NOTE 6 — STOCKHOLDERS’ EQUITY

Changes in Authorized Capital Stock

On April 24, 2019, the Company’s stockholders approved an amendment to the Certificate of Incorporation to (i) increase the authorized number of shares of Common Stock from 200 million shares to 500 million shares, and (ii) rescinded the previous designation of 15.0 million shares of Series A Preferred Stock. As a result of this action, the Company had authority to designate and issue up to 20.0 million shares of Preferred Stock as of June 30, 2020 and 2019.

Series AA Preferred Stock Financing

In December 2018, two investors expressed interest in investing in the Company and affirmed their intent to enter into exclusive diligence and negotiations regarding a potential equity financing (“Transaction”). In exchange for the receipt of a total of $1.5 million (“Exclusivity Payment”), the Company entered into an exclusivity agreement with Handok, Inc. ("Handok") and Genexine, Inc. ("Genexine"). On January 7, 2019, the parties entered into a Purchase Agreement for Shares of Series AA Preferred Stock (the "Purchase Agreement") whereby Handok and Genexine (collectively referred to as "H&G") agreed to purchase shares of newly designated Series AA Preferred Stock (the “Series AA Financing”) for aggregate gross proceeds to the Company of $25.0 million (inclusive of the $1.5 million Exclusivity Payment). On January 18, 2019, the board of directors authorized the designation of 5.0 million shares of the Company’s Preferred Stock as Series AA Preferred Stock. On January 30, 2019, the parties closed the Series AA Financing and the Company issued an aggregate of 2.5 million Series AA shares to H&G at a purchase price of $10.00 per share.

The Series AA Shares held by H&G were convertible into shares of Common Stock at a conversion price of approximately $11.00 per share. The fair value of the Company’s Common Stock on the issuance date of the Series AA Preferred Stock was $12.00 per share which resulted in a BCF of approximately $2.3 million. Since the Series AA Shares were classified as equity instruments, this BCF has been treated as an adjustment in computing net loss attributable to common stockholders shown in Note 12.

A condition to closing the Series AA Financing was the resignation of a majority of the Company’s former directors and the appointment of representatives of H&G as directors whereby H&G collectively controlled the board of directors. On April 24, 2019, the Company’s stockholders approved an increase in the number of authorized shares of Common Stock whereby all 2.5 million shares of Series AA Preferred Stock held by H&G automatically converted into approximately 2.3 million shares of the Company’s Common Stock.

Due to closing of the Series AA Financing for gross proceeds of $25.0 million, the Company’s outstanding Fiscal 2018 Notes in the aggregate principal and accrued interest balance of $6.1 million automatically converted into approximately 0.8 million shares of Series AA Preferred Stock, resulting in an effective issuance price of $8.00 per share after giving effect to the 20% discount included in the terms of the Fiscal 2018 Notes. This 20% discount resulted in the recognition of a BCF for $2.2 million that was charged to interest expense for the year ended June 30, 2019.

Upon receipt of stockholder approval for an increase in the number of authorized shares of Common Stock to 500 million shares on April 24, 2019, all 3.3 million shares of Series AA Preferred Stock held by Handok, Genexine and the former holders of the Fiscal 2018 Notes converted into an aggregate of approximately 3.0 million shares of the Company’s Common Stock as set forth below (in thousands, except per share amounts):

Fiscal 2020 Private Placement

In connection with the Series AA Financing discussed above, the Company granted call options to H&G whereby upon the earlier of (i) December 31, 2020 and (ii) such date that the Company requests H&G to provide additional financing, H&G were entitled to purchase up to an aggregate of $20.0 million of 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 Company’s Common Stock during the thirty consecutive trading days prior to the date of the notice.

On June 19, 2019, the Company entered into a financial advisory agreement to undertake a private placement (the “Private Placement”) of (i) the shares of Common Stock issuable under the call options 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, the Company 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. As of June 30, 2020, H&G collectively owned approximately 62% of the Company’s Common Stock which resulted in a change of control.

During July and August 2019, other investors purchased an aggregate of approximately 279,000 shares of Common Stock at a purchase price of $14.50 per share for gross cash proceeds of $4.1 million. Pursuant to the financial advisory agreement, the Company paid a fee of 6.0% of the gross proceeds received from these private placements. The total advisory fees and other offering costs related to these issuances in July and August 2019 amounted to approximately $1.5 million, resulting in net proceeds of $22.6 million for the fiscal year ended June 30, 2020. As discussed in Note 4, the completion of these financings resulted in the obligation to make Early Payments of approximately $3.4 million under the License Agreement with Xoma. With the closing of the Private Placement, under the terms of the financial advisory agreement until August 2020, the financial advisors have a right of first refusal to serve as Joint Bookrunners or Joint Placement Agents in any offering the Company undertakes.

Restricted Cash

In connection with the private placement discussed above, one of the investors purchased approximately 262,000 shares of Common Stock for gross proceeds of $3.8 million. The Company agreed to spend the proceeds for research and development of RZ358 or for the Company’s planned uplisting of its Common Stock to a national stock exchange. For the year ended June 30, 2020, the Company expended the entire amount of the restricted cash proceeds on qualified activities whereby there are no restrictions on cash balances as of June 30, 2020.

Lincoln Park Purchase Agreement

In December 2017, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) pursuant to which Lincoln Park agreed to purchase up to an aggregate of $10.0 million of the Company’s Common Stock (subject to certain limitations) over the term of the agreement that expires in December 2020. Subject to restrictions in the Purchase Agreement and so long as the closing price of the Company’s Common Stock exceeds $20.00 per share, the Company may elect to require Lincoln Park to purchase up to $10.0 million of shares of the Company’s Common Stock. The Company’s Common Stock has not exceeded the threshold price of $20.00 per shares for the period from August 2018 through June 2020. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty.