Rezolute Inc

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

Nature of Operations

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

Basis of Presentation

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

The condensed consolidated balance sheet as of June 30, 2023, has been derived from the Company’s audited consolidated financial statements. The unaudited interim financial statements should be read in conjunction with the Company’s 2023 Form 10-K, which contains the Company’s audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended June 30, 2023.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all information and footnote disclosures necessary for a comprehensive presentation of financial position, results of operations, and cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) that are necessary for a fair financial statement presentation have been made. The interim results for the three and nine months ended March 31, 2024, are not necessarily indicative of the financial condition and results of operations that may be expected for any future interim period or for the fiscal year ending June 30, 2024.

Consolidation

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

Use of Estimates

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

Risks and Uncertainties

The Company’s operations may be subject to significant risks and uncertainties including financial, operational, regulatory, international conflicts and wars, pandemics and other risks associated with a clinical stage business.

Significant Accounting Policies

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

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This update adds an impairment model (known as the current expected credit losses model) that is based on expected losses rather than incurred losses. Under the expected credit loss model, if declines in fair value below amortized costs are due to the deterioration of an issuer’s credit quality, the Company is required to record an allowance for credit losses related to such investments with a corresponding loss recognized in the consolidated statements of operations. Allowances for credit losses may be reversed in subsequent periods if conditions improve and credit-related losses are no longer expected. For declines in fair value that are solely due to changes in interest rates, impairment is not recognized if the Company has the ability and intent to hold the investment until maturity. Effective as of July 1, 2023, the Company implemented the guidance in ASU 2016-13. The adoption of ASU 2016-13 did not have any impact on the accompanying unaudited condensed consolidated financial statements.

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

NOTE 2 — LIQUIDITY

As a clinical stage business, the Company has not yet generated any revenues and had an accumulated deficit of $306.5 million as of March 31, 2024. For the nine months ended March 31, 2024, the Company incurred a net loss of $45.5 million and net cash used in operating activities amounted to $38.8 million. For the fiscal year ended June 30, 2023, the Company incurred a net loss of $51.8 million and net cash used in operating activities amounted to $44.5 million. As of March 31, 2024, the Company’s capital resources consist of cash and cash equivalents of $5.9 million, short-term investments in marketable debt securities of $74.1 million and long-term investments in marketable debt securities of $1.6 million.

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

As of March 31, 2024, the Company has total liabilities of $16.9 million, including current liabilities of $7.0 million. As discussed in Note 5, the Company is subject to license agreements that provide for future contractual payments upon achievement of various milestone events. Pursuant to the XOMA License Agreement (as defined below), a $5.0 million milestone payment will be due upon dosing of the first patient in a Phase 3 clinical trial for RZ358. An additional $5.0 million milestone payment will be due upon the dosing of the last patient in a Phase 3 clinical trial for RZ358, which is expected to occur within the next 12 months.

Management believes the Company’s existing cash and cash equivalents and investments in marketable debt securities will be adequate to meet the Company’s contractual obligations and carry out ongoing clinical trials and other planned activities through May 2025, at a minimum.

NOTE 3 —INVESTMENTS IN MARKETABLE DEBT SECURITIES

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

The Company’s investments in debt securities are subject to interest rate risk and credit risk that results in differences between the amortized cost basis and the fair value of investments. To minimize the exposure to reductions in fair value if long-term interest rates rise, the Company generally invests in securities with expected maturities oftwo years or less and maintains a weighted average maturity ofone year or less. As of March 31, 2024, investments in marketable debt securities with an aggregate fair value of $74.1 million are scheduled to mature during the 12-month period ending March 31, 2025. Substantially all remaining investments, with an aggregate fair value of $1.6 million, are scheduled to mature during the 12-month period ending March 31, 2026.

