UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-39683

REZOLUTE, INC.

(Exact Name of Registrant as Specified in its Charter)


Nevada		27-3440894
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


201 Redwood Shores Parkway, Suite 315, Redwood City, California		94065
(Address of principal executive offices)		(Zip Code)

(650) 206-4507

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		RZLT		Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.). ☒ Yes ☐ No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, and an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☒	Smaller reporting company ☒

	Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 17(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes ☒ No

The registrant had 33,582,831 shares of its $0.001 par value common stock outstanding as of May 6, 2022.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Rezolute, Inc.

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)


	March 31,		June 30,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	63,416	$	41,047
Prepaid expenses and other		915		946
Total current assets		64,331		41,993

Long-term assets:
Restricted cash		5,000		—
Right-of-use assets, net		175		396
Deferred offering costs and other		48		191
Property and equipment, net		19		29
Total assets	$	69,573	$	42,609

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	1,557	$	1,035
Accrued liabilities:
Insurance premiums		—		242
Compensation and benefits		450		77
Other		764		349
Current portion of operating lease liabilities		107		265
Total current liabilities		2,878		1,968

Long term liabilities:
Long term debt, net of discount		14,286		13,968
Operating lease liabilities, net of current portion		107		187
Embedded derivative liabilities		395		387
Total liabilities		17,666		16,510

Commitments and contingencies (Notes 4 and 8)

Shareholders' equity:
Preferred Stock, $0.001 par value; 400 shares authorized; no shares issued and outstanding		—		—
Common Stock, $0.001 par value, 40,000 shares authorized; 15,556 and 8,352 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively		16		8
Additional paid-in capital		251,666		194,229
Accumulated deficit		(199,775)		(168,138)
Total shareholders’ equity		51,907		26,099
Total liabilities and shareholders’ equity	$	69,573	$	42,609

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

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Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Operating expenses:
Research and development	$	8,686	$	3,758	$	23,912	$	10,598
General and administrative		2,068		1,725		6,632		5,660
Total operating expenses		10,754		5,483		30,544		16,258
Operating loss		(10,754)		(5,483)		(30,544)		(16,258)
Non-operating income (expense):
Interest expense		(442)		—		(1,329)		—
Gain (loss) from change in fair value of derivative liabilities		(12)		1,784		(8)		1,784
Employee retention credit		—		—		231		—
Interest and other income		—		4		13		62
Total non-operating income (expense), net		(454)		1,788		(1,093)		1,846
Net loss	$	(11,208)	$	(3,695)	$	(31,637)	$	(14,412)
Net loss per common share - basic and diluted	$	(0.65)	$	(0.44)	$	(2.30)	$	(1.94)
Weighted average number of common shares outstanding - basic and diluted		17,218		8,352		13,748		7,445

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

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Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Shareholders’ Equity

Nine Months Ended March 31, 2022 and 2021

(In thousands)


				Additional				Total
	Common Stock			Paid-in		Accumulated		Shareholders'
	Shares	Amount		Capital		Deficit		Equity
Nine Months Ended March 31, 2022:
Balances, June 30, 2021	8,352	$	8	$	194,229	$	(168,138)	$	26,099
Gross proceeds from issuance of equity securities for cash in Underwritten Public Offering:
Common Stock	6,147		6		39,950		—		39,956
2021 pre-funded warrants	—		—		10,783		—		10,783
Gross proceeds from issuance of common stock for cash:
In 2021 registered direct offering	769		1		4,999		—		5,000
Under Equity Distribution Agreement	138		1		1,518		—		1,519
Under LPC Purchase Agreement	116		—		1,172		—		1,172
Underwriting discounts and other equity offering costs	—		—		(4,136)		—		(4,136)
Share-based compensation	—		—		2,701		—		2,701
Commitment shares issued under LPC Purchase Agreement	34		—		450		—		450
Net loss	—		—		—		(31,637)		(31,637)
Balances, March 31, 2022	15,556	$	16	$	251,666	$	(199,775)	$	51,907

