Company’s ability to obtain at least $35 million of equity or subordinated debt financing by January 2022 and the achievement of certain clinical milestones related to RZ358 and RZ402. Funding of the term C loan is subject to the Company’s ability to meet the conditions for seventy-two months.funding the term B loan, plus obtaining an additional $35 million of equity or subordinated debt financing by September 2022 and the achievement of certain additional clinical milestones related to RZ358 and RZ402. Each term loan has a maturity date of April 1, 2026 (the “Maturity Date”). In addition, the Company’s cash and cash equivalents became subject to a blocked account control agreement (“BACA”) in favor of the Lenders whereby a cash balance of at least $5.0 million must be maintained beginning on the earlier of (i) December 31, 2021, and (ii) the date the term B loan is funded. In the event of a default under the Loan Agreement, the BACA would enable the Lenders to prevent the release of funds from the Company’s cash accounts.

Outstanding borrowings bear interest at a floating rate equal to (a) 8.75% per annum plus (b) the greater of (i) the rate per annum published by the Intercontinental Exchange Benchmark Administration Ltd. (“IEBA”) for a term of one month and (ii) 0.12% per annum. As of April 14, 2021, the IEBA rate for a term of one month was approximately 0.12% per annum. Therefore, the contractual rate at inception was 8.87%. The lease requires Company is permitted to make interest-only payments on each term loan through May 1, 2023. At the Company’s request, the interest-only period can be extended until May 1, 2024, if the Company obtains at least $70.0 million of equity or subordinated debt financing by September 2022 and no event of default shall have occurred. The Company will be required to make monthly payments of $28,939 adjusted annually by approximately 3% plus triple net expenses monthly of $34,381 adjusted annually. The Company also made a security deposit of $750,000 which is held by the landlord, of which $375,000 has been returned to the Companyprincipal and the remaining balance will be returned gradually over the next several years.

 13

On March 17, 2017, the Company entered into a lease of approximately 20,000 square feet of office space to be leased for eighty-two months. The lease requires monthly payments of $28,425 adjusted annually plus triple net expenses monthly of $28,410 adjusted annually. The Company also made a security deposit of $56,851 which will be returnedinterest commencing at the end of the lease.interest-only period of the term loans.

 

On March 17, 2017, the Company sub-leased their original approximately 10,000 square feet of office space to another company. The sublease is for eighty-two months unless the Company is unable to extend our current lease then the sub-lease will expire on March 31, 2020. The Company is obligated to receive monthly paymentspay the Lenders (i) a non-refundable facility fee in the amount of $12,523 adjusted annually plus triple net expenses monthly1.00% of $12,828 adjusted annually.each term loan that is funded (the “Facility Fee”), and (ii) a final fee equal to 4.75% of the aggregate amount of the term loans funded (the “Final Fee”). At the closing on April 14, 2021, the Company incurred debt discounts for an aggregate of $1.4 million that consisted of $0.5 million for financial advisory and legal fees, and $0.9 million for the Facility Fee and Final Fee related to the term A loan. Final Fees are payable upon the earliest to occur of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans. The Company also received a security deposittotal debt discount of $25,046 which$1.4 million related to the term A loan will be returned ataccreted to interest expense using the endeffective interest method.


Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Concurrently with the execution of the lease.

As of December 31, 2017, the minimum rental commitment under the leases are as follows:

  Operating Leases  Sub-lease Income  Total 
Year Ending June 30,            
2018  365,680   (76,866)  288,814 
2019  747,953   (157,187)  590,766 
2020  688,892   (148,551)  540,341 
2021  338,392   -   338,392 
2022  347,836   -   347,836 
Thereafter  569,364   -   569,364 
  $3,058,117  $(382,604) $2,675,513 

License Agreements: On August 4, 2017,Loan Agreement, the Company entered into an exit fee agreement (the “Exit Fee Agreement”) that provides for a Development and License Agreement (“License Agreement”) with ActiveSite Pharmaceuticals, Inc.  (“ActiveSite”) pursuant to which the Company acquired the rights to ActiveSite’s Plasma Kallikrein Inhibitor program (“PKI Program”).  The Company desires to use the PKI Program to develop, file, manufacture, market and sell products for diabetic macular edema and other human therapeutic indications.  The Company was required to make an upfront paymentfee of $750,000 payable within five (5) days4.00% of the datefunded principal balance of each term loan in the parties executed the License Agreement, which was expensedevent certain transactions (defined as research“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 development costs. The Company is required to pay up to an additional aggregateissuances of $36.5 million in development and regulatory milestone payments if certain clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we are required to pay up to an aggregate of $10.0 million in sales milestone payments if certain annual sales targets are achieved.

On December 6, 2017, the Company entered into a License Agreement and Common Stock Purchase Agreement (collectively “Transaction Documents”) with XOMA LLC (“XOMA”) pursuant to which the Company acquired the exclusive rights to develop and commercialize XOMA 358 (now RZ358) for an orphan indication, Congenital Hyperinsulinism. The Company is responsible for all development, regulatory, manufacturing and commercialization activities associated with RZ358. Pursuant to the Transaction Documents, the Company is required to pay XOMA $6 million and to issue XOMA $12 millionthat result in new investors owning more than 35% of the Company’s common stock basedshares. If the Company determines that it is probable that an Exit Event will occur over the ten-year term of the Exit Fee Agreement, a liability will be recognized, and the corresponding fee will be accounted for as an additional debt discount.

The Company has the option to prepay all, but not less than all, of the outstanding principal balance of the term loans. In the event of a voluntary or mandatory prepayment prior to the Maturity Date, the Company will incur a prepayment fee ranging from 1.00% to 3.00% of the outstanding principal balance.

The Company’s obligations under the Loan Agreement are secured by a first-priority security interest in substantially all the Company’s assets, including its intellectual property. The Loan Agreement contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, and a default upon the Company’s financing activities in 2018. The Company wouldoccurrence of a material adverse change affecting the Company. Upon the occurrence of an event of default, a default interest rate of an additional 5.00% per annum may be requiredapplied to issue additional sharesthe outstanding loan balance, and a put option to XOMA if certain financing activities did not occur in 2018,the Lenders may declare all outstanding obligations immediately due and payable and exercise all their rights and remedies as more fully describedset forth in the license agreement. The Company also has a required development spend every year related to RZ358. The Company is also required to make certain clinical, regulatory and annual net sales milestone payments of up to $222 million in the aggregate. The Company is also obliged to pay XOMA royalties ranging from the high single digits to the mid-teens based upon annual net sales of RZ358. Finally, under the terms of the License Agreement, the Company is required to pay XOMA a low single digit royalty on sales of the Company’s other products.Loan Agreement.

 

 14


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 December 31, 2017, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholders, is an adverse party or has a material interest adverse to our interest.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

GeneralCertain figures, such as interest rates and other percentages included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our unaudited condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

 

This discussion and analysis should be readRecent Developments

On October 9, 2020, we completed a private placement of equity securities that resulted in conjunctionnet proceeds of approximately $37.5 million. The completion of this private placement triggered the repayment of our obligations to Xoma with a remaining balance due of $1.4 million as of September 30, 2020. Effective October 9, 2020, we implemented a reverse stock split where fifty shares of Common Stock outstanding were exchanged into one newly-issued share of our $0.001 par value Common Stock. On November 3, 2020, we obtained approval from Nasdaq to have our shares of common stock listed on the Nasdaq Capital Market.

In February 2021, we filed a certificate of correction with the accompanying financial statementsState of Delaware that revised the number of our authorized shares of Common Stock from 500,000,000 shares to 10,000,000 shares, which resulted in a deficiency of 780,000 shares in the number of authorized shares that would be required if all of our stock options and related notes. Thiswarrants were exercised. We presently have stock options and warrants outstanding for an aggregate of approximately 2.4 million shares and substantially all of these instruments are out-of-the-money by a significant amount whereby the likelihood of any of the shares being exercised is remote. However, since it is possible that we could be required to settle the deficiency for 780,000 shares in cash, we recognized a liability of $3.6 million for the fair value of stock options and warrants that comprise the deficiency as of February 17, 2021. As of March 31, 2021, the fair value of this liability amounted to $1.8 million. If our stockholders approve the proposed increase to 40,000,000 authorized shares at a meeting scheduled for May 26, 2021, the deficiency will be eliminated resulting in the elimination of the liability since cash settlement would no longer be required.

