What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-09-15 compared with 2020-10-13 · 1128 added, 1102 removed, 157 unchanged (93% of the section changed)

Financial Statements and Supplementary Data.

Reports of Independent Public Accounting Firm

Report of Independent Registered Public Accounting

Financial Statements:

1 unchanged sentence

Consolidated statements of operations for the fiscal years ended June 30, 2021 and 2020

Consolidated statements of stockholders’

Consolidated statements of shareholders’

equity for the fiscal years ended June 30, 2021 and 2020

1 unchanged sentence

Notes to consolidated financial statements

OF INDEPENDENT PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Rezolute, Inc.

Report of Independent Registered Public Accounting

To the Stockholders and Board of Directors of Rezolute, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheet of Rezolute, Inc.

(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, 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.

balance sheets of Rezolute, Inc.

(the “Company”) as of June 30, 2021, and 2020, the related consolidated statements of operations,

shareholders' equity, and cash flows for each of the years in the two-year period ended June 30, 2021, 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, 2021 and 2020, and the results of its operations and its cash

flows the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company's management is responsible

for these financial statements.

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”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

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

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.

The Company's management is responsible for these

financial statements.

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

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

required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

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 audits 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 audits included performing procedures

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

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

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.

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 that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

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.

Critical Audit Matters

The critical audit matter communicated below is

a matter arising from the current period audit of the consolidated financial statements that was communicated or is required to be communicated

to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our

especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions

on the critical audit matter or on the accounts or disclosures to which they relate.

SLR Investment Corp.

Debt - Refer to Note

Critical Audit Matter Description

On April 14, 2021, the Company entered into

a $30.0 million Loan and Security Agreement (“Loan Agreement”) with certain lenders.

The loan consists of three tranches consisting

of (i) a $15.0 million term A loan that was funded on April 14, 2021, (ii) a $7.5 million term B loan to be funded upon

request by the Company no later than January 25, 2022, and (iii) a $7.5 million term C loan to be funded upon request by the

Company no later than September 25, 2022.

The Company is obligated to pay the lenders (i) a non-refundable facility fee in the amount

of 1.00% of each term loan that is funded and (ii) a final fee equal to 4.75% of the aggregated amount of the term loans funded.

the Company entered into an exit fee arrangement that provides for a fee of 4.00% of the funded principal balance of each term loan in

the event certain transactions, as defined in the Loan Agreement, occur prior to April 13, 2031.

The terms of the Loan Agreement further

call for optional and mandatory prepayment options.

The debt and certain terms of the Loan Agreement and exit fee arrangement were analyzed

under ASC 470, Debt , and ASC 815, Embedded Derivatives .

Auditing the Company’s accounting assessment

was challenging and complex given the high degree of estimates and judgements in determining the proper accounting treatment for the debt,

debt discounts and debt issuance costs and the identification of any freestanding instruments or embedded features.

How the Critical Audit Matter Was Addressed

Our audit procedures related to the Loan Agreement

include the following:

Gained an understanding of the Company’s

internal control over financial reporting to identify the types of potential misstatement, assessed the factors that affect the risks

of material misstatement, and designed audit procedures in response to those risks.

Obtained management’s analysis for the

accounting treatment for the debt and related agreements.

Verified all key information to the executed

debt agreement and consulted with the Company’s counsel in applicable areas.

Engaged an internal technical accounting specialist

to evaluate appropriate application of generally accepted accounting principles including the assessment of freestanding financial instruments

and embedded features.

Assessed fair value of all significant items

requiring the application of fair value measures for initial recognition and measurement and subsequent measurement through June 30, 2021.

Substantively tested the ending debt and related

instrument balances, including confirmation procedures as of and for the year ended June 30, 2021 based on the terms of the Loan Agreement.

/s/ Plante & Moran, PLLC

We have served as the Company’s

auditors since 2013.

We have served as the Company’s auditor

Denver, Colorado

October 13, 2020

September 14, 2021

REZOLUTE, INC.

Balance Sheets

2020 and 2019

Thousands, Except Per Share Amounts)

Consolidated Balance

June 30, 2021 and 2020

(In Thousands, Except

Per Share Amounts)

Current assets:

3 unchanged sentences

Right-of-use assets, net

Deferred offering costs and other

Property and equipment, net

Intangible assets, net

Lease security deposits

Liabilities and Stockholders' Equity

Liabilities and Shareholders' Equity

Current liabilities:

3 unchanged sentences

Compensation and benefits

Current portion of license fees payable to Xoma

Current portion of operating lease liabilities

Current portion of license fees payable to Xoma

Total current liabilities

License fees payable to Xoma, net of current portion

Long term debt, net of discount

Operating lease liabilities, net of current portion

Other non-current liabilities

Embedded derivative liabilities

License fees payable to Xoma, net of current portion

Total liabilities

Commitments and contingencies (Notes 4 and 10)

Stockholders' equity:

Shareholders' equity:

Preferred stock, $0.001 par value;

20,000 shares authorized, no shares issued

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

authorized 400 and 20,000 shares as of June 30, 2021 and 2020, respectively;

no shares issued

Common stock, $0.001 par value, authorized 40,000 and 500,000 shares as of June 30, 2021 and 2020, respectively;

8,352 and 5,867 shares issued and outstanding as of June 30, 2021 and 2020, respectively

1 unchanged sentence

Accumulated deficit

Total stockholders' equity

Total liabilities and stockholders' equity

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

Total shareholders' equity

Total liabilities and shareholders' equity

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

REZOLUTE, INC.

Statements of Operations

the Years Ended June 30, 2020 and 2019

Thousands, Except Per Share Amounts)

Consolidated Statements of Operations

For the Fiscal Years Ended June 30, 2021 and 2020

(In Thousands, Except Per Share

Operating expenses:

2 unchanged sentences

Clinical trial costs

Licensing costs

Consultants and outside services

1 unchanged sentence

Facilities and other

Licensing costs

Total research and development

7 unchanged sentences

Non-operating income (expense):

Change in fair value of derivative liabilities

Employee retention credit

Interest and other income

Interest expense

Total non-operating income (expense)

Net loss attributable to common stockholders

Rental income

Total non-operating income (expense), net

Net loss per common share - basic and diluted

Weighted average number of common shares outstanding - basic and diluted

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

The accompanying notes are an integral part of these consolidated

financial statements.

REZOLUTE, INC.

Statements of Stockholders’

the Years Ended June 30, 2020 and 2019

(In Thousands, Except Per Share Amounts)

Stockholders'

Equity (Deficit)

Consolidated Statements of Shareholders’

For the Fiscal Years Ended June 30, 2021 and 2020

(In Thousands, Except Per Share

Shareholders'

Balances, June 30, 2019

Fair value of warrants:

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.

Issuance of common stock for cash:

Related parties at $14.50 per share

Other investors at $14.50 per share

Advisory fees and other offering costs

Share-based compensation

Fair value of warrants issued to consultants for services

Balances, June 30, 2020

Issuance of Units for cash in private placement

Advisory fees and other offering costs related to issuance of Units

Share-based compensation

Reclassification of warrants and stock options from equity

to derivative liability due to authorized share deficiency

Reclassification of derivative liability to equity upon

of authorized share deficiency

Fair value of warrants issued to consultants for services

Issuance of common stock for consulting services

Balances, June 30, 2021

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, 2020 and

For the Fiscal Years Ended June 30, 2021 and 2020

(In Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Stock-based compensation expense

Fair value of warrants issued for services

Impairment of long-lived assets and other

Depreciation and amortization expense

Change in fair value of derivative liabilities

Share-based compensation expense

Non-cash lease expense

Beneficial conversion feature attributable to Fiscal 2018 Notes

Accretion of debt discount and issuance costs

Gain on lease termination

Derivative gains

Depreciation and amortization expense

Fair value of warrants issued for services

Fair value of shares of common stock issued for services

Impairment of long-lived assets and other

Changes in operating assets and liabilities:

Decrease (increase) in prepaid expenses and other assets

Increase (decrease) in accounts payable

Increase (decrease) in other accrued liabilities

Increase (decrease) in license fees payable to Xoma

Increase in interest payable

Increase in accounts payable

Decrease in other accrued liabilities

Decrease in license fees payable to Xoma

Net Cash Used In Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of equipment

Purchase of office furniture and equipment

Net Cash Provided By Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from investors in Series AA Financing:

Exclusivity Payment

Closing payment

Proceeds from issuance of Common Stock

Payment of offering costs

Proceeds from private placements of equity:

Payments for offering costs related to equity issuances

Gross proceeds from debt financing

Cash payments for debt discount and issuance costs

Net Cash Provided by Financing Activities

5 unchanged sentences

Cash paid for income taxes

Right-of-use assets acquired in exchange for operating lease liabilities

Cash paid for amounts included in the measurement of operating lease liabilities

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Issuance of Series AA Preferred Stock for conversion of:

Principal balance of Fiscal 2018 Notes

Accrued interest under Fiscal 2018 Notes

Exclusivity Payment liability

Conversion of Series AA Preferred Stock to Common Stock

Fair value of warrant modification issued for debt discount

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

Reclassification of warrants and stock

options from equity to derivative liability due to authorized share deficiency

Reclassification of derivative liability to equity upon cureof authorized share deficiency

Debt discounts incurred for:

Final Fee obligation under debt agreement

Allocation of debt proceeds to embedded derivative obligations

Payables for debt issuance costs

Furniture and equipment received as inducement under operating lease

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

REZOLUTE, INC.

to Consolidated Financial Statements

Nature of Operations and Summary of Significant Accounting Policies

Notes 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”) is

a clinical stage biopharmaceutical company developing transformative therapies for metabolic diseases related to chronic glucose imbalance.

Change in Domicile

In June 2021, the Company merged with and into our wholly

owned subsidiary, Rezolute Nevada Merger Corporation, a Nevada corporation (“Merger Sub”), pursuant to an Agreement and Plan

of Merger, dated as of June 18, 2021 (the “Reincorporation Merger Agreement”), between the Company and Merger Sub, with Merger Sub

as the surviving corporation (the “Reincorporation Merger”).

At the effective time of the Reincorporation Merger (the “Effective

Time”), the Merger Sub was renamed “Rezolute, Inc.”

and succeeded to the assets, continued our business and assumed

our rights and obligations by operation of law.

The Reincorporation Merger Agreement was approved by our shareholders at the 2021 annual

meeting of the Company's shareholders held on May 26, 2021.

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.

Prior to February 12, 2021, the Company had three

wholly owned subsidiaries consisting of AntriaBio Delaware, Inc., Rezolute (Bio) Ireland Limited, and Rezolute Bio UK, Ltd.

12, 2021, the Company filed a certificate of dissolution with the Secretary of State of Delaware to dissolve AntriaBio Delaware, Inc.,

which was a dormant company with no assets, liabilities or operations.

As a result, the Company now has two wholly owned subsidiaries

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

The accompanying consolidated financial statements include the

accounts of the Company and wholly owned subsidiaries.

All 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.

In August 2019, the Company’s Board of Directors

approved a reverse stock split that was subject to shareholder approval at a special meeting that was concluded on October 28, 2019.

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 every fifty shares reverse stock split of the common

stock (the “Reverse Stock Split”), resulting in the filing of a Certificate of Amendment (the “Amendment”) to

the Company’s Articles of Incorporation with the Secretary of State of Delaware.

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.

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

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”).

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’

The Company’s consolidated financial statements

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

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 shareholders’

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, 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.

For the fiscal

years ended June 30, 2021 and 2020, the only component of comprehensive loss was the Company’s net loss as the Company has no items

constituting any other comprehensive income (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.

REZOLUTE, INC.

to Consolidated Financial Statements

Notes to Consolidated Financial Statements

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, determination of the fair value of derivative liabilities for authorized share deficiency, fair value of the embedded derivatives

associated with debt financing, 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.

Risks and Uncertainties

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.

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 discussed in Note 2, and the future impact of COVID-19 discussed in Note 10.

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 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.

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.

these 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 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 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 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.

An impairment charge is recognized for the amount by which the carrying amount

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

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.

Property and equipment consist solely of office

furniture and equipment that is recorded at cost.

Depreciation expense is calculated using the straight-line method over the estimated

useful lives of the assets which range from 3 to 5 years.

Maintenance and repairs are expensed as incurred.

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 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

Notes to Consolidated Financial Statements

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 fees paid to

the lender, professional fees and due diligence services.

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

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

Research and Development Costs

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.

Research and development costs are expensed as

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 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.

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

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.

Share-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

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

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 share-based compensation.

For stock options that are voluntarily surrendered by

employees, all unrecognized compensation is immediately recognized in the period the options are cancelled.

For stock options with vesting that is dependent

on achieving certain market, performance and service conditions (“Hybrid Options”), the Company recognizes compensation expense

over the requisite service period beginning on the date when the performance condition is considered probable of occurrence.

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.

If the Hybrid Options do not ultimately become exercisable due to the failure of the option holder

to achieve the requisite service period, any previously recognized compensation cost is reversed.

