What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-09-14 compared with 2022-09-15 · 299 added, 377 removed, 453 unchanged (60% of the section changed)

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Consolidated balance sheets as of June 30, 2023 and 2022

Consolidated statements of operations for the fiscal years ended June 30, 2022 and 2021

Consolidated statements of operations and comprehensive loss for the fiscal years ended June 30, 2023 and 2022

Consolidated statements of shareholders’ equity for the fiscal years ended June 30, 2023 and 2022

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We have audited the accompanying consolidated balance sheets of Rezolute, Inc.

(the “Company”) as of June 30, 2022 and 2021, the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended June 30, 2022, 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, 2022 and 2021, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

(the “Company”) as of June 30, 2023 and 2022, the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the two-year period ended June 30, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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

Critical Audit Matter Description

As described in Note 7, the Company issued pre-funded warrants (“PFWs”) pursuant to underwritten offerings completed in October 2021 as part of the 2021 Registered Direct Offering (2021 RDO) and May 2022 as part of the 2022 Registered Direct Offering (2022 RDO).

The Company performed an analysis of the pre-funded warrants at each period to ensure the classification of the PFWs is accurate as a liability or equity.

The pre-funded warrants issued in October 2021 and the Class A pre-funded warrants in the May offering were determined to be equity classified.

Due to the share deficiency related to the 2022 RDO for the Class B pre-funded warrants, the Company recognized a derivative liability until the authorized share deficiency was cured on June 16, 2022.

We identified the Company's accounting treatment of these warrants as a critical audit matter.

The principal considerations for our determination include the complex auditor judgement required to evaluate appropriate the classification and disclosure of the warrants and the need to consult outside of the engagement team with one of our accounting technical specialists.

How the Critical Audit Matter Was Addressed in the Audit

The primary procedures we performed to audit this critical audit matter included the following:

● We obtained an understanding of the internal controls over the accounting and disclosure for issuance of contracts in the Company’s equity including warrants issued during the year.

● We reviewed the respective contracts and agreements for identification of all significant rights and obligations relevant to the assessment over proper accounting and disclosure of the warrants in accordance with US GAAP.

● We obtained legal confirmation from the Company’s outside counsel of certain rights and obligations pertaining to the underlying security purchase agreements which were relevant to assessing equity versus liability classification.

● We evaluated management’s application of the accounting guidance for equity versus liability classification to the terms of the warrant agreements, including satisfaction of all key conditions necessary for equity classification.

● We evaluated the conditions necessary to ensure the Company had sufficient authorized shares to cover the issuance of all contracts in the Company’s equity and the presentation associated with the reclassification of liability classified warrants to equity upon satisfying the conditions necessary for equity classification.

● We assessed the adequacy of disclosure of the warrant contracts, including related fair value measurements.

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or 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.

We determined that there are no critical audit matters.

/s/ Plante & Moran, PLLC

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Cash and cash equivalents

Investments in marketable debt securities

Prepaid expenses and other

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Long-term assets:

Investments in marketable debt securities

Right-of-use assets

Deposits and other

Property and equipment, net

Deposits and other

Liabilities and Shareholders' Equity

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Accrued liabilities:

Insurance premiums

Compensation and benefits

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Long term liabilities:

Long term debt, net of discount

Operating lease liabilities, net of current portion

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Common stock, $ 0.001 par value;

100,000 and 40,000 shares authorized as of June 30, 2022, and 2021, respectively;

33,582 and 8,352 shares issued and outstanding as of June 30, 2022 and 2021, respectively

100,000 shares authorized;

issued and outstanding 36,827 and 33,582 shares as of June 30, 2023 and 2022 , respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

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REZOLUTE, INC.

Consolidated Statements of Operations

Consolidated Statements of Operations and Comprehensive Loss

For the Fiscal Years Ended June 30, 2023 and 2022

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Non-operating income (expense):

Gain from change in fair value of derivative liabilities, net

Interest and other income, net

Gain (loss) from change in fair value of derivative liabilities

Employee retention credit

Interest and other income

Underwriting discount on issuance of derivative

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Total non-operating income (expense), net

Other comprehensive loss:

Net unrealized loss on available-for-sale marketable debt securities

Comprehensive loss

Net loss per common share:

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(In Thousands)

Comprehensive

Shareholders'

Balances, June 30, 2021

Issuance of Units for cash Fiscal 2021 Equity Financing

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 cure of authorized share deficiency

Fair value of warrants issued to consultants for services

Issuance of common stock for consulting services

Balances, June 30, 2021

Proceeds from issuance of equity securities for cash in 2022 Registered Direct Offering, net of discounts:

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Balances, June 30, 2022

Gross proceeds from issuance of equity securities for cash in 2022 Private Placement

Underwriting discounts and other equity offering costs

Share-based compensation

Net change in other accumulated comprehensive loss

Balances, June 30, 2023

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

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CASH FLOWS FROM OPERATING ACTIVITIES:

Share-based compensation expense

Non-cash lease expense

Loss from change in fair value of derivative liabilities

Accretion of discounts and amortization of premiums on marketable debt securities, net

Depreciation and amortization expense

Gain from change in fair value of derivative liabilities, net

Underwriting discount on issuance of derivative

Share-based compensation expense

Loss on extinguishment of Loan Agreement:

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Accretion of debt discount and issuance costs

Non-cash lease expense

Depreciation and amortization expense

Fair value of warrants issued for services

Fair value of shares of common stock issued for services

Changes in operating assets and liabilities:

Increase prepaid expenses and other assets

Increase in prepaid expenses and other assets

Increase (decrease) in accounts payable

Increase (decrease) in other accrued liabilities

Decrease in license fees payable to XOMA

Increase in accrued liabilities

Net Cash Used in Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of marketable debt securities

Proceeds from maturities of marketable debt securities

Purchase of property and equipment

Total Cash Used in Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Gross proceeds from issuance of common stock for cash:

2022 Private Placement

2021 Registered direct offering

Under Equity Distribution Agreement

Under LPC Purchase Agreement

Gross proceeds from 2022 Registered Direct Offering, net of underwriting discounts:

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2021 pre-funded warrants

Gross proceeds from issuance of common stock for cash:

2021 Registered Direct Offering

Under Equity Distribution Agreement

Under LPC Purchase Agreement

Gross Proceeds from issuance of Units for cash in Fiscal 2021 Equity Financing

Payment of commissions and other deferred offering costs

Gross proceeds from Loan Agreement

Payment of commissions and other offering costs

Payment of debt discount and issuance costs

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Net Cash Provided by Financing Activities

Net increase in cash, cash equivalents and restricted cash

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

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

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

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

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

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CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Cash and cash equivalents, end of fiscal year

Restricted cash, end of fiscal year

Total cash, cash equivalents and restricted cash, end of fiscal year

Cash and cash equivalents, end of year

Restricted cash, end of year

Total cash, cash equivalents and restricted cash, end of year

SUPPLEMENTARY CASH FLOW INFORMATION:

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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

Operating lease liabilities incurred in exchange for right-of-use assets

NON-CASH INVESTING AND FINANCING ACTIVITIES:

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Payables for deferred offering costs subsequently charged to additional paid-in capital

Reclassification of warrants and stock options from equity to derivative liability due to 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.

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(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 its 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, Merger Sub was renamed “Rezolute, Inc.” and by operation of law succeeded to the Company’s assets, business, and rights and obligations that existed immediately before the Reincorporation Merger.

The Reincorporation Merger Agreement was approved by the Company’s shareholders on May 26, 2021.

Consolidation

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All intercompany balances and transactions have been eliminated in consolidation.

Reverse Stock Split

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.

Shareholders 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.

Basis of Presentation

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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, 2022 and

REZOLUTE, INC.

Notes to Consolidated Financial Statements

2021, the only component of comprehensive loss was the Company’s net loss as the Company has no items constituting any other comprehensive income (loss).

For the fiscal year ended June 30, 2023, components of comprehensive loss included the Company’s net loss and unrealized gains (losses) on investments in marketable debt securities.

For the fiscal year ended June 30, 2022, the only component of comprehensive loss was the Company’s net loss as the Company had no items constituting any other comprehensive income (loss).

The Company’s Chief Executive Officer also serves as the Company’s chief operating decision maker for purposes of allocating resources and assessing performance based on financial information of the Company.