In December 2020, we entered into an Equity Distribution Agreement (“EDA”), pursuant to which we may offer and sell, from time to time, shares of the Company’s common stock, par value $0.001 per share, having an aggregate offering price of up to $50.0 million. Since we don’t currently have sufficient authorized shares of Common Stock, we are presently unable to sell any shares pursuant to the EDA. However, if our stockholders approve an increase in authorized shares at a meeting scheduled for May 26, 2021, we would be able to begin selling shares under the EDA.

In April 2021, we entered into a Loan and Security Agreement (the “Loan Agreement”) with SLR Investment Corp. and certain other lenders (the “Lenders”) that provides for total borrowings up to $30.0 million in three tranches. The initial tranche of funding for $15.0 million was received in April 2021. Under the Loan Agreement, we are required to maintain a restricted cash balance of at least $5.0 million beginning no later than December 31, 2021. The second tranche for $7.5 million is available upon our request by January 2022, and the third tranche for $7.5 million term is available upon our request by September 2022. Access to the additional borrowings under the second and third tranches is subject to our ability by the requested funding date to raise cumulative equity or subordinated debt financing of $35.0 million and $70.0 million, respectively. We are permitted to make interest-only payments on each term loan at least through May 1, 2023, and the maturity date is on April 1, 2026.

Please refer to our discussion under Liquidity and analysis contains forward-looking statementsCapital Resources below for further discussion of the October 2020 private placement, Early Payments due to Xoma, Reverse Stock Split, EDA, and the April 2021 Loan Agreement.

Special Note About COVID-19

We have been actively monitoring the COVID-19 situation and its impact. Our primary objectives have remained the same throughout the pandemic: to support the safety of our team members and their families and continue to support our preclinical studies and clinical trials. Currently, with respect to the operation of our facilities, we are closely adhering to applicable guidelines and orders. Essential operations in research and maintenance that involve risks, uncertainties and assumptions. Our actual results may differ materiallyoccur within our facilities are continuing in accordance with the permissions granted under government ordinances. Across all our locations, we have instituted a temporary work from those anticipated in these forward-looking statementshome policy for all office personnel who do not need to work on site to maintain productivity. At this time, we have not identified a material change to our productivity as a result of many factors.these measures, but this could change, particularly if restricted travel, closed schools, and shelter-in-place orders are not removed or significantly eased in the areas in which we operate.


While our financial results for the three and nine months ended March 31, 2021 and the fiscal year ended June 30, 2020 were not significantly impacted by COVID-19, we cannot predict the impact of the progression of the COVID-19 pandemic on future results due to a variety of factors, including the continued good health of our employees, the ability of us to maintain operations, access to healthcare facilities and patient willingness to participate in our clinical trials, any further government and/or public actions taken in response to the pandemic and ultimately the length of the pandemic. The ultimate impact of the COVID-19 pandemic on our business operations, our ability to raise capital, as well as our preclinical studies and clinical trials remains uncertain and subject to change and will depend on future developments, which cannot be accurately predicted. Any prolonged material disruption of our employees, suppliers, or manufacturing may negatively impact our consolidated financial position, results of operations and cash flows. We will continue to monitor the situation closely.

 

Summary of Clinical Assets

 

Our lead clinical asset, RZ358, is an antibody therapy in Phase 2b development as a potential treatment for congenital hyperinsulinism (“CHI”), an ultra-rare pediatric genetic disorder. In February 2020, we announced the initiation of the RZ358-606 Phase 2b study (“RIZE”) globally at multiple study centers. Prior to COVID-19, we had planned to complete the RIZE study by the middle of calendar year 2021. In March 2020, we paused the RIZE study as a result of the COVID-19 pandemic. As the COVID-19 pandemic abates in different regions, we are resuming clinical activities including trial site initiations and as of January 2021, we have recommenced patient enrollment. Subject to COVID-19 conditions, we believe we will be able to complete the RIZE study in the second half of calendar year 2021.

Our second clinical asset, RZ402, is a selective and potent plasma kallikrein inhibitor (PKI) being developed as a potential oral therapy for the chronic treatment of diabetic macular edema (DME). RZ402 is currently in Phase 1 development. In June 2017, we filed an IND for AB101 with the FDA and in July 2017,January 2021, we dosed ourthe first patientsubject in the Phase 1 first-in-human clinical1a study, and in May 2021, we announced positive topline results whereby single dose oral administration of RZ402 resulted in plasma concentrations that substantially exceeded target pharmacologically-active drug levels, demonstrating the potential for once daily dosing. RZ402 was generally safe and well-tolerated at all doses tested, without dose-limiting toxicities. The favorable results of the Phase 1a study support our plans for a Phase 1b multiple-ascending dose study that is expected to commence in the third quarter of 2021 and planned to be completed by the first quarter of 2022. If favorable results are also obtained in the Phase 1b study, we expect to advance developmental activities toward a Phase 2 study during the second half of calendar year 2022.

RZ358

CHI is an ultra-rare pediatric genetic disorder characterized by excessive production of insulin by the pancreas. If untreated, the elevated insulin levels in these patients can induce extreme hypoglycemia (low blood sugar) events, increasing the risk of neurological and developmental complications, including persistent feeding problems, learning disabilities, recurrent seizures, brain damage or even death. There are no approved therapies for CHI and the current standard of care treatments are suboptimal. In some cases, pancreatic surgery is a treatment option, but this approach is invasive and may require repeat surgeries.

Rezolute’s lead candidate, RZ358, is an intravenously administered human monoclonal antibody that binds to a unique site (allosteric) on the insulin receptor throughout the body, such as in the liver, fat, and muscle. The antibody modifies insulin's binding and signaling to maintain glucose levels in a normal range which counteracts the effects of elevated insulin in the body. Therefore, we believe that RZ358 is ideally suited as a potential therapy for conditions characterized by excessive insulin levels, and it is being developed to treat the hyperinsulinism and low blood sugar characteristic of diseases such as CHI. As RZ358 acts downstream from the beta cells, it has the potential to be universally effective at treating CHI caused by any of the underlying genetic defects.

RZ358 received Orphan Drug Designation in the U.S. and European Union as well as Pediatric Rare Disease Designation in the U.S. RZ358 is currently in Phase 2b development (the “Study”)RIZE study, RZ358-606). The RIZE study is a first-in-human single ascending dosemulti-center, open-label, repeat-dose Phase 2b study to assess the safety and tolerability, pharmacokinetics and pharmacodynamics of AB101RZ358 in four sequential dosing cohorts of patients with Type 1 Diabetes Mellitus. The first part of the studyCHI who are at least two years old and have residual low blood sugar (<70 mg/dL) that is a sequential cohort dose ranging of AB101 and there is an optional second study part to compare one or more tested doses of AB101 to Lantus®.inadequately controlled on existing therapies. In addition to safety and pharmacokinetic assessments, the time-action pharmacology of AB101 (onset, peak, and end of action) is being evaluated using several measures of glycemic response, including the hyperinsulinemic euglycemic clamp technique,evaluations, continuous glucose monitoring (“CGM”) and background insulin use. self-monitored blood glucose will be utilized to evaluate several glycemic efficacy endpoints. The primary endpoint is the time within a glucose target range of 70-180 mg/dL by CGM after week 8 of treatment compared to baseline.


RZ402

Diabetic Macular Edema (DME) is a vascular complication of diabetes and a leading cause of blindness in the U.S. and elsewhere. Chronic exposure to high blood sugar levels can lead to inflammation, cell damage, and the breakdown of blood vessel walls. Specifically, in DME, blood vessels behind the back of the eye become porous and permeable leading to the unwanted infiltration of fluid into the macula. This fluid leakage creates distorted vision and left untreated, blindness.

Currently available treatments for DME involve frequent burdensome anti-vascular growth factor (anti-VEGF) injections into the eye or invasive laser surgery. RZ402 is designed to be a once daily oral therapy for the treatment of DME. Unlike the anti-VEGF therapies, RZ402 targets the Kallikrein–Kinin System in order to address inflammation and vascular leakage. We believe that systemic exposure through oral delivery is critical to target the microvasculature behind the back of the eye. Further, as an oral therapy, RZ402 has the potential to substantially change the therapeutic paradigm for patients suffering with DME by providing a convenient, self-administered treatment option to encourage patients to initiate therapy sooner, adhere to prescribed treatment guidelines, and improve overall outcomes.

In Q4January 2021, we dosed the first subject in the Phase 1a study, and in May 2021, we announced positive topline results whereby single dose oral administration of RZ402 resulted in plasma concentrations that substantially exceeded target pharmacologically-active drug levels, demonstrating the potential for once daily dosing. RZ402 was generally safe and well-tolerated at all doses tested, without dose-limiting toxicities. The favorable results of the Phase 1a study support our plans for a Phase 1b multiple-ascending dose study that is expected to commence in the third quarter of 2021 and to be completed by the first quarter of 2022. If favorable results are also obtained in the Phase 1b study, we expect to advance developmental activities toward a Phase 2 study during the second half of calendar year 2017, we completed the first of up to five potential cohorts of the Study and having conducted the interim safety and dose escalation review meeting from that cohort, we plan on proceeding to a higher dose in the second cohort as planned per protocol. However, we will not begin dosing patients in the second cohort until we have raised additional capital. Further, as our clinical study is ongoing and we have not dose escalated beyond the first cohort, we do not anticipate announcing any results with respect to the Study until next year.2022.

 

On August 4, 2017, we licensed from ActiveSite Pharmaceuticals, Inc. (“ActiveSite”) their oral plasma kallikrein inhibitor portfolio (“PKI Portfolio”) targeting the treatmentFactors Impacting our Results of diabetic macular edema (“DME”) and other plasma kallikrein-medicated diseases such as hereditary angioedema. ActiveSite has generated proof-of-concept data for their orally-administered plasma kallikrein inhibitors in clinically-relevant animal models of macular edema, and we are leveraging that data to complete IND-enabling toxicology studies and prepare for human clinical trials.

On December 6, 2017, we completed the last phase of our corporate development strategy to create a focused metabolic disease company with multiple indications in which we in-licensed a fully human monoclonal antibody from XOMA LLC that is currently in Phase 2 clinical development targeting a treatment for an ultra-orphan pediatric indication, congenital hyperinsulinism (the “CHI Program”). We believe that the CHI Program is a compelling opportunity given that there is no approved therapy for this devastating childhood disease.

We believe that the CHI Program and the PKI Portfolio complement our endogenous super long acting basal program, AB101, currently in Phase 1 clinical development. We further believe that the combination of these assets creates a potential highly valuable biopharmaceutical enterprise with a compelling investment thesis attractive to institutional investors. While we believe that our prospects are bright, we are currently significantly capital constrained and have elected to conduct a secured, convertible note financing to bridge the Company (the “Debt Financing”) until the Equity Financing is complete. We are seeking to raise $3,000,000 or more in the Debt Financing and we have conducted our first for aggregate gross proceeds of $500,000 in January of 2018.

Operations

 

We have met with a varietynot generated any revenues since our inception in March 2010. Due to the time required to conduct clinical trials and obtain regulatory approval for any of our product candidates, we anticipate it will be some time before we generate substantial revenues, if ever. We expect to generate operating losses for the large and mid-size health care fundsforeseeable future; therefore, we expect to unveil the Rezolute story as we seekcontinue efforts to raise at least $25 million (the “Equity Financing”) andadditional capital to date, asmaintain our current operating plans beyond the funds have begun doing diligence on our programs and prospects,next year. We cannot assure you that we have experienced very favorable reception to our strategy and expanded pipeline. Nonetheless, we recognizewill secure such financing or that it will take timebe adequate for the long-term execution of our business strategy. Even if we obtain additional financing, it may be costly and may require us to completeagree to covenants or other provisions that will favor new investors over our existing stockholders.

Key Components of Consolidated Statements of Operations

Research and development expenses. Research and development expenses (“R&D”) consist primarily of compensation and benefits for our personnel engaged in R&D activities, clinical trial costs, licensing costs, and consultants and outside services. Our research and development compensation costs include an allocable portion of our cash and stock-based compensation, employee benefits, and consulting costs related to personnel engaged in the Equity Financingdesign and development of product candidates and other scientific research projects. We also allocate a portion of our facilities and overhead costs based on the personnel and other resources devoted to R&D activities.

General and administrative expenses. General and administrative expenses (“G&A”) consist primarily of (i) an allocable portion of our cash and stock-based compensation and employee benefits related to personnel engaged in our administrative, finance, accounting, and executive functions, and (ii) an allocable portion of our facilities and overhead costs related to such personnel. G&A expenses also include travel, legal, auditing, consulting, investor relations and other costs primarily related to our status as a public company.

Gain on changes in fair value of derivative liability. We recognized a derivative liability related to a deficiency in our authorized shares as discussed above under the caption Recent Developments. Since there is a possibility that we do not anticipate closing suchcould be required to settle this share deficiency in cash, we recognized a transaction untilderivative liability at fair value on the date that the deficiency occurred. The derivative liability is adjusted to fair value at the end of Q1 calendar year 2018each reporting period with changes in fair value reflected as a gain or early Q2. Further, no assurance can be given that any such financing will be completed or will be timely completed on favorable terms. Currently, we cannot sustain operations without the Debt Financing and without the larger Equity Financing we cannot continue to advance allloss in our unaudited condensed consolidated statements of our current programs.operations.

 

 15

Interest and other income. Interest and other income consist primarily of interest income earned on temporary cash investments.

 

SignificantCritical Accounting Policies and Significant Judgments and Estimates

 

OurOverview

The discussion herein is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.States. The preparation of thethese unaudited condensed consolidated financial statements requires managementus to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, andas well as the reported amounts ofrevenue and expenses during the reporting period. On an on-going basis, management evaluates itsperiods. These items are monitored and analyzed for changes in facts and circumstances, and material changes in these estimates and judgments, including those related tocould occur in the estimated useful lives and impairment of depreciable assets, the fair value of share-based payments and warrants, fair value of derivative instruments,future. We base our estimates of the probability and potential magnitude of contingent liabilities and income tax valuation allowances. Management bases its estimates and judgments on historical experience and on various other factors that we believe are believed to be reasonable under the circumstance,circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions. The methods, estimates, and judgments used by us in applying these most critical


With respect to our significant accounting policies have a significant impact on the results we reportthat are described in Note 1 to our consolidated financial statements.statements included in Item 8 of our 2020 Form 10-K, we believe that the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

 

Derivative Liability

The derivative liability relates to a deficiency in our authorized shares as discussed above under the caption Recent Developments. The derivative liability is adjusted to fair value at the end of each reporting period with changes in fair value reflected as a gain or loss in our unaudited condensed consolidated statements of operations. We made an accounting policy election to select the stock options and warrant agreements with the earliest issuance dates to compute the estimated fair value of the financial instruments associated with the authorized share deficiency. These stock options and warrants were generally those with the highest exercise prices that were least likely to be exercised. Fair value of the stock options and warrants associated with the deficiency are computed on the date the deficiency arose and at the end of each reporting period using the Black-Scholes-Merton (“BSM”) option-pricing model. Key assumptions inherent in this valuation model include the historical volatility of our Common Stock, the remaining contractual term of the options and warrants, and the market price of our Common Stock on the valuation date. Changes in these factors from period to period can result in significant increases and decreases in fair value of the derivative liability, with corresponding gains or losses reflected in our operating results for each reporting period. If our stockholders subsequently approve an increase in our authorized shares, we will no longer include the derivative liability in our balance sheets after the approval date. However, any gains or losses reflected prior to the approval date will not be reversed.

Stock-Based Compensation Expense

We measure the fair value of services received in exchange for all stock options granted based on the fair value of the award as of the grant date. We compute the fair value of stock options with time-based vesting using the BSM option-pricing model and recognize the cost of the equity awards over the period that services are provided to earn the award. For awards granted which contain a graded vesting schedule, and the only condition for vesting is a service condition, compensation cost is recognized on a straight-line basis over the requisite service period as if the award was, in substance, a single award. We recognize the impact of forfeitures in the period that the forfeiture occurs, rather than estimating the number of awards that are not expected to vest in accounting for stock-based compensation.

We have granted stock options with vesting that is dependent on achieving certain market, performance and service conditions (“Hybrid Options”). For purposes of recognizing compensation cost, we determine the requisite service period as the longest of the derived, implicit and explicit vesting periods for each of the market, performance and service conditions, respectively. Due to achievement of the performance condition, we began recognizing compensation cost using the grant date fair value in November 2020 and continuing through the end of the requisite service period. Determination of the requisite service period of the Hybrid Options was based on the date that the performance condition was achieved. If the Hybrid Options do not ultimately become exercisable due to the option holders’ failure to achieve the requisite service period, any previously recognized compensation cost will be reversed.

Research and Development

R&D costs are expensed as incurred. Intangible assets related to in-licensing costs under license agreements with third parties are charged to expense unless we are able to determine that the licensing rights have an alternative future use in other R&D projects or otherwise.

Clinical Trial Accruals

Clinical trial costs are a component of R&D expenses. We accrue and recognize expenses for clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual study in accordance with agreements established with clinical research organizations and clinical trial sites. We determine the estimates through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. Nonrefundable advance payments for goods and services that will be used or rendered in future R&D activities, are deferred and recognized as expense in the period that the related goods are delivered, or services are performed.


Results of Operations

For Three months ended March 31, 2021 and Six Months Ended December 31, 2017 and 20162020

 

Results of operations for the three months ended DecemberMarch 31, 2017 (the “2018 quarter”)2021 and 2020 reflect net losses of approximately $3.7 million and $5.0 million, respectively. Our unaudited condensed consolidated statements of operations for the three months ended DecemberMarch 31, 2016 (the “2017 quarter”) reflected losses2021 and 2020, along with the changes between periods, are presented below (dollars in thousands):

     Changes 
  2021  2020  Amount  Percent 
Operating expenses:                
 Research and development:                
 Compensation and benefits, net of related party reimbursements $1,529  $1,399  $130   9%
 Clinical trial costs  1,495   622   873   140%
 Consultants and outside services  206   1,278   (1,072)  -84%
 Material manufacturing costs  253   284   (31)  -11%
 Facilities and other  275   150   125   83%
                 
 Total research and development  3,758   3,733   25   1%
                 
 General and administrative:                
 Compensation and benefits  850   762   88   12%
 Professional fees  655   319   336   105%
 Facilities and other  220   256   (36)  -14%
 Total general and administrative  1,725   1,337   388   29%
                 
 Total operating expenses  5,483   5,070   413   8%
                 
 Operating loss  (5,483)  (5,070)  (413)  8%
                 
Non-operating income (expense):                
Gain on change in fair value of derivative liability  1,784   -   1,784   n/a 
Interest and other  4   30   (26)  -87%
                 
 Net loss $(3,695) $(5,040) $1,345   -27%

Presented below is a discussion of the key factors that resulted in changes in our results of operations for these periods.

Revenue. As a clinical stage company, we did not generate any revenue for the three months ended March 31, 2021 and 2020. We are at an early stage of development as a proprietary product specialty pharmaceutical company, and we do not currently have any commercial products. Our existing product candidates will require extensive additional clinical evaluation, regulatory review, significant marketing efforts and substantial investment before they generate any revenues. We do not expect to be able to market any of our product candidates for several years.

Research and development expenses. R&D expenses were unchanged at approximately $3.7 million for each of the three months ended March 31, 2021 and 2020.

Compensation and benefits. Compensation and benefits for our R&D workforce increased from $1.4 million for the three months ended March 31, 2020 to $1.5 million for the three months ended March 31, 2021, an increase of approximately $5,751,000$0.1 million. This increase was attributable to an increase of $0.2 million in cash-based compensation and $4,888,000, respectively.benefits, partially offset by a decrease of $0.1 million in stock-based compensation expense. For the three months ended March 31, 2021, cash-based compensation increased by $0.2 million due to annual performance bonuses earned by members of our R&D workforce and the addition of employees to our R&D workforce. For the three months ended March 31, 2021, we hired seven employees to our R&D workforce to satisfy the need for additional resources to accommodate existing and planned clinical activities for the remainder of calendar year 2021. Accordingly, we expect that cash-based compensation for our R&D workforce will continue to increase during the 2021 calendar year.


Clinical trial costs. Clinical trial costs increased from approximately $0.6 million for the three months ended March 31, 2020 to approximately $1.5 million for the three months ended March 31, 2021, an increase of $0.9 million. The increase was primarily attributable to higher costs due to patient enrollment in our RZ402 Phase 1 study.

Consulting and outside services. Consulting and outside services decreased from approximately $1.3 million for the three months ended March 31, 2020 to approximately $0.2 million for the three months ended March 31, 2021. For the three months ended March 31, 2021, consulting and outside services were primarily attributable to laboratory expenses of $0.1 million related to RZ358 and RZ402. For the three months ended March 31, 2020, consulting and outside services were primarily attributable to IND enabling laboratory expense of $0.8 million related to RZ402, patent maintenance costs of $0.2 million, and chemistry, manufacturing and controls (“CMC”) consulting services of $0.2 million for RZ358.

Material manufacturing costs.Material manufacturing costs were unchanged at approximately $0.3 million for each of the three months ended March 31, 2021 and 2020. For each of the three months ended March 31, 2021 and 2020, material manufacturing costs were primarily related to RZ358.

Facilities and other. Costs allocable to R&D activities for facilities and other costs increased from $0.2 million for the three months ended March 31, 2020 to $0.3 million for the three months ended March 31, 2021. The increase of $0.1 million was primarily attributable to increased spending for recruiting new employees hired during the three months ended March 31, 2021, partially offset by decreased spending in travel and entertainment expenses.

General and administrative expenses

G&A expenses increased from $1.3 million for the three months ended March 31, 2020 to approximately $1.7 million for the three months ended March 31, 2021, an increase of $0.4 million. This increase was primarily attributable to an increase in professional fees as discussed below.

Compensation and benefits. Compensation and benefits related to our G&A workforce increased from approximately $0.8 million for the three months ended March 31, 2020 to approximately $0.9 million for the three months ended March 31, 2021, an increase of $0.1 million. This increase in compensation and benefits was primarily attributable to severance costs of $0.2 million, partially offset by a decrease in stock-based compensation expense of $0.1 million for the three months ended March 31, 2021.

Professional fees. Professional fees increased from approximately $0.3 million for the three months ended March 31, 2020 to approximately $0.6 million for the three months ended March 31, 2021, an increase of $0.3 million. This increase in professional fees was primarily attributable to increased spending of $0.4 million for corporate development and strategic financial advisory services.

Facilities and other. Our G&A-related facilities and other costs were unchanged at approximately $0.2 million for each of the three months ended March 31, 2021 and 2020.

Gain on changes in fair value of derivative liability

As discussed above under the caption Recent Developments, on February 17, 2021 we recognized a derivative liability of $3.6 million related to a deficiency in our authorized shares of Common Stock, since there is a possibility that we could be required to settle a portion of our outstanding stock options and warrants in cash. The derivative liability is adjusted to fair value at the end of each reporting period and amounted to $1.8 million as of March 31, 2021. The change in fair value of $1.8 million is reflected as a non-cash gain for the three months ended March 31, 2021. For the period from February 17, 2021 through March 31, 2021, a decrease in the market price of our Common Stock was the primary driver that resulted in the reduction in fair value and the resulting non-cash gain.


Income Taxes

For the three months ended March 31, 2021 and 2020, we did not recognize any income tax benefit due to our net losses and our determination that a full valuation allowance was required for our deferred tax assets.