However, if the Hybrid Options do not

ultimately become exercisable due to the failure to achieve the market condition, previously recognized compensation cost will not be

Derivative Liability for Authorized Share

During periods in which the Company has an inadequate

number of authorized shares of common stock to fully settle all outstanding stock options and warrants, the Company did not meet equity

classification for all contracts required to be settled in common stock as the Company could be required to settle outside of the Company’s

sole control, certain contracts in cash to the extent of the deficiency.

In order to determine the specific stock options and warrants

that may require cash settlement, the Company adopted an accounting policy to select the stock options and warrants with the earliest

issuance dates to compute the estimated fair value of the financial instruments associated with the authorized share deficiency.

value of the stock options and warrants associated with the deficiency are computed on the date the deficiency arose, at the end of each

reporting period and on the date when the deficiency was cured, using the BSM option-pricing model.

Key assumptions inherent in this valuation model

include the historical volatility of the Company’s common stock, the remaining contractual term of the options and warrants, and

the market price of our common stock on the valuation date.

Changes in these factors from period to period can result in significant increases

and decreases in fair value of the derivative liability, with corresponding gains or losses reflected in our operating results for each

reporting period.

If the Company’s shareholders subsequently approve a sufficient increase in authorized shares or if a sufficient

number of shares are cancelled, the Company will no longer include the derivative liability in its balance sheets after the approval date.

However, any gains or losses reflected prior to the approval date are not reversed.

REZOLUTE, INC.

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 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.

Notes to Consolidated Financial Statements

Embedded Derivatives

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 would meet the definition of a derivative instrument, and if so whether the features are considered clearly and closely

related to the primary economic characteristics 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

shareholders’

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.

Governmental Assistance

In response to the COVID-19 pandemic discussed

in Note 10, the United States government has designed programs to assist businesses in dealing with the financial hardships caused by

the pandemic.

The Company recognizes the right to receive governmental assistance payments in the period in which all legal requirements

necessary have been met and other related conditions on which they depend are substantially met.

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 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 and warrants, to the extent dilutive.

Recent Accounting Pronouncements

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.

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):

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.

Net Loss Per Share

Basic net loss per share is computed by dividing

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

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

to the extent dilutive.

If the impact is dilutive for the calculation of basic or diluted net income (loss) per share, the Company applies

the two-class method of allocating earnings for participating warrants that are entitled to participate in any dividends to holders of

shares of common stock.

REZOLUTE, INC.

to Consolidated Financial Statements

Right-of-use assets recorded under new standard

Operating lease liabilities recorded under new standard:

Eliminate previously existing deferred rent liability

Net increase in liabilities due to adoption of new standard

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.

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.

Notes to Consolidated Financial Statements

Recent Accounting Pronouncements

Standards Required to be Adopted in Future

The following accounting standards are not yet effective;

management has not completed its full and comprehensive evaluation

to determine the impact that adoption these standards may have on the Company’s consolidated financial statements.

In June 2016, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses

Measurement of Credit Losses on Financial Instruments.

ASU 2016-13 amends the guidance on the impairment of financial

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.

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.

The Company does not expect the adoption

of this accounting guidance will have a material impact on its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt

Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging –

Contracts in Entity’s Own Equity

(Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity).

ASU 2020-06 reduces the

number of accounting models for convertible debt instruments and convertible preferred stock, which results in fewer embedded conversion

features being separately recognized from the host contract as compared with current GAAP.

Additionally, ASU 2020-06 affects the diluted

earnings per share calculation for instruments that may be settled in cash or shares and for convertible instruments and requires enhanced

disclosures about the terms of convertible instruments and contracts in an entity’s own equity.

ASU 2020-06 allows entities to use

a modified or full retrospective transition method and is effective for smaller reporting companies for fiscal years beginning after December

15, 2023, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning

after December 15, 2020, including interim periods within those fiscal years.

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, 2021, the Company incurred a net loss of $20.9 million and net cash used

in operating activities amounted to $20.4 million.

As of June 30, 2021, the Company had an accumulated deficit of $168.1 million, cash

and cash equivalents of $41.0 million and total current liabilities of $2.0 million.

As discussed in Note 7, in December 2020 the Company

entered into an Equity Distribution Agreement (the “EDA”) with Oppenheimer & Co.

that provides for an “at the

market offering”

for the sale of up to $50.0 million in shares of the Company’s common stock.

No proceeds were received under

this agreement for the fiscal year ended June 30, 2021;

however, an aggregate net proceeds of approximately $1.5 million was received

by the Company from July 1, 2021 through August 31, 2021 as discussed in Note 15.

As discussed in Note 5, the Company entered into

a loan and security agreement in April 2021 that provides for total borrowings up to $30.0 million.

The Company received gross proceeds

of $15.0 million in April 2021 and the remaining $15.0 million is available subject to satisfaction of certain conditions described

in the loan agreement.

As a condition of the loan agreement, the Company is required to maintain a restricted cash balance of $5.0 million

beginning no later than December 31, 2021.

Borrowings under the loan agreement provide for interest at 8.75% plus a variable margin

of at least 0.12%.

The Company is permitted to make interest-only payments through May 1, 2023, and the maturity date is on April 1,

As discussed in Note 15, the Company entered into

a purchase agreement in August 2021 with Lincoln Park Capital Fund, LLC (“LPC”) that provides for issuances of common

stock up to an aggregate of $20.0 million.

The Company received aggregate proceeds of $1.0 million under this agreement in August 2021.

REZOLUTE, INC.

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.

Notes to Consolidated Financial Statements

Management believes the Company’s existing

cash and cash equivalents balance of $41.0 million, and additional proceeds available pursuant to the at-the-market agreement and the

purchase agreement with LPC, will be adequate to carry out currently planned activities at least through September 30, 2022.

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

In November 2020, the Company entered into an

assignment, assumption and amendment of lease agreement for ancillary office space in Bend, Oregon.

The leased space consists of approximately

5,000 square feet and provides for average monthly rent of approximately $8,400 through the expiration date in February 2024.

provides one option to renew the lease for an additional three years at market rates.

The Company determined it was not reasonably assured

that this renewal option would be exercised whereby the resulting lease term was estimated at 40 months.

Using a discount rate of 6.0%,

the Company recognized an ROU asset and corresponding operating lease liability of approximately $0.3 million at inception of the lease.

As of June 30, 2021 and 2020, the carrying value

of all ROU assets and operating lease liabilities was as follows (in thousands):

Right-of-Use Assets, net

Operating Lease Liabilities:

REZOLUTE, INC.

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.