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

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

For the three and nine months ended March 31, 2024, the Company didnot recognize any allowance for credit losses or other than temporary impairment related to investments in marketable debt securities. The following table summarizes the cumulative unrealized gains and losses that result in differences between the amortized cost basis and fair value of the Company’s marketable debt securities held as of March 31, 2024 (in thousands):

NOTE 4 — OPERATING LEASES

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

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

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

For the three and nine months ended March 31, 2024 and 2023, operating lease expense is included under the following captions in the accompanying condensed consolidated statements of operations and comprehensive loss (in thousands):

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

NOTE 5 — LICENSE AGREEMENTS

XOMA License Agreement

In December 2017, the Company entered into a license agreement (the “XOMA License Agreement”) with XOMA Corporation (“XOMA”), through its wholly-owned subsidiary, XOMA (US) LLC, pursuant to which XOMA granted an exclusive global license to the Company to develop and commercialize XOMA 358 (formerly X358, now RZ358) for all indications.

In January 2022, the Company was required to make a milestone payment under the XOMA License Agreement of $2.0 million that became due upon the dosing of the last patient in the Company’s Phase 2b Clinical Trial for RZ358. Upon the achievement of certain clinical and regulatory events under the XOMA License Agreement, the Company will be required to make additional milestone payments to XOMA up to $35.0 million. After the clinical and regulatory milestones, the Company will be required, upon the future commercialization of RZ358, to pay royalties to XOMA based on the net sales of the related products and additional milestone payments to XOMA up to $185.0 million related to annual net sales amounts. There have been no events that would result in any royalty payments owed under the XOMA License Agreement to date.

ActiveSite License Agreement

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

NOTE 6 — EMBEDDED DERIVATIVE LIABILITY

On April 14, 2021, the Company entered into a $30.0 million Loan and Security Agreement (the “Loan Agreement”) with SLR Investment Corp. and certain other lenders (collectively, the “Lenders”). The Lenders agreed to loan up to $30.0 million but the actual amount borrowed by the Company amounted to $15.0 million. The maturity date of the outstanding borrowings was April 1, 2026 (the “Maturity Date”), but the Company elected to repay the entire amount and terminated the Loan Agreement on June 30, 2022.

Concurrently with the execution of the Loan Agreement, the Company entered into an exit fee agreement (the “Exit Fee Agreement”) that provides for a fee of 4.00% of the funded principal balance for a total of $0.6 million in the event certain transactions (defined as “Exit Events”) occur prior to April 13, 2031. The Exit Fee Agreement was not impacted by the termination of the Loan Agreement discussed above. The Company is accounting for the Exit Fee Agreement as an embedded derivative liability with an estimated fair value of $0.5 million and $0.4 million as of March 31, 2024 and June 30, 2023. Exit Events include, but are not limited to, sales of substantially all assets, certain mergers, change of control transactions, and issuances of common stock that result in new investors owning more than 35% of the Company’s shares. Fair value of this embedded derivative liability is reassessed at the end of each reporting period with changes in fair value recognized as a non-operating gain or loss.

NOTE 7 — SHAREHOLDERS’ EQUITY

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

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

Exchange Agreement

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

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

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

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

Jefferies Open Market Sales Agreement

On November 14, 2023, the Company and Jefferies LLC (the “Agent) entered into an open market sales agreement (the “Sales Agreement”) that provides for an “at the market” offering for the sale of up to $50.0 million in shares of the Company’s common stock (the “Placement Shares”) through the Agent. The Agent is acting as sales agent and is required to use commercially reasonable efforts to sell all of the Placement Shares requested to be sold by the Company, consistent with the Agent’s normal trading and sales practices, on mutually agreed terms between the Agent and the Company. The Sales Agreement will terminate when all of the Placement Shares have been sold, or earlier upon the election of either the Company or the Agent.

The Company has no obligation to sell any of the Placement Shares under the Sales Agreement. The Company intends to use the net proceeds, if any, from amounts sold under the Sales Agreement for general corporate purposes, including working capital. Under the terms of the Sales Agreement, the Company agreed to pay the Agent a commission equal to 3.0% of the gross sales price of the Placement Shares plus certain expenses incurred by the Agent in connection with the offering.

