Rezolute, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2018, the first quarter of Rezolute’s fiscal 2019 (not calendar 2018 Q1). The filing identifies Rezolute as a clinical-stage biopharmaceutical company; its interim financial statements are unaudited.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2018 | Comparable 2017 period |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $0.93 million | $4.31 million |
| General and administrative expense | $1.63 million | $2.41 million |
| Operating loss | $2.56 million | $6.72 million |
| Interest expense | $0.91 million | None reported |
| Net loss | $3.37 million | $6.68 million |
| Net loss per share, basic and diluted | $0.05 | $0.13 |
| Cash used in operating activities | $1.43 million | $4.91 million |
Cash was $0.40 million at September 30, down from $1.65 million at June 30, 2018. Total assets were $1.07 million; current liabilities were $7.34 million and total liabilities were $7.51 million. The company reported a working capital deficit of approximately $6.57 million and stockholders’ deficit of $6.44 million. Convertible notes had a $5.35 million face value and $4.14 million carrying value, net of discounts and issuance costs. No revenue or meaningful operating margin was reported.
Material changes and notable items
- R&D expense fell by about $3.38 million year over year, principally because manufacturing activity and related costs, headcount-related compensation, clinical trial costs, and license expense were lower. G&A expense fell by about $0.77 million, mainly due to lower employee-related costs.
- Net loss improved by about $3.32 million, while operating cash use declined by about $3.47 million. The company nevertheless incurred $0.91 million of interest expense, including debt discount and issuance-cost amortization.
- The company sold laboratory and manufacturing equipment for $187,139 and recorded a $22,852 gain. It also began subleasing additional office, laboratory, and clean-room space on July 1, 2018.
- There were no additional equity or financing agreements during the quarter. Common shares outstanding were 62,166,309 at September 30, 2018.
Outlook, financing, and risks
Management’s stated 2019 objectives were to initiate a Phase 2b RZ358 study in the U.S. and Europe, complete toxicology work needed for an RZ402 IND filing, and complete the Phase 1 AB101 study while exploring partnership opportunities. Management estimated that approximately $40 million in funding would be needed to support operations and development through calendar year-end 2019.
The filing states that two prospective investors provided a total $1.5 million after the reporting period in exchange for exclusivity while conducting diligence and negotiating a potential investment. The exclusivity arrangement runs until a definitive agreement, termination by the investors, or December 21, 2018. If an investor does not proceed, it may elect to seek a refund of its amount or convert it into common shares at a price to be agreed. The company agreed to cease discussions with other potential financing parties during the exclusivity period. The filing gives no assurance that a transaction or interim bridge financing will be completed.
Management concluded that existing cash and expected operating cash flows would not support operations for more than one year; the filing identifies substantial doubt about the company’s ability to continue as a going concern. Several secured convertible notes mature January 31, 2019, and certain notes’ interest rates increased to 15% after quarterly interest payments became overdue. The filing also reports material weaknesses in internal controls, including inadequate segregation of duties and review controls. Management said it did not believe these weaknesses caused deficient financial reporting. No material litigation was reported.
Important facts for investors to verify
- Whether the proposed financing following the $1.5 million exclusivity payment was completed, on what terms, and whether any amount was refundable or converted to equity.
- Cash runway, bridge-financing availability, and the company’s ability to meet near-term note maturities and interest obligations.
- Progress, timing, funding needs, and regulatory milestones for RZ358, RZ402, and AB101.
- Potential dilution from future equity financing, convertible notes, warrants, and stock options.
- Remediation of the disclosed material weaknesses in internal controls and any subsequent changes in control effectiveness.