Resverlogix : Financial Statement Q1 2024

Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2024 and 2023

Notice of No Auditor Review of Unaudited Condensed Interim Consolidated Financial Statements

The accompanying unaudited condensed interim consolidated financial statements of Resverlogix Corp. (the "Company") as at March 31, 2024 and for the period then ended have been prepared by and are the responsibility of the Company's management. The Company's Audit Committee and Board of Directors have reviewed and approved these unaudited condensed interim consolidated financial statements. In accordance with National Instrument 51 - 102, the Company discloses that its auditors have not reviewed the accompanying unaudited condensed interim consolidated financial statements for the periods ended March 31, 2024 and 2023.

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Condensed Interim Consolidated Statements of Financial Position

As at: (unaudited)

						March 31,	December 31,
In thousands of US dollars		Notes	2024		2023
Assets
Current assets:
Cash			$	55	$	5
Prepaid expenses and deposits				869		149
Investment tax credit receivable				69		58
Other assets					54		6
Clinical supplies				300		300
Total current assets				1,347		518
Non-current assets:
Intangible assets				2,461		2,363
Clinical supplies				3,638		3,638
Total non-current assets				6,099		6,001
Total assets			$	7,446	$	6,519
Liabilities
Current liabilities:
Trade and other payables		$	14,947	$	14,534
Accrued interest		6		2,248		1,881
Promissory notes				771		775
Due to Zenith Capital Corp.		5		4,890		3,114
Lease liability					44		44
Warrant liability		8 (e)	217		338
Debt			6		5,978		5,931
Derivative liability		6		76		239
Total current liabilities				29,171		26,856
Non-current liabilities:
Other long-term liability		9		867		837
Royalty preferred shares		7		50,500		53,300
Total liabilities				80,538		80,993
Shareholders' deficiency:
Share capital			8 (a)	334,006		333,716
Contributed surplus				53,989		54,237
Deficit			(461,087)		(462,427)
Total shareholders' deficiency				(73,092)		(74,474)
Total liabilities and shareholders' deficiency	$	7,446	$	6,519
Going concern (note 3)	Commitments and contingencies (note 10)	Subsequent event (note 11)
Signed on behalf of the Board:
Signed:		"Kenneth Zuerblis"	Director	Signed: "Kelly McNeill"	Director

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

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Condensed Interim Consolidated Statements of Comprehensive (Income) Loss

For the three months ended March 31 (unaudited)

In thousands of US dollars	Notes		2 0 2 4		2023
Ex penses:
Research and development, net of recoveries	9	$	681	$	735
Investment tax credits			(12)		(15)
Net research and development			669		720
Pre-commercialization, general and	9		441		872
administrative, net of recoveries
			1,110		1,592
Finance (income) costs:
Gain on change in fair value of warrant liability	8 (e)		(121)		(30)
(Gain) loss on change in fair value of royalty preferred shares	7		(2,800)		2,800
(Gain) loss on change in fair value of derivative liability	6		(163)		498
Gain on extinguishment of payables	8 (c)		-		(18)
Interest and accretion			644		302
Financing costs			-		5
Foreign exchange (gain) loss			(13)		2
Net finance (income) costs			(2,453)		3,559
(Income) loss before income taxes			(1,343)		5,151
Income taxes			3		4
Net and total comprehensive (income) loss		$	(1,340)	$	5,155

Net (income) loss per share (note 8 (f))
Basic and diluted	$	(0 .00)	$	0.02

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

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Condensed Interim Consolidated Statements of Changes in Shareholders' Deficiency

For the three months ended March 31 (unaudited)

								Total
		Share	Con tribu ted			Shareholders'
In thousands of US dollars		Capital		Su rplu s		Deficit	Deficien cy
Balan ce, December 31, 2022	$	331,422	$	54,983	$	(445,686)	$	(59,281)
Common shares issued in connection		31		-		-		31
with private placement
Common shares issued in connection		936		(890)		-		46
with long term incentive plan
Share issue cost		(3)		-		-		(3)
Share-based payment transactions		-		435		-		435
Net and total comprehensive loss		-		-		(5,155)		(5,155)
Balan ce, March 31, 2023	$	332,386	$	54,528	$	(450,841)	$	(63,927)
Balan ce, December 31, 2023	$	333,716	$	54,237	$	( 462,427)	$	( 74,474)
Common shares issued in connection		149		( 149)		-		-
with long term incentive plan
Common shares issued in connection		141		( 141)		-		-
with deferred share unit plan
Share-based payment transactions		-		42		-		42
Net and total comprehensive income		-		-		1,340		1,340
Balan ce, March 31, 2024	$	334,006	$	53,989	$	( 461,087)	$	( 73,092)

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

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Condensed Interim Consolidated Statements of Cash Flows

For the three months ended March 31 (unaudited)

In thousands of US dollars		2024		2023
Cash provided by ( u sed in ) :
Cash flows provided by ( u sed in ) operatin g activities:
	Net in come ( loss)	$	1,340	$	(5,155)
	Items n ot in volvin g cash:
		Equity-settledshare-based payment transactions		42		436
		Depreciation and amortization		84		186
		Gain on change in fair value of warrant liability		( 121)		(30)
		(Gain) loss on change in fair value of royalty preferred shares		( 2,800)		2,800
		(Gain) loss on change in fair value of derivative liability		( 163)		498
		Gain on extinguishment of payables		-		(18)
		Unrealized foreign exchange		( 5)		1
		Interest and accretion		644		302
		Net current income taxes		3		4
		Financing costs		-		5
	Chan ges in n on -cash workin g capital:
		Prepaid expenses and deposits		( 720)		(59)
		Investment tax credit receivable		( 11)		54
		Other assets		( 48)		(23)
		Trade and other payables		167		410
				( 1,588)		(589)
		Interest received		1		-
		Net cash used in operating activities		( 1,587)		(589)
Cash flows provided by ( u sed in ) fin an cin g activities:
	Due to/from Zenith Capital Corp.		1,776		759
	Proceeds from equity units issued in connection with private placement		-		84
	Share issuance costs		-		(3)
	Debt issuance costs		-		(2)
	Financing costs		-		(5)
	Repayment of lease liability		-		(111)
	Changes in non-cash financing working capital		-		(4)
	Net cash provided by financing activities		1,776		718
Cash flows u sed in in vestin g activities:
	Intangible asset additions		( 182)		(160)
	Changes in non-cash investing working capital		44		(6)
	Net cash used in investing activities		( 138)		(166)
Effect of foreign currency translation on cash		( 1)		-
In crease ( decrease) in cash		50		(37)
Cash, begin n in g of period		5		40
Cash, en d of period	$	55	$	3

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

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Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2024 and 2023

(unaudited)

(Tabular amounts in thousands of US dollars, except for number of shares)

1. General information

Resverlogix Corp. (the "Company") is a company domiciled in Canada. The annual consolidated financial statements comprise the Company and its wholly-owned subsidiary Resverlogix Inc. (together referred to as "Resverlogix" or the "Group"). Resverlogix Corp. is incorporated under the laws of Alberta. Resverlogix Inc. is incorporated under the laws of Delaware. The Company's head office is located at Suite 300, 4820 Richard Road S.W., Calgary, Alberta, T3E 6L1. The registered and records office is located at Suite 600, 815 - 8th Avenue S.W., Calgary, Alberta, T2P 3P2.

Resverlogix is developing apabetalone (RVX-208), a first-in-class, small molecule that is a selective BET (bromodomain and extra- terminal) inhibitor. BET bromodomain inhibition is an epigenetic mechanism that can regulate disease-causing genes. Apabetalone is a BET inhibitor selective for the second bromodomain ("BD2") within the BET proteins. This selective inhibition of apabetalone on BD2 produces a specific set of biological effects with potentially important benefits for patients with chronic disease including cardiovascular disease ("CVD") and associated comorbidities, and post-COVID-19 conditions. Apabetalone is the only selective BET bromodomain inhibitor in human clinical trials. Apabetalone was studied in a Phase 3 trial, BETonMACE, in 13 countries worldwide, in high-risk CVD patients with type 2 DM and low high-density lipoprotein ("HDL"). The Company's Phase 3 trial, BETonMACE, did not meet its primary endpoint but generated encouraging positive results in key secondary endpoints and the Company intends to continue the development of apabetalone when the requisite funding can be secured. Based on the results of the BETonMACE study, the U.S. Food and Drug Administration ("FDA") granted Breakthrough Therapy Designation ("BTD") for apabetalone in combination with top standard of care, including high-intensity statins, for the secondary prevention of MACE in patients with type 2 DM and recent acute coronary syndrome ("ACS"). The achievement of BTD has the potential to expedite apabetalone's clinical development program through more intensive FDA guidance. The Company is considered to be in the development stage, as most of its efforts have been devoted to research and development and it has not earned any revenue to date.

