What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2020-10-13 compared with 2019-09-10 · 526 added, 618 removed, 67 unchanged (94% of the section changed)

MARKET FOR REGISTRANT’S

COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock is currently quoted

on the OTCQB of the OTC Markets Group under the trading symbol “RZLT”.

The OTCQB is an inter-dealer quotation and trading

system and only market makers can apply to quote securities on the OTCQB.

Trading in our common stock on the OTCQB has been limited

and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions.

Further, these prices

reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions.

The following table sets forth the high

and low daily closing prices for our common stock for the each of the fiscal quarters in the two-year period ended June 30, 2019.

These prices do not reflect retail markups, markdowns, or commissions.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Prior to the effectiveness of the reverse stock split on October 9, 2020, our Common stock was quoted on the OTCQB of the OTC Markets

Group under the trading symbol "RZLT".

Upon the effectiveness of the reverse stock split, the trading symbol was changed to "RZLTD".

is an inter-dealer quotation and trading system and only market makers can apply to quote securities on the OTCQB.

our Common Stock on the OTCQB has been limited and sporadic and the quotations set forth below are not necessarily indicative

of actual market conditions.

Further, these prices reflect inter-dealer prices without retail mark-up, mark-down, or commission,

and may not necessarily represent actual transactions.

following table sets forth the high and low prices for our Common Stock for the each of the fiscal quarters in the two-year period

ended June 30, 2020.

These prices have been adjusted to give effect to the Reverse Stock Split and do not reflect retail

markups, markdowns, or commissions.

Fiscal year ended June 30,

3 unchanged sentences

Fourth Quarter

As of September 5, 2019, there

were of record 386 holders of common stock.

We believe the number of beneficial owners of our common stock are substantially

greater than the number of record holders because a large portion of our outstanding common stock is held of record in

broker “street names”

for the benefit of individual investors.

We have never paid cash dividends and intend

to employ all available funds in the development of our business.

We have no plans to pay cash dividends in the foreseeable future.

If we issue in the future any preferred stock or obtain financing from a bank, the terms of those financings may contain restrictions

on our ability to pay dividends.

Recent Sales of Unregistered Securities

All unregistered sales of securities during

the period covered by this Annual Report were reported in our Current Reports on Form 8-K.

Equity Compensation Plan Information

Presented below is information about our

equity compensation plans as of June 30, 2019 (shares in thousands):

of September 30, 2020, there were 346 holders of record of our Common Stock.

believe the number of beneficial owners of our Common Stock are substantially greater than the number of record holders because

a large portion of our outstanding Common Stock is held of record in broker “street names”

for the benefit of individual

have never paid cash dividends and intend to employ all available funds in the development of our business.

We have no plans to

pay cash dividends in the foreseeable future.

If we issue in the future any preferred stock or obtain financing from a bank, the

terms of those financings may contain restrictions on our ability to pay dividends.

Sales of Unregistered Securities

unregistered sales of securities during the period covered by this Annual Report were reported in our Current Reports on Form 8-K.

Compensation Plan Information

below is information about our equity compensation plans, adjusted to give effect to the Reverse Stock Split, as of June 30,

2020 (shares in thousands):

Shares to be Issued Upon

10 unchanged sentences

Equity compensation plans not approved by security holders:

2019 Non Qualified Stock Option Plan

July 31, 2029

SELECTED FINANCIAL DATA.

We are a smaller reporting company as defined

by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion

and Analysis of Financial Condition and Results of Operations of contain forward-looking statements which involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors,

including those set forth under “Risk Factors”

and elsewhere in this Annual Report.

We assume no obligation to update

forward-looking statements or the risk factors.

You should read the following discussion in conjunction with our consolidated financial

statements and related notes included in Item 8 of this Annual Report.

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 consolidated financial statements or in the associated text.

Certain other amounts that appear in this section

may similarly not sum due to rounding.

Recent Developments

In January 2019, we announced and closed

on a $25.0 million private placement with Handok, Inc.

and Genexine, Inc., two publicly traded South Korean-based pharmaceutical

companies (collectively referred to as “H&G”

H&G acquired shares of our Series AA Preferred Stock

that converted in April 2019 into an aggregate of 113.6 million shares of our Common Stock at a conversion price of $0.22 per

Upon our request, we also provided an option for H&G to purchase up to an aggregate of $20.0 million of shares of our

Common Stock prior to December 31, 2020, at a price per common share equal to the greater of $0.29 or 75% of the volume weighted

average closing price of our Common Stock over 30 consecutive trading days prior to the exercise of the option to purchase.

July 2019, we requested that H&G provide such funding as part of a larger private placement.

On July 23, 2019, H&G agreed

to purchase an aggregate of approximately 69.0 million shares of our Common Stock for $0.29 per share which resulted in gross

proceeds of $20.0 million.

In addition, other investors participated in this private placement, resulting in the issuance in July

and August 2019 of an aggregate of 14.0 million shares for an additional cash infusion of $4.1 million.

Commissions and other

offering costs related to these equity issuances in July and August 2019 amounted to an aggregate of approximately $1.4 million.

Accordingly, we have received net capital infusions of approximately

$25.0 million in January 2019 and an additional $22.6 million in July and August 2019, which provides us with the needed capital

resources to pursue our development strategy.

We have also relocated our headquarters to Redwood City, California, opened an ancillary

facility in Bend, Oregon, and began expanding our team in key areas such as clinical operations, accounting, CMC, and quality.

We have begun actively preparing RZ358 for clinical studies, initiated pre-clinical activities for RZ402, and resumed the AB101

clinical studies in Southern California.

For our fiscal year ending June 30, 2020, we have the following

objectives to advance our development strategy:

(i) initiate the Phase 2b clinical study for RZ358 in the US and/or Europe, (ii)

complete the necessary toxicology studies for RZ402 to enable the filing of an IND and the initiation of clinical studies thereafter,

and (iii) complete the Phase 1 study for AB101 and explore partnership opportunities

Reference is made to Note 13 to our consolidated financial statements

included in Item 8 of this Annual Report for further discussion of our financing activities completed in July and August 2019,

approval of our 2019 Stock Plan, grants of stock options for approximately 34.0 million shares of Common Stock and, subject to

stockholder approval, our ability to complete a reverse stock split and set the exchange ratio between 20 and 100 shares of our

Common Stock into one issued and outstanding share of Common Stock.

Factors impacting our Results Operations

We have not generated any revenues since

our inception in March 2010.

Since inception, we have engaged in organizational activities, conducted private placements to raise

additional capital, built out a manufacturing suite and produced material for our lead product candidate under good laboratory

practices (“GLP”), conducted studies using the GLP material, subsequently changed our strategy to a licensing model

that resulted in disposal of our manufacturing assets, and conducted other research and development activities on our pipeline

product candidates.

Due to the time required to conduct clinical

trials and obtain regulatory approval for any of our product candidates, we anticipate it will be some time before we generate

substantial revenues, if ever.

We expect to generate operating losses for the foreseeable future;

therefore we expect to continue

efforts to raise additional capital to maintain our current operating plans beyond the next year.

We cannot assure you that we

will 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 stockholders.

Our stated strategy has been to build a

metabolic focused biotechnology company by in-licensing compelling compounds that we believe clearly target different diseases

where there is an unmet need.

In December 2017, we completed the latest phase of this strategy by in-licensing RZ358 from Xoma

RZ358 is a fully human monoclonal antibody that is currently in Phase 2 clinical development.

RZ358 is being developed

to treat congenital hyperinsulinism, a devastating ultra-orphan pediatric disease.

We believe that RZ358 complements our two

other metabolic pipeline opportunities including:

(i) our plasma kallikrein inhibitor, RZ402, which is a late stage preclinical

program that offers the potential of an oral therapy to treat diabetic macular edema, the leading cause of blindness in adults

in the US, and (ii) our super-long-acting basal insulin, AB101, which is currently in Phase 1 clinical development to assess the

safety and tolerability, pharmacokinetics and pharmacodynamics of AB101 in patients with diabetes mellitus.

Key Components of Consolidated Statements

of Operations

are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information

under this item.

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

following Management’s Discussion and Analysis of Financial Condition and Results of Operations of contain forward-looking

statements which involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking

statements as a result of certain factors, including those set forth under “Risk Factors”

and elsewhere in this Annual

We assume no obligation to update forward-looking statements or the risk factors.