For the nine months ended March 31, 2024, the Company soldno shares of its common stock pursuant to the Sales Agreement. Accordingly, the maximum amount remaining for sale under the Sales Agreement amounts to $50.0 million as of March 31, 2024.

2022 PFW Exercises

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

2021 PFW Exercise

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

2022 Private Placement

In May 2022, the Company entered into securities purchase agreements (“SPAs”) with Handok, Inc. (“Handok”) and certain of its affiliates. Handok is an affiliate of a member of the Company’s Board of Directors. In July 2022, the Company entered into amended SPAs for a private placement of common stock (the “2022 Private Placement”). The 2022 Private Placement resulted in gross proceeds

of $12.3 million in exchange for the issuance of approximately 3.2 million shares of common stock. The Company incurred approximately $0.8 million for underwriting commissions and other offering costs, resulting in net proceeds of $11.5 million.

NOTE 8 — SHARE-BASED COMPENSATION AND WARRANTS

Inducement Grant

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

Stock Option Plans

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

2022 Employee Stock Purchase Plan

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

The 2022 ESPP has consecutive offering periods that begin approximately every 6 months commencing on the first trading day on or after July 1 and terminating on the last trading day of the offering period ending on December 31 and commencing on the first trading day on or after January 1 and terminating on the last trading day of the offering period ending on June 30. The 2022 ESPP reserves 0.5 million shares for purchases. There have beenno offering periods under the 2022 ESPP through March 31, 2024.

Stock Options Outstanding

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

For the nine months ended March 31, 2024, the aggregate fair value of stock options granted for approximately 2.5 million shares of common stock amounted to $2.3 million or approximately $0.92 per share as of the grant dates. Fair value was computed using the BSM option-pricing model and will result in the recognition of compensation cost ratably over the expected vesting period of the stock options.

For the nine months ended March 31, 2024, the fair value of stock options was estimated on the respective dates of grant, with the following weighted-average assumptions:

Share-based compensation expense for the three and nine months ended March 31, 2024 and 2023 is included under the following captions in the unaudited condensed consolidated statements of operations and comprehensive loss (in thousands):

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

Pre-Funded Warrants

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

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

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

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

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

Other Warrants

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

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

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Licensing Commitments

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

Legal Matters

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

NOTE 10 — RELATED PARTY TRANSACTIONS

Related Party Licensing Agreement

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

Investors in 2022 Private Placement

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

NOTE 11 — INCOME TAXES

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

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

NOTE 12 — NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares, 2021 PFWs, and 2022 PFWs outstanding during the period, without consideration for other potentially dilutive securities. The 2021 PFWs and the 2022 PFWs are included in the computation of basic and diluted net loss per share since the exercise price is negligible and all of the PFWs are fully vested and immediately exercisable. The Exchange PFWs are excluded from the computation of basic and diluted net loss per shares since they are considered contingently issuable shares and will not be included until they meet the conditions for equity classification. Accordingly, the weighted average number of shares outstanding is computed as follows for the three and nine months ended March 31, 2024 and 2023 (in thousands):

For the three and nine months ended March 31, 2024 and 2023, basic and diluted net loss per share were the same since all other common stock equivalents were anti-dilutive.

As of March 31, 2024 and 2023, 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):

NOTE 13 — FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS

Fair Value Measurements

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:

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.

The following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the fair value hierarchy classification as of March 31, 2024 and June 30, 2023 (in thousands):

Marketable debt securities classified as Level 2 within the valuation hierarchy generally consist of U.S. government agency securities, corporate bonds, and commercial paper. The Company determines the fair value of marketable debt securities based upon valuations obtained from third-party pricing sources. Except for the amounts shown in the table above, the Company did not have any other assets measured at fair value on a recurring basis as of March 31, 2024 and June 30, 2023.