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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 deficiencies, fair value of the embedded derivatives associated with debt financings, fair value of share-based payments and warrants, management’s assessment of going concern, clinical trial accrued liabilities, and estimates of the probability and potential magnitude of contingent liabilities.

The Company’s significant accounting estimates include, but are not necessarily limited to, determination if other than temporary impairment exists for marketable debt securities, the fair value of derivative liabilities, fair value of share-based payments and warrants, management’s assessment of going concern, and clinical trial accrued liabilities.

Actual results could differ from those estimates.

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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.

Cash and cash equivalents

REZOLUTE, INC.

Notes to Consolidated Financial Statements

consist primarily of demand deposits with financial institutions, money market funds and corporate commercial paper purchased with a maturity of three months or less.

Investments in Marketable Debt Securities

Under the investment policy approved by the Company’s Board of Directors, eligible investments in fixed income debt securities must be denominated and payable in U.S.

dollars, including eligible corporate bonds, corporate commercial paper, U.S.

government obligations, and money market funds.

This investment policy only permits investments in the debt securities of issuers that meet stringent credit quality ratings on the date of the investment.

The investment policy also places restrictions on the length of maturities and concentrations by type and issuer.

The Company’s investments are issued by financial institutions that management believes are of high credit quality.

However, they are exposed to credit risk in the event of default by the issuers.

The Company classifies investments in marketable debt securities that mature in less than one year as short-term assets.

For investments that mature in more than one year, the investments are classified as long-term assets unless management intends to liquidate the investments to fund current operations before the scheduled maturity dates.

The Company accounts for its investments in marketable debt securities as available-for-sale securities whereby they are recorded in the consolidated balance sheet at fair value.

Interest income is recognized in the consolidated statement of operations, consisting of accrued interest earned based on the coupon rate of the security, plus the impact of accreting discounts and amortizing premiums to maturity using the straight-line method which approximates the interest method.

Unrealized gains and losses due to subsequent changes in fair value of the investments are reported in shareholders’ equity as a component of accumulated other comprehensive income (loss).

The Company reviews the components of its portfolio of available-for-sale debt securities, using both quantitative and qualitative factors, to determine if declines in fair value below amortized cost have resulted from a credit-related loss or other factors.

If declines in fair value are due to a deterioration of credit quality of the issuer, the Company recognizes (i) a loss in other comprehensive income (loss) if the reduction in fair value is considered temporary, or (ii) a loss in the consolidated statement of operations if the reduction in fair value is considered other than temporary.

For a decline in fair value that is solely due to changes in interest rates, impairment is not recognized if the Company has the ability and intent to hold the investment until maturity.

The cost basis of any securities sold prior to maturity will be determined using the specific identification method.

The Company determines if an arrangement includes a lease as of the date an agreement is entered into.

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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 generally uses its incremental borrowing rate based on the information available at the lease commencement date to determine the present value of future payments.

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

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Debt discounts and issuance costs (“DDIC”) incurred to obtain new debt financings or modify existing debt financings 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.

Deferred Offering Costs

Commissions, legal fees and other costs that are directly associated with equity financings are capitalized as deferred offering costs, pending a determination of the success of the offering.

Deferred offering costs related to successful offerings are charged to additional paid-in capital in the period that the offering is successful.

Deferred offering costs related to unsuccessful equity offerings are recorded as an expense in the period when it is determined that an offering is unsuccessful.

DDIC is presented 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

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

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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

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 reversed.

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

REZOLUTE, INC.

Notes to Consolidated Financial Statements

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

Derivative Liability for Authorized Share Deficiencies

During the fiscal year ended June 30, 2021, the Company did not have an adequate number of authorized shares of common stock to fully settle all outstanding stock options and warrants.

Therefore, the Company did not satisfy the criteria for equity classification for all contracts required to be settled in common stock since the Company could have been required to settle certain contracts in cash to the extent of the deficiency.

In order to determine the specific stock options and warrants that may have been required for 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.

Fair value of the stock options and warrants associated with the deficiency was computed on the date the deficiency arose and on the date when the deficiency was cured, using the BSM option-pricing model.

In May 2021, the Company’s shareholders approved an increase in authorized shares whereby cash settlement was no longer required, and the derivative liability was reclassified to equity.

In May 2022, the Company issued Class B pre-funded warrants that resulted in an authorized share deficiency.

Since the issuance of Class B pre-funded warrants caused the authorized share deficiency, the Company accounted for such warrants as a derivative liability from the issuance date until June 2022 when shareholders approved an increase in authorized shares that resulted in the reclassification of the related derivative liability to equity.

The Class B pre-funded warrants were issued in an underwritten offering at a discount to fair value.

The Company adopted an accounting policy to charge this discount to expense on the issuance date.

Gains or losses that result from accounting for authorized share deficiencies as derivative liabilities are not subsequently reversed upon receipt of shareholder approval.

Embedded Derivatives

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 liability.

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In response to the COVID-19 pandemic, the United States government 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 recognizes the right to receive governmental assistance payments in the period in which all necessary legal requirements 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

REZOLUTE, INC.

Notes to Consolidated Financial Statements

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.

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 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.

The Company recognizes 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.

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Net Loss Per Share

Basic net loss per share is computed by dividing net loss applicable to common shareholders by the weighted average number of outstanding shares of common stock and pre-funded warrants that are accounted for as equity instruments.

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.

Also to the extent dilutive, for periods in which pre-funded warrants are accounted for as derivative liabilities, the calculation of diluted net loss per share is further adjusted to eliminate gains on changes in fair value of such pre-funded warrants and the related pre-funded warrant shares are included in the weighted average number of shares outstanding.

Basic net loss per share is computed by dividing net loss by the weighted average number of outstanding shares of common stock and pre-funded warrants that are accounted for as equity instruments.

Common shares associated with pre-funded warrants are included in the computation of both basic and diluted net loss per share since the exercise price is negligible and all of the pre-funded warrants are fully vested and exercisable.

To the extent dilutive, during periods in which pre-funded warrants are accounted for as derivative liabilities, the calculation of diluted net loss per share is further adjusted to eliminate gains on changes in the fair value of such pre-funded warrants, net of related discounts upon issuance, and the related pre-funded warrant shares are included in the weighted average number of shares outstanding

Diluted net loss per share is computed using the treasury stock method by further giving effect to all potential shares of common stock, including stock options and warrants, to the extent dilutive.

For participating warrants that are entitled to participate in dividend to holders of shares of common stock, the Company applies the two-class method of allocating earnings if the impact is dilutive for the calculation of both basic and diluted net loss per share.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Recent Accounting Pronouncements

Recently Adopted Accounting Standard.

The following accounting standard was adopted in the fiscal year ended June 30, 2023:

In August 2020, 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.

The Company adopted this standard using the full retrospective transition method effective July 1, 2022.

The adoption did not have any impact on the Company’s consolidated financial statements.

Standards Required to be Adopted in Future Years.

The following accounting standards are not yet effective;

management has not completed its full and comprehensive evaluation to determine the impact that adoption of these standards may have on the Company’s consolidated financial statements.

The following accounting standard is not yet effective but will be adopted effective on July 1, 2023:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

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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.

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

In August 2020, 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).

REZOLUTE, INC.

Notes to Consolidated Financial Statements

intends to adopt this standard effective July 1, 2022.

ASU 2016-13 will be implemented during the fiscal quarter ending September 30, 2023 and will impact the Company’s evaluation of impairment of investments in marketable debt securities.

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

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For the fiscal year ended June 30, 2023, the Company incurred a net loss of $ 51.8 million and net cash used in operating activities amounted to $ 44.5 million.

As of June 30, 2022, the Company had an accumulated deficit of $ 209.2 million, cash and cash equivalents of $ 150.4 million, and total current liabilities of $ 2.5 million.

As of June 30, 2023, the Company had an accumulated deficit of $ 261.0 million, and the Company’s capital resources consisted of cash and cash equivalents of $ 16.0 million, short-term investments in marketable debt securities of $ 85.9 million and long-term investments in marketable debt securities of $ 16.5 million.

As of June 30, 2023, the Company had total liabilities of $ 7.5 million, including total current liabilities of $ 5.2 million.