2. Basis of preparation

(a) Statement of compliance

These condensed interim consolidated financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting. These condensed interim consolidated financial statements were approved and authorized for issue by the Board of Directors on May 14, 2024.

(b) Basis of measurement

The condensed interim consolidated financial statements have been prepared on the historical cost basis except for liability classified warrants, liability classified royalty preferred shares and derivative liability, which are measured at fair value each reporting period.

(c) Functional and presentation currency

The functional currency of all entities within the Group is the US dollar, which is also the presentation currency. All financial information presented in dollars has been rounded to the nearest thousand except for per share amounts.

(d) Use of estimates and judgment

The preparation of the condensed interim consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts reported in these condensed interim consolidated financial statements and notes. Accordingly, actual results may differ from estimated amounts as future confirming events occur. Significant estimates and judgment used in the preparation of the condensed interim consolidated financial statements remain unchanged from those described in the Group's consolidated financial statements for the year ended December 31, 2023.

3. Going concern

The success of the Company is dependent on the continuation of its research and development activities, progressing the core technologies through clinical trials to commercialization or a strategic partnership, and its ability to obtain additional financing. It is not possible to predict the outcome of future research and development programs, the Company's ability to fund these programs in the future, or to secure a strategic partnership, or the commercialization of products by the Company. To date, the Company has not generated any product revenue.

The consolidated financial statements have been prepared pursuant to International Financial Reporting Standards ("IFRS") applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due. The Company has incurred significant losses to date, and with no assumption of revenues, is

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Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2024 and 2023

(unaudited)

(Tabular amounts in thousands of US dollars, except for number of shares)

3. Going concern (continued)

dependent on its ability to raise additional financial capital by continuing to demonstrate the successful progression of its research and development activities if it is to remain as a going concern.

As at March 31, 2024, the Company had $0.1 million of cash. The Company needs to raise additional capital to fund research, development and corporate activities over the next year or it may be forced to cease operations. As at March 31, 2024, the Company was committed to pay $14.9 million of current trade and other payables, $4.9 million to Zenith Capital Corp. (a related party) ("Zenith"), $0.8 million of other unsecured promissory notes (due upon demand or four months following demand, respectively), up to $1.4 million for research and development commitments, and $0.3 million of operating lease expense over the next twelve months. The Company also has other commitments as outlined in Note 10. Furthermore, the Company has a $6.0 million secured convertible debenture owing to Shenzhen Hepalink Pharmaceutical Co., Ltd. ("Hepalink") which was due on May 13, 2024 (refer to Note 6); however, the Company announced on May 13, 2024 that the debenture's maturity date is to be extended by two years to May 13, 2026. In addition, expenditures over the next twelve months under a cancellable agreement with a contract research organization in respect of planned clinical development are estimated to total approximately $2-3 million. As at March 31, 2024, the Group is also party to a commercialization partnership (refer to Note 9); the parties mutually agreed to temporarily pause services and the Group is not obligated as at March 31, 2024 to incur pre-commercialization costs over the next twelve months. The parties may or may not resume services over the next twelve months.

The Company's cash as at March 31, 2024 is not sufficient to fund the Company's contractual commitments or the Company's planned business operations over the next year. The Company will have to raise additional capital to fund its contractual commitments and its planned business operations. The Company continues to pursue and/or examine several sources of additional capital including co-development, licensing, rights or other partnering arrangements, procurement arrangements, private placements and/or public offerings (equity and/or debt). However, there is no assurance that any of these measures will be successful. The Company will also require additional capital to fund research, development and corporate activities beyond the next year. The Company will continue to explore alternatives to generate additional cash including raising additional equity and/or debt and/or partnering; however, there is no assurance that these initiatives will be successful.

These conditions result in a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern. If the Company is not able to raise capital, the Company may be forced to cease operations. These consolidated financial statements do not include necessary adjustments to reflect the recoverability and classification of recorded assets and liabilities and related expenses that might be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and such adjustments could be material.

4. Material accounting policies

The condensed interim consolidated financial statements should be read in conjunction with the Company's annual consolidated financial statements for the year ended December 31, 2023 prepared in accordance with IFRS applicable to those annual consolidated financial statements. The same accounting policies, presentation and methods of computation have been followed in these condensed interim consolidated financial statements as were applied in the Company's consolidated financial statements for the year ended December 31, 2023.

5. Due to Zenith Capital Corp.

The Company and Zenith have several directors in common, and thus are considered related parties. The Company provides management and administrative services to Zenith pursuant to a Management Services Agreement dated June 3, 2013 between the Company and Zenith. The purpose of the agreement is to enable the Company to achieve greater utilization of its resources. As consideration for the services, Zenith pays the Company a service fee, consisting of salary and other compensation costs attributable to the services and reimbursable expenses incurred by Resverlogix in connection with the services.

During the three months ended March 31, 2024, the Company provided an aggregate of $0.21 million (2023 - $0.14 million) of services and reimbursable expenses, comprised of $0.16 million (2023 - $0.08 million) for management and administrative services, and $0.07 million (2023 - $0.08 million) of reimbursable expenses, less $0.02 million (2023 - $0.02 million) for services provided to Resverlogix by Zenith. The reimbursable expenses include proportionate share of rental payments and operating costs (for a laboratory and office that Resverlogix shares with Zenith) pursuant to a sublease that Resverlogix has in place with Zenith.

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Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2024 and 2023 (unaudited)

(Tabular amounts in thousands of US dollars, except for number of shares)

5. Due to Zenith Capital Corp. (continued)

During the three months ended March 31, 2024, Zenith advanced the Company $2.0 million. As at March 31, 2024, the Company owes Zenith a net $4.9 million (December 31, 2023 - $3.1 million). The Company has issued promissory notes to Zenith totaling $5.2 million at March 31, 2024 (December 31, 2023 - $3.2 million); the promissory notes bear interest at 12% per annum (which interest started accruing January 1, 2024), are payable within four months of demand and are unsecured. Zenith owes the Company $0.3 million (December 31, 2023 - $0.05 million); this balance is unsecured, payable on demand and non-interest bearing.

6. Debt and derivative liability

The following table summarizes the changes in debt during the three months ended March 31, 2024.

	Convertible Debenture
Balan ce, December 31, 2023		5,931
Accretion of transaction costs on Convertible Debenture		47
Balan ce, March 31, 2024	$	5,978

Secured Convertible Debenture

	March 31, 2024	December 31, 2023
US$6.0 million (initial principal)	$	6,000	$	6,000
Unamortized transaction costs, net of accretion		( 3)		(8)
Discount on warrant liability derivative, net of accretion		( 6)		(20)
Discount on conversion option derivative, net of accretion		( 13)		(41)
Carrying value of debt	$	5,978	$	5,931

On May 13, 2021, the Company closed a US$6.0 million secured convertible debenture (the "Debenture") with Shenzhen Hepalink Pharmaceutical Co., Ltd. ("Hepalink"). The Debenture bears interest at 12% per annum. Hepalink may elect to convert the principal amount of the Debenture and accrued and unpaid interest thereon into common shares of the Company at a conversion price equal to the lesser of CAD$0.93 per share and the 5-day volume weighted average trading price of the common shares on the date of conversion. The Company granted Hepalink a security interest in all of its assets, including its patents and other intellectual property, as security for its obligations under the Debenture.

Amendments and extensions of Debenture

During the three months ended March 31, 2023, the maturity date of the Debenture, and the corresponding payment date of interest thereon, were both extended by one year from May 13, 2023 to May 13, 2024. The amendment was accounted for as a debt modification. A modification gain of $0.2 million, related to the extension of the maturity date, was recognized within accretion on the statement of comprehensive loss. The amendment also included an increase to the interest rate from 10% to 12% per annum effective May 14, 2023.

As described in Note 11, subsequent to March 31, 2024, the Company announced a two-year extension of the Debenture (and payment of accrued interest thereon), extending the maturity date to May 13, 2026. In connection with the extension, Hepalink's conversion privileges have been eliminated and the interest rate has been amended from 12% to 18% per annum, commencing on May 14, 2024. The amendment is subject to execution of definitive transaction documents, customary closing conditions and receipt of all necessary approvals including approval of the Toronto Stock Exchange.

The secured convertible debenture s a hybrid instrument consisting of a financial instrument and an embedded derivative, being the conversion option. The embedded derivative is separated from the host contract and accounted for separately as the economic characteristics and risks of the host contract and the embedded derivative are not closely related. The Company also issued 300,000 warrants to Hepalink in connection with the Debenture. Each warrant is exercisable at a price of CAD$0.93 per underlying common share for a period of four years from the grant date. An exercise of warrants with an exercise price denominated in a foreign currency will result in a variable amount of cash for a fixed number of shares; as such, the warrants are presented as a current liability. On initial recognition, the warrants were valued at $0.1 million; this initial value of the warrant liability is accreted over the term of the Debenture.

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Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2024 and 2023

(unaudited)

(Tabular amounts in thousands of US dollars, except for number of shares)

6. Debt and derivative liability (continued)

The conversion option contains a variable conversion price and the conversion price is denominated in a foreign currency. As a result, conversion will result in a variable number of shares of the Company being issued at conversion; as such, the conversion feature has been classified as a derivative liability at fair value through profit or loss. It was valued at $0.3 million at the date of issuance; this initial value of the conversion option derivative is accreted over the term of the Debenture. The conversion option was revalued at $0.2 million as at December 31, 2023, and was revalued at $0.1 million as at March 31, 2024. On initial recognition, on December 31, 2023, and on March 31, 2024, the embedded conversion option was measured at fair value by using an industry standard methodology for convertible securities. Subsequent to initial recognition, any change in fair value is recognized in profit or loss at each reporting date. During the three months ended March 31, 2024, a $0.2 million gain (2023 - $0.5 million loss) was recognized for revaluing the derivative liability.

The following table summarizes the changes in derivative liability during the three months ended March 31, 2024.

	Derivative liability amount
Balan ce, December 31, 2023		239
Change in fair value of derivative liability		(163)
Balan ce, March 31, 2024	$	76

7. Royalty preferred shares

1. Authorized:

Unlimited number of royalty preferred shares issuable in series with rights as determined by the Board of Directors at the time of issue.

(ii) Issued and outstanding:

Preferred shares	Number of preferred shares		Amount
Balance, December 31, 2023	75,202,620	$	53,300
Revaluation of royalty preferred shares	-		(2,800)
Balance, March 31, 2024	75,202,620	$	50,500

The holder of the royalty preferred shares is entitled to dividends in the amount of 6-12% of the Company's Net Revenue, as defined in the Company's articles. As at March 31, 2024, the Company had 75,202,620 royalty preferred shares outstanding, all of which were held by Zenith. Resverlogix and Zenith have several directors in common, and thus are considered related parties. For fair value measurement purposes, the royalty preferred shares liability has been categorized within level 3 of the fair value measurement hierarchy. The estimated fair value of the royalty preferred shares is based on management's judgments, estimates and assumptions which include significant unobservable inputs including the timing and amounts of the Company's discounted future net cash flows. The estimate incorporates the following assumptions: an average cumulative probability rate of generating forecasted future cash flows of 41% as at March 31, 2024 (December 31, 2023 - 41%) reflecting in each case, among other factors, the Company's clinical results, in particular the results of BETonMACE, and communication with the U.S. Food and Drug Administration ("FDA") and other regulatory bodies; a discount rate of 24.6% as at March 31, 2024 (December 31, 2023 - 24.6%); projected commencement of revenue beginning between late-2027 and mid-2028 (based on projected clinical development paths across various jurisdictions, which is based substantially on securing the requisite funding from a partnership or other source(s) of capital in the latter half of 2024) as at March 31, 2024 (December 31, 2023 - between late-2027 and early-2028); and projected apabetalone market share percentages and projected product pricing. The estimated fair value of royalty preferred shares in the current period was affected by the commencement of revenue estimation update, offset by the passage of time (to future cash flows based on the estimated timing and commencement of revenue).

The estimated fair value of the royalty preferred shares is subject to significant volatility. Small changes in the aforementioned assumptions may have a significant impact on the estimated fair value of the royalty preferred shares. For instance, holding all other assumptions constant: a 1% increase in the discount rate would result in a $3.7 million decrease in the estimated fair value of the royalty preferred shares; assuming commencement of revenue one year later would result in a $14.3 million decrease in the estimated fair value of the royalty preferred shares; and a 1% increase in the probability rate of generating forecasted future cash flows would result in a $1.4 million increase in the estimated fair value of the royalty preferred shares.

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