For the fiscal years ended June 30, 2021 and 2020,

operating lease expense was as follows (in thousands):

Research and development

General and administrative

As of June 30, 2021, the weighted-average remaining

lease term under operating leases was 1.9 years, and the weighted-average discount rate used to determine the operating lease liabilities

For the fiscal year ended June 30, 2021, 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

Future Lease Payments

Future payments under operating lease

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

Future payments under operating lease agreements

as of June 30, 2021 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.

Less imputed interest

Present value of operating lease liabilities

REZOLUTE, INC.

Notes to Consolidated Financial Statements

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.

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.

In December 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.

In January 2019, the License Agreement was amended with an updated payment schedule,

as well as revising the amount the Company was 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.

On March 31, 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 provided for seven quarterly payments to be paid from March 31, 2020 through September 30,

As discussed in Note

7, 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.

On October 23, 2020, the Company paid the outstanding balance of $1.4 million.

As of June 30,

2021, the Company does not have any remaining balance payable under Amendment No.

3 to the License Agreement.

Upon the achievement of

certain clinical and regulatory events, the Company will be required to make up to $37.0 million in aggregate milestone payments to Xoma.

In addition to the December 2017 License Agreement

between the Company and Xoma, the parties also entered into a stock purchase agreement (“Stock Purchase Agreement”), pursuant

to which, Xoma owns approximately 162,000 shares of the Company’s common stock as of June 30, 2021.

The Stock Purchase Agreement

provided 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”).

On November 3, 2020, the Company’s shares of common stock were

approved for listing on the Nasdaq Capital Market and the Put Option terminated.

ActiveSite License Agreement

On August 4, 2017, the Company entered 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 Portfolio”).

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 Development and License Agreement

requires various milestone payments up to $46.5 million.

The first milestone payment for $1.0 million was due after acceptance of an

Initial Drug Application, or IND, filed with the U.S.

Food and Drug Administration (“FDA”).

The Company is also required

to pay royalties equal to 2.0% of any sales of products that use the PKI Portfolio.

On October 28, 2020, the Company submitted an

IND to the FDA.

On December 3, 2020, the Company received FDA clearance for the IND application filed by the Company.

This clearance resulted

in the Company owing the first milestone payment of $1.0 million, which was paid in December 2020.

There have been no events that would

result in any royalty payments owed under the ActiveSite Development and License Agreement to date.

Loan and security agreement

On April 14, 2021, the Company entered into

a $30.0 million Loan and Security Agreement (the “Loan Agreement”) with SLR Investment Corp.

and certain other lenders (the

“Lenders”).

The Lenders agreed to loan up to $30.0 million in three tranches consisting of (i) a $15.0 million term A

loan that was funded on April 14, 2021, (ii) a $7.5 million term B loan to be funded upon request by the Company no later than

January 25, 2022, and (iii) a $7.5 million term C loan to be funded upon request by the Company no later than September 25,

Funding of the term B loan is subject to the Company’s ability to obtain at least $35.0 million of equity or subordinated

debt financing by January 2022 and the achievement of certain clinical milestones related to RZ358 and RZ402.

Funding of the term C loan

is subject to the Company’s ability to (i) meet the conditions for funding the term B loan, and (ii) obtaining an additional $35.0

million of equity or subordinated debt financing, and the achievement of certain additional clinical milestones related to RZ358 and RZ402

by September 2022.

Each term loan has a maturity date of April 1, 2026 (the “Maturity Date”).

REZOLUTE, INC.

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

Notes to Consolidated Financial Statements

In addition, the Company’s cash and cash

equivalents became subject to a blocked account control agreement (“BACA”) in favor of the Lenders whereby a cash balance

of at least $5.0 million must be maintained beginning on the earlier of (i) December 31, 2021, and (ii) the date the term B loan is funded.

In the event of a default under the Loan Agreement, the BACA would enable the Lenders to prevent the release of funds from the Company’s

cash accounts.

Outstanding borrowings bear interest at a floating

rate equal to (a) 8.75% per annum plus (b) the greater of (i) the rate per annum published by the Intercontinental Exchange

Benchmark Administration Ltd.

(“IEBA”) for a term of one month and (ii) 0.12% per annum.

For the period from April 14,

2021 through June 30, 2021, the IEBA rate for a term of one month was approximately 0.12% per annum.

Therefore, the contractual rate was

8.87% as of June 30, 2021.

The Company is permitted to make interest-only payments on each term loan through May 1, 2023.

Company’s request, the interest-only period can be extended until May 1, 2024, if the Company obtains

at least $70.0 million of equity or subordinated debt financing by September 2022 and

no event of default shall have occurred.

The Company will be required to make monthly payments of principal and interest commencing

at the end of the interest-only period.

The Company is obligated to pay the Lenders (i)

a non-refundable facility fee in the amount of 1.00% of each term loan that is funded (the “Facility Fee”), and (ii) a final

fee equal to 4.75% of the aggregate amount of the term loans funded (the “Final Fee”).

As of June 30, 2021, the Company incurred

debt discounts for an aggregate of $1.7 million that consisted of $0.5 million for financial advisory and legal fees, an aggregate of

$0.8 million for the Facility Fee and the Final Fee, and an aggregate of $0.4 million as an exit fee accounted for as an embedded derivative

and a prepayment fee related to the term A loan.

The Final Fee is payable upon the earliest to occur of (i) the Maturity Date, (ii) the

acceleration of the term loans, and (iii) the prepayment of the term loans.

The total debt discount of $1.7 million related to the

term A loan is being accreted to interest expense using the effective interest method which results in an overall current effective interest

rate of 12.6% as of June 30, 2021.

Concurrently with the execution of the Loan

Agreement, the Company entered into an exit fee agreement (the “Exit Fee Agreement”) that provides for a fee of 4.00% of

the funded principal balance of each term loan in the event certain transactions (defined as “Exit Events”) occur prior

to April 13, 2031.

Exit Events include, but are not limited to, sales of substantially all assets, certain mergers, change of

control transactions, and issuances of common stock that result in new investors owning more than 35% of the Company’s shares.

As of April 14, 2021, the Company allocated a portion of the proceeds from the term A loan to recognize a liability for the fair

value of this embedded derivative for approximately $354,000.

Fair value was determined based on the Company’s strategic

corporate development plans it has performed a detailed evaluation of the different types of Exit Events that could occur and using

a discounted rate equivalent to the effective rate for the term A loan.

Fair value of this embedded derivative is assessed at the

end of each reporting period with changes in fair value recognized as a nonoperating gain or loss.

As of June 30, 2021, there was a

change in fair value of $5,869 recorded as a non-operating loss on change in fair value of embedded derivative.

The Company has the option to prepay all, but

not less than all, of the outstanding principal balance of the term loans.