Nine months ended March 31, 2021 and 2020

 

Results of operations for the sixnine months ended DecemberMarch 31, 2017 (the “2018 period”)2021 and the six months ended December 31, 2016 (the “2017 period”) reflected2020 reflect net losses of approximately $12,468,000$14.4 million and $8,704,000,$16.8 million, respectively. Our unaudited condensed consolidated statements of operations for the nine months ended March 31, 2021 and 2020, along with the changes between periods, are presented below (dollars in thousands):

     Changes 
  2021  2020  Amount  Percent 
Operating expenses:                
 Research and development:                
 Compensation and benefits, net of related party reimbursements $4,865  $4,567  $298   7%
 Clinical trial costs  3,276   3,535   (259)  -7%
 Licensing costs  1,000   -   1,000   100%
 Consultants and outside services  480   2,736   (2,256)  -82%
 Material manufacturing costs  561   725   (164)  -23%
 Facilities and other  416   442   (26)  -6%
                 
 Total research and development  10,598   12,005   (1,407)  -12%
                 
 General and administrative:                
 Compensation and benefits  3,498   3,079   419   14%
 Professional fees  1,506   952   554   58%
 Facilities and other  656   933   (277)  -30%
 Total general and administrative  5,660   4,964   696   14%
                 
 Total operating expenses  16,258   16,969   (711)  -4%
                 
 Operating loss  (16,258)  (16,969)  711   -4%
                 
 Non-operating income (expense):                
 Gain on change in fair value of derivative liability  1,784   -   1,784   n/a 
 Interest and other  62   183   (121)  -66%
                 
 Net loss $(14,412) $(16,786) $2,374   -14%

Revenues

 

We arePresented below is a discussion of the key factors that resulted in changes in our results of operations for these periods.

Revenue

As a clinical stage company, we did not generate any revenue for the nine months ended March 31, 2021 and 2020. We are at an early stage of development as a proprietary product specialty pharmaceutical company, and we do not currently have any commercial products. Our existing product candidates will require extensive additional clinical evaluation, regulatory review, significant marketing efforts and substantial investment before they generate any revenues. We do not expect to be able to market any of our product candidates for several years.


Research and development expenses

R&D expenses decreased from approximately $12.0 million for the nine months ended March 31, 2020 to approximately $10.6 million for the nine months ended March 31, 2021, a decrease of $1.4 million. As a result of the COVID-19 pandemic, we were forced to curtail many of our R&D activities for the nine months ended March 31, 2021. As discussed below, compensation and benefits and licensing costs increased while the remaining categories of our R&D expense decreased for the nine months ended March 31, 2021.

Compensation and benefits. Compensation and benefits for our R&D workforce increased from $4.6 million for the nine months ended March 31, 2020 to $4.9 million for the nine months ended March 31, 2021, an increase of approximately $0.3 million. This increase was attributable to an increase of $0.5 million in cash-based compensation and benefits, partially offset by a decrease of $0.2 million in stock-based compensation expense. For the nine months ended March 31, 2021, cash-based compensation for our R&D workforce increased by $0.5 million primarily due to the addition of five employees, an increase in annual performance bonuses and annual merit increases, partially offset by the receipt of the CARES Act employee retention credit in September 2020. For the nine months ended March 31, 2021, we hired five employees to our R&D workforce to satisfy the need for additional resources to accommodate existing and planned clinical activities for the remainder of calendar year 2021.Accordingly, we expect that cash-based compensation for our R&D workforce will continue to increase during the 2021 calendar year.

Clinical trial costs. Clinical trial costs decreased from approximately $3.5 million for the three months ended March 31, 2020 to approximately $3.3 million for the three months ended March 31, 2021, a decrease of $0.2 million. The reduction in clinical trial costs for the nine months ended March 31, 2021 was primarily due to lower costs due to the ongoing COVID-19 pandemic and a reduction in costs as a result of the completion of our AB101 Phase 1 study in December 2019. These decreases were partially offset by increased spending attributable to patient enrollment in our RZ402 Phase 1 study.

Consulting and outside services. Consulting and outside services decreased from $2.7 million for the nine months ended March 31, 2020 to $0.5 million for the nine months ended March 31, 2021, a decrease of approximately $2.2 million. For the nine months ended March 31, 2021, consulting and outside services were primarily attributable to laboratory and CMC expenses of $0.3 million related to RZ358 and patent maintenance costs of $0.1 million. For the nine months ended March 31, 2020, consulting and outside services were primarily attributable to IND enabling laboratory expense of $1.5 million related to RZ402, patent maintenance costs of $0.4 million primarily related to AB101, and CMC consulting and contract laboratory services of $0.6 million for RZ358.

Licensing fees. Licensing costs increased by $1.0 million for the nine months ended March 31, 2021 compared to the nine months ended March 31, 2020, which was attributable to the $1.0 million milestone payment due to ActiveSite upon FDA clearance of our RZ402 IND application.

Material manufacturing costs.Material manufacturing costs decreased from $0.7 million for the nine months ended March 31, 2020 to $0.6 million for the nine months ended March 31, 2021. For the nine months ended March 31, 2021, substantially all material manufacturing costs of $0.6 million related to RZ358. For the nine months ended March 31, 2020, material manufacturing costs consisted of $0.5 million related to RZ358 and $0.2 million for RZ402.

Facilities and other. Costs allocable to R&D activities for facilities and other costs were unchanged at approximately $0.4 million for each of the nine months ended March 31, 2021 and 2020. For the nine months ended March 31, 2021, we had increased spending of $0.2 million for recruiting new employees which was offset by reduced spending of $0.2 million for travel as a result of the COVID-19 pandemic.

General and administrative expenses

G&A expenses increased from approximately $5.0 million for the nine months ended March 31, 2020 to approximately $5.9 million for the nine months ended March 31, 2021, an increase of $0.9 million. As discussed below, this increase was primarily attributable to higher spending for professional fees of $0.5 million and increases in compensation and benefits for our administrative and executive workforce of $0.4 million.


Compensation and benefits. Compensation and benefits for our G&A workforce increased from $3.1 million for the nine months ended March 31, 2020 to $3.5 million for the nine months ended March 31, 2021, an increase of approximately $0.4 million. This increase was attributable to an increase of $0.7 million in cash-based compensation and benefits, partially offset by a decrease of $0.3 million in stock-based compensation expense. For the nine months ended March 31, 2021, cash-based compensation increased by $0.7 million due to increases in annual performance bonuses and annual merit adjustments of $0.6 million, and an increase in severance costs of $0.1 million.

Professional fees. Professional fees increased from approximately $0.9 million for the nine months ended March 31, 2020 to approximately $1.5 million for the nine months ended March 31, 2021, an increase of $0.6 million. This increase was primarily attributable to our Nasdaq uplisting, corporate development activities, and strategic financial advisory services.

Facilities and other. Our G&A related facilities and other expenses decreased from approximately $0.9 million for the nine months ended March 31, 2020 to approximately $0.7 million for the nine months ended March 31, 2021, a decrease of $0.2 million. This decrease was primarily due to reduced travel and office-related expenses due to COVID-19 restrictions and a reduction in property tax expense.

Gain on changes in fair value of derivative liability

As discussed above under the caption Recent Developments, on February 17, 2021 we recognized a derivative liability of $3.6 million related to a deficiency in our authorized shares of Common Stock, since there is a possibility that we could be required to settle a portion of our outstanding stock options and warrants in cash. The derivative liability is adjusted to fair value at the end of each reporting period and amounted to $1.8 million as of March 31, 2021. The change in fair value of $1.8 million is reflected as a non-cash gain for the nine months ended March 31, 2021. For the period from February 17, 2021 through March 31, 2021, a decrease in the market price of our Common Stock was the primary driver that resulted in the reduction in fair value and the resulting non-cash gain.

Income Taxes

For the nine months ended March 31, 2021 and 2020, we did not recognize any income tax benefit due to our net losses and our determination that a full valuation allowance was required for our deferred tax assets.


Liquidity and Capital Resources

As of March 31, 2021, we had cash and cash equivalents totaling approximately $32.0 million and working capital was approximately $28.6 million. We have incurred cumulative net losses of $161.6 million since our inception, and as a clinical stage company we have not generated any revenues since inception.

Expensesrevenue to date.

 

ResearchAs discussed below under Fiscal 2021 Equity Financing, on October 9, 2020 we received aggregate net proceeds from investors in a private placement of approximately $37.5 million from the issuance of units that consisted of approximately 2.5 million shares of Common Stock and developmentwarrants for the purchase of approximately 0.8 million shares of Common Stock.