As discussed in Note 5, the Company is subject to license agreements that provide for future contractual payments upon achievement of various milestone events.

Pursuant to the ActiveSite License Agreement, a $ 3.0 million milestone payment will be due upon dosing of the first patient in a Phase 2 clinical trial for RZ402.

Additionally, pursuant to the XOMA License Agreement (as defined below), a $ 5.0 million milestone payment will be due upon dosing of the first patient in a Phase 3 clinical trial for RZ358.

After underwriting discounts of $ 7.1 million, the Company received proceeds of approximately $ 110.5 million upon closing of a registered direct offering on May 4, 2022.

This amount consists of $ 39.1 million related to the issuance of 10.9 million Class B pre-funded warrants where exercise was subject to shareholder approval of an increase in the Company’s authorized shares, for which approval was received in June 2022, and the remainder of $ 71.4 million related to unrestricted issuances of equity securities.

As discussed in Note 15, in July 2022 the Company received gross proceeds of approximately $ 12.3 million related to a private placement of approximately 3.2 million shares of common stock.

Management believes the Company’s cash and cash equivalents balance of $ 150.4 million as of June 30, 2022, and additional proceeds received in July 2022 from the private placement, will be adequate to carry out currently planned activities through September 2023, at a minimum.

Pursuant to the XOMA License Agreement (as defined below), a $ 5.0 million milestone payment will be due upon dosing of the first patient in a Phase 3 clinical trial for RZ358.

First patient dosing milestone for the RZ358 Phase 3 clinical trial is expected to occur within the next 12 months.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Management believes the Company’s cash and cash equivalents and investments in marketable securities will be adequate to meet the Company’s contractual obligations and carry out ongoing clinical trials and other planned activities through September 2024, at a minimum.

NOTE 3 — INVESTMENTS IN MARKETABLE DEBT SECURITIES

The estimated fair value of investments in marketable debt securities are classified as follows in the consolidated balance sheet as of June 30, 2023 (in thousands):

Short-term investments

Long-term investments

Total investments

The Company only invests in liquid, high quality debt securities.

However, all of these investments are subject to interest rate and credit risk that may result in fluctuations in the fair value of the investments.

To minimize the exposure due to an adverse shift in interest rates, the Company generally invests in securities with expected maturities of two years or less and maintains a weighted average maturity of one year or less.

As of June 30, 2023 investments in marketable debt securities with a fair value of $ 85.9 million are scheduled to mature during the 12-month period ending June 30, 2024 and substantially all of the remaining investments with a fair value of $ 16.5 million, are scheduled to mature during the 12-month period ending June 30, 2025.

During the fiscal year ended June 30, 2023, no securities classified as available-for-sale were sold and the only redemptions occurred were as a result of the maturity of the respective investments.

During the fiscal year ended June 30, 2022, the Company did not have any investments in marketable debt securities.

Accrued interest receivable on all marketable debt securities amounted to $ 0.3 million which is included in other current assets in the accompanying consolidated balance sheet as of June 30, 2023.

The following table summarizes the unrealized gains and losses that result in differences between the amortized cost basis and fair value of the Company’s marketable debt securities held as of June 30, 2023 (in thousands):

Gross Unrealized

Amortized Cost

Corporate commercial paper

Obligations of U.S.

government agencies

Treasury obligations

Corporate notes and bonds

Asset-backed securities

Available-for-sale investments

NOTE 4 — LEASES

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.

The lease 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.

In April 2022, the Company entered into a lease agreement for a new corporate headquarters in Redwood City, California.

The space consists of approximately 9,300 square feet and provides for total base rent payments of approximately $ 2.9 million through the expected expiration of the lease in November 2027.

Prior to occupancy, the landlord was required to make improvements to the facility that were completed in October 2022, triggering the commencement of the lease.

The lease provided for a six-month rent abatement period beginning upon commencement of the lease term.

In addition, the lease provided an allowance of approximately $ 0.1 million that was utilized by the Company for the purchase of furniture and equipment.

The average base rent payable in cash over the 60-month lease term is approximately $ 48,000 per month.

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Notes to Consolidated Financial Statements

As of June 30, 2022 and 2021, the carrying value of all ROU assets and operating lease liabilities was as follows (in thousands):

Right-of-use assets, net

Upon commencement of the lease, the Company recognized a right-of-use asset for approximately $ 2.3 million, and a related operating lease liability for approximately $ 2.2 million.

As of June 30, 2023 and 2022, the carrying values of all of the Company’s right-of-use assets and operating lease liabilities were as follows (in thousands):

Right-of-use assets

Operating lease liabilities:

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As of June 30, 2023, the weighted-average remaining lease term under operating leases was 4.3 years, and the weighted-average discount rate used to determine the operating lease liabilities was 6.8 %.

For the fiscal year ended June 30, 2022, cash paid for amounts included in the measurement of operating lease liabilities amounted to $ 0.3 million, which is included in the determination of net cash used in operating activities in the consolidated statement of cash flows.

Future Lease Payments

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Present value of operating lease liabilities

Headquarters Lease

In April 2022, the Company entered into a lease agreement for a new corporate headquarters in Redwood City, California.

The space consists of approximately 9,300 square feet and provides for total base rent payments of approximately $ 2.9 million through the expected expiration of the lease in September 2027.

The landlord is required to make improvements to the facility before it is suitable for occupancy by the Company.

The Company anticipates the improvements will be completed in the first quarter of the fiscal year ended June 30, 2023, triggering the commencement of the lease.

The lease provides for a six-month rent abatement period beginning upon commencement of the lease term which is expected to occur in September 2022.

In addition, the lease provides an allowance of approximately $ 0.1 million that may be utilized by the Company for the purchase of furniture and equipment.

The average base rent payable in cash over the 60-month lease term is approximately $ 48,000 per month.

Upon commencement of the lease, the Company expects to recognize a right-of-use asset and a related operating lease liability for approximately $ 2.3 million.

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Notes to Consolidated Financial Statements

Assuming the lease commences in September 2022, future payments under this operating lease agreement are as follows (in thousands):

Fiscal year ending June 30,

Total lease payments

NOTE 5 —LICENSE AGREEMENTS

XOMA License Agreement

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

In January 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.

In December 2017, the Company entered into a license agreement (“XOMA License Agreement”) with XOMA Corporation (“XOMA”), through its wholly-owned subsidiary, XOMA (U.S.) 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.

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Notes to Consolidated Financial Statements

In January 2022, the Company was required to make a milestone payment under the XOMA License Agreement of $ 2.0 million that became due upon the dosing of the last patient in the Company’s ongoing Phase 2b Clinical Trial for RZ358.

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After the clinical and regulatory milestones, the Company will be required, upon the future commercialization of RZ358, to pay royalties to XOMA based on the net sales of the related products and additional milestone payments to XOMA up to $ 185.0 million related to annual net sales amounts.

There have been no events that would result in any royalty payments owed under the XOMA License Agreement to date.

The next milestone payment of $ 5.0 million will be due upon dosing of the first patient in a Phase 3 clinical trial for RZ358.

ActiveSite License Agreement

On August 4, 2017, the Company entered into a Development and License Agreement (the “ActiveSite License Agreement”) with ActiveSite Pharmaceuticals, Inc.

In August 2017, the Company entered into a Development and License Agreement (the “ActiveSite License Agreement”) with ActiveSite Pharmaceuticals, Inc.

(“ActiveSite”) pursuant to which the Company acquired the rights to ActiveSite’s Plasma Kallikrein Inhibitor program (“PKI Portfolio”).

The Company is initially using the PKI Portfolio to develop an oral PKI therapeutic for diabetic macular edema (RZ402) and may use the PKI Portfolio to develop other therapeutics for different indications.

The ActiveSite Development and License Agreement requires various milestone payments up to $ 46.5 million if all milestone payments are achieved.

The first milestone payment for $ 1.0 million was paid in December 2020 after clearance was received for an Initial Drug Application, or IND, filed with the US Food and Drug Administration (“FDA”).

The next milestone payment of $ 3.0 million will be due upon dosing of the first patient in a Phase 2 clinical trial for RZ402.

The ActiveSite Development and License Agreement requires various milestone payments up to $ 46.5 million if all milestone events are achieved.

The first milestone payment for $ 1.0 million was paid in December 2020 after clearance was received for an Initial Drug Application, or IND, filed with the U.S.