In the event of a voluntary or mandatory prepayment prior to

the Maturity Date, the Company will incur a prepayment fee ranging from 1.00% to 3.00% of the outstanding principal balance.

The Company’s obligations under the Loan

Agreement are secured by a first-priority security interest in substantially all the Company’s assets, including its intellectual

This security interest will not be released until all obligations are repaid, including a requirement to pay an Exit Fee of

$0.6 million for certain fundamental transactions that may occur through April 13, 2031.

The Loan Agreement contains customary representations,

warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, and a default

upon the occurrence of a material adverse change affecting the Company.

Upon the occurrence of an event of default, a default interest

rate of an additional 5.00% per annum may be applied to the outstanding loan balance, and the Lenders may declare all outstanding obligations

immediately due and payable and exercise all their rights and remedies as set forth in the Loan Agreement.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

As of June 30, 2021, the Company had outstanding

contractual obligations under the Loan Agreement consisting of the principal balance of $15.0 million and the Final Fee of $0.7 million

for a total of $15.7 million.

After deducting the unaccreted discount of $1.7 million, the net carrying value was $14.0 million as of

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

On August 4, 2017, the Company entered

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 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.

Future minimum principal payments and the net carrying value of the term A loan is as follows as of June 30, 2021 (in thousands):

Fiscal year ending June 30,

Total contractual payments

Less unaccreted debt discount

Net carrying value

DERIVATIVE LIABILITY FOR AUTHORIZED SHARE DEFICIENCY

As discussed in Note 7, the Company reduced the

number of its authorized shares of common stock from 500.0 million shares to 10.0 million shares as of February 17, 2021.

of this change, the Company had approximately 8.4 million shares of common stock issued and outstanding, plus approximately 2.4 million

shares that were required to be reserved for issuance pursuant to the Company’s stock option plans and outstanding warrant agreements.

Accordingly, a total of 10.8 million shares were required to be authorized, which resulted in a deficiency of approximately 0.8 million

shares that were unavailable to settle outstanding stock options and warrants as of February 17, 2021.

Since the Company could have been

required to settle in cash for up to 0.8 million shares, liability classification for these instruments was required beginning on February

The Company’s accounting policy

provided for selection of the stock options and warrant agreements with the earliest issuance dates to compute the estimated fair

value of the financial instruments associated with the authorized share deficiency.

These stock options and warrants were generally

those with the highest exercise prices that were least likely to be exercised.

The fair value of such stock options and warrants

amounted to $3.6 million, which was reclassified from shareholders’

equity to a derivative liability as of February 17, 2021.

As a result of the expiration of stock options and warrants for approximately 0.1 million shares from February 2021 through May

2021, the authorized share deficiency was reduced to approximately 0.7 million shares as of May 26, 2021, when the Company’s

shareholders approved an increase in authorized shares from 10.0 million shares to 40.0 million shares.

Presented below is a summary of the derivative

liability associated with the stock options and warrants that were subject to the Company’s accounting policy as of February 17,

2021 and May 26, 2021 (in thousands, except per share amounts):

February 17, 2021

Number of shares

Weighted average fair value per share

Fair value of derivative liability

REZOLUTE, INC.

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

Notes to Consolidated Financial Statements

Due to the reduction in fair value of the

derivative liability from $3.6 million as of February 17, 2021 to $1.8 million as of May 26, 2021, the Company recognized a non-cash

change in fair value of approximately $1.8 million in the accompanying consolidated statements of operations for the fiscal year

ended June 30, 2021.

The primary factor that resulted in this gain was a reduction in the market price in the Company's common stock

from $11.99 per share on February 17, 2021 to $7.69 per share on May 26, 2021 when the authorized share deficiency was cured.

value of the stock options and warrants set forth above was determined using the BSM option-pricing model with the following

weighted-average assumptions as of February 17, 2021 and May 26, 2021:

February 17, 2021

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

Stockholders’

Market price of common stock

Exercise price

Risk-free interest rate

Dividend rate

Remaining contractual term (years)

Historical volatility

SHAREHOLDERs’

Changes in Authorized Capital Stock

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 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,

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.

For the period from April 24, 2019 through

February 16, 2021, the Company was authorized to issue 500.0 million shares of common stock and 20.0 million shares of preferred

On February 17, 2021, the Company filed a certificate of correction (the “Charter Revision”) with the

Secretary of State of Delaware that changed the number of authorized shares of common Stock from 500.0 million shares to 10.0

million shares.

The Charter Revision also reduced the number of authorized shares of preferred stock from 20.0 million shares to 0.4

million shares on February 17, 2021.

In connection with the Reincorporation Merger discussed in

Note 1, the Company’s shareholders approved an increase in authorized shares from 10.0 million shares to 40.0 million shares

of common stock as of June 18, 2021.

Accordingly, as of June 30, 2021 the Company is authorized to issue 40.0 million shares of

common stock and 0.4 million shares of preferred stock.

Reverse Stock Split

As discussed in Note 1, the Company effected a

Reverse Stock Split on October 9, 2020.

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.

Equity Distribution Agreement

On December 18, 2020, the Company and Oppenheimer

(the “Agent”) entered into an EDA that provides for an “at the market offering”

for the sale of

up to $50.0 million in shares of the Company’s common stock (the “Placement Shares”) through the Agent.

acting as sales agent and is required to use commercially reasonable efforts to sell all of the Placement Shares requested to be sold

by the Company, consistent with the Agent’s normal trading and sales practices, on mutually agreed terms between the Agent and the

The EDA will terminate when all of the Placement Shares have been sold, or earlier upon the election of either the Company or

The Company has no obligation to sell any of the

Placement Shares under the EDA.

The Company intends to use the net proceeds, if any, from Placement Shares sold under the EDA for general

corporate purposes, including working capital.

Under the terms of the EDA, the Company agreed to pay the Agent a commission equal to 3.0%

of the gross sales price of the Placement Shares plus certain expenses incurred by the Agent in connection with the offering.

June 30, 2021, no shares were sold pursuant to the EDA and no commissions were incurred.

As of June 30, 2021, deferred offering costs

incurred by the Company amounted to an aggregate of $0.2 million that is included under the caption deferred offering costs and other

in the accompanying consolidated balance sheet.

Fiscal 2021 Equity 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 Equity

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 Equity Financing, the financial advisors were entitled to additional transaction fees equal to 6.0% of

the gross proceeds.

As of June 30, 2021, the advisory agreements were no longer active.

REZOLUTE, INC.