You should read the following discussion

in conjunction with our consolidated financial statements and related notes included in Item 8 of this Annual Report.

figures, such as interest rates and other percentages included in this section have been rounded for ease of presentation.

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 consolidated financial statements or in the associated text.

Certain other amounts

that appear in this section may similarly not sum due to rounding.

October 9, 2020,

we completed a private placement of equity securities that resulted in net proceeds of approximately $ 37.6 m illion.

completion of this private placement triggered our obligation to repay the remaining balance due to Xoma of $1.8 million.

Effective October 9, 2020, we implemented a one

share for 50 s hares Reverse Stock Split of our $0.001 par value Common Stock.

During September 2020, we made adjustments to our Board of Directors, which included appointing Philippe Fauchet as an

independent director.

Our Board now consists of a majority of independent directors.

We continue to work diligently towards

our goal of having our shares of Common Stock listed on the Nasdaq Capital Market and we believe that we currently meet all

of Nasdaq’s initial listing standards.

refer to our discussion under Liquidity below and in Notes

4 and 14 to our consolidated financial statements included in Item 8 of this Annual Report for further discussion of the

private placement, Early Payments due to Xoma, and the Reverse Stock Split.

Note About COVID-19

have been actively monitoring the COVID-19 situation and its impact.

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.

While our financial results for the fiscal year ended June 30, 2020 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 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, as well as our preclinical studies and clinical trials remains 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 consolidated financial position, results of operations and cash

We will continue to monitor the situation closely.

impacting our Results Operations

have not generated any revenues since our inception in March 2010.

Since inception, we have engaged in organizational activities,

conducted private placements to raise additional capital, built out a manufacturing suite and produced material for our lead product

candidate under good laboratory practices (“GLP”), conducted studies using the GLP material, subsequently changed

our strategy to a licensing model that resulted in disposal of our manufacturing assets, and conducted other research and development

activities on our pipeline product candidates.

to the time required to conduct clinical trials and obtain regulatory approval for any of our product candidates, we anticipate

it will be some time before we generate substantial revenues, if ever.

We expect to generate operating losses for the foreseeable

therefore we expect to continue efforts to raise additional capital to maintain our current operating plans beyond the

We cannot assure you that we will 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 stockholders.

December 2019, we received top-line results in our Phase 1 clinical study related to AB101 where we determined that additional

formulation adjustments are required before further clinical studies can be undertaken.

As a portfolio management decision, we have decided not to take the program further in development and expect

that future expenditures related to the program will be insignificant.

Components of Consolidated Statements of Operations

and development expenses.

Research and development expenses

and development expenses consist primarily of in-licensing costs, material manufacturing costs, and clinical trial costs.

and development expenses also include (i) an allocable portion of our cash and stock-based compensation, employee benefits, and

consulting costs related to personnel engaged in the design and development of product candidates and other scientific research

projects, and (ii) an allocable portion of our facilities and overhead costs related to such personnel.

General and administrative expenses.

and administrative expenses consist primarily of (i) an allocable portion of our cash and stock-based compensation, employee benefits

and consulting costs 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.

General and administrative expenses also include

travel, legal, auditing, investor relations and other costs primarily related to our status as a public company.

Impairment of long-lived assets.

exists for property and equipment and identifiable intangible assets if the carrying amounts of such assets exceed the estimates

of future net undiscounted cash flows expected to be generated by such assets.

An impairment charge is recognized for the amount

by which the carrying amount of the asset, or asset group, exceeds its estimated fair value.

Gain (loss) on sale of property and

We recognize a loss on sales of property and equipment when the sale proceeds are less than the net carrying

value of the assets sold.

Gains are recognized if the sale proceeds exceed the net carrying value of the assets sold.

Any transactions

that result in gains are netted against transactions that result in losses for presentation in our consolidated financial statements.

Interest expense.

components of interest expense include the amount of interest payable in cash at the stated interest rate, beneficial conversion

features that arise from the terms of debt arrangements, and accretion of debt discounts and issuance costs (“DDIC”)

using the effective interest method.

DDIC arises from the issuance of debt instruments at a discount to the original principal

balance, the fair value of warrants issued in connection with a debt instrument, and incremental and direct costs incurred to consummate

the financing.

Loss on extinguishment of debt.

we amend our debt arrangements, we evaluate the terms to determine if the amendment should be accounted for as a troubled debt

restructuring, a modification or an extinguishment.

If we conclude that accounting as an extinguishment is required, we measure

the extinguishment charge on the date of the amendment based on the amount by which the fair value of the new debt instrument exceeds

the net carrying value of the original debt instrument.

Gain on change in fair value of embedded

If we determine that our debt instruments contain an embedded derivative that is required to be bifurcated,

we record the embedded derivative at fair value in our consolidated balance sheets.

Examples of embedded derivatives are requirements

to pay default interest upon the existence of an event of default, and requirements to pay fees for certain prepayments of the

outstanding principal balance.

Changes in the fair value of embedded derivatives are reflected as a non - operating gain or

loss in our consolidated statements of operations.

Gain on lease termination.

we enter into surrender agreements to terminate our lease and sub-lease obligations, we recognize a gain if the amount of obligations

relieved are in excess of the security deposits forfeited and any other consideration that we may have to pay.

In these circumstances,

we separately recognize an impairment charge if our unamortized leasehold improvement costs are no longer considered recoverable.

Rental income.

enter into subleases for our leased facilities, we recognize rental income on a straight-line basis over the term of the sublease

Interest and other income.

and other income consist primarily of interest income earned on temporary cash investments.

Critical Accounting Policies and Significant

Judgments and Estimates

Our management’s discussion and analysis

of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in

accordance with accounting principles generally accepted in the United States.

The preparation of these 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

With respect to our significant accounting

policies that are described in Note 1 to our consolidated financial statements included in Item 8 of this Annual Report, 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

consist primarily of material manufacturing costs, clinical trial costs and in-licensing costs.

Our research and development expenses

also include (i) an allocable portion of our cash and stock-based compensation, employee benefits, and consulting costs related

to personnel engaged in the design and development of product candidates and other scientific research projects, and (ii) an

allocable portion of our facilities and overhead costs related to such personnel.

and administrative expenses.

General and administrative

expenses consist primarily of (i) an allocable portion of our cash and stock-based compensation, employee benefits and consulting

costs 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.

General and administrative expenses also include travel,

legal, auditing, investor relations and other costs primarily related to our status as a public company.

The components of interest expense include the

amount of interest payable in cash at the stated interest rate, beneficial conversion features that arise from the terms of debt

arrangements, and accretion of debt discounts and issuance costs (“DDIC”) using the effective interest method.

DDIC arises from the issuance of debt instruments at a discount to the original principal balance, the fair value of warrants

issued in connection with a debt instrument, and incremental and direct costs incurred to consummate the financing.

and other income.

Interest and other income consist primarily

of interest income earned on temporary cash investment, rental income related to subleases that were in effect until December 2018,

gain on termination of lease and sublease agreements, and gains on changes in the fair value of embedded derivatives.

Accounting Policies and Significant Judgments and Estimates

management’s discussion and analysis of financial condition and results of operations 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.

respect to our significant accounting policies that are described in Note 1 to our consolidated financial statements included

in Item 8 of this Annual Report, 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.

and Development

and development 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 research and development projects or otherwise.

Trial Accruals

trial costs are a component of research and development expenses.

The Company accrues and expenses clinical trial activities performed

by third parties based upon estimates of the percentage of work completed over the life of the individual study in accordance

with agreements established with clinical research organizations and clinical trial sites.

The Company determines the estimates

through discussions with internal clinical personnel and external service providers as to the progress or stage of completion

of trials or services and the agreed-upon fee to be paid for such services.

Nonrefundable

advance payments for goods and services that will be used or rendered in future research and development activities, are deferred

and recognized as expense in the period that the related goods are delivered, or services are performed.

Compensation Expense

measure the fair value of services received in exchange for all stock options granted based on the fair market value of the award

as of the grant date.

We compute the fair value of stock options with

time-based vesting using the Black-Scholes-Merton (“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 granted which 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 stock-based compensation.

have granted stock options with vesting that is dependent on achieving certain market, performance and service conditions (“Hybrid

Options”).

