What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-10-13 compared with 2019-09-10 · 1054 added, 1218 removed, 205 unchanged (92% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY

Reports of Independent Public Accounting Firms

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Reports of Independent Public Accounting Firm

Financial Statements:

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Consolidated statements of stockholders’

equity (deficit) for the fiscal years ended June 30, 2019 and 2018

equity for the fiscal years ended June 30, 2020 and 2019

Consolidated statements of cash flows for the fiscal years ended June 30, 2020 and 2019

Notes to consolidated financial statements

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

OF INDEPENDENT PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

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balance sheet of Rezolute, Inc.

(the “Company”) as of June 30, 2019, and the related consolidated statements of operations,

stockholders’

equity (deficit), and cash flows for the year ended June 30, 2019, and the related notes (collectively referred

to as the “financial statements”).

(the “Company”) as of June 30, 2020 and 2019, and the related consolidated

statements of operations, stockholders’

equity and cash flows for the years ended June 30, 2020 and 2019, and the related

notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements

referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2019, and the

results of its operations and its cash flows for the year ended June 30, 2019, in conformity with accounting principles generally

accepted in the United States of America.

referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and

2019, and the results of its operations and its cash flows for the years ended June 30, 2020 and 2019, in conformity with

accounting principles generally accepted in the United States of America.

BASIS FOR OPINION

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for these financial statements.

Our responsibility is to express an opinion on the Company’s financial statements based on

Our responsibility is to express an opinion on the Company’s financial statements based

on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

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rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required

to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the

effectiveness of the Company's internal control over financial reporting.

We conducted our audits in accordance

with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required

to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are

required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion

on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures

Our audits included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

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in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable

basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

/s/ Plante & Moran, PLLC

We have served as the Company’s auditors

We have served as the Company’s

auditors since 2013.

Denver, Colorado

September 9, 2019

REPORT OF INDEPENDENT PUBLIC

ACCOUNTING FIRM

To the Stockholders and Board of Directors

Rezolute, Inc.

Redwood City, California

OPINION ON THE CONSOLIDATED FINANCIAL

We have audited the accompanying consolidated

balance sheet of Rezolute, Inc.

(the “Company”) as of June 30, 2018, and the related consolidated statements of operations,

stockholders’

equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as

the “financial statements”).

In our opinion, the financial statements

referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2018, and the

results of its operations and its cash flows for the year ended June 30, 2018, in conformity with accounting principles generally

accepted in the United States of America.

BASIS FOR OPINION

We conducted our audit in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

/s/ EKS&H LLLP

October 13, 2020

Denver, Colorado

REZOLUTE, INC.

Consolidated Balance Sheets

June 30, 2019 and 2018

(In Thousands, Except Per Share Amounts)

Balance Sheets

2020 and 2019

Thousands, Except Per Share Amounts)

Current assets:

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Total current assets

Non-current assets:

Right-of-use assets, net

Property and equipment, net

Intangible assets, net

Lease deposits and other

Liabilities and Stockholders' Equity (Deficit)

Lease security deposits

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable and accrued expenses

Accrued compensation and benefits

Accounts payable

Accrued liabilities:

Insurance premiums

Compensation and benefits

Current portion of license fees payable to Xoma

Convertible notes payable, net

Deferred lease liability

Embedded derivative liability

Current portion of operating lease liabilities

Total current liabilities

Non-current liabilities:

License fees payable to Xoma, net of current portion

Operating lease liabilities, net of current portion

Other non-current liabilities

Total liabilities

Commitments and contingencies (Notes 4 and 9)

Stockholders' equity (deficit):

Stockholders' equity:

Preferred Stock, $0.001 par value;

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Common Stock, $0.001 par value, 500,000 shares authorized;

210,390 and 62,166

shares issued and outstanding as of June 30, 2019 and 2018, respectively

5,867 and 4,208 shares issued and outstanding as of June 30, 2020 and 2019, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders' equity (deficit)

Total liabilities and stockholders' equity (deficit)

The accompanying notes are an integral part

of these consolidated financial statements.

Total stockholders' equity

Total liabilities and stockholders' equity

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

REZOLUTE, INC.

Consolidated Statements of Operations

For the Years Ended June 30, 2019 and

(In Thousands, Except Per Share Amounts)

Statements of Operations

the Years Ended June 30, 2020 and 2019

Thousands, Except Per Share Amounts)

Operating expenses:

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Compensation and benefits

Licensing costs

Material manufacturing costs

Clinical trial costs

Consultants and outside services

Material manufacturing costs

Facilities and other

Clinical trial costs

Licensing costs

Total research and development

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Compensation and benefits

Facilities and other

Professional fees

Investor relations

Facilities and other

Total general and administrative

Impairment of long-lived assets

Loss on sale of property and equipment

Total operating expenses

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Non-operating income (expense):

Interest expense

Loss on extinguishment of debt

Gain on change in fair value of embedded derivatives

Gain on lease termination

Rental income

Interest and other income

Interest expense

Total non-operating income (expense)

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Weighted average number of common shares outstanding - basic and diluted

The accompanying notes are an integral part

of these consolidated financial statements.

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

REZOLUTE, INC.

Consolidated Statements of Stockholders’

Equity (Deficit)

For the Years Ended June 30, 2019 and

(In Thousands)

Preferred Stock

Statements of Stockholders’

the Years Ended June 30, 2020 and 2019

(In Thousands, Except Per Share Amounts)

Stockholders'

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Balances, June 30,

Stock-based compensation

Fair value of warrants:

Issued to consultants for services

Issued for debt discount

Issuance of Common Stock:

In private placement, net of costs of $60

For license rights to Xoma, Inc.

For commitment fee in private placement

Balances, June 30, 2018

Stock-based compensation

Fair value of warrants:

Issued to consultants for services

Modification for debt discount to former

member of Board of Directors

Shareholder surrender of shares for no consideration

Beneficial conversion feature related to:

Fiscal 2018 Notes

Series AA Preferred Stock

Issuance of Series AA Preferred Stock for:

Cash, including Exclusivity Payment

Principal under Fiscal 2018 Notes

Accrued interest under Fiscal 2018 Notes

Conversion of Series AA Preferred Stock to

Balances, June 30, 2019

The accompanying notes are an integral part

of these consolidated financial statements.

to consultants for services

for debt discount to former member of Board of Directors

surrender of shares for no consideration

conversion feature related to:

Preferred Stock

of Series AA Preferred Stock for:

including Exclusivity Payment

under Fiscal 2018 Notes

interest under Fiscal 2018 Notes

of Series AA Preferred Stock to Common Stock

June 30, 2019

value of warrants issued to consultants for services

of common stock for cash:

parties at $14.50 per share

investors at $14.50 per share

fees and other offering costs

June 30, 2020

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

REZOLUTE, INC.

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Stock-based compensation expense

Fair value of warrants issued for services

Impairment of long-lived assets and other

Depreciation and amortization expense

Non-cash lease expense

Beneficial conversion feature attributable to Fiscal 2018 Notes

Accretion of debt discount and issuance costs

Loss on extinguishment of debt

Issuance of common stock for license fees payable to Xoma

Depreciation and amortization expense

Impairment of long-lived assets

Loss on sale of property and equipment

Fair value of warrants issued for services

Gain on lease termination

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Decrease (increase) in prepaid expenses and other assets

Increase (decrease) in accounts payable and accrued liabilities

Increase in license fees payable to Xoma

Increase (decrease) in accounts payable

Increase (decrease) in other accrued liabilities

Increase (decrease) in license fees payable to Xoma

Increase in interest payable

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Proceeds from sale of equipment

Refund of deposit

Purchase of property and equipment

Purchase of office furniture and equipment

Net Cash Provided By Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from New Investors in Series AA Financing:

Proceeds from investors in Series AA Financing:

Exclusivity Payment

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Payment of offering costs

Payment of debt issuance costs

Proceeds from convertible notes payable

Net Cash Provided by Financing Activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of fiscal year

Cash and cash equivalents at end of fiscal year

The accompanying notes are an integral part

of these consolidated financial statements.

REZOLUTE, INC.

Consolidated Statements of Cash Flows,

For the Years Ended June 30, 2019 and

(In Thousands)

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of fiscal year

Cash, cash equivalents and restricted cash at end of fiscal year

SUPPLEMENTARY CASH FLOW INFORMATION:

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Fair value of warrant modification issued for debt discount

Fair value of embedded derivative for debt discount

The accompanying notes are an integral part

of these consolidated financial statements.

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

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Nature of Operations

and Summary of Significant Accounting Policies

to Consolidated Financial Statements

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Rezolute, Inc.

(the “Company”) is a clinical stage

biopharmaceutical company incorporated in Delaware in 2010.

The Company has one wholly owned subsidiary, AntriaBio Delaware, Inc.

(“Antria Delaware”).

(the “Company”) is a clinical

stage biopharmaceutical company incorporated in Delaware in 2010.

Consolidation

The accompanying consolidated financial statements include the

accounts of the Company and Antria Delaware.

All significant intercompany balances and transactions have been eliminated in consolidation.

Company has three wholly owned subsidiaries consisting of AntriaBio Delaware, Inc.

(“Antria Delaware”), Rezolute

(Bio) Ireland Limited, and Rezolute Bio UK, Ltd.

The accompanying consolidated financial statements include the accounts of

the Company and its three wholly owned subsidiaries.

All significant intercompany balances and transactions have been eliminated

in consolidation.

Reverse Stock Split

August 2019, the Company’s Board of Directors 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 or the number of shares of Common Stock authorized.

On October 7,

2020, the Board of Directors approved a one share for 50 shares reverse stock split 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.

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 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 Company’s consolidated financial statements have been

prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

amounts in the previously issued comparative financial statements for fiscal 2018 have been reclassified to conform to the current

fiscal 2019 financial statement presentation.

These reclassifications had no effect on the previously reported net loss, working

capital, cash flows and stockholders’

equity (deficit).

Comprehensive income (loss) is defined as net income (loss)

plus other comprehensive income (loss).

Other comprehensive income (loss) is comprised of revenues, expenses, gains, and losses

that under GAAP are reported as separate components of stockholders’

equity (deficit) instead of net income (loss).

fiscal years ended June 30, 2019 and 2018, the only component of comprehensive loss was the Company’s net loss.

The Company’s Chief Executive Officer also serves as the

Company’s chief operating decision maker (the “CODM”) for purposes of allocating resources and assessing performance

based on financial information of the Company.

Since its inception, the Company has determined that its activities as a clinical

stage biopharmaceutical company are classified as a single reportable operating segment.

The Company’s consolidated financial

statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Certain amounts in the previously issued comparative financial statements for fiscal 2019 have been reclassified to conform to

the current fiscal 2020 financial statement presentation.

These reclassifications had no effect on the previously reported net

loss, working capital, cash flows and stockholders’

Comprehensive income (loss) is defined

as net income (loss) plus other comprehensive income (loss).

Other comprehensive income (loss) is comprised of revenues, expenses,

gains, and losses that under GAAP are reported as separate components of stockholders’

equity instead of net income (loss).

For the fiscal years ended June 30, 2020 and 2019, the only component of comprehensive loss was the Company’s net loss.

The Company’s Chief Executive Officer

also serves as the Company’s chief operating decision maker (the “CODM”) for purposes of allocating resources

and assessing performance based on financial information of the Company.

Since its inception, the Company has determined that its

activities as a clinical stage biopharmaceutical company are classified as a single reportable operating segment.

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 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, estimated useful lives and impairment of fixed assets and intangible assets, fair value of share-based

payments and warrants, fair value of derivative instruments, management’s assessment of going concern, 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.

Actual results could differ from those 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

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, fair value of share-based payments and warrants, management’s assessment of

going concern, clinical trial accrued liabilities, 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.

Actual results could

differ from those estimates.

REZOLUTE, INC.

to Consolidated Financial Statements

Risks and Uncertainties

The Company's operations may be subject to significant risk

and uncertainties including financial, operational, regulatory and other risks associated with a clinical stage company, including

the potential risk of business failure as discussed further in Note 2.

Cash and Cash Equivalents

All highly liquid investments purchased with an original maturity

of three months or less that are freely available for the Company’s immediate and general business use are classified as

The Company's operations may be subject

to significant risks and uncertainties including financial, operational, regulatory and other risks associated with a clinical

stage company, including the potential risk of business failure as discussed further in Note 2, and the future impact of COVID-19

as discussed in Note 9.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of demand deposits with financial institutions.

All highly liquid investments purchased

with an original maturity of three months or less that are freely available for the Company’s immediate and general business

use are classified as cash and cash equivalents.

Cash and cash equivalents consist primarily of demand deposits with financial

institutions.

The Company determines if an arrangement

includes a lease as of the date an agreement is entered into.

Operating leases are included in right-of-use (“ROU”)

assets and operating lease liabilities in the Company's Consolidated Balance Sheets.

ROU assets and operating lease liabilities

are initially recognized based on the present value of the future minimum lease payments at the commencement date of the lease.

The Company generally uses its incremental borrowing rate based on the information available at the lease commencement date in

determining the present value of future payments.

The Company's leases may include options to extend or terminate the lease;

options are included in the calculation of ROU assets and operating lease liabilities when it is reasonably certain that the Company

will exercise the options.

Lease expense is recognized on a straight-line basis over the lease term.

The Company has elected not

to apply the recognition requirements for short-term leases.

For lease agreements with lease and non-lease components, the Company

generally accounts for them separately.

Property and Equipment

Property and equipment are recorded at cost less accumulated

depreciation and amortization.

Depreciation is calculated using the straight-line method over the estimated useful lives of the

assets, as follows:

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Furniture and fixtures

Leasehold improvements

Laboratory equipment

Leasehold improvements are amortized over the remaining lease

term or the estimated useful life of the asset, whichever is shorter.