In April 2021, we entered into a Loan Agreement that provides for total borrowings up to $30.0 million in three tranches. The initial tranche of funding for $15.0 million was received in April 2021. Under the Loan Agreement, we are required to maintain a restricted cash balance of at least $5.0 million beginning no later than December 31, 2021. The second and third tranches available under the Loan Agreement are available after we raise up to an additional $70.0 million in equity or subordinated debt financing by September 2022. We are permitted to make interest-only payments on each term loan at least through May 1, 2023, and the maturity date is on April 1, 2026.

We believe our existing cash and cash equivalents balance, combined with the debt financing proceeds of $15.0 million received in April 2021, will be adequate to carry out currently planned activities at least through June 30, 2022. We also have flexibility to delay future clinical programs to conserve our capital resources.

Beginning in March 2020, COVID-19 has resulted in an economic environment that is unfavorable for many businesses to conduct operations. The U.S. economy had been adversely affected by mass quarantines and government mandated stay-in-place orders to halt the spread of the virus. While these orders have been relaxed at times, a full recovery of the U.S. economy may not occur until after 2021. The long-term effects on us are expected to result in higher costs include salaries, benefitsin order to comply with safeguards to protect patients and staff engaged in clinical activities, and extended periods of time may be required to complete clinical trials. The current economic environment and financial market volatility may make it more challenging for us to continue to obtain funding in the future for our clinical programs.

Presented below is further discussion of transactions that impacted our liquidity and capital resources as of March 31, 2021, and a discussion of the April 2021 Loan Agreement that will have a significant impact on our future liquidity and capital resources.

Fiscal 2021 Equity Financing

On October 9, 2020, we completed a private placement of units (the “Units”) consisting of (i) approximately 2.5 million shares of Common stock, and (ii) warrants entitling the holders to purchase approximately 0.8 million shares of Common Stock (the “Warrants”). The Warrants are exercisable at $19.50 per share for a period of 7 years and may be exercised on a cash or cashless basis at the election of the holders. The Units were issued for a purchase price of $16.50 per Unit, resulting in gross proceeds of $41.0 million. Pursuant to a financial advisory agreement, we agreed to pay the advisors a fee of 6.0% of the gross proceeds, and costs for professional fees and other staff-related costs; consultants and outside costs; material manufacturing costs; and facilitiesoffering costs amounted to approximately $1.1 million. After deducting the financial advisory fees and other costs. Researchoffering costs, the estimated net proceeds amounted to approximately $37.5 million. Pursuant to the terms of the private placement, we executed the Reverse Stock Split, which was previously approved by the stockholders at our annual meeting on October 23, 2019 and development coststhat was effective on October 9, 2020. In addition, we were approximately $3,413,000required to use commercially reasonable efforts to (i) list our shares of Common Stock for trading on the Nasdaq Capital Market, which was approved by Nasdaq on November 3, 2020, (ii) register the shares of Common Stock included in the 2018 quarter comparedUnits, and (iii) register the shares of Common Stock issuable upon exercise of the warrants. The Company successfully registered the units on November 27, 2020.

Xoma License Agreement

In December 2017, we entered into a license agreement (“License Agreement”) with XOMA Corporation (“Xoma”) pursuant to $3,075,000 inwhich Xoma granted us an exclusive global license to develop and commercialize RZ358 for all indications. In January 2019, the 2017 quarter. Research and development costs were approximately $7,723,000 in the 2018 period compared to $5,561,000 in the 2017 period.License Agreement was amended. The main increases are due to the Company continuing to hire staff to manufacture clinical material during the 2018 periodamended License Agreement set forth an updated payment schedule, as well as revised the startamount we were required to expend on development of RZ358 and related licensed products.


On March 31, 2020, we entered into Amendment No. 3 to the License Agreement to extend the previous payment schedule for the remaining balance of approximately $2.6 million. The revised payment schedule provided for seven quarterly payments to be paid beginning on March 31, 2020, whereby the outstanding balance was reduced to $1.4 million as of September 30, 2020. Pursuant to Amendment No. 3, we were obligated to repay the remaining outstanding balance within 15 days following the closing of a financing for $20.0 million or more. Accordingly, the completion of the first clinical trialFiscal 2021 Equity Financing resulted in acceleration of the 2018 period.$1.4 million outstanding obligation, which was paid in full on October 23, 2020.

 

GeneralUpon the achievement of certain clinical and administrative costs were approximately $2,338,000regulatory events, we will be required to make up to $37.0 million in the 2018 quarter comparedaggregate milestone payments to $1,813,000 in the 2017 quarter. General and administrative costs were approximately $4,774,000 in the 2018 period compared to $3,151,000 in the 2017 period.Xoma. The main increase is due to an increase in stock compensation expense during the 2018 period as options were granted in the 2016 Stock Option Plan that were not in the 2017 period.

Impactfirst such milestone payment of $2.0 million will be triggered upon enrollment of the U.S. Tax Reform

On December 22, 2017, the U.S. President signed the Tax Cuts and Jobs Act (the “Act”) into law. Effective January 1, 2018, among other changes, the Act (a) reduces the U.S. federal corporate tax rate to 21 percent, provides for a deemed repatriation and taxation at reduced rates on historical earnings (a “transition tax”) of certain non-US subsidiaries owned by U.S. companies and establishes new mechanisms to tax such earnings going forward. The Act has wide ranging implications for the Company. However, the impact on the Company’s financial statements for the three and six-month periods ended December 31, 2017 is immaterial, primarily because the Company has a full valuation allowance on deferred tax assets in the U.S., which results in there being no U.S. deferred tax assets or liabilities recorded on the balance sheet that need to be remeasured at the new 21% rate. The Company will continue to analyze the effects of the Act on its financial statements and operations. Any additional impacts from the enactment of the Act will be recorded as they are identified during the measurement period as provided for in Staff Accounting Bulletin 118.

 16

Liquidity and Capital Resources

As of December 31, 2017, we have approximately $0.8 million in cash on hand and working capital deficit of approximately $1.1 million. During the year ended June 30, 2017, we closed on an equity transaction in which we issued units consisting of one share of common stock and a warrant to purchase either one-half or one share of common stock. During the year ended June 30, 2017, we also closed on an equity transaction in which we issued straight shares of common stock. During the six months ended December 31, 2017, we had an additional close on an equity transaction in which we issued straight shares of common stock.The Company received net proceeds of approximately $14 million from the transactions above.

The Company is currently conducting a convertible note financing to raise $3 million in which we have closed on $500,000 of the note financing. The notes also come with warrants at the time the notes are issued. The Company will continue to close on the note financing while the Company works to complete an Equity Financing. There are no assurances that any of the above financings will be completed or will be completed timely and on favorable terms.

Going Concern

The continuation of our business is dependent upon obtaining further financing and achieving a break even or profitable level of operationslast patient in our business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current or future stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilitiesongoing phase 2 clinical study and future cash commitments. There are no assuranceswe believe that, subject to COVID-19 conditions, we will be able to obtain additional financing through either private placements, and/or bank financing or other loans necessary to support our working capital requirements. Tocomplete this study by the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient,second half of calendar year 2021. Additionally, upon the future commercialization of RZ358, we will havebe required to raisepay royalties to Xoma based on the net sales of the related products, and milestone payments up to an additional working capital. No assurance can$185.0 million if future annual sales related to RZ358 exceed targets ranging from $100.0 million to $1.0 billion.

ActiveSite License Agreement

In August 2017, we entered into a Development and License Agreement with ActiveSite Pharmaceuticals, Inc.  (“ActiveSite”) pursuant to which we acquired the rights to ActiveSite’s Plasma Kallikrein Inhibitor program (“PKI Program”).  We are planning to use the PKI Program to develop, file, manufacture, market and sell products for diabetic macular edema and other human therapeutic indications. The ActiveSite Development and License Agreement requires various milestone payments ranging from $1.0 million to $10.0 million when milestone events occur, up to $46.5 million of aggregate milestone payments. The first milestone payment for $1.0 million was paid in December 2020 after we had received clearance from the FDA related to an IND for RZ402. We will also be givenrequired to pay royalties equal to 2.0% of any sales of products that additional financing willuse the PKI Program.