Nine Months Ended March 31, 2021:
Balances, June 30, 2020	5,867	$	6	$	154,595	$	(147,236)	$	7,365
Share-based compensation	—		—		2,305		—		2,305
Fair value of warrants issued to consultants for services	—		—		8		—		8
Issuance of common stock for cash	2,485		2		40,998		—		41,000
Advisory fees and other offering costs related to issuance of Units	—		—		(3,550)		—		(3,550)
Issuance of common stock for services	—		—		7		—		7
Reclassification of derivative liability for authorized share deficiency	—		—		(3,591)		—		(3,591)
Net loss	—		—		—		(14,412)		(14,412)
Balances, March 31, 2021	8,352	$	8	$	190,772	$	(161,648)	$	29,132

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

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Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended
	March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(31,637)	$	(14,412)
Share-based compensation expense		2,701		2,305
Accretion of debt discount and issuance costs		319		—
Non-cash lease expense		221		214
Depreciation and amortization expense		10		10
Loss (gain) from change in fair value of derivative liabilities		8		(1,784)
Fair value of warrants issued for services		—		8
Fair value of shares of common stock issued for services		—		7
Changes in operating assets and liabilities:
Decrease in prepaid expenses and other assets		17		376
Increase (decrease) in accounts payable		548		(81)
Increase (decrease) in other accrued liabilities		307		(45)
Decrease in license fees payable to Xoma		—		(1,809)
Net Cash Used in Operating Activities		(27,506)		(15,211)

CASH FLOWS FROM INVESTING ACTIVITIES		—		—

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 2021 Underwritten Public Offering		50,738		—
Proceeds from 2021 Registered Direct Offering		5,000		—
Proceeds from issuance of Units		—		41,000
Payment of commissions and other deferred offering costs		(3,449)		(3,680)
Payment for debt discount and issuance costs		(104)		(75)
Proceeds from issuances of common stock		2,690		—
Net Cash Provided by Financing Activities		54,875		37,245

Net increase in cash, cash equivalents and restricted cash	$	27,369	$	22,034
Cash, cash equivalents and restricted cash at beginning of period		41,047		9,955
Cash, cash equivalents and restricted cash at end of period	$	68,416	$	31,989

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents, end of period		63,416		31,989
Restricted cash, end of period		5,000		—
Total cash, cash equivalents and restricted cash, end of period	$	68,416	$	31,989

SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid for interest	$	1,011	$	—
Cash paid for income taxes		—		—
Right-of-use assets acquired in exchange for operating lease liabilities		—		302
Cash paid for amounts included in the measurement of operating lease liabilities		254		275

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of commitment shares for deferred offering costs subsequently charged to additional paid-in capital	$	450	$	—
Reclassification of warrants and stock options from equity to derivative liability due to authorized share deficiency		—		3,591
Increase in payables for debt issuance costs		—		16
Furniture and equipment received as inducement under operating lease		—		10

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

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Use of Estimates

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

Risks and Uncertainties

The Company’s operations may be subject to significant risks and uncertainties including financial, operational, regulatory and other risks associated with a clinical stage company, including the potential risk of business failure, and the future impact of COVID-19 as discussed in Note 8.

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1 to the financial statements in Item 8 of the 2021 Form 10-K.

Recent Accounting Pronouncements

Standard Required to be Adopted in Future Periods. The following accounting standards are not yet effective; management has not completed its evaluation to determine the impact that adoption of this standard will have on the Company’s consolidated financial statements.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This update adds an impairment model (known as the current expected credit losses model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses. In November 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 ASU 2016-13 will have a material impact on its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, which results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Additionally, ASU 2020-06 affects the diluted earnings per share calculation for instruments that may be settled in cash or shares and for convertible instruments and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. ASU 2020-06 allows entities to use a modified or full retrospective transition method and is effective for smaller reporting companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company plans to early adopt this standard using the full retrospective transition method effective July 1, 2022. The Company does not expect the impact of adoption will have a material effect on the Company’s financial statements.

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

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 — LIQUIDITY

The Company is in the clinical stage and has not yet generated any revenues. For the nine months ended March 31, 2022, the Company incurred a net loss of $31.6 million and net cash used in operating activities amounted to $27.5 million. For the fiscal year ended June 30, 2021, the Company incurred a net loss of $20.9 million and net cash used in operating activities amounted to $20.4 million. As of March 31, 2022, the Company had an accumulated deficit of $199.8 million, unrestricted cash and cash equivalents of $63.4 million, and total current liabilities of $2.9 million.

As discussed in Note 4, 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 (as defined below), 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.

As discussed in Note 6, in October and November 2021 the Company completed an underwritten public offering for net proceeds of $47.3 million and a registered direct offering for net proceeds of $5.0 million, resulting in aggregate net proceeds of approximately $52.3 million. In addition, for the nine months ended March 31, 2022, the Company received net proceeds of approximately $2.7 million from equity issuances under the Equity Distribution Agreement and the LPC Purchase Agreement discussed in Note 6.

As discussed in Note 13, the Company received gross proceeds of approximately $117.6 million upon closing of a registered direct offering on May 4, 2022. This amount consists of $41.6 million related to the issuance of 10.9 million Class B pre-funded warrants where exercise is subject to shareholder approval of an increase in our authorized shares, and the remainder relates to unrestricted issuances of equity securities. Underwriting discounts and commissions amounted to $7.1 million related to the registered direct offering. In addition, the Company entered into a securities purchase agreement on May 1, 2022, to sell Class C pre-funded warrants exercisable for 3.3 million shares whereby exercisability is also subject to shareholder approval and which is expected to result in net proceeds of $11.4 million upon closing of the securities purchase agreement. Management expects shareholders will approve the necessary increase in authorized shares to eliminate the restrictions on the Class B and Class C pre-funded warrants. However, no assurance can be provided that such approval will be obtained.

Management believes the Company’s cash and cash equivalents balance of $63.4 million as of March 31, 2022, combined with the unrestricted net proceeds received from the registered direct offering in May 2022 will be adequate to meet the Company’s contractual obligations and carry out ongoing clinical trials and other planned activities at least through May 2023.

NOTE 3 — OPERATING LEASES

The carrying value of right-of-use assets and operating lease liabilities are as follows (in thousands):


	March 31,		June 30,
	2022		2021
Right-of-use assets, net	$	175	$	396

Operating lease liabilities:
Current	$	107	$	265
Long-term		107		187
Total	$	214	$	452

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the three and nine months ended March 31, 2022 and 2021, operating lease expense was as follows (in thousands):


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Research and development	$	66	$	75	$	216	$	185
General and administrative		32		28		75		83
Total	$	98	$	103	$	291	$	268

As of March 31, 2022, the weighted average remaining lease term under operating leases was 1.9 years, and the weighted average discount rate for operating lease liabilities was 6.0%. Future payments under all operating lease agreements as of March 31, 2022 are as follows (in thousands):


Fiscal year ending June 30,
Remainder of fiscal year 2022	$	29
2023		117
2024		79
Total lease payments		225
Less imputed interest		(11)
Present value of operating lease liabilities	$	214

As discussed in Note 13, the Company entered into a new lease agreement in April 2022 that provides for total cash payments of approximately $2.9 million over the 60-month lease term. These payments are excluded from the table set forth above.

NOTE 4 — LICENSE AGREEMENTS

Xoma License Agreement

In December 2017, the Company entered into a license agreement (the “Xoma License Agreement”) with XOMA Corporation (“Xoma”), through its wholly-owned subsidiary, XOMA (US) LLC, pursuant to which Xoma granted an exclusive global license to the Company to develop and commercialize Xoma 358 (formerly X358, now RZ358) for all indications. In January 2019, the Xoma 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 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. Upon the achievement of certain clinical and regulatory events under the License Agreement, the Company will be required to make up to $32.0 million in aggregate milestone payments to Xoma. 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. (“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. 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 next milestone payment of $3.0 million will be due upon dosing of the first patient in a Phase 2 clinical trial for RZ402.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 5 — LOAN AND SECURITY AGREEMENT

On April 14, 2021, the Company entered into a $30.0 million Loan and Security Agreement (the “Loan Agreement”) with SLR Investment Corp. and certain other lenders (the “Lenders”). The Lenders agreed to loan up to $30.0 million in three tranches consisting of (i) a $15.0 million term A loan that was funded on April 14, 2021, (ii) term B and C loans for an aggregate of $15.0 million, which were subject to the Company’s ability to obtain prescribed amounts of financing and the achievement of certain clinical milestones. The Company did not achieve the initial clinical milestones by January 2022 and, accordingly, the term B and term C loans are no longer a source of liquidity. The term A loan has a maturity date of 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. Accordingly, the Company has classified $5.0 million as a long-term restricted cash asset in the accompanying unaudited condensed consolidated balance sheet as of March 31, 2022. In the event of a default under the Loan Agreement, the BACA would enable the Lenders to prevent the release of funds from the Company’s cash accounts.

Outstanding borrowings under the Loan Agreement bear interest at a floating rate equal to (a) 8.75% per annum plus (b) the greater of (i) the rate per annum published by the Intercontinental Exchange Benchmark Administration Ltd. (“IEBA”) for a term of one month and (ii) 0.12% per annum. For the period from April 14, 2021 through February 28, 2022, the IEBA rate for a term of one month was approximately 0.12% per annum. For the period from February 28, 2022 through March 31, 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 March 31, 2022 and June 30, 2021, respectively. The Company is permitted to make interest-only payments on the term A loan through May 1, 2023. At the Company’s request, the interest-only period can be extended until May 1, 2024, provided that no event of default shall have occurred. The Company will be required to make monthly payments of principal and interest commencing at the end of the interest-only period.

The Company is obligated to pay the Lenders (i) a non-refundable facility fee in the amount of 1.00% of the term A loan that was funded (the “Facility Fee”), and (ii) a final fee equal to 4.75% of the aggregate amount of the term A loan that was funded (the “Final Fee”). As of March 31, 2022, the Company incurred debt discounts for an aggregate of $1.7 million that consisted of $0.4 million for financial advisory and legal fees, an aggregate of $0.9 million for the Facility Fee and the Final Fee, and an aggregate of $0.4 million as an exit fee as discussed below. The Final Fee is payable upon the earliest to occur of (i) the Maturity Date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans. The total debt discount of $1.7 million related to the term A loan is being accreted to interest expense using the effective interest method whereby the effective interest rate amounted to 12.7% and 12.6% as of March 31, 2022 and June 30, 2021, respectively.

Concurrently with the execution of the Loan Agreement, the Company entered into an exit fee agreement (the “Exit Fee Agreement”) that provides for a fee of 4.00% of the funded principal balance of each term loan in the event certain transactions (defined as “Exit Events”) occur prior to April 13, 2031. Exit Events include, but are not limited to, sales of substantially all assets, certain mergers, change of control transactions, and issuances of common stock that result in new investors owning more than 35% of the Company’s shares. As of April 14, 2021, the Company allocated a portion of the proceeds from the term A loan to recognize a liability for the fair value of this embedded derivative for approximately $354,000. Fair value was determined based on the Company’s strategic corporate development plans and management has performed a detailed evaluation of the different types of Exit Events that could occur and using a discounted rate equivalent to the effective rate for the term A loan. Fair value of this embedded derivative is assessed at the end of each reporting period with changes in fair value recognized as a nonoperating gain or loss.

