UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to ________

Commission File Number: 001-34079
 
Ocuphire Pharma, Inc.
(Exact name of Registrant as specified in its charter)

Delaware
 
11-3516358
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification Number)

 
37000 Grand River Avenue, Suite 120
Farmington Hills, MI
 
48335
(Address of Principal Executive Offices)
 
(Zip Code)

Registrant’s Telephone Number, Including Area Code: (248) 681-9815
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share

OCUP
 
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company

   
Emerging growth company


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of outstanding shares of the registrant’s common stock as of November 10, 2021 was 17,300,481.



OCUPHIRE PHARMA, INC.
FORM 10-Q
INDEX



Page

2
Item 1.
2
  2
  3
  4
  5
  6
Item 2.
20
Item 3.
32
Item 4.
32
   
 
33
   
Item 1.
33
Item 1A.
33
Item 2.
33
Item 3.
33
Item 4.
33
Item 5.
33
Item 6.
33
   
34

PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements

Ocuphire Pharma, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts and par value)
 
   
As of
 
   
September 30,
2021
   
December 31,
2020
 
   
(unaudited)
       
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
22,250
   
$
16,399
 
Short-term investments
    383        
Prepaids and other assets
   
560
     
1,269
 
Total current assets
   
23,193
     
17,668
 
Property and equipment, net
   
11
     
14
 
Total assets
 
$
23,204
   
$
17,682
 
                 
Liabilities and stockholders’ equity (deficit)
               
Current liabilities:
               
Accounts payable
 
$
1,434
   
$
1,214
 
Accrued expenses
   
1,204
     
1,971
 
Total current liabilities
   
2,638
     
3,185
 
Warrant liabilities
   
     
27,964
 
Total liabilities
   
2,638
     
31,149
 
                 
Commitments and contingencies (Note 3)
   
     
 
                 
Stockholders’ equity (deficit)
               
Preferred stock, par value $0.0001; 10,000,000 shares authorized as of September 30, 2021 and December 31, 2020; no shares issued and outstanding at September 30, 2021 and December 31, 2020.
   
     
 
Common stock, par value $0.0001; 75,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 17,295,434 and 10,882,495 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.
   
2
     
1
 
Additional paid-in-capital
   
103,619
     
19,207
 
Accumulated deficit
   
(83,055
)
   
(32,675
)
Total stockholders’ equity (deficit)
   
20,566
     
(13,467
)
Total liabilities and stockholders’ equity (deficit)
 
$
23,204
   
$
17,682
 
 
See accompanying notes.

2

Ocuphire Pharma, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)


 
For the Three Months Ended
September 30,
   
For the Nine Months Ended
September 30,
 
   
2021
   
2020
    2021     2020  
Collaborations revenue
  $ 489     $     $ 589     $  
                                 
Operating expenses:
                               
General and administrative
   
1,595
     
565
      6,707       1,508  
Research and development
   
3,126
     
1,383
      10,437       2,311  
Acquired in‑process research and development
   
     
            2,126  
Total operating expenses
   
4,721
     
1,948
      17,144       5,945  
Loss from operations
   
(4,232
)
   
(1,948
)
    (16,555 )     (5,945 )
Interest expense
   
     
(179
)
          (1,422 )
Fair value change of warrant liability and premium conversion derivatives
   
     
879
      (33,829 )     158  
Gain on note extinguishment
                      1,260  
Other income, net
   
2
   
      4     9  
Loss before income taxes
   
(4,230
)
   
(1,248
)
    (50,380 )     (5,940 )
Benefit (provision) for income taxes
   
     
             
Net loss
   
(4,230
)
   
(1,248
)
    (50,380 )     (5,940 )
Other comprehensive loss, net of tax
   
     
             
Comprehensive loss
 
$
(4,230
)
 
$
(1,248
)
  $ (50,380 )   $ (5,940 )
Net loss per share:
                               
Basic and diluted (Note 11)
 
$
(0.25
)
 
$
(0.33
)
  $ (3.64 )   $ (1.61 )
Number of shares used in per share calculations:
                               
Basic and diluted
   
16,925,006
     
3,743,907
      13,841,067       3,678,840  

See accompanying notes.
 
3

Ocuphire Pharma, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(in thousands, except share amounts)
(Unaudited)

   
Common Stock
   
Additional
Paid–In
   
Accumulated
   
Total
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity (Deficit)
 
                               
Balance at December 31, 2019
   
2,852,485
   
$
   
$
495
   
$
(8,055
)
 
$
(7,560
)
Issuance of common stock in exchange for in-process research and development
   
891,422
     
     
2,126
     
     
2,126
 
Share–based compensation
   
     
     
61
     
     
61
 
Net and comprehensive loss
   
     
     
     
(3,088
)
   
(3,088
)
Balance at March 31, 2020
   
3,743,907
     

     
2,682
     
(11,143
)
   
(8,461
)
Gain on note extinguishment (Note 4)
   
     

     
971
     
     
971
 
Share–based compensation
   
     

     
316
     
     
316
 
Net and comprehensive loss
   
     

     
     
(1,604
)
   
(1,604
)
Balance at June 30, 2020
   
3,743,907
   

   

3,969
   

(12,747
)
 

(8,778
)
Share–based compensation
   
     
      616
            616
 
Net and comprehensive loss
   
     
            (1,248 )     (1,248 )
Balance at September 30, 2020
    3,743,907
    $     $ 4,585     $ (13,995 )   $ (9,410 )
                                         
Balance at December 31, 2020
   
10,882,495
   
$
1
   
$
19,207
   
$
(32,675
)
 
$
(13,467
)
Reclassification of Series A warrant liability to equity
   
     
     
61,793
     
     
61,793
 
Share–based compensation
   
40,000
     
     
494
     
     
494
 
Exercise of stock options
   
7,386
     
     
10
     
     
10
 
Net and comprehensive loss
   
     
     
     
(39,014
)
   
(39,014
)
Balance at March 31, 2021
   
10,929,881
     
1
     
81,504
     
(71,689
)
   
9,816
 
Issuance of common stock and warrants in connection with registered direct offering
   
3,076,923
     
1
     
14,999
     
     
15,000
 
Issuance of common stock in connection with the at-the-market program
   
900,943
     
     
4,067
           
4,067
 
Issuance of common stock in connection with settlement with investors
   
350,000
     
     
1,614
     
     
1,614
 
Issuance costs
   
     
     
(1,271
)
           
(1,271
)
Share–based compensation
   
4,474
     
     
463
     
     
463
 
Exercise of Series B warrants
   
1,629,634
     
     
     