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

Conversion Value

Fiscal 2018 Note holders

Notes to Consolidated Financial Statements

On October 9, 2020, the Company completed the

Fiscal 2021 Equity 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 are exercisable

at $19.50 per share for a period of seven years, may be exercised on a cash or cashless basis at the election of the holders, and holders

are entitled to share in any dividends or distributions payable to holders of common stock on an as-converted basis (the “Participating

Warrants”).

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 amounted to approximately $1.1 million.

After deducting

the financial advisory fees and other offering costs, the estimated net proceeds amounted to approximately $37.4 million.

the terms of the Fiscal 2021 Equity Financing, the Company executed the Reverse Stock Split of fifty shares into one share as discussed

in Note 1 and agreed to enable trading of its common stock on the Nasdaq Capital Market, whereby the Company’s listing application

was approved by Nasdaq on November 3, 2020.

The Company also 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.

The Company successfully registered the Units on November 27,

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

In connection with a Series AA Preferred Stock

financing in January 2019, the Company granted call options to Handok, Inc.

and Genexine, Inc.

(collectively, “H&G”) whereby

upon the earlier of (i) December 31, 2020 and (ii) such date that the Company requested H&G to provide additional financing, each

investor was entitled to purchase up to $10.0 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.

to Consolidated Financial Statements

On June 19, 2019, the Company entered into a financial

advisory agreement to undertake a private placement (the “Fiscal 2020 Private Placement”) of (i) the shares of common stock

issuable under the H&G call options for a total of $20.0 million, plus (ii) up to $10.0 million of equity or equity equivalent securities

to be issued to other investors.

On July 23, 2019, the Company entered into purchase agreements 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.

In addition, 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 the Fiscal 2020 Private Placement.

The total advisory fees and other

offering costs amounted to approximately $1.5 million, resulting in net proceeds of $22.6 million for the year ended June 30, 2020.

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

In connection with the Fiscal 2020 Private Placement,

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 related to 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 were no restrictions on cash balances as of June 30, 2020.

REZOLUTE, INC.

Notes to Consolidated

Financial Statements

Compensation and Warrants

Stock Option Plans

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):

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 as of June 30, 2021

(in thousands):

Number of Shares

February 2020

REZOLUTE, INC.

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:

The Company currently has one active stock option

plan, the 2021 Equity Incentive Plan (the “2021 Equity Plan”).

On March 31, 2021, the Company’s Board of Directors adopted

the 2021 Equity Plan that will terminate on March 31, 2030.

On May 26, 2021, the 2021 Equity plan was approved by the Company’s

shareholders with authority to issue up to 1.2 million shares of common stock.

Pursuant to the 2021 Equity Plan, no awards may be granted

under the four legacy stock option plans shown in the table above, but all outstanding awards previously granted under those plans shall

remain outstanding and subject to the terms of the respective plans.

Stock options outstanding under these plans expire pursuant to their

contractual provisions on various dates through 2031.

June 2021 Grants

On June 14, 2021, the Board of Directors granted

stock options for an aggregate of approximately 0.7 million shares of common stock to certain officers, employees and independent directors

at an exercise price of $12.28 per share (the “June 2021 Grants”).

Stock options for an aggregate of approximately 0.5 million

shares were granted to the Company’s chief executive officer, independent directors and employees with less than one year of service

that provide for vesting of 1/36th of the total award each month commencing on July 1, 2021, and stock options for approximately 0.2 million

shares granted to employees with more than one year of service that provided for vesting of 25% of the award on grant date with the remainder

of the award vesting for approximately 2.1% the total award each month until full vesting occurs.

The aggregate fair value of the June

2021 Grants was $7.3 million, of which $0.6 million was recognized in June 2021 and the remaining $6.7 million will be recognized over

the respective vesting periods.

Stock Option Cancellations

Certain outstanding stock options held by officers

and other employees of the Company were either subject to restrictive vesting terms (requiring a sustained increase in market price to

$29.00 per share before vesting commenced) or that had relatively high exercise prices ranging from $50.00 to $103.00 per share.

29, 2021, three officers of the Company voluntarily surrendered their awards for approximately 0.3 million shares for no consideration.

The previously unrecognized compensation cost for these awards amounted to approximately $0.7 million that was charged to expense on the

date of cancellation.

Hybrid Options

In July 2019, the Company granted employee stock

options for approximately 0.2 million shares that commence vesting upon the achievement of market, performance and service conditions

(“Hybrid Options”).

The Hybrid Options will become exercisable when 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.

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.

Total unrecognized compensation cost, net of forfeitures, for the Hybrid

Options amounted to approximately $1.9 million as of November 3, 2020 when the performance condition to obtain a listing on a national

stock exchange was achieved.

Prior to this date, no compensation cost had been recognized for the Hybrid Options since it was not considered

probable that the performance condition would be achieved.

Upon achievement of the performance condition, the Company recognized compensation

cost of approximately $0.5 million for the period from the grant date through November 3, 2020.

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:

Notes to Consolidated

Financial Statements

Stock Options Outstanding

The following table sets forth a summary of the

combined stock option activity under all of the Company’s stock option plans for the fiscal years ended June 30, 2021 and 2020

(shares in thousands):

Outstanding, beginning of fiscal year

Stock options granted:

Awards with time-based vesting

Awards with performance-based vesting

Stock options cancelled:

Awards with time-based vesting

Awards with performance-based vesting

Stock options forfeited:

Awards with time-based vesting

Awards with performance-based vesting

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.

For the fiscal year ended June 30, 2021, the

aggregate fair value of stock options granted for approximately 0.7 million shares of common stock that provide solely for time-based

vesting, amounted to $7.5 million or approximately $10.47 per share as of the grant dates.

For the fiscal year ended June 30, 2020, the

aggregate fair value of stock options granted for approximately 0.5 million 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 fiscal year ended June 30, 2020, the

aggregate fair value of stock options granted for approximately 0.2 million 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.

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 fiscal years

ended June 30, 2021 and 2020, 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

3 unchanged sentences

Dividend yield

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):

REZOLUTE, INC.

Notes to Consolidated

Financial Statements

Share-based compensation expense is included in

compensation and benefits under the following captions in the consolidated statements of operations for the fiscal years ended June 30,

2021 and 2020 (in thousands):

Research and development

General and administrative

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.

Unrecognized share-based compensation expense

for stock options that provide solely for time-based vesting as of June 30, 2021 was approximately $7.9 million.

This amount is expected

to be recognized over a remaining weighted average period of 2.7 years.

As of June 30, 2021, unrecognized compensation of $0.3 million

related to the remaining Hybrid Options is being recognized ratably over a weighted average term of 3.1 years.

The Company has issued warrants to purchase shares

of common stock in conjunction with various debt and equity financings and for services.