Depreciation commences when assets are initially placed into

service for their intended use.

Maintenance and repairs are expensed as incurred.

Property and equipment is recorded at cost less accumulated

depreciation of approximately $14,000 as of June 30, 2020 and $3,000 as of June 30, 2019.

Maintenance and repairs are

expensed as incurred.

expense is calculated using the straight-line method over the estimated useful lives of the assets which range from 3 to 5 years.

Depreciation expense commences when assets are initially placed into service for their intended use.

Depreciation expense

related to property and equipment amounted to approximately $11,000 and $41,000 for the fiscal years ended June 30, 2020 and

2019, respectively.

Intangible Assets

Intangible assets consist of patents and

are recorded at the estimated acquisition date fair value.

Such costs are being amortized over 11 years which is the life of the

patents at the time they were acquired.

Amortization expense related to intangible assets amounted to approximately $7,000 for

each of the fiscal years ended June 30, 2019 and 2018.

Future amortization expense is expected to be approximately $7,000 for each

of the next five fiscal years.

Intangible assets consist of patents that

were recorded at the estimated acquisition date fair value.

Such costs were being amortized over 11 years which was the life of

the patents at the time they were acquired.

Amortization expense related to intangible assets amounted to approximately $7,000

for each of the fiscal years ended June 30, 2020 and 2019.

Impairment of Long-lived Assets

Long-lived assets are reviewed for impairment whenever events

or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

Impairment exists for property and

equipment and identifiable intangible assets if the carrying amounts of such assets exceed the estimates of future net undiscounted

Long-lived assets are reviewed for impairment

whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

Impairment exists

for office furniture and equipment and patents if the carrying amounts of such assets exceed the estimates of future net undiscounted

cash flows expected to be generated by such assets.

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of the asset, or asset group, exceeds its fair value.

In June 2020, the Company determine that indicators of impairment existed

for the patents and recognized a charge of approximately $23,000 for the remaining net carrying value of the patents.

Debt Discounts and Issuance Costs

Debt discounts and issuance costs (“DDIC”) incurred

to obtain new debt financing or modify existing debt financing consist of incremental direct costs incurred for professional fees

and due diligence services.

If convertible notes are issued in conjunction with warrants, the Company allocates the proceeds to

each component using a relative fair value.

DDIC are presented in the accompanying consolidated balance sheets as a reduction in

the carrying value of the debt and are accreted to interest expense using the effective interest method.

When debt arrangements are amended, the revised terms are evaluated

to determine if the amendment should be accounted for as a troubled debt restructuring, a modification or an extinguishment.

the Company determines that the lender has provided a concession and the Company is experiencing financial difficulties, treatment

as a troubled debt restructuring would be required where a gain would generally be recognized.

If the Company concludes that accounting

as a modification is required, then any costs incurred on behalf of the lenders are accounted for as additional DDIC.

discounts and issuance costs (“DDIC”) incurred to obtain new debt financing or modify existing debt financing consist

of incremental direct costs incurred for professional fees and due diligence services.

If convertible notes are issued in

conjunction with warrants, the Company allocates the proceeds to each component using a relative fair value.

DDIC are presented

in the accompanying consolidated balance sheets as a reduction in the carrying value of the debt and are accreted to interest expense

using the effective interest method.

REZOLUTE, INC.

to Consolidated Financial Statements

When debt arrangements are amended, the

revised terms are evaluated to determine if the amendment should be accounted for as a troubled debt restructuring, a modification

or an extinguishment.

If the Company determines that the lender has provided a concession and the Company is experiencing financial

difficulties, treatment as a troubled debt restructuring would be required where a gain would generally be recognized.

If the Company

concludes that accounting as an extinguishment is required, an extinguishment charge is measured on the date of the amendment based

on the amount by which the fair value of the new debt instrument exceeds the net carrying value of the original debt instrument.

concludes that accounting as a modification is required, then any costs incurred on behalf of the lenders are accounted for as

additional DDIC.

If the Company concludes that accounting as an extinguishment is required, an extinguishment charge is measured

on the date of the amendment based on the amount by which the fair value of the new debt instrument exceeds the net carrying value

of the original debt instrument.

Beneficial Conversion Features

A beneficial conversion feature (“BCF”) is a non-detachable

conversion feature that is “in the money”

at the commitment date, which requires recognition of interest expense for

underlying debt instruments and a deemed dividend for underlying equity instruments.

A conversion option is in the money if the

effective conversion price is lower than the commitment date fair value of a share into which it is convertible.

A contingent BCF

feature is measured using the commitment date security price but is not recognized in earnings until the contingency is resolved.

A beneficial conversion feature (“BCF”)

is a non-detachable conversion feature that is “in the money”

at the commitment date, which requires recognition of

interest expense for underlying debt instruments and a deemed dividend for underlying equity instruments.

A conversion option is

in the money if the effective conversion price is lower than the commitment date fair value of a share into which it is convertible.

A contingent BCF feature is measured using the commitment date security price but is not recognized in earnings until the contingency

Research and Development Costs

Research and development costs are expensed

Intangible assets for in-licensing costs incurred under license agreements with third parties are charged to expense,

unless the licensing rights have separate economic value in alternative future research and development projects or otherwise.

and development costs are expensed as incurred.

Intangible assets for in-licensing costs incurred under license agreements

with third parties are charged to expense, unless the licensing rights have separate economic value in alternative future research

and development projects or otherwise.

Clinical Trial Accruals

Clinical trial costs are a component of

research and development expenses.

The Company accrues and expenses 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.

The Company determines 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 research and development activities, are deferred and recognized as expense

in the period that the related goods are delivered, or services are performed.

Stock-Based Compensation

The Company measures the fair value of employee and director

services received in exchange for all equity awards granted, including stock options, based on the fair market value of the award

as of the grant date.

The Company computes the fair value of stock options using the Black-Scholes-Merton (“BSM”) option

pricing model and recognizes the cost of the equity awards over the period that services are provided to earn the award, usually

the vesting period.

For awards granted which contain a graded vesting schedule, and the only condition for vesting is a service

condition, compensation cost is recognized as an expense on a straight-line basis over the requisite service period as if the award

was, in substance, a single award.

The Company recognizes 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.

The Company measures the fair value of

employee and director services received in exchange for all equity awards granted, including stock options, based on the fair market

value of the award as of the grant date.

The Company computes the fair value of stock options using the Black-Scholes-Merton (“BSM”)

option pricing model and recognizes the cost of the equity awards over the period that services are provided to earn the award,

usually the vesting period.

For awards granted which contain a graded vesting schedule, and the only condition for vesting is a

service condition, compensation cost is recognized as an expense on a straight-line basis over the requisite service period as

if the award was, in substance, a single award.

The Company recognizes 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.

The Company has granted stock options with

vesting that is dependent on achieving certain market, performance and service conditions (“Hybrid Options”).

of recognizing compensation cost, the Company determines 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.

Compensation cost will be recognized

beginning on such date that achievement of the performance condition is considered probable and continuing through the end of the

requisite service period.

Determination of the requisite service period of the Hybrid Options will be based on the date that the

performance condition is considered probable.

Unrecognized compensation cost for the Hybrid Options, calculated using the Black-Scholes-Merton

(“BSM”) pricing model, will be recognized beginning on the date that the performance condition is considered probable

using the grant date fair value.

If the Hybrid Options do not ultimately become exercisable as a result of failure to achieve the

requisite service period, any previously recognized compensation cost will be reversed.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Options and Warrants for Non-Employee Services

The Company accounts for stock options and warrants granted

to non-employees by determining the fair value of the equity instrument issued on the commitment date, with expense recognized

over the service period.

Prior to the establishment of the commitment date, the Company continues to remeasure the fair value of

the award, resulting in the recognition of subsequent gains and losses until the commitment date is achieved.

The Company estimates

fair value of non-employee awards using the BSM option pricing model.

When the Company enters into a financial instrument such as

a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any

embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract.

to Consolidated Financial Statements

When the Company enters into a financial

instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics

of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract.

When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related

to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would

meet the definition of a financial derivative instrument and cannot be classified in stockholders’

equity, then the embedded

feature is bifurcated from the host contract and accounted for as a derivative instrument.

The estimated fair value of the derivative

feature is recorded separately from the carrying value of the host contract, with subsequent changes in the estimated fair value

recorded as a non-operating gain or loss in the Company’s consolidated statements of operations.

The Company accounts for income taxes under the asset and liability

Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting

and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when

the differences are expected to be recovered or settled.

Realization of deferred income tax assets is dependent upon future taxable

A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred income tax asset

will not be realized based on the weight of available evidence, including expected future earnings.

The Company recognizes an uncertain tax position in its financial

statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical

to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms

would meet the definition of a financial derivative instrument and cannot be classified in stockholders’

equity, then the

embedded feature is bifurcated from the host contract and accounted for as a derivative instrument.

The estimated fair value of

the derivative feature is recorded separately from the carrying value of the host contract, with subsequent changes in the estimated

fair value recorded as a non-operating gain or loss in the Company’s consolidated statements of operations.

The Company accounts for income taxes under

the asset and liability method.

Under this method, deferred income tax assets and liabilities are determined based on differences

between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are

expected to be in effect when the differences are expected to be recovered or settled.

Realization of deferred income tax assets

is dependent upon future taxable income.

A valuation allowance is recognized if it is more likely than not that some portion or

all of a deferred income tax asset will not be realized based on the weight of available evidence, including expected future earnings.

The Company recognizes an uncertain tax

position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination

based solely on its technical merits.

Only after a tax position passes the first step of recognition will measurement be required.

Under the measurement step,

the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement.

Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized

upon effective settlement.

This is determined on a cumulative probability basis.

The full impact of any change in recognition or measurement is reflected

in the period in which such change occurs.

Interest and penalties related to income taxes are recognized in the provision for income

The full impact of any change in recognition or

measurement is reflected in the period in which such change occurs.

Interest and penalties related to income taxes are recognized

in the provision for income taxes.

Loss Per Common Share

Basic net loss per common share is computed by dividing the

net loss applicable to common stockholders by the weighted average number of common shares outstanding for each period presented.

Net loss applicable to common stockholders is further adjusted to deduct BCFs that arise from deemed dividends as discussed above.

Diluted net loss per common share is computed by giving effect to all potential shares of Common Stock, including stock options,

convertible debt, Series AA Preferred Stock and warrants, to the extent dilutive.

Basic net loss per common share is computed

by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding for each

period presented.

Net loss applicable to common stockholders is further adjusted to deduct BCFs that arise from deemed dividends

as discussed above.

Diluted net loss per common share is computed by giving effect to all potential shares of Common Stock, including

stock options and warrants, to the extent dilutive.

Recent Accounting Pronouncements

Recently Adopted Standards.

The following accounting

standards were adopted during the fiscal year ended June 30, 2019:

In March 2016, the Financial Accounting Standards Board (“FASB”)

issued Accounting Standards Update (“ASU”) No.

2016-09, Improvements to Employee Share-Based Payment , aimed

at simplifying the accounting for share-based transactions.

The standard included modifications to the accounting for income taxes

upon vesting or settlement of equity awards, employer tax withholding on share-based compensation and financial statement presentation

of excess tax benefits.

The Company decided to recognize 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.

ASU 2016-09 was effective for the

Company on July 1, 2018 and the adoption did not have a material impact on the Company’s consolidated financial statements.

Notes to Consolidated Financial Statements

In January 2016, the FASB issued ASU 2016-01, Financial Instruments

Recognition and Measurement of Financial Assets and Financial Liabilities , which addresses certain aspects

of recognition, measurement, presentation, and disclosure of financial instruments.

ASU 2016-01 was effective for the Company on

July 1, 2018.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-9, Compensation –

Stock Compensation (Topic 718):

Scope of Modification Accounting .

This ASU includes guidance on what changes to share-based

payment awards would require modification accounting.

The Company adopted this ASU on July 1, 2018.

The adoption of the new provisions

did not have a material impact on the Company’s financial condition or results of operations.

Standards Required to be Adopted in Future Years.

following accounting standards are not yet effective;

management has not completed its evaluation to determine the impact that

adoption of these standards will have on the Company’s consolidated financial statements.

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 new guidance, an entity recognizes,

as an allowance, its estimate of expected credit losses.

In November 2018, ASU 2016-13 was amended by ASU 2018-19, Codification

Improvements to Topic 326, Financial Instruments –

Credit Losses.

ASU 2018-19 changes the effective date of the

credit loss standards (ASU 2016-13) to fiscal years beginning after December 15, 2021, including interim periods within those fiscal

Further, the ASU clarifies that operating lease receivables are not within the scope of ASC 326-20 and should instead be

accounted for under the new leasing standard, ASC 842.

The Company has not yet determined the effect that ASU 2018-19

will have on its results operations, balance sheets or financial statement disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases

This ASU requires the Company to recognize lease assets and lease liabilities on the balance sheet and also disclose

Adopted Standards.

The following accounting standards were adopted during the fiscal year ended June 30, 2020:

In February 2016, the Financial Accounting

Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842).

This ASU requires the Company to recognize right-of-use assets and operating lease liabilities on the balance sheet, and also disclose

key information about leasing arrangements.

Early adoption is permitted, and the new standard was required to be adopted retrospectively

to each prior reporting period presented upon initial adoption.

However, in July 2018 the FASB issued ASU No.

2018-11 Targeted

Improvements , which provides lessees the option to apply the new leasing standard to all open leases as of the adoption date

by recognizing a cumulative-effect adjustment to accumulated deficit in the period of adoption without restating prior periods.