For purposes of recognizing compensation cost, we determine the requisite service period as the longest of the

derived, implicit and explicit vesting periods for each of the market, performance and service conditions, respectively.

cost will be recognized beginning on such date that achievement of the performance condition is considered probable and continuing

through the end of the requisite service period.

Determination of the requisite service period of the Hybrid Options will be based

on the date that the performance condition is considered probable.

Unrecognized compensation cost for the Hybrid Options, calculated

using the BSM pricing model, will be recognized beginning on the date that the performance condition is considered probable using

the grant date fair value.

If the Hybrid Options do not ultimately become exerciseable as a result of failure to achieve the requisite service period,

any previously recognized compensation cost will be reversed.

determine if an arrangement includes a lease as of the date we enter into an agreement.

Operating leases are included in right-of-use

(“ROU”) assets, and operating lease liabilities in our Consolidated Balance Sheets.

ROU assets and operating

lease liabilities are recognized based on the present value of the future lease payments as of the lease commencement date.

generally use the incremental borrowing rate based on the information available at the lease commencement date in determining

the present value of future lease payments.

Our leases may include options to extend or terminate the lease;

the calculation of

ROU assets and operating lease liabilities gives effect to these options when we believe it is reasonably certain that the options

will be exercised.

Lease expense is recognized on a straight-line basis over the lease term.

We have elected not to apply the

recognition requirements for short-term leases.

For lease agreements with lease and non-lease components, we generally account

for them separately.

of Operations

DDIC incurred to obtain new debt financing or modify existing

debt financing consists of incremental direct costs incurred for professional fees and due diligence services, and the fair value

of warrants issued in connection with the financing.

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

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

When we amend our debt arrangements, we evaluate the terms to

determine if the amendment should be accounted for as a troubled debt restructuring (“TDR”), a modification or an extinguishment.

If we determine that the lender has provided a concession and we are experiencing financial difficulties, we would generally recognize

If we conclude that accounting as a modification is required, then any costs incurred on behalf of the lenders is accounted

for as additional DDIC.

If we conclude that accounting as an extinguishment is required, we measure the extinguishment charge on

the date of the amendment based on the amount by which the fair value of the new debt instrument exceeds the net carrying value

of the original debt instrument.

Beneficial Conversion Features

A beneficial conversion feature (“BCF”) is a non-detachable

conversion feature that is “in the money”

at the commitment date, which requires recognition of interest expense for

underlying debt instruments and a deemed dividend for underlying equity instruments.

A BCF that is accounted for as a deemed dividend

is given effect in our net loss per share calculations.

A conversion option is in the money if the effective conversion price is

lower than the commitment date fair value of a share into which it is convertible.

A contingent BCF feature is measured using the

commitment date security price but is not recognized in earnings until the contingency is resolved.

Research and Development

Research and development costs are expensed

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 research and development projects

or otherwise.

Valuation of Stock Options and Warrants

We measure the fair value of employee and

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

the award as of the grant date.

We compute the fair value of stock options using the Black-Scholes-Merton (“BSM”) option

pricing model and recognize the cost of the equity awards over the period that services are provided to earn the award, which is

typically a vesting period over four years.

For awards granted which 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 stock-based compensation.

We account for stock options and warrants

granted to non-employees by determining the fair value of the equity instrument issued on the commitment date, with expense recognized

over the service period.

Prior to the establishment of the commitment date, we continue to remeasure the fair value of the award,

resulting in the recognition of subsequent gains and losses until the commitment date is achieved.

We estimate fair value of non-employee

awards using the BSM option pricing model.

Results of Operations

Our consolidated statements of operations

for the fiscal years ended June 30, 2019 and 2018, along with the changes between years, are presented below (in thousands):

of operations for the years ended June 30, 2020 and 2019 reflect net losses of approximately $20.3 million and $30.4 million,

respectively.

Our consolidated statements of operations for the years ended June 30, 2020 and 2019, along with the changes

between periods, are presented below (in thousands, except percentages):

Operating expenses:

1 unchanged sentence

Compensation and benefits

Licensing costs

Material manufacturing costs

Clinical trial costs

Consultants and outside services

Material manufacturing costs

Facilities and other

Clinical trial costs

Licensing costs

Total research and development

1 unchanged sentence

Compensation and benefits

Facilities and other

Professional fees

Investor relations

Facilities and other

Total general and administrative

Impairment of long-lived assets

Loss on sale of property and equipment

Total operating expenses

1 unchanged sentence

Non-operating income (expense):

Interest expense

Loss on extinguishment of debt

Gain on change in fair value of embedded derivatives

Gain on lease termination

Rental income

Interest and other income

Interest expense

Total non-operating income (expense)

As a clinical stage company, we did not

generate any revenue for the fiscal years ended June 30, 2019 and 2018.

Research and Development Expenses

below is a discussion of the key factors that resulted in changes in our results of operations for these periods.

As a clinical stage company, we did not generate any revenue

for the years ended June 30, 2020 and 2019.

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.

and Development Expenses.

Research and development (“R&D”)

costs increased from approximately $17.3 million for the fiscal year ended June 30, 2018 to $19.1 million for the fiscal year ended

June 30, 2019, an increase of $1.8 million or 10%.

This increase was primarily attributable to an amendment to our License Agreement

with Xoma related to RZ358, whereby we incurred aggregate license fees of $14.0 million for the fiscal year ended June 30, 2019,

which is an increase of $7.8 million compared to $6.3 million incurred for the fiscal year ended June 30, 2018.

Intangible assets for costs incurred under

license agreements with third parties are charged to expense, unless the licensing rights have separate economic value in alternative

future research and development projects or otherwise.

Accordingly, all of the payments under our licensing agreements with Xoma

and ActiveSite have been charged to expense in the period in which the cost is incurred.

For the fiscal year ended June 30, 2019,

our R&D expense for license costs consisted of a cash payment to Xoma of $5.5 million made in February 2019, and an accrued

liability to pay $8.5 million to Xoma in staggered amounts on a quarterly basis beginning in the fiscal quarter ending September

In addition, the amendment to the License Agreement with Xoma revised the amount we are required to expend on the future

development of RZ358 and related licensed product candidates, and revised provisions with respect to our diligence efforts in conducting

clinical studies.

For the fiscal year ended June 30, 2018,

our license costs amounted to $6.3 million that was comprised of $5.5 million incurred under the License Agreement with Xoma and

$0.8 million incurred to acquire the PKI Program under our License Agreement with ActiveSite.

The PKI Program was acquired to develop,

file, manufacture, market and sell products for diabetic macular edema and other human therapeutic indications.

30, 2019, no milestone payments, royalties or other costs were incurred under the ActiveSite License Agreement.

The first milestone

payment for $1.0 million would be due after completion of the preclinical work and submission of an IND application to the FDA

for AB101, which we are attempting to complete during the first half of calendar year 2020.

For the fiscal year ended June 30, 2019,

we also had a $0.1 million increase in material manufacturing costs.

This increase was due to higher spending for the fiscal year

ended June 30, 2019, which consisted of $0.9 million related to RZ358 and a total of $0.3 million for AB101 and RZ402.

fiscal year ended June 30, 2018, substantially all of our $1.1 million of material manufacturing costs was related to AB101.

The combined increase of approximately

$7.8 million in our R&D license and material manufacturing costs was partially offset by an aggregate decrease of $6.0 million

of all other R&D expenses.

Other categories of our R&D expenses that decreased include compensation and benefits expense

of $3.0 million, clinical trial costs of $1.6 million, and facilities and other R&D costs of $1.4 million.

These other categories

of our R&D expenses decreased primarily from our decision to reduce our workforce and terminate our manufacturing activities

in April 2018.

The $3.0 million decrease in compensation

and benefits for our R&D employees was driven by the termination of approximately 27 employees in our R&D workforce and

included a $0.4 million decrease in stock-based compensation expense that was triggered by forfeiture of stock options.

The reduction

in clinical trial costs was primarily due to $1.6 million incurred for the AB101 Phase 1 Trial for the fiscal year ended June 30,

2018, whereas these costs were not material due to our suspension of the clinical trials for the fiscal year ended June 30, 2019.

The reduction in facilities, consulting and other costs of $1.4 million was primarily attributable to our decisions to sublease

and ultimately terminate our facility leases in Colorado in December 2018.

As discussed below under the caption Liquidity

and Capital Resources , we intend to use the proceeds from our recently completed financings to advance our clinical programs

and fulfill our development obligations under the amended License Agreement with Xoma our milestone payments under the ActiveSite

License Agreement entered into in August 2017.

Accordingly, we expect to increase our R&D spending over the next 12 months.

General and Administrative Expenses

General and administrative ( “G&A”

expenses decreased from approximately $9.1 million for the fiscal year ended June 30, 2018 to $6.8 million for the fiscal year

ended June 30, 2019, a decrease of $2.3 million.

This decrease was attributable to a decrease in compensation and benefits for

our administrative and executive workforce of $2.4 million.

This decrease was primarily driven by (i) a $2.0 million decrease

in stock-based compensation expense, and (ii) attrition in our G&A workforce that resulted in a decrease of $0.6 million.

These decreases in compensation and benefits were partially offset by an increase in executive bonuses of $0.2 million.

decrease in compensation and benefits of $2.4 million was partially offset by an increase in investor relations expenses of $0.2

Impairment of Long-Lived Assets

We review our long-lived assets for impairment

whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

In April 2018, we

made a strategic shift to implement a restructuring plan that included discontinuance of our manufacturing activities at our former

leased facilities in Colorado.

This change in strategy was designed to reduce costs and enable us to focus on finding a partner

for continued development of AB101 and developing RZ358 with external manufacturing organizations.

As a result of this strategic

shift, an impairment evaluation of our leasehold improvements was conducted with the determination that an impairment charge of

$1.7 million was required for the fiscal year ended June 30, 2018.

For the fiscal year ended June 30, 2019, we performed additional

impairment evaluations as we prepared to sell excess laboratory and other equipment.

As a result of these impairment evaluations,

we recognized an additional impairment charge of $33,000 for the fiscal year ended June 30, 2019.

Loss on Sale of Property and Equipment

costs decreased from approximately $19.1 million for the year ended June 30, 2019 to $14.5 million for the year ended June 30,

2020, a decrease of $4.6 million.

This decrease was attributable to $14.0 million of licensing costs incurred under our amended

agreement with Xoma in January 2019, whereas we did not incur any licensing expenses for the year ended June 30, 2020.

This large decrease in licensing costs was partially offset by higher costs for the year ended June 30, 2020 for compensation

and benefits, clinical trials costs, and consulting and outside services as discussed below.

and Benefits.

For the year ended June 30, 2020, we had an increase

of $3.3 million in compensation and benefits for our R&D workforce, which was attributable to an increases in cash-based compensation

and benefits of $2.3 million and stock-based compensation expense of $1.0 million.

The increase of $2.3 million in cash-based

compensation and benefits was attributable to (i) increased salaries and benefits cost of $1.7 million as we doubled our

average R&D workforce from 8 employees for the year ended June 30, 2019 to 16 employees for the year ended June 30,

2020, (ii) an increase in cash bonuses for our R&D workforce of $0.3 million, and (iii) our R&D employees did

not perform administrative and financing-related functions in fiscal 2020, whereas $0.4 million was allocated to G&A expenses

for the year ended June 30, 2019, but is included in R&D expenses for the year ended June 30, 2020.

The total increases

in cash-based compensation and benefits for our R&D workforce amounted to $2.4 million and was partially offset by $0.1 million

billed to Handok and Genexine under the Master Services Agreement discussed in Note 10 to our consolidated financial statements

included in Item 8 of this Annual Report.

The increase in stock-based compensation expense of $1.0 million was primarily due to

stock option grants with time-based vesting to our R&D workforce and Scientific Advisory Board members for an aggregate of

0.2 million shares for the year ended June 30, 2020.

For the year ended June 30, 2020, our clinical

trial costs increased by $3.9 million.

This increase consisted of costs related to the launch of the RIZE study of $3.2 million

where we enrolled our first patient in February 2020, and increased costs of $0.7 million primarily for higher contract research

costs in our AB101 first-in-human Phase 1 study for which we received top-line results in December 2019.

As a result of COVID-19,

the RIZE study was paused in March 2020 and the timetable to resume the study is currently uncertain.

Additional spending

on AB101 is expected to be minimal as we search for potential partnering arrangement.

For the fiscal year ended June 30,

we sold excess laboratory and other equipment from our former facility in Colorado for proceeds of $0.3 million, which resulted

in recognition of a loss of $12,000.

For the fiscal year ended June 30, 2018, we did not recognize any gains or losses from the

sale of property and equipment.

Non-Operating Income (Expense)

Non-operating expense was $4.5 million

for the fiscal year ended June 30, 2019 compared to non-operating expense of approximately $1.1 million for the fiscal year ended

June 30, 2018, an increase of approximately $3.4 million.

Presented below is a discussion of the components of our non-operating

income and expenses for the fiscal years ended June 30, 2019 and 2018.

Interest expense.

Interest expense increased

from approximately $0.7 million for the fiscal year ended June 30, 2018 to $5.0 million for the fiscal year ended June 30, 2019,

an increase of $4.3 million.

This increase was primarily attributable to the Fiscal 2018 Notes that were outstanding for approximately

seven months during our fiscal year ended June 30, 2019, compared to less than four months on a weighted average basis for our

fiscal year ended June 30, 2018.

Interest expense attributable to the Fiscal 2018 Notes for the fiscal year ended June 30, 2019

included (i) recognition of a beneficial conversion feature of $2.2 million for the automatic conversion of the Fiscal 2018 Notes

at a 20% discount to the terms of the Series AA Financing, (ii) accretion of discount of $2.0 million through the January 30, 2019

conversion date, and (iii) interest expense of $0.7 million at the default rate of 15.0%.

Interest expense attributable to the Fiscal

2018 Notes for the fiscal year ended June 30, 2018 consisted of interest at the stated rate which amount to $0.2 million and accretion

of discount of $0.5 million.

Loss on extinguishment of debt.

April 2018, the Fiscal 2018 Notes that were originally entered into in January and February 2018 for an aggregate principal balance

of $1.2 million were modified to mirror the terms of other Fiscal 2018 Notes issued in the original principal balance of $4.1 million

in April 2018.

Accordingly, we completed an analysis to determine if changes to the terms of the amended Fiscal 2018 Notes should

be accounted for as a debt modification or as an extinguishment.

Since the future cash flows of the instruments changed by an amount

greater than 10%, debt extinguishment accounting was applied.

Accordingly, we recognized a loss on the extinguishment of debt of

approximately $0.6 million for the fiscal year ended June 30, 2018.

For the fiscal year ended June 30, 2019, we did not incur any

extinguishment losses.

Gain on change in fair value of embedded

One of the Fiscal 2018 Notes entered into the fiscal quarter ended March 31, 2018 contained an embedded

derivative for an early prepayment provision.

The initial measurement of fair value for this embedded derivative liability was

$0.1 million.

The fair value of this embedded derivative was $74,000 as of June 30, 2018, and the reduction in the liability resulted

in a gain of $26,000 for the fiscal year ended June 30, 2019.

This embedded derivative was eliminated upon conversion of the convertible

promissory note on January 30, 2019, and the elimination of the liability resulted in the recognition of a gain of $74,000 for

the fiscal year ended June 30, 2019.

Gain on lease termination.

On December 14, 2018, we entered into surrender agreements with our landlord, sub-landlord and sub-lessees to terminate all remaining

lease and sub-lease obligations at our former facilities in Colorado.

In connection with this transaction, we were relieved of

our remaining obligations under the leases and relinquished our rights under the lease and sublease agreements whereby no cash

was exchanged by the parties.

Accordingly, we recognized a net gain of approximately $168,000.

This gain resulted from the elimination

of net deferred rent obligations of $200,000 and our sublease security deposit of $25,000 for a total of $225,000;

partially offset

by forfeiture of our security deposit for $57,000 to arrive at the net gain of $168,000.

As of June 30, 2019, we do not have any

remaining lease commitments for our former facilities in Colorado.

Rental income.

the fiscal years ended June 30, 2019 and 2018, we recognized rental income under subleases for $153,000 and $136,000, respectively.

As a result of the termination of our lease and subleases in Colorado in December 2018, we do not expect to recognize rental income

in the future.

Interest and other income.

the fiscal years ended June 30, 2019 and 2018, we recognized interest and other income of $61,000 and $1,000, respectively.

and other income increased in 2019 primarily due to interest income earned on temporary cash investments.

Income Taxes.

and Jobs Act of 2017 (the “Tax Act”

) was enacted on December 22, 2017 and significantly revised U.S.