Food and Drug Administration (“FDA”).

The second milestone payment of $ 3.0 million was paid in February 2023 after dosing of the first patient in a Phase 2 clinical trial for RZ402.

The next milestone payment of $ 5.0 million will be due upon the first dosing of a patient in a Phase 3 clinical trial.

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

There have been no events that would result in any royalty payments owed under the ActiveSite License Agreement to date.

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Notes to Consolidated Financial Statements

NOTE 5 — LOAN AND SECURITY AGREEMENT

NOTE 6 — EMBEDDED DERIVATIVE LIABILITY

On April 14, 2021, the Company entered into a $ 30.0 million Loan and Security Agreement (the “Loan Agreement”) with SLR Investment Corp.

(“SLR”) and certain other lenders (collectively, the “Lenders”).

The Lenders agreed to loan up to $ 30.0 million consisting of (i) a $ 15.0 million term A loan that was funded on April 14, 2021, and (ii) term B and term C loans for an aggregate of $ 15.0 million, which were subject to the Company’s ability to obtain prescribed amounts of financing and achieve certain clinical milestones.

The Company did not achieve the initial clinical milestones by January 2022 and the term B and term C loans were no longer a potential source of liquidity.

The maturity date of the term A loan was April 1, 2026 (the “Maturity Date”).

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 was required beginning on December 31, 2021.

In the event of a default under the Loan Agreement, the BACA would have enabled the Lenders to prevent the release of funds from the Company’s cash accounts and accordingly the Company accounted for the BACA as a restricted cash account.

Outstanding borrowings provided for 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 February 28, 2022, the IEBA rate for a term of one month was approximately 0.12 % per annum.

For the period from March 1, 2022 through June 30, 2022, the IEBA rate for a term of one month was approximately 0.23 % per annum.

Therefore, the contractual rate was 8.98 % and 8.87 % as of June 30, 2022 and 2021, respectively.

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

The Company was obligated to pay the Lenders (i) a non-refundable facility fee in the amount of 1.00 % of each term loan (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.

The Final Fee was 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 was accreted to interest expense using the effective interest method which resulted in an overall current effective interest rate of 12.6 %.

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.

The Lenders agreed to loan up to $ 30.0 million but the actual amount borrowed by the Company amounted to $ 15.0 million.

The maturity date of the outstanding borrowings was April 1, 2026 (the “Maturity Date”), but the Company elected to repay the entire amount and terminated the Loan Agreement on June 30, 2022.

Accordingly, the Company paid a total of $ 16.0 million consisting of the outstanding principal of $ 15.0 million, the Final Fee of $ 0.7 million and the prepayment fee of $ 0.3 million.

As of June 30, 2022, a loss on extinguishment of the Loan Agreement of $ 1.8 million was recognized for the unaccreted discount of $ 1.5 million and the 2.00 % prepayment penalty of $ 0.3 million.

Concurrently with the execution of the Loan Agreement, the Company entered into an exit fee agreement (the “Exit Fee Agreement”) that provides for a fee of 4.00 % of the funded principal balance for a total of $ 0.6 million in the event certain transactions (defined as “Exit Events”) occur prior to April 13, 2031.

The Exit Fee was not impacted by termination of the Loan Agreement discussed above.

The Company is accounting for the Exit Fee Agreement as an embedded derivative liability with an estimated fair value of $ 0.4 million as of June 30, 2023 and 2022.

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 all embedded derivatives related to the Loan Agreement for approximately $ 381,000 .

Fair value of the Exit Events derivative was determined based on the Company’s strategic corporate development plans by considering 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 embedded derivatives 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, 2022 and 2021, there was a change in fair value of approximately $ 20,000 and $ 6,000 recorded as a non-operating loss on change in fair value of embedded derivatives.

As of June 30, 2022, the Company was permitted to prepay the outstanding principal balance of the term loan by incurring a prepayment fee of 2.00 % of the outstanding principal balance.

On June 30, 2022, the Company exercised its option to prepay the outstanding principal of the term A loan and terminate the Loan Agreement.

Accordingly, the Company paid a total of $ 16.0 million consisting of the outstanding principal of $ 15.0 million, the Final Fee of $ 0.7 million and the prepayment fee of $ 0.3 million.

As of June 30, 2022, a loss on

NOTE 7 — DERIVATIVE LIABILITY FOR AUTHORIZED SHARE DEFICIENCIES

As discussed in Note 8, the Company completed an underwritten offering in May 2022 that resulted in the issuance of 10,947,371 Class B pre-funded warrants (“Class B PFWs”) for gross proceeds of approximately $ 41.6 million or $ 3.80 per share.

Exercisability of the Class B PFWs was subject to the Company’s ability to obtain shareholder approval for an

REZOLUTE, INC.

Notes to Consolidated Financial Statements

extinguishment of the Loan Agreement of $ 1.8 million was recognized for the unaccreted discount of $ 1.5 million and the 2.00 % prepayment penalty of $ 0.3 million.

The Company’s obligations under the Loan Agreement were secured by a first-priority security interest in substantially all of the Company’s assets, including its intellectual property.

This security interest was released on June 30, 2022, upon termination of the Loan Agreement.

The Exit Fee Agreement discussed above was not impacted by the termination of the Loan Agreement.

NOTE 6 — DERIVATIVE LIABILITIES FOR AUTHORIZED SHARE DEFICIENCIES

Deficiency Triggered by Issuance of Class B Pre-Funded Warrants

As discussed in Note 7, the Company issued pre-funded warrants (“PFWs”) pursuant to underwritten offerings completed in October 2021 and May 2022.

Exercisability of 10,947,371 Class B PFWs for net proceeds of approximately $ 39.1 million received in May 2022 was subject to the Company’s ability to obtain shareholder approval for an increase in authorized shares.

increase in authorized shares.

Since the ability to obtain shareholder approval was outside the Company’s control, liability classification was required beginning on the date of issuance of the Class B PFWs on May 4, 2022.

The fair value of the Class B PFWs on the date of issuance was equal to the amount paid by investors of approximately $ 41.6 million or $ 3.80 per share, which was accounted for as a derivative liability beginning on May 4, 2022.

The fair value of approximately $ 41.6 million related to the Class B PFWs on the date of issuance was accounted for as a derivative liability beginning on May 4, 2022.

As discussed in Note 8, the Company’s shareholders approved an increase in authorized shares from 40.0 million shares to 100.0 million shares on June 16, 2022.

Upon receipt of shareholder approval for the authorized share increase on June 16, 2022, fair value of the derivative liability had decreased to $ 35.0 million or $ 3.20 per share, which resulted in a gain of $ 6.6 million.

This gain is included in non-operating income and the liability of $ 35.0 million was reclassified into shareholders’ equity on June 16, 2022.

Underwriter discounts of approximately $ 2.5 million related to the Class B PFWs were expensed at the date of issuance.

Upon receipt of shareholder approval for the authorized share increase, fair value of the derivative liability had decreased to $ 35.0 million or $ 3.20 per share, which resulted in a gain of $ 6.6 million.

This gain is included in non-operating income and the derivative liability of $ 35.0 million was reclassified into shareholders’ equity on June 16, 2022.

Underwriter discounts of approximately $ 2.5 million related to the Class B PFWs were expensed on the date of issuance since the fair value of the Class B PFWs exceeded the net proceeds received by the Company.

Fair value of the Class B PFWs was determined using the BSM option-pricing model with the following assumptions as of June 16, 2022:

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Historical volatility

Deficiency Triggered by Charter Revision

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 on February 17, 2021.

At the time 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 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 17, 2021.

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

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Notes to Consolidated Financial Statements

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

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 gain from the change in fair value of approximately $ 1.8 million in the accompanying consolidated statements of operations for the fiscal year ended June 30, 2021.

This gain is included in non-operating income and the liability of $ 1.8 million was reclassified into shareholders’ equity on May 26, 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.

Fair 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

Market price of common stock

Exercise price

Risk-free interest rate

Dividend rate

Remaining contractual term (years)

Historical volatility

NOTE 8 — SHAREHOLDERS’ EQUITY

Changes in Authorized Capital Stock

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 stock.

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 was authorized to issue 40.0 million shares of common stock and 0.4 million shares of preferred stock.

On June 16, 2022, the Company’s shareholders approved an increase of authorized shares from 40.0 million shares to 100.0 million shares of common stock.

Accordingly, as of June 30, 2022, the Company was authorized to issue 100.0 million shares of common stock and 0.4 million shares of preferred stock.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Reverse Stock Split

As discussed in Note 1, the Company effected a Reverse Stock Split on October 9, 2020.

Accordingly, as of June 30, 2023 and 2022, the Company was authorized to issue 100.0 million shares of common stock and 0.4 million shares of preferred stock.

May 2022 Registered Direct Offering

On May 1, 2022, the Company entered into (i) an underwriting agreement with Jefferies LLC, as representative of the underwriters listed therein, relating to the issuance and sale of equity securities in an underwritten registered direct offering (the “2022 RDO”), and (ii) a placement agency agreement with Jefferies LLC, that provides for a private placement of equity securities (the “Private Placement”).

The 2022 RDO resulted in the issuance of (i) approximately 18.0 million shares of the Company’s common stock, at a public offering price of $ 3.80 per share, (ii) Class A pre-funded warrants (the “Class A PFWs”) to purchase up to approximately 2.0 million shares of common stock at a public offering price of $ 3.799 per Class A PFW and (iii) Class B pre-funded warrants (the “Class B PFWs”) to purchase up to 10.9 million shares of common stock at a public offering price of $ 3.799 per Class B PFW.

On May 1, 2022, the Company entered into (i) an underwriting agreement with Jefferies LLC, as representative of the underwriters listed therein, relating to the issuance and sale of equity securities in an underwritten registered direct offering (the “2022 RDO”), and (ii) a placement agency agreement with Jefferies LLC, that provided for a private placement of equity securities (the “2022 Private Placement”).

The 2022 RDO resulted in the issuance of (i) approximately 18.0 million shares of the Company’s common stock, at a public offering price of $ 3.80 per share, (ii) Class A pre-funded warrants (the “Class A PFWs”) to purchase up to approximately 2.0 million shares of common stock at a public offering price of $ 3.799 per Class A PFW and (iii) Class B PFWs to purchase up to 10.9 million shares of common stock at a public offering price of $ 3.799 per Class B PFW.

The gross amount of the 2022 RDO was $ 117.6 million, before deducting an aggregate of $ 7.1 million incurred for underwriting discounts and approximately $ 0.4 million for professional fees and other offering expenses payable by the Company.

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In connection with the 2022 RDO, certain of the Company’s officers and directors agreed not to sell or otherwise dispose of any common stock held by them through July 30, 2022.

2022 Private Placement

Pursuant to the 2022 Private Placement, the Company entered into a securities purchase agreement (“SPA”) on May 4, 2022 with Handok, Inc.

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Contingent upon satisfaction of certain closing conditions set forth in the SPA, the Company agreed to sell to the Purchasers 3.2 million shares of common stock at a price of $ 3.80 per share.

As discussed in Note 15, the closing of the Private Placement occurred in July 2022 and resulted in the receipt of net cash proceeds of approximately $ 11.6 million.

In July 2022 the Company entered into amended SPAs for the 2022 Private Placement resulting in gross proceeds of approximately $ 12.3 million in exchange for approximately 3.2 million shares of common stock.

The Company incurred

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Notes to Consolidated Financial Statements

approximately $ 0.8 million for underwriting commissions and other offering costs resulting in net proceeds of $ 11.6 million.

2022 Pre-Funded Warrants

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The Class B PFWs became exercisable for shares of common stock upon receipt of shareholder approval for an increase in the number of authorized shares of common stock as discussed below under the caption Required Shareholder Approval .

As of June 30, 2022, no shares underlying the 2022 PFWs have been exercised.

As of June 30, 2023, none of the 2022 PFWs have been exercised.

Required Shareholder Approval

The closing of the 2022 RDO resulted in the issuance of the approximately 18.0 million shares of common stock and Class A PFWs for approximately 2.0 million shares.

After these issuances, the Company had utilized the entire 40.0 million of authorized shares of common stock that were available under its corporate charter, consisting of issued shares and shares of common stock reserved for issuance under stock option plans and outstanding warrants discussed in Note 7.

Accordingly, the Company did not have a sufficient number of shares of common stock available to permit exercise of

REZOLUTE, INC.

Notes to Consolidated Financial Statements

any of the Class B PFWs.

Therefore, the Class B PFWs were exercisable for shares of common stock to the extent that shareholders subsequently approved an increase in the number of authorized shares (the “Shareholder Approval”), which the Company was required to use its best efforts to obtain at an annual meeting of shareholders to be held by June 30, 2022.

The closing of the 2022 RDO resulted in the issuance of approximately 18.0 million shares of common stock and Class A PFWs exercisable for approximately 2.0 million shares.

Accordingly, the Company did not have a sufficient number of shares of common stock available to permit exercise of any of the Class B PFWs.

Accordingly, the Class B PFWs were only exercisable for shares of common stock to the extent that shareholders subsequently approved an increase in the number of authorized shares (the “Shareholder Approval”), which the Company was required to use its best efforts to obtain at an annual meeting of shareholders to be held by June 30, 2022.

As noted under the caption Changes in Authorized Capital Stock the Company obtained shareholder approval for an increase of authorized shares on June 16, 2022.

As of June 30, 2022, the 10.9 million Class B PFWs issued were exercisable and no shares underlying the Class B PFWs have been exercised.

The Company accounted for the gross proceeds of $ 41.6 million received from the issuance of the Class B PFWs as derivative liabilities whereby future changes in the fair value of the derivative liabilities would result in gains or losses until such time that Shareholder Approval was obtained.

As discussed in Note 6, upon receipt of shareholder approval for an increase in authorized shares to 100.0 million shares, the Company reclassified the derivative liability to shareholders’ equity.

As of June 30, 2023, the 10.9 million Class B PFWs issued were fully exercisable and no shares underlying the Class B PFWs had been exercised.

Upon closing of the 2022 RDO on May 4, 2022, the Company accounted for the gross proceeds of $ 41.6 million received from the issuance of the Class B PFWs as a derivative liability.

As a result of subsequent reductions in the fair value of this derivative liability, the Company recognized a gain of $ 6.6 million through June 16, 2022 when Shareholder Approval was obtained.

Upon receipt of Shareholder Approval for the increase in authorized shares to 100.0 million shares, the Company reclassified the related Class B PFW derivative liability of $ 35.0 million to shareholders’ equity.

Registration Rights Agreement

In connection with the offer of the Class B PFWs, the Company entered into registration rights agreements with the purchasers.

Pursuant to the registration rights agreements, the Company was required to file a registration statement with the SEC to register for resale the shares issuable upon exercise of the Class B PFWs, within two days of receipt of Shareholder Approval, and to have such registration statement declared effective by July 5, 2022 in the event the registration statement was not reviewed by the SEC.

The Company would be obligated to pay certain liquidated damages to the purchasers if the Company (i) failed to file the registration statement when required, (ii) failed to cause the registration statement to be declared effective by the SEC when required, and (iii) if the Company to fails to maintain the effectiveness of the registration statement.

On June 17, 2022, the Company filed the initial registration statement with the SEC to register the shares issuable upon exercise of the Class B PFWs, which was within 2 days of the Company’s shareholder meeting held on June 16, 2022.

Subsequently on July 1, 2022, the registration was declared effective by the SEC.

As required by the registration rights agreements, the Company filed a registration statement in June 2022 that was declared effective on July 1, 2022 to register the shares issuable upon exercise of the Class B PFWs.

If the Company fails to comply with the registration rights agreement, it will be obligated to pay 2.0 % of the purchase price of the Class B PFWs for an aggregate of approximately $ 0.8 million as liquidated damages.

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2021 Underwritten Public Offering

On October 12, 2021, the Company entered into an underwriting agreement with Oppenheimer & Co., Inc., as representative of the underwriters listed therein (the “2021 Underwriters”) for the planned issuance and sale of equity securities in an underwritten public offering (the “2021 Underwritten Offering”).

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Notes to Consolidated Financial Statements

securities in an underwritten public offering (the “2021 Underwritten Offering”).

On October 15, 2021, closing occurred for the Underwritten Offering resulting in the issuance of (i) 6,030,847 shares of common stock at $ 6.50 per share for gross proceeds of $ 39.2 million, and (ii) 1,661,461 pre-funded warrants to purchase 1,661,461 shares of common stock at an issuance price of $ 6.49 per warrant (the “2021 PFWs”) for gross proceeds of $ 10.8 million.

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In November 2021, the Underwriters’ Option was partially exercised for 116,266 shares resulting in gross proceeds of approximately $ 0.8 million.

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Notes to Consolidated Financial Statements

2021 Pre-Funded Warrants

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Upon at least 61 days ’ prior notice to the Company, any warrant holder may elect to increase or decrease the Maximum Ownership Percentage to any other percentage not to exceed 19.99 %.

As of June 30, 2022, no shares underlying the 2021 PFWs have been exercised.

Through June 30, 2023, no shares underlying the 2021 PFWs have been exercised.

2021 Registered Direct Offering

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The closing for the 2021 RDO occurred on October 27, 2021, whereby the Company received gross proceeds of $ 5.0 million.

Equity Distribution Agreement

In December 2020, the Company and Oppenheimer & Co.

(the “Agent”) entered into an Equity Distribution Agreement (“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.

The Agent was acting as sales agent and was required to use commercially reasonable efforts to sell all of the Placement Shares requested to be sold by the Company, consistent with the Agent’s normal trading and sales practices, on mutually agreed terms between the Agent and the Company.

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.

For the year ended June 30, 2022, the Company sold 138,388 shares of its common stock pursuant to the EDA for net proceeds of approximately $ 1.5 million.

The EDA was scheduled to terminate when all of the Placement Shares had been sold, or earlier upon the election of either the Company or the Agent.

The Company provided the Agent with notice of termination in May 2022 and no further shares will be issued under the EDA.

LPC Purchase Agreement

In August 2021, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “RRA”) with Lincoln Park Capital Fund, LLC (“LPC”), which provided that the Company could sell to LPC up to an aggregate of $ 20.0 million shares (the “Purchase Shares”) of its common stock.

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

The aggregate number of shares that the Company could sell to LPC under the Purchase Agreement was 1,669,620 shares of common stock, subject to certain exceptions set forth in the Purchase Agreement.

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Notes to Consolidated Financial Statements

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.

Concurrently, the Company issued 33,799 shares of common stock to LPC as an initial fee for its commitment to purchase shares of common stock under the Purchase Agreement.

Subject to the terms of the Purchase Agreement, the Company had 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”).

LPC’s committed obligation under any single Regular Purchase generally could not exceed $ 2.0 million.

The Purchase Agreement provided for a purchase price per share 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 such shares.

On September 17, 2021, the Company submitted a Regular Purchase Notice, resulting in the sale of 20,000 Purchase Shares to LPC for net proceeds of approximately $ 0.2 million.

The Company provided LPC with notice of termination of the Purchase Agreement in May 2022 and no further shares are issuable under this agreement.

Pursuant to the RRA, the Company agreed to use its reasonable best efforts to maintain effectiveness of the registration statement and the related prospectus supplement within prescribed deadlines set forth in the RRA.

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

LPC had no obligation to purchase shares under the Purchase Agreement unless the Company complies with the terms of the RRA.

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.

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.

Pursuant to 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 NCM, whereby the Company’s listing application was approved by Nasdaq on November 3, 2020.

The Company also entered into a registration rights agreement, 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, 2020.

Termination of EDA and Purchase Agreement

The Company entered an Equity Distribution Agreement (“EDA”) with Oppenheimer & Co.

(“Oppenheimer”) in December 2020 and a purchase agreement (“Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”) in August 2021.

The Company sold 138,388 shares of its common stock pursuant to the EDA for net proceeds of approximately $ 1.5 million.

From August 2021 through September 2021, LPC purchased 115,708 shares of common stock for gross proceeds of approximately $ 1.2 million.

Concurrently, the Company issued 33,799 shares of common stock to LPC as an initial fee for its commitment to purchase shares under the Purchase Agreement.

In May 2022, the Company provided notices to Oppenheimer and LPC whereby the EDA and the Purchase Agreement were terminated.

As a result of these termination notices, no further equity securities are issuable under either agreement.

REZOLUTE, INC.

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On June 16, 2022, the Company’s shareholders approved the adoption of the 2022 Employee Stock Purchase Plan (the “2022 ESPP”).

The 2022 ESPP provides an opportunity for employees to purchase the Company’s common stock through accumulated payroll deductions.

The 2022 ESPP has consecutive offering periods that begin approximately every 6 months commencing on the first trading day on or after July 1 and terminating on the last trading day of the offering period ending on December 31 and commencing on the first trading day on or after January 1 and terminating on the last trading day of the offering period ending on June 30.

The 2022 ESPP reserves 0.5 million shares for purchases.

The first offering period began on July 1, 2022.

June 2022 Grants

On June 23, 2022, the Board of Directors granted stock options for an aggregate of approximately 7.0 million shares of common stock to certain officers, employees and independent directors at an exercise price of $ 3.40 per share (the “June 2022 Grants”).

Stock options were granted for an aggregate of approximately (i) 0.4 million shares were granted to independent directors and consultants, (ii) stock options for approximately 3.3 million shares granted to officers of the Company and (iii) 3.2 million shares granted to employees.

Vesting of these granted stock options generally occurs over a period between three and four years .

The aggregate fair value of the grants in June 2022 was $ 18.3 million, of which $ 0.1 million was recognized in June 2022 and the remaining $ 18.2 million will be recognized over the respective vesting periods.

The 2022 ESPP provides an opportunity for employees to purchase shares of the Company’s common stock through accumulated payroll deductions.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

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.

On June 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.

The 2022 ESPP reserves 0.5 million shares for purchases.

There have been no offering periods under the 2022 ESPP through June 30, 2023.

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, 2022 and 2021 (shares in thousands):

The following table sets forth a summary of the combined activity under all of the Company’s stock option plans for the fiscal years ended June 30, 2023 and 2022 (shares in thousands):

Outstanding, beginning of fiscal year

Directors and officers

Grants to employees

Outstanding, end of fiscal year

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For the fiscal year ended June 30, 2023, the aggregate fair value of stock options granted for approximately 0.7 million shares of common stock amounted to $ 1.1 million or approximately $ 1.53 per share as of the grant dates.

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 amounted to $ 7.5 million or approximately $ 10.47 per share as of the grant date.

For the fiscal year ended June 30, 2022, the aggregate fair value of stock options granted for approximately 7.4 million shares of common stock amounted to $ 20.1 million or approximately $ 2.72 per share as of the grant dates.

Fair value was computed using the BSM option-pricing model and will result in the recognition of compensation cost ratably over the expected vesting period of the stock options.

The fair value of stock options was estimated on the date of grant using the BSM option-pricing model, with the following weighted-average assumptions for the fiscal years ended June 30, 2022 and 2021:

The fair value of stock options was estimated on the dates of grant using the BSM option-pricing model, with the following weighted-average assumptions for the fiscal years ended June 30, 2023 and 2022:

Market price of common stock on grant date

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Dividend yield

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Share-based compensation expense is included in under the following captions in the consolidated statements of operations for the fiscal years ended June 30, 2022 and 2021 (in thousands):

Share-based compensation expense is included under the following captions in the consolidated statements of operations for the fiscal years ended June 30, 2023 and 2022 (in thousands):

Research and development

General and administrative

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Unrecognized share-based compensation expense for stock options that provide solely for time-based vesting as of June 30, 2023 was approximately $ 16.9 million.

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As of June 30, 2023, unrecognized compensation of $ 0.1 million related to the remaining Hybrid Options is being recognized ratably over a weighted average period of 1.1 years.

Pre-Funded Warrants

In connection with the 2021 RDO discussed in Note 8, the Company issued 2021 PFWs to purchase 1,661,461 shares of common stock at an issuance price of $ 6.49 per warrant for gross proceeds of $ 10.8 million.

The 2021 PFWs may be exercised at any time by paying the exercise price of $ 0.01 per share, subject to the terms discussed in Note 8.

Additionally, in connection with the 2022 RDO discussed in Note 7, the Company issued 1,973,684 Class A PFWs and 10,947,371 Class B PFWs to purchase an aggregate of 12,921,055 shares of common stock at an issuance price of $ 3.799 per warrant.

In connection with the 2022 RDO discussed in Note 8, the Company issued 1,973,684 Class A PFWs and 10,947,371 Class B PFWs to purchase an aggregate of 12,921,055 shares of common stock at an issuance price of $ 3.799 per warrant.

As of June 30, 2023 all of the Class A PFWs and Class B PFWs may be exercised at any time by paying the exercise price of $ 0.001 per share, subject to the terms discussed in Note 8.

The Company has issued warrants to purchase shares of common stock in conjunction with other debt and equity financings and for services.

Other Warrants

In connection with an equity financing in October 2020, the Company issued warrants entitling the holders to purchase approximately 0.8 million shares of common stock.

Additionally, the Company has issued warrants to purchase shares of common stock in conjunction with other debt and equity financings and for services.

As of June 30, 2023 and 2022, all of the warrants were vested.

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Outstanding, beginning of fiscal year

Warrants granted

Warrant expirations

Outstanding, fiscal year

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 expire.

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

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.

Notes to Consolidated Financial Statements

NOTE 10 — INCOME TAXES

Net Operating Loss Carryforwards

The Company files income tax returns in the US federal jurisdiction and in several states including California, Colorado, and Oregon.

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 2020 fiscal year and forward are subject to examination by taxing authorities.

As of June 30, 2022, the Company has U.S.

federal net operating loss (“NOL”) carryforwards of approximately $ 145.1 million, of which approximately $ 90.4 million does not expire and $ 54.7 million will begin to expire in 2031 through 2038.

Additionally, the Company has Colorado and California NOL carryforwards that begin to expire in 2031.

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”).

Federal and state laws impose substantial restrictions on the utilization of federal net operation loss (“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 is limited in the event that a cumulative change in ownership of more than 50% occurs within a three-year period.

The Company recently completed an IRC Section 382 analysis and concluded that $ 33.4 million of NOL carryforwards that begin to expire in 2031 will expire without any opportunity for utilization.

Accordingly, after giving effect to the limitations under IRC Section 382, the Company has US Federal NOL carryforwards available for utilization of $ 111.7 million as of June 30, 2022.

These NOL carryforwards consist of $ 21.3 million that will begin to expire in 2031 and $ 90.4 million that does not expire.

Assuming that further IRC Section 382 ownership changes do not occur, these NOL carryforwards consist of approximately (i) $ 6.8 million that is not subject to any limitations or expiration dates, and (ii) $ 104.9 million that is subject to limitations whereby amounts ranging from $ 1.2 million to $ 4.1 million cumulatively becomes available for unrestricted use in future years.

During the fiscal year ended June 30, 2022, the Company completed an IRC Section 382 analysis and concluded that the Company’s NOL carryforwards are subject to limitations as a result of past ownership changes.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

As of June 30, 2023, the Company has U.S.

federal net operating loss (“NOL”) carryforwards of approximately $ 153.2 million, of which approximately $ 33.4 million of NOL carryforwards will never be available for use due to the limitations under IRC section 382 discussed above.

The remainder of the Company’s NOL carryforwards of $ 119.8 million consists of (i) $ 17.1 million that never expires and is currently available to offset taxable income, (ii) $ 7.9 million that is currently available to offset taxable income but if not utilized expires in 2031 through 2035, (iii) $ 13.4 million that become available through fiscal year 2038 and that expires by June 30, 2038 if not utilized, and (iv) $ 81.4 million that never expires.

With respect to the $ 81.4 million of NOL carryforwards that never expire, this amount will become available in varying annual amounts for an aggregate approximately $ 15.6 million through fiscal year 2038 and $ 1.2 million annually thereafter.

If the Company experiences future ownership changes that meet the aforementioned criteria under Section 382, further limitations will be imposed on the use of all NOL carryforwards existing through the date of such change.

The Company also has Colorado and California NOL carryforwards that begin to expire in 2031 and are expected to be subject to similar limitations as those imposed under IRC Section 382.

Income Tax Expense

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Total income tax expense

For the fiscal years ended June 30, 2022 and 2021, the Company did not recognize any current income tax expense or benefit due to a full valuation allowance on its deferred income tax assets.

For the fiscal years ended June 30, 2023 and 2022, the Company did not recognize any current income tax expense or benefit due to a full valuation allowance on its net deferred income tax assets.

REZOLUTE, INC.

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Net operating loss carryforwards

Research and experimental costs

Intangible assets

Share-based compensation

Start-up and organizational expenses

Operating lease liabilities

Accrued expenses and other

Property and equipment

Total deferred income tax assets

Valuation allowance for deferred income tax assets

Deferred income tax assets, net of valuation allowance

Deferred income tax liability right-of-use assets

Net deferred income tax assets

For the fiscal year ended June 30, 2022, the valuation allowance increased by $ 12.3 million, primarily as a result of the increase in net operating losses.

For the fiscal year ended June 30, 2023, the valuation allowance increased by $ 12.5 million, primarily as a result of the increase in net operating losses and capitalization of research and experimental costs that was required beginning in the fiscal year ended June 30, 2023.

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.

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Employment Agreements

As of June 30, 2022, the Company was subject to employment agreements with two officers and an employee that provide for aggregate annual base salaries of $ 1.3 million.

In the event 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.

As of June 30, 2023, the Company was subject to employment agreements with two officers of the Company and one employee of the Company that provide for aggregate annual base salaries of $ 1.4 million.

The agreements with the Chief Executive Officer and Chief Medical Officer provides that if either of individuals is terminated outside of a change in control event and without cause, (i) all of their stock options that are subject to ongoing vesting conditions over subsequent periods ranging from 12 to 18 months will immediately vest, and (ii) such stock options will remain exercisable for periods ranging from 6 to 12 months following the occurrence of the termination event.

In addition, if either or both of the executive officers are terminated solely due to a change of control event, all of their

REZOLUTE, INC.

Notes to Consolidated Financial Statements

respective unvested stock options will immediately vest and all outstanding stock options will remain exercisable for periods ranging from 6 to 12 months following the occurrence of the termination event.

The amendment to the Chief Medical Officer’s employment agreement provides that upon the occurrence of a termination event other than a change of control, the Company is required to (i) make severance payments equal to 12 months of salary, a pro-rata bonus, and health insurance coverage for 12 months following the termination date, and (ii) all unvested stock options subject to vest over the subsequent 12 month period after the termination event will become immediately exercisable and all outstanding stock options will remain exercisable for 6 months following the termination event.

In addition, upon the occurrence of a termination solely due to a change of control event, the Company is required to (i) make severance payments equal to 18 months of salary, a pro-rata bonus, and health insurance coverage for 18 months following the termination event.

The Company has a defined contribution employee benefit plan under section 401(k) of the Internal Revenue Code (the “401(k) Plan”).

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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)

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Plan amounted to approximately $ 0.2 million and $ 0.1 million for the fiscal years ended June 30, 2022 and 2021, respectively.

Total contributions by the Company to the 401(k) Plan amounted to approximately $ 0.3 million and $ 0.2 million for the fiscal years ended June 30, 2023 and 2022, respectively.

Legal Matters

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Investors in Registered Direct Offerings

In connection with the 2021 Underwritten Offering discussed in Note 7, a group of affiliated investors purchased approximately (i) 1,930,000 shares of common stock at $ 6.50 per share for a total of $ 12.5 million, and (ii) 123,000 2021 PFWs at $ 6.49 each for a total of $ 0.8 million.

In connection with the 2021 Underwritten Offering discussed in Note 8, a group of affiliated investors purchased approximately (i) 1,930,000 shares of common stock at $ 6.50 per share for a total of $ 12.5 million, and (ii) 2021 PFWs exercisable for the purchase of 123,000 shares at $ 6.49 per 2021 PFW for a total issuance price of $ 0.8 million.

In connection with the 2022 RDO discussed in Note 8, certain officers and directors of the Company purchased 111,840 shares of common stock at $ 3.80 per share for a total of $ 0.4 million.

In addition, the group of affiliated investors discussed above purchased (i) 3,421,052 shares of common stock at $ 3.80 per share for a total of $ 12.2 million, and (ii) 3,421,053 Class B PFWs at $ 3.799 each for a total of $ 12.2 million.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Investors in 2022 Private Placement

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

NOTE 13 - SUPPLEMENTAL FINANCIAL INFORMATION

Cash and cash equivalents

Cash and cash equivalents consist of the following as of June 30, 2023 and 2022 (in thousands):

Demand deposits at a single financial institution

Money market funds

Commercial paper

The money market funds and commercial paper included in the table above were purchased with an original maturity of three months or less.

These investments and the demand deposits are freely available for the Company’s immediate and general business use.

Property and Equipment

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Less accumulated depreciation

Depreciation expense related to property and equipment amounted to approximately $ 13,000 for each of the fiscal years ended June 30, 2022 and 2021.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Depreciation expense related to property and equipment amounted to approximately $ 30,000 and $ 13,000 for the fiscal years ended June 30, 2023 and 2022, respectively.

NOTE 14 — NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted average number of outstanding shares of common stock and pre-funded warrants that are accounted for as equity instruments.

For the calculation of diluted net loss per share, if the impact of accounting for pre-funded warrants as derivative liabilities is dilutive, the numerator is adjusted to eliminate gains on changes in fair value of such pre-funded warrants, and the denominator is adjusted to include the related pre-funded warrant shares.

The calculation of the weighted average number of shares outstanding for purposes of diluted net loss per share is also required to include the dilutive effect, if any, of stock options, warrants, and other common stock equivalents computed using the treasury stock method.

For the fiscal years ended June 30, 2022 and 2021, all of such common stock equivalents were antidilutive and exclude from the calculations.

For the calculation of diluted net loss per share for the fiscal year ended June 30, 2022, since the impact of accounting for the pre-funded warrants as derivative liabilities was dilutive, the numerator was adjusted to eliminate gains on changes in fair value of such pre-funded warrants, and the denominator was adjusted to include the related pre-funded warrant shares.

Calculation of the weighted average number of shares outstanding for purposes of diluted net loss per share is also required to include the dilutive effect, if any, of stock options, warrants, and other common stock equivalents computed using the treasury stock method.

For the fiscal years ended June 30, 2023 and 2022, all of such common stock equivalents were

REZOLUTE, INC.

Notes to Consolidated Financial Statements

antidilutive and exclude from the calculations.

In addition, the impact of applying the two-class method related to the Participating Warrants, was antidilutive for the calculation of both basic and diluted net loss per share.

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(4) Represents the weighted average number of shares related to the Class B PFWs discussed in Note 8 for the period when they became equity-classified on June 16, 2022 through June 30, 2022.

(5) Represents the weighted average number of shares related to the Class B PFWs discussed in Note 7 during the period when they were liability-classified from the issuance date on May 4, 2022 through June 15, 2022.

(6) Represents the number of PFWs that were outstanding for the entirety of the fiscal year ended June 30, 2023.

REZOLUTE, INC.

Notes to Consolidated Financial Statements

As of June 30, 2023 and 2022, the following potential common stock equivalents were excluded from the calculation of diluted net loss per share since the impact of inclusion was anti-dilutive (in thousands):

Stock options

Other warrants

NOTE 15 — FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS

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Level 3—Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any market activity for the asset or liability at the measurement date.

The following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the fair value hierarchy classification of such fair values as of June 30, 2023.

Fair Value Measurement of Assets as of June 30, 2023

Cash and cash equivalents:

Money market funds

Corporate commercial paper

Marketable debt securities:

Corporate commercial paper

Government agencies

Government treasuries

Corporate notes and bonds

Asset-backed securities

REZOLUTE, INC.

Notes to Consolidated Financial Statements

Marketable debt securities classified as Level 2 within the valuation hierarchy generally consist of U.S.

government agency securities, corporate bonds, and commercial paper.

The Company determines the fair value of marketable debt securities based upon valuations obtained from third-party pricing sources.

Except for the amounts shown in the table above, the Company did not have any other assets measured at fair value on a recurring basis as of June 30, 2023.

As of June 30, 2022, the Company did not have any assets required to be measured at fair value on a recurring basis.

The derivative liabilities for the authorized share deficiencies discussed in Note 7 were classified under Level 3.

These liabilities were required to be measured at fair value on a recurring basis from February 17, 2021 until May 26, 2021 for the first deficiency and from May 4, 2022 until June 16, 2022 for the second deficiency.

These liabilities were required to be measured at fair value on a recurring basis from May 4, 2022 until June 16, 2022.

Key valuation assumptions are summarized in Note 7.

The embedded derivative liabilities discussed in Note 6 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

REZOLUTE, INC.

Notes to Consolidated Financial Statements

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.

Fair value is determined using a discounted rate equal to the effective interest rate under the Loan Agreement and based on management’s assessment of the probability that an Exit Event will occur prior to April 13, 2031.

The following table sets forth a summary of changes in the fair value of embedded derivative liabilities for which fair value was determined by Level 3 inputs for the fiscal years ended June 30, 2023 and 2022 (in thousands):

Fair value, beginning of fiscal year

Fair value of embedded derivatives upon execution of Loan Agreement

Loss from change in fair value

Fair value, end of fiscal year

Fair value, beginning of period

Loss from change in fair value, net

Fair value, end of period

Except for embedded derivative liabilities, the Company did not have any other liabilities measured at fair value on a recurring basis as of June 30, 2023 and 2022.

Due to the relatively short maturity of the respective instruments, the fair value of cash and cash equivalents, accounts payable, and accrued liabilities approximated their carrying values as of June 30, 2023 and 2022.

The Company did not have any other assets and liabilities measured at fair value as of June 30, 2022 and 2021.

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, 2023 and 2022, 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 approximated the rate at which the Company could obtain alternative financing.

Therefore, the carrying amount of the term loan was approximated at its fair value as of June 30, 2021.

Significant Concentrations

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, cash equivalents and restricted cash at high-quality financial institutions.

For the fiscal years ended June 30, 2022 and 2021, cash deposits exceeded the amount of federal insurance provided on such deposits.

As of June 30, 2022 and 2021, substantially all of the Company’s cash and cash equivalents was invested with a single financial institution.

The Company has never experienced any losses related to its investments in cash and cash equivalents.

NOTE 15 — SUBSEQUENT EVENTS

July 2022 Financing

In July 2022, the company entered into amended securities purchase agreements with Handok and certain of its affiliates.

Upon amendment of the securities and purchase agreement, the Company received gross proceeds of $ 12.3 million in exchange of the issuance of approximately 3.2 million shares of our common stock.

The Company incurred approximately $ 0.8 million for underwriting commissions and other offering costs, resulting in net proceeds of $ 11.6 million.

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and investments in marketable debt securities.

The Company maintains its cash in demand accounts at a high-quality financial institution.

As of and for the fiscal years ended June 30, 2023 and 2022, cash deposits have exceeded the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation (“FDIC”).

As of June 30, 2023, the Company has an aggregate of $ 54.0 million invested in marketable debt securities of issuers in the banking and financial services industries, and an aggregate of $ 26.5 million invested in marketable debt securities of a single agency of the U.S.

While the Company’s investment policy requires investments in highly rated securities, a wide variety of broad economic factors and issuer-specific factors could result in credit agency downgrades below the Company’s minimum credit rating requirements that could result in losses regardless of whether the Company elects to sell the securities or hold them until maturity.

On March 10, 2023, Silicon Valley Bank (“SVB”) was shut down, followed on March 11, 2023 by Signature Bank and on May 1, 2023 by First Republic Bank whereby the FDIC was appointed as receiver for each of those banks.

Starting in January 2023, SVB Asset Management (“SAM”), a nonbank affiliate of SVB and a member of SVB Financial Group,

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Notes to Consolidated Financial Statements

provided investment services relating to the Company’s investment in marketable debt securities held in a segregated custodial account maintained by a third-party custodian, U.S.

At the time of the closing of SVB, the Company had approximately $ 20.5 million in cash and certain cash equivalents in an Overnight Money Market Mutual Fund (“MMF”), for which SAM served as the investment advisor until April 13, 2023, when the MMF was liquidated and transferred to a similar investment under the control of a new investment advisor.

The Company’s investment portfolio did not and currently does not contain any securities of SVB, and the Company did not have any deposit accounts with SVB.

The Company does not believe it was or will be impacted by the closure of SVB and will continue to monitor the banking industry situation as it evolves.

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