Rezolute, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information 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". 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 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. 2020 2019 Fiscal year ended June 30, High Low High Low First Quarter $ 24.80 $ 5.35 $ 25.50 $ 15.00 Second Quarter 14.00 4.00 20.00 4.50 Third Quarter 7.50 3.10 19.00 4.50 Fourth Quarter 8.50 3.15 18.00 6.00 Holders As of September 30, 2020, there were 346 holders of record of our 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. Dividends 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, adjusted to give effect to the Reverse Stock Split, as of June 30, 2020 (shares in thousands): Shares to be Issued Upon Securities Plan Exercise of Outstanding Options Available Termination Number of Weighted Average For Future Date Shares Exercise Price Issuance (a) (b) (c) Equity compensation plans approved by security holders: 2014 Stock and Incentive Plan March 21, 2019 44 $ 153.47 - 2015 Non-Qualified Stock Option Plan February 23, 2020 95 55.19 - 2016 Non-Qualified Stock Option Plan October 31, 2021 524 29.63 36 Equity compensation plans not approved by security holders: 2019 Non Qualified Stock Option Plan July 31, 2029 300 14.50 - Total 963 33.06 36 17 PART II ITEM 6. 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. ITEM 7. 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 On October 9, 2020, we completed a private placement of equity securities that resulted in net proceeds of approximately $ 37.6 m illion. The 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. Please 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. Special Note About COVID-19 We 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 flows. We will continue to monitor the situation closely. 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. 18 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. In 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. Key Components of Consolidated Statements of Operations Research and development expenses. Research and development expenses 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. General 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. Interest expense. 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. Interest 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. Critical Accounting Policies and Significant Judgments and Estimates Overview Our 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. 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 of operations. 19 Research and Development Research 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. Clinical Trial Accruals Clinical 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. Stock-Based Compensation Expense We 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. We 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. Compensation 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. Leases We 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. We 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. 20 Results of Operations Results 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): Changes 2020 2019 Amount Percent Operating expenses: Research and development: Compensation and benefits $ 5,883 $ 2,578 $ 3,305 128 % Clinical trial costs 3,955 35 3,920 11200 % Consultants and outside services 3,209 674 2,535 376 % Material manufacturing costs 882 1,232 (350 ) -28 % Facilities and other 521 534 (13 ) -2 % Licensing costs - 14,026 (14,026 ) -100 % Total research and development 14,450 19,079 (4,629 ) -24 % General and administrative: Compensation and benefits 3,782 4,286 (504 ) -12 % Professional fees 1,169 1,341 (172 ) -13 % Facilities and other 1,120 1,238 (118 ) -10 % Total general and administrative 6,071 6,865 (794 ) -12 % Total operating expenses 20,521 25,944 (5,423 ) -21 % Operating loss (20,521 ) (25,944 ) 5,423 -21 % Non-operating income (expense): Interest and other income 188 456 (268 ) -59 % Interest expense - (4,958 ) 4,958 -100 % Total non-operating income (expense) 188 (4,502 ) 4,690 -104 % Net loss $ (20,333 ) $ (30,446 ) $ 10,113 -33 % Presented below is a discussion of the key factors that resulted in changes in our results of operations for these periods. Revenue. 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. Research and Development Expenses. Research and development (“R&D”) 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. 21 Compensation 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. Clinical Trial Costs. 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, 2019, we did not have any material spending related to our clinical trials. Consulting 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. Material 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. Licensing costs. 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 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. General 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. 22 Compensation 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. Professional fees. 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. Facilities 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. Interest 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. For the year 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. 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. Income Taxes. 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. 23 Liquidity and Capital Resources 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 to date. 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. We also 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. The U.S. 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. The 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 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 per share. 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 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. The 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. 24 On March 31, 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 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 No. 3 on the payment obligations (in thousands): Balance Balance June 30, Cash Payments Amendment June 30, Scheduled Payment Date 2019 Early Scheduled No. 3 2020 September 30, 2019 $ 1,500 $ - $ (1,500 ) $ - $ - December 31, 2019 1,000 - (1,000 ) - - March 31, 2020 2,000 - (400 ) (1,600 ) - June 30, 2020 2,000 (1,391 ) (400 ) (209 ) - September 30, 2020 2,000 (2,000 ) - 400 400 December 31, 2020 - - - 400 400 March 31, 2021 - - - 400 400 June 30, 2021 - - - 400 400 September 30, 2021 - - - 209 209 Total 8,500 $ (3,391 ) $ (3,300 ) $ - 1,809 Less long-term portion of payable (2,000 ) (209 ) Current portion of payable $ 6,500 $ 1,600 As discussed 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. Upon 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. As a 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 indications. The ActiveSite License Agreement requires various milestone payments ranging from $1.0 million to $10.0 million when milestone events occur, up to an aggregate of $46.5 million of aggregate milestone payments. The first milestone payment for $1.0 million 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. We 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. 25 Fiscal 2021 Financing On 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, 2020. 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, 2020 and 2019 (in thousands): 2020 2019 Change Net cash provided by (used in): Operating activities $ (24,168 ) $ (15,304 ) $ (8,864 ) Investing activities - 231 (231 ) Financing activities 22,550 25,000 (2,450 ) Cash Flows Used in Operating Activities 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 thousands): 2020 2019 Change Net loss $ (20,333 ) $ (30,446 ) $ 10,113 Non-cash expenses 3,659 7,028 (3,369 ) Non-cash gains - (242 ) 242 Changes in operating assets and liabilities, net (7,494 ) 8,356 (15,850 ) into the second half of fiscal year 2022. Total $ (24,168 ) $ (15,304 ) $ (8,864 ) 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. 26 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 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 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 financing. 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 During the fiscal years ended June 30, 2020 and 2019, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off - balance sheet arrangements. Recently Issued Accounting Pronouncements See Note 1 to our consolidated financial statements included in Item 8 of this Annual Report regarding the impact of certain accounting pronouncements on our consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE 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. 27