The Company has the option to prepay all, but not less than all, of the outstanding principal balance of the term loans. In the event of a voluntary or mandatory prepayment prior to the Maturity Date, the Company will incur a prepayment fee ranging from 1.00% to 3.00% of the outstanding principal balance.

The Company’s obligations under the Loan Agreement are secured by a first-priority security interest in substantially all the Company’s assets, including its intellectual property. This security interest will not be released until all obligations are repaid, including the requirement to pay an Exit Fee of $0.6 million for certain fundamental transactions that may occur through April 13, 2031. The Loan

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Agreement contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, and a default upon the occurrence of a material adverse change affecting the Company. Upon the occurrence of an event of default, a default interest rate of an additional 5.00% per annum may be applied to the outstanding loan balance, and the Lenders may declare all outstanding obligations immediately due and payable and exercise all of their rights and remedies as set forth in the Loan Agreement.

As of March 31, 2022, the Company had outstanding contractual obligations under the Loan Agreement consisting of the principal balance of $15.0 million and the Final Fee of $0.7 million for a total of $15.7 million. After deducting the unaccreted discount of $1.4 million, the net carrying value was $14.3 million as of March 31, 2022. Future minimum principal payments and the net carrying value of the term A loan are as follows as of March 31, 2022 (in thousands):


Fiscal year ending June 30,
Remainder of fiscal year 2022	$	—
2023		833
2024		5,000
2025		5,000
2026		4,880
Total contractual payments		15,713
Less unaccreted debt discount		(1,427)
Net carrying value	$	14,286

NOTE 6 — SHAREHOLDERS’ EQUITY

Changes in Shareholders’ Equity for the Three Months Ended March 31, 2022 and 2021

The following table presents changes in shareholders’ equity for the three months ended March 31, 2022 and 2021 (in thousands):


				Additional				Total
	Common Stock			Paid-in		Accumulated		Shareholders'
	Shares	Amount		Capital		Deficit		Equity
Three Months Ended March 31, 2022:
Balances, December 31, 2021	15,556	$	16	$	250,816	$	(188,567)	$	62,265
Share-based compensation	—		—		850		—		850
Net loss	—		—		—		(11,208)		(11,208)
Balances, March 31, 2022	15,556	$	16	$	251,666	$	(199,775)	$	51,907

Three Months Ended March 31, 2021:
Balances, December 31, 2020	8,352	$	8	$	193,831	$	(157,953)	$	35,886
Share-based compensation	—		—		530		—		530
Reclassification of derivative liability for authorized share deficiency	—		—		(3,591)		—		(3,591)
Fair value of warrants issued to consultants for services	—		—		2		—		2
Net loss	—		—		—		(3,695)		(3,695)
Balances, March 31, 2021	8,352	$	8	$	190,772	$	(161,648)	$	29,132

For changes in shareholders’ equity for the nine months ended March 31, 2022 and 2021, please refer to the unaudited condensed consolidated statements of shareholders’ equity.

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”). 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

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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. The aggregate gross proceeds from the Underwritten Offering amounted to $50.0 million, excluding the Underwriters’ Option discussed below, and before deductions for underwriting discounts and commissions of 6.0% of the gross proceeds and other offering costs of approximately $0.3 million. After deducting total offering costs of $3.3 million, the net proceeds of the Underwritten Offering amounted to approximately $46.7 million.

The Company granted the 2021 Underwriters a 30-day option to purchase up to an additional 1,153,845 shares of its common stock in the 2021 Underwritten Offering at a public offering price of $6.50 per share, less underwriting discounts and commissions (the “Underwriters’ Option”). In November 2021, the Underwriters’ Option was partially exercised for 116,266 shares resulting in gross proceeds of approximately $0.8 million.

2021 Pre-Funded Warrants

The 2021 PFWs have an exercise price of $0.01 per share, which is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. Each 2021 PFW is exercisable at any time and from time to time after issuance with no stated expiration date. In the event of certain corporate transactions, the holders of the 2021 PFWs will be entitled to receive, upon exercise of the 2021 PFWs, the kind and amount of securities, cash or other property that the holders would have received had they exercised the 2021 PFWs immediately prior to such transaction. The 2021 PFWs do not entitle the holders thereof to any voting rights or any of the other rights or privileges to which holders of Common Stock are entitled.