The Tax Act reduced the U.S.

federal corporate tax rate from 35% to 21%, limits the tax deduction for interest expense to 30%

of adjusted earnings, limits the deduction for newly generated net operating losses to 80% of current year taxable income, eliminates

net operating loss (“NOL”) carrybacks, provides for immediate deductions for certain new investments instead of deductions

for depreciation expense over time, and modifies or repeals many business deductions and credits.

2019, we did not have any material spending related to our clinical trials.

and outside services.

Consulting and outside services increased

from approximately $0.7 million for the year ended June 30, 2019 to $3.2 million for the year ended June 30, 2020, an

increase of $2.5 million.

For the year ended June 30, 2020, consulting and outside services consisted of IND enabling laboratory

expense of $1.9 million primarily related to RZ402, patent maintenance costs of $0.5 million primarily related to AB101, chemistry,

manufacturing and control (“CMC”) consulting and contract laboratory services of $0.5 million primarily for RZ358,

quality and FDA filing expenses of $0.2 million, and other consulting services of $0.1 million.

For the year ended June 30,

2019, consulting and outside services of $0.7 million primarily consisted of contract laboratory consulting costs of $0.5 million

related to AB101 and general R&D consulting services of $0.2 million.

manufacturing costs.

Material manufacturing costs decreased from

$1.2 million for the year ended June 30, 2019 to $0.8 million for the year ended June 30, 2020, a decrease of $0.4 million.

For the year ended June 30, 2020, the decrease in our material manufacturing costs was primarily due to decreased spending

of $0.6 million in RZ358 for CMC drug product stability and storage, partially offset by an increased spending in RZ402 for pre-IND

preclinical drug product manufacturing of $0.2 million.

Costs incurred under license agreements with third parties

are charged to expense, unless the licensing rights have separate economic value in alternative future research and development

projects or otherwise.

Accordingly, all of the payments under our licensing agreements with Xoma and ActiveSite have been charged

to expense in the period in which the cost is incurred.

We did not incur any licensing costs for the year ended June 30,

2020 as compared to $14.0 million incurred under our amended license agreement with Xoma for the year ended June 30, 2019.

The expense incurred for the year ended June 30, 2019 under the amended license agreement relates to RZ358 and consists of

(i) a cash payment to Xoma of $5.5 million in February 2019, and (ii) an obligation to pay $8.5 million to Xoma

in staggered amounts on a quarterly basis.

In March 2020, we entered into another amendment to the license agreement that

extended the timing of the remaining payments but did not result in any additional expense.

As of June 30, 2020, we

made reasonable estimates for each of these items and recognized a provisional decrease in our deferred tax assets of approximately

$8.9 million, which was fully offset by a corresponding change in the valuation allowance for such deferred tax assets.

June 30, 2019, our provisional adjustment is considered final.

However, we are continuing to analyze the effects of the Tax Act

on our financial statements and operations, whereby our current estimates may subsequently be revised based on evolving analyses

and interpretation of the Tax Act and related accounting guidance.

As of June 30, 2019, we had NOL

carryforwards of approximately $81 million for U.S.

federal income tax purposes, of which approximately $41 million does not

expire and $40 million will begin to expire in 2030.

Under provisions of the Internal Revenue Code, substantial changes

in ownership may result in limitations on the amount of NOL carryforwards that we can utilize in future years.

recent financing activities, we experienced ownership changes that are expected to result in significant limitations to the

future use of our NOL carryforwards.

We are in the process of quantifying the extent of such limitations, which could result

in our inability to utilize a significant portion of our net operating loss carryforwards that were generated prior to any

change of control.

had paid down the original $8.5 million obligation to $1.8 million.

With respect to our ActiveSite License Agreement, the first

milestone payment for $1.0 million would be due after completion of the preclinical work and submission of an IND to the FDA for

RZ402, which we are planning to complete by the end of the first quarter of calendar year 2021.

and Administrative Expenses.

General and administrative (“G&A”)

expenses decreased from $6.9 million for the year ended June 30, 2019 to $6.1 million for the year ended June 30, 2020,

a decrease of $0.8 million.

For the year ended June 30, 2020, compensation and benefits for our administrative and executive

workforce decreased by $0.5 million, professional fees decreased by $0.2 million, and facilities and other expenses decreased

by $0.1 million.

and Benefits.

Compensation and benefits decreased from approximately $4.3 million for the year ended June 30,

2019 to $3.8 million for the year ended June 30, 2020, a decrease of $0.5 million.

This decrease consisted of reductions

of $0.1 million in cash-based compensation and $0.4 million in stock-based compensation expense.

The decrease in cash-based compensation

was primarily attributable to our allocation to G&A expense of $0.4 million of compensation for R&D employees that temporarily

performed financial and administrative functions during the year ended June 30, 2019, and a reduction in bonuses of $0.1

million for our G&A workforce for the year ended June 30, 2020.

These reductions in compensation costs total $0.5 million

and were partially offset by higher costs incurred for the year ended June 30, 2020 for (i) higher compensation and

benefits costs due to the addition of two accounting and finance employees and merit increases in salaries totaling $0.2 million,

(ii) severance costs of $0.1 million related to termination of an executive officer, and (iii) recruiting costs for

new employees of $0.1 million.

The $0.4 million decrease in stock-based compensation consisted of a decrease of $1.5 million as

certain stock options were forfeited or became fully vested in our 2019 fiscal year, resulting in no further compensation expense

after that date.

This decrease was partially offset by new stock option grants with time-based vesting to our G&A workforce

for 0.3 million shares that resulted in expense of $1.1 million for the year ended June 30, 2020.

For the year ended June 30, 2020, our spending on professional fees included auditing and financial reporting

consulting of $0.4 million, investor relations costs of $0.4 million, legal services of $0.3 million, and information technology

consulting of $0.1 million.

Professional fees decreased from $1.3 million for the year ended June 30, 2019 to $1.2 million

for the year ended June 30, 2020.

Projects that required specialized legal and consulting services during the year ended

June 30, 2020 included (i) preparation of our proxy statement and Special Meeting of Stockholders to approve the Reverse

Stock Split in October 2019, (ii) investor relations and other services related to our ongoing application to uplist

to a national stock exchange, (iii) several complex transactions reported in our annual and quarterly SEC filings, and (iv)

registration statements filed with the SEC.

and other costs.

Costs allocable to G&A activities for facilities and other costs decreased from $1.2 million for

the year ended June 30, 2019 to $1.1 million for the year ended June 30, 2020.

The reduction in facilities costs allocable

to G&A was primarily attributable to our decision to exit our Colorado facility leases in December 2018 and enter into

new leases for significantly less space and at a significantly lower cost in the first calendar quarter of 2019.

and Other Income.

Interest and other income decreased from $0.5 million for the year ended June 30, 2019

to $0.2 million for the year ended June 30, 2020, a decrease of $0.3 million.

Interest and other income for the year ended

June 30, 2020 was solely attributable to interest income earned on temporary cash investments of $0.2 million.

ended June 30, 2019, interest and other income consisted of (i) a gain of $0.2 million from the termination of our lease

and sublease agreements in Colorado, (ii) a gain of $0.1 million for embedded derivatives related to the Fiscal 2018 Notes,

(iii) rental income from the Colorado subleases of $0.1 million, and (iv) interest income of approximately $0.1 million.

Effective with the conversion of the Fiscal 2018 Notes to equity in January 2019, we no longer have any embedded derivatives

and our Colorado leases and subleases were terminated in December 2018.

Interest expense was approximately $5.0 million for the year ended June 30, 2019, whereas we

did not incur any interest expense for the year ended June 30, 2020.

Interest expense was solely attributable to the Fiscal

2018 Notes for the year ended June 30, 2019, and consisted of (i) recognition of a beneficial conversion feature of

$2.2 million upon the automatic conversion of the Fiscal 2018 Notes at a 20% discount to the terms of the Series AA Financing,

(ii) accretion of discount of $2.1 million from July 1, 2018 through the January 30, 2019 conversion date for the

Fiscal 2018 Notes, and (iii) interest expense of $0.7 million based on the contractual rate of 15.0%.

Due to the repayment

of the Fiscal 2018 Notes in January 2019, we did not incur any interest expense for the year ended June 30, 2020.

For the year ended June 30, 2020 and 2019, we did not recognize any income tax benefit due to our net losses

and our determination that a full valuation allowance was required for our deferred tax assets.