April 2021 Loan Agreement

On April 14, 2021, we entered into the Loan Agreement that provides for total borrowings 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) a $7.5 million term B loan to be available, or if available, willfunded upon our request no later than January 25, 2022, and (iii) a $7.5 million term C loan to be on terms acceptablefunded upon our request no later than September 25, 2022. Funding of the term B loan is subject to us. These conditions raise substantial doubt about our ability to continueobtain at least $35 million of equity or subordinated debt financing by January 2022 and the achievement of certain clinical milestones related to RZ358 and RZ402. Funding of the term C loan is subject to our ability to meet the conditions for funding the term B loan, plus obtaining an additional $35 million of equity or subordinated debt financing by September 2022 and the achievement of certain additional clinical milestones related to RZ358 and RZ402. Each term loan has a maturity date of April 1, 2026 (the “Maturity Date”). In addition, our cash and cash equivalents became subject to a blocked account control agreement (“BACA”) in favor of the Lenders whereby a cash balance of at least $5.0 million must be maintained beginning on the earlier of (i) December 31, 2021, and (ii) the date the term B loan is funded. In the event of a default under the Loan Agreement, the BACA would enable the Lenders to prevent the release of funds from our cash accounts.

Outstanding borrowings bear interest at a floating rate equal to (a) 8.75% per annum plus (b) the greater of (i) the rate per annum published by the Intercontinental Exchange Benchmark Administration Ltd. (“IEBA”) for a term of one month and (ii) 0.12% per annum. As of April 14, 2021, the IEBA rate for a term of one month was approximately 0.12% per annum. Therefore, the contractual rate at inception was 8.87%. We are permitted to make interest-only payments on each term loan through May 1, 2023. At our request, the interest-only period can be extended until May 1, 2024, if we obtain at least $70.0 million of equity or subordinated debt financing by September 2022 and assuming no event of default has occurred. We will be required to make monthly payments of principal and interest commencing at the end of the interest-only period of the term loans.

We are obligated to pay the Lenders (i) a non-refundable facility fee in the amount of 1.00% of each term loan that is funded (the “Facility Fee”), and (ii) a final fee equal to 4.75% of the aggregate amount of the term loans funded (the “Final Fee”). At the closing on April 14, 2021, we incurred debt discounts for an aggregate of $1.4 million that consisted of $0.5 million for financial advisory and legal fees, and $0.9 million for the Facility Fee and the Final Fee. Final Fees are payable upon the earliest to occur of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans. The total debt discount of $1.4 million related to the term A loan will be accreted to interest expense using the effective interest method.

Concurrently with the execution of the Loan Agreement, we entered into an exit fee agreement (the “Exit Fee Agreement”) that provides for a fee of 4.0% 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 our outstanding shares. If we determine that it is probable that an Exit Event will occur over the ten-year term of the Exit Fee Agreement, a going concern.liability will be recognized, and the corresponding fee will be accounted for as an additional debt discount.


We have the option to prepay all, but not less than all, of the outstanding principal balance of the term loans. In the event of a voluntary or mandatory prepayment prior to the Maturity Date, we will incur a prepayment fee ranging from 1.00% to 3.00% of the outstanding principal balance.

Our obligations under the Loan Agreement are secured by a first-priority security interest in substantially all of our assets, including our intellectual property. The Loan Agreement contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, and a default upon the occurrence of a material adverse change affecting us. Upon the occurrence of an event of default, a default interest rate of an additional 5.0% per annum may be applied to the outstanding loan balance, and the Lenders may declare all outstanding obligations immediately due and payable and exercise all their rights and remedies as set forth in the Loan Agreement.

Cash Flows Summary

Presented below is a summary of our operating, investing and financing cash flows for the nine months ended March 31, 2021 and 2020 (in thousands):

  2021  2020  Change 
Net cash provided by (used in):            
Operating activities $(15,211) $(20,090) $4,879 
Investing activities  -   -   - 
Financing activities  37,245   22,550   14,695 

Cash Flows Used in Operating Activities

For the nine months ended March 31, 2021 and 2020, cash flows used in operating activities amounted to $15.2 million and $20.1 million, respectively. The key components in the calculation of our cash used in operating activities are as follows (in thousands):

  2021  2020  Change 
Net loss $(14,412) $(16,786) $2,374 
Non-cash expenses  2,544   2,991   (447)
Non-cash gain  (1,784)  -   (1,784)
Changes in operating assets and liabilities, net  (1,559)  (6,295)  4,736 
             
Total $(15,211) $(20,090) $4,879 

For the nine months ended March 31, 2021, our net loss was $14.4 million compared to $16.8 million for the nine months ended March 31, 2020. For further discussion about changes in our operating results for the nine months ended March 31, 2021 and 2020, please refer to Results of Operations above.

For the nine months ended March 31, 2021 and 2020, our non-cash expenses of $2.5 million and $3.0 million, respectively, were primarily attributable to stock-based compensation expense. For the nine months ended March 31, 2021, our non-cash gain of $1.8 million was due to a change in fair value of the derivative liability related to a deficiency in our authorized shares of Common Stock. For the nine months ended March 31, 2021, net changes in operating assets and liabilities decreased operating cash flow by $1.6 million, primarily driven by a $1.8 million decrease in payables to Xoma under the amended License Agreement. For the nine months ended March 31, 2020, net changes in operating assets and liabilities reduced operating cash flow by $6.3 million which was due to a decrease in payables to Xoma under the amended License Agreement.


Cash Flows Provided by Investing Activities

We did not have any cash flows from investing activities for the nine months ended March 31, 2021 and 2020.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities for the nine months ended March 31, 2021 was $37.2 million. This amount consisted of $41.0 million received from a private placement of Units in October 2020 for the purchase of approximately 2.5 million shares of Common Stock at a purchase price of $16.50 per share partially offset by financial advisory fees and offering costs of approximately $3.5 million to result in net proceeds of $37.5 million. For the nine months ended March 31, 2021, we also incurred (i) deferred offering costs of $0.2 million primarily related to the EDA for an “at the market offering” entered into in December 2020, and (ii) debt issuance costs of $0.1 million related to our April 2021 Loan Agreement.

Net cash provided by financing activities for the nine months ended March 31, 2020 amounted to $22.6 million. This amount consisted of (i) $20.0 million received from Handok, Inc. and Genexine, Inc. in July 2019 for the purchase of approximately 1.4 million shares of Common Stock at a purchase price of $14.50 per share and (ii) $4.1 million received from other investors in July and August 2019 for the purchase of approximately 0.3 million shares of our Common Stock at a purchase price of $14.50 per share. The gross proceeds from these equity issuances totaled $24.1 million and were partially offset by offering costs of $1.5 million to result in net proceeds of $22.6 million.

 

Recent Accounting Pronouncements

 

SeePlease refer to Note 2 to the consolidated financial statements included1 in Part I, Item 1 of this Form 10-QReport regarding the impact of certain accounting pronouncements on our unaudited condensed consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

We had nodid not have any off-balance sheet transactions.transactions for the periods covered by this Report.

 


ITEM 3. QUANTITATIVE AND QUALITATIVE AND QUANTITATIVE DISCUSSIONDISCLOSURES ABOUT MARKET RISK.

 

Not required for smaller reporting companies.

 

 17

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and our Chief Accounting Officer (our principal accountingfinancial officer), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on that evaluation andassessment under those criteria, our management has determined that, as of March 31, 2021, our internal control over financial reporting was not effective due to two material weaknesses in the system of internal control. A material weakness described below,is a deficiency, or combination of deficiencies, that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner.

The first material weakness identified by management is that due to our management concludedlimited number of employees, we have not adequately segregated certain duties to prevent employees from overriding the internal control system. During our fiscal year ended June 30, 2020, we hired a Director of Accounting and we implemented additional procedures to improve our segregation of duties. However, without hiring additional personnel we have been unable to fully remediate this material weakness. We cannot provide assurance that these or other measures will eventually result in the elimination of this material weakness.

