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,~~September 30, 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,~~275 Shoreline Drive, Suite ~~315~~500, Redwood City, California		94065
(Address of principal executive offices)		(Zip Code)

(650) 206-4507

(Registrant’s telephone number, including area code)

~~Not Applicable~~201 Redwood Shores Parkway, Suite 315, Redwood City, California 94065

(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~~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~~36,827,567 shares of its $0.001 par value common stock outstanding as of ~~May 6,~~November 7, 2022.

Table of Contents

	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets ~~–March 31,~~– September 30, 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~~Operations – ~~Nine~~Three Months Ended ~~March 31,~~September 30, 2022 and 2021	4
Unaudited Condensed Consolidated Statements of Shareholders’ Equity – Three Months Ended September 30, 2022 and 2021	5
Unaudited Condensed Consolidated Statements of Cash Flows – Three Months Ended September 30, 2022 and 2021	6
Notes to Unaudited Condensed Consolidated Financial Statements	57
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2017
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3026
Item 4. Controls and Procedures	3026

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	3228
Item 1A. Risk Factors	3228
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3228
Item 3. Defaults Upon Senior Securities	3228
Item 4. Mine Safety Disclosures	3228
Item 5. Other Information	3228
Item 6. Exhibits	3329

Signatures	3430

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Report”) contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including, but not limited to “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment of the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “may,” “should,” “plan,” “project” and other words of similar meaning. In particular, these include, but are not limited to, statements relating to the following:

●

our projected operating or financial results, including anticipated cash flows used in operations;

●

our ~~expectation that our shareholders will approve an increase in our authorized shares of common stock;~~

●

~~our expectations that closing will occur in May 2022 under a securities purchase agreement entered into on May 4, 2022 with Handok, Inc. and certain of its affiliates;~~

●

~~our~~ expectations regarding capital expenditures, research and development expenses and other payments;

●

our expectation about the extent and duration of the COVID-19 pandemic (“COVID-19”) on our business;

●

our beliefs and assumptions relating to our liquidity position, including our ability to obtain additional financing;

●

our ability to obtain regulatory approvals for our pharmaceutical drugs and diagnostics; and

●

our future dependence on third party manufacturers or strategic partners to manufacture any of our pharmaceutical drugs and diagnostics that receive regulatory approval, and our ability to identify strategic partners and enter into license, co-development, collaboration or similar arrangements.

Any or all of our forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known and unknown risks, uncertainties and other factors including, but not limited to, the risks described in Part II, Item 1.A Risk factors, as well as “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021~~2022 (the ~~“2021~~“2022 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on September 15, ~~2021 and as amended on September 27, 2021.~~2022.

In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included elsewhere in this Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement can be guaranteed. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward-looking statements contained in this Report are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this Report, except as otherwise required by applicable law.

~~Table of Contents~~

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,		September 30,		June 30,
	2022		2021		2022		2022
Assets
Current assets:
Cash and cash equivalents	$	63,416	$	41,047	$	154,322	$	150,410
Prepaid expenses and other		915		946		1,305		1,694
Total current assets		64,331		41,993		155,627		152,104

Long-term assets:
Restricted cash		5,000		—
Right-of-use assets, net		175		396
Deferred offering costs and other		48		191
Deposits and other						148		148
Right-of-use assets						130		152
Property and equipment, net		19		29		83		16
Total assets	$	69,573	$	42,609	$	155,988	$	152,420

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	1,557	$	1,035	$	1,110	$	1,132
Accrued liabilities:
Insurance premiums		—		242		122		243
Compensation and benefits		450		77
Other		764		349
Accrued clinical and other						1,085		979
Current portion of operating lease liabilities		107		265		112		108
Total current liabilities		2,878		1,968		2,429		2,462

Long term liabilities:
Long term debt, net of discount		14,286		13,968
Operating lease liabilities, net of current portion		107		187		49		80
Embedded derivative liabilities		395		387		420		407
Total liabilities		17,666		16,510		2,898		2,949

Commitments and contingencies (Notes 4 and 8)
Commitments and contingencies (Notes 3, 4, 8 and 9)

Shareholders' equity:
Preferred Stock, $0.001 par value; 400 shares authorized; 0 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
Preferred stock, $0.001 par value; 400 shares authorized; no shares issued and outstanding						—		—
Common stock, $0.001 par value; 100,000 shares authorized; issued and outstanding 36,827 and 33,582 shares as of September 30, 2022 and June 30, 2022, respectively						37		34
Additional paid-in capital		251,666		194,229		372,082		358,635
Accumulated deficit		(199,775)		(168,138)		(219,029)		(209,198)
Total shareholders’ equity		51,907		26,099		153,090		149,471
Total liabilities and shareholders’ equity	$	69,573	$	42,609	$	155,988	$	152,420

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

~~Table of Contents~~

Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)


	Three Months Ended				Nine Months Ended				Three Months Ended
	March 31,				March 31,				September 30,
	2022		2021		2022		2021		2022		2021
Operating expenses:
Research and development	$	8,686	$	3,758	$	23,912	$	10,598	$	7,704	$	5,774
General and administrative		2,068		1,725		6,632		5,660		2,514		1,866
Total operating expenses		10,754		5,483		30,544		16,258		10,218		7,640
Operating loss		(10,754)		(5,483)		(30,544)		(16,258)		(10,218)		(7,640)
Non-operating income (expense):
Interest and other income										400		—
Gain (loss) from change in fair value of derivative liabilities, net										(13)		16
Employee retention credit										—		231
Interest expense		(442)		—		(1,329)		—		—		(443)
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		387		(196)

Net loss	$	(11,208)	$	(3,695)	$	(31,637)	$	(14,412)	$	(9,831)	$	(7,836)
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

Net loss per common share:
Basic and diluted									$	(0.19)	$	(0.92)

Weighted average number of common shares outstanding:
Basic and diluted										50,528		8,513

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

~~Table of Contents~~

Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Shareholders’ Equity

~~Nine~~Three Months Ended ~~March 31,~~September 30, 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


				Additional				Total
	Common Stock			Paid-in		Accumulated		Shareholders'
	Shares	Amount		Capital		Deficit		Equity
Three Months Ended September 30, 2022:
Balances, June 30, 2022	33,582	$	34	$	358,635	$	(209,198)	$	149,471
Gross proceeds from issuance of common stock for cash:
In 2022 Private Placement	3,245		3		12,327		—		12,330
Underwriting commissions and other equity offering costs	—		—		(759)		—		(759)
Share-based compensation	—		—		1,879		—		1,879
Net loss	—		—		—		(9,831)		(9,831)
Balances, September 30, 2022	36,827	$	37	$	372,082	$	(219,029)	$	153,090

Three Months Ended September 30, 2021:
Balances, June 30, 2021	8,352	$	8	$	194,229	$	(168,138)	$	26,099
Share-based compensation	—		—		842		—		842
Issuance of common stock for cash	254		1		2,689		—		2,690
Advisory fees and other offering costs	—		—		(686)		—		(686)
Issuance of commitment shares	34		—		450		—		450
Net loss	—		—		—		(7,836)		(7,836)
Balances, September 30, 2021	8,640	$	9	$	197,524	$	(175,974)	$	21,559

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

~~Table of Contents~~

Rezolute, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended				Three Months Ended
	March 31,				September 30,
	2022		2021		2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(31,637)	$	(14,412)	$	(9,831)	$	(7,836)
Share-based compensation expense		2,701		2,305		1,879		842
Non-cash lease expense						23		78
Loss (Gain) from change in fair value of derivative liabilities, net						13		(16)
Depreciation and amortization expense						3		4
Accretion of debt discount and issuance costs		319		—		—		104
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
Decrease (increase) in prepaid expenses and other assets						388		(96)
Increase (decrease) in accounts payable		548		(81)		(22)		555
Increase (decrease) in other accrued liabilities		307		(45)		(42)		24
Decrease in license fees payable to Xoma		—		(1,809)
Net Cash Used in Operating Activities		(27,506)		(15,211)		(7,589)		(6,341)

CASH FLOWS FROM INVESTING ACTIVITIES		—		—
Purchase of property and equipment						(70)		—

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
Gross proceeds from issuance of common stock for cash:
2022 Private Placement						12,330		—
Under Equity Distribution Agreement						—		1,519
Under LPC Purchase Agreement						—		1,171
Payment of commissions and other deferred offering costs		(3,449)		(3,680)		(759)		—
Payment for debt discount and issuance costs		(104)		(75)
Proceeds from issuances of common stock		2,690		—
Payment of debt discount and issuance costs						—		(104)
Net Cash Provided by Financing Activities		54,875		37,245		11,571		2,586

Net increase in cash, cash equivalents and restricted cash	$	27,369	$	22,034
Net increase (decrease) in cash, cash equivalents and restricted cash						3,912		(3,755)
Cash, cash equivalents and restricted cash at beginning of period		41,047		9,955		150,410		41,047
Cash, cash equivalents and restricted cash at end of period	$	68,416	$	31,989	$	154,322	$	37,292

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	$	—	$	—	$	340
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		29		92

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of commitment shares for deferred offering costs subsequently charged to additional paid-in capital	$	450	$	—	$	—	$	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
Payables for deferred offering costs subsequently charged to additional paid-in capital						—		24

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

~~Table of Contents~~

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Rezolute, Inc. (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,~~ The Company’s primary clinical assets consist of (i) RZ358, which is a ~~Nevada corporation (“Merger Sub”), pursuant to~~potential treatment for congenital hyperinsulinism, an ~~Agreement and Plan~~ultra-rare pediatric genetic disorder characterized by excessive production of Merger, dated as of June 18, 2021 (the “Reincorporation Merger Agreement”), between the Company and Merger Sub, with Merger Sub as the surviving corporation (the “Reincorporation Merger”). At the effective time of the Reincorporation Merger (the “Effective Time”), Merger Sub was renamed “Rezolute, Inc.” and succeeded to the assets, continued its business and assumed its rights and obligations by operation of law. The Reincorporation Merger Agreement was approvedinsulin by the ~~Company’s shareholders at~~pancreas, and (ii) RZ402, which is an oral plasma kallikrein inhibitor (“PKI”) being developed as a potential therapy for the ~~2021 annual meeting~~chronic treatment of ~~its shareholders held on May 26, 2021.~~diabetic macular edema.

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the rules and regulations of the SEC for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X.

The condensed consolidated balance sheet as of June 30, ~~2021,~~2022, has been derived from the Company’s audited consolidated financial statements. The unaudited interim financial statements should be read in conjunction with the Company’s ~~2021~~2022 Form 10-K, which contains the Company’s audited financial statements and notes thereto, together with the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended June 30, ~~2021.~~2022.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all information and footnote disclosures necessary for a comprehensive presentation of financial position, results of operations, and cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) that are necessary for a fair financial statement presentation have been made. The interim results for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 are not necessarily indicative of the financial condition and results of operations that may be expected for any future interim period or for the fiscal year ending June 30, ~~2022.~~2023.

Consolidation

The Company has 2two wholly owned subsidiaries consisting of Rezolute (Bio) Ireland Limited, and Rezolute Bio UK, Ltd. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

~~Table of Contents~~

~~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.~~COVID-19.

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1 to the financial statements in Item 8 of the ~~2021~~2022 Form 10-K.

Recent Accounting Pronouncements

Recently Adopted Standard. The following standard was adopted during the three months ended September 30, 2022:

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. 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 financial statements.

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

In June 2016, the 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~~three months ended ~~March 31,~~September 30, 2022, the Company incurred a net loss of ~~$31.6~~$9.8 million and net cash used in operating activities amounted to ~~$27.5~~$7.6 million. For the fiscal year ended June 30, ~~2021,~~2022, the Company incurred a net loss of ~~$20.9~~$41.1 million and net cash used in operating activities amounted to ~~$20.4~~$39.6 million. As of ~~March 31,~~September 30, 2022, the Company had an accumulated deficit of ~~$199.8~~$219.0 million, ~~unrestricted~~ cash and cash equivalents of ~~$63.4~~$154.3 million, and total current liabilities of ~~$2.9~~$2.4 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~~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, First patient dosing milestones 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~~RZ402 Phase 2 clinical trial 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 isRZ358 Phase 3 clinical trial are expected to ~~result in net proceeds of $11.4 million upon closing of~~occur within 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.next 12 months.

Management believes the Company’s cash and cash equivalents balance of ~~$63.4~~$154.3 million as of ~~March 31, 2022, combined with the unrestricted net proceeds received from the registered direct offering in May~~September 30, 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~~November 2023.

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

Right-of-use assets					$	130	$	152

Operating lease liabilities:
Current	$	107	$	265	$	112	$	108
Long-term		107		187		49		80
Total	$	214	$	452	$	161	$	188

~~Table of Contents~~

~~Rezolute, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

For the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021, operating lease expense ~~was as follows~~is included under the following captions in the accompanying condensed consolidated statements of operations (in thousands):


	Three Months Ended				Nine Months Ended
	March 31,				March 31,				2022		2021
	2022		2021		2022		2021
Research and development	$	66	$	75	$	216	$	185	$	77	$	79
General and administrative		32		28		75		83		23		23
Total	$	98	$	103	$	291	$	268	$	100	$	102

As of ~~March 31,~~September 30, 2022, the weighted average remaining lease term under operating leases was ~~1.9~~1.4 years, and the weighted average discount rate for operating lease liabilities was 6.0%. Future payments under all operating lease agreements that had commenced as of ~~March 31,~~September 30, 2022 are as follows (in thousands):


Fiscal year ending June 30,
Remainder of fiscal year 2022	$	29
2023		117
Remainder of fiscal year 2023			$	88
2024		79		79
Total lease payments		225		167
Less imputed interest		(11)		(6)
Present value of operating lease liabilities	$	214	$	161

Headquarters Lease

~~As discussed in Note 13,~~In April 2022, the Company entered into a ~~new~~ lease agreement for a new corporate headquarters in ~~April 2022 that~~Redwood City, California. The space consists of approximately 9,300 square feet and provides for total ~~cash~~base rent payments of approximately $2.9 million through the expected expiration of the lease in November 2027. The landlord was required to make improvements to the facility before the Company could occupy the space, which were completed in October 2022, triggering the commencement of the lease. The lease provides for a six-month rent abatement period beginning upon commencement of the lease term which occurred on October 18, 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. These~~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.

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The future payments under this operating lease agreement are ~~excluded from the table set forth above.~~as follows (in thousands):


Fiscal year ending June 30,
Remainder of fiscal year 2023	$	50
2024		609
2025		627
2026		646
2027		666
Thereafter		224
Total lease payments	$	2,822

NOTE 4 — LICENSE AGREEMENTS

~~Xoma~~XOMA License Agreement

In December 2017, the Company entered into a license agreement (the ~~“Xoma~~“XOMA License Agreement”) with XOMA Corporation (“~~Xoma”~~XOMA”), through its wholly-owned subsidiary, XOMA (US) LLC, pursuant to which ~~Xoma~~XOMA granted an exclusive global license to the Company to develop and commercialize ~~Xoma~~XOMA 358 (formerly X358, now RZ358) for all indications. In January 2019, the ~~Xoma~~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~~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 XOMA License Agreement, the Company will be required to make ~~up to $32.0 million in aggregate~~additional milestone payments to ~~Xoma.~~XOMA up to $35.0 million. 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. 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.~~million, if all milestones 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 next milestone payment of $3.0 million will be due upon dosing of the first patient in a Phase 2 clinical trial for RZ402.

~~Table~~ The company is also required to pay royalties equal to 2.0% of ~~Contents~~

~~Rezolute, Inc.~~

~~Notes~~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 ~~Unaudited Condensed Consolidated Financial Statements~~date.

NOTE 5 — ~~LOAN AND SECURITY AGREEMENT~~EMBEDDED DERIVATIVE LIABILTY

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 3three tranches consisting of (i) a $15.0 million term A loan that was funded on April 14, 2021, (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 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~~were no longer a source of liquidity. The term A loan ~~has~~had 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”)~~, but was repaid in ~~favor of the Lenders whereby a cash balance of at least $5.0 million was required beginning~~full 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~~2022.

Rezolute, Inc.

Notes 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.Unaudited Condensed Consolidated Financial Statements

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.~~derivatives. Fair value was determined primarily 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~~derivatives 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

~~Table of Contents~~

~~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,~~July 2022 ~~and 2021~~Financing

~~The following table presents changes in shareholders’ equity for the three months ended March 31,~~In May 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 securities purchase agreements (“SPAs”) with Handok, Inc. (“Handok”) and certain of its affiliates. Handok is an ~~underwriting agreement with Oppenheimer & Co., Inc., as representative~~affiliate of a member of the ~~underwriters listed therein~~Company’s Board of Directors. In July 2022, the Company entered into amended SPAs for a private placement of common stock (the ~~“2021 Underwriters”~~“2022 Private Placement”) ~~for the planned issuance and sale~~. The 2022 Private Placement resulted in gross proceeds of ~~equity securities~~$12.3 million in ~~an underwritten public offering (the “2021 Underwritten Offering”). On October 15, 2021, closing occurred~~exchange for ~~the Underwritten Offering resulting in~~ the issuance of ~~(i) 6,030,847~~approximately 3.2 million shares of common ~~stock at $6.50 per share for gross proceeds of $39.2~~stock. The Company incurred approximately $0.8 million ~~and (ii) 1,661,461 pre-funded~~

~~Table of Contents~~

~~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~~resulting in 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, 0 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$11.5 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,~~In May 2022, the Company ~~provide~~provided 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~~three months ended ~~March 31, 2022,~~September 30, 2021, the Company sold 138,388 shares of its common stock pursuant to the EDA for net proceeds of approximately $1.5 million.

~~Table of Contents~~

~~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”~~��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 3three 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.

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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,~~In May 2022, the Company provided LPC with notice of termination of the Purchase Agreement ~~in May 2022 and~~whereby 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

~~Table of Contents~~

~~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,~~September 30, 2022 (in thousands):


	Plan Termination	Number of Shares			Plan Termination	Number of Shares
Description	Date	Authorized	Outstanding	Available	Date	Authorized	Outstanding	Available

2015 Plan	February 2020	45	45	—	February 2020	35	35	—
2016 Plan	October 2021	260	260	—	October 2021	250	250	—
2019 Plan	July 2029	200	200	—	July 2029	200	200	—
2021 Plan	March 2030	1,200	1,082	118	March 2031	10,700	7,998	2,702
Total		1,705	1,587	118		11,185	8,483	2,702

~~Table~~2022 Employee Stock Purchase Plan

On June 16, 2022, the Company’s shareholders approved the adoption of ~~Contents~~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.

~~Rezolute, Inc.~~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. As of September 30, 2022, no purchases have been made under the 2022 ESPP.

~~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~~three months ended ~~March 31,~~September 30, 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


	Shares	Price ⁽¹⁾		Term ⁽²⁾

Outstanding, June 30, 2022	8,506	$	5.24	9.7
Grants to employees	85		2.99
Forfeited	(108)		4.87
Outstanding, September 30, 2022	8,483		5.22	9.4
Vested, September 30, 2022	794		17.31	7.45

(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.

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the ~~nine~~three months ended ~~March 31,~~September 30, 2022, the aggregate fair value of stock options granted for approximately ~~0.4~~0.1 million shares of common stock, ~~that provide solely for time-based vesting,~~ amounted to ~~$1.7~~$0.2 million or approximately ~~$4.09~~$2.28 per share as of the grant dates. Fair value was computed using the ~~BSM~~Black-Scholes-Merton (“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~~three months ended ~~March 31,~~September 30, 2022, the fair value of stock options was estimated on the date of grant, with the following weighted-average assumptions:


				2022

Market price of common stock on grant date	$	4.09		$	2.99
Expected volatility		94	%		91	%
Risk free interest rate		1.8	%		3.2	%
Expected term (years)		6.1			6.1
Dividend yield		0	%		0	%

Share-based compensation expense for the three ~~and nine~~ months ended ~~March 31,~~September 30, 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		2022		2021
Research and development	$	327	$	284	$	1,014	$	1,098	$	870	$	309
General and administrative		523		246		1,687		1,207		1,009		533
Total	$	850	$	530	$	2,701	$	2,305	$	1,879	$	842

Unrecognized share-based compensation expense is approximately ~~$6.8~~$22.2 million as of ~~March 31,~~September 30, 2022. This amount is expected to be recognized over a weighted average period of ~~3.0~~3.5 years.

Warrants

In connection with ~~the~~an underwritten offering in October 2021, ~~Underwritten Offering discussed in Note 6,~~ the Company issued 1,661,461 ~~2021 PFWs~~pre-funded warrants (“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.~~million (the “2021 PFWs”). The 2021 PFWs may be exercised at any time by paying the exercise price of $0.01 per share, subject to certain ownership restrictions.

In connection with a registered direct offering in May 2022, the ~~terms discussed in Note 6.~~

Company issued 1,973,684 Class A PFWs and 10,947,371 ~~Table~~Class B PFWs to purchase an aggregate of ~~Contents~~

~~Rezolute, Inc.~~

~~Notes~~12,921,055 shares of common stock at an issuance price of $3.799 per warrant (collectively, the “2022 PFWs”). As of September 30, 2022 all of the 2022 PFWs may be exercised at any time by paying the exercise price of $0.001 per share, subject to ~~Unaudited Condensed Consolidated Financial Statements~~certain ownership restrictions.

In addition, the Company has issued warrants in conjunction with various debt and equity financings and for services. ~~The~~As of September 30, 2022, all of the warrants were vested.

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the three months ended September 30, 2022, no warrants were granted or exercised. Excluding the PWFs discussed above, the following table sets forth a summary of ~~the warrant activity (excluding the 2021 PFWs)~~all other warrants for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 (shares in thousands):


	Shares	Price ⁽¹⁾		Term ⁽²⁾	Shares	Price ⁽¹⁾		Term ⁽²⁾
Outstanding, beginning of period	1,252	$	28.91	4.8

Outstanding, June 30, 2022					1,150	$	22.83	4.2
Warrants granted					—		—
Warrant expirations	(94)		95.79		—		—
Outstanding, end of period	1,158		23.45	4.4
Outstanding, September 30, 2022					1,150		22.83	3.9

(1)	Represents the weighted average exercise price.

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

NOTE 8 — COMMITMENTS AND CONTINGENCIES

Licensing Commitments

Please refer to Note 4 for further discussion of commitments to make milestone payments and to pay royalties under license agreements with ~~Xoma~~XOMA and ActiveSite.

~~COVID-19~~

The COVID-19 pandemic, which is impacting worldwide economic activity, poses risks that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. The extent to which COVID-19 impacts the Company’s business, including its clinical trials and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. As COVID-19 continues to spread around the globe, including the spread of more contagious and virulent variants, the Company could experience disruptions, including delays or difficulties in enrolling patients in clinical trials, delays or difficulties in clinical site initiation, interruption of key clinical trial activities, delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials, and delays in necessary interactions with local regulatory authorities. The economic and business disruptions caused by COVID-19 may also impact the Company’s ability to raise additional capital on a timely basis or at all, which could negatively impact long-term liquidity.

~~Registration Rights Agreement~~

In connection with the LPC Purchase Agreement discussed in Note 6, the Company entered into a Registration Rights Agreement that requires all the shares issuable under the Purchase Agreement to be registered. The Company filed a prospectus supplement to meet this obligation in August 2021 and is required to maintain the effectiveness of the prospectus supplement on a reasonable best-efforts basis.

Legal Matters

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of ~~March 31,~~September 30, 2022, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the Company’s results of operations. At each reporting period, the Company evaluates known claims to determine whether a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies. Legal fees are expensed as incurred.

~~Table of Contents~~

~~Rezolute, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

NOTE 9 — RELATED PARTY TRANSACTIONS

Related Party Licensing Agreement

On September 15, 2020, the Company and Handok entered into an exclusive license agreement (the “Handok License”) for the territory of the Republic of Korea. The Handok License relates to pharmaceutical products in final dosage form containing the pharmaceutical compounds developed or to be developed by the Company, including those related to RZ358 and RZ402. The Handok License is in effect for a period of 20 years after the first commercial sale of each product and requires (i) milestone payments to the Company of $0.5 million upon approval of a New Drug Application (“NDA”) for each product in the territory, and (ii) the Company will sell products ordered by Handok at a transfer price equal to 70% of the net selling price of the products. To date, 0no milestone payments have been earned by the Company.

~~In addition,~~

Investors in 2022 Private Placement

Handok and certain of its affiliates were the sole investors in the ~~2021 RDO~~2022 Private Placement discussed in Note ~~6 and the private placement discussed in Note 13.~~6.

NOTE 10 — INCOME TAXES

Income tax expense during interim periods is based on applying an estimated annualized effective income tax rate applied to the respective quarterly periods, adjusted for discrete tax items in the period in which they occur. The computation of the annualized estimated effective tax rate for each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating results for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.

For the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021, the Company did not record any income tax benefit due to a full valuation allowance on its deferred tax assets. The Company did not have any material changes to its conclusions regarding valuation allowances for deferred income tax assets or uncertain tax positions for the three ~~and nine months ended March 31,~~September 30, 2022 and 2021.

NOTE 11 — NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares, 2021 PFWs and ~~2021~~2022 PFWs outstanding during the period, without consideration for potentially dilutive securities. ~~The 2021~~ PFWs are included in the computation of basic and diluted net loss per share since the exercise price is negligible and all of the ~~2021~~ PFWs are fully vested and exercisable. Accordingly, the weighted average number of shares outstanding is computed as follows for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021 (in thousands):


	Three Months Ended				Nine Months Ended
	March 31,				March 31,				2022		2021
	2022		2021		2022		2021
Common Stock		15,557		8,352		12,735		7,445		35,946		7,445
2021 PFWs		1,661		—		1,013		—		1,661		—
Class A PFWs										1,974		—
Class B PFWs										10,947		—
Total		17,218		8,352		13,748		7,445		50,528		7,445

For the three ~~and nine months~~ ended ~~March 31,~~September 30, 2022 and 2021, basic and diluted net loss per share were the same since all other common stock equivalents were anti-dilutive.

As of ~~March 31,~~September 30, 2022 and 2021, the following outstanding potential common stock equivalents were excluded from the computation of diluted net loss per share since the impact of inclusion was anti-dilutive (in thousands):


			2022	2021
	2022	2021
Stock options	1,590	874	8,482	1,329
Warrants	1,158	1,437	1,150	1,224
Total	2,748	2,311	9,632	2,553

~~Table of Contents~~

~~Rezolute, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

NOTE 12 — FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS

Fair Value Measurements

Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1—Quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2—Other than quoted prices included in Level 1 that are observable for the asset and liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.

Rezolute, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

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

The Company’s embedded derivative liabilities are classified under Level 3 of the hierarchy and are required to be measured and recorded at fair value on a recurring basis. Fair value is determined based on management’s assessment of the probability and timing of occurrence for the Exit Events discussed in Note 5 using a discount rate equal to the effective interest rate for the term A ~~loan.The~~loan. The following table sets forth changes in the fair value of the embedded derivative liabilities for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021 (in thousands):

Fair value as of June 30, 2021

$
387
Gain from change in fair value

8
Fair value as of March 31, 2022

$
395



	2022		2021

Fair value, beginning of period	$	407	$	387
Loss from change in fair value		13		(16)
Fair value, end of period	$	420	$	371

Except for the embedded derivative liabilities, the Company did not have any other assets or liabilities measured at fair value on a recurring basis as of ~~March 31,~~September 30, 2022 and June 30, ~~2021.~~2022.

Due to the relatively short maturity of the respective instruments, the fair value of cash and cash equivalents, ~~restricted cash,~~ accounts payable, and accrued liabilities approximated their carrying values as of ~~March 31,~~September 30, 2022 and June 30, 2021. Due to the unique terms of the Loan Agreement discussed in Note 5, it was measured on a non-recurring basis at fair value using Level 3 inputs when it was entered into in April 2021. Due to the lack of observable inputs, the Company was unable to determine fair value of the Loan Agreement as of March 31, 2022.

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 ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021, the Company did not have any transfers of its assets or liabilities between levels of the fair value hierarchy.

Significant Concentrations

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash ~~equivalents and restricted cash.~~equivalents. The Company maintains its cash and cash equivalents ~~and restricted cash~~ at high-quality financial institutions. For the ~~nine~~three months ended ~~March 31,~~September 30, 2022, cash deposits have exceeded the amount of federal insurance provided on such deposits. As of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, the Company had cash and cash equivalents ~~and restricted cash~~ with a single financial institution with an aggregate balance of ~~$68.4~~$154.3 million and ~~$41.0~~$150.4 million, respectively. The Company has never experienced any losses related to its investments in cash and cash ~~equivalents and restricted cash.~~equivalents.

~~Table of Contents~~

~~Rezolute, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~NOTE 13 — SUBSEQUENT EVENTS~~

~~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 July 2027. The landlord is required to make improvements to the facility before it is suitable for occupancy by the Company. The lease provides for a six-month rent abatement period beginning upon commencement of the lease term which is expected to occur in August 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. During the fourth quarter of the fiscal year ending ~~June 30, 2022, the Company expects to recognize a right-of-use asset and a related operating lease liability for approximately $2.3 million.~~

~~Future payments under this operating lease agreement are as follows (in thousands):~~

Fiscal year ending June 30,

Remainder of fiscal year 2022

$
50
2023

199
2024

614
2025

632
Thereafter

1,377
Total lease payments

$
2,872

~~Financing Activities~~

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. The 2022 RDO closed on May 4, 2022 and resulted in net proceeds of approximately $110.5 million. The gross proceeds of the 2022 RDO amounted to $117.6 million, before deducting an aggregate of $7.1 million incurred for underwriting discounts and commissions and other offering expenses payable by the Company. 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.

Pursuant to the Private Placement, the Company entered into a securities purchase agreement (“SPA”) on May 4, 2022 with Handok and certain of its affiliates (the “Purchasers”) whereby the Company agreed to sell to the Purchasers 3.3 million Class C Warrants (the “Class C PFWs”) to purchase shares of common stock, at a purchase price of $3.799 per Class C PFW. The closing of the Private Placement will take place upon satisfaction of the closing conditions set forth in the placement agency agreement and the SPA. The net proceeds of the Private Placement, after deducting the placement agent fees and estimated offering expenses payable by the Company, are expected to be approximately $11.4 million. Closing of the Private Placement is expected to occur in May 2022.

~~Terms of Pre-Funded Warrants~~

The offering price of $3.799 per share for the Class A PFWs, the Class B PFWs and the Class C PFWs (collectively, the “2022 PFWs”) represents the public offering price for the shares of common stock issued in the 2022 RDO less the $0.001 per share price that is required to be paid upon exercise of the 2022 PFWs. The exercise price of the 2022 PFWs 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 and

~~Table of Contents~~

~~Rezolute, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

also upon any distributions for no consideration of assets to the Company's shareholders. In the event of certain corporate transactions, the holders of the 2022 PFWs will be entitled to receive, upon exercise of the 2022 PFWs, the kind and amount of securities, cash or other property that the holders would have received had they exercised the 2022 PFWs immediately prior to such transaction. The 2022 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.

Each Class A PFW is exercisable upon issuance. The Class B PFWs and the Class C PFWs will only be 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~~.

~~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 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 any of the Class B PFWs and the Class C PFWs. Therefore, the Class B PFWs and the Class C PFWs will only be exercisable for shares of common stock to the extent that shareholders subsequently approve an increase in the number of authorized shares (the “Shareholder Approval”), which the Company is required to use its best efforts to obtain at an annual meeting of shareholders to be held by June 30, 2022. If the Company does not obtain Shareholder Approval by June 30, 2022, it will be required to (i) pay liquidated damages of 2.0% of the aggregate purchase price paid by each holder of Class B PFWs and Class C PFWs, and (ii) hold additional shareholder meetings every three months thereafter until approval is obtained. For each subsequent failure to obtain Shareholder Approval, the Company will be required to pay an additional 2.0% of the purchase price as liquidated damages. The aggregate purchase price of the Class B PFWs and the Class C PFWs amounts to $54.2 million whereby the initial liquidated damages payment would be approximately $1.1 million if the Company fails to obtain Shareholder Approval by June 30, 2022.

The Company expects to account for the gross proceeds of $41.6 million received from the issuance of the Class B PFWs and $12.6 million expected to be received from the issuance of the Class C PFWs as derivative liabilities whereby future changes in the fair value of the derivative liabilities will result in gains or losses until such time that Shareholder Approval is obtained.

~~Registration Rights Agreement~~

In connection with the offer of the Class B PFWs and the Class C PFWs, the Company entered into registration rights agreements with the purchasers. Pursuant to the registration rights agreements, the Company will be required to file a registration statement with the SEC to register for resale the shares issuable upon exercise of the Class B PFWs and the Class C PFWs, within two days of receipt of Shareholder Approval, and to have such registration statement declared effective by June 30, 2022 in the event the registration statement is not reviewed by the SEC, or by July 30, 2022 in the event the registration statement is reviewed by the SEC. The Company will be obligated to pay certain liquidated damages to the purchasers if the Company (i) fails to file the registration statement when required, (ii) fails to cause the registration statement to be declared effective by the SEC when required, or (iii) fails to maintain the effectiveness of the registration statement. 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 and the Class C PFWs for an aggregate of approximately $1.1 million as liquidated damages. If liquidated damage payments are required in the future, they will be charged to expense in the period incurred.

~~EDA and Purchase Agreement Termination~~

In May 2022, the Company provided notice of termination to the Agent in accordance with the EDA entered in December 2020. Additionally, the Company provided notice of termination to LPC for the Purchas Agreement entered in August 2021. As a result of these termination notices, no further equity securities are issuable under either agreement.

1916

~~Table of Contents~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Certain figures, such as interest rates and other percentages included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our unaudited condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding. As used in the discussion below, “we,” “our,” “us,” and the “Company” refers to Rezolute, Inc.

Special Note About COVID-19

We have been actively monitoring the COVID-19 pandemic and its impact on our business activities. Our primary objectives have remained the same throughout the pandemic: to support the safety of our team members and their families and continue to support our preclinical studies and clinical trials. Currently, with respect to the operation of our facilities, we are closely adhering to applicable guidelines and orders. Essential operations in research and maintenance that occur within our facilities are continuing in accordance with the permissions granted under government ordinances. Across all of our locations, we have instituted a temporary work from home policy for all office personnel who do not need to work on site to maintain productivity. We have recently allowed these employees to voluntarily return to work on site with appropriate health and safety measures.

While our financial results for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and the fiscal year ended June 30, ~~2021~~2022 were not significantly impacted by COVID-19, we cannot predict the impact of the progression of the COVID-19 pandemic on future results due to a variety of factors, including the ongoing challenges associated with the pandemic, including the emergence of new variants of the coronavirus, such as the Delta and Omicron variants, resurgences in the number and rates of infection, the continued good health of our employees, the ability of us to maintain operations, access to healthcare facilities and patient willingness to participate in our clinical trials, any further government and/or public actions taken in response to the pandemic, and ultimately the length of the pandemic. The ultimate impact of the COVID-19 pandemic on our business operations, our ability to raise capital, our preclinical studies and clinical trial timeliness remain uncertain and subject to change and will depend on future developments, which cannot be accurately predicted. Any prolonged material disruption of our employees, suppliers, or manufacturing may negatively impact our financial position, results of operations, and cash flows. We will continue to monitor the situation closely.

Recent Developments

~~Headquarters Lease~~

In April 2022, we entered into a lease agreement for a new corporate headquarters facility 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 July 2027. The lease provides for a six-month rent abatement period beginning upon commencement of the lease term which is expected to occur in August 2022.

Financing Activities

~~On May 1,~~In July 2022, we 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 approximately (i) 18.0 million shares of our 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 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. The 2022 RDO closed on May 4, 2022 and resulted in net proceeds of approximately $110.5 million. The gross proceeds of the 2022 RDO amounted to $117.6 million, before deducting an aggregate of $7.1 million incurred for underwriting discounts and commissions and other offering expenses payable by us. In connection with the 2022 RDO, certain of our officers and directors agreed not to sell or otherwise dispose of any common stock held by them through July 30, 2022.