Liquidity and Capital Resources

As of June 30, 2019, we have approximately $11.6 million of

cash and cash equivalents and working capital of approximately $3.8 million.

We have incurred cumulative net losses of $126.9 million

since our inception and as a clinical stage company we have not generated any revenue to date.

Presented below is a discussion

of recent developments that have a significant impact on our liquidity.

Series AA Financing and Conversion of Fiscal 2018 Notes

In January 2019, we closed an offering with H&G as part

of a strategic investment in us for an aggregate of 2.5 million shares of Series AA Preferred Stock that resulted in gross proceeds

of $25.0 million (including application of a $1.5 million Exclusivity Payment that we received in November 2018).

Closing occurred

on January 30, 2019 and resulted in our receipt of the remaining proceeds of $23.5 million.

The shares of Series AA Preferred Stock

owned by H&G were immediately convertible into an aggregate of approximately 113.6 million shares of our Common Stock.

to the closing of the Series AA Financing for gross proceeds of $25.0 million, our Fiscal 2018 Notes, which consisted of an aggregate

principal balance of $5.3 million plus accrued interest of $0.8 million through January 30, 2019, automatically converted to shares

of Series AA Preferred Stock.

The aggregate principal and accrued interest balance of $6.1 million was exchanged for 767,519 shares

of Series AA Preferred Stock that were immediately convertible into an aggregate of 34.9 million shares of our Common Stock.

Upon issuance of the Series AA Preferred

Stock, we did not have an adequate number of authorized shares of Common Stock available to accommodate conversion of all of the

Series AA Preferred Stock and all outstanding stock options and warrants.

At our annual meeting of stockholders on April 24, 2019,

we obtained approval for an increase in our authorized number of shares of Common Stock from 200 million shares to 500 million

Accordingly, all shares of Series AA Preferred Stock held by H&G and the holders of the former Fiscal 2018 Notes converted

to approximately 148.5 million shares of Common Stock effective April 24, 2019.

A condition to closing the Series AA Financing

was the resignation of a majority of our former directors and the appointment two representatives from H&G as directors whereby

H&G appointed two of the three current members of our board of directors.

As of June 30, 2019, H&G owned an aggregate of

approximately 54% of our Common Stock which resulted in a change of control.

As of June 30, 2020, we have cash

and cash equivalents totaling approximately $10.0 million and working capital was approximately $7.3 million.

We have incurred

cumulative net losses of $147.2 million since our inception and as a clinical stage company we have not generated any revenue

As discussed below, in

October 2020 we received aggregate net proceeds from investors in a private placement of approximately $37.6 million

from the issuance of units that consisted of approximately 2.5 million shares of Common Stock and warrants for the purchase

of approximately 0.8 million shares of Common Stock.

We believe our existing cash and cash equivalents balance plus the net

proceeds from the private placement of $37.6 million will be adequate to carry out currently planned activities into the second half of fiscal year 2022.

have flexibility to delay future clinical programs to conserve our capital resources.

Beginning in March 2020, COVID-19

has resulted in an economic environment that is unfavorable for many businesses to conduct operations and to pursue new debt and

equity financings.

economy had been largely shut down by mass quarantines and government mandated stay-in-place orders

to halt the spread of the virus.

While these orders have been relaxed, a full recovery of the U.S.

economy may not occur until

2021 or later.

The long-term effects on us are expected to result in higher costs in order to comply with safeguards to protect

patients and staff engaged in clinical activities, and extended periods of time may be required to complete clinical trials.

current economic environment and financial market volatility may make it more challenging for us to continue to obtain funding

in the future for our clinical programs.

Presented below is a discussion of developments

that impacted our liquidity and capital resources for the year ended June 30, 2020.

July and August 2019 Financings

In connection with the Series AA offering

completed with H&G in January 2019, we granted a call option to provide additional financing whereby H&G was entitled

to elect to purchase up to $20.0 million of our Common Stock at a purchase price equal to the greater of (i) $0.29 per share or

(ii) 75% of the volume weighted average closing price ( “VWAP”

) of the our Common Stock during the thirty consecutive

trading days prior to the date of the notice.

In June 2019, we entered into a financial advisory agreement to undertake a private

placement of (i) the shares of Common Stock issuable under the call option issued to H&G for a total of $20.0 million, plus

(ii) between approximately $20 million and $30 million of equity or equity equivalent securities to be issued to other investors.

On July 23, 2019, we entered into a purchase agreement whereby H&G exercised their call option to purchase an aggregate of

approximately 69.0 million shares of Common Stock for gross cash proceeds of $20.0 million.

Since VWAP for the previous thirty

consecutive trading days was $0.20 per share, H&G exercised the call option at a purchase price of $0.29 per share.

Pursuant to the financial advisory agreement entered into in

June 2019, we issued approximately 14.0 million shares of Common Stock in July and August 2019 to other investors in a private

These shares were issued at a purchase price of $0.29 per share and resulted in gross proceeds of approximately $4.0

Total advisory fees related to H&G and other private placement issuances amounted to approximately $1.4 million, whereby

net proceeds from all of the financings amounted to approximately $22.6 million.

connection with the Series AA offering completed with Handok and Genexine (collectively referred to as “H&G”)

in January 2019, we granted a call option whereby H&G were entitled to elect to purchase

up to an aggregate of $20.0 million of our Common Stock at a purchase price equal to the greater of (i) $14.50 per share

or (ii) 75% of the volume weighted average closing price ( “VWAP”) of the our Common Stock during the thirty

consecutive trading days prior to the date of the notice.

In June 2019, we entered into a financial advisory agreement to

undertake a private placement of (i) the shares of Common Stock issuable under the call option issued to H&G for a total

of $20.0 million, plus (ii) up to $10 million of equity or equity equivalent securities to be issued to other investors.

On July 23, 2019, we entered into a purchase agreement whereby H&G exercised their call options to purchase an aggregate

of approximately 1.4 million shares of Common Stock for gross cash proceeds of $20.0 million at a purchase price of $14.50

Pursuant to the financial advisory agreement

entered into in June 2019, we issued an additional approximately 0.3 million shares of Common Stock in July and August 2019 to

other investors in a private placement.

These shares were issued at a purchase price of $14.50 per share and resulted in gross

proceeds of approximately $4.1 million.

Total advisory fees and other offering costs related to the July and August 2019

financings amounted to approximately $1.5 million, resulting in net proceeds of approximately $22.6 million.

Xoma License Agreement

In January 2019, we entered into an

amendment of our License Agreement entered into in December 2017 with Xoma.

This amendment eliminated the previous requirement

that equity securities would be issued to Xoma upon the closing of a qualified financing.

As a result of the amendment, we agreed

to pay Xoma approximately $5.9 million in cash upon the closing of the Series AA Financing, which consisted of (i) a financing

delay fee and other costs incurred through December 2018 of $0.4 million, and (ii) $5.5 million of additional consideration for

In February 2019, we satisfied this payment obligation to Xoma for $5.9 million.

Additionally, we agreed to make five

future cash payments to Xoma totaling $8.5 million.

This $8.5 million liability is payable for $1.5 million by September

30, 2019, $1.0 million by December 31, 2019, $2.0 million by March 31, 2020, $2.0 million by June 30, 2020, and $2.0 million by

September 30, 2020.

Until the $8.5 million liability is

fully paid, we are required to make “Early Payments”

to Xoma equal to 15% of the net proceeds of any future financings;

any such Early Payments are applied against the remaining unpaid liability in the reverse order of their future payment date.

completion of the July and August 2019 financings discussed above resulted in the obligation to make Early Payments to Xoma of

In January 2019,

we entered into an amendment of our License Agreement with Xoma.

This amendment eliminated the previous requirement that equity

securities would be issued to Xoma upon the closing of a qualified financing in consideration for the payment to Xoma of approximately

$5.9 million in cash in February 2019.

Additionally, we agreed to make five cash payments to Xoma totaling $8.5 million (the

“Future Cash Payments”) in quarterly installments between September 2019 and September 2020.

We recognized

a liability in January 2019 for the entire $8.5 million of Future Cash Payments.

January 2019 amendment to the License Agreement provided that if future qualified financings occurred before the Future

Cash Payments were fully paid, we were required to pay Xoma 15% of the net proceeds from such financings (“Early

Payments”) to be credited against the remaining unpaid Future Cash Payments in the reverse order of their future

payment date.