     
 
Net and comprehensive loss
   
     
     
     
(7,136
)
   
(7,136
)
Balance at June 30, 2021
   
16,891,855
   

2
   

101,376
   

(78,825
)
 

22,553
 
Issuance of common stock in connection with the at-the-market program
    332,600
     
      1,739
     
      1,739
 
Issuance costs
   
            (50 )           (50 )
Share–based compensation
    4,923
            478             478  
Exercise of options
    66,056             76             76  
Net and comprehensive loss
   
                  (4,230 )     (4,230 )
Balance at September  30, 2021
    17,295,434     $ 2     $ 103,619     $ (83,055 )   $ 20,566  

                     See accompanying notes.
4

 Ocuphire Pharma, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

   
Nine Months Ended
September 30,
 
   
2021
   
2020
 
Operating activities
           
Net loss
 
$
(50,380
)
 
$
(5,940
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Share-based compensation
   
1,435
     
993
 
Depreciation
   
3
     
7
 
Non-cash acquired in-process research and development
   
     
2,126
 
Non-cash interest on convertible notes
   
     
433
 
Non-cash interest on convertible notes – related party
   
     
45
 
Non-cash discount amortization on convertible notes
   
     
874
 
Non-cash discount amortization on convertible notes – related party
   
     
70
 
Fair value change in warrant liabilities and premium conversion derivatives
   
33,829
     
(158
)
Non-cash share settlement with investors
    1,614      
 
Receipt of investments related to license agreement
    (289 )    
 
Unrealized gain from short-term investments
    (94 )      
Gain on note extinguishment
          (1,260 )
Change in assets and liabilities:
               
Prepaid expenses and other assets
   
709
     
126
 
Accounts payable
   
216
     
214
 
Accrued and other liabilities
   
(767
)
   
31
 
Net cash used in operating activities
   
(13,724
)
   
(2,439
)
Investing activities
               
Net cash used in investing activities
   
     
 
Financing activities
               
Proceeds from issuance of common stock – registered direct offering
    15,000        
Proceeds from issuance of common stock – at-the-market program
    5,806        
Proceeds from issuance of convertible notes
   
     
1,748
 
Issuance costs     (1,317 )     (1 )
Deferred offering costs           (123 )
Exercise of stock options
   
86
     
 
Net cash provided by financing activities
   
19,575
     
1,624
 
Net increase (decrease) in cash and cash equivalents
   
5,851
     
(815
)
Cash and cash equivalents at beginning of period
   
16,399
     
1,537
 
Cash and cash equivalents at end of period
 
$
22,250
   
$
722
 
Supplemental disclosure of cash flow information:
               
Cash paid for income taxes
 
$
   
$
 
Cash paid for interest
 
$
   
$
 
Supplemental non-cash financing transactions:
               
Non-cash reclassification of Series A warrant liability to equity
 
$
61,793
   
$
 
Bifurcation of premium conversion derivative related to convertible notes
 
$
   
$
831
 
Unpaid deferred offering and issuance costs
 
$
4
   
$
1,278
 
Net change in proceeds receivable from convertible note issuance
 
$
   
$
450
 
 
See accompanying notes.

5

Notes to Condensed Consolidated Financial Statements
 
1.
Company Description and Summary of Significant Accounting Policies

Nature of Business
 
Ocuphire Pharma, Inc. (together with its subsidiary OcuSub, Inc., the “Company” or “Ocuphire”) is a clinical-stage ophthalmic biopharmaceutical company focused on developing and commercializing therapies for the treatment of several eye disorders. The Company’s pipeline currently includes two small-molecule product candidates targeting front and back of the eye indications. The Company’s lead product candidate, Nyxol® Eye Drops (“Nyxol”), is a once-daily eye drop formulation of phentolamine mesylate designed to reduce pupil diameter and improve visual acuity. The Company’s second product candidate, APX3330, is a twice-a-day oral tablet, designed to target multiple pathways relevant to retinal and choroidal vascular diseases, such as diabetic retinopathy (“DR”) and diabetic macular edema (“DME”). The Company has also in-licensed other product candidates including second-generation product candidates and analogs of APX3330, including APX2009 and APX2014.
 
The Company has sustained operating losses since inception and expects such losses to continue indefinitely until a sustained revenue source is realized. Management plans to continue financing the Company’s operations primarily through additional issuances of the Company’s equity and debt securities. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate part or all of its research and development programs.
 
Reverse Merger with Rexahn
 
On June 17, 2020, Ocuphire, Rexahn Pharmaceuticals, Inc. (“Rexahn”), and Razor Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Rexahn (“Merger Sub”), entered into an Agreement and Plan of Merger and Reorganization, as amended on June 29, 2020 (as amended, the “Merger Agreement”), pursuant to which, among other things, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Merger Sub would merge with and into Ocuphire, with Ocuphire continuing as a wholly-owned subsidiary of Rexahn and the surviving corporation of the merger (the “Merger”). The Merger closed on November 5, 2020.  Upon completion of the Merger, Rexahn changed its name to Ocuphire Pharma, Inc. and changed its ticker symbol on the Nasdaq Capital Market to “OCUP”.
 
The Company’s headquarters is located in Farmington Hills, Michigan.
 
COVID-19
 
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. As a result of the COVID-19 pandemic, Ocuphire has experienced, and will likely continue to experience, disruptions in its manufacturing, supply chain, research and development operations, clinical enrollment, regulatory process as well as impacts to financial position and difficulties in obtaining more favorable financing terms. The global outbreak of COVID-19 continues to rapidly evolve. The extent to which the COVID-19 pandemic may impact Ocuphire’s business and preclinical and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, travel restrictions and social distancing in the U.S. and other countries, business closures or business disruptions and the effectiveness of actions taken in the U.S. and other countries to contain and treat the disease. Although Ocuphire cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on Ocuphire’s results of future operations, financial position, and liquidity over the next 12 or more months.

Basis of Presentation
 
The accompanying condensed financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
 
The December 31, 2020 condensed consolidated balance sheet was derived from audited financial statements, and may not include all disclosures required by GAAP; however, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto for the fiscal year ended December 31, 2020.
 
In the opinion of management, all adjustments, consisting of only normal recurring adjustments that are necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, have been made. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods.
 
The condensed consolidated financial statements of the Company include a subsidiary, OcuSub, Inc., which is wholly owned by the Company. All significant intercompany accounts and transactions have been eliminated in the preparation of the condensed consolidated financial statements.
 
All of the share and per share amounts presented were adjusted, on a retroactive basis, to reflect the exchange of each share of Ocuphire pre-Merger (“Private Ocuphire”) into 1.0565 shares of the Company (the “Exchange Ratio”), except for par value and share authorizations of Private Ocuphire for periods presented prior to the Merger.
 
6


Notes to Condensed Consolidated Financial Statements
Going Concern
 
The Company’s ability to continue operating as a going concern is contingent upon, among other things, its ability to secure additional financing and to achieve and maintain profitable operations. To continue to fund operations, Ocuphire will need to raise capital. The Company plans to issue additional equity instruments and possibly debt to finance operating and working capital requirements. While the Company expects to obtain the additional financing that is needed, there is no assurance that the Company will be successful in obtaining the necessary funding for future operations. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of deposit to be cash equivalents.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk are cash and cash equivalent balances in bank accounts. The Company keeps its cash and cash equivalent balances with high quality financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes that no significant concentration of credit risk exists with respect to those cash and cash equivalent balances.As of September 30, 2021, the Company had deposits that exceeded federally insured amounts by $21.8 million.

Short-term Investments

The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and are recorded on a settlement date basis. The Company’s investments are comprised of equity securities, which in accordance with the fair value hierarchy described below are recorded at fair value using Level l inputs on the condensed consolidated balance sheets.  Subsequent changes in fair values are recorded in other income, net on the condensed consolidated statements of comprehensive loss. The Company classifies investments available to fund current operations as current assets on its condensed consolidated balance sheets. The Company did not recognize any impairments on its investments during the three and nine months ended September 30, 2021 and 2020.

Common Stock Valuation

Prior to the close of the Merger, due to the absence of an active market for Private Ocuphire’s common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of Private Ocuphire common stock. The valuation methodology included estimates and assumptions that required the Company’s judgment. These estimates and assumptions included a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, and the likelihood of achieving a liquidity event, such as an initial public offering (“IPO”), reverse merger or sale. Significant changes to the key assumptions used in the valuations resulted in different fair values of common stock at each valuation date.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.


Revenue Recognition

 

The Company follows the provisions of Accounting Standards Codification (“ASC”) 606Revenue from Contracts with Customers. The guidance provides a five-step model to determine how revenue is recognized. The Company has entered into license agreements which have revenue recognition implications. (See Note 5 – Collaboration License Agreements.)

 

In determining the appropriate amount of revenue to be recognized, the Company performs the following steps: (i) identification of the contracts with a customer; (ii) determination of the performance obligations in the contract; (iii) measurement of the transaction price, including potential constraints on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated stand-alone selling prices; and (v) recognition of revenue when (or as) the Company satisfies a performance obligation.

 
7


Notes to Condensed Consolidated Financial Statements

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. Performance obligations may include license rights, development services, and services associated with regulatory submission and approval processes. Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations are either completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.



As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. The Company allocates the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised goods or service underlying each performance obligation.

 

Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer, and the customer can use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

 

Milestone payments: At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone (such as a regulatory submission) is included in the transaction price. Milestone payments that are not within the control of the Company, such as approvals from regulators, are not considered probable of being achieved until such contingency occurs (such as receipt of those approvals). When the Company’s assessment of probability of achievement changes and variable consideration becomes probable, any additional estimated consideration is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised goods or service underlying each performance obligation and recorded in license, collaboration, and other revenues based upon when the customer obtains control of each element.

 

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Segment Information

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company’s Chief Executive Officer views the Company’s operations and manages its business in one operating segment, which is the business of development and commercialization of products related to vision performance and health. Accordingly, the Company has a single reporting segment.
 
Fair Value Measurements
 
The Company follows accounting guidance that emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements are defined on a three-level hierarchy:
 

Level 1 inputs: Unadjusted quoted prices for identical assets or liabilities in active markets;



Level 2 inputs: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, whether directly or indirectly, for substantially the full term of the asset or liability; and
 

Level 3 inputs: Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
 
As of September 30, 2021 and December 31, 2020, the fair values of cash and cash equivalents, prepaid and other assets, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these assets or liabilities. The estimated fair value of the Company’s convertible notes while outstanding were based on amortized cost which was deemed to approximate fair value. The fair value of the short-term investments, while outstanding, were based on observable Level 1 inputs in the form of quoted market prices from a major stock exchange. The fair value of the warrant liabilities and premium conversion derivatives, while outstanding, were based on cash flow models discounted at current implied market rates evidenced in recent arms-length transactions representing expected returns by market participants for similar instruments and were based on Level 3 inputs. There were no transfers between fair value hierarchy levels during the three and nine months ended September 30, 2021 and 2020.
 
8


Notes to Condensed Consolidated Financial Statements
The fair value of financial instruments measured on a recurring basis is as follows (in thousands):
 
   
As of September 30, 2021
 
Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                       
Short-term investments
 
$
383
   
$
383
   
$
   
$
 
Total assets at fair value
 
$
383
   
$
383
   
$
   
$
 

   
As of December 31, 2020
 
Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
Liabilities:
                       
Warrant liabilities
 
$
27,964
   
$
   
$
   
$
27,964
 
Total liabilities at fair value
 
$
27,964
   
$
   
$
   
$
27,964
 

The following table provides a roll-forward of short-term investments measured at fair value on a recurring basis using observable level 1 inputs for the nine months ended September 30, 2021 and 2020 (in thousands):

   
2021
   
2020
 
Short-term Investments
           
Balance as of beginning of period
 
$
   
$
 
Receipt of investments related to license agreement
   
342
     
 
Unrealized gain
   
41
     
 
Balance as of end of period
 
$
383
   
$
 

The following table provides a roll-forward of the warrant liabilities and premium conversion derivatives measured at fair value on a recurring basis using unobservable level 3 inputs for the nine months ended September 30, 2021 and 2020 (in thousands):
 
   
2021
   
2020
 
Warrant liabilities
           
Balance as of beginning of period
 
$
27,964
   
$
 
Change in fair value of warrant liability
   
33,829
     
 
Reclassification of Series A warrants from liability to equity
   
(61,793
)
   
 
Balance as of end of period
 
$
   
$
 

   
2021
   
2020
 
Premium conversion derivatives
           
Balance as of beginning of period
 
$
   
$
2,714
 
Value assigned to the underlying derivatives in connection with convertible notes
   
     
831
 
    Revaluation due to convertible note extinguishment           (3,087 )
Change in fair value of premium conversion derivatives
   
     
(158
)
Balance as of end of period
 
$
   
$
300
 

There were no financial instruments measured on a non-recurring basis for any of the periods presented.
 
Recent Accounting Pronouncements

 In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (“CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its consolidated financial statements.

In August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ​ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, this ASU modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this ASU are effective for smaller reporting companies (as defined by the SEC) for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.
 
9


Notes to Condensed Consolidated Financial Statements
2.
Merger
 
On November 5, 2020, the Company completed its merger transaction with Rexahn in accordance with the terms of the Merger Agreement. Immediately after the Merger, there were approximately 7,091,878 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) outstanding (not including 3,749,992 Additional Shares under the Securities Purchase Agreement that were held in escrow subject to final adjustment). The former stockholders and option holders of Private Ocuphire (including the Investors under the Securities Purchase Agreement) owned, or held rights to acquire, in the aggregate approximately 86.6% of the fully-diluted Common Stock, which for these purposes is defined as the outstanding Common Stock, plus outstanding options of the Company, and not including any Additional Shares (the “Fully-Diluted Common Stock”), with the former Rexahn stockholders immediately prior to the Merger owning approximately 13.4% of the Fully-Diluted Common Stock. Pursuant to the Merger Agreement, the number of shares of Common Stock issued to Private Ocuphire’s stockholders for each share of Ocuphire’s common stock outstanding immediately prior to the Merger was calculated using an Exchange Ratio of approximately 1.0565 shares of Common Stock for each share of Private Ocuphire common stock. Immediately following the Merger, the stockholders of Private Ocuphire owned approximately 86.6% of the outstanding common stock of the Company.
 
The transaction was accounted for as an asset acquisition in accordance with GAAP. Under this method of accounting, Private Ocuphire was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Merger: (i) Private Ocuphire’s stockholders owned substantially all of the voting rights in the combined company, (ii) Private Ocuphire designated all, but one, of the members of the initial board of directors of the combined company, and (iii) Private Ocuphire’s senior management held all key positions in the senior management of the combined company. As a result, as of the closing date of the Merger, the net assets of Rexahn were recorded at their acquisition-date relative fair values in the consolidated financial statements of the Company and the reported operating results prior to the Merger are those of Private Ocuphire.
 
Contingent Value Rights Agreement
 
On November 5, 2020, in connection with the Merger, the Company, Shareholder Representatives Services LLC, as representative of the Rexahn stockholders prior to the Merger, and Olde Monmouth Stock Transfer Co., Inc., as the rights agent, entered into a Contingent Value Rights Agreement (the “CVR Agreement”).
 
Pursuant to the Merger Agreement and the CVR Agreement, Rexahn stockholders of record as of immediately prior to the Effective Time received one contingent value right (“CVR”) for each share of Rexahn Common Stock held.
 
Each CVR entitles such holders to receive, for each calendar quarter (each, a “CVR Payment Period”) during the 15-year period after the Closing (the “CVR Term”), an amount equal to the following:
 

90% of all payments received by Rexahn or its affiliates during such CVR Payment Period from or on behalf of BioSense Global LLC (“BioSense”) pursuant to that certain License and Assignment Agreement, dated as of February 25, 2019, by and between BioSense and Rexahn, as amended by Amendment No. 1, dated August 24, 2019, and as further amended by Amendment No. 2, dated March 10, 2020, minus certain permitted deductions;
 

90% of all payments received by Rexahn or its affiliates during such CVR Payment Period from or on behalf of Zhejiang HaiChang Biotechnology Co., Ltd. (“HaiChang”) pursuant to that certain Exclusive License Agreement, dated as of February 8, 2020, by and between HaiChang and Rexahn, minus certain permitted deductions; and
 

75% of the sum of (i) all cash consideration paid by a third party to Rexahn or its affiliates during the applicable CVR Payment Period in connection with the grant, sale or transfer of rights to Rexahn’s pre-Closing intellectual property (other than a grant, sale or transfer of rights involving a sale or disposition of the post-Merger combined company) that is entered into during the 10-year period after the Closing (“Parent IP Deal”), plus (ii) with respect to any non-cash consideration received by Rexahn or its affiliates from a third party during the applicable CVR Payment Period in connection with any Parent IP Deal, all amounts received by Rexahn and its affiliates for such non-cash consideration at the time such non-cash consideration is monetized by Rexahn or its affiliates, minus (iii) certain permitted deductions. The Processa License Agreement is a Parent IP Deal.
 
The CVRs are not transferable, except in certain limited circumstances, will not be certificated or evidenced by any instrument, will not accrue interest and will not be registered with the SEC or listed for trading on any exchange. The CVR Agreement will continue in effect until the later of the end of the CVR Term and the payment of all amounts payable thereunder. As of September 30, 2021, $91,000 was due under the CVR Agreement and was recorded in the other income, net line item in the condensed consolidated statements of comprehensive loss.

As of the November 5, 2020, the Merger closing date, and September 30, 2021, no milestones under the license agreements subject to the CVR Agreement had been accrued as there were no potential milestones yet considered probable.
 
Former Rexahn Warrants
 
Upon the closing of the Merger, 231,433  unexercised Rexahn warrants to purchase Common Stock remained outstanding, the majority of which were subsequently repurchased according to the terms of the original warrant agreements.  As of September 30, 2021, 66,538 of the Rexahn warrants remained outstanding with exercise prices ranging from $38.40 to $198.00 per share with an average remaining contractual life of 2.2 years.

10


Notes to Condensed Consolidated Financial Statements
3.
Commitments and Contingencies
 
Apexian Sublicense Agreement
 
On January 21, 2020, the Company entered into a sublicense agreement with Apexian Pharmaceuticals, Inc., pursuant to which it obtained exclusive worldwide patent and other intellectual property rights. In exchange for the patent and other intellectual rights, the Company agreed to certain milestone payments and royalty payments on future sales (See Note 9 — Apexian Sublicense Agreement). As of September 30, 2021, there was sufficient uncertainty with regard to both the outcome of the relevant clinical trials and the ability of the Company to obtain sufficient funding to support any of the cash milestone payments under the sublicense agreement that no liabilities were recorded related to the sublicense agreement.

Facility Leases
 
In May 2019, the Company entered into a short-term non-cancellable facility lease (the “Lease”) for its operations and headquarters for a seven-month term beginning in June 2019. The Lease, as amended, has extended the term to December 31, 2022. Additionally, Ocuphire leased office space in Rockville, Maryland through June 30, 2021 previously occupied by Rexahn (the “Rexahn Lease”). The Lease and the Rexahn Lease qualified for the short-term lease exception under ASC 842. The monthly base rent, as amended, for the Lease is approximately $3,000.  The monthly base rent for the Rexahn Lease was $13,000. The rent expense associated with the Lease amounted to $9,000 and $12,000 during the three months ended September 30, 2021 and 2020, respectively. The rent expense associated with the Lease and Rexahn Lease amounted to $107,000 and $30,000 during the nine months ended September 30, 2021 and 2020, respectively.
 
Issuance of Settlement Shares

On May 6, 2021, the Company issued 350,000 shares of common stock of the Company to three accredited investors pursuant to a settlement agreement, dated May 6, 2021, in exchange for a release of potential claims. The fair value of the share settlement of $1,614,000 was based on the closing Ocuphire stock price for that day.  The fair value of the share settlement was recorded in general and administrative expenses in the accompanying condensed consolidated statements of comprehensive loss.

Other

In the ordinary course of business, from time to time, the Company may be subject to a broad range of claims and legal proceedings that relate to contractual allegations, patent infringement and other claims. In addition, the Company from time to time may be potentially committed to reimburse third parties for costs incurred associated with business development related transactions upon the achievement of certain milestones. The Company establishes accruals when applicable for matters and commitments which it believes losses are probable and can be reasonably estimated. To date, no loss contingency for such matters and potential commitments have been recorded. Although it is not possible to predict with certainty the outcome of these matters or potential commitments, the Company is of the opinion that the ultimate resolution of these matters and potential commitments will not have a material adverse effect on its results of operations or financial position.
 
4.
Supplemental Balance Sheet Information
 
Prepaid and Other Assets
 
Prepaid and other assets consist of the following (in thousands):
 
   
September 30,
2021
   
December 31,
2020
 
Prepaids
 
$
514
   
$
1,243
 
Other
   
46
     
26
 
Total prepaids and other assets
 
$
560
   
$
1,269
 

Property and Equipment, net
 
Property and equipment held for use by category are presented in the following table (in thousands):
 
   
September 30,
2021
   
December 31,
2020
 
Equipment
 
$
20
   
$
20
 
Furniture
   
5
     
5
 
Total property and equipment
 

25
     
25
 
Less accumulated depreciation
   
(14
)
   
(11
)
Property and equipment, net
 
$
11
   
$
14
 

Depreciation expense was $1,000 for the three months ended September 30, 2021 and 2020, and $3,000 and $7,000 for the nine months ended September 30, 2021 and 2020, respectively.

11


Notes to Condensed Consolidated Financial Statements
Accrued Expenses
 

Accrued expenses consist of the following (in thousands):
 
   
September 30,
   
December 31,
 
   
2021
   
2020
 
R&D services and supplies
 
$
535
   
$
1,440
 
Payroll
   
394
     
320
 
Professional services
   
267
     
186
 
Other
   
8
     
25
 
Total
 
$
1,204
   
$
1,971
 


5.  Collaboration and License Agreements

BioSense License and Assignment Agreement
On March 10, 2020, pre-Merger, Rexahn entered into an amendment to its collaboration and license agreement, (as amended, the “BioSense License and Assignment Agreement”) with BioSense to advance the development and commercialization of RX-3117 for all human uses in the Republic of Singapore, China, Hong Kong, Macau, and Taiwan (the “BioSense Territory”). Under the terms of the BioSense License and Assignment Agreement, the Company (i) granted BioSense an exclusive license to develop and commercialize pharmaceutical products containing RX-3117 as a single agent for all human uses in the BioSense Territory and (ii) assigned and transferred all of the former Rexahn patents and patent applications related to RX-3117 in the BioSense Territory. The upfront payment consisted of an aggregate of $1,650,000, of which $1,550,000 was paid to Rexahn prior to the Merger. During the nine months ended September 30, 2021, the Company satisfied a performance obligation for the $100,000 payment that was remaining and recorded this amount as collaboration revenue. The Company received payments from BioSense of $50,000 in April 2021 and $50,000 in July 2021.

Under the BioSense License and Assignment Agreement, the Company is eligible to receive additional milestone payments in an aggregate of up to $84,500,000 upon the achievement of development, regulatory and commercial goals and will also be eligible to receive tiered royalties at low double-digit rates on annual net sales in the BioSense Territory. The Company determined that none of the milestone payments under the BioSense License and Assignment Agreement were probable of payment as of September 30, 2021, and as a result, no revenue related to the milestones was recognized as the achievement of events entitling the Company to any milestone payments were highly susceptible to factors outside of the Company’s control.  Future sales-based royalties related to the exclusive license to develop RX-3117 will be recognized in the period the underlying sales transaction occurs.

Payments received under the BioSense License and Assignment Agreement are subject to the CVR Agreement described in Note 2 – Merger.

Processa License Agreement

On June 16, 2021, the Company entered into a license agreement (the “Processa License Agreement”) with Processa Pharmaceuticals, Inc. (“Processa”), pursuant to which the Company has agreed to grant Processa an exclusive license to develop, manufacture and commercialize RX-3117 globally, excluding the BioSense Territory.

As consideration for the Processa License Agreement, the Company received an upfront payment in July 2021 consisting of 44,689 shares of Processa common stock with a value of $342,000 and a $200,000 cash payment. The Company is restricted from selling the Processa common stock for a period of one year. As additional consideration, Processa will make payments to the Company upon the achievement of certain development and regulatory milestones, which primarily consist of dosing a patient in pivotal trials or having a drug indication approved by a regulatory authority in the United States or another country. In addition, Processa will pay the Company mid-single-digit royalties based on annual sales under the license and will make one-time sales milestone payments based on the achievement during a calendar year of certain thresholds for annual sales. Processa is also required to give the Company 32% of any milestone payments received based on any sub-license agreement Processa may enter into with respect to the Processa License Agreement. The Company determined that none of the milestone payments under the Processa License Agreement were probable of payment as of September 30, 2021, and as a result, no revenue related to the milestones was recognized as the achievement of events entitling the Company to any milestone payments were highly susceptible to factors outside of the Company’s control.

12


Notes to Condensed Consolidated Financial Statements
Processa is required to use commercially reasonable efforts, at its sole cost and expense, to conduct development activities in one or more countries, including meeting specific diligence milestones that consist of: (i) first patient administered drug in a clinical trial of a licensed product prior to the three (3) year anniversary of the effective date; and (ii) first patient administered drug in a pivotal clinical trial of a licensed product or first patient administered drug in a clinical trial for a second indication of a licensed product prior to the five (5) year anniversary of the effective date. Either party may terminate the agreement in the event of a material breach of the agreement that has not been cured following written notice and a 120-day opportunity to cure such breach, and Processa may terminate the agreement for any reason upon 120 days prior written notice to Ocuphire.

As of September 30, 2021, the Company has fulfilled its performance obligations with respect to the upfront payment under the Processa License Agreement and has recognized the associated licensing revenue in connection with the payment.

Payments received under the Processa License Agreement will be subject to the CVR Agreement described in Note 2 – Merger.

6.
Convertible Notes
 
The Company entered into a series of unsecured convertible note financings (the “Convertible Notes”) with certain investors beginning on May 25, 2018. The total issuance of Convertible Notes amounted to $8.5 million (see Note 10 - Related Party Transactions). On November 4, 2020, all of Ocuphire’s outstanding Convertible Notes were converted into 977,128 shares of Ocuphire common stock as adjusted for the Exchange Ratio in connection with the completion of the Merger.
 
Prior to the completion of the Merger, on June 8, 2020, the Company amended the Convertible Notes (the “Conversion Agreement”). Under the Conversion Agreement, upon such date selected by the Company following Rexahn’s receipt of the required Rexahn stockholder vote and prior to the effectiveness of the Merger, each Convertible Note shall automatically and without any action required by any purchaser or the Company be cancelled and, simultaneously with such cancellation, convert into that number of fully paid and non-assessable shares of the Company’s common stock that is equal to 175% times  the outstanding principal and accrued but unpaid interest (“Note Value”) divided by the conversion price (the “Conversion Price”), rounded to the nearest whole share. The Conversion Price has the meaning of the per share price resulting from the quotient of (1) $100,000,000 less the aggregate amount of 175% times the Note Value of all of the Convertible Notes divided by (2) the fully diluted shares (the “Fully Diluted Shares”). Fully Diluted Shares has the meaning of: (1) all of the issued outstanding shares of the Company’s common stock; and (2) the aggregate number of shares of the Company’s common stock reserved for issuance under all outstanding options or other awards under equity incentive plans of the Company in effect as of such date of determination.

The addition of the new conversion feature under the Conversion Agreement represented a substantial modification to the Convertible Notes, and as such, the Company recorded the modification as a note extinguishment. On the modification date, the fair value of the Convertible Notes (inclusive of the embedded features) was $1,260,000 lower upon modification than the aggregate of the carrying value of the Convertible Notes and the fair value of the embedded features; the difference was recorded as a gain on note extinguishment in the accompanying condensed consolidated statements of comprehensive loss for the nine months ended September 30, 2020.

Lastly, an increase to additional paid-in capital in the amount of $971,000 was recorded in connection with the Conversion Agreement to account for the excess of the Convertible Notes’ fair value over the aggregate value of outstanding note principal, accrued interest and fair value of the premium conversion derivatives upon execution of the Conversion Agreement.

The Convertible Notes accrued interest at a rate of 8% per annum, calculated on a 365-day year basis. Interest expense on principal during the three and nine months ended September 30, 2020 was $171,000 and $478,000, respectively.
 
The outstanding principal of, and accrued interest on, the Convertible Notes were payable on demand, in the absence of the Merger closing discussed above, at any time as of the first to occur of (i) September 30, 2020 or (ii) an event of default (each defined by the Convertible Notes as a Payoff Event). If, prior to a Payoff Event, the Company (i) completed an initial public offering (“IPO”), (ii) completed a change in control (“CIC”), (iii) completed a sale and issuance of its capital stock resulting in gross proceeds to the Company of at least $5 million (“Qualified Financing”), or (iv) completed a reverse merger transaction (“Reverse Merger”), then the outstanding principal of, and accrued but unpaid interest on the Convertible Notes would have automatically converted upon the earliest of such events to occur as follows:
 

IPO: The Convertible Notes would have automatically converted into the number of fully paid and non-assessable shares of the Company’s common stock equal to One Hundred and Seventy-Five Percent (175%) times Note Value divided by the per share price such shares were issued to purchasers of the Company’s equity securities in the IPO rounded to the nearest whole share.
 

CIC: The Convertible Notes would have automatically converted prior to the effectiveness of such CIC into that number of fully paid and non-assessable shares of the Company’s common stock equal to Two Hundred Percent (200%) of the Note Value divided by the per share price of the Company’s common stock at which the Company’s common stock was valued in such CIC (after giving effect to such conversion). The Convertible Note holder would have been entitled to the same contractual rights and would have been bound by the same restrictions and obligations as the other stockholders of the Company in such CIC.
 
13


Notes to Condensed Consolidated Financial Statements

Qualified Financing: The Convertible Notes would have automatically converted into that number of fully paid and non-assessable shares of the Company that were issued by the Company in the Qualified Financing, determined by dividing an amount equal to One Hundred and Seventy-Five Percent (175%) times the Note Value by the per share price such shares of the Company were issued to purchasers of the Company’s equity securities in the Qualified Financing, rounded to the nearest whole share. The Convertible Note holder would have been entitled to the same contractual rights and would have been bound by the same restrictions and obligations as the other purchasers of shares in the Qualified Financing. A Qualified Financing was defined as a sale and issuance of capital stock of the Company (or its successor) in a single transaction or series of related transactions resulting in gross proceeds to the Company of not less than $5,000,000 (including new equity investment of at least $1,000,000 plus the sum of the outstanding principal amount of the Convertible Notes being so converted under this provision).
 

Reverse Merger (excluding close of Merger with Rexahn): The Convertible Notes would have automatically converted into that number of fully paid and non-assessable shares of the Combined Company whose shares were publicly traded in the United States or other jurisdiction following the completion of the Reverse Merger (the “Reverse Merger Parent”), determined by dividing an amount equal to One Hundred and Seventy-Five Percent (175%) times the Note Value divided by the per share price at which such shares were issued by the Reverse Merger Parent in such Reverse Merger, rounded to the nearest whole share. The Convertible Note holder would have been entitled to the same contractual rights and would have been bound by the same restrictions and obligations as the other stockholders of the Company in the Reverse Merger.
 
The Company was not permitted to prepay the Convertible Notes prior to a Payoff Event. The Convertible Notes contained default provisions, and when triggered, the holders of the Convertible Notes could have immediately accelerated payment of the Convertible Notes and the outstanding principal and interest would have become payable immediately. During a period of default, interest would have been assessed at a 12% per annum rate.
 
Redemption Features
 
The Company determined that all of the conversion provisions, except for the conversion provision upon Merger close, were redemption features that qualified as embedded derivatives. The qualifying embedded derivatives were collectively separated from their debt host upon the issuance of the Convertible Notes. The bifurcation of the embedded derivatives from the debt host resulted in a discount to the Convertible Notes in the amount of $831,000 during the nine months ended September 30, 2020. The embedded derivatives were accounted for separately on a fair market value basis. There were no outstanding premium conversion derivatives as of September 30, 2021 or December 31, 2020 given the conversion of the Convertible Notes. The Company recorded the fair value changes of the premium conversion derivatives while outstanding to the fair value change of warrant liability and premium conversion derivatives line item in the accompanying condensed consolidated statements of comprehensive loss which amounted to a benefit of $(879,000) and $(158,000) during the three and nine months ended September 30, 2020, respectively.

The Company recorded a discount to the Convertible Notes, attributed to both third party costs in connection with the note extinguishment and note issuance costs, of $10,000 during the nine months ended September 30, 2020. The note discounts associated with the bifurcation of derivatives, note extinguishment and issuances costs were amortized to interest expense over the term of the Convertible Notes using the straight-line method which approximated the effective interest method and amounted to $8,000 and $944,000 during the three and nine months ended September 30, 2020, respectively.

7.
Stockholders’ Equity (Deficit)
 
At-The-Market Program

On February 4, 2021, Ocuphire filed a Form S-3 shelf registration under the Securities Act of 1933 which was declared effective by the SEC on February 12, 2021 (the “2021 Shelf”) under which the Company may offer and sell, from time to time in its sole discretion, securities having an aggregate offering price of up to $125 million. In connection with the 2021 Shelf, on March 11, 2021, Ocuphire entered into a Capital on DemandTM Sales Agreement with JonesTrading Institutional Services LLC (“JonesTrading”) under which the Company may offer and sell, from time to time at its sole discretion, to or through JonesTrading, acting as agent and/or principal, shares of its common stock having an aggregate offering price of up to $40 million (the “2021 ATM”). During the three and nine months ended September 30, 2021, 332,600 and  1,233,543 shares, respectively, were sold under the 2021 ATM for gross proceeds in the amount of approximately $1.7 million and $5.8 million, respectively, before deducting issuance expenses in the amount of approximately of $0.1 million and $0.3 million, respectively.

Registered Direct Offering

On June 4, 2021, the Company entered into a placement agency agreement with A.G.P./Alliance Global Partners (“AGP”). Pursuant to the terms of the placement agency agreement, AGP on June 8, 2021 sold an aggregate of 3,076,923 shares of the Company’s common stock and warrants to purchase 1,538,461 shares of the Company’s common stock (the “RDO Warrants”) at an offering price of $4.875 per one share and 0.50 RDO Warrants, for gross proceeds of approximately $15,000,000, before AGP’s fees and related offering expenses in the amount of approximately $1.1 million. The purchase agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company, other obligations of the parties and termination provisions. The offering of the Securities (the “Registered Direct Offering”) was made pursuant to the Company’s 2021 Shelf.

14


Notes to Condensed Consolidated Financial Statements
The RDO Warrants have an exercise price of $6.09 per share, are exercisable from the initial issuance date of June 8, 2021, and will expire five years following the initial exercise date. The fair value of the RDO Warrants was determined to be $6.4 million based on the Black-Scholes pricing model. Input assumptions used were as follows: a risk-free interest rate of 0.8%; expected volatility of 99.2%; expected life of 5 years; expected dividend yield of 0%; and the underlying fair market of the common stock. The RDO Warrants were classified in stockholders’ equity (deficit) as the number of shares were fixed and determinable, no cash settlement was required and no other provisions precluded equity treatment. As of September 30, 2021, 1,538,461 RDO Warrants were outstanding.

Subject to limited exceptions, a holder of a RDO Warrant will not have the right to exercise any portion of its RDO Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of a holder prior to the date of issuance, 9.99%) of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise; provided, however, that upon prior notice to the Company, the holder may increase or decrease the beneficial ownership limitation, provided further that in no event shall the beneficial ownership limitation exceed 9.99%.

Pre-Merger Financing

Waiver Agreements

Effective February 3, 2021, each investor that invested in the Pre-Merger Financing (as defined below) entered into a Waiver Agreement with the Company (collectively, the “Waiver Agreements”). Pursuant to the Waiver Agreements, the investors and the Company agreed to waive certain rights, finalize the exercise price and number of Series A Warrants and Series B Warrants, eliminate certain financing restrictions, extend the term of certain leak-out agreements, and, in the case of certain investors, grant certain registration rights for the shares underlying the warrants.

The Waiver Agreements provide for the elimination of the full ratchet anti-dilution provisions, contained in the Series A Warrants (as certain of the anti-dilution provisions had previously caused liability accounting treatment for the Series A Warrants). Upon the effective date of the Waiver Agreement, the Series A Warrants were reclassified to equity.

Pursuant to the Waiver Agreements, the number of shares underlying all of the Series B Warrants was fixed to 1,708,334 in the aggregate with respect to all investors, eliminating any future resets.
Securities Purchase Agreement
 
On June 17, 2020, Ocuphire, Rexahn and certain investors entered into a Securities Purchase Agreement, which was amended and restated in its entirety on June 29, 2020 (as amended and restated, the “Securities Purchase Agreement”).  Pursuant to the Securities Purchase Agreement, the investors invested a total of $21.15 million in cash, including $300,000 invested by five directors of Private Ocuphire and one director of Rexahn, upon closing of the Merger (the “Pre-Merger Financing”). Pursuant to the Pre-Merger Financing, (i) Ocuphire issued and sold to the investors shares of Private Ocuphire common stock (the “Initial Shares”) which converted pursuant to the exchange ratio in the Merger into an aggregate of approximately 1,249,996 shares (the “Converted Initial Shares”) of common stock, (ii) Ocuphire deposited into escrow, for the benefit of the Investors, additional shares of Private Ocuphire common stock (the “Additional Shares”) which converted pursuant to the exchange ratio in the Merger into an aggregate of approximately 3,749,992 shares of common stock (the “Converted Additional Shares”), which Converted Additional Shares were delivered (or became deliverable) to the investors on November 19, 2020, and (iii) the Company agreed to issue to each investor on the tenth trading day following the consummation of the Merger (x) Series A Warrants representing the right to acquire shares of common stock equal to the sum of (A) the Converted Initial Shares purchased by the investor, (B) the Converted Additional Shares delivered or deliverable to the investor, without giving effect to any limitation on delivery contained in the Securities Purchase Agreement and (C) the initial number of shares of common stock, if any, underlying the Series B Warrants issued to the Investor and (y) additional warrants to purchase shares of common stock.
 