The second material weakness resulted from ineffective treasury controls over review of outstanding authorized shares and requirements for all securities and contracts to issue common shares to ensure adequate authorized shares exist. This material weakness occurred in February 2021 when we decided to file a certificate of correction to the certificate of amendment to our certificate of incorporation (the “Charter Revision”). The Charter Revision changed our authorized shares of capital stock in the same 50 shares for one share ratio that applied to our issued shares of Common Stock, stock options and warrants pursuant to a reverse stock split that was effected in October 2020. The impact of this adjustment caused an immediate reduction in our authorized shares of Common Stock from 500,000,000 shares to 10,000,000 shares. Accordingly, after the Charter Revision we did not maintain effective disclosure controls and procedures ashave a sufficient number of December 31, 2017 in ensuring that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specifiedauthorized shares of Common Stock in the SEC rulesevent that all of our outstanding stock options and forms and that it is accumulated and communicatedwarrants are subsequently exercised.

On April 28, 2021, we filed a definitive proxy statement to request approval by our stockholders to reincorporate from the state of Delaware to the issuer’s management, including its principal executivestate of Nevada and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our management has identified control deficiencies regardingincrease our authorized shares of Common Stock from the present 10,000,000 shares to 40,000,000 shares. If our stockholders approve these proposals at a lackmeeting scheduled for May 26, 2021, we will have an adequate number of segregationshares of duties,Common Stock whereby all outstanding stock options and warrants may be exercised in exchange for shares of Common Stock. In addition to the shareholder proposals to reincorporate and increase our authorized shares, we have implemented procedures to ensure that our Board of Directors provides explicit approval for all future charter amendments, and all future issuances of shares of our Common Stock and any warrants and stock options that are not subject to a need for a stronger internal control environment, and minimal review of complex accounting issues. Our management believesplan approved by our stockholders. We cannot provide assurance that these deficiencies, whichor other measures will eventually result in the aggregate constitute aelimination of this material weakness are due toor that our stockholders will approve the small size ofreincorporation in Nevada and increase in our staff, which makes it challenging to maintain adequate disclosure controls.authorized shares.

 

Changes in internal controls over financial reporting

 

During the period covered by this Quarterly Report on Form 10-Q, there were no changeswe determined the existence of a material weakness in our internal control over financial reporting (as defined in Rule 13(a)-15(f) or 15(d)-15(f)) related to the Charter Revision discussed above, that occurred during the period covered by this quarterly report that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.

 


PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

None

 

ITEM 1A. RISK FACTORS.

 

Certain factors exist which may affect the Company’s business and could cause actual results to differ materially from those expressed in any forward-looking statements. The Company has not experienced any material changesFactors that could cause our actual results to differ materially from those in this Report are any of the risks described in Item 1.A. Risk Factors of our 2020 Form 10-K, and the risk factor discussed below. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors as previously disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 22, 2017 (the “Form 10-K”).not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

COVID-19 could continue to adversely impact our business, including our clinical trials.

 

Beginning in March 2020, COVID-19 has resulted in an economic environment that is unfavorable for many businesses to conduct operations and to pursue new debt and equity financings. The U.S. economy has been adversely affected by mass quarantines and government mandated stay-in-place orders to halt the spread of the virus. While these orders have been relaxed, a full recovery of the U.S. economy may not occur until the second half of 2021 or later. The extent to which COVID-19 may continue to impact our business and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. As COVID-19 continues to spread around the globe, we will likely experience disruptions that could severely impact our business and clinical trials, including:

·delays or difficulties in enrolling patients or maintaining scheduled study visits in our clinical trials;

·delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

·diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

·interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others;

·limitations in employee resources that would otherwise be focused on the conduct of our business or our clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people or as a result of the governmental imposition of “shelter in place” or similar working restrictions;

·delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

·delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials;

·interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical trials;

·changes in local regulations as part of a response to the COVID-19 outbreak which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

·delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and

·refusal of the FDA to accept data from clinical trials in affected geographies outside the United States.

COVID-19 is currently impacting countries, communities and markets. We require ongoing access to the capital markets to fund our future capital requirements. To the extent that our access to the capital markets is adversely affected by COVID-19, we may need to consider alternative sources of funding for our operations and for working capital, any of which could increase our cost of capital.


Our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain litigation that may be initiated by our stockholders, including claims under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents. Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition. Notwithstanding the foregoing, the exclusive provision shall not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or the respective rules and regulations promulgated thereunder.”

If we are not able to comply with the applicable continued listing requirements or standards of Nasdaq, Nasdaq could delist our Common Stock.

Our Common Stock is currently listed on Nasdaq. In order to maintain such listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements.

On December 28, 2020, the Company notified Nasdaq that it was not in compliance with Nasdaq Listing Rules 5605(b)(1) and 5605(c)(2)(A) as a result of the resignation of a member of the Company’s board who was also a member of the Company’s Audit Committee. Nasdaq Listing Rule 5605(b)(1) requires a majority independent board and 5605(c)(2)(A) requires the Audit Committee to have at least three independent members (as defined by Nasdaq Listing Rule 5605(a)(2) and Rule 10A-3(b)(1) under the Securities Exchange Act of 1934), at least one of whom is an audit committee financial expert. As a result of the resignation of Mr. Jung-Hee Lim, the Company no longer has a majority independent board or an Audit Committee comprised of three independent directors. The Nasdaq Listing Rules provide for a cure period during which the Company may regain compliance. Under Nasdaq Listing Rules, the Company shall have until the earlier of its next annual meeting of stockholders or one year from the occurrence of the event that caused the failure to comply with Nasdaq Listing Rules 5605(b)(1) and 5605(c)(2)(A); provided, however, that if the next annual meeting of stockholders occurs no later than 180 days following the event that caused the vacancy, the Company shall instead have 180 days from such event to regain compliance.

There can be no assurances that we will be able to regain compliance with Nasdaq’s listing standards or if we do later regain compliance with Nasdaq’s listing standards, will be able to continue to comply with the applicable listing standards. If we are unable to maintain compliance with these Nasdaq requirements, our Common Stock will be delisted from Nasdaq.

If Nasdaq delists our Common Stock, we could face significant material adverse consequences, including:

·a limited availability of market quotations for our securities;

·a determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our Common Stock;

·a limited amount of news and analyst coverage for our company; and

·a decreased ability to issue additional securities or obtain additional financing in the future


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

There were no reportable issuances of unregistered shares of the Company's equity securities for the period covered by this Report.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

 18

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

Exhibit
 Number		 Description of Exhibits
3.1* Certificate of Correction to Certificate of Amendment to the Certificate of Incorporation of Rezolute, Inc., dated February 17, 2021
10.1 LicenseLoan and Security Agreement, with XOMA*%dated as of April 14, 2021 by and among Rezolute, Inc., SLR Investment Corp., as collateral agent and lender, and the other lenders named therein (incorporated by reference to the Company’s 8-K filing on April 14, 2021)
10.2 Common Stock PurchaseExit Fee Agreement, with XOMA*%dated as of April 14, 2021 by and among Rezolute, Inc., SLR Investment Corp., as collateral agent and lender, and the other lenders named therein (incorporated by reference to the Company’s 8-K filing on April 14, 2021)
31.1* 
31.1Certification of Chief Executive and Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1* 
31.2Certification of Chief Accounting Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1Certification of Chief Executive and Principal Financial Officer as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS* XBRL Instance Document
32.2101.SC* Certification of Chief Accounting Officer as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*XBRL Taxonomy Extension Schema
101.CA* XBRL Taxonomy Extension Calculation Linkbase
101101.DEF* The following materials from our Quarterly Report on Form 10-Q for the quarter ended December 31, 2017 formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheet, (ii) Statement of Operations, (iii) Statements of Cash Flows, (iv) Statements of Stockholders Equity and (v) related notes to these financial statements*Taxonomy Extension Definition Linkbase
101.LA*XBRL Taxonomy Extension Label Linkbase
101.PRE*XBRL Taxonomy Extension Presentation Linkbase

 

*Filed herewith
%Certain portions of this exhibit have been redacted pursuant to a confidential treatment request filed with the Commission on February 14, 2018.

* Filed herewith.

 

 19


SIGNATURES

 

In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 REZOLUTE, INC.
   
Date:  February 14, 2018May 17, 2021By:/s/ Nevan Elam
  Nevan Elam
  Chief Executive Officer
  (Principal Executive and Financial Officer)
   
Date:  February 14, 2018By:/s/ Morgan Fields
Morgan Fields
Chief Accounting Officer
(Principal Accounting Officer)

 

 20