Obligations to make the Future Cash Payments following a qualified financing and the obligations to make

Early Payments shall end when the Future Cash Payments are fully paid for the total of $8.5 million.

The completion of equity

financings in July and August 2019 for net proceeds of approximately $22.6 million met the definition of a

qualified financing and resulted in our obligation to make Early Payments of approximately $3.4 million.

2020, we entered into Amendment No.

3 to the License Agreement to extend the payment schedule for the remaining balance of

approximately $2.6 million.

The Early Payments were paid in August 2019 and eliminated the requirement to make Future Cash Payments

that would have otherwise been due on September 30, 2020 for $2.0 million and on June 30, 2020 for approximately $1.4 million.

ActiveSite License Agreement

In August 2017, we entered into a Development

and License Agreement with ActiveSite Pharmaceuticals, Inc.

(“ActiveSite”) pursuant to which we acquired the

rights to ActiveSite’s Plasma Kallikrein Inhibitor program (“PKI Program”).

We are planning to use the

PKI Program to develop, file, manufacture, market and sell products for diabetic macular edema and other human therapeutic indications.

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 $36.0 million of aggregate milestone payments.

The first milestone payment for $1.0 million would

be due after completion of the preclinical work and submission of an IND application to the FDA for AB101, which we are attempting

to complete during the first half of calendar year 2020.

We will also be required to pay royalties equal to 2.0% of any sales of

products that use the PKI Program, up to a maximum of $10.0 million in total royalty payments.

Through June 30, 2019, no milestone

payments and royalties have been incurred.

Planned Use of Proceeds

As a result of the equity financings completed

in July and August 2019, we believe our existing cash balance of $11.6 million as of June 30, 2019, plus $22.6 million of additional

net cash proceeds received in the July and August 2019 Financings are adequate to carry out planned activities at least through

The revised payment schedule provides for seven quarterly payments to be paid from March 31,

2020 through September 30, 2021.

Pursuant to Amendment No.

3, we are obligated to repay the remaining outstanding balance

within 15 days following the closing of a financing for $20.0 million or more.

For the year ended June 30, 2020, presented

below is a summary of our payment obligations under the amended License Agreement, cash payments made, and the impact of Amendment

3 on the payment obligations (in thousands):

Cash Payments

Scheduled Payment Date

September 30, 2019

Our contractual obligations and other planned spending for the period from July 2019 through September 2020 consist

of (i) contractual licensing obligations of $8.5 million to Xoma, (ii) a commitment to pay $1.0 million assuming we achieve the

first milestone under the ongoing Phase 1 study for AB101 pursuant to our agreement with ActiveSite, (iii) planned spending on

clinical programs of approximately $11.0 million to initiate a Phase 2 program for RZ358 in the U.S.

and/or Europe, completion

of the necessary toxicology studies for RZ402 to enable the filing of an IND and initiation of clinical studies, and completion

of an ongoing Phase 1 study for AB101, and (iv) net spending on compensation, benefits, rent, other research activities, and public

company costs for auditing and professional fees for approximately $10.4 million.

Included in our planned spending on clinical

programs is $3.8 million that we are required to spend pursuant to restrictions set forth by an investor in our private placement

in August 2019.

We expect to continue to pursue equity

and/or debt financings to provided funding for planned activities for the fiscal year ending June 30, 2021 and beyond.

To the extent

that additional funding is obtained during the remainder of the fiscal year ending June 30, 2020, we plan to accelerate timing

to complete clinical trials and other research and development activities which would result in increased spending.

have the flexibility to delay clinical programs to ensure that adequate capital resources are available.

Under a financial advisory agreement entered

into in June 2019, we are continuing to pursue a private placement to raise up to an additional $26 million through the issuance

of equity or equity equivalent securities.

There are no assurances that we will be able to obtain any additional financing through

this ongoing private placement or other sources, such as convertible debt or bank financings.

Even if these other financing sources

are available, they may not be pursued if the terms are not acceptable to us.

December 31, 2019

March 31, 2020

June 30, 2020

September 30, 2020

December 31, 2020

March 31, 2021

June 30, 2021

September 30, 2021

Less long-term portion of payable

Current portion of payable

below, we completed a private placement of equity securities for gross proceeds of $41.0 million in October 2020, resulting

in acceleration of the $1.8 million outstanding obligation shown above which is now payable by October 2020.

The January 2019

amendment to the License Agreement also revised the amount we are required to expend on development of RZ358 and related licensed

products, and revised provisions with respect to our diligence efforts in conducting clinical studies.

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.

the achievement of various milestones, we will be required to make up to $197.0 million in aggregate milestone payments to Xoma

with the first such payment will be triggered upon enrollment of the last patient in our ongoing phase 2 clinical study.

result of COVID-19, this study has been temporarily paused.

Assuming we are able to resume the phase 2b study by the end of October 2020,

we believe we will be able to complete this study by the second half of calendar year 2021.

ActiveSite License Agreement

In August 2017, we entered into a

Development and License Agreement with ActiveSite Pharmaceuticals, Inc.

(“ActiveSite”) pursuant to which

we acquired the rights to ActiveSite’s Plasma Kallikrein Inhibitor program (“PKI Program”).

We are planning

to use the PKI Program to develop, file, manufacture, market and sell products for diabetic macular edema and other human therapeutic

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 is due after completion of the preclinical work and submission of an IND to the FDA for RZ402, which we are attempting to complete by the first quarter of calendar year 2021.

will also be required to pay royalties equal to 2.0% of any sales of products that use the PKI Program.

Through June 30,

2020, no events have occurred that would result in the requirement to make milestone payments and no royalties have been incurred.

Fiscal 2021 Financing

October 9, 2020, we completed a private placement of units (the “Units”) consisting of (i) approximately

2.5 million shares of Common stock, and (ii) warrants entitling the holders to purchase approximately 0.8 million

shares of Common Stock (the “Warrants”).

The Warrants are exercisable at $19.50 per share for a period of 7 years

and may be exercised on a cash or cashless basis at the election of the holders.

The Units were issued for a purchase price of

$16.50 per Unit, resulting in gross proceeds of $41.0 million.

Pursuant to a financial advisory agreement, we agreed to pay the

advisors a fee of 6.0% of the gross proceeds, and costs for professional fees and other offering costs are estimated at approximately

2.0% of the gross proceeds.

After deducting the financial advisory fees and other offering costs, the estimated net proceeds amounted

to approximately $37.6 million.

Pursuant to the terms of the private placement, we executed the Reverse Stock Split, which was

previously approved by the stockholders at our annual meeting on October 23, 2019 and that was effective on October 9,

In addition, we are required to use commercially reasonable efforts to (i) list our shares of Common Stock for trading

on the Nasdaq Capital Market, (ii) register the shares of Common Stock included in the Units, and (iii) register the

shares of Common Stock issuable upon exercise of the warrants.

If the Company fails to register the shares pursuant to the terms of the RRA, liquidated damages up to a maximum of 6.0% of

the gross proceeds of the Fiscal 2021 Financing may be assessed.

Cash Flows Summary

Presented below is a summary of our operating, investing and

financing cash flows for the years ended June 30, 2019 and 2018 (in thousands):

Presented below is a summary of our operating,

investing and financing cash flows for the years ended June 30, 2020 and 2019 (in thousands):

Net cash provided by (used in):

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Cash Flows Used in Operating Activities

For the fiscal year ended June 30, 2019

For the years ended June 30, 2020

and 2019, cash flows used in operating activities amounted to $24.2 million and $15.3 million, respectively.

The key components

in the calculation of our cash used in operating activities are as follows:

in the calculation of our cash used in operating activities are as follows (in thousands):

Non-cash expenses

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Changes in operating assets and liabilities, net

For the fiscal year ended June 30, 2019,

our net loss was $30.4 million compared to $29.9 million for the fiscal year ended June 30, 2018.

For further discussion about

changes in our operating results for the fiscal year ended June 30, 2019 and 2018, please refer to Results of Operations

For the fiscal year ended June 30, 2019,

non-cash expenses totaled $7.0 million and were primarily comprised of (i) stock-based compensation expense of $2.6 million, (ii)

a beneficial conversion feature of $2.2 million related to the Fiscal 2018 Notes, and (iii) accretion of debt discounts and issuance

costs related to the Fiscal 2018 Notes of $2.1 million.

For the fiscal year ended June 30, 2018, non-cash expenses totaled $14.7

million, including stock-based compensation expense of $5.1 million;

the fair value of Common Stock and warrants issued for license

fees and consulting services totaling $5.1 million;

impairment expense and losses on sale of property and equipment of $2.4 million

due to our decision to discontinue operations in Colorado;

a loss on debt extinguishment and accretion of debt discounts and issuance

costs related to the Fiscal 2018 Notes totaling $1.1 million;

and depreciation and amortization expense of $1.1 million.

Non-cash gains totaling $0.2 million for

the fiscal year ended June 30, 2019 consisted of a $168,000 gain from the December 2018 termination of leases and subleases for

our former Colorado facility, and a $74,000 gain on the change in fair value of embedded derivatives.

For the fiscal year ended

June 30, 2018, the only non-cash gain resulted from the change in fair value of embedded derivatives of $26,000.

For the fiscal year ended June 30, 2019,

net changes in operating assets and liabilities improved operating cash flow by $8.4 million which was primarily due to (i) an

$8.5 million increase in payables to Xoma under the amended License Agreement entered into in January 2019, (ii) accrued interest

expense of $0.7 million on the Fiscal 2018 Notes that was settled for shares of Series AA Preferred Stock in January 2019.

favorable changes in operating assets and liabilities totaled $9.2 million and were partially offset by a decrease in accounts

payable and accrued expenses of $0.5 million, primarily due to proceeds from the Series AA Financing that enabled us to pay certain

past due obligations, and an increase in prepaid expenses and other assets of $0.3 million that was primarily due to prepayment

of annual insurance premiums in April 2019.

For the fiscal year ended June 30, 2018,

net changes in operating assets and liabilities improved operating cash flow by $1.0 million which was primarily due to an increase

in accounts payable and accrued expenses of $0.7 million, and an increase in accrued interest on the Fiscal 2018 Notes of $0.2

into the second half of fiscal year 2022.

For the year ended June 30, 2020,

our net loss was $20.3 million compared to $30.4 million for the year ended June 30, 2019.

For further discussion about changes

in our operating results for the years ended June 30, 2020 and 2019, please refer to Results of Operations above.

For the year ended June 30, 2020,

our non-cash expenses of $3.7 million primarily consisted stock-based compensation expense of $3.3 million, non-cash lease expense

of $0.2 and the fair value of warrants issued for services of $0.1 million.

For the year ended June 30, 2019, non-cash expenses

totaled $7.0 million, which primarily consisted of stock-based compensation expense of approximately $2.6 million, a charge of

$2.2 million for the beneficial conversion feature related to the Fiscal 2018 Notes, and accretion of debt discounts and issuance

costs of $2.1 million related to the Fiscal 2018 Notes.

We did not have any non-cash gains for

the year ended June 30, 2020.

For the year ended June 30, 2019, non-cash gains primarily consisted of a gain of $0.2

million from the termination of our operating leases and subleases at our former Colorado facility.

For the year ended June 30, 2020,

net changes in operating assets and liabilities reduced operating cash flow by $7.5 million, primarily driven by (i) cash

payments to reduce our license fee obligations to Xoma by $6.7 million and (ii) a reduction in other accrued liabilities

of $1.1 million that was primarily related to payments for accrued bonuses of $0.6 million, operating lease liabilities of $0.2

million, and accrued vacation benefits of $0.2 million.

These payments that reduced our operating cash flow were partially offset

by an increase in accounts payable of $0.3 million.

For the year ended June 30, 2019, net changes in operating assets and

liabilities increased operating cash flow by $8.4 million, which was primarily due to an increase in payables to Xoma of $8.5

million under the amended license agreement.

Cash Flows Provided by Investing Activities

Net cash provided by investing activities

for the fiscal year ended June 30, 2019 amounted to $0.2 million which was primarily attributable to $0.3 million of proceeds from

the sale of equipment that was no longer needed as a result of the termination of the leases for our former facilities in Colorado.

This amount was partially offset by expenditures of approximately $47,000 for office furniture and equipment at our new corporate

headquarters in California.

For the fiscal year ended June 30, 2018,

cash provided by investing activities of $1.7 million was primarily attributable to proceeds of $1.6 million related to the sale

of laboratory equipment and manufacturing assets that were no longer needed after we implemented a restructuring plan in April

This restructuring plan resulted in discontinuance of our manufacturing activities at our former leased facilities in Colorado.

We did not have any cash flows from investing

activities for the year ended June 30, 2020.

Net cash provided by investing activities for the year ended June 30, 2019

amounted to $0.2 million, which was primarily attributable to proceeds of $0.3 million from the sale of equipment that was no

longer needed as a result of the termination of the leases for our former facilities in Colorado.

This amount was partially offset

by capital expenditures for office furniture and equipment of approximately $0.1 million.

Cash Flows Provided by Financing Activities

Net cash provided by financing

activities for the year ended June 30, 2020 amounted to $22.6 million.

This amount consisted of (i) $20.0 million

received from H&G in July 2019 for the purchase of approximately 1.4 million shares of Common Stock at a purchase

price of $14.50 per share and (ii) $4.1 million received from other investors in July and August 2019 for the

purchase of approximately 0.3 million shares of our Common Stock at a purchase price of $14.50 per share.

The gross proceeds

from these equity issuances totaled $24.1 million and was partially offset by fees of $1.5 million under a financial advisory

agreement to result in net proceeds of $22.6 million.

Net cash provided by financing activities

for the fiscal year ended June 30, 2019 amounted to $25.0 million.

In December 2018, H&G provided an exclusivity payment for

$1.5 million in exchange for our agreement to cease any and all discussions and negotiations with all other third parties.

30, 2019, closing of the Series AA Financing occurred, which resulted in receipt of an additional $23.5 million of cash proceeds

for total cash proceeds of $25.0 million for the fiscal year ended June 30, 2019.

Our net cash provided by financing activities

for the fiscal year ended June 30, 2018 resulted from (i) a private placement of 4.5 million shares of our Common Stock to accredited

investors at an offering price of $1.00 per share for proceeds of $4.5 million, and (ii) proceeds of $5.3 million from the issuance

of Fiscal 2018 Notes, of which $1.0 million was issued to a former member of our Board of Directors.

For the fiscal year ended

June 30, 2018, we used cash in our financing activities of $0.1 million for placement agent commissions related to the private

placement and $0.2 million for the payment of debt issuance costs related to the Fiscal 2018 Notes.

for the year ended June 30, 2019 amounted to $25.0 million.

In December 2018, two new investors expressed interest in

investing in the Company and affirmed their intent to enter into exclusive diligence and negotiations regarding a potential equity

H&G provided an exclusivity payment for $1.5 million in exchange for our agreement to cease any and all discussions

and negotiations with all other third parties.

In January 2019, H&G decided to proceed with an investment in our company.

Closing of the Series AA Financing occurred on January 30, 2019, which resulted in receipt of an additional $23.5 million

of cash proceeds for total cash proceeds of $25.0 million for the year ended June 30, 2019.

Off-Balance Sheet Arrangements

2 unchanged sentences

finance or special purpose entities, which were established for the purpose of facilitating off - balance sheet arrangements.

Contractual Obligations

The following table summarizes our contractual

obligations on an undiscounted basis as of June 30, 2019, and the period in which each contractual obligation is due:

Fiscal Years Ending June 30:

Operating lease obligations

Payables to Xoma under license agreement

Convertible note payable

Employment agreements

(1) Due to financing activities completed in July and August 2019 discussed above under the caption

“Xoma License Agreement”

, we became obligated to make Early Payments to Xoma of approximately $3.4 million.

The Early Payments were paid in August 2019 and eliminated the requirement to make Future Cash Payments that would have otherwise

been due on September 30, 2020 for $2.0 million and on June 30, 2020 for approximately $1.4 million.

(2) Represents severance benefits payable under employment agreements with two executive officers if

we had voluntarily elected to terminate their employment as of June 30, 2019.

Obligations that are contingent upon future

events have been excluded, such as milestone payments up to $36.0 million under our ActiveSite License Agreement discussed above.

Recently Issued Accounting Pronouncements

4 unchanged sentences

DISCLOSURES ABOUT MARKET RISKS.

We are a smaller reporting company as defined

by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

We are a smaller reporting company as

defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity