Rezolute(RZLT) - 2020 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Rezolute, Inc. significantly improved its financial position in Q3 2019 through equity financing, boosting assets and equity Unaudited Condensed Consolidated Financial Statements The company's balance sheet strengthened significantly in Q3 2019 due to equity financing, increasing cash and assets Condensed Consolidated Balance Sheet (in thousands) | Account | Sep 30, 2019 | June 30, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $22,104 | $11,573 | | Total current assets | $25,916 | $12,144 | | Total assets | $26,572 | $12,252 | | Liabilities & Equity | | | | Total current liabilities | $5,523 | $8,379 | | Total liabilities | $5,954 | $10,500 | | Total stockholders' equity | $20,618 | $1,752 | Condensed Consolidated Statement of Operations (in thousands) | Account | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Total research and development | $3,234 | $930 | | Total general and administrative | $1,945 | $1,655 | | Operating loss | ($5,179) | ($2,562) | | Net loss | ($5,080) | ($3,365) | | Net loss per common share | ($0.02) | ($0.05) | Condensed Consolidated Statement of Cash Flows (in thousands) | Activity | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,929) | ($1,432) | | Net cash provided by investing activities | $0 | $187 | | Net cash provided by financing activities | $22,571 | $0 | | Net increase (decrease) in cash | $13,642 | ($1,245) | | Cash, cash equivalents and restricted cash, end of period | $25,215 | $401 | Notes to Unaudited Condensed Consolidated Financial Statements Key notes highlight improved liquidity from recent financing, significant contractual obligations, and recent corporate actions - The company is a clinical-stage biopharmaceutical firm with three wholly-owned subsidiaries, operating as a single reportable segment[25][30][32] - Management believes its cash balance of $25.2 million is adequate to fund planned activities, including R&D and licensing obligations, at least through November 2020[53][54] - In July and August 2019, the company raised gross proceeds of $24.1 million ($22.6 million net) by issuing approximately 83 million shares of common stock at $0.29 per share in a private placement[74] - The company has a remaining payment obligation of $3.6 million to Xoma Corporation under a license agreement, due by March 2020, with recent financing triggering an early payment of $3.4 million[66] - In July 2019, the Board granted stock options for approximately 34.0 million shares to officers and employees at an exercise price of $0.29 per share[80] - In October 2019, stockholders approved a proposal to authorize the Board of Directors to effect a reverse stock split at a ratio between 1-for-20 and 1-for-100[114] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the increased net loss to planned R&D, funded by recent financing, which improved liquidity and supports key objectives - The company's strategy is to build a metabolic-focused biotechnology company by in-licensing compounds targeting diseases with unmet needs, such as RZ358, RZ402, and AB101[125][126] - Key objectives for fiscal year 2020 include initiating the Phase 2b clinical study for RZ358, advancing RZ402 towards an IND filing, completing the Phase 1 study for AB101, and uplisting the Common Stock to a national exchange[122] Results of Operations Net loss widened to $5.1 million in Q3 2019, primarily due to increased R&D and G&A expenses Comparison of Results of Operations (in thousands) | Item | Q3 2019 | Q3 2018 | Change | | :--- | :--- | :--- | :--- | | Total research and development | $3,234 | $930 | $2,304 | | Total general and administrative | $1,945 | $1,655 | $290 | | Operating loss | ($5,179) | ($2,562) | ($2,617) | | Interest expense | $0 | ($911) | $911 | | Net loss | ($5,080) | ($3,365) | ($1,715) | - R&D expenses increased by $2.3 million, primarily due to a $1.0 million rise in clinical trial costs, a $0.9 million increase in R&D workforce compensation, and a $0.4 million increase in consulting services[145][146][148][149] - G&A expenses increased by $0.3 million, mainly from a $0.2 million rise in professional fees and a $0.1 million increase in compensation and benefits[153] - Interest expense was zero in 2019, compared to $0.9 million in 2018, due to the conversion of Fiscal 2018 Notes to equity in January 2019[157] Liquidity and Capital Resources The company's liquidity significantly improved to $25.2 million cash due to $22.6 million in equity financing, funding operations through November 2020 - The company secured net proceeds of approximately $22.6 million from the issuance of Common Stock in July and August 2019[163] - Planned spending through November 2020 includes $3.6 million for Xoma licensing obligations, $10.5 million for clinical programs, and $8.9 million for G&A and other costs[168] Cash Flow Summary (in thousands) | Activity | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,929) | ($1,432) | | Net cash provided by investing activities | $0 | $187 | | Net cash provided by financing activities | $22,571 | $0 | - The $7.5 million increase in cash used in operations was primarily driven by a $4.9 million decrease in license fees payable to Xoma and a $1.0 million decrease in accrued liabilities[172][175] Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this disclosure is not required as it qualifies as a smaller reporting company - Disclosure is not required for smaller reporting companies[182] Controls and Procedures Management concluded that disclosure controls were ineffective as of Q3 2019 due to material weaknesses, with remediation efforts underway - Management determined that as of September 30, 2019, the company's internal control over financial reporting was not effective[183] - Material weaknesses identified include inadequate segregation of duties, potential for management override, insufficient internal review for complex accounting, and ineffective review controls over financial reporting[184] - The company has started mitigating these weaknesses by hiring more employees and engaging an external consulting firm[184] PART II – OTHER INFORMATION Legal Proceedings The company reported no legal proceedings during the period - As of the reporting date, there were no pending or threatened lawsuits expected to have a material effect on the Company[96][187] Risk Factors The company faces a key risk regarding its NASDAQ uplisting, as failure to meet criteria could keep its stock on the less liquid OTCQB market - The company's ability to uplist its common stock to the NASDAQ Capital Market is contingent on meeting initial listing criteria[188] - Failure to uplist could result in the common stock continuing to trade on the less liquid OTCQB market, potentially depressing its value and tradability[189] Unregistered Sales of Equity Securities and Use of Proceeds No reportable unregistered equity securities were issued beyond those already disclosed in July and August 2019 Form 8-K filings - Issuances of unregistered shares were previously reported on Form 8-K filings in July and August 2019[190] Exhibits The filing includes several exhibits, notably the Master Services Agreement with Genexine and Handok, and required CEO and CFO certifications - Filed exhibits include a Master Services Agreement with Genexine, Inc. and Handok, Inc., effective July 1, 2019, and various officer certifications[194]