Series A Warrants
 
The Series A Warrants were issued on November 19, 2020 at an initial exercise price of $4.4795 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series A Warrants are exercisable for 5,665,838 shares of common stock in the aggregate (without giving effect to any limitation on exercise contained therein) and were outstanding as of September 30, 2021. Prior to the execution of the Waiver Agreements, the Series A Warrants were accounted for and classified as liabilities on the accompanying condensed consolidated balance sheets given certain price reset provisions not used for a fair valuation under a fixed for fixed settlement scenario as required for equity balance sheet classification. Upon the February 3, 2021 effective date of the Waiver Agreements, the Series A Warrants were reclassified to equity. A final fair valuation of the Series A Warrants was performed utilizing a Black Scholes model to estimate the aggregate fair value of the Series A Warrants prior to being re-classified as equity. Input assumptions used were as follows: risk-free interest rate 0.4%; expected volatility of 86.6%; expected life of 4.8 years; and expected dividend yield zero percent. The underlying stock price used was the market price as quoted on Nasdaq as of February 3, 2021, the effective date of the Waiver Agreement.  The fair value change of the Series A Warrants was $33.8 million and was recorded to the fair value change in warrant liabilities and premium conversion derivatives line item on the accompanying condensed consolidated statements of comprehensive loss for the nine months ended September 30, 2021. As a result of the reclassification to equity, the Series A Warrants are no longer subject to remeasurement.
 
15


Notes to Condensed Consolidated Financial Statements
Series B Warrants
 
The Series B Warrants have an exercise price of $0.0001, were exercisable upon issuance and will expire on the day following the later to occur of (i) the Reservation Date (as defined therein), and (ii) the date on which the investor’s Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder. The Series B Warrants are fixed and were exercisable for 1,708,334 shares of Common Stock, as of the effective date of the Waiver Agreement, in the aggregate (without giving effect to any limitation on exercise contained therein). In April 2021, investors exercised Series B Warrants for a total of 1,629,634 shares. As of September 30, 2021, 78,700 Series B warrants were outstanding.
 
The Series B Warrants were accounted for and classified as equity on the accompanying condensed consolidated balance sheets.
 
8.
Share-based Compensation
 
Share-based compensation expense was included in general and administrative and research and development costs as follows in the accompanying condensed consolidated statements of comprehensive loss for the three and nine month periods indicated below (in thousands):
 
 
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
General and administrative
 
$
322
   
$
224
   
$
804
   
$
426
 
Research and development
   
156
     
392
     
631
     
567
 
Total share-based compensation
 
$
478
   
$
616
   
$
1,435
   
$
993
 

Ocuphire Stock Options
 
2020 Equity Incentive Plan
 
The stockholders of the Company approved the 2020 Equity Incentive Plan (the “2020 Plan”) for stock-based awards, which became effective on November 5, 2020.  Under the 2020 Plan, (i) 1,000,000 new shares of common stock were reserved for issuance and (ii) up to 70,325 additional shares of common stock may be issued, consisting of (A) shares that remain available for the issuance of awards under prior equity plans and (B) shares of common stock subject to outstanding stock options or other awards covered by prior equity plans that have been cancelled or expire on or after the date that the 2020 Plan became effective.
 
2018 Equity Incentive Plan 
 
Prior to the 2020 Plan, the Company adopted a 2018 Equity Incentive Plan (the “2018 Plan”) in April 2018 under which 1,241,387 shares of the Company’s common stock were reserved for issuance to employees, directors and consultants upon the amendment of the 2018 Plan in December 2019. The reserve of common stock for the 2018 Plan has been adjusted to give effect to the Exchange Ratio.

Inducement Plan 
  
On February 22, 2021, the Company adopted the Ocuphire Pharma, Inc. Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 325,258 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.

The 2020 Plan, 2018 Plan and Inducement Plan permit the grant of stock options, appreciation rights, restricted stock, restricted stock units, performance stock and cash awards, and other share-based awards. Incentive and non-statutory stock options may be granted under the 2020 and 2018 Plans. Only non-statutory options may be granted under the Inducement Plan.

16


Notes to Condensed Consolidated Financial Statements
2020 Plan Evergreen Provision 
 
Under the 2020 Plan, the shares reserved automatically increase on January 1st of each year, for a period of not more than ten years from the date the 2020 Plan is approved by the stockholders of the Company, commencing on January 1, 2021 and ending on (and including) January 1, 2030, by an amount equal to 5% of the shares of common stock outstanding as of December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board of Directors may act prior to January 1st of a given year to provide that there will be no January 1st increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence. On January 1, 2021, 544,125 shares were added to the 2020 Plan as a result of the evergreen provision. 
 
During the three and nine months ended September 30, 2021, 128,000 and 387,800 stock options were granted to newly-hired consultants and employees, respectively, generally vesting over a six (6) to forty-eight (48) month period. During the three and nine months ended September 30, 2020, 22,397 and 233,989 stock options to consultants were granted, respectively, generally vesting over an immediate to twenty-eight (28) month period. The Company recognized $452,000 and $616,000 in share-based compensation expense related to stock options during the three months ended September 30, 2021 and 2020, respectively, and $1,331,000 and $993,000 during the nine months ended September 30, 2021 and 2020, respectively.  During the three and nine months ended September 30, 2021, 66,056 and 73,442 stock options were exercised, respectively, with an intrinsic value of $271,000 and $345,000, respectively. There were no exercises during the comparable prior year periods.
 
The weighted average fair value per share of options granted during the three and nine months ended September 30, 2021 was $3.69 and $4.47, respectively. The weighted average fair value per share of options granted during the three and nine months ended September 30, 2020 was $6.27 and $6.01, respectively. The Company measures the fair value of stock options with service-based and performance-based vesting criteria to employees, directors, consultants and directors on the date of grant using the Black-Scholes option pricing model. The Company does not have adequate history to support a calculation of volatility and expected term. As such, the Company has used a weighted-average volatility considering the volatilities of several guideline companies.
 
For purposes of identifying similar entities, the Company considered characteristics such as industry, length of trading history, and stage of life cycle. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The average expected life of the options was based on the contractual term for agreements that allow for exercise of vested options through the end of the contractual term upon termination of continuous service, and for all other agreements, was based on the midpoint between the vesting date and the end of the contractual term according to the “simplified method” as described in Staff Accounting Bulletin 110. The risk-free interest rate is determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. The Company records forfeitures when they occur.

The weighted‑average assumptions used in the Black-Scholes option-pricing model are as follows during the three and nine months ended September 30, 2021 and 2020:

 
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Expected stock price volatility
   
99.7
%
   
87.6
%
   
98.0
%
   
94.8
%
Expected life of options (years)
   
5.8
     
10.0
     
5.8