The gross proceeds of $10.8 million received from issuance of the 2021 PFWs was recorded as a component of shareholders’ equity within additional paid-in capital. In accordance with the terms of the warrant agreement, holders of the outstanding warrants are not entitled to exercise any portion of the Pre-Funded Warrant if, upon exercise of such portion of the warrant, the holder’s aggregate ownership of the Company’s common stock or the combined voting power beneficially owned by such holder would exceed a designated percentage elected by the holder ranging from 4.99% to 19.99%, after giving effect to the exercise (the “Maximum Ownership Percentage”). 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 March 31, 2022, no shares underlying the 2021 PFWs have been exercised.

2021 Registered Direct Offering

Concurrently with the Underwritten Offering, Handok, Inc. (the “Purchaser”), an entity affiliated with a member of the Board of Directors, entered into a subscription agreement for a registered direct offering (the “2021 RDO”) pursuant to which the Company agreed to sell to the Purchaser an aggregate of 769,231 shares of its common stock at a purchase price of $6.50 per share. 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. Inc. (the “Agent”) entered into an Equity Distribution Agreement (the “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. 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. As discussed in Note 13, the Company provide the Agent with notice of termination of the EDA in May 2022 and no further shares will be issued under this agreement.

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 nine months ended March 31, 2022, the Company sold 138,388 shares of its common stock pursuant to the EDA for net proceeds of approximately $1.5 million.

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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 provides that the Company may 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.

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. As discussed in Note 13, 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 has no obligation to purchase shares under the Purchase Agreement unless the Company complies with the terms of the RRA.

Derivative Liability for Authorized Share Deficiency

On February 17, 2021, the Company filed a certificate of correction (the “Charter Revision”) with the Secretary of State of Delaware. The Charter Revision changed the number of authorized shares of Common Stock from 500,000,000 shares to 10,000,000 on February 17, 2021. Upon filing the Charter Revision, the Company had approximately 8,352,000 shares of common stock issued and outstanding, plus approximately 2,428,000 shares were required to be reserved for issuance pursuant to the Company’s stock option plans and outstanding warrant agreements. Since the Charter Revision reduced authorized shares to 10,000,000 shares, a deficiency of approximately 780,000 shares existed as of February 17, 2021. As a result of this deficiency, it was not possible to issue up to an aggregate of 780,000 shares of common stock under outstanding stock options and warrants as of February 17, 2021. Therefore, the Company could have been required to settle in cash for the fair value of the 780,000 shares subject to this deficiency, which required liability classification for these instruments beginning on February 17, 2021.

The Company made an accounting policy election to select 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 was accounted for as a derivative liability that amounted to $3.6 million as of February 17, 2021. As a result of the expiration of stock options for approximately 40,000 shares in March 2021, the authorized share deficiency was reduced to approximately 740,000 as of March 31, 2021. Primarily due to the reduction in the market price of the Company’s common stock, the fair value of stock options and warrants for an aggregate of 740,000 shares amounted to $1.8 million as of March 31, 2021. Presented

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

below is a summary of the derivative liability associated with stock options and warrants as of February 17, 2021 and March 31, 2021 (in thousands, except per share amounts):



		February 17, 2021						March 31, 2021
		Stock						Stock
		Options		Warrants		Total		Options		Warrants		Total
Number of shares		253		527		780		213		527		740
Weighted average fair value per share	$	6.46	$	3.71	$	4.60	$	4.03	$	1.80	$	2.44
Fair value of derivative liability	$	1,638	$	1,953	$	3,591	$	858	$	949	$	1,807

Due to the reduction in fair value of the derivative liability from February 17, 2021 to March 31, 2021, the Company recognized a non-cash gain of approximately $1.8 million in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended March 31, 2021. In order to determine the fair value of the stock options and warrants set forth above, the Company used the BSM option-pricing model with the following weighted-average assumptions for the valuations performed as of February 17, 2021 and March 31, 2021:


		February 17, 2021									March 31, 2021
		Stock									Stock
		Options			Warrants			Total			Options			Warrants			Total
Market price of Common Stock	$	11.99		$	11.99		$	11.99		$	7.06		$	7.06		$	7.06
Exercise price	$	84.19		$	63.88		$	70.48		$	70.48		$	63.84		$	65.75
Risk-free interest rate		0.6	%		0.1	%		0.3	%		1.0	%		0.2	%		0.4	%
Dividend rate		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Remaining contractual term (years)		4.6			1.5			2.5			5.3			1.4			2.5
Historical volatility		112.6	%		123.5	%		119.9	%		118.4	%		112.0	%		113.9	%

On May 26, 2021, the Company’s shareholders approved an increase in authorized shares of common stock from 10.0 million shares to 40.0 million shares. As a result, the authorized share deficiency was eliminated, and the related stock options and warrants were no longer accounted for a derivative liability after May 26, 2021 and were reclassified to equity.

NOTE 7 — SHARE-BASED COMPENSATION AND WARRANTS

Stock Option Plans

Presented below is a summary of the number of shares authorized, outstanding, and available for future grants under each of the Company’s stock option plans as of March 31, 2022 (in thousands):


	Plan Termination	Number of Shares
Description	Date	Authorized	Outstanding	Available
2015 Plan	February 2020	45	45	—
2016 Plan	October 2021	260	260	—
2019 Plan	July 2029	200	200	—
2021 Plan	March 2030	1,200	1,082	118
Total		1,705	1,587	118

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Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Stock Options Outstanding

The following table sets forth a summary of the activity under all of the Company’s stock option plans for the nine months ended March 31, 2022 (shares in thousands):


	Shares	Price ⁽¹⁾		Term ⁽²⁾
Outstanding, June 30, 2021	1,285	$	16.35	8.7
Granted	421		5.37
Expired	(61)		20.19
Forfeited	(58)		10.28
Outstanding, March 31, 2022	1,587		13.41	8.6
Vested, March 31, 2022	620		19.23	7.5

(1)	Represents the weighted average exercise price.

(2)	Represents the weighted average remaining contractual term for the number of years until the stock options expire.

For the nine months ended March 31, 2022, the aggregate fair value of stock options granted for approximately 0.4 million shares of common stock that provide solely for time-based vesting, amounted to $1.7 million or approximately $4.09 per share as of the grant dates. Fair value was computed using the BSM option-pricing model and will result in the recognition of compensation cost ratably over the expected vesting period of the stock options. For the nine months ended March 31, 2022, the fair value of stock options was estimated on the date of grant, with the following weighted-average assumptions:


Market price of common stock on grant date	$	4.09
Expected volatility		94	%
Risk free interest rate		1.8	%
Expected term (years)		6.1
Dividend yield		0	%

Share-based compensation expense for the three and nine months ended March 31, 2022 and 2021 is included under the following captions in the unaudited condensed consolidated statements of operations (in thousands):


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Research and development	$	327	$	284	$	1,014

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets –March 31, 2022 and June 30, 2021	1
Unaudited Condensed Consolidated Statements of Operations – Three and Nine Months Ended March 31, 2022 and 2021	2
Unaudited Condensed Consolidated Statements of Shareholders’ Equity – Nine Months Ended March 31, 2022 and 2021	3
Unaudited Condensed Consolidated Statements of Cash Flows – Nine Months Ended March 31, 2022 and 2021	4
Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	30

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3. Defaults Upon Senior Securities	32
Item 4. Mine Safety Disclosures	32
Item 5. Other Information	32
Item 6. Exhibits	33

Signatures	34