Company expects the primary impact of adopting this standard will result in the recognition of right-of-use assets and right-of-use

liabilities for the discounted present value of the lease commitments summarized in Note 9.

The Company intends to utilize the

transition approach set forth in ASU No.

2018-11 upon adoption of ASU No.

2016-02 which is required on July 1, 2019.

impact of adoption to be reflected in the Company’s consolidated financial statements for the fiscal quarter ending September

30, 2019, is as follows (in thousands):

On July 1, 2019, the Company adopted this new standard using the modified retrospective

approach in accordance with ASU No.

2018-11, Leases - Targeted Improvements .

The Company elected the package of practical

expedients permitted under the transition guidance within ASU No.

2018-11, which among other things, allowed the Company to

carry forward the historical lease classification of those leases in place as of July 1, 2019.

The impact of adoption resulted

in the recognition of right-of-use assets and operating lease liabilities for the discounted present value of the future lease

payments on leases that were in effect on July 1, 2019, as follows (in thousands):

REZOLUTE, INC.

to Consolidated Financial Statements

Right-of-use assets recorded under new standard

Right-of-use liabilities recorded under new standard:

Eliminate deferred rent liability under current accounting standard

Operating lease liabilities recorded under new standard:

Eliminate previously existing deferred rent liability

Net increase in liabilities due to adoption of new standard

In June 2018, the FASB issued ASU 2018-07, "

Please refer to Note 3 for further information

about the right-of-use assets and operating lease liabilities recognized under this standard.

Due to the Company’s election

to adopt this standard effective July 1, 2019, rent expense was recognized under the accounting standard that was previously

in effect for all periods prior to July 1, 2019.

In June 2018, the FASB issued

ASU 2018-07, Compensation —

Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting ,"

which expands the

scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees.

An entity should

apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and

the attribution of cost.

The new guidance is effective for fiscal years, and interim reporting periods within those fiscal years,

beginning after December 15, 2019.

Early adoption is permitted.

The Company is evaluating the effects of the adoption of this guidance

and currently expects to adopt this guidance for the fiscal year ending June 30, 2020.

Improvements to Nonemployee Share-Based Payment

Accounting , which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and

services from non-employees.

The new standard does not apply to warrants issued to a lender or investor in a financing

The Company adopted ASU 2018-07 effective July 1, 2019.

Prior to the adoption of ASU 2018-07, the Company

accounted for stock options and warrants granted to non-employees based on the fair value of the goods and services, or the

equity instrument, whichever could be measured more reliably.

If fair value of the equity instrument was more reliably

determined, fair value of the equity instrument was required to be re-measured until the performance commitment date was

achieved, which resulted in the recognition of subsequent changes in fair value.

Under the new standard, the fair value of

the goods and services acquired from non-employees is solely determined using the fair value of the equity instruments issued

and measurement of fair value is fixed on the grant date.

The Company also made an accounting policy election to recognize

the impact of forfeitures of non-employee awards in the period that the forfeiture occurs.

The impact of adopting this

standard was immaterial to the Company’s consolidated financial statements.

Required to be Adopted in Future Years.

The following accounting standard is 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 June 2016, the FASB issued

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial

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.

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.

Company does not expect the adoption of this accounting guidance will have a material impact on its consolidated financial

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.

The 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.

As of June 30, 2020, the Company had an accumulated deficit

of $147.2 million, cash and cash equivalents of $10.0 million and total liabilities of $3.6 million.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

The Company is in the clinical stage and has not yet generated

any revenues.

As reflected in the accompanying consolidated financial statements, for the fiscal year ended June 30, 2019 the Company

incurred a net loss of $30.4 million and net cash used in operating activities amounted to $15.3 million.

As of June 30, 2019,

the Company had an accumulated deficit of $126.9 million.

As of June 30, 2019, the Company had cash and cash equivalents of $11.6

million and total liabilities of $10.5 million.

As discussed in Note 6, in January 2019 the Company closed an

equity offering with two new investors (the “New Investors”) that resulted in cash proceeds of $25.0 million and the

conversion to equity of the Fiscal 2018 Notes with an aggregate principal balance of $5.3 million plus accrued interest of $0.8

As discussed in Note 13, in July and August 2019 the Company received aggregate net proceeds of approximately $22.6 million

from the issuance of approximately 82.9 million shares of Common Stock to the New Investors and other investors in a private placement.

As a result of the equity financings completed during 2019,

management believes the Company’s existing cash balance of $11.6 million plus $22.6 million of additional net cash proceeds

received in July and August 2019 is adequate to carry out planned activities at least through September 2020.

The Company’s

contractual obligations and other planned spending through September 2020 consist of (i) licensing obligations to Xoma Corporation

of $8.5 million as discussed in Note 4, (ii) research and development spending on RZ358, AB101 and other clinical programs for

$11.0 million, and (iii) approximately $10.4 million for spending on compensation, benefits, rent, other research costs, and public

company costs for auditing and professional fees.

The Company expects to continue to pursue equity and/or debt financings to provide

funding for planned activities for the fiscal year ending June 30, 2021 and beyond.

To the extent that additional funding is obtained

during the remainder of the fiscal year ending June 30, 2020, the Company plans to accelerate timing to complete clinical trials

and other research and development activities which would result in increased spending.

However, the Company has the flexibility

to delay clinical programs to ensure that adequate capital resources are available.

There are no assurances that the Company will be able to obtain

additional financing through other sources, such as equity offerings and bank financings in the future.

Even if these other financing

sources are available, they may be on terms that are not acceptable to management and the Company’s stockholders.

Property and Equipment

The following is a summary of property and equipment as of June

30, 2019 and 2018 (in thousands):

Furniture and fixtures

Leasehold improvements

Laboratory equipment

Total property and equipment

Less accumulated depreciation and amortization

Net property and equipment

Depreciation and amortization expense related to property and

equipment amounted to approximately $41,000 and $1.1 million for the fiscal years ended June 30, 2019 and 2018, respectively.

to Consolidated Financial Statements

As discussed in Note 14, on

October 9, 2020 the Company received aggregate gross proceeds from investors in a private placement of approximately

$41.0 million 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.

Management believes the Company’s existing cash and

cash equivalents balance plus the net proceeds from the private placement of $37.6 million will be adequate to carry out

currently planned activities into the second half of fiscal year ending June 30, 2022.

As discussed in Note 9, COVID-19 has resulted

in an economic environment that is unfavorable for many businesses to conduct operations and pursue new debt and equity financings.

economy has been largely shut down by mass quarantines and government mandated stay-in-place orders to halt the spread

of the virus.

While these orders are being lifted gradually, there is considerable uncertainty surrounding the recovery period

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

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.

Even if an economic recovery occurs faster and more robustly than currently

expected, there are no assurances that the Company will be able to obtain equity and debt financings that will be necessary to

fund ongoing operations after the fiscal year ending June 30, 2022.

In addition, even if these financing sources are available,

they may be on terms that are not acceptable to the Company’s Board of Directors and stockholders.

Note 3 —

discussed in Note 1, the Company adopted ASU 2016-02, Leases (Topic 842) effective July 1, 2019.

July 1, 2019, the Company had two leases in effect, consisting of (i) a lease for its headquarters location in

Redwood City, California that was entered into on January 25, 2019, that provides for monthly rent of approximately

$21,000 through the expiration date in March 2022, and (ii) a lease for office space in Bend, Oregon entered into

on February 7, 2019, that provides for monthly rent of approximately $2,700 through the expiration date in

February 2021.

The impact of adoption of ASU 2016-02 resulted in the recognition of ROU assets for $0.6 million and

operating lease liabilities for the discounted present value of the future lease payments on these leases of approximately

$0.6 million.

For the year ended June 30, 2020, under ASC 842 the Company had operating lease expense of $0.3 million,

of which $0.2 million was included in research and development costs and $0.1 million was included in general and

administrative expenses.

For the year ended June 30, 2019 under the previous accounting standard, the Company had

operating lease expense of $0.4 million, of which $0.3 million was included in research and development costs and $0.1

million was included in general and administrative expenses.

The Company determined the operating lease

liability of approximately $633,000 as of July 1, 2019 based upon a discount rate of 10.0% and assuming that the Company will

not exercise its option to extend the headquarters lease for an additional three years.

The discount rate represents the Company’s

estimated incremental borrowing rate for debt with similar lender rights as the underlying operating lease terms.

Balance Sheet Presentation

As of June 30, 2020 and on the

adoption date of July 1, 2019, the carrying value of ROU assets and operating lease liabilities were as follows (in

Right-of-Use Assets, net

Operating Lease Liabilities:

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Restructuring

In April 2018, the Company implemented a restructuring plan

to discontinue manufacturing activities and attempt to sublease facilities in Louisville, Colorado.

This decision triggered an

evaluation for impairment of the Company’s long-lived assets, including leasehold improvements at the facilities in Colorado.

Upon completion of this impairment analysis, the Company concluded that leasehold improvements with a net book value of $1.7 million

were impaired.

Accordingly, the Company recorded an impairment charge for $1.7 million for the fiscal year ended June 30, 2018.

The restructuring plan included a reduction in the Company’s

workforce by 30 employees that resulted in severance payments of approximately $0.6 million to the affected employees.

These severance

payments were primarily related to employees engaged in research and development activities and are included in compensation and

benefits in the accompanying consolidated statement of operations for the fiscal year ended June 30, 2018.

On June 22, 2018, the Company completed a sale of certain laboratory

equipment and other manufacturing assets for proceeds of approximately $1.6 million.

This transaction resulted in a loss on sale

of property and equipment of $0.7 million in the accompanying consolidated statement of operations for the fiscal year ended June

In December 2018, the Company vacated its leased office and

laboratory space in Colorado, resulting in an impairment charge of approximately $33,000 related to leasehold improvements, laboratory

equipment, furniture and fixtures.

For the fiscal year ended June 30, 2019, the Company completed sales of furniture, fixtures,

and laboratory equipment for proceeds of approximately $0.3 million.

These transactions resulted in the Company recording a loss

on sale of property and equipment of approximately $12,000 in the accompanying consolidated statement of operations for the fiscal

year ended June 30, 2019.

As discussed further in Note 9, the Company also recognized a gain of approximately $0.2 million from

the termination of the Colorado leases and subleases.

to Consolidated Financial Statements

As of June 30, 2020, the weighted

average remaining lease term under operating leases was 1.6 years, and the weighted average discount rate for operating lease

liabilities was 10.0%.

For the year ended June 30, 2020, cash paid for amounts included in the measurement of operating lease

liabilities amounted to $0.3 million, which is included in the determination of net cash used in operating activities in the consolidated

statement of cash flows.

Future Lease Payments

Future payments under operating lease

agreements as of June 30, 2020 are as follows (in thousands):

Fiscal year ending June 30,

Total lease payments

Present value

of operating lease liabilities

Restructuring Activity

In April 2018, the Company implemented

a restructuring plan to discontinue manufacturing activities and attempt to sublease facilities in Louisville, Colorado.

In December 2018,

the Company vacated its leased office and laboratory space in Colorado, resulting in an impairment charge of approximately $33,000

and a loss on sale of approximately $12,000 related to leasehold improvements, laboratory equipment, furniture, equipment and

The impairment charge and the loss on sale are included in facilities and other general and administrative expenses

in the accompanying statement of operations for the fiscal year ended June 30, 2019.

In December 2018, the Company entered

into surrender agreements with its landlord, sub-landlord and sub-lessees to terminate all lease and sub-lease obligations at

the Company’s former Colorado facilities.

Accordingly, the Company was relieved of its remaining obligations under the leases

and relinquished its rights under the lease and sublease agreements whereby no cash was exchanged by the parties and the Company

recognized a net gain on lease termination of approximately $0.2 million.

This gain is included in interest and other income in

the accompanying statement of operations for the fiscal year ended June 30, 2019.

License Agreements

Xoma License Agreement

On December 6, 2017, the Company entered

into a license agreement (“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.

Xoma and the Company concurrently entered into a Common Stock purchase

agreement (together with the License Agreement, the “Transaction Documents”) pursuant to which the Company would issue

equity securities to Xoma in connection with certain financing milestones.

On March 30, 2018, Xoma and the Company amended

the Transaction Documents to add terms specifying the financial responsibility for certain tasks related to the technology transfer

and to adjust the number of shares issuable to Xoma under the purchase agreement.

On March 30, 2018, the Company amended

the Transaction Documents whereby the License Agreement was amended to add terms specifying the financial responsibility for certain

tasks related to the technology transfer, and the purchase agreement was amended to (i) adjust the total shares of Common Stock

issuable at the initial closing from $5.0 million in value to 7.0 million shares;

(ii) increase the shares of Common Stock due

upon a qualified financing from $7.0 million in value to $8.5 million in value;

and (iii) increase the shares issuable in 2019

from $7.0 million in value to $8.5 million in value.

In April 2018, the issuance of Fiscal 2018 Notes discussed in Note 5 triggered

to obligation to issue 8.1 million shares of Common Stock to Xoma.

This issuance satisfied the obligations discussed above to issue

7.0 million shares and a portion of the qualified financing shares up to $8.5 million in value.

On January 7, 2019, the parties further

amended the Transaction Documents.

The License Agreement was amended to eliminate the requirement that equity securities

be issued to Xoma upon the future closing of certain qualified and to replace it with a requirement for the Company to make five

cash payments to Xoma totaling $8.5 million on or before specified staggered future dates (the “Future Cash Payments”).

The Future Cash Payments are due for $1.5 million by September 30, 2019, $1.0 million by December 31, 2019, $2.0 million by March

31, 2020, $2.0 million by June 30, 2020, and $2.0 million by September 30, 2020.

As a result of this amendment to the License Agreement,

the Company recognized a liability for the entire $8.5 million of Future Cash Payments that are required.

Of this amount, $6.5

million is classified as a current liability and $2.0 million is classified as a long-term liability in the accompanying consolidated

balance sheet as of June 30, 2019.

On December 6,

2017, the Company entered into a license agreement (“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.

Additionally, upon the future commercialization

of RZ358, the Company will be required to pay royalties to Xoma based on the net sales of the related products.

On January 7,

2019, the License Agreement was amended whereby the Company was required to make five cash payments to Xoma totaling $8.5 million

on or before specified staggered future dates (the “Future Cash Payments”).

As a result of this amendment to

the License Agreement, the Company recognized a liability in January 2019 for the entire $8.5 million of Future Cash Payments.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

If a future qualified financing occurs

before the Future Cash Payments are fully paid, the Company is required to pay Xoma 15% of the net proceeds of such future qualified

financing (“Early Payments”) to be credited against the remaining unpaid Future Cash Payments in the reverse order

of their future payment date.

Obligations to make the Future Cash Payments following a qualified financing and the obligations

to make Early Payments shall end when the Future Cash Payments are fully paid for the total of $8.5 million.

in Note 13, the Company completed equity financings for net proceeds of approximately $22.6 million in July and August 2019, which

resulted in the obligation to make Early Payments of approximately $3.4 million.

The Early Payments were paid in August 2019 and

eliminated the Future Cash Payments that would have otherwise been due on September 30, 2020 for $2.0 million and on June 30,

2020 for approximately $1.4 million.

In addition to the Future Cash Payments, Xoma was paid approximately

$5.9 million in cash upon the closing of the Series AA Financing discussed in Note 6, which consisted of $5.5 million of consideration

for the license, $50,000 for a delay fee, and payment of accrued liabilities of approximately $0.4 million.

The Company recognized

an expense of $5.5 million upon payment of the license fee and the delay fee for the fiscal year ended June 30, 2019.

satisfied the aggregate payment of $5.9 million in February 2019 from a portion of the net proceeds from the Series AA Financing.

The amendment to the License Agreement also revised the amount

the Company is required to expend on development of RZ358 and related licensed products and revised provisions with respect to

the Company’s diligence efforts in conducting clinical studies.

Finally, the amendment to the License Agreement eliminated

Xoma’s previous right to appoint a member to the Company’s board of directors.

As of June 30, 2019, Xoma owns approximately

8.1 million shares of the Company’s Common Stock.

The License Agreement provides 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”).

Under the amended License Agreement, the Put Option becomes effective if the Company fails to list its shares of

Common Stock on the Nasdaq Stock Market or a similar national exchange prior to December 31, 2019.

Xoma may exercise the Put option

for up to a total of 2.5 million shares of Common Stock for the fiscal year ending December 31, 2020, and up to an additional 2.5

million shares thereafter.

If the Put Option becomes exercisable, the Company may be required to pay a price per share equal to

the average of the closing bid and asked prices of the Common Stock on the date the Put Option is exercised.

to Consolidated Financial Statements

The January 2019

amendment to the License Agreement provided that if future qualified financings occurred before the Future Cash Payments were

fully paid, the Company was required to pay Xoma 15% of the net proceeds from such financings (“Early Payments”) to

be credited against the remaining unpaid Future Cash Payments in the reverse order of their future payment date.

to make the Future Cash Payments following a qualified financing and the obligations to make Early Payments shall end when the

Future Cash Payments are fully paid for the total of $8.5 million.

As discussed in Note 5, the Company completed equity

financings for net proceeds of approximately $22.6 million in July and August 2019, which met the definition of a qualified

financing and resulted in the obligation to make Early Payments of approximately $3.4 million.

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 provides for seven quarterly payments to be paid from March 31,

2020 through September 30, 2021.

Pursuant to Amendment No.

3, the Company is obligated to repay the remaining outstanding

balance within 15 days following a financing for $20.0 million or more.

Presented below is a summary of cash payments under the

amended License Agreement, and the impact of Amendment No.

3 on the remaining payment obligations as of June 30, 2020

(in thousands):

Scheduled Payment Date

September 30, 2019

December 31, 2019

March 31, 2020

June 30, 2020

September 30, 2020

December 31, 2020

March 31, 2021

June 30, 2021

September 30, 2021

Less long-term portion of payable

Current portion of payable

As discussed in Note 14, 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 shown above which is now payable by October 2020.

The January 2019 amendment to the License

Agreement also revised the amount the Company is required to expend on development of RZ358 and related licensed products, and

revised provisions with respect to the Company’s diligence efforts in conducting clinical studies.

In addition to the License Agreement entered

between the Company and Xoma in December 2017, both parties also entered into a stock purchase agreement (“Stock Purchase

Agreement”) whereby Xoma owns approximately 162,000 shares of the Company’s Common Stock as of June 30, 2020.

Until such time that the Company’s shares of Common Stock are traded on a national stock exchange, the Stock Purchase Agreement

provides 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 may exercise the Put Option for up to a total of

50,000 shares of Common Stock for the calendar year ending December 31, 2020, and up to an additional 50,000 shares

If Xoma subsequently exercises the Put Option, the Company is required to use its best efforts to assist Xoma in facilitating

the sale of shares to third-party purchasers or purchase the shares for its own account.

The price per share under the Put Option

is equal to the average of the closing bid and asked prices of the Common Stock on the date the Put Option is exercised.

ActiveSite License Agreement

1 unchanged sentence

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 Program”).

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 payment of $750,000, which was charged to

research and development license costs for the fiscal year ended June 30, 2018.

The ActiveSite License Agreement also requires

various milestone payments ranging from $1.0 million to $10.0 million when milestone events occur up to an aggregate of $36.0

million of aggregate milestone payments.

The first milestone payment for $1.0 million is due after completion of the preclinical

work and submission of an IND application to the FDA.

The Company is also required to pay royalties equal to 2.0% of any sales

of products that use the PKI Program, up to a maximum of $10.0 million in total royalty payments.

Through June 30, 2019, no milestone

payments and royalties have been incurred.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Convertible Notes

Convertible notes payable are as follows as of June 30, 2019

and 2018 (in thousands):

Interest Rate

Fiscal 2018 Notes:

Former member of board of directors

February 2018

500 (2)(3)(4)

Other investors

February 2018

Other investors

Less unaccreted discount and issuance costs

Net carrying value

Note payable, due on demand (6)

(1) Beginning on July 1, 2018, the interest rate increased from the stated rate of 12.0% to the default rate of 15.0% due to the

Company’s failure to make quarterly interest payments.

(2) As amended in April 2018, all of the Fiscal 2018 Notes provided that the unpaid principal and accrued interest automatically

convert to the class of securities issued in an equity financing for at least $15 million at a 20% discount to the terms set forth

in such financing.

This feature that enabled conversion at a 20% discount was a contingent BCF that was not calculated and recorded

until the financing that triggered conversion was completed.

Since the closing of the Series AA Financing resulted in the conversion

of the Fiscal 2018 Notes, the contingent BCF was measured and recognized on January 30, 2019 as discussed below under the caption

“Beneficial Conversion Feature”.

(3) In April 2018, these notes and related warrants were amended to mirror the terms of the Fiscal 2018 Notes issued in April 2018.

Accordingly, the Company completed an analysis to determine if changes to the terms of these notes should be accounted for as a

troubled debt restructuring, a debt modification or as an extinguishment.

Since the future cash flows of the instruments changed

by an amount greater than 10%, debt extinguishment accounting was applied.

Accordingly, the Company recognized a loss on the extinguishment

of debt of approximately $0.6 million.

(4) This convertible promissory note contained an embedded derivative for the acceleration of the maturity date if the note was

paid prior to maturity, whereby a $25,000 penalty plus all unpaid interest to be accrued through the maturity date was due.

initial measurement of fair value for this embedded derivative liability was $100,000, which was reflected as DDIC.

The fair value

of this embedded derivative was $74,000 as of June 30, 2018, which resulted in a gain of $26,000 for the fiscal year ended June

This embedded derivative was eliminated upon conversion of the convertible promissory note on January 30, 2019, which

resulted in the recognition of a gain of $74,000 for the fiscal year ended June 30, 2019.

(5) As discussed below under the caption “Debt Discount and Issuance Costs”, the Company incurred DDIC of $3.2 million

related to the issuance of the Fiscal 2018 Notes, of which the unaccreted balance was $1.9 million as of June 30, 2018.

(6) This convertible note payable was executed in May 2010 whereby the principal and accrued interest are convertible to Common

Stock at a price of $1.02 per share.

To date, the holder has not exercised its conversion rights or requested payment.

(“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 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 relates to the Company’s RZ402 drug candidate and is due

after completion of the preclinical work and submission of an Initial Drug Application, or IND, to the U.S.

Food and Drug Administration.

The Company is also required to pay royalties equal to 2.0% of any sales of products that use the PKI Portfolio.

Through June 30,

2020, no events have occurred that would result in the requirement to make milestone payments and no royalties have been incurred.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Debt Discount and Issuance Costs

The components of DDIC for the fiscal years ended June 30, 2019

and 2018, are as follows (in thousands, except per share amounts):

Warrant Terms

Components of DDIC

Fair value of warrants issued in fiscal 2018:

Fiscal 2018 Note holders

Placement Agent

Modification of warrant in January 2019

Initial fair value of embedded derivative in February 2018

Incremental and direct costs of placement in fiscal 2018

Total DDIC related to Fiscal 2018 Notes

DDIC is accreted to interest expense

using the effective interest method.

Accretion expense for the fiscal years ended June 30, 2019 and 2018 amounted to $2.1

million and $0.5 million, respectively.

Beneficial Conversion Feature

Each of the Fiscal 2018 Notes discussed above contained a mandatory

conversion feature that was triggered if the Company completed a qualified financing whereby the notes would automatically convert

into the securities issued in the financing at a 20% discount.

This feature that enabled conversion at a 20% discount was a contingent

BCF that was not calculated and recorded until the financing that triggered conversion was completed.

Since the closing of the

Series AA Financing resulted in the conversion of the Fiscal 2018 Notes, the contingent BCF was measured and recognized on January

The fair value of the Company’s Common Stock was $0.24

per share on the conversion date for the Fiscal 2018 Notes compared to the effective conversion price of $0.176 per share (due

to the 20% discount to the Series AA Financing terms which provide for a conversion price of $0.22 per share).

Accordingly, the

Company recognized a BCF of approximately $2.2 million as additional interest expense related to the Fiscal 2018 Notes for the

fiscal year ended June 30, 2019.

Automatic Conversion of Fiscal 2018 Notes

The Series AA Financing met the definition of a qualified financing

whereby all of the Fiscal 2018 Notes automatically converted for an aggregate principal balance of approximately $5.3 million plus

accrued interest of approximately $0.8 million as of January 30, 2019, into an aggregate of 767,519 shares of Series AA Preferred

Pursuant to the terms of the Fiscal 2018 Notes, the conversion price was $8.00 per share of Series AA Preferred Stock, which

was a 20% discount to the terms set forth in the Series AA Financing.

The conversion of the Fiscal 2018 Notes at a 20% discount

resulted in a BCF of approximately $2.2 million as discussed above.

As of January 30, 2019, the aggregate principal and accrued

interest of approximately $6.1 million converted to Series AA Preferred Stock, as follows (in thousands):

to Consolidated Financial Statements

Convertible Notes Payable

Between January and April 2018,

the Company entered into convertible notes payable with an aggregate principal balance of $5.3 million (the “Fiscal 2018

Notes”).

The Fiscal 2018 Notes provided for interest at the contractual rate of 15.0% for the period from July 1, 2019

through the conversion date.

The Fiscal 2018 Notes also provided that the unpaid principal and accrued interest would automatically

convert at a 20% discount to the class of securities issued upon completion of a subsequent equity financing for at least $15

This feature that enabled conversion at a discount was a contingent BCF that was not calculated and recorded until the

financing that triggered conversion was completed.

The closing of the Series AA Financing resulted in the conversion of the

Fiscal 2018 Notes whereby the contingent BCF was measured and recognized on January 30, 2019 as shown below (in thousands).

Debt as of January 30, 2019

Debt Converted to Series

Series AA Preferred Stock

AA Preferred Stock

Converted to Common Stock

Date of Borrowing

February 2018

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Interest Expense

Presented below is a summary of the components of interest expense

related to Convertible Notes Payable for the fiscal years ended June 30, 2019 and 2018 (in thousands):

value was based on the $10.00 per share issuance price for Series AA Preferred Stock

as discussed in Note 6.

shares of Series AA Preferred Stock were immediately convertible to shares of Common

Stock at a price of $11.00 per share.

Fair value was based on the closing price of the

Company’s Common Stock of $12.00 per share on January 30, 2019.

beneficial conversion feature represents the difference between the fair value of the

share of Common Stock and the total debt balance as of January 30, 2019.

Presented below is a summary of the components of interest

expense related to Fiscal 2018 Notes for the fiscal year ended June 30, 2019 (in thousands):

Interest expense at contractual rate

Accretion of discount

Beneficial conversion feature for Fiscal 2018 Notes

Total interest expense

Beneficial conversion feature

for Fiscal 2018 Notes

Total interest

Stockholders’

Equity (Deficit)

Changes in Authorized Capital Stock

The Company held its annual meeting of stockholders on April

24, 2019, whereby the Company’s stockholders approved an amendment to the Certificate of Incorporation to (i) increase the

authorized number of shares of Common Stock from 200 million shares to 500 million shares, and (ii) a recission of the previous

designation of 15.0 million shares of the Series A Preferred Stock.

As a result of this action, the Company has authority to designate

and issue up to 20.0 million shares of Preferred Stock as of June 30, 2019.

On April 24, 2019, the Company’s

stockholders approved an amendment to the Certificate of Incorporation to (i) increase the authorized number of shares of

Common Stock from 200 million shares to 500 million shares, and (ii) rescinded the previous designation of 15.0 million shares

of Series A Preferred Stock.

As a result of this action, the Company had authority to designate and issue up to 20.0 million

shares of Preferred Stock as of June 30, 2020 and 2019.

Series AA Preferred Stock Financing

In December 2018, two New Investors expressed

interest in investing in the Company and affirmed their intent to enter into exclusive diligence and negotiations regarding a potential

equity financing (“Transaction”).

In exchange for the receipt of a total of $1.5 million ("Exclusivity Payment"),

the Company entered into an exclusivity agreement ("Exclusivity") with the New Investors.

On January 7, 2019, the parties

entered into a purchase agreement for shares of Series AA Preferred Stock whereby the New Investors agreed to purchase shares of

newly designated Series AA Preferred Stock (the “Series AA Financing”) for aggregate gross proceeds to the Company

of $25.0 million (inclusive of the $1.5 million Exclusivity Payment).

On January 18, 2019, the board of directors authorized

the designation of 5.0 million shares of the Company’s Preferred Stock as Series AA Preferred Stock.

In December 2018, two investors expressed

interest in investing in the Company and affirmed their intent to enter into exclusive diligence and negotiations regarding a

potential equity financing (“Transaction”).

In exchange for the receipt of a total of $1.5 million ("Exclusivity

Payment"), the Company entered into an exclusivity agreement with Handok, Inc.

(“Handok”) and Genexine, Inc.

(“Genexine”).

On January 7, 2019, the parties entered into a Purchase Agreement for Shares of Series AA

Preferred Stock (the “Purchase Agreement”) whereby Handok and Genexine (collectively referred to as “H&G”)

agreed to purchase shares of newly designated Series AA Preferred Stock (the “Series AA Financing”) for

aggregate gross proceeds to the Company of $25.0 million (inclusive of the $1.5 million Exclusivity Payment).

On January 18,

the parties closed the Series AA Financing and the Company issued an aggregate of 2.5 million shares of Series AA Preferred Stock

to the New Investors at a purchase price of $10.00 per share for aggregate proceeds of $25.0 million.

The Series AA Preferred Stock ranked

senior to the Common Stock in the event of a liquidation, dissolution or winding up of the Company.

The Series AA Shares had an

effective conversion price of approximately $0.22 per share of Common Stock whereby the shares of Series AA Preferred Stock held

by the New Investors were immediately convertible, at the option of the holders, into an aggregate of approximately 113.6 million

shares of the Company’s Common Stock.

The fair value of the Company’s common stock on the issuance date of the Series

AA Shares was $0.24 per share which resulted in a BCF of approximately $2.3 million.

Since the Series AA Shares are classified

as equity instruments, this BCF is treated as an adjustment in computing net loss attributable to common stockholders in Note 11.

A condition to closing the Series AA

Financing was the resignation of a majority of the Company’s former directors and the appointment of the New Investors as

directors whereby the New Investors collectively control the board of directors with two of the three members.

On April 24, 2019,

The Company’s stockholders approved an increase in the number of authorized shares of Common Stock from 200.0 million shares

to 500.0 million shares whereby all 2.5 million shares of Series AA Preferred Stock held by the New Investors automatically converted

into approximately 113.6 million shares of the Company’s Common Stock.

As of June 30, 2019, the New Investors collectively

own 54% of the Company’s Common Stock which resulted in a change of control.

The Company agreed to use commercially

reasonable efforts to, (i) prepare and file with the Securities and Exchange Commission (the “SEC”) within sixty

calendar days after the closing of the Series AA Financing a registration statement under the U.S.

Securities Act of 1933, as amended

(the “Registration Statement”), to permit the resale of all shares of Common Stock issued upon the conversion of the

Series AA shares purchased in the Series AA Financing.

The Company also agreed to use commercially reasonable efforts to

cause the Registration Statement to be declared effective within ninety calendar days following the closing of the Series AA Financing.

The Company filed this Registration Statement with the SEC in August 2019.

2019, the board of directors authorized the designation of 5.0 million shares of the Company’s Preferred Stock as Series AA

Preferred Stock.

On January 30, 2019, the parties closed the Series AA Financing and the Company issued an aggregate

of 2.5 million Series AA shares to H&G at a purchase price of $10.00 per share.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

The Company granted each of the New

Investors a call option whereby upon the earlier of (i) December 31, 2020 and (ii) such date that the Company requests the New

Investors to provide additional financing, each New Investor may elect to purchase up to $10.0 million of Common Stock at a purchase

price equal to the greater of (i) $0.29 per share or (ii) 75% of the volume weighted average closing price of the Company’s

Common Stock during the thirty consecutive trading days prior to the date of the notice.

As discussed in Note 13, the New Investors

exercised the call option on July 23, 2019, resulting in the purchase of an aggregate of approximately 69.0 shares of Common Stock

for gross proceeds of $20.0 million at a purchase price of $0.29 per share.

Automatic Conversion of Promissory Notes

Due to closing of the Series AA Financing for gross proceeds

of $25.0 million, the Fiscal 2018 Notes discussed in Note 5 converted for an aggregate of approximately $6.1 million, which consisted

of the aggregate principal balance plus accrued interest through January 30, 2019.

The Fiscal 2018 Notes were convertible at a

discount of 20% from the issuance price paid by the New Investors.

Therefore, the total balance of the Fiscal 2018 Notes was exchanged

for 767,519 shares of Series A Preferred Stock resulting in an effective issuance price of $8.00 per share to give effect to the

20% discount.

This 20% discount is included in the calculation of the BCF discussed in Note 5 which resulted in additional interest

expense of $2.2 million for the fiscal year ended June 30, 2019.

Upon receipt of shareholder approval for an increase in the

number of authorized shares of Common Stock to 500.0 million shares on April 24, 2019, all 767,519 shares of Series AA Preferred

Stock held by the former Fiscal 2018 Note holders converted into approximately 34.9 million shares of the Company’s Common

Series AA Conversion Terms

The conversion terms for all shares of Series AA Preferred Stock

that converted to Common Stock on April 24, 2019, are as follows (in thousands, except share and per share amounts):

Conversion Value

to Consolidated Financial Statements

Series AA Shares held by H&G were convertible into shares of Common Stock at a conversion price of approximately $11.00

The fair value of the Company’s Common Stock on the issuance date of the Series AA Preferred Stock was $12.00

per share which resulted in a BCF of approximately $2.3 million.

Since the Series AA Shares were classified as equity instruments,

this BCF has been treated as an adjustment in computing net loss attributable to common stockholders shown in Note 12.

condition to closing the Series AA Financing was the resignation of a majority of the Company’s former directors and

the appointment of representatives of H&G as directors whereby H&G collectively controlled the board of directors.

April 24, 2019, the Company’s stockholders approved an increase in the number of authorized shares of Common Stock

whereby all 2.5 million shares of Series AA Preferred Stock held by H&G automatically converted into approximately

2.3 million shares of the Company’s Common Stock.

Due to closing of the Series AA Financing

for gross proceeds of $25.0 million, the Company’s outstanding Fiscal 2018 Notes in the aggregate principal and accrued

interest balance of $6.1 million automatically converted into approximately 0.8 million shares of Series AA Preferred Stock,

resulting in an effective issuance price of $8.00 per share after giving effect to the 20% discount included in the terms of the

Fiscal 2018 Notes.

This 20% discount resulted in the recognition of a BCF for $2.2 million that was charged to interest expense

for the year ended June 30, 2019.

receipt of stockholder approval for an increase in the number of authorized shares of Common Stock to 500 million shares on

April 24, 2019, all 3.3 million shares of Series AA Preferred Stock held by Handok, Genexine and the former holders

of the Fiscal 2018 Notes converted into an aggregate of approximately 3.0 million shares of the Company’s

Common Stock as set forth below (in thousands, except per share amounts):

Series AA Preferred Stock

Common Stock Conversion

New Investors

Conversion Value

Fiscal 2018 Note holders

2017 Private Placement

For the fiscal quarter ended September 30, 2017, the Company

closed a private placement for the issuance of 4.5 million shares of Common Stock to accredited investors at an offering price

of $1.00 per share.

The Company received gross proceeds of $4.5 million.

Placement agent commissions amounted to $60,000 related

to this private placement.

Lincoln Park Purchase Agreement

In December 2017, we entered into a purchase

agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”)

with the Lincoln Park Capital Fund, LLC (“Lincoln Park”) pursuant to which Lincoln Park agreed to purchase up to an

aggregate of $10.0 million of the Company’s Common Stock (subject to certain limitations) over the term of the agreement

that expires in December 2020.

As required by the Registration Rights Agreement, the Company filed a registration statement with

the SEC under the Securities Act of 1933 to register for resale the shares of Common Stock that have been or may be issued to Lincoln

Park under the Purchase Agreement.

As consideration for Lincoln Park’s commitment to purchase shares of the Company’s

Common Stock under the agreement, the Company issued approximately 345,000 shares of Common Stock with an estimated fair value

of $0.3 million in December 2017.

Fiscal 2020 Private Placement

In connection with the Series AA

Financing discussed above, the Company granted call options to H&G whereby upon the earlier of (i) December 31,

2020 and (ii) such date that the Company requests H&G to provide additional financing, H&G were entitled to purchase

up to an aggregate of $20.0 million of Common 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 during the thirty consecutive

trading days prior to the date of the notice.

June 19, 2019, the Company entered into a financial advisory agreement to undertake a private placement (the “Private

Placement”) of (i) the shares of Common Stock issuable under the call options for a total of $20.0 million, plus (ii) up

to $10 million of equity or equity equivalent securities to be issued to other investors.

On July 23, 2019, the Company entered

into a purchase agreement 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.

As of June 30, 2020, H&G

collectively owned approximately 62% of the Company’s Common Stock which resulted in a change of control.

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 the financial advisory agreement, the Company paid a fee of 6.0% of the gross

proceeds received from these private placements.

The total advisory fees and other offering costs related to these issuances in

July and August 2019 amounted to approximately $1.5 million, resulting in net proceeds of $22.6 million for the fiscal

year ended June 30, 2020.

As discussed in Note 4, the completion of these financings resulted in the obligation to make Early

Payments of approximately $3.4 million under the License Agreement with Xoma.

With the closing of the Private Placement, under

the terms of the financial advisory agreement until August 2020, the financial advisors have a right of first refusal to

serve as Joint Bookrunners or Joint Placement Agents in any offering the Company undertakes.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Under the terms and subject to the conditions

of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated

to purchase up to $10.0 million of shares of the Company’s Common Stock.

As contemplated by the 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 lowest closing sale prices for the Company’s

Common Stock during the 12 consecutive business days ending on the business day immediately preceding such purchase date (in each

case, 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 $0.5 million.

In addition to regular purchases, the Company

may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional purchases if the closing sale

price of the Common Stock exceeds certain threshold prices as set forth in 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.

The Company’s Common Stock has not

exceeded the threshold price of $0.40 per shares for the period from August 2018 through June 2019.

The Purchase Agreement and

the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future

sale transactions, indemnification rights and obligations of the parties.

The Company has 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.

XOMA Equity Issuance

The closing of the debt financing for the

Fiscal 2018 Notes on April 3, 2018 was considered to be the initial closing for the Common Stock purchase agreement.

the Company issued an aggregate of 8.1 million shares of Common Stock to XOMA with an aggregate fair value of approximately $4.6

This amount is included in research and development licensing costs in the accompanying consolidated statement of operations

for the fiscal year ended June 30, 2018.

Stock-Based Compensation

to Consolidated Financial Statements

Restricted Cash

In connection with the private placement

discussed above, one of the investors purchased approximately 262,000 shares of Common Stock for gross proceeds of $3.8 million.

The Company agreed to spend the proceeds for research and development of RZ358 or for the Company’s planned uplisting of

its Common Stock to a national stock exchange.

For the year ended June 30, 2020, the Company expended the entire amount of

the restricted cash proceeds on qualified activities whereby there are no restrictions on cash balances as of June 30, 2020.

Lincoln Park Purchase Agreement

December 2017, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration

rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) pursuant to which Lincoln Park agreed to purchase

up to an aggregate of $10.0 million of the Company’s Common Stock (subject to certain limitations) over the term of the

agreement that expires in December 2020.

Subject to restrictions in the Purchase Agreement and so long as the closing price

of the Company’s Common Stock exceeds $20.00 per share, the Company may elect to require Lincoln Park to purchase up to

$10.0 million of shares of the Company’s Common Stock.

The Company’s Common Stock has not exceeded the threshold price

of $20.00 per shares for the period from August 2018 through June 2020.

The Company has the right to terminate the Purchase

Agreement at any time, at no cost or penalty.

Stock-Based Compensation and Warrants

Stock Option Plans

The Company currently has two active stock option plans consisting

of the 2015 Non-Qualified Stock Option Plan (the “2015 Plan”) and the 2016 Non-Qualified Stock Option Plan, as amended

(the “2016 Plan”).

The Company also has an aggregate of approximately 2,190,000 stock options outstanding under the

2014 Stock and Incentive Plan (the “2014 Plan”) that terminated on March 21, 2019.

Stock options outstanding under

the 2014 Plan expire pursuant to their contractual provisions on various dates in 2021.

A total of 6,850,000 shares of Common Stock are authorized for

awards that may be granted under the 2015 Plan.

As of June 30, 2019, approximately 4,155,000 shares of Common Stock remain available

for future grants under the 2015 Plan and 2,695,000 shares of Common Stock are subject to currently outstanding stock options.