The Company’s liabilities that are required to be measured and recorded fair value on a recurring basis consist of the embedded derivative liability discussed in Note 6 and the warrant derivative liability discussed in Note 7. The warrant derivative liability is classified under Level 2 of the fair value hierarchy and the embedded derivative liability is classified under Level 3 of the fair value hierarchy. Fair value of the warrant liability is predominantly based on the market price of the Company’s shares of common stock. Fair value of the embedded derivative liability is determined based on management’s assessment of the probability and timing of occurrence for the Exit Events discussed in Note 6 using a discount rate equal to the effective interest rate under the Loan Agreement prior to termination. On the issuance date and as of March 31, 2024, the fair value of the Exchange PFWs was computed using the BSM option-pricing model. Key inputs to this valuation model as of March 31, 2024 included the exercise price of $0.001 per share, the market price of the Company’s common stock of $2.55 per share, the risk-free interest rate of 4.1%, an expected term of 1-day, and historical volatility of 100%. Key

inputs to this valuation model as of March 8, 2024 included the exercise price of $0.001 per share, the market price of the Company’s common stock of $1.90 per share, the risk-free interest rate of 4.1%, an expected term of 1-day, and historical volatility of 100%.

The following table sets forth changes in the fair value of the Company’s liabilities measured at fair value liability for the nine months ended March 31, 2024 and 2023 (in thousands):

Except for the embedded derivative liability and warrant derivative liability, the Company did not have any other liabilities measured at fair value on a recurring basis as of March 31, 2024 and June 30, 2023.

Due to the relatively short maturity of the respective instruments, the fair value of cash, accounts payable, and accrued liabilities approximated their carrying values as of March 31, 2024 and June 30, 2023.

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, 2024 and 2023, 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, cash equivalents and investments in marketable debt securities. The Company maintains cash in demand deposit accounts at a high-quality financial institution. As of and for the nine months ended March 31, 2024 and 2023, cash deposits have exceeded the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation.

As of March 31, 2024, the Company has an aggregate of $27.6 million invested in the debt securities of issuers in the banking and financial services industries, and an aggregate of $11.3 million invested in the debt securities of a single agency of the U.S. government. While the Company’s investment policy requires investments in highly rated securities, a wide variety of broad economic factors and issuer-specific factors could result in credit agency downgrades below the Company’s minimum credit rating requirements that could result in losses regardless of whether the Company elects to sell the securities or hold them until maturity. To date, the Company has not experienced any credit losses or impairments of marketable debt securities due to credit rating agency downgrades.

NOTE 14 — SUBSEQUENT EVENTS

XOMA Milestone Payment

Pursuant to the XOMA License agreement discussed in Note 6, after the fiscal quarter ended March 31, 2024, we paid a$5.0 million which was incurred upon the dosing of the first patient in a Phase 3 clinical study for RZ358. The Company will recognize the related licensing expense for the fiscal quarter ending June 30, 2024.

Exchange Warrant Amendment

On May 13, 2024, the Company entered into an amendment to the Exchange PFWs discussed in Note 7. This amendment was to further clarify equity classification so that the Company is not required to obtain shareholder approval if the exercise of the Exchange PFWs would result in aggregate beneficial ownership by the holders in excess of 19.99%. The holders of the Exchange PFWs agreed to the amendment since their warrants were only exercisable for 7% of the Company’s outstanding shares and they were already prohibited from exercising the Exchange PFWs to obtain beneficial ownership in excess of 19.99%. As a result of the amendment, the Exchange PFWs will no longer be accounted for as a derivative liability beginning on May 13, 2024. The fair value of this derivative liability increased by $0.9 million between April 1, 2024 and May 13, 2024 whereby the Company will recognize an additional non-operating loss of $0.9 million for the fiscal quarter ending June 30, 2024. The fair value of this warrant derivative liability amounted to $8.6 million as of May 13, 2024 whereby this amount will be reclassified from long-term liabilities to additional paid-in capital for the fiscal quarter ending June 30, 2024.