As of June 30, 2021 and 2020, all of the warrants

For the fiscal years ended June 30, 2021 and 2020, no warrants were exercised.

Presented below is a summary of grants and

expirations for the fiscal years ended June 30, 2021 and 2020 (shares in thousands):

Outstanding, beginning of fiscal year

Warrants issued

Warrant expirations

Outstanding, 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 option-pricing model.

Since the warrants were immediately vested,

this entire amount is included in consulting and outside services under research and development expenses for the fiscal year ended June 30,

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.

(4) Represents warrants granted in connection with the Fiscal 2021 Equity Financing on October 9, 2020 as

discussed in Note 7.

The warrants are exercisable at $19.50 per share for a period of 7 years and may be exercised on a cash or cashless

basis at the election of the holder.

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.

Notes to Consolidated

Financial Statements

Income Tax Expense

For the fiscal years ended June 30, 2021 and 2020,

2019, no warrants were exercised.

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

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.

federal income tax rate to the pre-tax loss before income

taxes, and total income tax expense recognized in the financial statements is as follows (in thousands):

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

federal income tax rate to the pre-tax loss

before income taxes, and total income tax expense recognized in the financial statements is as follows (in thousands):

Income tax benefit at statutory U.S.

Income tax benefit attributable to U.S.

Impact of reduction in Colorado tax rate

Non-taxable derivative gains

Non-deductible expenses

2 unchanged sentences

Total income tax expense

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.

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):

For the fiscal years ended June 30, 2021 and 2020,

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, 2021 and 2020, 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

Share-based compensation

Start-up and organizational expenses

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- property, equipment

Deferred income tax liability- property, equipment and other

Net deferred income tax assets

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 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.

For the fiscal year ended June 30, 2021, the valuation

allowance increased by $2.6 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.

NOL Carryforwards and Other Matters

The Company files income tax returns in the U.S.

federal jurisdiction and in several states including California, Colorado, and Oregon.

The Company’s federal and state tax returns

for the 2018 fiscal year and forward are subject to examination by taxing authorities.

As of June 30, 2021, the Company has U.S.

NOL carryforwards of approximately $104.4 million, of which approximately $49.8 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.

REZOLUTE, INC.

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.

Notes to Consolidated Financial Statements

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 (“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 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, 2021 and 2020.

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

Please refer to Note 4 for further discussion

of commitments to make milestone payments and to pay royalties under license agreements with Xoma and ActiveSite.

In 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.

been largely shut down by mass quarantines and government mandated stay-in-place orders to halt the spread of the virus.

orders are being lifted gradually, a full recovery of the U.S.

economy may not occur until 2022 or later.

Federal and state governments

Federal and state

governments in the U.S.

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.

The Company intends to pursue all material types of government assistance that it may be entitled to.

For the fiscal year ended June

30, 2021, the Company qualified for employee retention credits from the U.S.

government that resulted in total benefits of

approximately $0.5 million that are included in non-operating income in the accompanying consolidated statement of operations.

assurance can be provided that the Company will qualify and realize any additional benefits from such assistance.

COVID-19 has resulted in an economic environment

that is unfavorable for many businesses to pursue new equity financings.

Accordingly, 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.

In February 2020, the Company announced the initiation

of its Phase 2b trial in Congenital Hyperinsulinism (“HI”).

New site initiation and enrollment resumed during the fiscal quarter

ended December 31, 2020.

However, similar to many other clinical studies conducted by other companies throughout the world, effects of

the pandemic remain uncertain, and no guarantees can be made that future site initiation or enrollment will not be encountered again.

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.

Registration Rights Agreement

In connection with the Purchase Agreement further discussed in Note 15, the Company entered into a Registration

Rights Agreement whereby it agreed to register all the shares issuable under the facility.

The Company filed a prospectus supplement to

meet this obligation.

Employment Agreements

As of June 30, 2021, the Company was subject to

employment agreements with two officers and an employee that provide for aggregate annual base salaries of $0.9 million.

the Company terminates employment of the officers without cause, severance benefits include (i) between six months 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.

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

the severance benefits are paid out.

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 $0.1 million for each of the fiscal years ended June 30, 2021 and 2020.

REZOLUTE, INC.

to Consolidated Financial Statements

Notes to Consolidated Financial Statements

Legal Matters

to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.

June 30, 2021, 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.

Related Party Transactions

Equity Issuances

As discussed in Note 6, on July 23,

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.

Related Party Licensing Agreement

On September 15, 2020, the Company entered into

an exclusive license agreement with Handok, Inc.

(the “Handok License”) for the territory of the Republic of Korea.

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.

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.

Effective July 1, 2019, the Company entered into

a Master Services Agreement (“MSA”) with Handok, Inc.

and Genexine, Inc.

whereby the Company agreed to assist in an evaluation

of their joint venture for a long-acting growth hormone program referred to as GX-H9.

For the fiscal year ended June 30, 2020, the Company

billed an aggregate of $0.2 million under the MSA, including $0.1 million for employee services and $0.1 million for reimbursable expenses.

Amounts received 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 fiscal year ended June 30, 2020.

No amounts were billed under the MSA for the

fiscal year ended June 30, 2021.

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 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, 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):

Property and Equipment

Property and equipment consist of the following as of June 30, 2021

and 2020 (in thousands):

Office furniture and equipment

Less accumulated depreciation

Depreciation expense related to property and equipment

amounted to approximately $13,000 and $11,000 for the fiscal years ended June 30, 2021 and 2020, respectively.

Employee Termination Benefits

In March 2021, the Company entered into a severance

agreement with an officer of the Company that provides for aggregate payments of $0.2 million paid in monthly installments from March

2021 through September 2021.

The severance agreement also resulted in the modification of certain stock options that were permitted to

continue vesting through September 2021, whereby an aggregate of 46,250 stock options exercisable at a weighted average price of $18.17

will now expire in December 2021.

Absent the modification, stock options for an aggregate of 38,750 vested shares would have expired in

June 2021 and stock options for 7,500 never would have vested.

The Company accounted for the modification of the original awards, whereby

compensation cost was remeasured on the date of the modification that resulted in an increase in fair value of the modified awards for

$0.1 million.

Accordingly, an aggregate charge of $0.3 million related to severance costs and the modification of stock options is included

in compensation expense under general and administrative expenses in the accompanying consolidated statements of operations

for the fiscal year ended June 30, 2021.

REZOLUTE, INC.

to Consolidated Financial Statements

Notes to Consolidated Financial Statements

For the fiscal year ended June 30, 2021, activity

affecting the accrued liability for severance benefits is summarized as follows (in thousands):

Accrued severance, beginning of period

Severance expense incurred

Cash payments

Accrued severance, end of period

The liability for accrued severance costs is included

in accrued compensation and benefits in the accompanying consolidated balance sheet as of June 30, 2021.

Net Loss Per Share

Basic net loss per share is computed by dividing

net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period.

For the fiscal

years ended June 30, 2021 and 2020, basic and diluted net loss per share were the same since all common stock equivalents were anti-dilutive.

As of June 30, 2021 and 2020, 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):

Stock options

As discussed in Note 7 under the caption Fiscal

2021 Equity Financing, the Company issued Participating Warrants whereby the holders are entitled to share in any dividends or distributions

payable to holders of common stock on an as-converted basis.

Accordingly, the calculation of basic and diluted EPS requires use of the

two-class method whereby earnings for the reporting period are required to be allocated between the holders of common stock and the Participating

Warrants if the impact is dilutive.

This allocation is required regardless of whether a dividend is declared for any such undistributed

As a result of the Company’s net loss for the fiscal year ended June 30, 2021, the use of the two-class method was not

required since the impact was antidilutive.

NOTE 14 —

1 unchanged sentence

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:

Level 1—Quoted prices

in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

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

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.

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.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

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.

The embedded derivative liabilities discussed

in Note 5 were classified under Level 3 and were required to be measured at fair value on a recurring basis beginning on April 14, 2021.

Fair value was determined based on management’s assessment of the probability and timing of occurrence for the embedded derivatives

using a discounted rate equal to the effective interest rate for the term A loan.

The derivative liability for authorized share

deficiency discussed in Note 6 was also classified under Level 3.

This liability was required to be measured at fair value on a recurring

basis from February 17, 2021 until May 26, 2021 when the deficiency was cured.

Key valuation assumptions are summarized in Note 6.

The following tables set forth a summary of changes

in the fair value of the Company’s derivative liabilities for which fair value was determined by Level 3 inputs (in thousands):

Balance, June 30, 2020

Fair value of derivative liabilities incurred:

Authorized share deficiency on February 17, 2021

Embedded derivatives on April 14, 2021

Changes in fair value of authorized share derivative liability

Fair value of authorized shares derivative liability reclassified to equity on May

Changes in fair value of embedded derivative liability

Balance, June 30, 2021

Due to the relatively short maturity of the respective

instruments, the fair value of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximated their

carrying values as of June 30, 2021 and 2020.

The Company did not have any other assets and liabilities measured at fair value as of June

30, 2021 and 2020.

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, 2021 and 2020, the

Company did not have any transfers of its assets or liabilities between levels of the fair value hierarchy.

Fair Value of Debt

Management believes the interest rate and other

provisions of the Company’s term loan approximates the rate at which the Company could obtain alternative financing.

the carrying amount of the term loan approximated its fair value as of April 14, 2021 and June 30, 2021.

Significant Concentrations

Financial instruments that subject the

Company to concentrations of credit risk consist primarily of cash and cash equivalents.

Financial instruments that subject the Company

to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash.

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

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.

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 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):

For the fiscal years ended June 30, 2021 and 2020, cash deposits exceeded the amount

of federal insurance provided on such deposits.

As of June 30, 2021 and 2020, the Company had cash, and cash equivalents with a single

financial institution with a balance of $41.0 million and $10.0 million, respectively.

The Company has never experienced any losses related

to its investments in cash and cash equivalents.

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:

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

Accumulated deficit

Total stockholders' equity

Total liabilities and stockholders' equity

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.

Notes to Consolidated Financial Statements

Subsequent Events

Equity Issuances

For the period from July

1, 2021 through August 31, 2021, the Company sold 138,388 shares of its common stock pursuant to the EDA discussed in Note 7 for net proceeds

of approximately $1.5 million.

LPC Purchase Agreement

In August 2021, the Company entered into a

purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the "RRA") with LPC, which

provides that the Company may sell to LPC up to $20.0 million of shares (the “Purchase Shares”) of its common stock.

Company concurrently filed a prospectus supplement with the SEC to register the shares issuable under the Purchase Agreement.

aggregate number of shares that the Company can sell to LPC under the Purchase Agreement may not exceed 1,669,620 shares of common

stock, subject to certain exceptions set forth in the Purchase Agreement.

LPC’s initial purchase consisted of 95,708

Purchase Shares at a purchase price of approximately $10.45 per share for a total purchase price of $1.0 million and the Company issued

the commitment shares for 33,799 shares of common stock to LPC as an initial fee for its commitment to purchase shares of our common stock

under the Purchase Agreement.

Subject to the terms of the Purchase Agreement, the Company has the right, in its sole discretion, to present

LPC with a purchase notice (a “Regular Purchase Notice”), directing LPC to purchase up to 25,000 Purchase Shares (a “Regular

Purchase”), which amounts may be increased under certain circumstances.

LPC’s committed obligation under any single Regular

Purchase generally will not exceed $2.0 million.

The Purchase Agreement provides for a purchase price per Purchase Shares for each Regular

Purchase (the “Purchase Price”) equal to the lesser of (i) the lowest sale price of the common stock on the Nasdaq Capital

Market (“NCM”) on the purchase date of such shares;

and (ii) the average of the three lowest closing sale prices for the common

stock traded on the NCM during the ten consecutive business days ending on the business day immediately preceding the purchase date of

In addition, on any date on which the Company

submits a Regular Purchase Notice for the maximum amount allowed for such a Regular Purchase to LPC, the Company also has the right, in

its sole discretion, to present LPC with an accelerated purchase notice (an “Accelerated Purchase Notice”), directing LPC

to purchase an amount of Purchase Shares (an “Accelerated Purchase”), which number of Purchase Shares will not exceed the

lesser of (i) 300% of the number of shares purchased pursuant to such Regular Purchase Notice and (ii) 30% of the total volume

of shares of the common stock traded on the NCM during the Accelerated Purchase period.

The Purchase Price per Purchase Share for each

such Accelerated Purchase will be equal to the lesser of 97% of (i) the volume-weighted average price of the common stock on the NCM during

the applicable Accelerated Purchase period on the applicable Accelerated Purchase date;

and (ii) the closing sale price of the common

stock on the NCM on the applicable Accelerated Purchase date.

Pursuant to the RRA, the Company agreed to maintain

effectiveness of the registration statement and the related prospectus supplement within prescribed deadlines set forth in the RRA.

addition, the Company is required to use its reasonable best efforts to secure and maintain its listing of the Purchase Shares on the

Nasdaq Capital Market.

LPC has no obligation to purchase shares under the Purchase Agreement unless the Company complies with the terms

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