~~Table of Contents~~

~~Pursuant to the Private Placement, we entered into a~~amended securities purchase ~~agreement (“~~~~SPA~~~~”) on May 4, 2022~~agreements with Handok, Inc. (“Handok”) and certain of its affiliates (the “~~Purchasers~~~~”) whereby we agreed to sell to the Purchasers 3.3 million Class C Warrants (the “~~~~Class C PFWs~~~~”) to purchase shares of common stock, at a purchase price of $3.799 per Class C PFW. The closing of the~~“2022 Private ~~Placement will take place upon satisfaction of the closing conditions set forth~~Placement”), resulting in ~~the placement agency agreement and the SPA. The net~~gross proceeds of the Private Placement, after deducting the placement agent fees and estimated offering expenses payable by us, are expected to be approximately $11.4 million. We expect the closing of the Private Placement will occur$12.3 million in ~~May 2022.~~

~~Terms of Pre-Funded Warrants~~

~~The offering price of $3.799 per share~~exchange for ~~the Class A PFWs, the Class B PFWs and the Class C PFWs (collectively, the “~~~~2022 PFWs~~”) represents the public offering price for the shares of common stock issued in the 2022 RDO less the $0.001 per share price that is required to be paid upon exercise of the 2022 PFWs. The exercise price of the 2022 PFWs 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 and also upon any distributions for no consideration of assets to our shareholders. In the event of certain corporate transactions, the holders of the 2022 PFWs will be entitled to receive, upon exercise of the 2022 PFWs, the kind and amount of securities, cash or other property that the holders would have received had they exercised the 2022 PFWs immediately prior to such transaction. The 2022 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.

~~Required Shareholder Approval~~

~~The closing of the 2022 RDO resulted in~~ the issuance of ~~the~~ approximately ~~18.0~~3.2 million shares of common ~~stock~~stock. We incurred approximately $0.8 million for underwriting commissions and ~~Class A PFWs for approximately 2.0~~other offering costs, resulting in net proceeds of $11.5 million.

Termination of Loan Agreement

On April 14, 2021, we entered into a $30.0 million ~~shares. After these issuances, we had utilized our entire 40.0 million of authorized shares of common stock available under our corporate charter, consisting of issued shares~~Loan and ~~shares of our common stock reserved for issuance under our stock option plans~~Security Agreement (the “Loan Agreement”) with Solar Investment Corp. (“SLR”) as collateral agent, and ~~outstanding warrants. Accordingly, we did not have~~the parties signing the Loan Agreement from time to time as lenders, including SLR in its capacity as a ~~sufficient number of shares of common stock available to permit exercise of any~~lender. The scheduled maturity date of the ~~Class B PFWs and~~Loan Agreement was on April 1, 2026. In April 2021, we borrowed $15.0 million under the Class C PFWs. Therefore, the Class B PFWs and the Class C PFWs will only be exercisable for shares of common stock to the extent that our shareholders subsequently approve an increase in the number of authorized shares (the “~~Shareholder Approval~~~~”), which we are required to use our best efforts to obtain at an annual meeting of shareholders to be held by June 30, 2022. If we do not obtain Shareholder Approval by~~Loan Agreement. On June 30, 2022, we ~~will be required to (i) pay liquidated damages~~paid off the outstanding loan amount of ~~2.0% of~~$15.0 million in full and terminated the aggregate purchase price paid by each holder of Class B PFWs and Class C PFWs, and (ii) hold additional shareholder meetings every three months thereafter until approval is obtained. For each subsequent failure to obtain Shareholder Approval, we will be required to pay an additional 2.0% of the purchase price as liquidated damages. The aggregate purchase price of the Class B PFWs and the Class C PFWs amounts to $54.2 million whereby the initial liquidated damages payment would be approximately $1.1 million if we fail to obtain Shareholder Approval by June 30, 2022.

~~Registration Rights~~Loan Agreement

~~In connection~~ in accordance with the offer of the Class B PFWs and the Class C PFWs, we entered into registration rights agreements with the purchasers. Pursuant to the registration rights agreements, we will be required to file a registration statement with the SEC to register for resale the shares issuable upon exercise of the Class B PFWs and the Class C PFWs, within two days of receipt of Shareholder Approval, and to have such registration statement declared effective by June 30, 2022 in the event the registration statement is not reviewed by the SEC, or by July 30, 2022 in the event the registration statement is reviewed by the SEC. We will be obligated to pay certain liquidated damages to the purchasers if we (i) fail to file the registration statement when required, (ii) fail to cause the registration statement to be declared effective by the SEC when required, or (iii) fail to maintain the effectiveness of the registration statement. Based on our planned timing for the first shareholder meeting, it is unlikely that we will be able to avoid incurring a liquidated damages fee of approximately $1.1 million due to the failure to meet the requirements for an effective registration statement.

~~EDA and Purchase Agreement Termination~~its terms.

~~As discussed below under the caption~~ ~~Liquidity and Capital Resources~~,~~we entered the EDA with Oppenheimer & Co. Inc. in December 2020 and a Purchase Agreement with LPC in August 2021. In May 2022, we provided notices to Oppenheimer and Co. Inc. and LPC~~

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~~whereby the EDA and Purchase Agreement were terminated. As a result of these termination notices, no further equity securities are issuable under either agreement.~~

Please refer to our discussion under the caption Liquidity and Capital Resources for further discussion of our recent financing activities.

~~RZ358~~

~~On March 23, 2022, we reported positive topline results from the Phase 2b (“RIZE”) study. These results were presented at the Pediatric Endocrine Society Meeting on May 1, 2022. Refer to~~ Summary of Clinical Assets~~below for further discussion of the RZ358 program.~~

~~RZ402~~

~~On February 22, 2022, we reported positive topline results from the Phase 1b multiple-ascending dose (“MAD”) study. Refer to~~ ~~Summary of Clinical Assets~~ ~~below for further discussion of the RZ402 program.~~

~~Summary of Clinical Assets~~RZ358

Our lead clinical asset, RZ358, is ~~an antibody therapy in Phase 2b development as~~ a potential treatment for congenital hyperinsulinism (“HI”HI”), ~~an ultra-rare pediatric genetic disorder. In February 2020, we announced the initiation of the RZ358-606 Phase 2b study (“~~~~RIZE~~”) globally at multiple study centers. Prior to COVID-19, we had planned to complete the RIZE study by the middle of calendar year 2021. In March 2020, we paused the RIZE study as a result of the COVID-19 pandemic. As the COVID-19 pandemic began to abate in different regions, we resumed clinical activities including trial site initiations and patient enrollment. We reported positive topline results from the RIZE study in March 2022. These results were presented at the Pediatric Endocrine Society Meeting on May 1, 2022.

The RIZE study enrolled 23 patients across diverse ages, gender, and genetic types. RZ358 (pooled doses) resulted in a > 50% improvement in hypoglycemic events and approximately 75% improvement at the mid (6 mg/kg) and top (9 mg/kg) doses. Time-in-range (“~~TIR~~~~”) by continuous glucose monitoring (“~~~~CGM~~”) improved by 7% across all doses and 16% at the top dose. There were no adverse drug reactions, dose-limiting toxicities, or drug-related serious adverse events. We believe that these positive results from the RIZE study will be Phase-3 enabling and we plan to interact with the regulatory authorities in the second half of calendar year 2022. If we obtain clearance, we plan to initiate our Phase 3 study in the first half of calendar year 2023.

~~In addition, during the first half of calendar year 2020, we had positive interactions with the United States Food and Drug Administration (“~~~~FDA~~~~”) whereby we were granted Rare Pediatric Disease (“~~~~RPD~~~~”) designation for RZ358, which qualified us to receive a priority review voucher (“~~~~PRV~~”) upon marketing approval of the drug in congenital HI. Such a voucher could be redeemed to receive a priority review of a subsequent marketing application for any drug candidate in any disease indication.

~~Our second clinical asset, RZ402, is a selective and potent plasma kallikrein inhibitor (“~~~~PKI~~~~”) being developed as a potential oral therapy for the chronic treatment of diabetic macular edema (“~~~~DME~~”). RZ402 recently completed the Phase 1 development program. In January 2021, we dosed the first subject in the Phase 1a study, and in May 2021 we announced positive topline results whereby single dose oral administration of RZ402 resulted in plasma concentrations that substantially exceeded target pharmacologically-active drug levels, demonstrating the potential for once daily dosing. RZ402 was generally safe and well-tolerated at all doses tested, without dose-limiting toxicities. In August 2021, we announced the initiation in the Phase 1b multiple-ascending dose (“~~MAD~~”) study and reported positive results in February 2022. The results further validated and supported the potential for once daily oral dosing and showed dose-dependent increases in systemic exposures, with repeat-dosing to steady-state resulting in the highest concentrations of RZ402 explored to date, exceeding 200 ng/mL and 50 ng/mL at peak and 24-hour trough, respectively. Given that the in-vivo EC₉₀ for RZ402 in animal models of DME is ~6 ng/mL, the results at both peak and 24-hour trough substantially exceeded target concentrations based on a combination of in-vitro and in-vivo profiling. The MAD study results showed that RZ402 was generally safe and well-tolerated, including at higher doses than previously tested in the Phase 1 single-ascending dose (“~~SAD~~”) study. There were no serious adverse events, adverse drug reactions or identified risks. We are now advancing developmental activities toward a Phase 2a proof-of-concept study, which we plan to initiate during the second half of calendar year 2022.

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~~RZ358~~

~~Congenital HI is~~ an ultra-rare pediatric genetic disorder characterized by excessive production of insulin by the pancreas. If untreated, the elevated insulin levels in ~~these~~ patients suffering with congenital HI can induce extreme hypoglycemia (low blood sugar) events, increasing the risk of neurological and developmental complications, including persistent feeding problems, learning disabilities, recurrent seizures, brain damage or even death. There are no FDA approved therapies for all forms of congenital HI and the current standard of care treatments are suboptimal. ~~In some cases, pancreatic surgery is a treatment option, but this approach is invasive~~The current treatments used by physicians include glucagon, diazoxide, somatostatin analogues and ~~may require repeat surgeries.~~pancreatectomy.

~~Our lead candidate,~~ RZ358 is an intravenously administered human monoclonal antibody that binds to a unique site (allosteric) on the insulin receptor ~~throughout the body,~~in insulin target tissues, such as in the liver, fat, and muscle. The antibody modifies insulin’s binding and signaling to maintain glucose levels in a normal range which counteracts the effects of elevated insulin in the body. RZ358 shows dose dependent pharmacokinetics with a half-life greater than two weeks which has the potential for semi-monthly dosing. Therefore, we believe that RZ358 is ideally suited as a potential therapy for conditions characterized by excessive insulin levels, and it is being developed to treat ~~the~~ hyperinsulinism and low blood ~~sugar characteristic of diseases such as congenital HI.~~sugar. As RZ358 acts downstream from the beta cells, it has the potential to be universally effective at treating congenital HI caused by any of the underlying genetic defects.

A summary of the completed clinical studies for RZ358 ~~received RPD designation~~is as follows.

A Phase 1 pharmacokinetic (“PK”) study of single intravenous doses of RZ358 at 0.1 to 9 mg/kg in healthy volunteers revealed dose-dependent pharmacokinetics with a half-life of 15 days, supporting the ~~United States as well as Orphan Drug Designation in both~~biweekly dosing approach. In healthy volunteers, RZ358 prevented hypoglycemia induced by insulin administration, without producing hyperglycemia. This effect showed a PK-pharmacodynamic (dose—response) correlation, with the ~~United States and the European Union.~~hypoglycemia blunting effects of RZ358 ~~recently completed its Phase 2b study (“RIZE study”), RZ358-606.~~ lasting for two weeks.

The ~~RIZE study was a multi-center, open-label, repeat-dose Phase 2b study~~clinical proof-of-concept of RZ358 in ~~four sequential dosing cohorts~~congenital HI was evaluated in a Phase 2a study in a total of 14 patients with congenital HI. The study investigated the PK, pharmacodynamics (“PD”), safety and preliminary efficacy of RZ358. RZ358 was well-tolerated in adult and pediatric patients with congenital HI who ~~are at least two years old,~~received single intravenous doses in the Phase 2a study and ~~have residual low~~the PK results from the Phase 2a studies were consistent with those in healthy volunteers. There was a durable normalization of blood sugar ~~(<70 mg/dL) that is inadequately controlled on existing therapies.~~ in patients with hypoglycemia, with an approximate 50% improvement and near normalization of glucose control, which was sustained for more than two weeks after dosing. RZ358 did not increase blood sugar levels in patients with normal blood sugar levels at baseline.

In ~~addition~~calendar year 2022 we completed the RZ358-606 Phase 2b global clinical study for RZ358 (“RIZE”). The RIZE study was conducted in a repeat-dose fashion to evaluate the safety, pharmacokinetics, dose-exposure response relationship and ~~pharmacokinetic evaluations,~~to assess the glycemic efficacy across a range of continuous glucose monitoring (“~~CGM~~”CGM”) and ~~self-monitored~~ blood glucose monitoring-based principle glycemic endpoints to inform Phase 3. In the study, eligible patients received RZ358 in open-label fashion in one of 4, sequentially conducted dosing cohorts of up to 8 participants per cohort. RZ358 was administered as a 30-minute intravenous infusion every other week for eight weeks. The first three cohorts were ~~utilized~~fixed dosing levels of RZ358 and the fourth cohort was designed to ~~evaluate several glycemic efficacy endpoints.~~ explore whether there were any advantages of a fixed titration approach.

The ~~primary endpoint~~RIZE study enrolled 23 patients, primarily in a young pediatric population, averaging approximately 6.5 years of age, in a diverse group across gender and genetic cause of congenital HI. A key entry criterion was for patients to have continued hypoglycemia despite available therapies to be eligible for enrollment. We observed that patients enrolled on stable background therapies had clinically significant, and in many cases, substantial residual hypoglycemia as well as some hyperglycemia (> 180 mg/dL) at baseline.

Outcomes from the ~~time within a glucose~~RIZE study were presented at the Pediatric Endocrine Society meeting on May 1, 2022. The results from the study showed that target and expected RZ358 concentrations were achieved and dose-exposure dependent responses were also observed. RZ358 was generally safe and well-tolerated and there were no adverse drug reactions, adverse events leading to study discontinuations, or dose-limiting toxicities. Importantly, RZ358 demonstrated an approximately 50% improvement in hypoglycemia across all doses and cohorts and an approximately 75% improvement in hypoglycemia at the 6 mg/kg and 9 mg/kg cohorts. Time in range ~~of 70-180 mg/dL~~ by CGM ~~after week 8~~improved 8% across all doses, 16% at the top dose, and more significantly (>25%) in patients without baseline hyperglycemia on SOC.

We believe that the positive results from the RIZE study will be Phase 3 enabling and accordingly we have initiated interactions with regulatory authorities in the US and Europe. Our objective is to complete the regulatory dialogue prior to the end of the first quarter of calendar year 2023, which would facilitate initiation of a Phase 3 study in the first half of calendar year 2023.

RZ402

Our second clinical asset, RZ402, is an oral plasma kallikrein inhibitor (“PKI”) being developed as a potential therapy for the chronic treatment ~~compared to baseline.~~

~~RZ402~~

of diabetic macular edema (“DME”). DME is a vascular complication of diabetes and a leading cause of blindness in the ~~United States~~US and elsewhere. Chronic exposure to high blood sugar levels can lead to inflammation, cell damage, and the breakdown of blood vessel walls. Specifically, in DME, blood vessels behind the back of the eye become porous and permeable leading to the unwanted infiltration of fluid into the macula. This fluid leakage creates distorted vision, and if left untreated, ~~could result in~~ blindness.

Currently available treatments for DME ~~involve frequent burdensome~~include anti-vascular growth factor (anti-VEGF) injections into the eye or ~~invasive~~ laser surgery. RZ402 is designed to be a once daily oral therapy for the treatment of ~~DME. Unlike~~DME and unlike the anti-VEGF therapies, RZ402 targets the ~~Kallikrein–Kinin~~Kallikrein-Kinin System ~~in order~~ to address inflammation and vascular leakage. We believe that systemic exposure through oral delivery is critical to target the microvasculature behind the back of the eye. Further, as an oral therapy, RZ402 has the potential to substantially change the therapeutic paradigm for patients suffering with DME by providing a convenient, self-administered treatment option to encourage ~~patients to initiate~~earlier initiation of therapy, ~~sooner, adhere~~adherence to prescribed treatment guidelines, and ~~improve~~improved overall outcomes.

Results from our single ascending dose (“SAD”) Phase 1a Study (“RZ402-101”) were reported in May 2021. RZ402-101 was a first-in-human single-center, randomized, double-blind, placebo-controlled SAD study in healthy adult volunteers. The study objectives were to characterize the safety profile and pharmacokinetics of RZ402 administered as single oral doses. The study enrolled 30 individuals in three planned sequential dose- level cohorts of 25 mg, 100 mg, and 250 mg. Within each ten-subject dose cohort, volunteers were randomized 8:2 to receive either RZ402 oral solution or matched placebo. After receiving single doses, participants remained in the clinic for seven days for serial PK and safety assessments, before completing two outpatient follow-up visits at study days 14 and 30. Dose advancement proceeded following blinded reviews of safety and PK data from the preceding cohort(s).

Single doses of RZ402 resulted in dose-dependent increases in systemic exposure. Plasma concentrations of RZ402 significantly exceeded the 3.5 ng/mL target concentration that was pharmacologically active in animal models of DME for a 24-hour period after receipt of RZ402. Across the dose and exposure range, there were no serious adverse events, adverse drug reactions, or discontinuations due to adverse events, and no imbalance of adverse events between the treatment and placebo control groups. Similarly, regular laboratory, hemodynamic, cardiac, and ophthalmologic safety examinations were unremarkable.

Following the success of the SAD study, we undertook a follow-on multiple ascending dose (“MAD”) study (“RZ402-102”). Results from the MAD Study were reported in February 2022. RZ402-102 was a single center, randomized, double-blind, placebo-controlled, in healthy adult volunteers. The objectives of the study were to characterize the repeat dose safety profile (including maximum tolerated dose) and PK of RZ402 administered as daily oral doses for two weeks. The study was conducted in 40 volunteers in sequential ascending dose cohorts with 10 individuals per cohort. Within each cohort, participants were randomized in an 8:2 ratio to receive either RZ402 as an oral solution or a placebo. Participants remained in the clinic throughout the two-week dosing period for serial PK and safety assessments, before completing an outpatient follow-up visit at study day 28. Blood biomarkers of target engagement (kallikrein activity) were explored as a systemic surrogate for DME, using a precedent from studies of kallikrein inhibitors in a systemic vascular leakage syndrome (hereditary angioedema). Dose advancement proceeded in staggered fashion every three weeks as appropriate, following blinded reviews of data from the preceding cohort(s).

The MAD study showed dose-dependent increases in systemic exposures, with repeat-dosing to steady-state resulting in the highest concentrations of RZ402 explored to date, exceeding 200 ng/mL and 50 ng/mL at peak and 24-hour trough, respectively. Following the precedent established in hereditary angioedema, steady-state plasma kallikrein activity in human plasma was measured on Day 14 as a biomarker of RZ402 target engagement. Daily dosing with RZ402 inhibited plasma kallikrein in a dose and concentration-dependent manner (r=0.74; p < 0.001). Given that the in-vivo EC90 for RZ402 in animal models of DME is ~6 ng/mL, the results at both peak and 24-hour trough substantially exceeded target concentrations based on a combination of in-vitro and in-vivo profiling. RZ402 was generally safe and well-tolerated, including at higher doses than previously tested in the SAD study. There were no serious adverse events, adverse drug reactions or identified risks.

We are advancing developmental activities toward a Phase 2a proof-of-concept study, which we plan to initiate during the fourth quarter of calendar year 2022. Dosing of the first patient in a Phase 2 study will trigger a developmental milestone payment of $3.0 million due to ActiveSite Pharmaceuticals.

Factors Impacting our Results of Operations

We have not generated any meaningful revenues since our inception in March 2010. ~~Since inception,~~Over the last several years, we have ~~engaged in organizational activities, obtained debt financing, and~~ conducted private placements and public offerings to raise additional ~~capital. During 2019 we changed our strategy to~~capital, adopted a licensing model to ~~focus on~~pursue development of product candidates, conducted pre-clinical and clinical trials, and conducted other research and development activities ~~for~~on our pipeline of product candidates.

Due to the time required to conduct clinical trials and obtain regulatory approval for ~~all of~~ our product candidates, we anticipate it will be several years before we generate substantial revenues, if ever. We expect to ~~generate~~incur operating losses for the foreseeable future; therefore, we expect to continue efforts to raise additional capital to maintain our current operating plans ~~beyond~~over the next ~~year.~~several years. We cannot ~~provide assurance~~assure you that we will ~~continue to be successful in securing adequate~~secure such financing or that it will be adequate for the long-term execution of our business strategy. Even if we obtain additional financing, it may be costly and may require us to agree to covenants or other provisions that will favor new investors over our existing shareholders.

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Key Components of Consolidated Statements of Operations

Research and development expenses. Research and development (“R&D”&D”) expenses consist primarily of compensation and benefits for our personnel engaged in R&D activities, clinical trial costs, licensing costs, and consulting and outside services. Our R&D compensation costs include an allocable portion of our cash and share-based compensation, employee benefits, and consulting costs related to personnel engaged in the design and development of product candidates and other scientific research projects. We also allocate a portion of our facilities and overhead costs based on the personnel and other resources devoted to R&D activities.

General and administrative expenses. General and administrative (“G&A”&A”) expenses consist primarily of (i) an allocable portion of our cash and share-based compensation and employee benefits related to personnel engaged in our administrative, finance, accounting, and executive functions, and (ii) an allocable portion of our facilities and overhead costs related to such personnel. G&A expenses also include travel, legal, auditing, consulting, investor relations and other costs primarily related to our status as a public company.

Interest ~~expense.~~and other income. ~~The components~~Interest and other income consist primarily of interest ~~expense include the amount of interest payable in~~income earned on temporary cash ~~at the stated interest rate, and accretion of debt discounts and issuance costs (“~~~~DDIC~~”) using the effective interest method. DDIC arises from the issuance of debt instruments and other related contracts or agreements which possess certain terms and conditions resulting in additional financing costs arising from origination, exit and final fees, and other incremental and direct costs incurred to consummate the financing.investments.

Gain (loss) onfrom change in fair value of derivative liabilities. We recognized liabilities for financial instruments that are required to be accounted for as derivatives, as well as embedded derivatives in our debt agreements. Derivative liabilities are adjusted to fair value at the end of each reporting period until the contracts are settled, expire, or otherwise meet the conditions for equity classification. Changes in fair value are reflected as a gain or loss in our unaudited condensed consolidated statements of operations.

Employee retention credit. In response to the COVID-19 pandemic, the United States government has designed programs to assist businesses in dealing with the financial hardships caused by the pandemic. We recognize the right to receive governmental assistance payments in the period in which the related conditions on which they depend are substantially met.

Interest expense. The components of interest expense include the amount of interest payable in cash at the stated interest rate, and accretion of debt discounts and issuance costs (“DDIC”) using the effective interest method. DDIC arises from the issuance of debt instruments and other related contracts or agreements which possess certain terms and conditions resulting in additional financing costs arising from origination, exit and final fees, and other incremental and direct costs incurred to consummate the financing.

Critical Accounting Policies and Significant Judgments and Estimates

Overview

The discussion herein is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods. These items are monitored and analyzed for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.

With respect to our significant accounting policies that are described in Note 1 to our consolidated financial statements included in Item 8 of our ~~2021~~2022 Form 10-K, we believe that the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Accounting for Complex Financings

In order to account for complex financing transactions, we are required to make judgments, assumptions, and estimates to determine the appropriate amounts reported in our consolidated financial statements. These financing transactions typically involve entering into several distinct legal agreements, whereby we are required to identify and account for each freestanding financial instrument separately. The freestanding financial instruments may be classified as debt, temporary equity or permanent equity instruments depending on the results of our evaluation. In addition, we evaluate if any of the financial instruments contain embedded features that are required to be accounted for as derivatives at fair value. Each freestanding financial instrument is required to be recognized at fair value on the closing

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date of the financing. The fair value of warrants is generally determined using the Black-Scholes-Merton (“~~BSM~~”BSM”) valuation model and the fair value of ~~Common Stock~~common stock is based on the trading price of our shares on the closing date.

For financial instruments classified as debt, a discount is recognized if the stated principal balance exceeds the initial allocation of fair value as of the closing date. This discount is accreted to interest expense using the interest method that results in recognition of interest expense at a fixed rate through the expected maturity date.

Share-Based Compensation Expense

We measure the fair value of services received in exchange for all stock options granted based on the fair value of the award as of the grant date. We compute the fair value of stock options with time-based vesting using the BSM option-pricing model and recognize the cost of the equity awards over the period that services are provided to earn the award. For awards that contain a graded vesting schedule, and the only condition for vesting is a service condition, compensation cost is recognized on a straight-line basis over the requisite service period as if the award was, in substance, a single award. We recognize the impact of forfeitures in the period that the forfeiture occurs, rather than estimating the number of awards that are not expected to vest in accounting for share-based compensation. For stock options that are voluntarily surrendered by employees, all unrecognized compensation is immediately recognized in the period the options are cancelled.

Research and Development

R&D costs are expensed as incurred. Intangible assets related to in-licensing costs under license agreements with third parties are charged to expense unless we are able to determine that the licensing rights have an alternative future use in other R&D projects or otherwise.

Clinical Trial Accruals

Clinical trial costs are a component of R&D expenses. We accrue and recognize expenses for clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual study in accordance with agreements

established with clinical research organizations and clinical trial sites. We determine the estimates through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. Nonrefundable advance payments for goods and services that will be used or rendered in future R&D activities, are deferred and recognized as expense in the period that the related goods are delivered, or services are performed.

Results of Operations

Three months ended ~~March 31,~~September 30, 2022 and 2021

Revenue. As a clinical stage company, we did not generate any revenue for the three months ended ~~March 31,~~September 30, 2022 and 2021. We are at an early stage of development ~~as a proprietary product specialty pharmaceutical company,~~ and we do not currently have any commercial products. Our existing product candidates will require extensive additional clinical evaluation, regulatory review, significant marketing efforts and substantial investment before they generate any revenues. We do not expect to be able to ~~market~~generate revenue from any of our product candidates for several years.

Research and development expenses. R&D expenses for the three months ended ~~March 31,~~September 30, 2022 and 2021 were as follows (in thousands, except percentages):


													Increase
					Increase				2022		2021			Amount	Percent
	2022		2021			Amount	Percent
Total R&D expenses	$	8,686	$	3,758	$	4,928	131	%	$	7,704	$	5,774	$	1,930	33	%

The increase in R&D expenses of ~~$4.9~~$1.9 million for the three months ended ~~March 31,~~September 30, 2022 was primarily attributable to an increase in licensing costs of $2.0 million. We did not incur any licensing costs for the three months ended March 31, 2021, whereas for the three months ended March 31, 2022, we incurred $2.0 million under our licensing agreement with Xoma, Inc. (“~~XOMA~~~~”). This payment to XOMA was triggered by the last patient dosing in the Phase 2b clinical study pursuant to the License Agreement entered into by us and~~

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~~XOMA on December 6, 2017. As discussed below under the caption~~ ~~Liquidity and Capital Resources~~, additional expenses will be incurred under our license agreements as we achieve certain clinical milestone events in future periods. In addition to the license cost increase, an increase of $2.1 million was due to higher spending for drug substance and drug product manufacturing and related activities to support ongoing clinical trials, consisting of increases of $1.5 million for RZ358 and increase of $0.6 million for RZ402.

~~Compensation~~compensation and benefits for our R&D workforce that increased by approximately $1.3 million. Approximately $0.6 million of this increase was attributable to an increase in share-based compensation related to stock options granted in June 2022. In addition, cash-based compensation and benefits increased by approximately $0.7 million that was primarily attributable to an increase in the average number of R&D employees from 1823 for the three months ended ~~March 31,~~September 30, 2021 to 2633 for the three months ended ~~March 31,~~September 30, 2022. ~~Various consulting~~In addition to the increases in compensation and ~~outside service~~benefits cost, an increase of $0.5 million was due to higher spending for RZ358 program related costs, ~~also increased by approximately $0.1 million~~primarily for ~~the three months ended March 31, 2022 for ongoing developmental support of RZ358 and RZ402.~~Phase 3 readiness manufacturing costs.

General and administrative expenses. G&A expenses for the three months ended ~~March 31,~~September 30, 2022 and 2021 were as follows (in thousands, except percentages):


													Increase
					Increase				2022		2021			Amount	Percent
	2022		2021			Amount	Percent
Total G&A expenses	$	2,068	$	1,725	$	343	20	%	$	2,514	$	1,866	$	648	35	%

The increase in G&A expenses of ~~$0.3~~$0.6 million for the three months ended ~~March 31,~~September 30, 2022 was primarily attributable to an increase in share-based compensation expense of ~~$0.3~~$0.5 million due to stock options granted to certain executives and employees in ~~the quarter.~~June 2022. An additional $0.1 million increase in other G&A was due to facilities and travel expenses as COVID related travel restrictions have diminished.

Interest ~~Expense.~~and Other Income. Interest ~~expense was approximately~~and other income amounted to $0.4 million for the three months ended ~~March 31,~~September 30, 2022, whereas we did not earn any interest income for the three months ended September 30, 2021. The increase in interest income for the three months ended September 30, 2022 was primarily due to (i) an increase in excess of $100 million in cash balances held in interest bearing accounts, and (ii) an increase in interest rates for such temporary cash investments. The large increase in cash balances was attributable to the completion of equity financings between October 2021 and July 2022.

Employee Retention Credit. We did not generate any employee retention credit income for the three months ended September 30, 2022, compared to $0.2 million for the three months ended September 30, 2021. The income in the prior year was a result of CARES Act benefits. For the three months ended September 30, 2022, governmental assistance was not available under the CARES Act.

Interest Expense. We did not incur any interest expense for the ~~same period in~~three months ended September 30, 2022 due to the repayment of the Loan Agreement on June 30, 2022, whereas we incurred $0.4 million of interest expense for the three months ended September 30, 2021. Interest expense for the three months ended ~~March 31, 2022~~September 30, 2021 was solely attributable to the Loan Agreement ~~(as defined below) entered into in April 2021~~ and consisted of (i) interest expense of $0.3 million based on the weighted average contractual rate of 9.0%, and (ii) accretion of discount of $0.1 million.

~~Gain (loss) on changes in fair value of derivative liabilities~~. On February 17, 2021, we recognized a derivative liability of $3.6 million related to a deficiency in our authorized shares of common stock, since there was a possibility that we could have been required to settle a portion of our outstanding stock options and warrants in cash. This derivative liability was adjusted to fair value at the end of each reporting period and amounted to $1.8 million as of March 31, 2021. The change in fair value of $1.8 million is reflected as a non-cash gain for the three months ended March 31, 2021. For the period from February 17, 2021 through March 31, 2021, a decrease in the market price of our Common Stock was the primary driver that resulted in the reduction in fair value and the resulting non-cash gain. On May 26, 2021, our shareholders approved an increase in authorized shares of common stock that eliminated the authorized share deficiency. Accordingly, the related stock options and warrants were no longer accounted for a derivative liability after May 26, 2021.

For the three months ended March 31, 2022, we recognized a loss of $12,000 due to changes in fair value of embedded derivative liabilities related to the Loan Agreement entered into in April 2021, as discussed below under the caption ~~Liquidity and Capital Resources~~~~. For the three months ended March 31, 2021, we did not have any gains or losses on changes in fair value of embedded derivative liabilities.~~

Income Taxes. For the three months ended ~~March 31,~~September 30, 2022 and 2021, we did not recognize any income tax benefit due to our net losses, and our determination that a valuation allowance was required for all of our deferred tax assets.

~~Nine months ended March 31, 2022 and 2021~~

~~Revenue.~~ As a clinical stage company, we did not generate any revenue for the nine months ended March 31, 2022 and 2021. We are at an early stage of development as a proprietary product specialty pharmaceutical company, and we do not currently have any commercial products. Our existing product candidates will require extensive additional clinical evaluation, regulatory review, significant marketing efforts and substantial investment before they generate any revenues. We do not expect to be able to market any of our product candidates for several years.

~~Table of Contents~~

~~Research and development expenses.~~ ~~R&D expenses for the nine months ended March 31, 2022 and 2021 were as follows (in thousands, except percentages):~~

Increase


2022

2021


Amount

Percent

Total R&D expenses

$
23,912

$
10,598

$
13,314

126
%

The increase in R&D expenses of $13.3 million for the nine months ended March 31, 2022 was primarily attributable to an increase of $6.0 million due to higher spending for drug substance and drug product manufacturing related activities for RZ358 of $4.5 million and for RZ402 of $1.5 million. Additional increases in clinical trial costs were incurred of approximately $1.7 million for RZ358 due to our RZ358 Phase 2b study and $1.4 million for RZ402 Phase 1 studies. An additional $0.9 million was due to an increase in patent maintenance activities and development related consulting not included above to support the RZ402 and RZ358 programs. In addition to the increases in clinical trial costs, an increase of approximately $1.0 million was incurred related to licensing costs. Licensing costs of $2.0 million were incurred in the nine months ended March 31, 2022 due to the last patient dosed in our RZ358 Phase 2b study, under our licensing agreement with XOMA. In comparison, license costs of $1.0 million were incurred for the nine months ended March 31, 2021 under our license agreement with ActiveSite, upon acceptance of our IND by the FDA in December 2020.

Compensation and benefits for our R&D workforce increased by approximately $2.3 million which was primarily attributable to an increase in the average number of R&D employees from 16 for the nine months ended March 31, 2021 to 24 for the nine months ended March 31, 2022.

~~General and administrative expenses.~~ ~~G&A expenses for the nine months ended March 31, 2022 and 2021 were as follows (in thousands, except percentages):~~

Increase


2022

2021


Amount

Percent

Total G&A expenses

$
6,632

$
5,660

$
972

17
%

The increase in G&A expenses of $1.0 million for the nine months ended March 31, 2022 was primarily attributable to an increase in professional fees associated with pipeline candidate market research assessments, consulting services, and strategic financial advisory services related to ongoing financing efforts, totaling approximately $0.7 million. In addition to the professional fee increases, there was an increase of approximately $0.2 million in employee compensation, mainly related to increase in stock-based compensation due to options granted in the nine months ended March 31, 2022.

~~Interest Expense.~~ Interest expense was approximately $1.3 million for the nine months ended March 31, 2022, whereas we did not incur any interest expense for the same period in 2021. Interest expense for the nine months ended March 31, 2022 was solely attributable to the Loan Agreement (as defined below) entered into in April 2021 and consisted of (i) interest expense of $1.0 million based on the weighted average contractual rate of 9.0%, and (ii) accretion of discount of $0.3 million.

~~Gain (loss) on changes in fair value of derivative liabilities.~~ On February 17, 2021, we recognized a derivative liability of $3.6 million related to a deficiency in our authorized shares of common stock, since there was a possibility that we could have been required to settle a portion of our outstanding stock options and warrants in cash. This derivative liability was adjusted to fair value at the end of each reporting period and amounted to $1.8 million as of March 31, 2021. The change in fair value of $1.8 million is reflected as a non-cash gain for the nine months ended March 31, 2021. For the period from February 17, 2021 through March 31, 2021, a decrease in the market price of our Common Stock was the primary driver that resulted in the reduction in fair value and the resulting non-cash gain. On May 26, 2021, our shareholders approved an increase in authorized shares of common stock that eliminated the authorized share deficiency. Accordingly, the related stock options and warrants were no longer accounted for a derivative liability after May 26, 2021.

For the nine months ended March 31, 2022, we recognized a loss of $8,000 due to changes in fair value of embedded derivative liabilities related to the Loan Agreement entered into in April 2021, as discussed below under the caption ~~Liquidity and Capital Resources~~~~. For the nine months ended March 31, 2021, we did not have any gains or losses on changes in fair value of embedded derivative liabilities.~~

~~Table of Contents~~

~~Employee Retention Credit.~~ Employee retention credit income was $0.2 million for the nine months ended March 31, 2022. This amount is a result of the benefits we qualified for under the Coronavirus Aid, Relief, and Economic Security Act during the nine months ended March 31, 2022. We did not recognize any income for employee retention credits for the nine months ended March 31, 2021.

~~Income Taxes.~~ For the nine months ended March 31, 2022 and 2021 we did not recognize any income tax benefit due to our net losses, and our determination that a valuation allowance was required for all of our deferred tax assets.

Liquidity and Capital Resources

Short-term Liquidity Requirements

As of September 30, 2022, we had cash and cash equivalents of $154.3 million and working capital was approximately $153.2 million. We have incurred cumulative net losses of ~~$199.8~~$219.0 million since our inception and as a clinical stage company we have not generated any meaningful revenue to date.

Our primary source of liquidity has historically been from the completion of private placements and public offerings of our equity securities, as well as proceeds from the issuance of debt securities. For the ~~nine~~three months ended ~~March 31,~~September 30, 2022, as discussed above under the caption Recent Developments,we ~~incurred a net loss of $31.6 million and we used $27.5 million of cash~~issued common stock in ~~our operating activities. As of March 31,~~the 2022 our unrestricted cash and cash equivalents balance was $63.4 million and working capital was approximately $61.5 million. Presented below is a summary of the key events affecting our liquidity and capital resources for the nine months ended March 31, 2022, and the expected impact of financing activities completed in April and May 2022.

~~In October and November 2021, we completed an underwritten offering~~Private Placement that resulted in net proceeds of ~~$47.3~~$11.6 million. For the fiscal year ended June 30, 2022, we received net proceeds from the issuance of equity securities of $165.2 million. The completion of these equity financings is the primary factor that resulted in our cash and cash equivalents balance of $154.3 million as of September 30, 2022. For further information about the key terms and results of our debt and equity financing activities, please refer to the discussion below under the captions 2022 Registered Direct Offering, 2021 Underwritten Public Offering and 2021 Registered Direct Offering.

Our most significant contractual obligations consist of milestone payments pursuant to licensing agreements with XOMA Corporation (“XOMA”) and ActiveSite Pharmaceuticals, Inc. (“ActiveSite”) discussed below. Based on our expectations for the dates when certain clinical and regulatory milestones will be achieved, we anticipate that $5.0 million will be payable to XOMA and $3.0 million will be payable to ActiveSite within the next twelve months.

Based on our cash and cash equivalents balance of $154.3 million as of September 30, 2022, we believe we have adequate capital resources to meet all of our contractual obligations and conduct all planned activities to advance our clinical trials during through the fiscal quarter ending September 30, 2023.

Long-term Liquidity Requirements

Our most significant long-term contractual obligations consist of clinical and regulatory milestone payments up to $35.0 million payable to XOMA and up to $45.5 million in milestones payable to ActiveSite, for a total of $80.5 million. As discussed above, we expect that $5.0 million will be payable to XOMA and $3.0 million will be payable to ActiveSite during the next twelve months. Accordingly, the remainder of $72.5 million is considered a long-term liquidity requirement. Our current expectations are that we will incur additional milestone payments of $5.0 million payable to XOMA for the fiscal year ending June 30, 2024. Due to uncertainties in the timing associated with clinical trial activities and regulatory approvals, there is even greater uncertainty in forecasting the milestone payments to XOMA and ActiveSite during the fiscal year ending June 30, 2024 and thereafter.

Our long-term contractual obligations also include (i) operating lease payments up to approximately $0.7 million per year through calendar year 2027, and (ii) an exit fee of $0.6 million if we enter into certain transactions (defined as “Exit Events”) 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 discussed above under the caption Recent Developments, on June 30, 2022 we terminated the Loan Agreement with SLR. However, we remain contingently obligated to pay the $0.6 million exit fee.

The following discussion provides additional information about the ongoing requirements pursuant to our license agreements with XOMA and ActiveSite, along with additional information about our recent financing activities that impacted our liquidity and capital resources through September 30, 2022.

XOMA License Agreement

In December 2017, we entered into a license agreement (the ““XOMA License Agreement”) with XOMA through its wholly-owned subsidiary, XOMA (US) LLC, pursuant to which XOMA granted an exclusive global license 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 revised the amount we were required to expend on development of RZ358 and related licensed products, and revised provisions with respect to our diligence efforts in conducting clinical studies.

Upon the achievement of certain clinical and regulatory events, we will be required to make up to $35.0 million in aggregate milestone payments to XOMA. The first such milestone payment of $2.0 million was triggered upon enrollment of the last patient in our ongoing phase 2 clinical study in January 2022. The next milestone payment of $3.0 million will be due upon the enrollment of the first patient in a Phase 3 study, which we believe will occur in the next twelve months. Additionally, upon the future commercialization of RZ358, we will be required to pay royalties to XOMA based on the net sales of the related products, and milestone payments up to an additional $185.0 million if future annual sales related to RZ358 exceed targets ranging from $100.0 million to $1.0 billion. Through September 30, 2022, no events have occurred that would result in the requirement to make additional milestone payments and no royalties have been incurred.

ActiveSite License Agreement

In August 2017, we entered into a Development and License Agreement with ActiveSite (“ActiveSite License Agreement”) pursuant to which we acquired the rights to ActiveSite’s plasma kallikrein inhibitor portfolio (the “PKI Program”). We are planning to use the PKI Program to develop, file, manufacture, market and sell products for diabetic macular edema and other therapeutic indications. The ActiveSite License Agreement requires various milestone payments ranging from $1.0 million to $10.0 million when milestone events occur, up to an aggregate of $46.5 million of aggregate milestone payments. The first milestone payment for $1.0 million paid in December 2020 after completion of the preclinical work and submission of an IND to the FDA for RZ402. The next milestone payment for $5.0 million will be due upon enrollment of the first patient in a Phase 2 study, which we expect to occur within the next 12 months. We will also be required to pay royalties equal to 2.0% of any sales of products that use the PKI Program. Through September 30, 2022, no events have occurred that would result in the requirement to make additional milestone payments and no royalties have been incurred.

2022 Registered Direct Offering

On May 1, 2022, we entered into 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”). The 2022 RDO resulted in the issuance of (i) approximately 18.0 million shares of our 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 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 4, 2022, the 2022 RDO closed resulting in net proceeds of approximately $110.1 million. The gross amount of the 2022 RDO was $117.6 million, before deduction of an aggregate of $7.1 million for underwriting discounts and approximately $0.4 million for professional fees and other offering expenses payable by us. We believe the additional funding from the 2022 RDO along with the funding received in July 2022 from the 2022 Private Placement provides us with sufficient cash to fund a Phase 3 clinical program for RZ358, as well as a Phase 2 proof of concept study for RZ402.

2021 Underwritten Public Offering and Registered Direct Offering

In October 2021, we 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 2021 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. The Company granted the 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. The aggregate gross proceeds from the 2021 Underwritten Offering amounted to $50.7 million, excluding the Underwriters’ Option, and before deductions for underwriting 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 2021 Underwritten Offering amounted to approximately $47.2 million.

Concurrently with the 2021 Underwritten Offering, Handok, an entity affiliated with a member of the Board of Directors, entered into a subscription agreement for a registered direct offering ~~that resulted in net~~(the “2021 RDO”) pursuant to which we agreed to sell to the Handok an aggregate of 769,231 shares of our common stock at a purchase price of $6.50 per share. The closing for the 2021 RDO occurred on October 27, 2021, whereby we received gross proceeds of $5.0 ~~million (the “~~~~2021 RDO~~~~”), for total net proceeds of approximately $52.3~~ million.

EDA and LPC Financings

In December 2020, we entered into an Equity Distribution Agreement (the “~~EDA~~”“EDA”) with Oppenheimer & Co. Inc. as sales agent that provided for an “at the market offering” for the sale of up to $50.0 million in shares of our common stock (the “~~Placement Shares~~”“Placement Shares”). For the ~~nine~~three months ended ~~March 31, 2022,~~September 30, 2021, we sold 138,388 Placement Shares for which aggregate net proceeds of approximately $1.5 million were received. We provided notice of termination of the EDA to Oppenheimer & Co. Inc. in May 2022 and no further equity securities are issuable under the agreement. Accordingly, the EDA is no longer a potential source of liquidity.~~For additional information about the EDA, please refer to Note 6 to the financial statements included in Part I, Item 1 of this Report.~~

In August 2021, we entered into a purchase agreement (the ““LPC Purchase ~~Agreement~~”Agreement”) with Lincoln Park Capital Fund, LLC (“~~LPC~~”LPC”), ~~which provides~~ that ~~we may sell to LPC~~provided for issuances up to an aggregate of $20.0 million of shares of our common stock (the “~~Purchase Shares~~”“Purchase Shares”). ~~The aggregate number of shares that we can sell to LPC under the Purchase Agreement was 1,669,620 shares of common stock.~~ For the ~~nine~~three months ended ~~March 31, 2022,~~September 30, 2021, LPC purchased 115,708 ~~Purchase Shares~~shares of our common stock and we received net proceeds of $1.2 million. ~~We provided notice of termination of~~In May 2022, we terminated the EDA and the LPC Purchase Agreement ~~to LPC in May 2022 and~~whereby no further equity securities are issuable under ~~the agreement.Accordingly, the Purchase~~these agreements.

Loan Agreement ~~is no longer a potential source of liquidity. For additional information about the Purchase Agreement, please refer to Note 6 to the financial statements included in Part I, Item 1 of this Report.~~

In April 2021, we ~~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~~borrowed $15.0 million ~~term A loan that was funded on April 14, 2021, (ii) term B and term C loans for an aggregate of $15.0 million that were subject to our ability to obtain prescribed amounts of financing and~~under the ~~achievement of certain clinical. We did not achieve~~Loan Agreement discussed above under the ~~initial clinical milestones by January 2022 and accordingly, term B and term C loans are no longer a potential source of liquidity.~~

~~The term A loan has a maturity date of April 1, 2026.~~caption Recent Developments. Outstanding borrowings under the ~~term A loan bear~~Loan Agreement 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 December 31, 2021, the IEBA rate for a term of one month was approximately 0.12% per annum. As of 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% as of March 31, 2022 and 8.87% as ofOn June 30, ~~2021. We are permitted to make interest-only payments on~~2022, we paid off the ~~term A~~outstanding loan ~~at least through May 1, 2023.~~

~~As a condition~~amount of $15.0 million and terminated the Loan Agreement ~~our cash~~in accordance with its terms. In addition to the repayment of principal and ~~cash equivalents became subject~~accrued interest, we paid (i) a prepayment fee equal to ~~a blocked account control agreement (“~~~~BACA~~~~”) in favor~~2.00% of the ~~Lenders whereby~~outstanding principal balance for a ~~cash balance~~total of ~~at least $5.0 million was required beginning on December 31, 2021. In~~$300,000, and (ii) a final fee equal to 4.75% of the ~~event~~aggregate amount of the term loans funded for a ~~default under the~~total of $712,500. The terminated Loan Agreement was secured by substantially all of our assets. The security interests and liens granted in connection with the ~~BACA would enable the Lenders to prevent the release of funds from our cash accounts until the default is cured or waived. For additional information about the~~terminated Loan Agreement ~~please refer to Note 5 to the financial statements included in Part I, Item 1 of this Report.~~

~~Table of Contents~~

As discussed in Note 4 to the financial statements included in Part I, Item 1 of this Report, we are subject to license agreements that require future contractual payments upon achievement of various milestone events. Pursuant to the ActiveSite Agreement, the next milestone will consist of a $3.0 million payment upon dosing of the first patient in a Phase 2 clinical trial for RZ402. Additionally, pursuant to the Xoma Agreement, the next milestone payment is a $5.0 million payment that will be due upon dosing of the first patient in a Phase 3 clinical trial for RZ358.

~~As discussed above under the caption~~ ~~Recent Developments~~, in April 2022 we entered into a lease agreement for a new corporate headquarters facility in Redwood City, California. This lease provides for total base rent payments of approximately $2.9 million through the expected expiration of the lease in July 2027.

~~As discussed above under the caption~~ ~~Recent Developments~~~~, we received net proceeds of approximately $110.5 million upon closing of the 2022 RDO~~were released on ~~May 4,~~June 30, 2022. This amount consists of $41.6 million related to the issuance of 10.9 million Class B PFWs that are subject to Shareholder Approval, and the remainder relates to unrestricted issuances of equity securities. In addition, we entered into the SPA on May 4, 2022, whereby we agreed to sell 3.3 million Class C PFWs that are also subject to Shareholder Approval and are expected to result in net proceeds of $11.4 million upon closing of the Private Placement in May 2022. No assurance can be provided that Shareholder Approval will ultimately be obtained and that we will be able to avoid incurring substantial liquidated damages payments.

We believe our unrestricted cash and cash equivalents balance of $63.4 million as of March 31, 2022, combined with the unrestricted net proceeds received from the 2022 RDO, will be adequate to meet our contractual obligations, and carry out clinical trials and other planned activities at least through May 2023.

Cash Flows Summary

Presented below is a summary of our operating, investing, and financing cash flows for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021 (in thousands):


	2022		2021		Change		2022		2021		Change
Net cash provided by (used in):
Operating activities	$	(27,506)	$	(15,211)	$	(12,295)	$	(7,589)	$	(6,341)	$	(1,248)
Investing activities		—		—		—		(70)		—		(70)
Financing activities		54,875		37,245		17,630		11,571		2,586		8,985

Cash Used in Operating Activities

For the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021, cash used in operating activities amounted to ~~$27.5~~$7.6 million and ~~$15.2~~$6.3 million, respectively. The key components in the calculation of our cash used in operating activities are as follows (in thousands):

2022

2021

Change
Net loss

$
(31,637)

$
(14,412)

$
(17,225)
Non-cash expenses

3,259

2,544

715
Non-cash gains, net

—

(1,784)

1,784
Changes in operating assets and liabilities, net

872

(1,559)

2,431
Total

$
(27,506)

$
(15,211)

$
(12,295)


	2022		2021		Change

Net loss	$	(9,831)	$	(7,836)	$	(1,995)
Non-cash expenses		1,918		1,028		890
Non-cash gains, net		—		(16)		16
Changes in operating assets and liabilities, net		324		483		(159)
Total	$	(7,589)	$	(6,341)	$	(1,248)

For the ~~nine~~three months ended ~~March 31,~~September 30, 2022, our net loss was ~~$31.6~~$9.8 million compared to ~~$14.4~~$7.8 million for the ~~nine~~three months ended ~~March 31,~~September 30, 2021. For further discussion about changes in our operating results for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021, please refer to Results of Operations above.

For the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021, our non-cash expenses of ~~$3.3~~$1.9 million and ~~$2.5~~$1.0 million, respectively, were primarily attributable to share-based compensation expense, accretion of debt discount and issuance costs, and non-cash lease expense. For the ~~nine~~three months ended ~~March 31,~~September 30, 2022, net changes in operating assets and liabilities decreased operating cash flow by $0.3 million, primarily driven by an increase in prepaid expenses and other assets of $0.4 million, offset by a net decrease of $0.1 million in accounts payable and other accrued liabilities. For the three months ended September 30, 2021, net changes in operating assets and liabilities increased operating cash flow by ~~$0.9~~$0.5 million, primarily driven by ~~an increase~~increased in accounts payable ~~of $0.5~~by $0.6 million, ~~and an increase in other accrued liabilities of $0.3 million. For the nine months ended March 31, 2021, net changes in operating assets and liabilities decreased operating cash flow by $1.6 million,~~

~~Table of Contents~~

~~primarily driven by a $1.8 million decrease in payables to Xoma under the amended License Agreement,~~ partially offset by ~~a decrease of $0.4 million~~an increase in prepaid expenses and other ~~assets.~~assets of $0.1 million.

Cash Provided by Investing Activities

For the three months ended September 30, 2022, our net cash utilized in investing activities amounted to $70,000, related to the purchase of furniture and equipment. We did not have any cash flows from investing activities for the ~~nine~~three months ended ~~March 31, 2022 and~~September 30, 2021.

Cash Provided by Financing Activities

Net cash provided by financing activities for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 amounted to ~~$54.9~~$11.6 million. This amount consisted of proceeds of ~~(i) $50.7~~$12.3 million from the ~~Underwritten Offering, (ii) $5.0 million from the 2021 RDO, (iii) $1.5 million from the EDA, and (iv) $1.2 million from the Purchase Agreement.~~2022 Private Placement. The total proceeds from ~~equity financing activities~~the 2022 Private Placement of ~~$58.4~~$12.3 million were partially offset by payments of ~~$3.4~~$0.8 million for underwriting ~~discounts~~commissions and other costs related to ~~equity offerings, and $0.1 million of payments for debt issuance costs.~~this offering.

Net cash provided by financing activities for the ~~nine~~three months ended ~~March 31,~~September 30, 2021 ~~was $37.2~~amounted to $2.6 million. This amount ~~consisted~~included (i) $1.5 million of ~~$41.0 million received~~gross proceeds from ~~a private placement of Units in October 2020 for~~ the ~~purchase of approximately 2.5 million shares of common stock at a purchase price of $16.50 per share~~EDA and (ii) ~~warrants entitling the holders to purchase approximately 0.8~~$1.2 million ~~shares~~ of ~~common stock. The~~ gross proceeds ~~of $41.0~~from LPC purchase agreement. The total proceeds from equity financing activities amounted to $2.7 million and were partially offset by payments of $0.1 million related to financial advisory fees and ~~offering~~other costs of ~~approximately $3.7 million related to the issuance of Units, and prepaid debt discount and issuance costs related to the Loan Agreement entered into in April 2021.~~equity financings.

Recent Accounting Pronouncements

Please refer to Note 1 to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Report regarding the impact of recent accounting pronouncements.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet transactions for the periods covered by this Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive and financial officer), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange ~~Act~~”Act”). Based on that assessment under those criteria, our management has determined that our internal control over financial reporting was not effective due to ~~two~~a material ~~weaknesses~~weakness in the system of internal control. A material weakness is a deficiency, or combination of deficiencies, that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner.

The ~~first~~ material weakness identified by management is primarily that due to our limited number of employees, we have not adequately segregated certain duties to prevent employees from overriding the internal control system. During ~~our~~the fiscal year ended June 30, ~~2021,~~2022, we implemented a more robust accounting software that is expected to result in stronger controls. In October 2022, we hired ~~a Vice President of Finance and we implemented additional procedures to improve our segregation of duties. However, without hiring~~ additional personnel, ~~we have been unable~~which will enable us to ~~fully remediate this material weakness.~~better segregate many functions. We cannot provide assurance that these or other measures will eventually result in the elimination of the material weakness described above.

3026

~~Table of Contents~~

In March 2021, we identified a second material weakness that resulted from ineffective treasury controls over review of outstanding authorized shares and requirements for all securities and contracts to issue common shares to ensure adequate authorized shares exist. This material weakness occurred in February 2021 when we decided to file a certificate of correction with the Secretary of State of Delaware (“~~Charter Revision~~”) that changed our authorized shares of capital stock in the same 50 shares for one share ratio that applied to our issued shares of common stock, stock options and warrants pursuant to a reverse stock split that was effected in October 2020. The impact of this adjustment caused an immediate reduction in our authorized shares of common stock from 500,000,000 shares to 10,000,000 shares. Accordingly, after the Charter Revision we did not have a sufficient number of authorized shares of common stock in the event that all of our outstanding stock options and warrants are subsequently exercised.

On May 26, 2021, our shareholders voted to approve motions to reincorporate from the state of Delaware to the state of Nevada and to increase our authorized shares of common stock from 10,000,000 shares to 40,000,000 shares. Accordingly, the authorized share deficiency that occurred in February 2021 was cured on May 26, 2021, such that we have an adequate number of shares of common stock whereby all outstanding stock options and warrants may be exercised in exchange for shares of common stock. In addition to the shareholder approvals to reincorporate and increase our authorized shares, we are implementing procedures to ensure that our Board of Directors provides explicit approval for all future charter amendments, and all future issuances of shares of our common stock and any warrants and stock options that are not subject to a plan approved by our shareholders. We cannot provide assurance that these or other measures will eventually result in the elimination of this material weakness.

Changes in internal controls over financial reporting

During the period covered by this Quarterly Report on Form 10-Q, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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~~Table of Contents~~

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

~~The~~Our risk ~~factor set forth below should be read in conjunction with the risk~~ factors are set forth under “Item 1A. Risk Factors” in our ~~2021~~2022 Form 10-K (referred to as our “Legacy Risk Factor Disclosures”). ~~The developments described in the additional risk factor below have heightened, or in some cases manifested, certain~~As of the ~~Legacy Risk Factor Disclosures. Except as described herein,~~date of this Report, there have been no material changes with respect to Legacy Risk Factor Disclosures.

You should carefully consider the Legacy Risk Factor Disclosures in addition to the other information set forth in this Report and in our ~~2021~~2022 Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections and the consolidated financial statements and related notes. These risks, some of which have occurred and any of which may occur in the future, can have a material adverse effect on our business, financial condition, results of operations or the prices of our publicly traded securities. The ~~risk factor described below and the~~ Legacy Risk Factor Disclosures are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may occur or become material in the future and adversely affect our business, reputation, financial condition, results of operations or the prices of our publicly traded securities. Therefore, historical operating results, financial and business performance, events and trends are often not a reliable indicator of future operating results, financial and business performance, events or trends.

~~If we are unable to obtain shareholder approval for the Class B PFWs and, if then issued, the Class C PFWs, will be required to pay liquidated damages.~~

As soon as practicable following the closing of our May 4, 2022 equity offering, we are required to hold an annual meeting of shareholders for the purpose of obtaining stockholder approval of an increase in authorized shares. We are required to use our best efforts to hold the shareholder meeting no later than June 30, 2022, obtain shareholder approval and cause the Board of Directors to recommend to the shareholders that they approve such matter. If shareholder approval is not obtained on or prior to June 30, 2022, we are required to hold an additional shareholder meeting every three months thereafter until such shareholder approval is obtained.

If we do not obtain shareholder approval by June 30, 2022, we are required to pay liquidated damages of 2.0% of the aggregate purchase price paid by each holder of Class B PFWs, and if then issued, the Class C PFWs. For any subsequent failure to obtain shareholder approval, we are required to pay an additional 2.0% as liquidated damages.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~There were no reportable issuances~~On May 1, 2022, we entered into a placement agency agreement with Jefferies LLC, that provided for a private placement of ~~unregistered~~equity securities (the “Private Placement”) with Handok, Inc. and certain of its affiliates. The closing for the Private Placement occurred on July 22 and July 26, 2022, whereby we received gross proceeds of approximately $12.3 million in exchange for the issuance of approximately 3.2 million shares of common stock at a purchase price of $3.80 per share. The net proceeds from the ~~Company’s equity~~Private Placement amounted to approximately $11.6 million after deduction of $0.7 million for underwriting commissions. The securities ~~for~~that were sold in the ~~period covered by this Report.~~Private Placement were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

The following exhibits are incorporated by reference or filed as part of this Quarterly Report on Form 10-Q:


Exhibit Number		Description of Exhibits
10.1		Form of Amended and Restated Securities Purchase Agreement, dated as of July 22, 2022 (incorporated by reference to Exhibit 10.22 of the Company’s Form 10-K filing on September 15, 2022)
31.1*		Certification of Chief Executive and Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1*		Certification of Chief Executive and Principal Financial Officer as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS*		Inline XBRL Instance Document
101.SC*		Inline XBRL Taxonomy Extension Schema
101.CA*		Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase
101.LA*		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase
104		Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101)

* Filed herewith.

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SIGNATURES

In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		REZOLUTE, INC.

Date: ~~May 12,~~November 9, 2022	By:	/s/ Nevan Charles Elam
		Nevan Charles Elam
		Chief Executive Officer
		(Principal Executive and Financial Officer)

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		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


Fair value as of June 30, 2021	$	387
Gain from change in fair value		8
Fair value as of March 31, 2022	$	395