Rezolute, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share Based Compensation [Text Block]

Note 8 Stock-Based Compensation

Options

On October 31, 2016, the Board adopted the AntriaBio, Inc. 2016 Non Qualified Stock Option Plan which allows the Company to issue up to 35,000,000 shares of common stock in the form of stock options.

Due to a shareholder settlement the

2016 Non Qualified Stock Option Plan was amended on August 21, 2017 to reduce the number of shares to be issued to 15,000,000 shares of common stock in the form of stock options. The Board had issued options to purchase 28,995,000 of these shares to current employees and directors as of June 30, 2017, of which 4,360,000 were cancelled before their terms were established and 11,090,000 were additionally cancelled by the Board during the year ended June 30, 2017. The Company had 1,550,000 of the cancelled stock options that had begun vesting prior to the cancellation and with the cancellation the Company recorded $1,199,847 of unrecognized stock compensation

expense. Due to a shareholder settlement we agreed to among other things (i) cancel certain options granted to certain members of the board of directors and our executive officers, (ii) reduce the number of options issuable under the 2016 plan, (iii) include an amendment to the Company’s Bylaws at the Company’s next annual meeting and (iv) implement certain corporate governance changes. The proposed settlement was conditioned upon, among other things, approval by the Chancery Court.

The Company granted 255,000 of

2016 Non Qualified Stock Option Plan options

to current employees and directors of the Company during the year ended June 30, 2018. The options have an exercise price from $1.00 to $1.15 per share. The options expire no later than ten years from the date of the grant. The options vest on a monthly basis over 48 months, except for 75,000 of the options which do not begin to vest until specific events have occurred and then begin to vest over 48 months and 60,000 of the options that all vest at the end of the consulting contract. Some options are subject to a one year cliff and all options have an exercise price based on the fair value of the common stock on the date of grant.

The Company has computed the fair value of all options granted that have begun vesting using the Black-Scholes option pricing model. The options that require specific events before they begin to vest are valued at the grant date, however; have not been recorded as the specific event is not probable of occuring. In order to calculate the fair value of the options, certain assumptions are made regarding components of the model, including the estimated fair value of the underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to valuation. The Company estimated a volatility factor utilizing comparable published volatility of several peer companies. Due to the small number of option holders, the Company has estimated a forfeiture rate of zero as the value of each option holder is calculated individually. The Company estimates the expected term based on the average of the vesting term and the contractual term of the options. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity.

Rezolute has computed the fair value of all options granted during the year ended June 30, 2018 using the following assumptions:

Expected volatility	84	%
Risk free interest rate	2.0 - 2.21	%
Expected term (years)	7
Dividend yield	0	%

Rezolute has computed the fair value of all options granted during the year ended June 30, 2017 using the following assumptions:

Expected volatility	74 - 80	%
Risk free interest rate	1.46% - 2.43	%
Expected term (years)	7
Dividend yield	0	%

Stock option activity is as follows:

				Weighted		Weighted Average
	Number of			Average		Remaining
	Options			Exercise Price		Contractual Life
Outstanding, June 30, 2016		8,947,418		$	2.73
Granted		24,725,000		$	1.19
Cancelled		(12,256,667	)	$	1.51
Forfeited		(125,000	)	$	1.12
Outstanding, June 30, 2017		21,290,751		$	1.65		7.7
Granted		255,000		$	1.08
Forfeited		(1,880,505	)	$	1.62
Expired		(250,000	)	$	4.50
Outstanding, June 30, 2018		19,415,246		$	1.55		7.8

Exercisable at June 30, 2018		11,398,855		$	1.92		6.4

Stock options outstanding at June 30, 2018 are summarized in the table below:

Range of Exercise Prices	Number of Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Lives
$1.00 - $1.99		12,908,287	$	1.20		6.5
$2.00 - $2.99		3,778,208	$	2.06		7.3
$3.00 - $4.50		2,728,751	$	3.14		2.2
		19,415,246	$	1.64		5.3

Stock-based compensation expense related to the fair value of stock options was included in the statement of operations as research and development - compensation and benefits expense of $

982,468

and $

1,790,851

for the years ended June 30, 2018 and 2017, respectively and as general and administrative – compensation and benefits expense of $

4,112,947

and $

4,214,819

for the years ended June 30, 2018 and 2017, respectively. The unrecognized stock-based compensation expense at June 30, 2018 is $

5,058,172

. Rezolute determined the fair value as of the date of grant using the Black-Scholes option pricing method and expenses the fair value ratably over the vesting period.

Warrants

Rezolute issued warrants to agents and security holders in conjunction with the closing of various financings, note conversions, and private placements as follows:

				Weighted		Weighted Average
	Number of			Average		Remaining
	Warrants			Exercise Price		Contractual Life
Outstanding, June 30, 2016		28,964,376		$	2.11		3.1
Warrants issued in private placements		3,248,184		$	1.65
Warrantes issued to placement agent		786,150		$	1.54
Warrants issued for consulting services		250,000		$	1.00
Warrants expired		(452,262	)	$	2.39
Outstanding, June 30, 2017		32,796,448		$	1.71		3.7
Warrants issued for consulting services		650,000		$	1.03
Warrants issued in debt financing		12,185,176		$	0.54
Warrants issued to placement agent		289,000		$	0.54
Warrants expired		(285,407	)	$	2.43
Outstanding, June 30, 2018		45,635,217		$	1.37		3.4

Year Ended June 30, 2018

The Company issued warrants to purchase 100,000 shares of common stock at a price of $1.00 per share in connection with a consulting agreement. The Company also issued warrants to purchase 50,000 shares of common stock at a price of $1.00 per share in connection with investor services. The Company issued warrants to purchase 500,000 shares of common stock at a price of $1.04 per share in connection with a consulting agreement. The Company issued warrants to purchase 350,000 shares of common stock at a price of $1.00 per share in connection with the issuance of convertible notes. The Company issued also warrants to purchase 500,000 shares of common stock at a price to be determined at a future date in connection with the issuance of convertible notes at a price of $0.52 per share. The warrants to purchase 350,000 shares of common stock were modified as of April 3, 2018, in connection with the issuance of the promissory notes discussed in Note 6

The Company issued warrants to purchase shares of common stock in connection with the April 3, 2018 and April 11, 2018 interim financing closings. The number of shares was to be set at the time of a qualified financing. If no qualified financing event had occurred prior to July 1, 2018, the number of shares was to be set based on the average closing price of the 20-day period preceding July 1, 2018. The exercise price of the warrants was to be set at 120% of a qualified financing event or 120% of the average closing price of the 10-day period prior to July 1, 2018.

As the Company had not completed a qualified financing as of July 1, 2018, which was not a trading day, the number of warrants to purchase shares of common stock and the exercise price of these warrants were fixed on June 29, 2018, the last trading day of the period. The number of shares issued amounted to 11,685,177, with an exercise price of $0.52.

The warrants issued for the 11,685,177 shares of common stock were accounted for as equity at the date of issuance. The fair value of the warrants was valued at $3,770,028 and was recorded

based on relative fair value through equity and

as a debt discount, as discussed in Note 6.

The Company issued warrants to purchase 289,000 shares of common stock at an exercise price to be determined at 120% of the share price of a qualified financing if it occurs prior to July 1, 2018 or the exercise price will be 120% of the average closing price of the Company’s share price for the ten trading days prior to July 1, 2018, which had an exersise price of $0.52.

These warrants were valued using the Black-Scholes option pricing model on the date of issuance. In order to calculate the fair value of the warrants, certain assumptions were made regarding components of the model, including the closing price of the underlying common stock, risk-free interest rate, volatility, expected dividend yield, and warrant term. Changes to the assumptions could cause significant adjustments to valuation. Rezolute estimated a volatility factor utilizing a comparable published volatility of several peer companies. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. The Black-Scholes valuation methodology was used because that model embodies all of the relevant assumptions that address the features underlying these instruments.

The Lattice pricing model was used to determine the fair value of the warrants to purchase 289,000 shares of common stock on the day they were issued. The Lattice model accommodates the probability of changes in the exercise price as outlined in the warrant agreement. Under the terms of the warrant agreement, the exercise price of the warrant will be 120% of the share price of a qualified financing if it occurs prior to July 1, 2018 or the exercise price will be 120% of the average closing price of the Company’s share price for the ten trading days prior to July 1, 2018. The estimated fair value was derived using the lattice model, due to the unknown exercise price at date at issuance, with the following assumptions

Significant assumptions for the warrants issued for the year ended June 30, 2018

used in both the Black-Scholes option pricing model and the Lattice model

were as follows:

Expected volatility	24% -96	%
Risk free interest rate	0.45% - 2.91	%
Warrant term (years)	0 - 7
Dividend yield	0	%

Significant assumptions for the warrants issued for the year ended June 30, 2017 were as follows:

Expected volatility	24-110	%
Risk free interest rate	0.45% - 2.35	%
Warrant term (years)	0-7
Dividend yield	0	%