The 2015 Plan is scheduled to terminate in February 2020 whereby no additional awards may be granted after that date.

The Company held its annual meeting of stockholders on April

24, 2019, whereby the Company’s stockholders approved an amendment to the 2016 Plan to increase the authorized number of

shares of Common Stock available for issuance from 15.0 million shares to 28.0 million shares.

As of June 30, 2019, under the 2016

Plan there are 19,020,000 shares of Common Stock available for future grants and awards for 8,980,000 shares are subject to currently

outstanding stock options.

The 2016 Plan is scheduled to terminate in October 2021 whereby no additional awards may be granted

after that date.

The Company currently has two active stock

option plans consisting of the 2016 Non-Qualified Stock Option Plan, as amended (the “2016 Plan”), and the 2019 Non

Qualified Stock Option Plan (the “2019 Plan”).

On July 31, 2019, the 2019 Plan was adopted by the Board of Directors

and provides authority to grant non-qualified stock options for up to 300,000 shares of the Company’s Common

The Company also has stock options outstanding to purchase up to approximately 44,000 shares of Common Stock under the

2014 Stock and Incentive Plan (the “2014 Plan”) that terminated on March 21, 2019 and approximately 95,000 shares

of Common Stock under the 2015 Stock and Incentive Plan (the “2015 Plan”) that terminated on February 23, 2020.

Stock options outstanding under the 2014 Plan and the 2015 Plan expire pursuant to their contractual provisions on various dates

through 2029.

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 (in thousands):

Number of Shares

February 2020

REZOLUTE, INC.

Notes to Consolidated Financial Statements

The following table sets forth a summary

of combined stock option activity under the 2015 Plan, the 2016 Plan and the Terminated Plans for the fiscal years ended June 30,

2019 and 2018 (shares in thousands):

Outstanding, beginning of fiscal year

Outstanding, end of fiscal year

Vested, end of fiscal year

(1) Represents the weighted average exercise price.

(2) Represents the weighted average remaining contractual term until the stock options expire.

As discussed in Note 13, in July 2019 the Company granted stock

options for an aggregate of 34.0 million shares of Common Stock that are not reflected in the table above.

The aggregate fair value of stock options for 1,125,000 shares

of Common Stock granted for the fiscal year ended June 30, 2019 amounted to approximately $445,000, or $0.40 per share as of the

The aggregate fair value of stock options for 255,000 shares of Common Stock granted for the fiscal year ended June

30, 2018 amounted to approximately $207,000, or $0.81 per share as of the grant date.

For the fiscal years ended June 30, 2019

and 2018, the fair value of stock options was estimated on the date of grant using the BSM option-pricing model, with the following

weighted-average assumptions:

Grant date fair value of common stock

to Consolidated Financial Statements

July 31, 2019, the Board of Directors granted stock options for an aggregate of approximately 679,000 shares of Common Stock

to certain officers and employees at an exercise price of $14.50 per share (the “July 2019 Grants”).

price of the Company’s Common Stock on the date of grant was approximately $10.50 per share.

The July 2019 Grants were

designated for approximately 379,000 shares under the 2016 Plan and 300,000 shares under the 2019 Plan.

As of July 31, 2019,

the number of shares subject to stock options, the related fair value and compensation that was immediately recognized for options

that immediately vested are as follows (in thousands):

Time-Based Vesting

Number of Shares

Executive officers

Other employees

Total fair value

options that are subject to time-based vesting become exercisable (i) for employees

who were employed by the Company for more than one year as of the grant date, 25% of

such options were immediately exercisable, and for employees that were employed by the

Company for less than one year as of the grant date, 25% of such options will vest on

the one year anniversary of the employee’s hire date, and (ii) the remaining

75% of the stock options will vest ratably over a period of 36 months beginning on the

vesting date for the initial 25% tranche.

options that commence vesting upon the achievement of market, performance and service

conditions (‘Hybrid Options”) will vest ratably over a period of 36 months

beginning on the date that all of the following have occurred:

(i) the option recipient

has been employed by the Company for at least one year, (ii) the Company’s

shares of Common Stock have been listed for trading on a national stock exchange, and

(iii) such date no later than July 31, 2023, when the Company’s closing

stock price exceeds $29.00 per share for 20 trading days in any consecutive 30 day period.

(3) Represents

the aggregate grant date fair value for stock options that were immediately vested on

the grant date, which is included in stock-based compensation expense for the year ended

June 30, 2020.

(4) Represents

the aggregate grant date fair value for stock options that were not immediately vested

on the grant date and are being charged to expense from the grant date through the respective

vesting dates through July 2023.

Company has not recognized any expense related to these stock options for the year ended

June 30, 2020, since it is not yet probable that the performance condition will

The Company will begin recognizing compensation expense at such time that

the performance condition is probable and continuing through the end of the requisite

service period.

Determination of the requisite service period for the Hybrid Options

will be calculated on the date that the performance condition is considered probable

using grant date fair value.

REZOLUTE, INC.

to Consolidated Financial Statements

Options Outstanding

following table sets forth a summary of the combined stock option activity under all of the Company’s stock option plans

for the years ended June 30, 2020 and 2019 (shares in thousands):

Outstanding, beginning

of fiscal year

Stock options

time-based vesting

performance-based vesting

Stock options

time-based vesting

with performance-based vesting

end of fiscal year

(1) Represents

the weighted average exercise price.

(2) Represents

the weighted average remaining contractual term until the stock options expire.

the year ended June 30, 2020, the aggregate fair value of stock options granted for

approximately 497,000 shares of Common Stock that provide solely for time-based vesting, amounted to $4.2 million or approximately

$8.38 per share as of the grant date.

For the year ended June 30, 2020, the aggregate fair value of stock options granted

for 225,000 shares of Common Stock that provide for hybrid vesting, amounted to $2.1 million or approximately $9.51

per share as of the grant date.

For the year ended June 30, 2019, the aggregate fair value of stock options granted for 22,500 shares of Common Stock that provide solely for time-based vesting amounted to $0.4 million or approximately $19.79 per

share as of the grant date.

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 years ended June 30, 2020 and 2019, the fair

value of stock options that provide for time-based and hybrid vesting was estimated on the date of grant using the BSM option-pricing

model, with the following weighted-average assumptions:

Market price of common stock on grant date

Expected volatility

2 unchanged sentences

Dividend yield

Compensation cost is recognized ratably

as the options vest which is generally over a period of 48 months from the grant date.

Stock-based compensation expense for the

fiscal years ended June 30, 2019 and 2018 is included in compensation and benefits under the following captions in the consolidated

statements of operations (in thousands):

compensation expense for the fiscal years ended June 30, 2020 and 2019 is included in compensation and benefits under the

following captions in the consolidated statements of operations (in thousands):

Research and development

General and administrative

The unrecognized stock-based compensation

expense as of June 30, 2019 is approximately $2.7 million and this amount is expected to be recognized over the weighted average

remaining vesting period of 1.8 years.

As of June 30, 2019 and 2018, there was no intrinsic value associated with any outstanding

stock options.

The Company has issued warrants to purchase shares of Common

Stock in conjunction with various debt and equity financings and for services.

stock-based compensation expense for stock options that provide solely for time-based vesting as of June 30, 2020 was approximately

$3.4 million.

This amount is expected to be recognized over a remaining weighted average period of 1.9 years.

compensation cost for the Hybrid Options will be recognized beginning on the date that the performance condition becomes probable

using the grant date fair value.

Based on preliminary estimates using the BSM option-pricing model, management believes the aggregate

fair value of the Hybrid Options will be approximately $2.1 million before adjusting for forfeitures.

As of June 30, 2020

and 2019, there was no intrinsic value associated with any outstanding stock options.

REZOLUTE, INC.

to Consolidated Financial Statements

Company has issued warrants to purchase shares of Common Stock in conjunction with various debt and equity financings and for

As of June 30, 2020 and 2019, all of the warrants are vested.

For the fiscal years ended June 30, 2020 and

2019, no warrants were exercised.

Presented below is a summary of warrant activity for the fiscal years ended June 30, 2019 and 2018

(shares in thousands):

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Outstanding, beginning of fiscal year

Warrants issued for:

Consulting services

Debt discount for Fiscal 2018 Notes

Placement agent debt discount

Modification for debt discount to former member of Board of Directors:

Replacement warrant

Presented below is a summary of grants, modifications and expirations for

the fiscal years ended June 30, 2020 and 2019 (shares in thousands):

Outstanding, beginning

of fiscal year

Warrants issued

for consulting services

for debt discount to former

member of Board of Directors:

Canceled warrant

Warrant expirations

Outstanding, end of fiscal year

(1) Represents the weighted average exercise price.

(2) Represents the weighted average remaining contractual term until the warrants expire.

(3) Consists of three warrants for an aggregate of 650,000 shares granted to consultants for services

that were immediately exercisable.

The commitment date fair value of approximately $0.5 million is included in consulting expense

for the fiscal year ended June 30, 2018.

The fair value of these warrants was determined on the commitment date using the BSM option-pricing

Key weighted average assumptions included the grant date fair value of Company’s Common Stock of $1.07 per share,

expected volatility of 82%, a risk-free interest rate of 2.1%, and a remaining term of 6.5 years.

(4) The aggregate commitment date fair value of the warrants issued to convertible note holders and

the placement agent was approximately $3.8 million.

The warrants and debt were recorded based on their relative fair value which

resulted in a debt discount of $2.5 million related to the Fiscal 2018 Notes discussed in Note 5.

The fair value of these warrants

was determined on the commitment date using the BSM option-pricing model.

Key weighted average assumptions included the grant date

fair value of Company’s Common Stock of $0.45 per share, expected volatility of 96%, a risk-free interest rate of 2.8%, and

an estimated term of 5.0 years.

(5) Pursuant to the terms of the warrants, the exercise price was not established until June 30, 2018

so the fair value of these warrants was determined using a lattice option-pricing model.

Key weighted average assumptions included

the grant date fair value of Company’s Common Stock of $0.58 per share, expected volatility of 86%, a risk-free interest

rate of 2.8%, a remaining term of 10 years, and a discount rate of 20%.

(6) As discussed in Note 10, in January 2019 the Company agreed to modify a warrant originally issued

in June 2018 for 500,000 shares that was exercisable at $0.52 per share.

This warrant was originally issued in connection with

one of the Fiscal 2018 Notes issued to a former member of the Board of Directors.

The difference between the fair value of the

modified warrant and the fair value of the canceled warrant amounted to $138,000, which was accounted for as an additional debt

discount that was charged to interest expense upon repayment of the Fiscal 2018 Notes on January 30, 2019.

Key assumptions for

valuation of the modified warrant and the canceled warrant included the fair value of Company’s Common Stock on the modification

date of $0.23 per share, expected volatility of 100%, a risk-free interest rate of 2.5%, and an estimated remaining term of 4.0

In order to calculate the fair value of

the warrants discussed above, certain assumptions were made regarding components of the BSM and lattice valuation models, including

volatility of the Company’s Common Stock trading price which was estimated based on several peer companies, the remaining

term of the warrant, and the risk-free interest rate that coincides with the remaining term.

For the valuation of all of the warrants

discussed above, the Company assumed that no dividends would be paid over the expected remaining term since the Company has never

paid dividends and does not expect to pay dividends in the future.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

In December 2017, the U.S.

Tax Cuts and Jobs Act of 2017 (“Tax

Act”) was enacted into law which significantly revises the Internal Revenue Code of 1986, as amended.

The newly enacted federal

income tax law, among other things, contains significant changes to corporate taxation, including a flat corporate tax rate of

21%, limitation of the tax deduction for interest expense to 30% of adjusted taxable income, limitation of the deduction for newly

generated net operating losses to 80% of current year taxable income and elimination of net operating loss (“NOL”)

carrybacks, future taxation of certain classes of offshore earnings regardless of whether they are repatriated, immediate deductions

for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business

deductions and credits beginning in calendar 2018.

As a result of the Tax Act, the corporate tax rate decreased

from a top marginal rate of 35% that was effective through December 31, 2017 to a flat rate of 21% effective January 1, 2018.

a decrease of $8.5 million in the Company’s deferred income tax assets was recognized as of December 31, 2017, and this amount

was fully offset by a corresponding decrease in the valuation allowance.

Income Tax Expense

For the fiscal years ended June 30, 2019 and 2018, the reconciliation

end of fiscal year

(1) Represents

the weighted average exercise price.

(2) Represents

the weighted average remaining contractual term for the number of years until the warrants

(3) Represents

warrants granted for consulting services in November 2019 with an expiration date

in November 2024.

The fair value of the warrants of $67,000 was determined using

the BSM model.

Since the warrants were immediately vested, this entire amount is included

in consulting and outside services under research and development expenses for the year

ended June 30, 2020.

Key assumptions for the valuation of these warrants included

the closing price of the Company’s shares of Common Stock of $14.50 on the grant

date, the exercise price of $6.50 per share, historical volatility of 119%, and an expected

term of 5.0 years.

January 2019, the Company agreed to modify a warrant originally issued in June 2018 for 10,000 shares that was exercisable at

$25.94 per share.

This warrant was originally issued in connection with one of the Fiscal 2018 Notes issued to a former member

of the Board of Directors.

The difference between the fair value of the modified warrant and the fair value of the canceled warrant

amounted to $138,000, which was accounted for as an additional debt discount that was charged to interest expense upon repayment

of the Fiscal 2018 Notes on January 30, 2019.

Key assumptions for valuation of the modified warrant and the canceled warrant included

the fair value of Company's Common Stock on the modification date of $11.50 per share, expected volatility of 100%, a risk-free

interest rate of 2.5%, and an estimated remaining term of 4.0 years.

the fiscal years ended June 30, 2020 and 2019, the reconciliation

between the income tax benefit computed by applying the statutory U.S.

3 unchanged sentences

Income tax benefit attributable to U.S.

Non-deductible interest and other expenses

Transition impact of Tax Act

Non-deductible expenses

Stock option expirations

1 unchanged sentence

Total income tax expense

For the fiscal years ended June 30, 2019 and 2018, the Company

did not recognize any current income tax expense or benefit due to a full valuation allowance on its deferred income tax assets.

Deferred Income Tax Assets and Liabilities

As of June 30, 2019 and 2018, the income tax effects of temporary

differences that give rise to significant deferred income tax assets and liabilities are as follows (in thousands):

the fiscal years ended June 30, 2020 and 2019, the Company did

not recognize any current income tax expense or benefit due to a full valuation allowance on its deferred income tax assets.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

to Consolidated Financial Statements

Income Tax Assets and Liabilities

of June 30, 2020 and 2019, the income tax effects of temporary

differences that give rise to significant deferred income tax assets and liabilities are as follows (in thousands):

Deferred income tax assets:

Net operating loss carryforwards

Net operating loss

carryforwards

Intangible assets

Stock-based compensation

Start-up and organizational expenses

Property and equipment

Start-up and organizational

Accrued expenses and other

Total deferred income tax assets

Valuation allowance for deferred income tax assets

Valuation allowance for deferred

income tax assets

Net deferred income tax assets

Deferred income tax liability:

Federal benefit for state deferred income taxes and other

Deferred income tax liability- property, equipment

Net deferred income tax assets

For the fiscal year ended June 30, 2019,

the valuation allowance increased by $5.4 million, primarily as a result of the increase in net operating losses.

the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or

all of the deferred income tax assets will not be realized.

NOL Carryforwards and Other Matters

The Company files income tax

returns in the U.S.

include the impact of giving effect to the reclassification of approximately $4.1 million

from net operating loss carryforwards to intangible assets due to license fees that were

incorrectly expensed for income tax purposes in previous fiscal years.

During the fiscal

year ended June 30, 2020, the Company’s income tax returns were corrected

whereby these license costs were capitalized and are being amortized over 15 years for

income tax purposes.

Due to the valuation allowance for deferred income tax assets in

previous years, this reclassification did not have any impact on the Company’s

previously reported net losses or accumulated deficit.

the fiscal year ended June 30, 2020, the valuation allowance increased

by $6.0 million, primarily as a result of the increase in net operating losses.

In assessing the realizability of deferred income

tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets

will not be realized.

Carryforwards and Other Matters

Company files income tax returns in the U.S.

federal jurisdiction and the states of Colorado and California.

The Company’s federal and state

tax years for the 2016 fiscal year and forward are subject to examination by taxing authorities.

As of June 30, 2019, the Company has U.S.

federal NOL carryforwards of approximately $81 million, of which

approximately $41 million does not expire and $40 million will begin to expire in 2030.

Additionally, the Company has a

Colorado NOL carryforward of approximately $68 million that starts to expire in 2030.

Federal and state laws impose substantial restrictions on the

utilization of NOL carryforwards in the event of an ownership change for income tax purposes, as defined in Section 382 of

the Internal Revenue Code.

Pursuant to Internal Revenue Code (“IRC”) Section 382, annual use of the Company’s

net operating loss carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a

three-year period.

The Company has not completed an IRC Section 382 analysis regarding the limitation of net operating loss carryforwards.

However, it is possible that past ownership changes will result in the inability to utilize a significant portion of the Company’s

net operating loss carryforward that was generated prior to any change of control.

The Company’s ability to use its remaining

net operating loss carryforwards may be further limited if the Company experiences a Section 382 ownership change in connection

with future changes in the Company’s stock ownership.

The Company did not have any unrecognized

tax benefits as of June 30, 2019 and 2018.

The Company’s policy is to account for any interest expense and penalties for

unrecognized tax benefits as part of the income tax provision.

The Company does not anticipate that unrecognized tax benefits will

significantly increase or decrease within the next twelve months.

Commitments and Contingencies

Financial Advisory Agreement

In June 2019, the Company entered into a financial advisory

agreement whereby the Company agreed to pay a fee of (i) 6.0% of up to $20.0 million of gross proceeds received from the New Investors

under the call option discussed in Note 6, and (ii) 6.0% of the gross proceeds from a private placement consisting of between $20

million and $30 million of equity or equity equivalent securities.

Under the financial advisory agreement, no commissions are payable

for any subsequent issuances of equity or equity equivalent securities issued to the New Investors.

In addition, the Company agreed

to reimburse legal fees of the financial advisors up to $60,000 plus other reasonable out-of-pocket expenses.

Through June 30,

2019, no securities have been issued and no fees have been incurred under the financial advisory agreement.

However, as discussed

in Note 13 offering costs of approximately $1.4 million were incurred under this agreement with respect to equity issuances in

July and August 2019.

The Company’s

federal and state tax years for the 2017 fiscal year and forward are subject to examination by taxing authorities.

As of June 30,

2020, the Company has U.S.

federal NOL carryforwards of approximately $85.2 million, of which approximately $30.6 million does

not expire and $54.6 million will begin to expire in 2031.

Additionally, the Company has Colorado and California NOL carryforwards

that begin to expire in 2031.

and state laws impose substantial restrictions on the utilization of NOL carryforwards in the event of an ownership change

for income tax purposes, as defined in Section 382 of the Internal Revenue Code (“IRC”).

Pursuant to IRC

Section 382, annual use of the Company’s NOL carryforwards may be limited in the event a cumulative

change in ownership of more than 50% occurs within a three-year period.

The Company has not completed an IRC Section 382

analysis regarding the limitation of NOL carryforwards.

However, it is possible that past ownership changes

will result in the inability to utilize a significant portion of the Company’s NOL carryforward that was

generated prior to any change of control.

The Company’s ability to use its remaining NOL carryforwards

may be further limited if the Company experiences an IRC 382 ownership change in connection with future changes in

the Company’s stock ownership.

Company did not have any unrecognized tax benefits as of June 30,

2020 and 2019.

The Company’s policy is to account for any interest expense and penalties for unrecognized tax benefits as

part of the income tax provision.

The Company does not anticipate that unrecognized tax benefits will significantly increase or

decrease within the next twelve months.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Operating Leases

On January 25, 2019, the Company entered into a lease for a

new headquarters location in Redwood City, California.

The leased space consists of approximately 3,500 square feet of office space

and provides for monthly rent of approximately $21,000 through the expiration date in March 2022.

The Company provided a security

deposit of $31,000 which is refundable upon expiration of the lease.

On February 7, 2019, the Company entered into a lease for

ancillary office space in Bend, Oregon.

The lease space consists of approximately 1,500 square feet of office space and provides

for monthly rent of approximately $2,700 through the expiration date in February 2021.

The Company provided a security deposit

of $3,700 which is refundable upon expiration of the lease.

The table below summarizes the Company’s operating lease commitments

under these leases as of June 30, 2019 (in thousands):

Fiscal Year Ending June 30,

Employment Agreements

As of June 30, 2019, the Company was subject to employment agreements

with two executive officers that provide for aggregate annual base salaries of $840,000.

In the event the Company terminates employment

of the executive officers without cause, severance benefits include (i) between one and three years of base salary, (ii) 150% of

annual target bonuses applicable to the terminated executive, and (iii) continuation of certain medical and dental benefits.

addition, vesting is accelerated for unvested stock options that would have otherwise vested during the period that the severance

benefits are paid out.

Lease Terminations

On December 14, 2018, the Company entered into surrender agreements

with its landlord, sub-landlord and sub-lessees to terminate all remaining lease and sub-lease obligations at the Company’s

former Colorado facilities.

In connection with this transaction, the Company was relieved of its remaining obligations under the

leases and relinquished its rights under the lease and sublease agreements whereby no cash was exchanged by the parties.

the Company recognized a net gain of approximately $168,000.

This gain resulted from the elimination of net deferred rent obligations

of $200,000 and the sublease security deposit of $25,000 for a total of $225,000;

partially offset by forfeiture of the Company’s

security deposit for $57,000 to arrive at the net gain of $168,000.

As of June 30, 2019, the Company has no remaining lease commitments

for its former facilities in Colorado.

The Company has a defined contribution employee benefit plan

under section 401(k) of the Internal Revenue Code (the “401(k) Plan”).

The 401(k) Plan covers all eligible employees

who are entitled to participate six months after commencement of employment.

The Company matches contributions up to 4% of the

participating employee’s compensation with such matching contributions vested immediately.

Total contributions by the Company

to the 401(k) Plan amounted to approximately $110,000 and $189,000 for the fiscal years ended June 30, 2019 and 2018, respectively.

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.

30, 2019, 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 whether or not a potential loss amount or a potential

range of loss is probable and reasonably estimable under ASC 450, Contingencies .

to Consolidated Financial Statements

and Contingencies

Payments and Royalties

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

December 2019, COVID-19 was reported to have surfaced in Wuhan, China, and by March 2020 the spread of the virus had

resulted in a world-wide pandemic.

economy has been largely

shut down by mass quarantines and government mandated stay-in-place orders to halt the spread of the 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

have approved funding for many programs that may provide financial assistance to individuals and businesses.

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.

has resulted in an economic environment that is unfavorable for many businesses to pursue new equity financings.

the current economic environment is expected to present greater challenges for the Company to obtain additional funding for its

clinical programs on terms that are acceptable to the Company’s Board of Directors.

February 2020, Rezolute announced the initiation of its Phase 2b trial in Congenital

Hyperinsulinism (“CHI”).

New site initiation and enrollment is on hold, similar to many other clinical studies conducted

by other companies throughout the world.

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.

of June 30, 2020, the Company was subject to employment agreements with three executive officers that provide for aggregate

annual base salaries of $1.2 million.

In the event the Company terminates employment of the executive officers without cause,

severance benefits include (i) between one and three years of base salary, (ii) between 50% and 150% of annual target

bonuses applicable to the terminated executive, and (iii) continuation of certain medical and dental benefits.

vesting is accelerated for unvested stock options that would have otherwise vested during the period that the severance benefits

are paid out.

Company has a defined contribution employee benefit plan under section 401(k) of the Internal Revenue Code (the “401(k) Plan”).

The 401(k) Plan covers all eligible employees who are entitled to participate six months after commencement of employment.

The Company matches contributions up to 4% of the participating employee’s compensation with such matching contributions

vested immediately.

Total contributions by the Company to the 401(k) Plan amounted to approximately $0.1 million for each

of the fiscal years ended June 30, 2020 and 2019.

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 June 30, 2020, 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 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.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

to Consolidated Financial Statements

Related Party Transactions

On February 26, 2018, the Company issued

a secured convertible promissory note and warrants for $0.5 million that was payable to a member of the Board of Directors.

April 3, 2018, the Company issued a second convertible promissory note and warrants for $0.5 million to this same member of the

Board of Directors.

This second promissory note replaced a note with similar terms that was issued on January 25, 2018.

16, 2019, this board member resigned in connection with the Series AA Financing discussed in Note 6.

During the fiscal quarter ended March 31,

2018, the Company issued warrants in connection with the Fiscal 2018 Notes whereby the fair value of the warrants was accounted

for as a debt discount as discussed in Note 5.

In January 2019, the Company modified one of the outstanding warrants held by the

same member of the Board of Directors discussed above.

The modification resulted in an increase in the number of shares subject

to the warrant from 0.5 million shares to approximately 1.2 million shares, and a decrease in the exercise price from $0.52 per

share to $0.18 per share.

The Company measured the fair value of this warrant immediately before and immediately after the modification

and recognized the change in fair value of approximately $138,000 as an additional debt discount.

Upon conversion of the related

Fiscal 2018 Note on January 30, 2019, the debt discount was fully accreted to interest expense.

Equity Issuances

As discussed in Note 6, on July 23,

the New Investors agreed to purchase an aggregate of approximately 69.0 million shares at an issuance price of $0.29 per share

for gross proceeds of $20.0 million.

This purchase was made pursuant to the terms of the call option that was issued in connection

with the Series AA financing discussed in Note 6.

After this purchase, the New Investors owned an aggregate of 64% of the Company’s

outstanding shares of Common Stock.

For the fiscal year ended June 30, 2018,

the Company incurred investor relation expenses of $33,000 and general and administrative expenses of $68,000 for services performed

by related parties.

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 the call option that was issued

in connection with an equity offering in January 2019 that resulted in gross proceeds of $25.0 million.

As of June 30,

2020, H&G own an aggregate of approximately 62% of the Company’s outstanding shares of Common Stock.

Master 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 years ended June 30, 2020, the Company charged

H&G for employee services of $103,000 and reimbursable expenses incurred with unrelated parties of $144,000, for a total of

approximately $247,000.

Amounts charged under the MSA for employee services are reflected as a reduction of research and development

compensation costs in the accompanying consolidated statement of operations for the year ended June 30, 2020.

SUPPLEMENTAL FINANCIAL INFORMATION

Interest and other income consist of the

following for the years ended June 30, 2020 and 2019 (in thousands):

Interest income

Gain on lease termination

Gain from change in fair value of embedded derivatives

Rental income

Net Loss Per Share

Basic net loss per share is computed by dividing net loss attributable

to common stockholders by the weighted average number of common shares outstanding during the period.

The calculation of net loss

attributable to common stockholders for the year ended June 30, 2019 reflects the BCF related to the issuance of Series AA Preferred

Stock to the New Investors discussed in Note 6, as follows:

Basic net loss per share is computed by

dividing net loss attributable to Common Stockholders by the weighted average number of common shares outstanding during the period.

The calculation of net loss attributable to Common Stockholders for the year ended June 30, 2019 reflects the BCF related

to the issuance of Series AA Preferred Stock to H&G discussed in Note 6, as follows (in thousands):

Beneficial conversion feature

Net loss attributable to common stockholders

For the years ended June 30, 2019 and 2018, basic and diluted

net loss per share were the same since all common stock equivalents were anti-dilutive.

As of June 30, 2019 and 2018, the following

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):

For the years ended June 30, 2020

and 2019, basic and diluted net loss per share were the same since all Common Stock equivalents were anti-dilutive.

As of June 30,

2020 and 2019, the following 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):

REZOLUTE, INC.

to Consolidated Financial Statements

Stock options

2 unchanged sentences

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 measurement:

REZOLUTE, INC.

Notes to 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 collaboration, 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 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

June 30, 2019 and 2018.

The Company did not have any other assets and liabilities measured at fair value as of June 30, 2019.

Company’s embedded derivative liability discussed in Note 5 was the only liability as of June 30, 2018 that was carried at

fair value on a recurring basis.

The Company’s embedded derivative liability was recorded at fair market value and was classified

within Level 3 of the fair value hierarchy.

Fair value was estimated using the “with”

and “without”

Accordingly, the note payable was first valued with the embedded derivatives (the “with”

scenario) and subsequently

valued without the embedded derivatives (the “without”

The fair value of the embedded derivatives was estimated

as the difference between these two scenarios.

The fair values were determined using the income approach, specifically the

yield method.

As of June 30, 2018, key Level 3 assumptions and estimates used in the valuation of the embedded derivatives included

an assessment of the probability of early prepayment of the convertible note payable, the remaining term to maturity of approximately

0.7 years and a discount rate of 15.0%.

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 fiscal

years ended June 30, 2019 and 2018, the Company had no transfers of its assets or liabilities between levels of the fair value

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 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 collaboration,

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 measurement date.

to the relatively short maturity of the respective instruments, t he fair value of cash and cash equivalents, accounts payable

and accrued liabilities approximated their carrying values as of June 30, 2020 and 2019.

The Company did not have any other

assets and liabilities measured at fair value as of June 30, 2020 and 2019.

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 fiscal years ended June 30, 2020 and 2019, the Company had no 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.

Cash deposits often exceed the amount of federal insurance provided on such deposits.

As of June 30, 2019,

the Company had cash and cash equivalents with a single financial institution with a balance of $11.6 million.

The Company has

never experienced any losses related to its investments in cash and cash equivalents.

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.

Cash deposits often exceed the amount of federal insurance provided on such

As of June 30, 2020 and 2019, the Company had cash and cash equivalents with a single financial institution with

a balance of $10.0 million and $11.6 million, respectively.

The Company has never experienced any losses related to its investments

in cash and cash equivalents.

Subsequent Events

Financing Activities

As discussed in Note 6, the Company granted each of the New

Investors a call option to provide additional financing whereby each New Investor may elect to purchase up to $10.0 million of

Common Stock at a purchase price equal to the greater of (i) $0.29 per share or (ii) 75% of the volume weighted average closing

price (“VWAP”) of the Company’s Common Stock during the thirty consecutive trading days prior to the date of

As discussed in Note 9, in June 2019 the Company entered into a financial advisory agreement to undertake a private

placement of (i) the shares of Common Stock issuable under the call option issued to the New Investors for a total of $20.0 million,

plus (ii) between approximately $20 million and $30 million of equity or equity equivalent securities to be issued to other investors.

On July 23, 2019, the Company entered into a purchase agreement whereby the New Investors exercised their call option to purchase

an aggregate of approximately 69.0 million shares of Common Stock for gross cash proceeds of $20.0 million.

Since VWAP for the

previous thirty consecutive trading days was $0.20 per share, the New Investors exercised the call option at a purchase price of

$0.29 per share.

In addition, during July and August 2019 other investors purchased an aggregate of approximately 14.0 million

shares of Common Stock at a purchase price of $0.29 per share for gross cash proceeds of $4,050,000.

Pursuant to the financial

advisory agreement, the Company agreed to pay a fee of 6.0% of the gross proceeds received from these private placements.

advisory fees related to these issuances in July and August 2019 amounted to approximately $1.4 million, resulting in net proceeds

of $22.6 million.

As discussed in Note 4, the completion of these financings resulted

in the obligation to make Early Payments of approximately $3.4 million under the License Agreement with Xoma.

The Early Payments

were paid in August 2019 and eliminated the requirement to make Future Cash Payments that would have otherwise been due on September

30, 2020 for $2.0 million and on June 30, 2020 for approximately $1.4 million.

Related Party Licensing Agreement

On September 15, 2020, the Company

entered into an exclusive license agreement with Handok (the “Handok License”) for the territory of the Republic of

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.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Restricted Funds

In connection with the private placement discussed above, one

of the investors purchased approximately 13.1 million shares of Common Stock for gross proceeds of $3.8 million.

Pursuant to a

separate agreement with the investor, the Company agreed to make expenditures totaling $3.8 million prior to August 2020 for qualified

research and development activities, and for the Company’s planned uplisting to a national stock exchange.

to Consolidated Financial Statements

Fiscal 2021 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 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 Financing, the financial advisors are entitled to additional transaction fees

equal to 6.0% of the gross proceeds.

October 9, 2020, the Company completed the Fiscal 2021 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 are estimated at approximately $0.9 million.

After deducting the financial advisory fees and other offering

costs, the estimated net proceeds amounted to approximately $37.6 million.

Pursuant to the terms of the Fiscal 2021

Financing, the Company executed the Reverse Stock Split discussed in Note 1 and agreed to use commercially reasonable efforts

to enable trading of its Common Stock on the Nasdaq Capital Market.

The Company effected a one share for 50 shares reverse

stock split on October 9, 2020.

In addition, the Company entered into a registration rights agreement (“RRA”),

pursuant to which the Company agreed to use commercially reasonable efforts to register (i) the shares of Common Stock

included in the Units, and (ii) the shares of Common Stock issuable upon exercise of the warrants.

If the Company fails

to register the shares pursuant to the terms of the RRA, liquidated damages up to a maximum of 6.0% of the gross proceeds of

the Fiscal 2021 Financing may be assessed.

Early Payments to Xoma

Upon completion of a qualified financing

of $20.0 million or more, the Company is obligated to repay the remaining outstanding balance due to Xoma within 15 days as discussed

The completion of the Fiscal 2021 Financing resulted in acceleration of the remaining balance due to Xoma of $1.8 million

as of June 30, 2020.

The Company expects to make this payment to Xoma by October 2020.

Unaudited Pro Forma Disclosure

Presented below is an unaudited pro forma balance sheet that

gives effect to the Financing Activities and Early Payments discussed above, as if these events had occurred

on June 30, 2019:

Unaudited Pro Forma Adjustments

Equity Financings

New Investors

Cash, cash equivalents and restricted cash

$ (1,443 ) (3)

$ (3,391 ) (4)

Prepaid expenses and other

Presented below is an unaudited pro forma

balance sheet that gives effect to the Fiscal 2021 Financing and the Early Payments to Xoma, as if these events had occurred on

June 30, 2020 (in thousands, except per share amount):

REZOLUTE, INC.

to Consolidated Financial Statements

Equity Financing

Current assets:

Cash and cash equivalents

Other current assets

Total current assets

Non-current assets:

Right-of-use assets, net

Liabilities and Stockholders' Equity

Current liabilities:

$ (1,391 ) (4)

Accounts payable

Accrued liabilities

Current portion of license fees payable to Xoma

Current portion of operating lease liabilities

Total current liabilities

Non-current liabilities:

License fees payable to Xoma, net of current portion

Operating lease liabilities, net of current portion

Total liabilities

Stockholders' equity:

stock, $0.001 par value, 500,000 shares authorized;

see below for outstanding shares

Additional paid-in capital

2 unchanged sentences

Total liabilities and stockholders' equity

Shares of Common Stock outstanding

(1) Gives effect to the issuance of 69.0 million shares in a private placement of Common Stock to the New Investors for gross proceeds

of $20.0 million.

(2) Gives effect to the issuance of approximately 14.0 million shares of Common Stock to other investors in the private placement

for gross proceeds of $4.1 million.

(3) Gives effect to the financial advisory fees payable at 6.0% of the gross proceeds from the issuance of shares in the private

(4) Gives effect to the Early Payments to Xoma based on 15% of the net proceeds from equity financings of $22.6 million.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Employment Agreements

On July 31, 2019, the Board of Directors approved entering into

three employment agreements with officers of the Company that provide for aggregate annual base salaries of approximately $1.0

million plus eligibility for performance bonuses up to between 25% and 30% of annual compensation.

This employment agreements may

be terminated by the Company at any time with or without cause.

If termination occurs within one year after a change of control,

then the officers are entitled to a severance payment equal to their respective annual base salaries which range from $280,000

On July 31, 2019, the Company also entered into an employment agreement with the Company’s former chief accounting

officer that provided for an annual base salary of $265,000.

This agreement was terminated in August 2019.

2019 Equity Incentive Plan

On July 31, 2019, the Company’s Board of Directors adopted

the 2019 Non Qualified Stock Option Plan (the “2019 Plan”).

The 2019 Plan provides for the authority to grant 15.0

million shares of the Company’s Common Stock to employees, officers, non-employee directors, consultants, independent contractors,

or advisors of the Company.

Options granted under the 2019 Plan are limited to non-qualified stock options.

The 2019 Plan is administered by the Board of Directors or a

committee designated by the Board, who have the authority to determine the employees, officers, non-employee directors, consultants,

independent contractors, or advisors to whom options will be granted, the vesting rights, and the terms and conditions of each

option that is granted.

Options granted pursuant to the 2019 Plan are exercisable no later than ten years after the date of grant.

The exercise price per share of common stock for options granted pursuant to the 2019 Plan shall be determined by the Board or

such committee designated by the Board.

The 2019 Plan will terminate on July 31, 2029.

Stock Option Grants

On July 31, 2019, the Board of Directors granted stock options

for an aggregate of approximately 34.0 million shares of Common Stock to certain officers and employees at an exercise price of

$0.29 per share.

The closing price of the Company’s shares of Common Stock on the date of grant was approximately $0.21 per

The option grants were designated for 19.0 million shares under the 2016 Plan and 15.0 million shares under the 2019 Plan.

Presented below is a summary of the number of options granted to executive officers and other employees:

Time-Based Vesting

Number of Shares

Executive officers

Other employees

(1) Stock options are subject to time-based vesting in two tranches, whereby (i) 25% of such options are immediately exercisable

for employees who have been employed by the Company for more than one year, and for employees that have been employed by the Company

less than one year, 25% of such options will vest on the one year anniversary of the employee’s start date;

remaining 75% of the stock options will vest ratably over a period of 36 months after vesting of the initial 25% tranche.

(2) Vesting of these stock options is subject to achievement of performance milestones whereby such options will vest ratably over

a period of 36 months beginning when all of the following have occurred:

(i) the Company achieves a listing for its shares of Common

Stock on a national stock exchange;

(ii) the Company’s closing stock price exceeds $0.58 per share for 20 trading days in

any consecutive 30 day period within 4 years of the date of the option grant, and (iii) the option recipient having completed at

least one year of employment with the Company.

In August 2019, the Company’s chief accounting officer

terminated employment which resulted in forfeiture of stock options shown in the table above with time-based vesting for 0.8 million

shares and performance vesting for 0.4 million shares.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Accrued Bonus Payments

On July 31, 2019, the Board of Directors approved

cash bonus payments to three executive officers for past services totaling $448,000.

The liability to make these payments is included

in accrued compensation and benefits in the consolidated balance sheet as of June 30, 2019.

In August 2019, the Company paid the

cash bonus payments to the three executive officers.

Master Services Agreement

Effective July 1, 2019, the Company entered into a Master Services

Agreement (“MSA”) with the New Investors whereby certain employees of the Company will provide services on behalf of,

and at the direction of, the New Investors.

The services relate to an existing long acting growth hormone program being advance

by the New Investors.

This program is referred to as GX-H9, and the objective of the MSA is to assist the New Investors to advance

GX-H9 to Phase 3 studies in the U.S.

Pursuant to the MSA, the New Investors agreed to reimburse the Company for future

services at a fixed rate of $200 per hour spent by the Company’s designated employees.

Reverse Stock Split

In August 2019, the Company’s

Board of Directors approved a reverse stock split (the “Reverse Stock Split”) that is subject to stockholder

approval at a special meeting that is expected to occur in October 2019.

If approved by stockholders, the Board of Directors

would then have the ability at any time through September 25, 2020 to execute the Reverse Stock Split and set the 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 or the number of shares of common

stock authorized.

If the Reverse Stock Split is subsequently implemented, the number of shares subject to outstanding stock

options and warrants will also be adjusted with a corresponding adjustment to the related exercise prices.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

Number of shares of Common Stock outstanding

effect to the receipt of gross proceeds of $41.0 million on October 9, 2020, as

a result of the private placement of units at an issuance price of $16.50 per unit.

units consisted of an aggregate of approximately 2.5 million shares of Common Stock and

warrants for the purchase of an additional 0.8 million shares of Common Stock.

effect to the financial advisory fees of 6.0% of the gross proceeds and other estimated

offering costs of approximately $0.9 million related to the Fiscal 2021 Financing.

effect to the requirement discussed in Note 4 to repay the remaining obligations due

to Xoma, since the Fiscal 2021 Financing met the definition of a qualified financing.

Bonuses for Certain Officers and Employees

On October 7, 2020, the Company's Board of Directors approved bonus payments for an aggregate

of $0.5 million to certain officers and employees.

The bonuses are expected to be paid in October 2020.

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data